FY11-GSU-Fin-Full

              STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FINANCIAL AUDIT
For the Year Ended June 30, 2011
Performed as Special Assistant Auditors for
the Auditor General, State of Illinois
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2011
Table of Contents Page(s)
Agency Officials 1
Financial Statement Report
Summary 2
Independent Auditors’ Report 3-4
Management’s Discussion and Analysis 5-11
Basic Financial Statements
Statement of Net Assets 12
Statement of Revenues, Expenses, and Changes in Net Assets 13
Statement of Cash Flows 14
Notes to Basic Financial Statements 15-36
Supplementary Information
University Facilities Revenue Bond Funds
Statement of Net Assets 37
Statement of Revenues, Expenses, and Changes in Net Assets 38
Statement of Cash Flows 39
Student Enrollment by Term (Unaudited) 40
University Fees (Unaudited) 40
Schedule of Insurance in Force (Unaudited) 40
Independent Auditors’ 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 41-42
Schedule of Findings - Current Findings 43-46
Related Report Issued under a Separate Cover
Governors State University
Compliance Examination (In Accordance with the Single Audit Act
and OMB Circular A-133) for the Year Ended June 30, 2011
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2011
Agency Officials
President Dr. Elaine Maimon
Executive Vice President, Chief of Staff, Treasurer Dr. Gebeyehu Ejigu
Vice President, Administration and Finance Ms. Karen Kissel
Internal Auditor Mr. David Dixon
Interim Comptroller Ms. Cathy Casson, CPA
Agency offices are located at:
1 University Parkway
University Park, Illinois 60484
1
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FINANCIAL AUDIT
FOR THE YEAR ENDED JUNE 30, 2011
Financial Statement Report
Summary
The audit of the accompanying basic financial statements of Governors State University was
performed by E.C. Ortiz and Co., LLP.
Based on their audit, the auditors expressed an unqualified opinion on the University’s basic
financial statements.
Summary of Findings
The auditors identified matters involving the University’s internal control over financial
reporting that they considered to be significant deficiencies. The significant deficiencies are
described in the accompanying Schedule of Findings listed in the table of contents as finding
11-1, Inaccurate Accounting for Intangible Assets, and finding 11-2, Inaccurate Accounting
for Participation in Public Entity Risk Pool.
Exit Conference
The findings and recommendations appearing in this report were discussed with University
personnel at an exit conference on January 26, 2012. Attending were:
Representing Governors State University
Executive Vice President, Chief of Staff,
Treasurer Dr. Gebeyehu Ejigu
Vice President, Administration and Finance Ms. Karen Kissel
Internal Auditor Mr. David Dixon
Interim Comptroller Ms. Cathy Casson, CPA
Representing E.C. Ortiz and Co., LLP
Partner Mr. Edilberto C. Ortiz, CPA
Partner Ms. Gilda Belmonte Priebe, CPA, CIA, CFE
Manager Ms. Villalyn S. Baluga, CPA
Representing the Office of the Auditor General
Audit Manager Mr. Thomas L. Kizziah, CPA
The responses to the recommendations were provided by Ms. Karen Kissel in a letter dated
February 7, 2012.
2
E.C. ORTIZ & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
Honorable William G. Holland
Auditor General
State of Illinois
and
The Board of Trustees
Governors State University
As Special Assistant Auditors for the Auditor General, we have audited the accompanying
basic financial statements of the business-type activities of Governors State University
(University) and its aggregate discretely presented component unit, collectively a component
unit of the State of Illinois, as of and for the year ended June 30, 2011, which collectively
comprise the University's basic financial statements as listed in the table of contents. These
financial statements are the responsibility of the University's management. Our
responsibility is to express an opinion on these financial statements based on our audit. The
prior year partial comparative information has been derived from the University's June 30,
2010 financial statements and, in our report dated February 25, 2011, we expressed an
unqualified opinion on the respective financial statements of the business-type activities and
the aggregate discretely presented component units. We did not audit the financial statements
of the aggregate discretely presented component unit, as described in Note 1 of the financial
statements. Those financial statements were audited by other auditors whose report thereon
have been provided to us, and our opinion on the financial statements, insofar as it relates to the
amounts included for the aggregate discretely presented component unit, is based 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other auditors provide a
reasonable basis for our 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 aggregate discretely presented component unit of
Governors State University, as of June 30, 2011, and the respective changes in its financial
333 SOUTH DES PLAINES STREET, SUITE 2-N CHICAGO, IL 60661 tel : 312.876 . 1900 fa x: 312 . 876 . 1911
3
position and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued a report dated
February 8, 2012 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 the internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be considered in assessing the
results of our audit.
The Management's Discussion and Analysis on pages 5 through 11 is not a required part of
the basic financial statements but is supplementary information required by accounting
principles generally accepted in the United States of America. We have applied certain
limited procedures, which consisted principally of inquiries of management regarding the
methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the financial statements
that collectively comprise the Governors State University's basic financial statements. The
accompanying supplementary information, as listed in the table of contents, is presented for
purposes of additional analysis and is not a required part of the basic financial statements.
The University Facilities System Revenue Bonds, Series 2007 financial statements on pages
37 through 39 have been subjected to the auditing procedures applied by us in the audit of the
basic financial statements and, in our opinion, based on our audit, are fairly stated in all
material respects in relation to the basic financial statements taken as a whole. The
"Unaudited" supplementary information on page 40 has not been subjected to the auditing
procedures applied by us in the audit of the basic financial statements, and accordingly, we
express no opinion on it.
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February 8, 2012
4
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
PURPOSE
This section of the Governors State University’s (GSU or University) annual financial report
presents an analysis and overview of the financial activities of the University for the fiscal year
ended June 30, 2011. The GSU Foundation is considered a component unit of the University.
Separate financial statements for the Foundation may be obtained by writing the: Vice President
for University Advancement, Governors State University, 1 University Parkway, University
Park, Illinois 60484.
The financial statement presentation focuses on the University as a whole. The financial
statements are designed to emulate corporate presentation models whereby all University
activities are consolidated into one total. The focus of the Statement of Net Assets is designed to
be similar to bottom line results for the University; it combines and consolidates current financial
resources with capital assets. The Statement of Revenues, Expenses, and Changes in Net Assets
focuses on both the gross and net costs of University activities, which are supported mainly by
State appropriations and tuition revenues. The Statement of Cash Flows presents the receipt and
use of cash resources by the University. This approach is intended to summarize and simplify
the user’s analysis of the cost of services provided.
FINANCIAL AND ENROLLMENT HIGHLIGHTS
Accreditations
During fiscal year 2010, the Higher Learning Commission (HLC) team completed its review and
reaccredited GSU for the maximum number of years (ten years, with the next accreditation visit
in academic year 2019-2020).
Appropriations
For fiscal year 2011, the University received State appropriations for general operational
expenses.
The fiscal year 2011 total appropriation used to fund ongoing core programs constituted a
decrease of 6% over the fiscal year 2010 appropriation.
5
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
Net Revenue Available from Operational Appropriations
Fiscal
Years Appropriations
Payments to
Health Reserve
Fund
Available
Appropriations
2011 $ 26,558,000 $ (656,200) $ 25,901,800
2010 28,324,400 (656,200) 27,668,200
Enrollment
Student credit hours produced during fiscal year 2011 decreased by 4% from the levels of fiscal
year 2010; from 120,139 to 114,853.
Sick and Vacation Payouts
Many of the University’s faculty and staff were hired after the University was chartered in 1969
and are now approaching retirement. For the past three years, sick and vacation payouts have
averaged $0.5 million; we anticipate that payouts will continue at this rate.
Statement of Net Assets
The Statement of Net Assets includes all assets and liabilities using the accrual basis of
accounting, which is similar to the accounting used by most private-sector institutions. Net
Assets represent the University’s equity and are a way to measure the financial health of the
University.
(in thousands)
2011 2010
Increase
(Decrease)
Percent
Change
Current assets $ 50,544 $ 48,982 $ 1,562 3%
Noncurrent assets 82,053 78,085 3,968 5%
Total assets 132,597 127,067 5,530 4%
Current liabilities 9,415 11,629 (2,214) -19%
Noncurrent liabilities 35,315 37,249 (1,934) -5%
Total liabilities 44,730 48,878 (4,148) -8%
Net assets $ 87,867 $ 78,189 $ 9,678 12%
6
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
The 12% increase in the University’s net assets is due to the following:
Current Assets
Current assets consist primarily of cash and cash equivalents, and receivables. Unrestricted cash
increased by $0.9 million, which was primarily due to increased tuition and fee revenues.
Restricted cash decreased by $4.5 million, which was primarily due to expending the proceeds
from debt financing on deferred maintenance projects. Receivables from the State appropriation
increased by $5.1 million, which was due to delayed payments from the State of Illinois. The
$11.5 million in delayed reimbursement was subsequently received in fiscal year 2012.
Noncurrent Assets
Noncurrent assets consist primarily of long-term portion of student Federal Perkins Loan
receivables, unamortized costs of issuance for the revenue bonds and certificates of participation,
and capital assets net of accumulated depreciation. The $4.0 million increase in noncurrent
assets mostly came from the increase in net capital assets, which was due to the substantial
completion of deferred maintenance projects that have been underway for the past four years and
implementation of a new Enterprise Resource Planning (ERP) system.
Current Liabilities
Current liabilities include accounts payable, agency funds payable, accrued compensated
absences, deferred revenue, and the current portion of long-term liabilities, which are payable in
less than one year. The $2.2 million decrease was mostly attributable to the $1.2 million
decrease in accounts payable due to timing differences on vendor payments, $0.2 million
decrease in agency funds payable, and $0.8 million decrease in deferred revenue primarily due to
the decrease in credit hours for the summer 2011 term.
Noncurrent Liabilities
Noncurrent liabilities are liabilities with due dates beyond one year, which include accrued
compensated absences, refundable grants, revenue bonds payable, notes payable and capital
leases, and certificates of participation. The $1.9 million decrease was mostly due to the $1.7
million principal payments in notes payable and capital leases, revenue bonds payable, and
certificates of participation, and $0.2 million decrease in accrued compensated absences due to
payouts made to employees who separated from service or who used vested sick time. Sick
leave is paid out at 50% of the value of compensable leave earned through December 31, 1997.
Since January 1, 1998, sick leave is no longer compensable.
More detailed information about the University’s long-term debt is presented in the notes to the
basic financial statements.
7
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
Statement of Revenues, Expenses, and Changes in Net Assets
The Statement of Revenues, Expenses, and Changes in Net Assets represents the operating
results of the University, as well as the nonoperating revenues and expenses. Annual State
appropriations, while budgeted for operations, are considered nonoperating revenues according
to accounting principles generally accepted in the United States of America.
(in thousands)
2011 2010
Increase
(Decrease)
Percent
Change
OPERATING REVENUES
Net student tuition and fees $ 30,499 $ 29,882 $ 617 2%
Grants and contracts 9,546 6,976 2,570 37%
Sales and services of educational
Departments 6,264 6,278 (14) 0%
Auxiliary enterprises 1,671 2,080 (409) -20%
Other operating revenues 1,686 1,151 535 46%
Total operating revenues 49,666 46,367 3,299 7%
OPERATING EXPENSES 91,911 87,178 4,733 5%
Net operating loss (42,245) (40,811) (1,434) 4%
NONOPERATING REVENUES
(EXPENSES)
State appropriation 26,558 25,986 572 2%
State appropriation - Federal ARRA - 2,338 (2,338) -100%
Payments made on behalf of the
University 18,832 17,363 1,469 8%
Federal Pell grant 6,519 5,593 926 17%
Investment income 38 55 (17) -31%
Interest expense
Capital additions provided by the
State of Illinois
(296)
283
(300)
-
4
283
-1%
100%
Other nonoperating expense (11) (33) 22 -67%
Net nonoperating revenues 51,923 51,002 921 2%
Increase in net assets 9,678 10,191 (513) -5%
Net assets - beginning of year 78,189 67,998 10,191 15%
Net assets - end of year $ 87,867 $ 78,189 $ 9,678 12%
8
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
Increase in Net Assets
This year, the increase in net assets was 5% or $0.5 million lower than fiscal year 2010 due to
the following:
Operating Revenues
Operating revenues increased mostly due to the increase in net student tuition and fees, and
grants and contracts. The increase in net student tuition and fees was primarily due to the 9%
average increase in tuition and fee rates for resident students. The increase in grants and
contracts revenues was primarily due to the increased Recovery Act funding received by the
University from the Federal government.
Operating Expenses (by functional classification)
(in thousands)
2011 2010
Increase
(Decrease)
Percent
Change
Instruction $ 41,840 $ 39,975 $ 1,865 5%
Research 1,092 1,344 (252) -19%
Public service 13,868 11,656 2,212 19%
Academic support 2,231 2,175 56 3%
Student services 6,225 6,412 (187) -3%
Institutional support 14,979 14,137 842 6%
Operation and maintenance of plant 6,992 6,969 23 0%
Auxiliary enterprises 1,519 1,589 (70) -4%
Depreciation 3,165 2,921 244 8%
$ 91,911 $ 87,178 $ 4,733 5%
In most categories of endeavor, University expenditures stayed fairly consistent between fiscal
year 2011 and fiscal year 2010. Overall operating expenses increased by 5%; funding to support
these increases primarily came from student tuition and fees, and grants and contracts revenues.
9
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
Operating Expenses (by natural classification)
(in thousands)
2011 2010
Increase
(Decrease)
Percent
Change
Salaries and benefits $ 69,410 $ 66,641 $ 2,769 4%
Scholarships and awards 2,108 1,922 186 10%
Capital expenditures 1,122 1,160 (38) -3%
Services, supplies and others 16,106 14,534 1,572 11%
Depreciation 3,165 2,921 244 8%
$ 91,911 $ 87,178 $ 4,733 5%
The 4% increase in salary and benefits expense, representing the University’s largest operating
expense, was mostly due to the 8% increase in on behalf payments made by the State.
Nonoperating Revenues (Expenses)
Payments made by the State on behalf of the University to fund retirement, health, life, and
dental insurance benefits for University employees and retirees are paid directly by other State
agencies on behalf of the University. In fiscal year 2011, the State’s funding of retirement
benefits increased by $0.9 million and its funding of health care increased by $0.6 million.
Federal Pell grant revenue increased due to increased funding received from the Federal
government. In addition, capital additions representing transfers from the Capital Development
Board were made during the current fiscal year. The University did not receive any State
appropriation - Federal ARRA during fiscal year 2011, thus partially offsetting the increases
noted above.
Statement of Cash Flows
The Statement of Cash Flows provides information about cash receipts and cash payments
received and made during the year. This statement also helps users assess the University’s
ability to generate net cash flows, its ability to meet its obligations as they become due, and its
need for external financing.
10
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED JUNE 30, 2011
(in thousands)
2011 2010
Increase
(Decrease)
Percent
Change
Cash provided by (used in):
Operating activities $ (21,266) $ (19,314) $ (1,952) 10%
Noncapital financing activities 27,460 27,482 (22) 0%
Capital financing activities (9,832) (10,510) 678 -6%
Investing activities 38 55 (17) -31%
Net decrease in cash and cash
Equivalents (3,600) (2,287) (1,313) 57%
Cash and cash equivalents - beginning
of year 36,894 39,181 (2,287) -6%
Cash and cash equivalents - end of year $ 33,294 $ 36,894 $ (3,600) -10%
The primary cash receipts from operating activities consist of student tuition and fees revenue.
Cash outlays include payment of wages, benefits, services, supplies, and scholarships. Net cash
used in operating activities increased primarily due to the increase in overall operating expenses.
Cash provided by noncapital financing activities slightly decreased mostly due to the delayed
payments of appropriation from the State, which was offset by the increase in Federal Pell grant
revenue. Net cash used in capital financing activities improved due to the substantial completion
of deferred maintenance projects that have been underway for the past four years.
FACTORS AFFECTING FUTURE OPERATIONS
The strongest effects on the financial operations of the University in fiscal year 2012 and beyond
will lie in:
 The University’s success on creating the lower-division program and admitting
lower-division students starting fall 2014. On December 6, 2011, the Illinois Board of
Higher Education (IBHE) authorized the University to admit freshman and sophomore
students in 2014.
 The 1% reduction in the fiscal year 2012 State appropriation from fiscal year 2011.
 The University’s continuous success with the dual degree programs, which built
pathways from the Illinois community colleges to Governors State University.
 The University’s ability to continue to innovate with new quality program offerings to the
community.
 The University’s ability to market itself to new and continuing students to continue to
increase registered student credit hours.
11
Component Component
University Unit University Units
ASSETS
Current assets
Cash and cash equivalents (Notes 2 and 3) $ 28,587,392 $ 716,116 $ 27,675,080 $ 1,161,677
Cash and cash equivalents, restricted (Notes 2, 3 and 4) 4,706,536 - 9,218,496 -
Accounts receivable, net of allowance
for uncollectible accounts of $3,594,700 (Note 2) 2,998,668 67,796 3,114,174 63,596
Grants receivable (Note 2) 2,152,285 - 1,444,466 -
State appropriation receivable 11,534,898 - 6,440,425 -
Unamortized debt issuance costs - current (Note 2) 50,095 - 50,095 -
Inventories (Note 2) 65,883 - 33,601 -
Student loans - current (Note 2) 397,000 - 530,000 -
Other assets 50,905 - 476,110 -
Total current assets 50,543,662 783,912 48,982,447 1,225,273
Noncurrent assets
Investments (Notes 2 and 3) - 1,202,868 - 427,140
Student loans, net of allowance for
uncollectible loans of $718,000 (Note 2) 2,386,027 - 2,506,450 -
Unamortized debt issuance costs (Note 2) 533,293 - 583,388 -
Other noncurrent assets (Note 2) 149,497 - - -
Capital assets (Note 7) 131,347,826 1,614,351 124,474,118 1,538,351
Accumulated depreciation (Note 7) (52,363,347) - (49,479,437) -
Total noncurrent assets 82,053,296 2,817,219 78,084,519 1,965,491
Total assets 132,596,958 3,601,131 127,066,966 3,190,764
LIABILITIES
Current liabilities
Accounts payable 3,224,012 11,348 4,462,786 9,713
Agency funds payable 149,101 - 373,379 -
Accrued compensated absences (Notes 2 and 9) 500,000 - 500,000 -
Deferred revenue (Note 2) 3,806,802 - 4,611,732 -
Revenue bonds payable (Note 8) 336,738 - 321,738 -
Notes payable and capital leases (Note 8) 410,958 - 396,861 -
Certificates of participation (Note 8) 987,672 - 962,672 -
Total current liabilities 9,415,283 11,348 11,629,168 9,713
Noncurrent liabilities
Accrued compensated absences (Notes 2 and 9) 4,355,661 - 4,547,765 -
Refundable grants 3,067,701 - 3,074,355 -
Revenue bonds payable (Note 8) 7,691,945 - 8,028,683 -
Notes payable and capital leases (Note 8) 3,608,452 - 4,019,410 -
Certificates of participation (Note 8) 16,590,915 - 17,578,587 -
Total noncurrent liabilities 35,314,674 - 37,248,800 -
Total liabilities 44,729,957 11,348 48,877,968 9,713
NET ASSETS (Note 2)
Invested in capital assets, net of related debt 52,287,488 1,614,351 50,094,043 1,538,351
Restricted
Nonexpendable - 1,236,831 - 1,133,562
Expendable
Loans 607,744 - 609,963 -
Debt Service 649,856 - 647,956 -
Other - 712,140 - 500,105
Unrestricted 34,321,913 26,461 26,837,036 9,033
Total net assets $ 87,867,001 $ 3,589,783 $ 78,188,998 $ 3,181,051
2011
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
STATEMENT OF NET ASSETS
(Comparative totals only)
JUNE 30,
2010
See accompanying notes to basic financial statements
12
2010
Component Component
University Unit University Units
OPERATING REVENUES
Student tuition and fees, net of scholarship
allowances of $6,966,200 (Note 2) $ 30,499,092 $ - $ 29,882,217 $ -
Federal grants and contracts 7,687,585 - 5,483,935 -
State grants and contracts 982,355 - 492,229 -
Other grants and contracts 876,290 - 999,798 -
Sales and services of educational departments 6,263,669 - 6,278,087 -
Auxiliary enterprises 1,671,660 - 2,080,224 -
Other operating revenues 1,685,746 192,706 1,150,338 171,351
Total operating revenues 4 9,666,397 192,706 4 6,366,828 171,351
OPERATING EXPENSES
Instruction 4 1,840,108 - 3 9,975,168 -
Research 1,092,589 - 1,344,335 -
Public service 1 3,867,709 - 1 1,656,065 -
Academic support 2,230,926 - 2,175,037 -
Student services 6,224,729 - 6,411,820 -
Institutional support 1 4,978,608 - 1 4,136,343 -
Operation and maintenance of plant 6,991,748 - 6,969,225 -
Auxiliary enterprises 1,519,539 - 1,589,064 -
Depreciation 3,165,298 - 2,921,072 -
University support - 242,521 - 188,124
Other expense - 216,809 - 199,755
Total operating expenses 9 1,911,254 459,330 8 7,178,129 387,879
Net operating loss (42,244,857) (266,624) (40,811,301) (216,528)
NONOPERATING REVENUES (EXPENSES)
State appropriation 2 6,558,000 - 2 5,986,000 -
State appropriation - Federal ARRA - - 2,338,400 -
Payments made on behalf of the University 1 8,832,000 - 1 7,363,000 -
Federal Pell grant 6,519,196 - 5,593,162 -
Gifts - 396,818 - 245,597
Investment income 30,660 99,269 42,099 133,571
Investment income on debt proceeds 7,005 - 12,565 -
Interest expense (295,619) - (299,857) -
Other nonoperating expense (10,982) - (33,246) -
Net nonoperating revenues 5 1,640,260 496,087 5 1,002,123 379,168
Income before other revenues,
expenses, gains and losses 9,395,403 229,463 1 0,190,822 162,640
Capital additions provided by State of Illinois 282,600 - - -
Additions to permanent endowments - 103,269 - 81,302
Capital asset contributions - 76,000 - 370,500
Increase in net assets 9,678,003 408,732 1 0,190,822 614,442
NET ASSETS
Net assets - beginning of year 7 8,188,998 3,181,051 6 7,998,176 2,566,609
Net assets - end of year $ 87,867,001 $ 3 ,589,783 $ 7 8,188,998 $ 3,181,051
2011
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30,
(Comparative totals only)
See accompanying notes to basic financial statements
13
Component Component
University Unit University Units
CASH FLOWS FROM OPERATING ACTIVITIES
Student tuition and fees $ 29,512,767 $ - $ 29,490,210 $ -
Grants and contracts 9 ,361,034 - 7,398,407 -
Payments to suppliers (16,837,915) (185,236) ( 14,275,569) (187,938)
Payments for scholarships (2,108,074) (92,773) (1,921,637) (50,669)
Payments to employees and fringe benefits (50,963,705) - ( 49,790,469) -
Auxiliary enterprises 1 ,671,660 - 2,080,224 -
Sales and services of educational departments 6 ,263,669 - 6,278,087 -
Student loans issued (167,600) - (181,705) -
Student loans collected 316,559 - 457,729 -
Other operating revenues 1 ,685,746 13,020 1,150,338 26,839
Net cash used in operating activities (21,265,859) (264,989) ( 19,314,385) (211,768)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
State appropriations 21,463,527 - 19,556,426 -
State appropriations - Federal ARRA - - 2,338,400 -
Federal Pell grant 5 ,996,573 - 5,587,769 -
Contributions - 392,618 - 199,617
Contributions for permanent endowments - 103,269 - 81,302
Cash provided by noncapital financing activities 27,460,100 495,887 27,482,595 280,919
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES
Purchase of capital assets (6,847,097) - ( 12,049,417) -
Proceeds from issuance of debt - - 4,750,000 -
Principal payments on capital debt (1,686,861) - (1,975,410) -
Interest payments on capital debt (1,297,596) - (1,235,658) -
Net cash used in capital financing activities (9,831,554) - ( 10,510,485) -
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investment securities - 652,190 - 1,134,218
Investment income 37,665 15,986 54,664 27,647
Investment management fees - (11,068) - (10,086)
Purchase of investment securities - (1,333,567) - (614,336)
Net cash provided by (used in) investing activities 37,665 (676,459) 54,664 537,443
Net increase (decrease) in cash and cash equivalents (3,599,648) (445,561) (2,287,611) 606,594
Cash and cash equivalents - beginning of year 36,893,576 1,161,677 39,181,187 555,083
Cash and cash equivalents - end of year $ 33,293,928 $ 716,116 $ 36,893,576 $ 1,161,677
RECONCILIATION OF NET OPERATING LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net operating loss $ (42,244,857) $ (266,624) $ (40,811,301) $ (216,528)
Adjustments to reconcile net operating loss to net cash used
in operating activities:
Noncash expenses included in net operating loss:
Depreciation expense 3 ,165,298 - 2,921,072 -
Payments made on behalf of the University 18,832,000 - 17,363,000 -
Changes in assets and liabilities:
Accounts and grants receivable (69,690) - (244,297) -
Inventories (32,282) - (10,574) -
Other assets 425,205 - (476,110) -
Other noncurrent assets (149,497) - - -
Student loans 253,423 - 406,412 -
Accounts payable (217,493) 1,635 1,378,256 4,760
Agency funds payable (224,278) - 203,305 -
Deferred revenue (804,930) - 465,134 -
Accrued compensated absences (192,104) - (522,522) -
Refundable grants (6,654) - 13,240 -
Net cash used in operating activities $ (21,265,859) $ (264,989) $ (19,314,385) $ (211,768)
NONCASH CAPITAL FINANCING ACTIVITIES
Interest payments of $1,039,637 during fiscal year 2011 were reclassified to capital assets as interest incurred during the period of construction.
2011 2010
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,
(Comparative totals only)
See accompanying notes to basic financial statements
14
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
1. Financial Reporting Entity and Component Unit Disclosure
Governors State University (GSU or University) was chartered in 1969 to provide
affordable and accessible undergraduate and graduate education to its culturally and
economically diverse life-long learners in the Chicago metropolitan area. It is governed
by the Board of Trustees of Governors State University created in January 1996 as a
result of legislation to reorganize governance of State higher education institutions and
provides liberal arts, science, and professional preparation at the upper-division, master
and doctorial levels.
The financial reporting entity as defined by Governmental Accounting Standards Board
(GASB) Statement No. 14, The Financial Reporting Entity, and GASB Statement No. 39,
Determining Whether Certain Organizations are Component Units, consists of the
primary government, organizations for which the primary government is financially
accountable and other organizations for which the nature and significance of their
relationship with the primary government are such that exclusion could cause the
financial statements to be misleading or incomplete. Accordingly, the financial
statements include the accounts of Governors State University as the primary
government, and the Governors State University Foundation (Foundation) as component
unit of the University.
The Foundation was incorporated as a not-for-profit organization in June 1969. The
Foundation provides support services to the University to assist the University in
achieving its educational, research, and service goals.
Audit of the Foundation’s financial statements for the fiscal year ended June 30, 2011
was conducted by an independent certified public accountant. Complete financial
statements for this component unit may be obtained by writing the: Vice President for
University Advancement, Governors State University, 1 University Parkway, University
Park, Illinois 60484.
The University (and its component unit) is a component unit of the State of Illinois for
financial reporting purposes and its fiscal balances and activities are included in the
State’s comprehensive annual financial report.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the University are prepared in accordance with accounting
principles generally accepted in the United States of America as prescribed by GASB
15
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
using the economic resources measurement focus and the accrual basis of accounting.
Under the accrual basis of accounting, revenues are recognized when earned and
expenses are recorded when incurred. When both restricted and unrestricted resources
are available for use, it is the University’s policy to use restricted resources first, then
unrestricted resources as needed.
In accordance with GASB Statement No. 20, Accounting and Financial Reporting for
Proprietary Funds and Other Governmental Entities That Use Proprietary Fund
Accounting, the University follows all applicable GASB pronouncements. In addition,
the University applies all Financial Accounting Standards Board (FASB) statements and
interpretations, Accounting Principles Board (APB) opinions and accounting research
bulletins of the Committee of Accounting Procedures issued on or before November 30,
1989 unless those pronouncements conflict with or contradict GASB pronouncements.
The University has elected not to apply FASB pronouncements issued after November
30, 1989.
The financial statements are prepared in accordance with GASB Statement No. 35, Basic
Financial Statements - and Management’s Discussion and Analysis - for Public Colleges
and Universities, and follow the special purpose governments engaged only in “business-type”
activities requirements, which requires the following components of the
University’s financial statements:
Management’s Discussion and Analysis
This provides an objective analysis of the University’s financial activities based
on facts, decisions and conditions.
Basic financial statements including a Statement of Net Assets, Statement of
Revenues, Expenses, and Changes in Net Assets and Statement of Cash
Flows
 The Statement of Net Assets details current assets/liabilities and
noncurrent assets/liabilities. In general, current assets are those that are
available to satisfy current liabilities. Current liabilities are those that will
be paid within one year of the date of the Statement of Net Assets. Other
assets and liabilities due beyond one year are noncurrent. Net Assets are
divided into three major categories: (1) Invested in capital assets, net of
related debt, (2) Restricted net assets, and (3) Unrestricted net assets.
 The Statement of Revenues, Expenses and Changes in Net Assets
provides operating and nonoperating revenues and expenses, and displays
16
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
the net income or loss from operations and total changes in net assets.
 The Statement of Cash Flows details the change in the cash and cash
equivalents balance for the fiscal year and is prepared using the direct
method. This statement provides information related to cash receipts and
cash payments during the year. The statement also helps users evaluate
the University’s ability to meet financial obligations as they mature.
Notes to Basic Financial Statements
This provides additional analysis of the University’s Basic Financial Statements.
Cash and Cash Equivalents
In accordance with GASB Statement No. 9, Reporting Cash Flows of Proprietary and
Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund
Accounting, cash equivalents are defined as short-term, highly liquid investments that are
both readily convertible to known amounts of cash, and so near to their maturities that
they present insignificant risk of changes in value because of changes in interest.
Accounts and Grants Receivable
An aging of accounts and grants receivable as of June 30, 2011 is as follows:
Current $ 4,551,955
Up to 120 days past due 388,181
From 121 to 240 days past due 237,280
From 241 to 365 days past due 140,517
More than 365 days past due 3,427,720
Allowance for doubtful accounts (3,594,700)
Net accounts and grants receivable $ 5,150,953
Non-student receivables are not aged and have been presented above as current.
Allowance for Uncollectible Accounts
The allowance for doubtful accounts is based on management’s best estimate of
uncollectible accounts considering type, age, collection history, and other appropriate
factors.
17
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Unamortized Debt Issuance Costs
The costs associated with the issuance of the revenue bonds and certificates of
participation are being amortized on a straight-line basis over the life of the related debts.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in,
first-out inventory valuation method.
Investments
Foundation investments are recorded at fair market value as determined by quoted market
prices. Investments are pooled for the purposes of allocating realized gains and losses,
unrealized gains and losses and ordinary income, net of investment fees, to the
unallocated reserve in the restricted fund. Allocation to specific accounts is based on
contractual obligations and the Foundation’s investment policy.
Student Loans
Student loans include loans made to students under the Federal Perkins Loan Program.
Loan repayments expected during the next fiscal year have been reported as a current
asset. Loans that are not expected to be repaid during the next fiscal year, less an
allowance for uncollectible loans, have been presented as a noncurrent asset.
Accrued Compensated Absences
Accrued compensated absences include earned but unused vacation and sick leave days
valued at the current rate of pay.
Deferred Revenue
Deferred revenue includes amounts received for tuition and fees prior to the end of the
fiscal year but related to the subsequent accounting period.
Classification of Revenues
The University has classified its revenues as either operating or nonoperating revenues
according to the following criteria:
18
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Operating revenues: Operating revenues include activities that have the characteristics of
exchange transactions, such as (1) student tuition and fees, net of scholarship discounts
and allowances, (2) sales and services of educational departments, (3) auxiliary
enterprises, and (4) most Federal, State and local grants and contracts.
Nonoperating revenues: Nonoperating revenues include activities that have the
characteristics of non-exchange transactions, such as gifts and contributions, and other
revenue sources that are defined as nonoperating revenues by GASB Statements No. 9
and No. 35, such as State appropriation, payments made on behalf of the University for
healthcare and retirement costs, Federal Pell grant, and investment income.
Scholarship Discounts and Allowances
Student tuition and fees are reported net of scholarship discounts and allowances in the
Statement of Revenues, Expenses, and Changes in Net Assets. Scholarship discounts and
allowances are the difference between the stated charges and the amounts paid directly by
students and/or third parties. Certain governmental grants, such as Federal Pell grant, and
other Federal, State or nongovernmental programs are recorded as either operating or
nonoperating revenues in the University’s financial statements. To the extent that
revenues from such programs are used to satisfy tuition and fees and other student
charges, the University has recorded a scholarship discount and allowance.
Net Assets
GASB Statement No. 35 requires the University’s net resources to be classified into net
asset categories and reported in its Statement of Net Assets. The University’s net assets
are classified as follows:
Invested in capital assets, net of related debt: This represents the University’s total
investment in capital assets, net of accumulated depreciation and outstanding debt
obligations used to acquire capital assets.
Restricted net assets - nonexpendable: Nonexpendable restricted net assets consist of
endowment and similar type funds in which donors or other outside sources have
stipulated, as a condition of the gift instrument, that the principal is to be maintained
intact and invested for the purpose of producing present and future income, which may
either be expended or added to the principal.
Restricted net assets - expendable: Restricted expendable net assets include resources in
which the University is legally or contractually obligated to spend in accordance with
restrictions imposed by external third parties.
19
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Unrestricted net assets: Unrestricted net assets represent resources derived from student
tuition and fees, State appropriations, sales and services of educational departments, and
auxiliary enterprises. These resources are used for transactions relating to the educational
and general operations of the University and may be used at the discretion of the
governing board to meet current expenses for any purpose.
Risk Management
The University participates in the Illinois Public Higher Education Cooperative (IPHEC)
and Midwestern Higher Education Compact (MHEC), which leverages all Illinois public
universities’ assets to reduce the total and individual cost of property and liability
insurances to Illinois public universities. Additionally, the University is a member of the
State University Risk Management Association (SURMA), which is an inter-governmental
risk sharing pool. The University’s general liability coverage has a
$350,000 self insured retention level per occurrence, which is covered by SURMA.
Participant contributions to SURMA are based upon actuarial valuations.
According to the Bylaws of SURMA, members may withdraw at any time and (subject to
the approval by remaining members) be eligible to receive its proportionate share of
capital contributions, or upon termination of SURMA, be entitled to receive its
proportionate share of capital contributions. The capital contributions are to be allocated
based on the proportional premium contributions made by each members over the past
five years. In accordance with GASB Interpretation No. 4, Accounting and Financial
Reporting for Capitalization Contributions to Public Entity Risk Pools, the University has
recorded as other assets the estimated amount that could be recoverable in the event of
withdrawal or termination.
Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the
financial statement date and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
3. Deposits and Investments
GASB Statement No. 40, Deposit and Investment Risk Disclosures, requires general
disclosures by investment type with disclosures of the specific risks those investments are
exposed to.
20
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Deposits
Deposits consist of the following at June 30, 2011:
Carrying
Amount
Bank
Balance
University:
Cash in bank $ 4,846,066 $ 7,214,263
Cash on hand 19,813 -
Illinois Funds (Standard & Poor’s AAAm) 27,805,521 27,805,521
Total $ 32,671,400 $ 35,019,784
Foundation:
Cash in bank $ 358,394 $ 358,394
Illinois Funds (Standard & Poor’s AAAm) 73,948 73,948
Total $ 432,342 $ 432,342
Custodial Credit Risk: Custodial credit risk is the risk that in the event of a bank failure,
deposits may not be returned. The Federal Deposit Insurance Corporation insured bank
balances totaling $500,000 (University and Foundation) at June 30, 2011. The remaining
bank balances as of June 30, 2011 were fully collateralized. The Illinois Funds are
arranged and contracted by the Treasurer of the State of Illinois and collateralized as
required by that contract. Depositories and brokers are chosen based on stability and
longevity, and due to insurance and collateralization, bank balances were not subject to
custodial credit risk.
Interest Rate Risk: Interest rate risk exists when there is a possibility that changes in
interest rates could adversely affect an investment’s value. The Illinois Funds has a
weighted average maturity of less than one year.
Credit Risk: Credit risk exists when there is a possibility that the issuer or other
counterparty to an investment may be unable to fulfill its obligations.
21
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
University Investments
The carrying value of the investment portfolio of the University at June 30, 2011 is as
follows:
Credit
Rating Maturity
Carrying
Amount
Fair
Value
Money Market Funds Not rated < 1 year $ 622,528 $ 622,528
Custodial Credit Risk: Custodial credit risk is the risk that in the event of custodian
failure, investment principal may not be returned. At June 30, 2011, investments
consisted solely of money market funds held in corporate trust accounts at Amalgamated
Bank of Chicago.
Interest Rate Risk: Interest rate risk exists when there is a possibility that changes in
interest rates could adversely affect an investment’s value. The University does not have
a formal policy that limits investment maturities as a means of managing its exposure to
fair value losses arising from increasing interest rates.
Credit Risk: Credit risk exists when there is a possibility that the issuer or other
counterparty to an investment may be unable to fulfill its obligations. The University
does not have a formal policy limiting credit risk.
Foundation Investments
The fair value of the investment portfolio of the Foundation at June 30, 2011 is as
follows:
Fair
Value
Money Market Funds $ 283,774
Mutual Funds investing in stocks 612,287
Mutual Funds investing in bonds
Corporate Bonds
U.S. Treasury Obligations
137,268
227,140
200,959
U.S. Agency Obligations 25,214
$ 1,486,642
22
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Custodial Credit Risk: Custodial credit risk is the risk that in the event of custodian
failure, investment principal may not be returned. At June 30, 2011, investments
consisted of money market funds, mutual funds, corporate bonds, U.S. Treasury
Obligations and U.S. Agency Obligations. All investments are being held by the First
Midwest Bank Trust Division.
Interest Rate Risk: Interest rate risk exists when there is a possibility that changes in
interest rates could adversely affect an investment’s value. The Foundation’s investment
policy addresses the overall diversification of the portfolio with consideration for
liquidity. It does not limit investment maturities as a means of managing its exposure to
fair value losses arising from increasing interest rates, but encourages a laddered portfolio
with maturities occurring at regular intervals.
Credit Risk: Credit risk exists when there is a possibility that the issuer or other
counterparty to an investment may be unable to fulfill its obligations. The Foundation’s
investment policy encourages the investment manager to focus on high quality bonds,
maintaining an average credit quality of AA, to achieve an attractive risk-adjusted total
return over the long run. The money market fund was invested in Federated Government
Obligations Tax-Managed Fund which has a maturity of < 1 year and a credit rating of
AAAm.
The maturities of the debt securities investment portfolio (at market value) of the
Foundation at June 30, 2011 are as follows:
Investment Maturity (in Years)
Investment Type
Fair
Value
Less
Than 1 1-5
Corporate Bonds $ 227,140 $ - $ 227,140
U.S. Treasury Obligations 200,959 25,157 175,802
U.S. Agency Obligations 25,214 - 25,214
Mutual Funds investing in Bonds 137,268 137,268 -
Total $ 590,581 $ 162,425 $ 428,156
23
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
The Standard & Poor’s credit ratings of the debt securities investment portfolio (at
market value) of the Foundation at June 30, 2011 are as follows:
Credit Rating
Total
Debt Securities
U.S. Treasury Obligations $ 200,959
No rating 137,268
AA+
A+
A
50,848
76,177
100,343
A- 24,986
Total $ 590,581
Foreign Currency Risk: Foreign currency risk exists when there is a possibility that the
exchange rate of foreign currencies against the U.S. dollar may vary. The Foundation’s
policy is to limit its investments in foreign securities to 25%.
4. Cash and Cash Equivalents, Restricted
The net proceeds from issuing the University Revenue Bonds and Certificates of
Participation were separately deposited in Trust Escrow accounts with Amalgamated
Bank of Chicago (Bank). As trustee, the Bank has invested the funds in Illinois Funds
and Goldman Sachs “Financial Square Money Market” funds pending expenditure for the
University’s deferred maintenance projects. In addition, certain accounts created by the
University Revenue Bonds and for debt servicing the Certificates of Participation are held
by the Bank pending expenditure for debt service. Balance of these accounts as of June
30, 2011 amounted to $4,701,843.
The net proceeds from issuing the promissory note in relation to the University’s
guaranteed energy savings contract was separately deposited in the Escrow account with
Old National Leasing Bank pending expenditure for the University’s energy savings
projects. Balance of this account as of June 30, 2011 amounted to $4,693.
5. State Universities Retirement System
Plan Description
The University contributes to the State Universities Retirement System of Illinois
(SURS), a cost-sharing multiple-employer defined-benefit pension plan with a special
funding situation whereby the State of Illinois makes substantially all actuarially
24
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
determined required contributions on behalf of the participating employers. SURS was
established on July 21, 1941, to provide retirement annuities and other benefits for staff
members and employees of the State universities, certain affiliated organizations, and
certain other State educational and scientific agencies and for survivors, dependents and
other beneficiaries of such employees. SURS is considered a component unit of the State
of Illinois’ financial reporting entity and is included in the State’s financial reports as a
pension trust fund. SURS is governed by Section 5/15, Chapter 40, of the Illinois
Compiled Statutes. SURS issues a publicly available financial report that includes
financial statements and required supplementary information. That report may be
obtained by accessing the website at www.SURS.org or by calling 1-800-275-7877.
Funding Policy
Plan members are required to contribute 8.0% of their annual covered salary and
substantially all employer contributions are made by the State of Illinois on behalf of the
individual employers at an actuarially determined rate. The current rate (for fiscal year
2012) is 24.21% of annual covered payroll. The contribution requirements of plan
members and employers are established and may be amended by the Illinois General
Assembly. The University’s contributions to SURS for the years ended June 30, 2011,
2010, and 2009 were $8,713,583, $7,761,750, and $5,099,408, respectively, equal to the
required contributions for each year.
6. Postemployment Benefits
The State provides health, dental, vision, and life insurance benefits for retirees and their
dependents in a program administered by the Department of Healthcare and Family
Services along with the Department of Central Management Services. Substantially all
State employees become eligible for post-employment benefits if they eventually become
annuitants of one of the State sponsored pension plans. Health, dental, and vision
benefits include basic benefits for annuitants and dependents under the State’s self-insurance
plan and insurance contracts currently in force. Annuitants may be required to
contribute towards health, dental, and vision benefits with the amount based on factors
such as date of retirement, years of credited service with the State, whether the annuitant
is covered by Medicare, and whether the annuitant has chosen a managed health care
plan. Annuitants who retired prior to January 1, 1998, and who are vested in the State
Employee’s Retirement System do not contribute towards health, dental, and vision
benefits. For annuitants who retired on or after January 1, 1998, the annuitant’s
contribution amount is reduced five percent for each year of credited service with the
State allowing those annuitants with twenty or more years of credited service to not have
to contribute towards health, dental, and vision benefits. Annuitants also receive life
25
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
insurance coverage equal to the annual salary of the last day of employment until age 60,
at which time the benefit becomes $5,000.
The State pays the University’s portion of employer costs for the benefits provided. The
total cost of the State’s portion of health, dental, vision, and life insurance benefits of all
members, including post-employment health, dental, vision, and life insurance benefits, is
recognized as an expenditure by the State in the Illinois Comprehensive Annual Financial
Report. The State finances the costs on a pay-as-you-go basis. The total costs incurred
for health, dental, vision, and life insurance benefits are not separated by department or
component unit for annuitants and their dependents nor active employees and their
dependents.
A summary of post-employment benefit provisions, changes in benefit provisions,
employee eligibility requirements including eligibility for vesting, and the authority
under which benefit provisions are established are included as an integral part of the
financial statements of the Department of Healthcare and Family Services. A copy of the
financial statements of the Department of Healthcare and Family Services may be
obtained by writing to the Department of Healthcare and Family Services, 201 South
Grand Ave., Springfield, Illinois, 62763-3838.
7. Capital Assets
Capital assets are recorded at cost at the date of acquisition, or fair market value at the
date of donation in the case of gifts. For equipment, the University’s capitalization policy
includes all items with a unit cost of $5,000 or more. For intangible assets, the
University’s capitalization policy includes all items with a unit cost of $25,000 or more.
Renovations to buildings and site improvements that significantly increase the value or
extend the useful life of the structure are also capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets: 40 to 60 years
for buildings, 20 to 60 years for site improvements, seven years for intangible assets, and
three to 40 years for equipment and library collection.
Interest incurred on borrowed funds during the period of construction of capital assets is
capitalized as a component of the cost of acquiring those assets. Interest of $1,039,637
was capitalized during the year ended June 30, 2011.
Capital assets activities for the University and Foundation for the year ended June 30,
2011 are summarized as follows:
26
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Balance
June 30, 2010 Additions Retirements
Balance
June 30, 2011
Capital assets not being depreciated
Land $ 1,389,086 $ - $ - $ 1,389,086
Artwork/Sculptures-University 268,323 - - 268,323
Artwork/Sculptures-Foundation 1,538,351 76,000 - 1,614,351
Total capital assets not being depreciated $ 3,195,760 $ 76,000 $ - $ 3,271,760
Other capital assets
Site improvements $ 5,650,832 $ 335,894 $ - $ 5,986,726
Buildings
Intangible assets
95,757,408
-
4,705,920
1,077,097
-
-
100,463,328
1,077,097
Equipment 8,283,931 513,643 (35,841) 8,761,733
Equipment under capital leases 169,545 - - 169,545
Library collection 12,954,993 533,524 (256,529) 13,231,988
Total other capital assets 122,816,709 7,166,078 (292,370) 129,690,417
Accumulated depreciation
Site improvements (1,080,593) (252,348) - (1,332,941)
Buildings
Intangible assets
(31,143,484)
-
(1,587,311)
(153,871)
-
-
(32,730,795)
(153,871)
Equipment (6,036,984) (654,326) 24,859 (6,666,451)
Equipment under capital leases (161,755) (6,290) - (168,045)
Library collection (11,056,621) (511,152) 256,529 (11,311,244)
Total accumulated depreciation (49,479,437) (3,165,298) 281,388 (52,363,347)
Other capital assets, net $ 73,337,272 $ 4,000,780 $ (10,982) $ 77,327,070
Capital assets summary:
Capital assets not being depreciated $ 3,195,760 $ 76,000 $ - $ 3,271,760
Other capital assets 122,816,709 7,166,078 (292,370) 129,690,417
Accumulated depreciation (49,479,437) (3,165,298) 281,388 (52,363,347)
Total capital assets, net $ 76,533,032 $ 4,076,780 $ (10,982) $ 80,598,830
27
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
8. Long-Term Obligations
Changes in Long-Term Obligations
Changes in long-term obligations for the year ended June 30, 2011 were as follows:
Balance
July 1, 2010 Additions Deductions
Balance
June 30, 2011
Amounts
Due Within
One Year
Notes payable $ 4,409,627 $ - $ 390,217 $ 4,019,410 $ 410,958
Capital leases 6,644 - 6,644 - -
Revenue bonds 8,320,000 - 320,000 8,000,000 335,000
Certificates of participation 2008 9,755,000 - 110,000 9,645,000 110,000
Certificates of participation 2009 8,930,000 - 860,000 8,070,000 885,000
31,421,271 - 1,686,861 29,734,410 1,740,958
Unamortized discounts (155,853) - (8,699) (147,154) (8,699)
Unamortized premiums 42,533 - 3,109 39,424 3,109
$ 31,307,951 $ - $ 1,681,271 $ 29,626,680 $ 1,735,368
Notes Payable
The interest rate for the notes payable related to the energy savings system is 5.19%.
Future maturities at June 30, 2011 are as follows:
Year Ending
June 30 Principal Interest Total
2012 $ 410,958 $ 198,923 $ 609,881
2013 432,801 177,080 609,881
2014 455,806 154,075 609,881
2015 480,033 129,848 609,881
2016 505,548 104,333 609,881
2017 - 2020 1,734,264 146,202 1,880,466
$ 4,019,410 $ 910,461 $ 4,929,871
Revenue Bonds, Series 2007
On November 20, 2007, the University issued $8,930,000 of University Facilities System
Revenue Bonds, Series 2007, with interest rates ranging from 4.00% to 4.125% to make
various improvements and additions to the University included in its deferred
maintenance initiative and pay the costs incurred ($175,736) in connection with the
issuance of the Series 2007 Bonds. The original issue premium is being accreted to
interest expense over the term of the bonds.
28
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Optional Redemption - The Series 2007 Bonds maturing on or after October 1, 2018 are
subject to redemption on or after October 1, 2017, at the option of the University.
Mandatory Redemption of Term Bonds - The Series 2007 Term Bonds, maturing on
October 1, 2025 and October 1, 2027, are subject to mandatory redemption prior to
maturity through the application of sinking fund payments, at a redemption price equal to
the principal amount plus accrued interest to the date fixed for redemption, in the
following principal amounts on October 1 in each of the years set forth below:
Term Bonds due 10/01/25 Term Bonds due 10/01/27
Year Principal Amount Year Principal Amount
2024 $ 565,000 2026 $ 610,000
2025 585,000 2027 635,000
Future debt service requirements at June 30, 2011 are as follows:
Year Ending
June 30 Principal Interest Total
2012 $ 335,000 $ 314,856 $ 649,856
2013 350,000 301,156 651,156
2014 365,000 286,856 651,856
2015 380,000 271,956 651,956
2016 395,000 256,456 651,456
2017 - 2021 2,220,000 1,027,782 3,247,782
2022 - 2026 2,710,000 536,382 3,246,382
2027 - 2028 1,245,000 51,872 1,296,872
$ 8,000,000 $ 3,047,316 $ 11,047,316
Certificates of Participation, Series 2008
On June 12, 2008, the University issued $9,995,000 of University Capital Improvement
Project Certificates of Participation, Series 2008, with interest rates ranging from 3.50%
to 4.50% to pay a portion of the costs of improvements, to refund in advance of maturity
and advance refund all of the $1,760,000 outstanding principal on the Certificates of
Participation, Series 1998, and to pay the costs ($256,328) of issuing the Series 2008
Certificates. The original issue discount is being accreted to interest expense over the
term of the Certificates.
29
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Optional Redemption - The Series 2008 Certificates are callable on any date on or after
January 1, 2018, at the option of the University, upon at least 35 days prior written notice
from the University to the Trustee.
Redemption Upon Optional Termination of Purchase Contract - The Certificates are
subject to mandatory redemption, in whole, at the redemption prices set forth below, plus
accrued interest to the date fixed for redemption, on the following dates, if the University
notifies the Trustee not less than 60 days prior thereto that it is exercising its option to
terminate the Purchase Contract:
Redemption Date Redemption Price
January 1, 2013 110%
On or after January 1, 2018 100%
Redemption Upon Failure to Renew Purchase Contract - The Series 2008 Certificates are
subject to mandatory redemption, in whole, at the price of the principal amount thereof,
plus accrued interest to the date fixed for redemption, on January 1, 2018, unless the
University notifies the Trustee not less than 60 days prior thereto that the Purchase
Contract has been renewed and the Expiration Date extended to January 1, 2028 in
accordance with the terms of the Purchase Contract.
Redemption Upon Event of Non-appropriation and Termination of Purchase Contract -
The Series 2008 Certificates are subject to redemption, in whole, at the price of par
(100%), plus accrued interest to the date fixed for redemption, on any date on which the
Purchase Contract is terminated by the Board because (i) an event of non-appropriation
has occurred, (ii) the Board has determined that there are not sufficient legally available
non-appropriated funds to pay the installment payments coming due during the then
current fiscal year, and (iii) the Board has exercised its option to prepay the Certificates.
The University defeased its outstanding Certificates of Participation, Series 1998 through
advance refunding and, accordingly, those Certificates are not reflected in the
accompanying financial statements. Those Certificates of Participation which were
advance refunded were paid in full on July 25, 2008.
30
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Future debt service requirements at June 30, 2011 are as follows:
Year Ending
June 30 Principal Interest Total
2012 $ 110,000 $ 397,000 $ 507,000
2013 115,000 393,150 508,150
2014 125,000 389,125 514,125
2015 125,000 384,750 509,750
2016 130,000 380,375 510,375
2017 - 2021 2,300,000 1,789,500 4,089,500
2022 - 2026 4,670,000 1,032,194 5,702,194
2027 - 2028 2,070,000 139,356 2,209,356
$ 9,645,000 $ 4,905,450 $ 14,550,450
Certificates of Participation, Series 2009
On March 31, 2009, the University issued $9,870,000 of University Capital Improvement
Project Certificates of Participation, Series 2010, with interest rates ranging from 3.00%
to 4.50% to pay a portion of the costs of the improvements and to pay the costs
($284,914) of issuing the Series 2009 Certificates. The original issue premium is being
accreted to interest expense over the term of the Certificates.
Extraordinary Redemption upon Event of Non-appropriation and Termination of
Purchase Contract - The Series 2009 Certificates are subject to redemption upon
termination by the Board of the Purchase Contract due to (i) an event of non-appropriation
having occurred, (ii) the Board determining that there are not sufficient
legally available non-appropriated funds to pay the installment payments coming due,
and (iii) the Board has exercised its option to prepay the outstanding certificates plus
accrued interest.
Extraordinary Redemption Upon Optional Termination of Purchase Contract - The
Certificates are subject to mandatory redemption, in whole, at the redemption price of
110% of the principal amount thereof, plus accrued interest to the date fixed for
redemption, on March 1, 2014, if the University notifies the Trustee not less than 60 days
prior thereto that it is exercising its option to terminate the Purchase Contract.
31
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Future debt service requirements at June 30, 2011 are as follows:
Year Ending
June 30 Principal Interest Total
2012 $ 885,000 $ 323,050 $ 1,208,050
2013 910,000 296,500 1,206,500
2014 940,000 269,200 1,209,200
2015 980,000 226,900 1,206,900
2016 1,025,000 182,800 1,207,800
2017 - 2019 3,330,000 294,206 3,624,206
$ 8,070,000 $ 1,592,656 $ 9,662,656
9. Accrued Compensated Absences
Accrued compensated absences include earned but unused vacation and sick leave days
valued at the current rate of pay.
Change in
Accrued Compensated Absences
Year Ended June 30, 2011
(in thousands)
Balance, beginning of year $ 5,048
Movement (192)
Balance, end of year 4,856
Less: current portion 500
Balance, noncurrent portion $ 4,356
10. Component Units
The University’s financial statements include the activities of the University’s component
units, which represent discretely presented University related organization. In fiscal year
2011, the University’s component unit includes the Foundation. In fiscal year 2010, the
University component units include the Foundation and Governors State University
Alumni Association (Alumni Association). The Alumni Association was dissolved
during fiscal year 2010.
The Foundation has an ongoing contract with the University which includes provisions
requiring the Foundation to comply with Section VI of the “University Guidelines 1982
(as amended 1997)” as adopted by the State of Illinois Legislative Audit Commission.
The contract requires that the University provide the Foundation with accounting and
32
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
other clerical services at no cost. University officials estimate the value of these services
for the year ended June 30, 2011 at $179,686, including all direct payroll expenses and
fringe benefits. The Foundation provided the University with support in the amount of
$242,521 for the year ended June 30, 2011. As of June 30, 2011, $9,952 is due to the
University from the Foundation.
Below are the condensed financial statements of the Foundation.
Condensed Statement of Net Assets
ASSETS
Current assets $ 783,912
Noncurrent assets 2,817,219
Total assets 3,601,131
LIABILITIES
Current liabilities 11,348
Total liabilities 11,348
NET ASSETS
Invested in capital assets 1,614,351
Restricted
Nonexpendable 1,236,831
Expendable 712,140
Unrestricted 26,461
Total net assets $ 3,589,783
33
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
Condensed Statement of Revenues, Expenditures and Changes in Net Assets
Operating revenues $ 192,706
Operating expenses 459,330
Net operating loss (266,624)
Nonoperating revenues 496,087
Net change to endowments 103,269
Capital asset contributions 76,000
Increase in net assets 408,732
Net assets - beginning of year 3,181,051
Net assets - end of year $ 3,589,783
Condensed Statement of Cash Flows
Net cash used in operating activities $ (264,989)
Net cash provided by noncapital financing activities 495,887
Net cash used in investing activities (676,459)
Net decrease in cash and cash equivalents (445,561)
Cash and cash equivalents - beginning of year 1,161,677
Cash and cash equivalents - end of year $ 716,116
Reconciliation of net operating loss to net cash used in operating activities:
Net operating loss $ (266,624)
Adjustment to reconcile net operating loss to
net cash used in operating activities:
Accounts payable 1,635
Net cash used in operating activities $ (264,989)
34
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
11. Commitments and Contingencies
The University is from time to time subject to various claims and legal actions related to
the University or the actions of its employees. Although it is difficult to quantify the
potential impact of these claims, management believes that the ultimate cost of these
matters will not adversely affect the University’s future financial condition or results of
operations.
The University has outstanding commitments totaling approximately $1.4 million related
to its deferred maintenance initiative projects.
12. Restricted Endowments
The Foundation’s endowment funds are generally invested in marketable securities which
are valued at market as of the statement of net assets date. Investment income is initially
assigned to the unallocated reserve in the restricted fund. Income is then allocated to
various accounts based on the endowment agreements and the approved spending plans.
On June 30, 2009, the State of Illinois passed the Uniform Prudent Management of
Institutional Funds Act. This State law allows the Foundation to appropriate for
expenditure an amount that it determines to be prudent for the uses, benefits, purposes,
and duration for which the endowment fund was established. In making these
appropriations, the Foundation must act in good faith and with the care that an ordinary
prudent person in a similar position would do.
The Foundation has adopted a spending policy of not to exceed 6.0% of a trailing twelve
month average of the market value of the assets as of April 1. The Foundation transfers
available investment earnings to the related expendable accounts on an annual basis.
13. Operating Leases
The University leases space in various buildings for off-campus classroom use. The
rental expense for these lease agreements was $113,609 for the year ended June 30, 2011.
Future minimum lease payment is $31,315 for fiscal year 2012.
35
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
NOTES TO BASIC FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2011
14. Pledged Revenues and Debt Service Requirements
The University has pledged specific revenues, net of specific operating expenses, to repay
the principal and interest of revenue bonds. The following is a schedule of the pledged
revenues and related debt:
PLEDGED REVENUES
BOND ISSUE PURPOSE
SOURCE OF
REVENUES
PLEDGED
FUTURE
REVENUES
PLEDGED1
TERM OF
COMMITMENT
(CURRENT
YEAR)
PLEDGED
REVENUES
TO DEBT
SERVICE2
University
Facilities
System Revenue
Bonds, Series
2007
Various improvements
and additions to the
University included in
its deferred
maintenance initiative
Net revenues of
the Student
Center, University
Bookstore,
University
Parking Facilities,
and University
Food Service and
Vending Facilities
$ 11,047,316 2028 5.43%
1 Total future principal and interest payments on debt.
2 Current year pledged net operating revenues (disregarding depreciation) versus total future debt service.
36
SUPPLEMENTARY INFORMATION
(Comparative
totals only)
2011 2010
ASSETS
Current assets
Cash and cash equivalents $ 727,218 $ 777,460
Cash and cash equivalents, restricted 1,032,704 1,248,343
Unamortized debt issuance costs - current 8,787 8,787
Total current assets 1,768,709 2,034,590
Noncurrent assets
Unamortized debt issuance costs 136,194 144,981
Capital assets 10,587,910 10,181,596
Accumulated depreciation (1,456,260) (1,190,622)
Total noncurrent assets 9,267,844 9,135,955
Total assets 11,036,553 11,170,545
LIABILITIES
Current liabilities
Accounts payable 80,389 227,621
Revenue bonds payable 336,738 321,738
Total current liabilities 417,127 549,359
Noncurrent Liabilities
Revenue bonds payable 7,691,945 8,028,683
Total noncurrent liabilities 7,691,945 8,028,683
Total liabilities 8,109,072 8,578,042
NET ASSETS
Invested in capital assets, net of related debt 1,405,389 1,012,827
Restricted: expendable - debt service 649,856 647,956
Unrestricted 872,236 931,720
Total net assets $ 2,927,481 $ 2,592,503
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
UNIVERSITY FACILITIES SYSTEM REVENUE BONDS, SERIES 2007
STATEMENT OF NET ASSETS
JUNE 30,
37
(Comparative
totals only)
2011 2010
OPERATING REVENUES
Bookstore commissions $ 144,501 $ 173,623
Food and vending commissions 31,394 23,370
Parking fees 447,250 472,401
Student center fees 1,374,949 1,412,811
Total operating revenues 1,998,094 2,082,205
OPERATING EXPENSES
Salaries and benefits 718,986 712,574
Scholarships and awards 450 8,278
Capital expenditures 31,769 88,461
Services, supplies and other 646,718 766,200
Depreciation 265,638 239,936
Total operating expenses 1,663,561 1,815,449
Net operating income 334,533 266,756
NONOPERATING REVENUES (EXPENSES)
Investment income 445 1,271
Other nonoperating expense - (974)
Net nonoperating revenues 445 297
Increase in net assets 334,978 267,053
NET ASSETS
Net assets - beginning of year 2,592,503 2,325,450
Net assets - end of year $ 2,927,481 $ 2,592,503
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
UNIVERSITY FACILITIES SYSTEM REVENUE BONDS, SERIES 2007
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30,
38
(Comparative
totals only)
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Bookstore commissions $ 144,501 $ 173,623
Food and vending commissions 31,394 23,370
Parking fees 447,250 472,401
Student center fees 1,374,949 1,412,811
Payments to suppliers for goods and services (678,937) (862,939)
Payments to employees for services (718,986) (712,574)
Net cash provided by operating activities 600,171 506,692
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES
Purchase of capital assets (218,541) (1,382,232)
Principal payments (320,000) (310,000)
Interest payments (327,956) (340,556)
Cash used in capital financing activities (866,497) (2,032,788)
CASH FLOWS FROM INVESTING ACTIVITY
Interest and dividend income 445 1,271
Cash provided by investing activity 445 1,271
Net decrease in cash and cash equivalents (265,881) (1,524,825)
Cash and cash equivalents - beginning of year 2,025,803 3,550,628
Cash and cash equivalents - end of year $ 1,759,922 $ 2,025,803
RECONCILIATION OF NET OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net operating income $ 334,533 $ 266,756
Adjustment to reconcile net operating income to net cash
provided by operating activities:
Depreciation expense 265,638 239,936
Net cash provided by operating activities $ 600,171 $ 506,692
Noncash Capital Financing Activities
FOR THE YEAR ENDED JUNE 30,
During fiscal year 2011, the University made interest payments of $327,956 to the bondholders. These
payments were reclassified to capital assets as interest incurred during the period of construction.
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
UNIVERSITY FACILITIES SYSTEM REVENUE BONDS, SERIES 2007
STATEMENT OF CASH FLOWS
39
Student Enrollment by Term (Unaudited)
Total Full-Time
Enrollment Equivalent
Fall Term, 2010 5,660 3,351
Spring Term, 2011 5,529 3,261
Summer Term, 2011 3,807 1,820
University Fees (Unaudited)
The following fees were in effect during the 2010-2011 academic year:
Amount
Student Center Fee $ 30
Student Activity Fee 36
Counseling and Career Services Fee 32
Parking Fee 30
Schedule of Insurance In Force (Unaudited)
Fire and extended coverage ($25,000 deductible) of:
Buildings
EDP and contents
Business interruption
Boiler and Machinery (included in blanket coverage limit)
Earthquake
Flood
General Liability
100,000,000
YEAR ENDED JUNE 30, 2011
100,000,000
100,000,000
19,650,000
16,525,694
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
UNIVERSITY FACILITIES SYSTEM REVENUE BONDS, SERIES 2007
The Facilities System is insured under a master policy covering the University. The following
insurance coverage applicable to the System was effective during the current fiscal year:
$ 180,270,343
32,617,873
40
E.C. ORTIZ & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' 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
Honorable William G. Holland
Auditor General
State of Illinois
and
The Board of Trustees
Governors State University
As Special Assistant Auditors for the Auditor General, we have audited the basic financial
statements of the business-type activities of the Governors State University (University) and
its aggregate discretely presented component unit, collectively a component unit of the State
of Illinois, as of and for the year ended June 30, 2011, which collectively comprise the
University's basic financial statements and have issued our report thereon dated
February 8, 2012. Our report was modified to include a reference to 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. Other auditors
audited the financial statements of the University's discretely presented component unit, as
described in our report on the University's financial statements. This report does not include the
results of the other auditors' testing of internal control over financial reporting or compliance
and other matters that are reported on separately by those auditors.
Internal Control Over Financial Reporting
Management of the University is responsible for establishing and maintaining effective internal
control over financial reporting. In planning and performing our audit, we considered the
University's internal control over financial reporting as a basis for designing our auditing
procedures for the purpose of expressing our opinion on the financial statements and not for the
purpose of expressing an opinion on the effectiveness of the University's internal control over
financial reporting. Accordingly, we do not express an opinion on the effectiveness of the
University's internal control over financial reporting.
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 entity's financial statements will not be prevented,
or detected and corrected on a timely basis.
333 SOUTH DES PLAINES STREET, SUITE 2-N CHICAGO, IL 60661 tel: 312.876.1900 fax: 312.876 . 1911
41
Our consideration of internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and was not designed to identify all
deficiencies in the internal control over financial reporting that might be deficiencies,
significant deficiencies or material weaknesses. We did not identify any deficiencies in
internal control over financial reporting that we consider to be material weaknesses, as
defined above. However, we identified certain deficiencies in internal control over financial
reporting, described in findings 11-1 and 11-2 in the accompanying schedule of findings that
we consider to be significant deficiencies in internal control over financial reporting.
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.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the University's financial
statements are free of material misstatement, we performed tests of its compliance with
certain provisions of laws, 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.
The University's responses to the findings identified in our audit are described in the
accompanying schedule of findings. We did not audit the University's responses and,
accordingly, we express no opinion on them.
This report is intended solely for the information and use of the Auditor General, the General
Assembly, the Legislative Audit Commission, the Governor, University management, Board
of Trustees and federal awarding agencies and pass-through entities and is not intended to be
and should not be used by anyone other than these specified parties.
"f;. . C • ~ 1. ~., 1..--Lf'
February 8, 2012
42
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FOR THE YEAR ENDED JUNE 30, 2011
SCHEDULE OF FINDINGS
CURRENT FINDINGS - GOVERNMENT AUDITING STANDARDS
11-1 Inaccurate Accounting for Intangible Assets
Governors State University (University) did not properly account for the costs
capitalized to intangible assets in accordance with accounting principles generally
accepted in the United States of America (GAAP).
On June 11, 2010, the University executed a contract with a vendor for the
implementation of its new Enterprise Resource Planning (ERP) system. In
accordance with the contract, the vendor provided the University with the ERP
software and hardware, and will provide services for implementation, training,
consulting, and software maintenance.
During our detailed testing of the related costs capitalized to intangible assets for the
fiscal year 2011, we noted that training and other post-implementation costs totaling
$369,825 were capitalized instead of being recorded as an expense resulting in an
overstatement of assets. This also resulted in an overstatement of $52,832 in the
related depreciation expense. The University subsequently made the necessary
adjustments in the financial statements.
Paragraph 13 of the Governmental Accounting Standards Board (GASB) Statement
No. 51, Accounting and Financial Reporting for Intangible Assets, states that outlays
associated with activities in the post-implementation/operation stage should be
expensed as incurred. In addition, paragraph 10(c) states that activities in the
post-implementation/operation stage include application training and software
maintenance.
Further, the Fiscal Control and Internal Auditing Act (30 ILCS 10/3001) requires the
University to establish and maintain a system of fiscal and administrative controls to
ensure resources are properly recorded and accounted for to permit the preparation of
accounts, reliable financial and statistical reports, and to maintain accountability over
the State’s resources.
University officials stated that the condition noted above was due to oversight.
Failure to properly account for intangible assets resulted in an overstatement of assets
and related depreciation expense on the University’s financial statements. (Finding
Code No. 11-1)
43
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FOR THE YEAR ENDED JUNE 30, 2011
SCHEDULE OF FINDINGS
CURRENT FINDINGS - GOVERNMENT AUDITING STANDARDS, Continued
Recommendation
We recommend the University review its current process for the preparation and
review of the annual financial statements to ensure that financial information is
accurate and in accordance with GAAP.
University Response
The University agrees and accepts this finding.
44
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FOR THE YEAR ENDED JUNE 30, 2011
SCHEDULE OF FINDINGS
CURRENT FINDINGS - GOVERNMENT AUDITING STANDARDS, Continued
11-2 Inaccurate Accounting for Participation in Public Entity Risk Pool
Governors State University (University) did not properly account for its participation
in the State Universities Risk Management Association (SURMA) in accordance with
accounting principles generally accepted in the United States of America (GAAP).
The University has been a member of SURMA since its inception on February 1,
1996. SURMA was created as a successor to the Board of Governors’ Self-Insurance
Liability Program. SURMA was initially funded by the surplus of the Board of
Governors’ Self-Insurance Liability Program upon its termination (treated as capital
contributions of the original participants), as well as additional contributions which
were assessed to the members. The SURMA members are Chicago State University,
Eastern Illinois University, Governors State University, Northeastern Illinois
University, and Western Illinois University. Each university has an employee
appointed as a member to the SURMA Board, which meets on a quarterly basis.
While all past payments made by the University to SURMA have been recorded to
prepaid insurance and amortized over the term of the current insurance policies, the
capital contributions to SURMA have not been recorded as an asset on the books of
the University. The University’s share of the excess capital contributions to SURMA
was $149,497 and $135,102 as of June 30, 2011 and June 30, 2010, respectively.
SURMA’s bylaws state that in the event of termination, if there are surplus funds
available, such surplus shall be distributed to the then-existing members in the same
proportion that each existing member’s contributions over the immediately previous
five years were in proportion to the contributions of all members. Similar provisions
also apply to members who elect to withdraw (if approved by the remaining
participants) prior to the termination of SURMA. The University subsequently made
the necessary adjustment in the financial statements to correct this error. During our
review of the adjustment, the University recorded the entire effect of the University’s
share of the excess capital contributions to SURMA in the current year. A proposed
entry to correct the University’s adjustment was not recorded by the University.
Further, we noted that the University did not adequately monitor SURMA to ensure
SURMA underwent an annual audit to provide assurance as to the accuracy of
financial information required to be reported by the University as is required by
Article 8, Item J of the SURMA Contract and By-Laws. An audit for fiscal year 2010
was not performed.
45
STATE OF ILLINOIS
GOVERNORS STATE UNIVERSITY
FOR THE YEAR ENDED JUNE 30, 2011
SCHEDULE OF FINDINGS
CURRENT FINDINGS - GOVERNMENT AUDITING STANDARDS, Continued
Governmental Accounting Standards Board (GASB) Interpretation No. 4 -
Accounting and Financial Reporting for Capitalization Contributions to Public Entity
Risk Pools was issued in February 1996 with an effective date of periods beginning
after June 15, 1996. It states, “A capitalization contribution to a public entity risk
pool with transfer or pooling of risk should be reported as a deposit if it is probable
that the contribution will be returned to the entity upon either the dissolution of or
approved withdrawal from the pool. An entity’s determination that a return of the
contribution is probable should be based on the provisions of the pooling agreement
and an evaluation of the pool’s financial capacity to return the contribution.”
Further, the Fiscal Control and Internal Auditing Act (30 ILCS 10/3001) requires the
University to establish and maintain a system of fiscal and administrative controls to
ensure resources are properly recorded and accounted for to permit the preparation of
accounts, reliable financial and statistical reports, and to maintain accountability over
the State’s resources.
The SURMA By-Laws were adopted cooperatively by the five universities formerly
under the Board of Governors and SURMA. The member universities have been
operating under those By-Laws since 1995, prior to the issuance of GASB
Interpretation No. 4. The condition found is the result of SURMA’s failure to review
and revise the By-Laws and the member institutions’ interpretation that the return of
the funds is not probable and hence the failure to record the related accounting
entries, as pointed out in the new audit finding this year.
Failure to adequately monitor SURMA’s activities and properly account for the
University’s participation in SURMA may result in a material misstatement on the
University’s financial statements. (Finding Code No. 11-2)
Recommendation
We recommend the University implement controls to monitor the activities of
SURMA and properly account for its participation in SURMA in accordance with
GAAP.
University Response
The University accepts this finding and concurs with the recommendation.
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