Minnesota State Colleges and Universities

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Minnesota State Colleges and Universities

• Board of Trustees Meeting
• November 8, 2005

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Table of Contents

• Audit Results, Reports Issued and New Standards
  Implemented, Including Component Units
• Management Recommendations
• Required Communication
• Financial Statement Highlights
• Questions and Open Discussion

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Audit Results Reports Issued

• Independent Auditors Report on Financial
  Statements (System Wide) Unqualified Opinion.
• Reasonable assurances on statements, which are
  responsibility of management
• Report References Other Campus Auditors for 2005
  and 2004.
• Statistical sampling used on most accounts
  ranging from 25 to 100.
• Independent Auditors report on Financial
  Statements (Revenue Bond) Unqualified Opinion.
• Report on Internal Control Over Financial
  Reporting and on Compliance Based Upon the Audit
  Performed in Accordance With Government Auditing
  Standards no findings or material weaknesses,
  except for revenue fund debt service reserves
  were not deposit by March 1, 2005, the required
  date.

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New Standards

• GASB 40 Deposit and Investment Risk
  Disclosures. Requires additional disclosure
  about credit quality and risks in MnSCUs cash
  and investment portfolio. Covers
• Credit risk
• Concentration risk
• Interest rate risk
• Foreign currency risk

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Component Units

• As required by GASB Statement 39.
• Includes University Foundations that are
  Significant. Includes Southwest, Winona,
  Metropolitan State, Mankato, Bemidji, Moorhead,
  Century, Fergus Area and St. Cloud.
• Total Assets at June 30, 2005 totaled
  130,758,000.
• Total Revenues recognized for the year ended June
  30, 2005 totaled 26,529,000.
• Shown as separate statement in the consolidated
  MnSCU report to allow the financial statement
  readers to distinguish between MnSCU and the
  Foundations.

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Management Recommendations

• System Access and Security Continue to review
  applicable system access rights at campus level
  to reduce incompatibilities.
• Financial Reporting Process and Structure
  Continue to implement financial management and
  audit assurance plan and train and pass down
  responsibilities to campus level.
• Accounting Disciplines Explore interim
  financial reporting to assist in year end work
  load, given the inherent limitations of the
  current system.
• Compensated Absences Review calculation tools
  to more accurately calculate liability at year
  end.
• GASB Statement 40 Develop and implement
  policies and procedures to address requirements
  of the statement.
• Computer Processing Environment/Information
  Protection Plan continue to implement OLA
  recommendations for security concerns
  (consistency and adequacy of security, system
  privileges, wireless networks, data warehouse
  security.)

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Management Recommendations

• New Accounting Pronouncements
• GASB 45 Post Employment Benefits effective
  June 30, 2008.
• GASB 40 Deposit and Investment Risk Disclosures
  effective June 30, 2005.
• GASB 42 Impairment of Capital Assets and for
  Insurance recoveries effective June 30, 2006.
• GASB 46 Net Asset restrictions effective June
  30, 2006.
• GASB 47 Accounting for Termination Benefits
  effective June 30, 2006.

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Required Communication

• OUR RESPONSIBILITY UNDER GENERALLY ACCEPTED
  AUDITING STANDARDS AND GOVERNMENT AUDITING
  STANDARDS reasonable but not absolute assurance
  that financial statements are free of material
  misstatement. Sampling used in testing. No
  opinion on internal controls.
• SIGNIFICANT ACCOUNTING POLICIES Note 1 to the
  Financial Statements
• ACCOUNTING ESTIMATES - the most sensitive
  estimates were
• Depreciation, Allowance for uncollectible A/R,
  Scholarship Allowances (Direct Method a change
  from 2004, which was restated as well), Workers
  Compensation Claims, Compensated Absences -
  reasonable and consistent, recalculations
  required for 2005.
• AUDIT ADJUSTMENTS - adjustments for compensated
  absences.
• DISAGREEMENTS WITH MANAGEMENT - none
• CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
  campus auditors via weekly conference calls.
• ISSUES DISCUSSED PRIOR TO RETENTION OF
  INDEPENDENT AUDITORS - normal
• DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
  compensated absences required recalculation and
  additional testing

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Financial Statement Highlights - Revenues

• Operating Revenue up 8.6 to 817,022,000.
• Tuition up 13.6, Fees up 2.5, sales up 2.8,
  room and board up 6.6.
• Scholarship allowance up 6.5 to 156,312,000
  restated for 2004 as a result of change in
  calculation method, which allocated more
  scholarship aid to tuition and fees, less to
  students.
• Grant Revenue Federal flat at 166M, State up
  10.3 , private grants down 7.2 to 12,717,000.

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Financial Statement Overview Expenses

• Operating Expenses increased 4.66 to
  1,377,466,000
• Salaries up 3.5 to 954,071,000
• Expenses increasing in 2005 include Purchased
  Services (6.7), Supplies (6.1), Depreciation
  (3.5), and Other (38.5)
• Expenses decreasing in 2005 include Repairs and
  Maintenance (-8.0) and Financial Aid (-10.4)

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Financial Statement Overview - Statement of
Revenues, Expenses Changes in Net Assets

• State Operating Appropriation down 2.4 to
  546,444,000, a decline of 13,187,000
• Capital Appropriation 36,952,000, compared to
  64,793,000 in 2004
• Other non-operating trends
• Investment income increased from 3,975,000 in
  2004 to 7,188,000 in 2005.
• Interest expense increased from 9,384,000 in
  2004 to 9,934,000 in 2005.
• Insurance proceeds declined from 2,848,000 in
  2004 to 0 in 2005 due to Southwest Minnesota
  State Fire being finalized
• Grants to Other Organizations decreased from
  9,272,000 in 2004 to 7,493,000 in 2005.

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Financial Statement Overview - Statement of
Revenues, Expenses Changes in Net Assets

• Net Assets Increased 26,114,000 in 2005,
  compared to increase of 63,224,000 in 2004 and
  73,286,000 in 2003
• Net Assets decreased 11,509,000 prior to Capital
  Appropriations in 2005 compared to 2004 decrease
  of 5,324,000

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Financial Statement Overview - Statement of Net
Assets

• Net Assets Restrictions increased from
  71,312,000 in 2004 to 74,766,000 in 2005 due
  to increase in bond covenant restrictions and
  reduction in legislative mandated restrictions
  refer to Note 1 for further details
• Invested in Capital Assets increased from
  854,354,000 in 2004 to 865,846,000 in 2005
  capital assets added 101,698,000, depreciation
  deducted 70,109,000
• Unrestricted Net Assets increased 11,168,000 in
  2005, to 171,818,000 at June 30, 2005.
  Represents 1.5 months of 2005 operating expenses,
  compared to 1.4 months in 2004 Typical goal of
  governments is 3-6 months, depending on
  philosophy, cash flow and board policy. General
  Fund required reserves at June 30, 2005 is
  57,465,616 and is included above.

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Financial Statement Overview - Statement of Net
Assets

• Total Assets increased to 1,654,444,000 at June
  30, 2005, up from 1,620,375,000 at June 30, 2004
• Capital Assets Net of Depreciation increased from
  1,025,934 at June 30, 2004 to 1,068,458,000 at
  June 30, 2005
• Depreciation expense of 70,109,000 recognized
  for FY 2005 as compared to 67,753,000 for FY
  2004
• Current Assets increased from 526,563,000 at
  June 30, 2004 to 529,700,000 at June 30, 2005, a
  result of increases in cash and investments
  (13,530,000), accounts receivable (4,892,000)
  and decrease in securities lending assets
  (-15,103,000)
• Restricted assets declined from 29,510,000 at
  June 30, 2004 to 22,750,000 at June 30, 2005,
  due to spend down of capital project funds

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Financial Statement Overview - Statement of Net
Assets

• Total Liabilities increased from 534,059,000 at
  June 30, 2004 to 542,014,000 at June 30, 2005
• Current Liabilities decreased from 220,640,000
  at June 30, 2004 to 210,382,000 at June 30,
  2005, primarily related to increases in salaries
  payable and compensated absences and decreases in
  accounts payable and securities lending
  liabilities
• Long-term liabilities increased from 313,419,000
  at June 30, 2004 to 331,632,000 at June 30, 2005
  due to increases in long term bonds payable and
  capital leases
• Bonds payable totaled 183,431,000 at June 30,
  2005, an increase of 5,942,000 from 2004

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Expendable Net Assets/Annual Operating Expenses
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Equity/Total Assets
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Expendable Net Assets/Outstanding Debt
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Questions and Open Discussion