Minnesota State Colleges and Universities

Board of Trustees MeetingDecember 14, 2004

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

Audit Results – Reports Issued • Independent Auditors’ Report on Financial Statements (System

Wide) – Unqualified Opinion.• Report References Other Campus Auditors and 2003 System

Wide Auditors.• Independent Auditors’ report on Financial Statements (Revenue

Bond) – Unqualified Opinion. • Independent Auditors’ Report on Compliance and on Internal

Control Over Financial Reporting Based Upon the Audit Performed in Accordance With Government Auditing Standards – no findings or material weaknesses, except for certain colleges and universities that did not maintain depository insurance/collateral securities at required minimum levels during the year.

New Standards• SAS 99 – New Fraud Standards. Requires

additional communication of fraud risks, increased documentation of fraud risks and unpredictable audit tests for risk areas. No fraud identified as a result of our testing.

• GASB 39 – Component Units. Requires reassessment of significant component units. The seven University Foundations were deemed significant and included in the annual audit report. Separate pages for identification of component units.

Component Units• New for Fiscal year 2004 audit, as required by GASB

Statement 39.• Includes University Foundations that are “Significant”.

Includes Southwest, Winona, Metropolitan State, Mankato, Bemidji, Moorhead and St. Cloud.

• Total Assets at June 30, 2004 totaled $114,279,000• Total Revenues recognized for the year ended June 30,

2004 totaled $25,314,000.• Shown as separate statement in the consolidated MnSCU

report to allow the financial statement readers to distinguish between MnSCU and the Foundations.

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 train and pass down responsibilities to campus level.

• Accounting Disciplines – Explore interim financial reporting to assist in year end work load.

• Computer Processing Environment/Information Protection Plan – continue to implement OLA recommendations for security concerns (consistency of security, system privileges, password management, data warehouse security.)

Management Recommendations• New Accounting Pronouncements –

– GASB 45 – Post Employment Benefits – effective June 30, 2008.

– GASB 39 – Component Units – implemented June 30, 2004.

– 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.

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 (Alternate

Method), Workers Compensation Claims, Compensated Absences - reasonable and consistent

• AUDIT ADJUSTMENTS - reallocation of capital appropriations between campuses and the adjustments for prior year compensated absences and capital assets.

• DISAGREEMENTS WITH MANAGEMENT - none• CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS – campus

auditors• ISSUES DISCUSSED PRIOR TO RETENTION OF INDEPENDENT AUDITORS

- normal• DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT - none

Revenues - 2004 and 2003

$559,631,000$592,802,000

$498,882,000$449,917,000

$165,993,000$161,352,000

$64,793,000$86,364,000$71,720,000$75,421,000

$57,446,000$50,875,000$30,845,000$46,454,000

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

2003 2004

Operating Appropriations Tuition, Auxiliary and Sales, Net Federal Grants Capital Appropriations

State and Private Grants Restricted Student Payments, Net Other

2004 Revenues - $1,449,310,000

Tuition, Auxiliary and Sales, Net $498,882,000

34%

Restricted Student Payments, Net $57,446,000

4%Other $24,642,000

2%

Investment Income $4,152,000

0%

State and Private Grants $71,720,000

5%

Federal Grants $165,993,000

11%

Capital Appropriations $64,793,000

4%

Operating Appropriations $559,631,000

39%

2003 Revenues - $1,463,185,000

Operating Appropriations $592,802,000

41%

Tuition, Auxiliary and Sales, Net $449,917,000

31%

Federal Grants $161,352,000

11%

Restricted Student Payments, Net $50,875,000

3%

State and Private Grants $75,421,000

5%

Other $38,084,000

3%

Investment Income $6,233,000

0%

Donated Assets 2,137,000

0%Capital Appropriations $86,364,000

6%

Expenses - 2004 and 2003

$895,635,000$922,014,000

$147,363,000$151,049,000$73,116,000$64,236,000

$34,466,000$45,714,000$67,753,000$66,555,000

$74,968,000$85,625,000

$57,022,000$72,602,000$9,384,000$8,483,000

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

$1,000,000,000

2003 2004

Salaries Purchased Services Supplies Repairs and Maintenance Depreciation Financial Aid Other Interest

2004 Expenses - $1,386,086,000

Salaries$922,014,000

67%

Supplies$73,116,000

5%

Depreciation$67,753,000

5%Financial Aid$74,968,000

5%

Other$57,022,000

4%

Purchased Services$147,363,000

11%

Repairs and Maintenance$34,466,000

2%

Interest$9,384,000

1%

2003 Expenses - $1,389,899,000

Salaries$895,635,000

64%

Repairs and Maintenance$45,714,000

3%

Depreciation$66,555,000

5%Financial Aid$85,625,000

6%Other

$72,602,000 5%

Supplies$64,236,000

5%

Purchased Services$151,049,000

11%

Interest$8,483,000

1%

Change in Net Assets

$63,224,000

$73,286,000

$0

$25,000,000

$50,000,000

$75,000,000

$100,000,000

2003 2004

Change in Net Assets

Financial Statement Overview - Statement of Net Assets

• Net Assets Restrictions decreased from $99,382,000 in 2003 to $71,312,000 in 2004 – due to drop in Capital Project Restrictions.

• Invested in Capital Assets increased from $794,297,000 in 2003 to $854,354,000 in 2004 – capital assets added $148,150,000, depreciation deducted $67,753,000.

• Unrestricted Net Assets increased $31,237,000 in 2004, to $160,650,000 at June 30, 2004. Represents 1.4 months of 2004 operating expenses, compared to 1.1 months in 2003. Typical goal of governments is 3-6 months, depending on philosophy, cash flow and board policy. General Fund required reserves at June 30, 2004 is $51,568,000 and is included above.

Cash and Investment and Net Asset Balances

$794,297,000

$71,312,000$99,382,000

$160,650,000$129,413,000

$854,354,000

$372,636,000 $422,260,000$440,588,000 $451,770,000

$0

$250,000,000

$500,000,000

$750,000,000

$1,000,000,000

2003 2004Restricted Net Assets Unrestricted Net AssetsInvested in Capital Assets, Net of Related Debt Unrestricted Cash and Equivalents BalanceTotal Cash and Equivalents Balance

Statement of Net Assets - In Thousands

$460,269$526,563

$72,759 $40,745

$963,485$1,053,067

$1,620,375

$186,786 $220,640$286,635 $313,419

$473,421$534,059

$1,023,092$1,086,316

$1,496,513

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

2003 2004

Total Current Assets Total Restricted Assets Total Non Current Assets Total Assets

Total Current Liabilities Total Non Current Liabilities Total Liabilities Total Net Assets

Expendable Net Assets/Annual Operating Expenses

Primary Reserve Ratio

0.149

0.169

0.166

0.135

0.14

0.145

0.15

0.155

0.16

0.165

0.17

0.175

2002 2003 2004

Primary Reserve Ratio

Equity/Total Assets

Equity Ratio

0.67 0.670.68

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

2002 2003 2004

Equity Ratio

Expendable Net Assets/Outstanding Debt

Viability Ratio

1.184

1.248 1.289

0

0.25

0.5

0.75

1

1.25

1.5

2002 2003 2004

Viability Ratio

Revenue Fund - Performance• Net assets increased $6.8 million in 2004

compared to $13.4 million in 2003.• Operating Revenue up $6.1 million over 2003 or

10%, a result of Room & Board increases across the campuses and added capacity at Winona campus.

• Operating Expenses up $6.5 million over 2003 or 12% with much of the increases in Purchased Services and Supplies.

Questions and Open Discussion