REPORTNO.2009-160 M ARCH 2009UNIVERSITYOFCENTRALFLORIDAFinancialAuditFortheFiscalYearEndedJune30,2008 This is trial version www.adultpdf.com BOARD OF TRUSTEES AND PRESIDENT Members ofthe Board of Trustees and President who served during the 2007-08 fiscalyear are listed below: Board Member Richard Walsh, Chair Thomas Yochum, Vice-Chair Judith Albertson Logan Berkowitz from 5-08-08 (1) Olga Calvet Dr. Manoj Chopra (2) Patrick Christiansen Alan S. Florez Michael Grindstaff from 3-18-08 (3) Brandie Hollinger to 5-07-08 (1) Phyllis Klock Richard Nunis to 1-08-08 (4) Harris Rosen Conrad Santiago Al Weiss Dr. John C. Hitt, President Notes: (1) Student body president. (2) Faculty senate chair. (3) Not yet approved by theFlorida Senate. (4) Position was vacant from January 9, 2008, through March 17, 2008.The Auditor General conducts audits of governmental entities to provide the Legislature, Florida’s citizens, public entity management, and other stakeholders unbiased, timely, and relevant information for use in promoting government accountability and stewardship and improving government operations. Theaudit team leader was James H. Cole, CPA, and theaudit was supervised by Brenda C. Racis, CPA. Please address inquiries regarding this report to James R. Stultz, CPA, Audit Manager, by e-mail at jimstultz@aud.state.fl.us or by telephone at (850) 922-2263. This report and other audit reports prepared by the Auditor General can be obtained on our Web site www.myflorida.com/audgen ; by telephone at (850) 487-9024; or by mail at G74 Claude Pepper Building, 111 West Madison Street, Tallahassee, Florida 32399-1450. This is trial version www.adultpdf.com MARCH2009REPORTNO.2009-160UNIVERSITYOFCENTRALFLORIDA TABLE OF CONTENTS PAGE NO. EXECUTIVE SUMMARY i INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS 1 MANAGEMENT’S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Statement of Net Assets 11 Statement of Revenues, Expenses, and Changes in Net Assets 13 Statement of Cash Flows 14 Notes to Financial Statements 16 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDITOFTHEFINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 39 Internal Control Over Financial Reporting 39 Compliance and Other Matters 40 PRIOR AUDIT FOLLOW-UP 41 This is trial version www.adultpdf.com MARCH2009REPORTNO.2009-160 and cash flows thereof forthefiscalyear 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 our report on our consideration oftheUniversityofCentral Florida’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, rules, regulations, contracts, and grant agreements and other matters included under the heading INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDITOFTHEFINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS . The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The MANAGEMENT’S DISCUSSION AND ANALYSIS on pages 3 through 10 is not a required part ofthe 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 ofthe required supplementary information. However, we did not auditthe information and express no opinion on it. Respectfully submitted, David W. Martin, CPA February 26, 2009 -2- This is trial version www.adultpdf.com MARCH2009REPORTNO.2009-160 MANAGEMENT’S DISCUSSION AND ANALYSIS The management’s discussion and analysis (MD&A) provides an overview ofthefinancial position and activities oftheUniversityforthefiscalyearendedJune30, 2008, and should be read in conjunction with thefinancial statements and notes thereto. This overview is required by Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements–and Management’s Discussion and Analysis–for Public Colleges and Universities, as amended by GASB Statements Nos. 37 and 38. On March 18, 2008, the name ofthe UCF Health Facilities Corporation (a University direct-support organization) was changed to the UCF Finance Corporation. This entity is a component unit ofthe University, and its financial information was blended into theUniversityfinancial statements. Wherever necessary, this entity’s financial information is identified in the comparative information noted below in the discussion ofthe variances between the 2007-08 and 2006-07 fiscal years. The MD&A, and financial statements and notes thereto, are the responsibility ofUniversity management. OVERVIEW OFFINANCIAL STATEMENTS Pursuant to GASB Statement No. 35, the University’s financialreport includes three basic financial statements: the statement of net assets; the statement of revenues, expenses, and changes in net assets; and the statement of cash flows. Thefinancial statements, and notes thereto, encompass theUniversity and its component units. These component units include: ¾ Blended Component Unit • The UCF Finance Corporation ¾ Discretely Presented Component Units • TheUniversityofCentralFlorida Foundation, Inc. • TheUniversityofCentralFlorida Research Foundation, Inc. • The UCF Athletics Association, Inc. • The UCF Convocation Corporation. • The Golden Knights Corporation. Information regarding these component units, including summaries of their separately issued financial statements, is presented in the notes to thefinancial statements. This MD&A focuses on the University, excluding the component units. For those component units reporting under GASB standards, MD&A information is included in their separately issued audit reports. FINANCIAL HIGHLIGHTS The University’s assets totaled $1,130.1 million at June30,2008. This balance reflects a $142.8 million, or 14.5 percent, increase from the 2006-07 fiscal year. Liabilities increased by $17.8 million, or 5.5 percent, totaling $340 million at June30, 2008, compared to $322.2 million at June30, 2007. As a result, the University’s net assets increased by $125 million, reaching a year-end balance of $790.1 million. -3- This is trial version www.adultpdf.com MARCH2009REPORTNO.2009-160The University’s revenues totaled $786.8 million forthe 2007-08 fiscal year, representing a 9.7 percent increase over the 2006-07 fiscalyear due mainly to the University’s continued enrollment growth, continued growth in sponsored research, and an increase of capital donations forthe College of Medicine. Expenses totaled $661.8 million forthe 2007-08 fiscal year, representing an increase of 5.9 percent over the 2006-07 fiscal year. T HE STATEMENT OF NET ASSETS The statement of net assets reflects the assets and liabilities ofthe University, using the accrual basis of accounting, and presents thefinancial position oftheUniversity at a specified time. The difference between total assets and total liabilities, net assets, is one indicator ofthe University’s current financial condition. The changes in net assets that occur over time indicate improvement or deterioration in the University’s financial condition. The following summarizes the University’s assets, liabilities, and net assets at June 30: 2008 2007 Assets Current Assets 362,778$ 302,923$ Capital Assets, Net 628,837 571,465 Other Noncurrent Assets 138,520 112,979 Total Assets 1,130,135 987,367 Liabilities Current Liabilities 88,935 73,117 Noncurrent Liabilities 251,088 249,089 Total Liabilities 340,023 322,206 Net Assets Invested in Capital Assets, Net of Related Debt 480,871 425,445 Restricted 168,169 143,096 Unrestricted 141,072 96,620 Total Net Assets 790,112$ 665,161$ Condensed Statement of Net Assets (In Thousands) Total current assets increased by $60 million from the prior year mainly due to increases in investments of $43.5 million and amounts due from state of $15.6 million. TheUniversity had significant construction activity during the year. Major construction projects currently in progress include the (1) Burnett Biomedical Science Center, (2) Physical Science Building, (3) Medical School, and (4) Arts Complex II. These four projects represent 95 percent ofthe University’s construction in progress as ofJune30, 2008, and accounted forthe $57 million increase in capital assets. -4- This is trial version www.adultpdf.com MARCH2009REPORTNO.2009-160 T HE STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The statement of revenues, expenses, and changes in net assets presents the University’s revenue and expense activity, categorized as operating and nonoperating. Revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid. The following summarizes the University’s activity forthe 2007-08 and 2006-07 fiscal years: 2007-08 2006-07 Operating Revenues 291,414$ 261,272$ Operating Expenses 627,251 589,085 Operating Loss (335,837) (327,813) Net Nonoperating Revenues 366,566 347,537 Income Before Other Revenues, Expenses, Gains, or Losses 30,729 19,724 Other Revenues, Expenses, Gains, or Losses 94,222 72,788 Net Increase in Net Assets 124,951 92,512 Net Assets, Beginning ofYear 665,161 572,649 Net Assets, End of Yea r 790,112$ 665,161$ Condensed Statement of Revenue, Expenses, and Changes in Net Assets (In Thousands) The increase in net assets of $125 million is the result of several factors. Major increases in revenue were as follows: ¾ Grants and contracts increased by $18.3 million, or 20.1 percent. ¾ Net student tuition and fees increased by $9.2 million, or 7.7 percent. ¾ Capital grants, contracts, and donations increased by $19.4 million. ¾ Federal and State student financial aid increased $8.7 million, or 10.8 percent. Operating Revenues GASB Statement No. 35 categorizes revenues as either operating or nonoperating. Operating revenues generally result from exchange transactions where each ofthe parties to the transaction either give up or receive something of equal or similar value. -5- This is trial version www.adultpdf.com MARCH2009REPORTNO.2009-160The following summarizes the operating revenues by source that were used to fund operating activities during the 2007-08 and 2006-07 fiscal years: 2007-08 2006-07 Net Tuition and Fees 128,836$ 119,672$ Grants and Contracts 109,232 90,930 Sales and Services of Auxiliary Enterprises 47,964 47,287 Other 5,382 3,383 Total Operating Revenues 291,414$ 261,272$ Operating Revenues (In Thousands) Operating Expenses Expenses are categorized as operating or nonoperating. The majority ofthe University’s expenses are operating expenses as defined by GASB Statement No. 35. GASB gives financial reporting entities the choice of reporting operating expenses in the functional or natural classifications. TheUniversity has chosen to reportthe expenses in their natural classification on the statement of revenues, expenses, and changes in net assets and has displayed the functional classification in the notes to financial statements. The following summarizes the operating expenses by natural classifications forthe 2007-08 and 2006-07 fiscal years: 2007-08 2006-07 Compensation and Employee Benefits 393,017$ 365,944$ Services and Supplies 119,780 113,151 Utilities and Communications 18,103 19,270 Scholarships, Fellowships, and Waivers 49,325 49,008 Depreciation 47,026 41,712 Total Operatin g Expenses 627,251$ 589,085$ Operating Expenses (In Thousands) Nonoperating Revenues and Expenses Certain revenue sources that theUniversity relies on to provide funding for operations, including State appropriations, certain gifts and grants, and investment income, are defined by GASB as nonoperating. Nonoperating expenses include capital financing costs and other costs related to capital assets. The following summarizes the University’s nonoperating revenues and expenses forthe 2007-08 and 2006-07 fiscal years: -6- This is trial version www.adultpdf.com . REPORT NO. 2009- 160 M ARCH 2009 UNIVERSITY OF CENTRAL FLORIDA Financial Audit For the Fiscal Year Ended June 30, 2008 This is trial version www.adultpdf.com BOARD OF TRUSTEES. overview of the financial position and activities of the University for the fiscal year ended June 30, 2008, and should be read in conjunction with the financial statements and notes thereto version www.adultpdf.com MARCH 2009 REPORT NO. 2009- 160 The University s revenues totaled $786.8 million for the 2007-08 fiscal year, representing a 9.7 percent increase over the 2006-07 fiscal year due mainly to the