February 22, 2005
Dr. Charles Kupchella, President
University of North Dakota
PO Box 8193
Grand Forks, ND 58202
Dear President Kupchella:
I am pleased to forward the 2004 Annual Financial Report for the University of North
Dakota, covering the fiscal year from July 1, 2003 to June 30, 2004. The financial statements
are prepared in accordance with generally accepted accounting principles as presented by the
Governmental Accounting Standards Board (GASB), which is the accepted primary standard-
setting body for establishing governmental accounting and financial reporting principles.
Robert C. Gallager
Vice President for Finance and Operations
UNIVERSITY OF NORTH DAKOTA
Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS
Background Information 3
Mission Statement 4
Noteworthy Accomplishments 4
Other Statistical Highlights 5
Economic Factors 9
General Fund Budgetary Highlights 10
Financial Highlights 11
Financial Ratios 19
Financial Contacts 20
Statement of Net Assets 21
Statement of Revenue, Expenses, and Changes in Net Assets 22
Statement of Cash Flows 23
Notes to Financial Statements
Note 1 – Summary of Significant Accounting Policies 25
Note 2 – Deposits and Investments 31
Note 3 – Receivables 34
Note 4 – Endowments 34
Note 5 - Capital Assets 35
Note 6 – Accounts Payable and Accrued Liabilities 36
Note 7 – Long Term Liabilities 36
Note 8 – Bonds Payable 37
Note 9 – Notes Payable 38
Note 10 – Capital Leases 38
Note 11 – Other Long Term Liabilities 39
Note 12 – Retirement Benefits 40
Note 13 – Post Retirement Benefits 41
Note 14 – Commitments 43
Note 15 – Component Unit Transactions 43
Note 16 – Related Party Transactions 45
Note 17 – On-Behalf Payments 45
Note 18 – Inter-fund Activity 46
Note 19 – Operating Leases 46
Note 20 – Contingencies 46
Note 21 – Functional Expense Classification 47
Note 22 – Flood Damages 47
Note 23 – Advances from Bank of North Dakota 47
Note 24 – Risk Management 48
Note 25 – Asbestos Settlement 49
Note 26 – Deficit Fund Balances 49
Note 27 – Subsequent Events 49
MANAGEMENT’S DISCUSSION AND ANALYSIS
The University of North Dakota’s (UND) discussion and analysis provides an overview of the University’s
financial activities for the year ending June 30, 2004. It is designed to focus on current year activities in an effort
to assist readers in understanding how those activities impacted the accompanying financial statements. The
financial activity of the eleven public post-secondary campuses under the control of the North Dakota
University System (NDUS), including the University of North Dakota, is combined into a single financial
report, audited by the North Dakota State Auditor’s Office (SAO). The single financial report is available at
www.state.nd.us/auditor/reports.htm or by contacting any of the UND financial contacts listed on page 20. In
compliance with NDCC section 54-10-01, the SAO is required to perform additional financial related audits for
each campus every two years. The SAO also performs a third audit every two years known as the State of North
Dakota Single Audit. This is an audit of the federal funds received by UND. These audit reports are also
available at www.state.nd.us/auditor/reports.htm
The University of North Dakota issues a financial report annually. The financial statements presented in this
annual report are extracted from the single financial report of the eleven public post-secondary campuses under
GASB 14, the Financial Reporting Entity, established standards for defining and reporting on the financial
reporting entity. This standard was used in deciding which related entities are component units and which are
only considered related parties. Effective July 1, 2003, GASB 14 was amended with GASB 39, Determining
Whether Organizations Are Component Units. The objective of GASB 39 is to clarify reporting requirements for
The University of North Dakota Aerospace Foundation (UNDAF), the UND Alumni
Association & Foundation, and the RE Arena Inc., UND Arena Services Inc., Arena Holdings
Charitable LLC & Affiliates are component units of the University of North Dakota. These
units are separate legal entities with their own audit reports. In the combined single financial
audit for NDUS, these entities are discretely presented in a separate column. In this financial
report, these entities are excluded. For component unit financial information, see the contact
list on page 20.
The University of North Dakota Center for Innovation Foundation (CIF), The Fellows, Law
School Foundation, and EERC Foundation are related entities, not component units. The
financial statements of these entities are not part of this financial report nor are they discretely
presented in the single financial report. These financial statements are referenced in Note 16 of
The University of North Dakota at Grand Forks is one of the largest and most diversified universities in the
Upper Midwest. Enrolling 13,187 students in the fall of 2004, it has long been characterized by a solid foundation
in the liberal arts, a comprehensive array of colleges and schools (including law and medicine), a manageable size,
high-quality students and faculty, a varied curriculum, rich cultural resources, and an outstanding record of
alumni support. Classified by the Carnegie Foundation as a “doctoral/research-intensive” institution, UND is
among the small group of nationally important universities whose missions extend beyond undergraduate
instruction to include graduate education, research, scholarship and creative activity, and public service.
The University offers 87 undergraduate programs of study, 56 master’s programs, one specialist’s program, 22
doctoral programs, and the M.D. and J.D. (law) degrees.
Academic divisions include the John D. Odegaard School of Aerospace Science, College of Arts and Sciences,
College of Business and Public Administration, College of Education and Human Development, School of
Engineering and Mines, Graduate School, School of Law, School of Medicine and Health Sciences, College of
Nursing, and Division of Continuing Education.
The 549-acre campus includes 234 buildings and 5.23 million square feet of space under roof, not including the
Ralph Engelstad Arena and the Alerus Center, owned by other entities but heavily used by UND.
The University of North Dakota, as a member of the North Dakota University System, serves the state, the
country, and the world community through teaching, research, creative activities, and service. State-assisted, the
University's work depends also on federal, private, and corporate sources. With other research universities, the
University shares a distinctive responsibility for the discovery, development, preservation, and dissemination of
knowledge. Through its sponsorship and encouragement of basic and applied research, scholarship, and creative
endeavor, the University contributes to the public well-being.
The University maintains its original mission in liberal arts, business, education, law, medicine, engineering and
mines; and has also developed special missions in nursing, fine arts, aerospace, energy, human resources, and
international studies. It provides a wide range of challenging academic programs for undergraduate, professional
and graduate students through the doctoral level. The University encourages students to make informed choices,
to communicate effectively, to be intellectually curious and creative, to commit themselves to lifelong learning
and the services of others, and to share responsibility both for their own communities and for the world. The
University promotes cultural diversity among its students, staff and faculty.
In addition to its on-campus instructional and research programs, the University of North Dakota separately and
cooperatively provides extensive continuing education and public service programs for all areas of the state and
• UND awarded 2,327 degrees, including the 100,000th since its founding in 1883, six years before statehood.
• Overall enrollment grew for the sixth straight year, reaching a record 13,187.
• Enrollment in the graduate school grew to 2,045, maintaining its rank as the second largest in the region of
North Dakota, South Dakota, Minnesota and Montana. The number of students pursuing Ph.D. and Ed.D.
degrees rose by 136 students, to 516.
• The dollar value of new external grants rose for the seventh straight year, to $82.7 from $71 million the
• Additional progress was made in improving faculty salaries. The gap between UND’s average pay and the
national average has been cut in half since 1998.
• The Higher Learning Commission of the North Central Association of Colleges and Schools renewed
UND’s accreditation for another ten years.
• UND led the NCAA’s Division II in football attendance, with a total gate of 81,229.
OTHER STATISTICAL HIGHLIGHTS
1999 2000 2001 2002 2003 2004
FALL Headcount 10,590 11,031 11,764 12,423 13,034 13,187
FALL FTE 9,376 9,855 10,471 11,020 11,587 11,702
Total Enrollment FTE Enrollment
Fall 99 Fall 00 Fall 01 Fall 02 Fall 03 Fall 99 Fall 00 Fall 01 Fall 02 Fall 03
UND Average of Peer Group UND Average of Peer Group
Since the Fall of 1999, enrollment continues to steadily increase; Fall 2002 rose by 5% and Fall 2003 also
increased by 5%.
The 1999 North Dakota Legislative Assembly passed a resolution directing a study to be conducted which would
"…address the expectations of the North Dakota University System in meeting the state's needs in the twenty
first century, the funding methodology needed to meet these expectations and needs, and an accountability
system and reporting methodology for the University System."
An interim committee (Roundtable) was appointed that included 21 legislators plus 40 leaders from government,
education and the private sector. In May 2000 the Roundtable issued a report entitled "A North Dakota
University System for the 21st Century." Institutional, Board, Legislative and Executive action has resulted in
the implementation of many of the recommendations included in the original report.
Based on recommendations in the report, a revised system of funding and rewards was developed revolving
around three components. The components include base funding, asset (capital) funding and incentive funding
(special initiative). Operating fund benchmarks for determining funding requests were established for each North
Dakota University System institution using data from peer comparison institutions. These operating
benchmarks were established on the basis of comparing unrestricted revenues: state appropriations and net
In addition to the funding benchmarks, accountability measures have been defined to validate system and
institutional performance. The University of North Dakota utilizes peer comparisons, the accountability
measures and other progress indicators to inform decisions made within the context of the institution strategic
Based on Board approval, the criteria used for selection of peer comparators included:
• Public institutions only
• City size
• Carnegie Classification of Institutions
• Land grant or medical school
• Total FTE students
• Total headcount enrollment
• Percent part-time headcount
• Degrees awarded (certificate, associate, baccalaureate, master, etc.)
• Degree program mix (natural science, education, business, engineering, etc.)
• Research expenditures
UND Peer Institutions include:
• Ohio University
• Southern Illinois University – Carbondale
• SUNY at Buffalo
• University of Louisville
• University of Missouri – Kansas City
• University of Nevada – Reno
• University of South Carolina at Columbia
• West Virginia University
• Wright State University
TUITION AND FEES
In-State Undergraduate Tuition & Fees Out-State Undergraduate Tuition & Fees
$14,000 $14,000 12,351
$12,000 $12,000 11,023
9,417 9,922 9,902
$10,000 $10,000 8,806 8,744 8,595
$8,000 $8,000 6,774 7,098
4,548 4,156 5,167 $6,000
3,620 3,088 3,870 3,262 4,079 3,662
$4,000 2,830 3,502 2,956 $4,000
FY99 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04
UND Average of Peer Group UND Average of Peer Group
UND’s in-state undergraduate tuition and fees continues to be approximately 80% of its peers. UND’s in-state
tuition and fees have increased from 4% to 13% over the last five years, while the average increase of the peer
group has been similar with a range of 3% to 14%.
In-State Graduate Tuition & Fees Out-State Graduate Tuition & Fees
$14,000 $14,000 12,551
$12,000 $12,000 11,228 10,604
8,943 8,982 9,196
$10,000 $10,000 7,997 8,422
$6,000 3,916 4,078 4,312 4,568 3,887 5,045 4,418 $6,000
3,040 3,166 3,298 3,472
FY99 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04
UND Average of Peer Group UND Average of Peer Group
UND’s in-state graduate tuition and fees is approximately 77% of its peers. Graduate tuition and fee rates have
increased from 4% to 14% compared to the 4% to 14% increase of the peer group.
TUITION AND FEES - continued
In-State Law School Tuition & Fees Out-State Law School Tuition & Fees
$20,000 $20,000 18,068
13,649 13,741 12,516
$15,000 $15,000 10,978
9,702 9,220 9,558 9,984
7,780 8,724 7,896
$10,000 6,371 6,787 7,283 $10,000
4,682 5,180 5,760
3,250 4,376 4,508
FY99 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04
UND Average of Peer Group UND Average of Peer Group
UND’s in-state law school tuition and fees is 59% of its peers. In-state rates have increased from 3% to 35% over
the last six years compared to the average increase of the peer group ranging from 7% to 12%.
In-State Medical School Tuition & Fees Out-State Medical School Tuition & Fees
$50,000 $50,000 41,678
$40,000 $40,000 36,611 35,251
27,302 25,593 27,153 28,933
$20,000 16,058 17,019
13,046 13,565 14,155 15,225 $20,000
10,518 10,976 11,432 11,624 12,424 12,398
FY99 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04
UND Average of Peer Group UND Average of Peer Group
UND’s in-state medical school tuition and fees is 94% of its peer group. UND in-state tuition and fees increased
5% to 13% over the past six years, compared to a 6% to 12% increase of the peer group.
EMPLOYEES – FULL TIME EQUIVALENT - BUDGETED FTE*
2000 2001 2002 2003 2004
General/Tuition Funded (Appropriated) 1,363 1,375 1,441 1,464 1,494
Other Funded 1,370 1,337 1,383 1,445 1,505
TOTAL 2,733 2,712 2,824 2,909 2,999
*Numbers taken from annual budget
Full time equivalent employees is calculated using an annual 2080 standard work schedule, for example an
employee working 40 hours a week is 1.0 FTE while an employee working 20 hours a week is .50 FTE.
The number of UND employees, funded from non-traditional sources, is growing at a higher rate than general
and tuition-funded employees. Fiscal year 2004 appropriated employees grew at a rate of 2% vs. other funded
employees growing at a rate of 4%.
A1 Moody’s Investor Services
This rating reflects:
• Successful enrollment management, leading to growing enrollment despite a weak demographic
• Manageable debt with good levels of financial reserves; and
• Favorable operating performance despite flat state funding.
A+ Standard & Poor’s
This rating reflects:
• The institution’s flagship position in the state, with steady state support that amounted to $6,580 per
full-time equivalent (FTE) in 2003;
• Stable financial operations, with historically good debt service coverage;
• Manageable debt levels, with fairly limited additional debt plans;
• Significant growth in both student headcount and applications, coupled with a strong matriculation rate;
• Comprehensive course offerings, with a medical school and a law school.
As stated in the General Budgetary Highlights, the University appropriation for the 2003-05 biennium is 1.8
percent less than the adjusted 2001-03 state general fund appropriation. In addition, the campus must self-fund
another $12.8 million. The State Board of Higher Education (SBHE) approved a range of tuition rate increases
for each campus over the current biennium. The actual average tuition increase for the 2003-04 academic year
was 16.5 percent. Other public campuses across the nation also experienced double-digit percentage tuition rate
increases. According to the “Trends in College Pricing 2003” report released by the College Board, average
tuition for 2003-04 increased by 14.1 percent at public four-year colleges. Enrollment continues to increase
despite the tuition rate increases.
State revenues were positively affected by improving market conditions. The state’s preliminary revenue
forecast issued August 16, 2004, indicates revenues are tracking 6.2 percent above the 2003 legislative forecast,
pointing to healthy growth in the state’s economy.
The number of ND public high school graduates continues to decline. Per data compiled by the Western
Interstate Commission for Higher Education in 2003, ND high school graduates will drop from 8,445 in 2001 to
5,687 in 2013, a 32 percent decline. This will have an impact on the University, as a large percentage of students
enrolled are ND high school graduates. The University has been proactive regarding this concern, by
continually seeking other options to sustain enrollment over the next 10 to 15 years.
GENERAL FUND BUDGETARY HIGHLIGHTS
The 2003 Legislative Assembly approved a state general fund appropriation for UND of $117.1 million for the
2003-05 biennium. This is a decrease of $2.139 million, or 1.8% less than the 2001-03 adjusted appropriation.
UND will to internally reallocate or fund from other revenues sources, including tuition, for other campus
strategic plan priorities and cost to continue base operations, including:
• Cost to continue fiscal year 2003 salary increases
• Non-salary inflation, including utilities
• Employee health insurance premium increases
• Salary increases for 2003-05
The University submits annual payroll and operating budgets as well as biennial budgets. These budgets are
developed consistent with SBHE guidelines. The budgets represent a comprehensive financial plan for the
institution, and as such, they include not only state funds, but also local funds, auxiliary funds, and grant and
contract funds for both the University and the Medical School.
The preparation of the individual budget documents vary slightly but generally fall into the following steps:
• Planning - Early in the budget cycle, discussions regarding the budget process and priorities occur. The
University Planning and Budget Committee, Council of Deans, and President's Cabinet are consulted.
In support of the budget decisions that must be made, the Budget Office updates budget schedules,
revenue projections, and various fee/recharge rates, as well as determining tentative funds available.
• Pending Budget Needs - Budget requests are received from the various departments or divisions
through the respective Vice President/President on an ongoing basis. These requests are tabulated by the
Budget Office in a pending needs list. This list is used to identify current needs as resources become
available at various times during the year.
• Review - Budgets are reviewed by the Budget Analyst to ensure accuracy and compliance with SBHE
guidelines. A comparison of budget to available funding is also performed.
• Department Preparation - Upon completion of the review process, the final budget documents are
assembled by the Budget Office and are distributed to the appropriate board, agency, or individual.
• Monitoring - Comparison of actual revenue and expenditures to budget occurs at various levels within
the institution. See Budget Monitoring for additional monitoring information.
Failure to link the budget to the strategic plan leads to the budget becoming the plan.
The University of North Dakota Strategic Plan explicitly identifies how budgeting will be linked to planning
including the role of the University Planning and Budget Committee. More information on UND Budgeting and
the UND Strategic Plan is available at www.und.edu/dept/undbudgt and www.und.edu/president .
STATEMENT OF NET ASSETS
Current assets $ 79,190,298 $ 84,063,553
Noncurrent assets 341,739,347 311,430,343
Total assets $ 420,929,645 $ 395,493,896
Current liabilities 30,200,516 28,687,968
Noncurrent liabilities 75,023,626 58,169,156
Total liabilities $ 105,224,142 $ 86,857,124
Invested in capital assets $ 225,120,909 $ 209,596,526
Restricted net assets 47,919,067 51,316,450
Unrestricted net assets 42,665,527 47,723,796
Total Net Assets $ 315,705,503 $ 308,636,772
The Statement of Net Assets reports all financial and capital resources of the University at the end of the fiscal
year. The assets and liabilities are shown in order of their relative liquidity. An asset’s liquidity is determined by
how readily it is expected to be converted to cash and whether restrictions limit the University’s ability to utilize
the resources. A liability’s liquidity is based on its maturity, or when cash is expected to be used to liquidate it.
Assets less liabilities is defined as net assets.
The University of North Dakota has assets of $420 million this fiscal year. Of this $420 million, $276 million or
66% are invested in capital assets. Capital assets are defined as assets used in the operations of the University that
have an initial useful life extending beyond a single reporting period. Capital assets include land, land
improvements, buildings, building improvements, infrastructure, moveable equipment and library books.
GASB 34 requires the University to recognize depreciation on all capital assets whose economic benefit or
service potential is used up slowly, lengthening their useful life. Depreciation expense calculated for every year
of useful life is reported as accumulated depreciation. Accumulated depreciation for FY04 is $190 million, which
is netted against capital assets.
Capital assets less accumulated depreciation include:
Land, Building & Infrastructure $331 million
Moveable Equipment $ 89 million
Library books $ 46 million
Subtotal $466 million
Less accumulated depreciation $190 million
Total $276 million
The next largest category of assets is cash and investments at $88 million or 21% of total assets. External parties
restrict $37 million or 43% of cash and investments. The remaining amount is held in 1000+ different funds in
over 250 departments. By comparison to other North Dakota University System (NDUS) institutions, it is not
uncommon to have 21% of total assets held in cash and investments. Last year, the cash and investment average
to total assets at the NDUS institutions was 17% while UND’s average was 19%.
The remaining assets consist of grants and contacts receivables at $16 million, notes receivables at $26 million,
and accounts receivables from students, customers and inventories at $15 million.
Total assets increased by $25 million or 6%. The increase is largely attributed to $18.6 million in bond proceeds
at the Bank of North Dakota for construction of the Wellness Center. Total cash and investments increased by
$9 million or 11%. If the $18.6 million in bond proceeds mentioned above is not calculated in the $9 million,
total cash and investments decreases by $9.6 million. This decrease is comprised of approximately $5 million in
bond proceeds spent to complete the EERC addition as well as $4 million of FY2003 general fund carryover
spent in FY2004.
The University of North Dakota has liabilities of $105 million this fiscal year. Current liabilities are calculated
at $30 million; while long-term liabilities are $75 million. Long-term liabilities increased by $17 million due to
the issuance of the Wellness Center bonds at $19.5 million. UND also committed $4.4 million to capital leases.
UND made bond payments of $1.9 million and capital lease payments of $5 million, which includes lease
revenue bonds for Aerospace and EERC.
The $420 million in assets is offset by the $105 million in liabilities. Total net assets for FY 2004 is $316 million.
Net assets increased by $7 million or 2% for FY2004. Of this $316 million in net assets, $225 million or 71% is
related to capital assets, $48 million or 15% is restricted by external parties, while the remaining balance of $43
million is unrestricted. The $43 million will still be listed as unrestricted even if UND internally designates its
purpose. UND has designated funds for capital projects, grant match, irregular operating cycles, as well as
departmental and campus initiatives.
STATEMENT OF REVENUE & EXPENSES & CHANGES IN NET ASSETS
Operating revenues $ 201,013,032 $ 171,814,073
Operating expenses 269,489,113 243,817,985
Operating loss $ (68,476,081) $ (72,003,912)
State appropriations 59,197,215 68,813,100
Other nonoperating revenue & expense 7,897,186 8,406,181
Income before capital revenue $ (1,381,680) $ 5,215,369
Capital state appropriations 1,205,079 1,436,945
Capital gifts & grants 7,245,332 3,678,676
Increase in net assets $ 7,068,731 $ 10,330,990
Net assets--beginning of year $ 308,636,772 $ 298,305,782
Net assets--end of year 315,705,503 308,636,772
Increase in net assets $ 7,068,731 $ 10,330,990
The Statement of Revenues, Expenses, and Changes in Net Assets is the operating statement of the University
and, as such, reports all revenues and expenses of the University for the fiscal year. Revenues, classified by major
sources, are reported net of related discounts and allowances. The Statement is further classified between
operating and non-operating revenues. The non-operating revenues and expenses are reported after operating
income. Revenues from capital gifts and state appropriations are reported separately apart from operating
revenues and expenses.
Accounting standard, GASB 35, requires state appropriations to be classified as non-operating activities rather
than operating activities. State appropriation expenditures are classified as operating activities. For this reason,
net cash provided from operations will appear as a deficit. UND’s funding for operations from state
appropriations was $59 million for this fiscal year.
Operating Revenue includes revenue from tuition and fees, grants and contracts, auxiliaries and other sales and
services. Total operating revenue for fiscal year 2004 was $201 million with 36% received from tuition and fees,
31% from grants and contracts, and 24% from auxiliaries and sales and services.
The $201 million in operating income was offset by operating expenses of $269 million. Salaries and benefits
constituted 65% of the operating expenses. The operating income loss of $68 million was partially offset by $59
million in state appropriations.
The remaining $9 million operating income loss ($68 less $59) was offset by $16 million in gifts and investment
income. The fiscal year ended with a $7 million positive increase in net assets.
In comparison to FY 2003, tuition and fees increased by $25 million with $15 million of the increase attributed
to the reclassification of flight costs from institutional sales and services to tuition and fees. The remaining $10
million increase is due to a 5% growth in enrollment, and a 13.5% tuition and fees rate increase.
GASB 35 requires tuition and fees, as well as auxiliaries to be stated net of allowances. The scholarship allowance
is defined as an estimate of the difference between the stated charge for goods and services provided by the
institution and the actual amount paid by the student and/or third parties on behalf of the student. The
scholarship allowance is a non-cash entry which decreases scholarship expense and tuition income with a net
effect of zero. For example, financial statement scholarship expense is $5.4 million; this amount is net of
allowances of $13.4 million. The scholarships of $18.8 million ($5.4 and $13.4 million) include $6.1 million of
waivers; $12.7 million of scholarships funded by federal government grants (PELL), UND Alumni Association
and Foundation, Fighting Sioux Club and other gifts and grants. UND processed an additional $83 million in
student loans, which are not posted as revenue nor expense but are disbursed by UND.
Revenue from external funding in the form of grants and contracts continues to increase, as reflected in the 20%
($13 million) increase for FY 2004. Auxiliary services revenue did not increase by double digits.
Salary and wages increased by $15 million (10%), with a 4.8% average salary increase across campus and 19%
increase in health insurance costs. The remaining growth is attributed to the addition of positions to support the
increased enrollment and grant and contract growth. Operating expenses increased with salary and wages, but at
a greater percentage, 16%.
State appropriation revenues decreased by $9.6 million (14%) from FY 2003 to FY 2004. This is due in part to a
decrease of $1.4 million in the 03-05 biennium general fund budget as compared to the general fund budget for
the 01-03 biennium. In addition, the funds budgeted for the biennium are split for the two fiscal years, with
more funds budgeted for the second fiscal year of the biennium. For example, 54% of the total 01-03 biennial
funding was budgeted for FY 2003, the last year of the biennium; while 44% of the total 03-05 biennial funding
was budgeted for FY2004, the first year of the biennium.
For a second year, the Fellows, a UND related entity, gifted land and buildings to the University. The FY 2004
gift was valued at $692,000. In addition, UND received a gift of farm land and buildings in Cass County with an
approximate value of $1,625,000.
TOTAL REVENUES BY FUNDING SOURCE
Gifts 3% Student tuition and
5% Student tuition and
Other Grants &
Sales and services of Contracts
educational 28% Auxiliary Sales and services of
departments enterprises educational
8% 10% departments
Student tuition & fees (1) $72,966,544 $47,645,592
State appropriations 60,402,294 70,250,045
Grants & contracts 78,395,116 69,485,808
Sales & services to education departments 23,054,669 31,759,011
Auxiliary enterprises 25,720,318 25,654,853
Other 6,155,677 3,511,665
Gifts 12,838,464 8,270,890
TOTAL $279,533,082 $256,577,864
$15 million of the student tuition and fees increase is attributed to the reclassification of flight costs from
institutional sales and services to tuition and fees.
OPERATING EXPENSES BY FUNCTION
Public service 40% Public service Instruction
5% 6% 39%
Scholarship and Scholarship and
2% 2% Academic Support
Physical plant Academic Support
7% Physical plant 8%
7% Student services
4% 5% Institutional Student services
Instruction $104,138,988 $95,935,495
Academic Support 19,990,991 18,907,885
Student services 11,472,735 10,374,851
Institutional support 22,701,075 20,813,551
Physical plant 18,167,663 13,251,047
Scholarship and fellowships 5,088,713 5,026,546
Auxiliary enterprises 26,770,495 23,962,103
Public service 14,794,168 14,463,114
Research 31,542,768 27,388,352
Depreciation 14,821,517 13,695,041
TOTAL 269,489,113 $243,817,985
STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES $ (55,258,555) $ (59,377,466)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES 64,474,211 80,268,608
CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES (3,945,319) (19,983,319)
CASH FLOW FROM INVESTING ACTIVITIES (20,858,820) 2,184,009
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS $ (15,588,483) $ 3,091,832
The statement of cash flows provides information about the cash receipts and cash disbursements of an
institution during the fiscal year. Specifically, the statement of cash flows reports for the fiscal year, the cash
effects of an institution’s operations, its non-capital financing transactions, its capital and related financing
transactions, and its investing transactions. This statement also reflects the reconciliation of the beginning cash
balance with the ending cash balance for the period.
Cash provided and used by operating activities increased by $4 million in FY 2004, which is a 7% improvement
over last fiscal year. Cash from revenues increased by $30 million from FY 2003. This 17% revenue increase was
offset by an 11% or $26 million increase in cash used for expenses. The growth was attributed to increased
enrollment (5%), increased tuition rates (14%) and increased external funding (17%).
Cash from state appropriations decreased by $13 million due in part to a decrease of $1.4 million in the 03-05
biennium general fund budget as compared to the general fund budget for the 01-03 biennium. In addition, the
funds budgeted for the biennium are split for the two fiscal years, with more funds budgeted for the second fiscal
year of the biennium. For example, 54% of the total 01-03 biennial funding was budgeted for FY 2003, the last
year of the biennium; while 44% of the total 03-05 biennial funding was budgeted for FY2004, the first year of
The changes in cash from financing and investing activities were largely attributed to the assumed debt for the
new Wellness Center. UND cash and investments remain strong, as the decrease in cash was offset with a similar
increase in investments.
Viability Ratio – expendable net assets to long term debt 1.44 1.65
Primary Reserve Ratio – expendable net assets to total expenditures .37 .37
Net Operating Income Ratio – net operating income to total revenue -1% 2%
Debt Burden Ratio – principal & interest to total expenditures .04 .04
The viability ratio is a measure of clear financial health; the availability of expendable net assets to cover debt
should the University need to settle its obligations as of the fiscal year-end. “Expendable Net Assets” are all
unrestricted and temporary restricted net assets other than those designated for plant facilities. A ratio of 1.00 or
greater indicates an institution has sufficient expendable net assets to satisfy debt requirements.
PRIMARY RESERVE RATIO
The primary reserve ratio measures financial strength and flexibility by indicating how many years the
University could operate using its expendable resources without relying on additional net assets generated by
operations. A ratio of 1.0 denotes that an institution would have the ability to cover its expenses for one year
without a revenue stream.
NET OPERATING INCOME RATIO
The net operating revenues ratio indicates whether total operating activities resulted in income or deficit. A
positive ratio indicates that the institution experienced operating income for one year.
DEBT BURDEN RATIO
The debt burden ratio examines the University dependence on borrowed funds as a source of financing and the
cost of borrowing relative to overall expenditures.
Finance & Operations
Grand Forks, ND 58202-8364
Robert Gallager, Vice President for Finance & Operations
Finance & Operations
Peggy Lucke, Associate Vice President for Finance & Operations
Finance & Operations
Sharon Berning, Controller
Finance & Operations
Lisa Heher, Cash & Investment Manager
Allison Peyton, Accounts Payable Manager
Christine Cavanaugh, Asset Management Accountant
Finance & Operations
University of North Dakota Aerospace Foundation
Grand Forks ND 58202-9023
University of North Dakota Alumni Association and Foundation
Grand Forks ND 58202-8157
RE Arena Inc., UND Arena Services Inc., Arena Holdings Charitable LLC & Affiliates
One Ralph Engelstad Drive
Grand Forks ND 58203
UNIVERSITY OF NORTH DAKOTA
Statement of Net Assets
For Year Ended June 30, 2004
ASSETS 2004 2003
Cash and cash equivalents $ 20,705,332 $ 32,451,251
Investments 24,678,881 20,840,725
Accounts receivable, net 8,538,931 8,335,956
Receivable from Component Units 844,832
Due from State General Fund 1,991,268 731,889
Intergovernmental Receivables, net 16,170,135 14,483,462
Inventories 2,483,123 2,556,781
Notes receivable, net 3,481,210 3,442,570
Other assets 296,586 1,220,919
Total current assets $ 79,190,298 $ 84,063,553
Non current assets:
Restricted cash and cash equivalents $ 3,464,426 $ 7,306,990
Restricted Investments 24,070,401 3,767,721
Endowment investments 9,781,684 9,579,493
Notes receivable, net 22,118,021 21,763,464
Other long-term investments 5,090,788 4,923,837
Unamortized bond discount & cost of issuance 760,150 962,690
Other noncurrent assets -
Capital assets, net 276,453,877 263,126,148
Total noncurrent assets $ 341,739,347 $ 311,430,343
TOTAL ASSETS $ 420,929,645 $ 395,493,896
Accounts payable and accrued liabilities $ 7,380,916 6,967,690
Accounts payable from restrictred assets (CU) -
Accrued Payroll 3,706,730 3,875,724
Deferred revenue 8,320,652 7,181,978
Deposits 4,873,224 4,739,096
Long-term liabilities-current portion
Payable to Others 5,416,810 5,923,480
Payable to Component Units 502,184
Total current liabilities $ 30,200,516 $ 28,687,968
Advances from Bank of ND (line of credit) $ 2,610,854 3,331,654
Payable to Others 62,371,591 54,837,502
Payable to Component Units 10,041,181
Total noncurrent liabilities $ 75,023,626 $ 58,169,156
TOTAL LIABILITIES $ 105,224,142 $ 86,857,124
Invested in capital assets, net of related debt $ 225,120,909 209,596,526
Scholarships and fellowships 10,276,347 9,007,614
Instruction and public service -
Scholarships and fellowships 3,192,454 3,033,130
Research 72,675 72,256
Instructional department uses 1,967,181 1,986,894
Loans 27,410,885 27,156,408
Capital projects - 6,295,659
Debt service 4,999,525 3,764,489
Unrestricted 42,665,527 47,723,796
TOTAL NET ASSETS $ 315,705,503 $ 308,636,772
UNIVERSITY OF NORTH DAKOTA
Statement of Revenue, Expenses and Changes in Net Assets
For Year Ended June 30, 2004
June 30, 2004 June 30, 2003
Student tuition and fees ( 1) $ 72,966,544 $ 47,645,592
Federal grants and contracts 62,808,239 53,231,190
State and local grants and contracts 2,798,496 2,203,241
Nongovernmental grants and contracts 12,788,381 10,372,701
Sales and services of educational departments 23,054,669 31,759,011
Auxiliary enterprises (1) 25,720,318 25,654,853
Other 876,385 947,485
TOTAL OPERATING REVENUE $ 201,013,032 $ 171,814,073
Salaries and wages $ 174,302,386 $ 158,862,429
Operating expenses 61,329,101 52,854,515
Data processing 2,468,104 1,838,800
Depreciation expense 14,821,517 13,695,041
Scholarships and fellowships (1) 5,410,766 5,248,939
Cost of sales and services 11,157,239 11,318,261
TOTAL OPERATING EXPENSES $ 269,489,113 $ 243,817,985
OPERATING INCOME $ (68,476,081) $ (72,003,912)
NONOPERATING REVENUES (EXPENSES)
State appropriations $ 59,197,215 $ 68,813,100
Federal grants and contracts - -
Gifts 5,593,132 8,270,890
Investment income 3,587,933 1,005,108
Interest on capital asset-related debt (2,696,325) (2,417,095)
Gain (Loss) on capital assets (278,913) (11,794)
Insurance proceeds 254,094 138,710
Other nonoperating 1,437,265 1,420,362
NET NONOPERATING $ 67,094,401 $ 77,219,281
INCOME (LOSS) BEFORE $ (1,381,680) $ 5,215,369
CAPITAL GRANTS AND GIFTS
State appropriations-capital assets 1,205,079 1,436,945
Capital grants and gifts 7,245,332 3,678,676
TOTAL OTHER $ 8,450,411 $ 5,115,621
INCREASE (DECREASE) IN NET ASSETS $ 7,068,731 $ 10,330,990
Net assets--beginning of year 308,636,772 316,268,568
Prior period adj. - Accumulated Depreciation (17,962,786)
Net assets--end of year $ 315,705,503 $ 308,636,772
(1) In accordance with generally accepted accounting principles, student tuition and fees, auxiliary
revenues and scholarship and fellowship expenses have been reduced by the following amounts
( the net effect is 0):
Student tuition & fees $ 12,604,674 $ 11,873,406
Auxiliary 848,355 252,366
Scholarships & fellowships $ 13,453,029 $ 12,125,772
UNIVERSITY OF NORTH DAKOTA
Statement of Cash Flows
For Year Ended June 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Student tuition and fees $ 73,552,309 $ 49,426,406
Grants and Contracts 76,422,812 65,169,234
Payments to suppliers (75,058,027) (64,054,222)
Payments to employees (173,706,942) (158,364,795)
Payments for scholarships and fellowships (5,410,766) (5,248,939)
Loans issued to students (6,167,263) (6,973,978)
Collection of loans to students 5,186,765 5,524,264
Auxiliary enterprise charges 25,761,359 25,537,315
Sales and services of educational departments 22,022,773 29,803,240
Cash received (paid) on deposits 135,167 (10,089)
Other receipts (payments) 2,003,258 (185,902)
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES $ (55,258,555) $ (59,377,466)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
State appropriations $ 57,422,711 $ 70,970,859
Grants and gifts received for other than capital purposes 5,878,763 10,380,555
Grants given for other than capital purposes -
Advances from Bank of North Dakota -
Principal paid on Advances from Bank of North Dakota (720,800) (2,000,000)
Agency fund cash increase (decrease) 497,270 (503,168)
Other nonoperating receipts (payments) 1,396,267 1,420,362
NET CASH PROVIED (USED) BY FINANCING
ACTIVITIES $ 64,474,211 $ 80,268,608
CASH FLOW FROM CAPITAL AND RELATED
Proceeds from issuance of debt $ 19,645,000 $ 10,545,267
Transfers (to)/from Building Authority - -
Capital appropriations 1,720,204 795,311
Capital grants and gifts received 5,712,047 674,417
Proceeds from sale of capital assets 744,845 225,199
Purchases of capital assets (22,272,210) (22,338,051)
Insurance proceeds 336,750 260,887
Principal paid on capital debt and lease (7,125,996) (7,746,842)
Interest paid on capital debt and lease (2,705,959) (2,399,507)
NET CASH PROVIDED (USED) BY CAPITAL &
RELATED FINANCING ACTIVITIES $ (3,945,319) $ (19,983,319)
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales and maturities of investments $ 58,368,230 24,428,216
Interest on Investments 2,143,958 1,580,872
Purchases of investments (81,371,008) (23,825,079)
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES $ (20,858,820) $ 2,184,009
NET INCREASE (DECREASE) IN CASH $ (15,588,483) $ 3,091,832
Cash - Beginning of year $ 39,758,241 $ 36,666,409
Cash - End of year $ 24,169,758 $ 39,758,241
Statement of Cash Flows - page 2
RECONCILIATION OF NET OPERATING REVENUES (EXPENSES) TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
Operating Income (loss) $ (68,476,081) $ (72,003,912)
Depreciation and Amortization 14,862,515 13,695,041
Equipment acquired by trade-in 11,723
Change in assets and liabilities:
Accounts receivable adjusted for interest receivable (1,520,118) (2,081,115)
Intergovernmental receivables (1,972,304) (637,898)
Inventories 73,658 71,502
Notes receivable (393,197) (867,947)
Other assets 1,126,873 (1,133,387)
Accounts payable and accrued liabilities adjusted for interest payable (754,209) 1,322,524
Accrued payroll (10,113) 13,139
Compensated absences 605,557 484,495
Deferred revenue 1,051,974 1,770,181
Deposits 135,167 (10,089)
Net cash provided (used) by operating activities $ (55,258,555) $ (59,377,466)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies, as summarized below, and the financial statements for the University of
North Dakota (UND) are in accordance with generally accepted accounting principles as prescribed by the
Governmental Accounting Standards Board (GASB) which is the accepted primary standard-setting body for
establishing governmental accounting and financial reporting principles.
The North Dakota State Board of Higher Education (Board) is the governing body for North Dakota’s eleven
publicly supported colleges and universities. The University of North Dakota, which encompasses the School of
Medicine and Health Sciences, is included in the reporting entity of the North Dakota University System
(NDUS). The Board was established in 1939 when the voters of North Dakota approved an initiated measure to
add Article VIII to the State Constitution. The Board consists of eight voting members. The Governor with the
advice and consent of the Senate appoints seven of the eight voting members. The eighth member is a full-time
resident student appointed by the Governor. A ninth member is a faculty member (non-voting) selected by the
statewide Council of College Faculties. The Board is an entity of the executive branch of the government of the
State of North Dakota. The colleges and universities governed by the Board are collectively known and referred
to as the North Dakota University System hereafter referred to as the University System. The Board appoints a
Commissioner of Higher Education (Chancellor) to serve as the chief executive officer of the Board and of the
University System. The Chancellor and the Chancellor’s staff must have their principal office in the State
Capitol per the North Dakota Constitution. This office is referred to as the University System Office. The
North Dakota Legislature appropriates funds it deems necessary and as required by law for those agencies and
institutions authorized to exist by the constitution and statutes. Separate general ledgers are maintained for the
University System office and the institutions. The University of North Dakota utilizes the Higher Education
Computer Network (HECN). Conversion to PeopleSoft 8 is planned for January 2005.
The University of North Dakota (the “University”) is included in the reporting entity of the North Dakota
University System. The North Dakota University System is an entity of the executive branch of the government
of the state of North Dakota, and is thus a component unit of the state of North Dakota. The financial
statements presented here are also included in the comprehensive annual financial report of the State of North
Dakota as part of the University System Consolidated Statements.
The process of evaluating potential component units involved the application of criteria set forth in
Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity. In accordance
with GASB Statement No. 14, a financial reporting entity consists of the primary institution, organizations for
which the primary institution is financially accountable, and other organizations for which the nature and
significance of their relationship with the primary institution are such that exclusion would cause the reporting
entity’s financial statements to be misleading or incomplete. The definition of the reporting entity is based
primarily on the criteria of financial accountability. The primary institution is financially accountable for the
organizations that make up its legal entity. It is also financially accountable for legally separate organizations if
its officials appoint a voting majority of an organization’s governing body and it is either able to impose its will
on that organization or there is a potential for the organization to provide specific financial benefits to, or
impose specific financial burdens on, the primary institution.
Recently, the Governmental Accounting Standards Board (GASB) issued Statement No. 39, Determining Whether
Certain Organizations Are Component Units, which modifies and clarifies existing criteria of determining
whether an organization should be reported as a component unit and how that component unit should be
reported in the financial statements. The nature and significance of the organizations relationship and the extent
of financial integration with the primary institution are now considered when determining potential component
In accordance with generally accepted accounting principles (GAAP) as applied to governmental units, the
University’s financial statements include all activities for which the institution is either financially accountable or
the nature and significance of their relationship are such that the exclusion would cause the financial statements
to be misleading or incomplete.
Blended Component Units
A component unit who’s governing body is substantively the same as the governing body of the primary
institution, a financial benefit/burden relationship exists and the entity provides services entirely or almost
entirely to the primary institution or otherwise exclusively or almost exclusively benefits the primary institution
even though it does not provide services directly to it, is included in the primary institutions financial statements
using the blending method.
UND has no blended Component Units.
Discretely Presented Component Units
The following component units are legally separate entities; however, a fiscal dependency relationship exists
whereby the entity does not have the ability to complete certain essential fiscal events without substantive
approval from the primary institution or due to the nature and significance of the relationship to the University
System, exclusion would render the financial statements incomplete or misleading. Although the primary
institution does not control the timing or amount of receipts from the component units, the majority of
resources or income thereon, that the entities hold and invest are restricted to the activities of the primary
institution or its constituents by the donors. Therefore, these entities are discretely presented in the
accompanying financial statements using Financial Accounting Standards Board (FASB) standards, including
FASB Statement No. 177, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue
recognition criteria and presentation features are different from GASB revenue recognition criteria and
presentation features. With the exception of necessary presentation adjustments, no modifications have been
made to the foundation’s financial information in the System’s financial report for these differences.
Component units that are significant relative to the other component units and to the primary institution are
considered “major” component units and are displayed in separate columns in the component unit section of the
accompanying financial statements. Component units that are not significant relative to the other component
units and to the primary institution are considered “non-major” component units and are displayed in a
combined column in the component unit section of the accompanying financial statements.
UND Aerospace Foundation is a North Dakota nonprofit organization organized in 1985 to encourage and
develop the University of North Dakota’s John D. Odegard School of Aerospace Sciences. The Foundation’s
principal activities consist of developing and conducting training programs, research and development, and
consulting services related to the aerospace industry. The Foundation is managed by a Board of Directors
consisting of five to seven members, including two or more persons who are active in the aerospace industry
and/or graduates of UND with an interest in the aerospace industry, elected by the Board; a senior manager of
the Foundation, elected by the Board; the Dean of the Odegard School of Aerospace Sciences, and the President
of the University. The Foundation benefits the University, financially and otherwise, through its promotion of
the Odegard School and its programs and in the sharing of resources. The Foundation is reported as a discretely
presented component unit as the University has voting members on the Board of Directors and due to the extent
of the financial relationship between the entities. Complete financial statements for the Aerospace Foundation
may be obtained at the entity’s administrative offices at Box 9023, Grand Forks, ND 58202-8372.
The Alumni Association of the University of North Dakota was incorporated in 1915 for the purpose of 1)
keeping classmates in contact with each other; 2) keeping graduates and former students informed of happenings
at UND; and 3) involving the graduates, former students and special friends in the ongoing growth and
development of UND. UND Foundation was incorporated in 1978 to replace the Alumni Association
Development Fund and is the umbrella organization for alumni and private support for the total University of
North Dakota. These two legally separate nonprofit corporations have the same Board of Directors and the
same executive vice president, but different Board presidents and vice presidents. The Board of Directors
consists of 21 voting members who are alumni of UND and 3 ex-officio members that are officers at UND.
Complete combined financial statements for the Alumni Association of the University of North Dakota and
University of North Dakota Foundation may be obtained at the entity’s administrative offices at PO Box 8157,
Grand Forks, ND 58202.
RE Arena, Inc., UND Arena Services, Inc., Arena Holding Charitable LLC and affiliates are related
organizations with common board of directors and management organized in 2003 for the benefit of UND.
These organizations operate and maintain a multipurpose sports and entertainment arena in Grand Forks, ND.
The arena is used primarily for UND athletics and activities. UND Sports Facilities, Inc. is the sole member of
Arena Holdings Charitable LLC. RE Arena, Inc. conducts the day-to-day operations of the arena as an agent for
Arena Holdings. Affiliates of RE Arena market products and services and operate the 2004 World Juniors
Hockey Tournament. UND Arena Services, Inc. is the legal manager of Arena Holdings. Complete combined
financial statements for these organizations may be obtained at Ralph Engelstad Arena, One Ralph Engelstad
Drive, Grand Forks, ND 58203.
The entities detailed in Note 16 are excluded from the reporting entity because they were determined to be
independent entities. Separate boards of directors control these entities, the college or university does not
exercise financial or administrative control over these excluded entities and/or the entities’ relationship with the
primary institution are not significant enough to warrant inclusion in the reporting entity’s financial statements.
Basis of Presentation
The financial statements have been prepared in accordance with generally accepted accounting principles as
prescribed by the Governmental Accounting Standards Board (GASB), including Statement No. 34, Basic
Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, and Statement
No. 35, Basic Financial Statements - and Management’s Discussion and Analysis - for Public Colleges and Universities,
issued in June and November, 1999. The University follows the “business-type activities” (BTA) reporting
requirements of GASB Statement No. 34 that provides a comprehensive one-line look at the University’s
Basis of Accounting
The financial statements of the University of North Dakota have been prepared on the accrual basis whereby all
revenues are recorded when earned and all expenses are recorded when they have been reduced to a legal or
contractual obligation to pay.
The University of North Dakota follows the pronouncements of the Governmental Accounting Standards
Board (GASB), which is the nationally accepted standard setting body for establishing generally accepted
accounting principles for governmental entities. The University of North Dakota follows all applicable GASB
pronouncements as well as Financial Accounting Standards Board (FASB) pronouncements issued on or before
November 30, 1989 unless those pronouncements conflict with GASB pronouncements.
Unrestricted Net Assets
Unrestricted net assets include resources derived from student tuition and fees, sales and services, unrestricted
gifts, royalties, and interest income.
Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance
with established fund authorities. Fund authorities provide rules for the fund activity and are separately
established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for
expenditure, the decision for funding is transactional based within the departmental management system in place
at the University.
The University, based on certain bond covenants, is required to establish and maintain prescribed amounts of
resources that can be used only to service outstanding debt. Also, included are unspent bond proceeds that will
be expended for construction of capital assets.
Revenue and Expense Recognition
The University presents its revenues and expenses as operating or non-operating based on recognition definitions
from GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and
Governmental Entities That Use Proprietary Fund Accounting. Operating activities are those activities that are
necessary and essential to the mission of the University.
Operating revenues include all charges to customers, grants received for student financial assistance, research
contracts and grants, and interest earned on loans. Grants received for student financial assistance are considered
operating revenues because they provide resources for student charges and such programs are necessary and
essential to the mission of the University. Revenues from non-exchange transactions and state appropriations
that represent subsidies or gifts to the University, as well as investment income, are considered non-operating
since these are either investing, capital or non-capital financing activities.
Operating expenses are all expense transactions incurred other than those related to investing, capital or non-
capital financing activities. Revenues received for capital financing activities, as well as related expenses, are
considered neither operating nor non-operating activities and are presented after non-operating activities on the
accompanying Statement of Revenues, Expenses, and Changes in Net Assets.
The State of North Dakota operates through a biennial appropriation. Legislation requires the Board to present
a single unified budget request covering the needs of all the institutions under its control to the Governor
through the Director of the Office of Management and Budget. The Governor is required by legislation to
present his budget to the General Assembly at the beginning of each session. The General Assembly enacts the
budget of the various institutions through the passage of specific appropriation acts. Before signing the
appropriation acts, the Governor may veto or reduce any specific appropriation, subject to legislative override.
Once passed and signed, the budget becomes the state’s financial plan for the next two years.
The Board allocates Equity and Special Needs/Technology funding among the institutions based on guidelines
provided by the General Assembly. Any funds received by the University of North Dakota pursuant to federal
acts, private grants, and other sources not deposited in the operating funds in the state treasury are appropriated
for the biennial period. The Board has the authority to transfer funds between line items by notifying the Office
of Management and Budget in writing, with the exception that the Board may not approve transfers from any
capital assets line item.
The North Dakota Constitution prohibits any transfers between institutions, even by the legislature. Each
college or university has until July 31 of each biennium year-end to submit revenues and expenditures for
recognition within the biennium. Expenditures and revenues received after July 31 are applied to the next
biennium. Institutions within the University System do not use encumbrance accounting. The legal level of
budgetary control is at the institutional line item level, with administrative controls established at lower levels of
detail in certain instances.
Board policy requires each college or university to submit a biennial budget for Board approval and annual
budgets to be approved by the Chancellor. These budgets are prepared on an accrual basis and include activity
relative to current funds and unexpended plant funds. These annual budgets are prepared within the framework
of the legislative-approved appropriations and become each institution’s financial plan for the coming year. The
Board allows each institution some discretion in transferring funds between departments.
Cash and Cash Equivalents
This category consists of bank demand accounts, money market accounts; cash on hand, petty cash and highly
liquid investments with an original maturity of three months or less when purchased.
This classification includes long-term fixed income investments and equity securities. Investments are reported at
fair value for year-end financial reporting. Fair value is the amount at which an investment could be exchanged
between two willing parties. Fair value for financial reporting purposes is based on quoted market prices. The
net increase (decrease) in the fair value of investments is recognized as a part of investment income.
Accounts receivables include interest receivable from the State Land Department; tuition, fees, food service,
room and board charges and apartment rent; accrued interest on investments; and Family Practice Center
revenues (UND). Intergovernmental receivables include federal and private grants and contracts revenue and
state grants and other income due from other state agencies. Loan fund notes receivable represents amounts due
from students for Perkins and other federal loans, and short-term institutional loans. Net receivables are shown
on the basic financial statements. The allowances for doubtful accounts/notes are detailed in Note 3.
Due to/from Other Entities
Due to/from State General Fund – represents amount due to/from the State’s General Fund.
Inventories, consisting of food and other merchandise, held for resale in auxiliaries and unrestricted physical
plant supplies are generally stated at the lower of cost (generally determined on the first-in, first-out, or moving
weighted average method) or fair market value.
Land, buildings, equipment, and other property are stated at historical cost, with the exception of property
acquired prior July 1, 1965. Professional consultants for the purposes of insurance and financial record keeping
evaluated these assets. Library books and periodicals are stated at an estimated inventory value as of June 30,
1974 with subsequent additions at cost and deletions at an average cost.
Capital assets with a unit cost of $5,000 or greater and all library books are recorded at cost at the date of
acquisition, or if donated, at fair market value at the date of donation. Infrastructure assets are included in the
financial statements and are depreciated. Depreciation is computed using the straight-line method over the
estimated useful life of the asset and is not allocated to the functional expense categories. UND used the
composite method of accounting for library book depreciation. All books purchased during a year are
consolidated together and depreciated as a group of assets rather than individually, over a ten year period.
Expenses for construction in progress are capitalized as incurred. Interest expense relating to construction is
capitalized, net of interest income earned on resources set aside for the construction or remodeling costs. Certain
reserves have been established by bond indenture for the repayment of revenue bond indebtedness. Such
reserves are recorded in the appropriate restricted assets category (cash/investments) and as “net assets restricted
for debt service” on the Statement of Net Assets.
The following estimated useful lives are used to compute depreciation.
Land Improvements 50 years
Infrastructure 50 years
Buildings 50 years
Equipment 4-12 years
Library Books 10 years
Deposits Held in Custody for Others
Money received in advance for subsequent year’s residence hall, apartment reservations and flight training costs
for the aviation program and agency fund moneys held by an institution in a fiduciary capacity are classified as
Annual and sick leave are a part of permanent employees’ compensation as set forth in section 54-06-04 of the
North Dakota Century Code. In general, accrued annual leave cannot exceed 30 days at each calendar year end
while accrued sick leave is not limited. Employees are entitled to earn leave based on tenure of employment,
within a range from a minimum of one working day, to a maximum of two working days per month, established
by the rules and regulations adopted by the employing unit. Employees are paid for all unused annual leave
upon termination or retirement. Employees who vest at 10 years of credible service are paid one-tenth of their
accumulated sick leave upon termination or retirement, per section 54-06-14 of the North Dakota Century Code.
Compensated absences are accrued when earned.
Student tuition and fees and auxiliary revenues are presented net of scholarships applied to student’s accounts.
Certain other scholarship amounts paid or refunded directly to the student are generally reflected as expenses.
Pledges for gifts that will benefit the University of North Dakota that are made directly to the Related and
Affiliated Organizations will be recorded as revenue when received, as detailed in Note 16 to the Financial
Net assets are classified according to external donor restrictions or availability of assets for satisfaction of
University obligations. Restricted Net Assets represent funds that have been restricted for specific purposes by
granting agencies for scholarships and fellowships, instructional department uses, loan funds, debt service and
other. Unrestricted Net Assets are all other funds available at the discretion of the University. Invested In
Capital Assets represents the cost of gifted value of buildings, equipment, land improvements, infrastructure, less
accumulated depreciation and related outstanding debt.
Restatement of Beginning Net Assets
Net assets, beginning of year, as previously reported $ 308,636,772
Net assets, beginning of year, as restated $ 308,636,772
NOTE 2 – DEPOSITS AND INVESTMENTS
North Dakota Century Code (NDCC) Sections govern the deposit and investment policies of the University.
NDCC Section 6-09-07 states, “All state funds…must be deposited in the Bank of North Dakota…or must be
deposited in accordance with constitutional and statutory provisions.”
NDCC Section 15-10-12 requires that all moneys not deposited in the special revenue fund within the State
Treasury (unless restricted by the terms of a grant, donation or bequest), received by the institutions from
federal, state, and local grants and contracts, indirect cost recoveries, tuition, special student fees, room and board
and other auxiliary enterprise fees, student activity fees, continuing education program fees, internal service fund
revenues, and all other revenues must be deposited in the Bank of North Dakota.
NDCC Sections 15-55-05 and 15-55-06 govern the investment of proceeds of revenue bonds and revenues pledged
to bondholders. Such proceeds must be invested in the Bank of North Dakota, in a separate fund in the State
Treasury or in a duly authorized depository for the state funds that is a member of the federal deposit insurance
corporation. The Board may invest such funds in direct obligations of, or in obligations where the United States
of America guarantees the principal and interest, or obligations of the State of North Dakota or any municipality
as defined in NDCC Section 21-03-01.
NDCC Section 15-67-04 applies to the investment of endowments governed by a gift instrument. Subject to any
limitations in the gift instrument such funds may be invested in any real or personal property deemed advisable
by the governing board.
NDCC Section 21-04-02 provides that public funds belonging to or in the custody of the state shall be deposited
in the Bank of North Dakota.
This classification includes cash on hand; cash in bank, regular and money market savings accounts, certificates
of deposit (maturity of 3 months or less) and time saving certificates (maturity of 3 months or less). For purposes
of the Statement of Cash Flows, the University considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Cash equivalents representing assets of the University’s
endowment, unspent bond proceeds and cash restricted by bond covenants are included in non-current restricted
Investments consist of certificates of deposit (maturity greater than three months), U.S. Treasury Bills, Bonds
and Notes, and other securities held by trust departments or broker dealers. Investments are classified as either
investments if the maturity date is more than three months to one year, as other long-term investments if the
maturity date is more than one-year from the date of the financial statements. Investments restricted by bond
covenants or invested from bond proceeds are classified as restricted investments, and investments held by
endowment funds are classified as endowment investments.
In accordance with the GASB Statement No. 3, deposits and investments are classified into three categories of
custodial credit risk:
Category 1 Deposits that are either insured or collateralized Investments that are insured or registered, or
with securities held by the University or by its securities held by the University or by its
agent in the University’s name. agent in the University’s name.
Category 2 Deposits collateralized with securities held by the Investments that are uninsured and
pledging financial institution’s trust department unregistered, with securities held by the
or agent in the University’s name. counterparty’s trust department or agent in
the University’s name.
Category 3 Deposits that are uncollateralized (including any Investments that are uninsured and
bank balance that is collateralized with securities unregistered, with securities held by the
held by pledging financial institution, or by its counterparty’s trust department or agent but
trust department or agent, but not in the not held in the University’s name.
Not N/A Investments in mutual funds, money markets
Categorized and investment management funds are not
categorized because they are not evidenced by
securities that exist in physical or book entry
Cash and Cash Equivalents and Investments are reported at fair value (market) and reported on the Statement of Net
Assets as follows:
Carrying Bank Category
Deposits Amount Balance 1 2 3
Total Cash Deposits at BND 23,370,443 28,046,613 - - 28,046,613
CDs at BND 49,070,401 49,070,401 - - 49,070,401
Total Cash Deposits at Other 718,752 1,905,320 1,905,320 - -
CDs at Other - - - - -
Total Deposits 73,159,596 79,022,334 1,905,320 - 77,117,014
Cash on Hand/Petty Cash 80,563 Statement of Net Assets Classification
Less amts reported as investments (49,070,401) Cash & Equiv Restricted
(Unrestricted) Cash & Equiv
Cash & Cash Equ-SNA 24,169,758 BND 20,355,544 3,014,899
- On Hand 80,563 -
Other 269,226 449,527
Carrying Category Market
Investment Type Amount 1 2 3 Value
Debt Instruments - - - - -
Bonds and Notes 2,917,955 2,917,955 - - 2,917,955
Stocks 11,633,398 1,656,035 - 9,977,364 11,633,398
Total 14,551,353 4,573,990 - 9,977,364 14,551,353
Plus Amts credit risked as cash Statement of Net Assets Classification
CDs BND 49,070,401 Current NonCurrent
CDs Other - Unrestricted Restricted Endow Invest Other L-T Invest
Investments Investments (Restricted) (Unrestricted) Total
Held by brokers & not risked - CDs BND 24,678,881 24,070,401 - - 48,749,282
CDs Other - - - - -
Investments per SNA 63,621,754 Inv Other - 9,781,684 5,090,788 14,872,472
24,678,881 24,070,401 9,781,684 5,090,788 63,621,754
NOTE 3 – RECEIVABLES
Receivables at June 30, 2004, for the primary government consist of the following amounts:
Current NonCurrent Total
Student and general $ 9,644,276 $ 9,644,276
Interest - BND 106,197 106,197
Interest - Other 5,011 5,011
Allowance for Doubtful Accounts (371,721) (371,721)
Accounts Receivable, Net $ 9,383,763 $ 9,383,763
Perkins Loans $ 2,833,381 $ 19,164,921 $ 21,998,302
Other Loans 900,581 4,558,974 5,459,555
Allowance for Doubtful Notes (252,752) (1,605,874) (1,858,626)
$ 3,481,210 $ 22,118,021 $ 25,599,231
Grants & Contracts Receivables ` $ 16,245,237 $ 16,245,237
Allowance for Doubtful Accounts (75,102) (75,102)
$ 16,170,135 $ 16,170,135
NOTE 4 – ENDOWMENT FUNDS
The endowment funds reported herein are only those in the custody of the University System, and do not
include the Federal Land Grant Fund held by the State Land Department. The annual proceeds from assets held
by the State Land Commissioner are deposited into each college/university’s operating fund at the State
Treasury and are used for current operating purposes. UND State Land Department proceeds were $473,000.
Total assets held by the State Land Department and proceeds for the fiscal year ended June 30, 2004 are as
Proceeds $ 1,499,242
NOTE 5 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2004 was as follows:
6/30/2003 Additions Deletions Transfers 6/30/2004
Land $ 5,469,713 $ 1,562,899 $ 7,032,612
Improvements other than Bldg 71,949,707 802,579 239,625 (148,346) 72,364,315
Building & Improvements 231,102,266 10,099,457 6,075,406 247,277,129
Library Books 43,701,173 2,868,928 293,851 46,276,250
Equipment 85,017,818 9,332,041 5,512,810 88,837,049
Construction in Progress 6,183,618 4,691,959 (5,927,060) 4,948,517
$ 443,424,295 $ 29,357,863 $ 6,046,286 $ - $ 466,735,872
Balance Prior Period Balance
6/30/03 Adjustment Additions Deletions Transfers 6/30/04
Land Impr. & Infrastructure $ 12,522,757 $ 1,450,949 $ 57,618 $ (38,389) $ 13,877,699
Buildings 83,121,869 4,905,544 38,389 88,065,802
Library Books 31,964,036 1,966,125 293,851 33,636,310
Equipment 52,689,486 145,093 6,498,898 4,631,293 54,702,184
$ 180,298,148 $ 145,093 $ 14,821,516 $ 4,982,762 $ - $ 190,281,995
Construction in Progress (CIP)
Project Authorized (CIP Balance) Balance
AIC $ 3,500,000 $ 46,308 $ 3,453,692
Wellness Center 21,000,000 765,988 20,234,012
Food Court Remodel 1,200,000 451,556 748,444
Medical School Projects 9,174,241 3,684,665 5,489,576
Totals $ 34,874,241 $ 4,948,517 $ 29,925,724
The American Indian Center will be a 34,500 square foot facility that will house the American Indian Student
Service Center. The construction is being funded by institutional funds.
The Wellness Center will be constructed with bond proceeds; the debt will be paid over the next 30 years with
student fee revenue. This project passed a student body vote in October 2003.
The Food Court Remodel is the renovation of the food court and the Memorial Union. Replacing Little Caesars
and Subway is Sbarro Pizza, A&W, Dakota Deli and World Market. The food court is operated by UND
Dining Services and is funded by UND housing auxiliary revenue.
The Medical School projects consist of the construction of a new building as well as four large renovation
projects funded from federal or institutional funds.
• The building under construction is the Neuroscience Facility which will be used for neurological
• The PET Scanner/Cyclotron is a renovation project that installed a cyclotron for the production of
radioactive material which can be combined with drugs for tracking within a living organism using the
• The Center for Biomedical Research renovation work entailed the remodeling of existing space in order
to accommodate various scientific equipment.
• The Sens Lab renovation is being done to accommodate Dr. Sens’ research.
• The Niles Lab renovation is being done to accommodate Dr. Niles research in controlled agents.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at June 30, 2004:
Accounts Payable $6,216,481
Sales Tax Payable 1,006
Accrued Interest – BND 707,253
Accrued Interest – Other 0
Contractor Retainage 456,176
NOTE 7 – LONG-TERM LIABILITIES
Long-term liabilities of UND consist of bonds payable, notes payable, capital leases, special assessments, and
compensated absences. The changes in long-term liabilities are as shown below:
Beginning Ending Current Noncurrent
Balance Additions Retirements Balance Portion Portion
Bonds Payable $ 26,064,847 $ 19,645,000 $ 1,938,961 $ 43,770,886 $ 2,042,641 $ 41,728,245
Notes Payable 327,645 154,280 173,365 159,814 13,551
Capital Leases 27,581,203 4,434,500 4,994,099 27,021,604 3,360,643 23,660,961
Special Assessments 518,616 11,723 38,656 491,683 41,056 450,627
Compensated Absences 6,268,671 605,557 6,874,228 314,840 6,559,388
Total $ 60,760,982 $ 24,696,780 $ 7,125,996 $ 78,331,766 $ 5,918,994 $ 72,412,772
NOTE 8 – BONDS PAYABLE
Revenue bonds are limited obligations of the University. The principal and interest on the bonds are payable
generally from the net income of specific auxiliary activities, designated student fees, HUD interest subsidies and
debt service reserve funds. Those revenues are generally pledged to the payment of bonds in accordance with the
specific terms of the specific indenture. Amounts held by the trustee specifically for payment on bonds are
reflected in Net Assets, Restricted for Debt Service.
Description Original Balance Maturity Interest Rate Installments Balance
1993 Building Authority $ 225,000 2010 None $ 28,125 $84,375
1996 Technology Fee $1,407,205 2006 4.3-4.75% $ 133,684 to
$ 291,954 $441,511
1998A Housing & Refunding $22,560,000 2014 3.8 – 4.8% $1,375,000 to
2002 Memorial Union Refunding $ 6,710,000 2021 3.5% $ 235,000 to
$ 550,000 $6,075,000
2004 Wellness Center $19,645,000 2034 1.0-5.0% $0 $19,645,000
On January 1, 1998, the University of North Dakota issued $22.6 million of Housing and Auxiliary Facilities
Improvement and Refunding Revenue Bonds (Series 1998A) with an average interest rate of 4.7 percent. These
bonds were used to advance refund $20.4 million of outstanding 1988 Series A & B Housing and Auxiliary
Facilities Refunding Revenue Bonds (with an average interest rate of 7.5 percent) and to provide $450,000 for
parking lot construction at the Rural Technology Center. The principal amount outstanding as of June 30, 2004,
of the original bonds refunded by the advance refunding of 1998, totaled $15,005,000.
Housing and Auxiliary Facilities Refunding Series 1985A bonds were originally issued (in addition to financing
construction costs) to refund in advance of maturity, the outstanding advanced refunding bonds as follows: (a)
$14,520,000 of Housing and Auxiliary Facilities Revenue Bonds Series 1984A, and (b) $3,750,000 of Housing and
Auxiliary Facilities Revenue Bonds Series 1984B. The principal amounts outstanding as of June 30, 2004, of the
original bonds refunded by the advance refunding of 1985, totaled $0.
Housing and Auxiliary Facilities Refunding Bonds Series 1984A, which were included in the advance refunding
of 1985 as described above, were originally issued in 1984 for the purpose of advance refunding certain
outstanding bonds (Series I through Series N). The principal amounts outstanding as of June 30, 2004 of the
original bonds refunded by the advance refunding of 1984 totaled $0.
Housing and Auxiliary Facilities Revenue Bonds Series I and Series J, which were included in the advance
refunding of 1984 as described above, were originally issued in 1975 for the purpose of advance refunding certain
outstanding bonds of the University. The principal amounts outstanding as of June 30, 2004, of the original
bonds refunded by the advance refunding of 1975, totaled $555,000.
All of the refunded bonds are considered defeased and have debt service needs covered by U.S. Government
securities that are held in a special trust administered by the Bank of North Dakota. As such, neither the assets
of the trust nor the related bonds payable are included in the accompanying statement of net assets.
Scheduled maturities of Bonds Payable
Fiscal Year Principal Interest Total
2005 $ 2,042,641 $ 1,909,509 $ 3,952,150
2006 2,586,995 1,830,061 4,417,056
2007 2,413,125 1,732,198 4,145,323
2008 2,475,000 1,642,243 4,117,243
2009 2,593,125 1,544,045 4,137,170
2010-2014 14,265,000 5,997,793 20,262,793
2015-2019 3,850,000 3,753,600 7,603,600
2020-2024 3,915,000 2,831,613 6,746,613
2025-2029 4,245,000 1,915,094 6,160,094
2030-2034 5,385,000 768,375 6,153,375
$ 43,770,886 $ 23,924,531 $ 67,695,417
NOTE 9 – NOTES PAYABLE
The University has a note payable to the UND Foundation, a related party, in the original amount of $700,000,
with $177,820 payable at June 30, 2004. The loan was disbursed on July 1, 2000, for a term of five years and an
interest rate of 8 percent per annum. The payments are guaranteed by assigning the proceeds the University of
North Dakota receives under the Barnes and Noble Bookstore management agreement. In fiscal year 2004 this
note was refinanced with a lower interest rate, 4.3%.
Scheduled maturities of Notes Payable
Fiscal Year Principal Interest Total
2005 $ 159,814 $ 4,406 $ 164,220
2006 13,551 49 13,600
$ 173,365 $ 4,455 $ 177,820
NOTE 10 – CAPITAL LEASES
The institutions lease various types of equipment under capital lease agreements. Capital leases give rise to
property rights and lease obligations and therefore, the assets under lease are recorded as assets of the institution
and the lease obligation is recognized as a liability. The leases have varying interest rates with maturities to 2027.
Certificates of Participation totaling $20,450,000 were originally issued by UND in 1990 to: (1) reimburse the
university for certain expenses incurred for capital improvements; (2) refinance the costs of certain equipment,
and (3) finance the acquisition of certain equipment and real property, to fund a reserve, and to pay the costs of
issuance. Subsequent to this issuance, the Legislative Assembly, in HB1003 (1991 Legislative Session), directed
the university to retire those certificates originally issued for the acquisition of certain equipment and real
property and to fund a reserve. Therefore, in December 1991, $6,025,000 in certificates were defeased. The
principal amount outstanding as of June 30, 2004 of the defeased certificates total $2,375,000.
Scheduled maturities of Capital Leases
Fiscal Year Principal Interest Total
2005 $ 3,360,643 $ 1,161,775 $ 4,410,048
2006 3,717,770 1,000,497 4,605,897
2007 2,417,657 858,802 3,164,089
2008 2,271,405 745,974 2,905,009
2009 2,408,024 634,485 2,930,139
2010-2014 6,275,005 1,754,958 7,467,913
2015-2019 2,352,050 1,232,748 3,022,748
2020-2024 2,574,050 761,000 3,021,000
2025 and after 1,645,000 167,250 1,812,250
Total $ 27,021,604 $ 8,317,489 $ 33,339,093
NOTE 11 – OTHER LONG TERM LIABILITIES
The University receives special assessments from the city or county for improvements made to roads and
infrastructure owned by the city or county that are adjacent to or on the campuses.
Schedule of maturities of Special Assessments
Fiscal Year Principal Interest Total
2005 $ 41,056 $ 34,958 $ 76,014
2006 41,056 32,114 73,170
2007 40,514 29,270 69,784
2008 40,491 26,458 66,949
2009 38,165 23,648 61,813
2010-2014 174,990 79,590 254,580
2015-2019 99,998 25,054 125,052
2020-2024 15,413 1,257 16,670
$ 491,683 $ 252,349 $ 744,032
The compensated absences liability at June 30th consists of accumulated unpaid annual leave, compensatory time,
personal holiday hours, and Saturday/legal holiday hours earned and vested. Compensated absences for
employees at June 30, 2004 and 2003 totaled $ 6,874,228 and $6,268,671, respectively. Leave policies restrict the
accumulation of unused vacation and thus limit the actual payments made to employees upon termination or
NOTE 12 – RETIREMENT BENEFITS
The University participates in two major retirement systems: North Dakota Public Employees’ Retirement
System administered by the State of North Dakota and a privately administered retirement system: Teachers’
Insurance Annuity Association and College Retirement Equity Fund. The following is a brief description of
NORTH DAKOTA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM (NDPERS)
Description of Plan
NDPERS is a cost-sharing, multiple-employer, defined benefit pension plan covering substantially all broadband
employees of the University. The plan provides retirement, disability and death benefits. If an active employee
dies with less than five years of credited service, a death benefit equal to the value of the employee’s accumulated
contributions, plus interest, is paid to the employee’s beneficiary. If the employee has earned more than five
years of credited service, the surviving spouse will be entitled to a single payment refund, lifetime monthly
payments in an amount equal to 50% of the employee’s accrued normal retirement benefit, or 60 monthly
payments equal to the employees’ normal retirement benefit calculated as if the employee were age 65 the day
before the death occurred (or, effective August 1, 1995, monthly payments in an amount equal to the employee’s
accrued 100% joint and survivor retirement benefit if the member had reached normal retirement age prior to
date of death). If the surviving spouse dies before the employee’s accumulated pension benefits are paid, the
balance will be payable to the surviving spouse’s designated beneficiary.
Eligible employees, who become totally disabled after a minimum of 180 days of service, receive monthly
disability benefits that are equal to 25% of their final average salary with a minimum benefit of $100. To qualify
under this section, the employee must meet the criteria established by the Retirement Board for being considered
Employees are entitled to unreduced monthly pension benefits beginning when the sum of age and years of
credited service equal or exceed 85, or at normal retirement age (65), equal to 2% of their final average salary for
each year of service. The plan permits early retirement at ages 55-64, with five or more years of service.
NDPERS issues a publicly available financial report that includes financial statements and the required
supplementary information for NDPERS. That report may be obtained by writing to NDPERS; 400 East
Broadway, Suite 505; P.O. Box 1657; Bismarck, ND 58502-1657.
NDPERS is funded by employee contributions (set by statute) of 4% of regular compensation. During the 1983-
1985 biennium the State implemented the employer pickup provision of the IRS code whereby the employer
makes a portion or all of the required employee contributions. The University is paying the full employee
contribution. Employer contributions of 4.12 percent of covered compensation are set by statute. The required
contributions are determined using an entry age normal actuarial funding method.
The North Dakota Retirement Board was created by the State Legislature and is the governing authority of
NDPERS. Benefit and contribution provisions are administered in accordance with chapter 54-52 of the North
Dakota Century Code. The University’s required and actual contributions to NDPERS for the fiscal years
ending June 30, 2004, were $2,569,492.94.
TIAA-CREF RETIREMENT PLAN
Description of Plan
This is a privately administered defined contribution retirement plan which provides individual retirement fund
contracts for eligible employees as defined by the Board of Higher Education in its approved TIAA-CREF
retirement resolution. All benefits vest immediately to the participant. Further information can be obtained by
writing to TIAA-CREF; Denver Regional Office; 1700 Broadway, Suite 770; Denver, Colorado 80290 or by
The plan requires employee and employer contributions be based on a classification system and years of service
based on the following schedule:
Employment Years of Contributions by Contributions by the
Class Service the Participant Institution
I and III 0 thru 10 1.5% 9.5%
over 10 2.0% 10.0%
II 0 thru 2 0.5% 4.5%
3 thru 10 1.5% 9.5%
over 10 2.0% 10.0%
IV 0 1.0% 9.0%
Plan contributions are made on a tax-deferred basis in accordance with Section 414(h)(2) of the Internal Revenue
Code. All contributions are applied as premiums to retirement annuity contracts owned by the participant. The
University has no further liability once annual contributions are made. The University contributed
$7,694,488.09 to TIAA-CREF during the fiscal years ending June 30, 2004.
NOTE 13 – POST-RETIREMENT BENEFITS
State Group Health Plan
Members who receive retirement benefits from the Public Employees Retirement System may receive a credit
toward their monthly health insurance premium under the state health plan based upon the member’s years of
credited service. The benefits are set by statute and the plan is a cost-sharing multiple-employer defined benefit
The employer contribution for the Public Employees Retirement System is set by statute on an actuarially
determined basis (projected unit actuarial cost method) at 1% of covered compensation.
There are approximately 14 retired University employees receiving these benefits and 1,184 active employees
with retiree health credit. The actuarially determined required employer contribution of $281,743, for the year
ended June 30, 2004, is 1 percent of the covered payroll. The University actual and required contributions for
the fiscal years ending June 30, 2004 and 2003 were $281,743 and $263,789, respectively.
Early Retirement Agreements
When early retirement is deemed to be in the mutual benefit of an employee and the University, the Board has
adopted Policy 703.1 on Early Retirement. This policy applies to tenured faculty, professional staff, president,
vice president, provosts, deans, and other officers responsible for a major unit of an institution who report
directly to a president, vice president, provost who are members of TIAA-CREF, TFFR, or TIRF. During the
fiscal year ended June 30, 2004 no employees elected early retirement.
Under the Tenured (Contract) Purchase Option, the employee is eligible for payment of up to 100% of the
employee’s final contract salary if the sum of the employee’s age and total years of employment equals 70 or
greater. Payments will be pursuant to the approved agreement, but cannot be made until at least 90 days after
the date of Early Retirement Agreement. During the fiscal year ended Jun 30, 2004, no University employee
elected to participate in this option at a cost to the University. Amounts payable to employees at June 30, 2004
The Phased Retirement is retirement over a period of time. The percentage of workload each year is negotiated.
The University may pay all or any part of the retirement contributions on the current salary or any part of the
individual’s salary until the individual terminates all employment. During the fiscal year ended June 30, 2004 no
employees elected this option.
Reversible Retirement is an option that basically lets an employee test retirement to see if he or she finds
retirement satisfactory. If not, the employee may return to full employment. There is a maximum 2-year time
limit from the contract date to the time the individual returns to work. During the fiscal year ended June 30,
2004, no employees elected this option.
Executive Compensation Agreements
In order to promote retention, the University provides executive compensation benefits, in accordance with
State Board of Higher Education policy, to all institution presidents. In fiscal year 2004, a task force of board
members and presidents reviewed alternative retirement plans and recommended the current SBHE policy be
eliminated and replaced with individual contracts with each president. Differentiated plans were recommended
for current presidents based on years of service, as a result of application of Section 83 and the IRC rule of
constructive receipt. The current president had the option of selecting from the current plan that provides
additional compensation equivalent to one month’s base salary for each full year of service or waive their rights
to the current plan and accept the new plan that provides a contribution range based on years of service. New
presidents will only be eligible for a new plan.
Under the current plan there is no entitlement to the additional compensation until after six full years of service
and the maximum payment upon retirement may not exceed the final annual base salary. Under the new plan,
there is no entitlement until after five full years of service, with no maximum payment upon retirement. Under
both options, semi-monthly contributions will be made to the president’s plan account.
In prior years, funds were internally designated on an annual basis with expenditures for executive compensation
being recognized only as payments were made. Under the new plan, the current president is entitled to receive
all or some of the accumulated designation. As of June 30, 2004, $71,208 was expensed and payable to the
president and/or a designated plan.
NOTE 14 – COMMITMENTS
Contracts for the construction of various projects on behalf of the institutions have been let as follows:
Costs to complete funded by:
Contracts Expended Through Total Cost Federal State Institutional Other
Project Awarded June 30, 2004 To Complete Sources Sources Funds Sources
Energy Improvement $ 129,869 $ 120,375 $ 9,494 $ 9,494
Steam Line Replacement 9,897,182 8,504,088 1,393,094 1,393,094
Gamble Hall Renovation 102,682 96,603 6,079 6,079
Wellness Center 1,560,269 670,197 890,072 890,072
Sidewalks, Roads & Parking 85,000 40,000 45,000 45,000
School of Medicine Projects 4,160,715 3,366,018 794,697 $ 694,685 100,012
EERC 1,326,424 1,241,416 85,008 85,008
Ireland Lab Renovation 53,059 49,669 3,390 $ 3,390
Steam Plant 102,895 - 102,895 102,895
School of Medicine Infrastructure 66,655 66,654 1 1
Gallery Exterior 215,627 110,013 105,614 105,614
Memorial Union Renovation 935,934 436,818 499,117 499,117
$ 18,636,312 $ 14,701,851 $ 3,934,461 $ 694,685 $ 3,390 $ - $ 3,236,386
NOTE 15 – COMPONENT UNIT TRANSACTIONS
University of North Dakota and UND Aerospace Foundation
The Foundation reimbursed UND for salaries, building rent, aircraft rental, and goods and services under an
operating agreement aggregating approximately $2,225,579 in fiscal 2004. This operating agreement has no
specific term and is intended to memorialize various operating agreements, rate structures, duties, and obligations
each party has to the other. The Foundation also reimbursed UND for air service and hangar, CRJ, 360 degree
tower and aircraft rental of $941,356. These expense reimbursements represent actual costs incurred.
In addition, the Aerospace Foundation may contract with UND for materials and personnel in the service and
utility areas and will reimburse UND based on separate arrangements. As of June 30, 2004, the Foundation has
recorded accounts payable to UND of $48,056 for reimbursable costs and services under these arrangements.
The Foundation entered into a sublease with UND to lease the aircraft storage hangar/ground support
equipment facility. The lease term is for 20 years, commencing on July 7, 2003 until July 6, 2023. For the first
15 years of the sublease, UND will pay the Foundation monthly minimum payments of $12,672 beginning on
October 1, 2003, subject to actual cost adjustments. At the end of the 15 years of the sublease, rent will be
adjusted based upon an interest rate adjustment or a refinancing of the debt incurred by the Foundation in the
construction of the hangar.
University of North Dakota and RE Arena, Inc.
RE Arena, Inc. manages, operates and maintains an arena known as the Ralph Englestad Arena, which was
constructed in 2001 for the benefit of UND athletics. On July 1, 2003, UND and RE Arena, Inc., entered into a
usage agreement with regards to the arena that sets forth facility usage, fees and services, and net income
disposition. This agreement expired on June 30, 2004, but a similar agreement was signed, effective July 1, 2004.
In accordance with this agreement, UND will control all ticket revenue from UND athletic events held in the
arena, UND and RE Arena, Inc. will jointly utilize UND marketing staff, and UND agrees to pay RE Arena,
Inc., a stated amount of the ticket revenue from hockey, football, and men’s and women’s basketball events.
Revenue and expenses from all other UND events held at the arena will be negotiated on an event-by-event basis.
Per this agreement, UND paid approximately $1.37 million to RE Arena, Inc., in fiscal year 2004 for event ticket
revenue. Also per the agreement, Re Arena, Inc. will annually fund a reserve for extraordinary repairs,
maintenance and building improvements in an amount up to $350,000. And, on an annual basis, RE Arena, Inc.
will remit to UND the net income after adding back depreciation, amortization, the funded reserve and capital
expenditures for the fiscal year.
In addition, RE Arena, Inc. may contract with UND for materials and personnel in the service and utility areas
and will reimburse UND based on separate agreements. As of June 30, 2004, RE Arena, Inc. has a payable to
UND of $260,078 for these expenditures.
University of North Dakota and University of North Dakota Foundation
The University of North Dakota Foundation issued through Wells Fargo Brokerage Services, LLC, tax-exempt
lease revenue bonds on October 24, 2003 of $4,400,000 to finance the land purchase and construction of the
Minot Family Practice Center. The center is a component of the School of Medicine & Health Sciences at
UND. Interest only is due on a semi-annual basis at a variable rate of interest with a maturity date of December
15, 2018. The initial interest rate was 1.95 percent. Effective June 15, 2004, the interest rate was reset at 2.02
percent. The Foundation may pay down principal in increments of $100,000 on interest payment dates without
penalty. A total of $100,000 in principal was retired in fiscal year 2004.
On July 1, 2002, UND Foundation issued lease revenue bonds of $8,595,000 on behalf of UND to i) finance the
construction of an office building for EERC, ii) renovate the current EERC building, iii) finance capitalized
interest, and iv) pay cost of issuance of the bonds. UND and UND Foundation also entered into a lease
agreement on July 1, 2002, whereby the foundation leases certain property to UND and UND will pay the
foundation basic rents which will be sufficient to cover principal and interest on the lease revenue bonds when
due. The bonds bear an interest rate of 2 to 5.13 percent and mature in 2027. The lease revenue bond has a
balance of $8,370,000 at June 30, 2004. The foundation’s financial statements include this transaction as a
receivable from UND and a long-term liability. UND’s financial statements include the capitalized asset and a
long-term liability due to UND Foundation.
The University of North Dakota Foundation secured a loan of $700,000 from Alerus Financial on July 1, 2000.
The proceeds from this loan went to the University of North Dakota to enable it to complete construction of
the Barnes and Noble Bookstore. UND has paid to the UND Foundation a total of $14,205 per month
including interest at 8 percent through June 2003. This arrangement was refinanced in July 2003 reducing the
interest to 4.31 percent and the payments to $13,685 per month, fully amortizing the loan on July 1, 2005. The
loan has a balance of $173,365 at June 30, 2004. The foundation’s financial statements include this transaction as
a receivable from UND and a long-term liability. UND’s financial statements include the capitalized asset and a
long-term liability due to UND Foundation.
UND leases office space to the UND Foundation at a cost of $1 per year and provides some administrative
services, computer services, utilities and maintenance at no cost as a partial in-kind reimbursement for services
rendered by the Foundation. Lease on the office, dated November 1, 1979, has a term of five years remaining.
At June 30, 2004, due to timing of receipts and payments, the UND Foundation recorded a payable of $536,698
to UND, which was paid in full in July.
NOTE 16 – RELATED AND AFFILIATED ORGANIZATIONS
The related and affiliated organizations are separate North Dakota nonprofit corporations whose sole functions
are to provide financial and other assistance to the institutions. The organizations conduct fundraising activities
and receive moneys and pledges for institutionally sponsored programs. As such, the institutions neither display
nor disclose pledges. The financial activity of the organizations is not reflected in the accompanying financial
statements. The assets, revenues, and program service expenditures for each organization and the free services, or
payments, each institution provides as of June 30, 2004 are shown below:
Fiscal Service Services
Year End1 Assets Revenues Expenditures Provided2
EERC Foundation Jun. 30 $64,953 $23,833 $67,877 None
The Fellows Jun. 30 $3,310,160 $189,223 $595,564 None
Law School Foundation Jun. 30 $98,684 $731 $0 None
UND Center for Innovation Dec. 31 $6,039,561 $3,188,660 $219,033 JSU
Fiscal Year is 2004, unless otherwise noted.
A = Accounting/Secretarial J = Janitorial S = Space T= Telephone/Postage U = Utilities
University of North Dakota and UND Center for Innovation Foundation
The foundation is party to a contract for services agreement with the Center for Innovation, which is a unit
reporting to the UND College of Business and Public Administration. The foundation provides approximately
$50,000 per year to the Center for Innovation for services provided under this contract. In addition to the
contract payment of $50,000, the foundation also granted another $50,000 to the Center for Innovation during
the year ending December 31, 2004.
University of North Dakota and The Fellows
In fiscal year 2004, The Fellows donated land and buildings to UND worth approximately $692,000. The
property included vacant lots, an apartment building, a storage building and a house.
NOTE 17 – ON-BEHALF PAYMENTS
On-behalf payments for fringe benefits and salaries are direct payments made by one entity to a third party
recipient for the employees of another legally separate entity. On-behalf payments include pension plan
contributions, employee health and life insurance premiums, and salary supplements or stipends. The amount of
on-behalf payments for fringe benefits and salaries for fiscal year ended June 30, 2004 is $0.00. There were no on-
behalf payments made as contributions to a pension plan for which the University is not legally responsible.
NOTE 18 – INTERFUND ACTIVITY
As of June 30, 2004 the University had the following balances:
State Agency Transfers State Agency Balances
Transfers From Transfer To Due From Due to
State Grants Federal Grants State Agencies State Agencies State Agencies
$ 1,069,214.00 $ 1,823,425.00 $ 90,080.00 $ 677,537.00 $ 120,821.00
NOTE 19 – OPERATING LEASES
The campuses are obligated under certain leases for equipment, vehicles and facility rental, which are accounted
for as operating leases. Operating leases do not give rise to property rights or lease obligations, and therefore, the
resulting expenditures are recognized as incurred. Lease expenditures for the year ended June 30, 2004,
amounted to $ 2,031,517.
Future minimum rental payments required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of June 30, 2004, are as follows:
2005 $ 865,161
2025 and after -
Total $ 4,218,227
NOTE 20 – CONTINGENCIES
Amounts received and expended by the University under various federal and state programs are subject to audit
by governmental agencies. In the opinion of management, audit adjustments, if any, will not have a significant
effect on the financial position of the University.
In the normal course of its activities, the institutions of the University are party to various legal actions.
Because, in the opinion of management and counsel, the risk of material loss in excess of insurance coverage for
these items is remote, the outcome of the legal proceedings and claims is not expected to have a material effect on
the financial position of the University. Therefore, an estimated liability has not been recorded.
NOTE 21 – RECONCILIATION OF NATURAL EXPENSE CLASSIFICATION TO
FUNCTIONAL EXPENSE CLASSIFICATION AS PRESENTED ON THE
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
The University reports operating expenses using the “natural classification” on the Statement of Revenues,
Expenses, and Changes in Net Assets. Operating expenses using the “functional classification” are:
Instruction $ 104,138,988
Academic Support 19,990,991
Student Services 11,472,735
Institutional Support 22,701,075
Physical Plant 18,167,663
Scholarships and fellowships 5,088,713
Auxiliary Enterprises 26,770,495
Public Service 14,794,168
Total $ 269,489,113
NOTE 22 – FLOOD DAMAGES
Beginning with a sleet storm on April 6, 1997, and followed by the Flood of 1997, beginning on April 18, 1997,
the University of North Dakota suffered extensive damage to infrastructure, buildings, equipment, and
furnishings. UND has filed claims with the Federal Emergency Management Agency (FEMA) to recover
damages to the extent allowed by FEMA. On August 11, 1997, the North Dakota Emergency Commission
authorized UND to borrow up to $12 million from the Bank of North Dakota for purposes of expediting the
repair of buildings and infrastructure, as well as the replacement of equipment and furnishings lost in the
disaster. The original $12,000,000 line of credit was closed on June 29, 2001. On June 29, 2001, the Bank of
North Dakota per approval of the Emergency Commission on June 11, 2001 issued a new $12,000,000 line of
credit with a maturity date of June 30, 2003. On June 4, 2003 the Emergency Commission approved a new
$3,600,000 line of credit. On June 19, 2003 the Bank of North Dakota issued the $3,600,000 line of credit
maturing June 30, 2005.
Overall, FEMA has estimated that total eligible UND losses should approximate $50.6 million for campus-wide
building repairs and contents losses. Of the $50.6 million, insured losses should fund $6.4 million, FEMA $39.9
million, and UND will fund $4.3 million. As of June 30, 2004, UND has expended approximately $58.8 million
in flood recovery costs, recovered $6.3 million from insurance, received $37.4 million from FEMA, and received
$8.5 million in deficiency appropriations.
NOTE 23 – ADVANCES FROM BANK OF NORTH DAKOTA – LINE OF CREDIT
The University of North Dakota has reported advances from the Bank of North Dakota in the amount of
$2,610,854. This represents the amount borrowed as of June 30, 2004, on a $3,600,000 line of credit that the
University has for flood related expenditures.
On August 4, 1997, the Emergency Commission under the provisions of NDCC 54-16-13, approved the
University’s request to obtain $12,000,000 line of credit from the Bank of North Dakota to pay expenses
incurred by the University as a result of the spring 1997 flooding and only as documented on a Damage Survey
Report (DSR) pending with or approved by the Federal Emergency Management Agency (FEMA). The line of
credit was to be used to cover the cost of enhancements or modifications beyond those listed on the DSR. The
line of credit was to be repaid as reimbursements were received from FEMA and/or insurance carriers and could
only be drawn as funds were needed to pay contractors.
On March 9, 1998, the Bank of North Dakota, acting on direction from the Emergency Commission, approved
two additional categories of draw availability on the $12 million Letter of Credit: (1) Projects which have been
submitted for DSR preparation anticipating funding from both FEMA and Insurance Providers; and (2) Projects
which have been submitted for DSR preparation anticipating denial of FEMA funding, but anticipating funds
from Insurance Providers. In June 2003, the $12 million line of credit was closed. On June 4, 2003, a new $3.6
million line of credit was approved for continuing flood related expenditures. The line of credit matures June 30,
2005. The rate of interest is variable with rate changes occurring quarterly. At June 30, 2004, the rate was
NOTE 24 – RISK MANAGEMENT
The University is exposed to various risks of loss related to torts; theft, damage, or destruction of assets; errors
and omissions; injuries to employees; and natural disasters. The following are funds/pools established by the
state for risk management issues:
Risk Management Fund
The 1995 Legislative Session established the Risk Management Fund (RMF), an internal service fund, to provide
a self-insurance vehicle for funding the liability exposures of state agencies resulting from the elimination of the
state’s sovereign immunity. The RMF manages the tort liability of the state, its agencies, employees and the
University System. All state agencies participate in the RMF and each fund’s contribution was determined using
a projected cost allocation approach. The University obtains most of its insurance through the RMF.
North Dakota Fire and Tornado and State Bonding Fund
The University also participates in the North Dakota Fire and Tornado Fund and State Bonding Fund. The
University pays an annual premium to the Fire and Tornado Fund to cover property damage to personal
property. Estimating replacement cost in consultation with the Fire and Tornado Fund provides replacement
cost coverage. The State Bonding Fund currently provides the University with blanket fidelity bond coverage in
the amount of $1,000,000 for its employees. The State Bonding Fund does not currently charge any premium
for this coverage.
North Dakota Workforce Safety and Insurance
The University System participates in the North Dakota Workforce Safety and Insurance, an Enterprise Fund of
the State of North Dakota. The Bureau is a state insurance fund and is a no fault insurance system. It covers the
state’s employers and employees financed by premiums assessed to employers. The premiums are available for
the payment of claims to employees injured in the course of employment.
North Dakota Insurance Reserve Fund
In 1986 state agencies and political subdivisions of the State of North Dakota joined together to form the North
Dakota Insurance Reserve Fund (NDIRF), a public entity risk pool currently operating as a common risk
management and insurance program for over 2,000 state agencies and political subdivisions. The University of
North Dakota purchases professional liability insurance for physicians at its Medical School from NDIRF. The
coverage by NDIRF is limited to losses of one million dollars per occurrence.
There have been no significant reductions in insurance coverage from the prior year and settled claims from
these risks have not exceeded insurance coverage in any of the past three fiscal years except for flood damages at
UND and NDSU as discussed in Note 22.
NOTE 25 – ASBESTOS SETTLEMENT
During fiscal year 1999, the University System settled an asbestos lawsuit against W.R. Grace & Co. The
Chancellor has designated the dollars for asbestos related projects at the campuses. The designated amount for
UND at June 30, 2004 is $2,676,888.
NOTE 26 – DEFICIT FUND BALANCES > $100,000
As of June 30, 2004, the University had negative fund balances in excess of $100,000. Listed below are the fund
numbers, fund description and deficit balances for each:
FUND DESCRIPTION BALANCE
1173 JDOSAS Laptop Computer Program $151,350
1503 NDCGME – GF Family Practice Center 423,409
2493 NATCO (01) 155,092
John D. Odegard School of Aerospace Science (JDOSAS)
Fund 1173 – JDOSAS Laptop Computer Program
The laptop program is transitioning from a 3-year lease to a 2-year lease of the computers. The year-end fund
balance, a deficit of $151,350, was due to a related timing issue. In July 2004, Revenue of $704,556 was posted to
this fund, generating a positive fund balance of $387,000 at month-end. The laptop program director has
projected an increase in revenue in fiscal year 2005 and a decrease in lease expense associated with the change in
lease term, resulting in a positive balance at the end of fiscal year 2005.
Fund 2493 – Northwest Airlines Training Corporation (NATCO)
This fund relates to a Settlement between NATCO and UND for the remaining payments on Ryan Hall. The
fund was set up in fiscal year 2001 with a deficit balance of $537,092 with a plan for an annual reduction in the
deficit, which would zero out the fund by fiscal year 2006. The plan calls for the current deficit balance of
$152,092 to be reduced by $108,000 in fiscal year 2005 and $47,092 in fiscal year 2006.
School of Medicine & Health Sciences (SMHS)
Fund 1503 – North Dakota Continuing Graduate Medical Education – Grand Forks Family Practice
The Grand Forks Family Practice Residency program ended fiscal year 2004 with a negative net equity balance
of $423,409. The program's financial issues have been a concern of the SMHS administration for several years.
The financial and other issues became a public matter this spring of 2004. An advisory board, comprised of
officials at Altru Health System and UND, has been meeting to resolve the issues and bring the program into
financial solvency. The long-term prognosis is that the program will become financially solvent over the next
five years through a combination of improved business practices, increased patient care revenues, and possible
increases in graduate medical education funding from Altru Health System.
NOTE 27 – SUBSEQUENT EVENTS
In 2002, the State of North Dakota began implementation of a PeopleSoft software package covering state
government and the University System. The project is referred to as ConnectND (CND). The University
System implemented the three major components of CND at three pilot sites, MaSU, VCSU and the NDUS
Office, in April of 2003. Implementation at the remaining nine remaining campuses was scheduled to occur on
or about July 1, 2004.
In the spring of 2004, it became apparent to the project Steering Committee and others working on the project
that the grants and contracts module would not be ready for implementation on July 1 on all campuses.
Implementation of a grants and contracts system, which was not fully functional, would jeopardize our
continued receipt of grant funding. At the end of July, based on the recommendation of the Chancellor’s
Cabinet, the SBHE approved a delay in the rollout of CND at four campuses: UND, NDSU, MiSU and MiSU-
BC. Other campuses went live as scheduled on or about July 1, 2004. The four delayed campuses will begin
phased implementation this fall, with implementation of all the modules scheduled to occur by January 1, 2005.
Additional costs incurred to ensure a successful implementation by January 1, 2005 will total $4.1 million in
fiscal year 2005. Included are costs for additional staffing and consulting assistance in the grants and contracts
module, additional production assistance needed to support two parallel systems for a longer period of time and
other ongoing CND support costs. Funding for the additional costs will be provided by the CND budget, the
HECN budget, the SBHE Contingency Fund, foregiven consulting charges, the state contingency fund, and