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    Annual Financial Report 2004 Annual Financial Report 2004 Document Transcript

    • 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. Sincerely, Robert C. Gallager Vice President for Finance and Operations 1
    • UNIVERSITY OF NORTH DAKOTA Table of Contents _______________________________________________________________________ PAGE MANAGEMENT’S DISCUSSION AND ANALYSIS Introduction 3 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 FINANCIAL STATEMENTS 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 2
    • MANAGEMENT’S DISCUSSION AND ANALYSIS INTRODUCTION 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 the NDUS. 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 these organizations. 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 this report. BACKGROUND INFORMATION 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. 3
    • 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. MISSION STATEMENT 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 region. NOTEWORTHY ACCOMPLISHMENTS • 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 previous year. • 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. 4
    • OTHER STATISTICAL HIGHLIGHTS ENROLLMENT 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 20,000 20,000 18,000 18,000 16,000 16,000 14,000 14,000 12,000 12,000 10,000 10,000 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 0 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 tuition revenues. 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 plan. 5
    • 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 6
    • 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 7,438 7,862 $8,000 $8,000 6,774 7,098 4,548 4,156 5,167 $6,000 $6,000 3,620 3,088 3,870 3,262 4,079 3,662 $4,000 2,830 3,502 2,956 $4,000 $2,000 $2,000 $0 $0 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 9,676 10,223 8,943 8,982 9,196 $10,000 $10,000 7,997 8,422 7,336 7,658 $8,000 $8,000 5,755 $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 $4,000 $4,000 $2,000 $2,000 $0 $0 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. 7
    • TUITION AND FEES - continued In-State Law School Tuition & Fees Out-State Law School Tuition & Fees $25,000 $25,000 20,028 $20,000 $20,000 18,068 15,339 16,252 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 $5,000 $5,000 $0 $0 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 39,469 $40,000 $40,000 36,611 35,251 32,364 33,982 29,726 31,721 27,302 25,593 27,153 28,933 $30,000 $30,000 $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 $10,000 $10,000 $0 $0 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. 8
    • 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%. BOND RATING A1 Moody’s Investor Services This rating reflects: • Successful enrollment management, leading to growing enrollment despite a weak demographic environment; • 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; and • Comprehensive course offerings, with a medical school and a law school. ECONOMIC FACTORS State Funding 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. Market Factors 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. 9
    • Demographic Factors 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. Budget Preparation 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 . 10
    • FINANCIAL HIGHLIGHTS STATEMENT OF NET ASSETS 2004 2003 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. 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 11
    • 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. Liabilities 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. Net Assets 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. 12
    • STATEMENT OF REVENUE & EXPENSES & CHANGES IN NET ASSETS 2004 2003 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 13
    • 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. 14
    • TOTAL REVENUES BY FUNDING SOURCE 2004 2003 Gifts Gifts 3% Student tuition and 5% Student tuition and State fees State fees Appropriations 19% Appropriations 26% 27% 22% Other 2% Other Grants & Auxiliary 1% Contracts enterprises 28% 9% Grants & Sales and services of Contracts educational 28% Auxiliary Sales and services of departments enterprises educational 8% 10% departments 12% 2004 2003 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 (1) $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. 15
    • OPERATING EXPENSES BY TYPE 2004 2003 Scholarship & Scholarship & fellowship Cost of sales & fellowship expenses expenses services 2% Cost of sales & services 2% 5% Depreciation expense Depreciation 4% 5% expense 6% Data processing expenses Data processing 1% expenses 1% Operating expenses 23% Operating expenses 22% Salaries & wages Salaries & wages 64% 65% 2004 2003 Salaries & wages $174,302,386 $158,862,429 Operating expenses 61,329,101 52,854,515 Data processing expenses 2,468,104 1,838,800 Depreciation expenses 14,821,517 13,695,041 Scholarship & fellowship expenses 5,410,766 5,248,939 Cost of sales & services 11,157,239 11,318,261 TOTAL $269,489,113 $243,817,985 16
    • OPERATING EXPENSES BY FUNCTION 2004 2003 Depreciation Depreciation 5% 6% Research Research 12% 11% Instruction Public service 40% Public service Instruction 5% 6% 39% Auxiliary Auxiliary enterprises enterprises 10% 10% Scholarship and Scholarship and fellowships fellowships 2% 2% Academic Support Physical plant Academic Support 7% Physical plant 8% 7% Student services 4% 5% Institutional Student services Institutional support support 4% 8% 9% 2004 2003 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 17
    • 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 biennium. 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. 18
    • FINANCIAL RATIOS 2004 2003 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 VIABILITY RATIO 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. 19
    • FINANCIAL CONTACTS Finance & Operations Box 8364 Twamley Hall Grand Forks, ND 58202-8364 Fax 701.777.3086 www.und.edu/dept/vpfo/index.html Robert Gallager, Vice President for Finance & Operations Finance & Operations 701.777.3511 bob.gallager@mail.und.nodak.edu Peggy Lucke, Associate Vice President for Finance & Operations Finance & Operations 701.777.2182 peggy.lucke@mail.und.nodak.edu Sharon Berning, Controller Finance & Operations 701.777.3178 sharon.berning@mail.und.nodak.edu Lisa Heher, Cash & Investment Manager Accounting Services 701.777.4575 lisa.heher@mail.und.nodak.edu Allison Peyton, Accounts Payable Manager Accounting Services 701.777.2968 allison.peyton@mail.und.nodak.edu Christine Cavanaugh, Asset Management Accountant Finance & Operations 701.777.3126 christine.cavanaugh@mail.und.nodak.edu COMPONENT UNITS University of North Dakota Aerospace Foundation Box 9023 Grand Forks ND 58202-9023 www.undaerospace.com University of North Dakota Alumni Association and Foundation Box 8157 Grand Forks ND 58202-8157 www.undalumni.org RE Arena Inc., UND Arena Services Inc., Arena Holdings Charitable LLC & Affiliates One Ralph Engelstad Drive Grand Forks ND 58203 www.theralph.com 20
    • FINANCIAL STATEMENTS UNIVERSITY OF NORTH DAKOTA Statement of Net Assets For Year Ended June 30, 2004 ASSETS 2004 2003 Current assets 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 LIABILITIES Current liabilities 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 Noncurrent liabilities Advances from Bank of ND (line of credit) $ 2,610,854 3,331,654 Long-term liabilities 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 NET ASSETS Invested in capital assets, net of related debt $ 225,120,909 209,596,526 Restricted for: Nonexpendable: Scholarships and fellowships 10,276,347 9,007,614 Instruction and public service - Expendable: 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 Other - Unrestricted 42,665,527 47,723,796 TOTAL NET ASSETS $ 315,705,503 $ 308,636,772 21
    • 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 OPERATING REVENUES 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 OPERATING EXPENSES 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 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 0 (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 22
    • UNIVERSITY OF NORTH DAKOTA Statement of Cash Flows For Year Ended June 30, 2004 2004 2003 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 FINANCING ACTIVITIES 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 23
    • Statement of Cash Flows - page 2 2004 2003 RECONCILIATION OF NET OPERATING REVENUES (EXPENSES) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Operating Income (loss) $ (68,476,081) $ (72,003,912) Adjustments: 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) 24
    • 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. Reporting Entity 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. Component Units 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 units. 25
    • 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. 26
    • 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. Related Organizations 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 activities. 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. 27
    • Restricted Assets 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. Budgetary Process 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. 28
    • 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. Investments 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. Receivables 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 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. Plant Assets 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. 29
    • 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 deposits. Compensated Absences 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. Scholarship Allowances 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 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 Statements. Net Assets 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. 30
    • 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 Limitations 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. Deposits 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 cash. Investments 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. 31
    • In accordance with the GASB Statement No. 3, deposits and investments are classified into three categories of custodial credit risk: Cash Investments 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. 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 form. 32
    • Cash and Cash Equivalents and Investments are reported at fair value (market) and reported on the Statement of Net Assets as follows: Deposits 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 Current NonCurrent 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 20,705,333 3,464,426 Investments 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 1 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 33
    • 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 follows: Assets $29,166,839 Proceeds $ 1,499,242 34
    • NOTE 5 – CAPITAL ASSETS Capital asset activity for the year ended June 30, 2004 was as follows: Balance Balance 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 Additions 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. 35
    • • The building under construction is the Neuroscience Facility which will be used for neurological research. • 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 PET scanner. • 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 TOTAL $7,380,916 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 36
    • 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 $2,130,000 $17,525,000 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 $43,770,886 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. 37
    • 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 2007 - 2008 - 2009 - 2010-2014 - 2015-2019 - 2020-2024 - $ 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 38
    • 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 Special Assessments 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 Compensated Absences 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 retirement. 39
    • 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 each plan: 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 totally disabled. 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. Funding Policy 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 calling 800-842-2009. 40
    • Funding Policy 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 plan. 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 were $0.00. 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. 41
    • 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 42
    • 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 43
    • 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. 44
    • 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: Program 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 1 Fiscal Year is 2004, unless otherwise noted. 2 Services Provided: 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. 45
    • 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: Fiscal Year 2005 $ 865,161 2006 388,220 2007 371,096 2008 268,438 2009 152,064 2010-2014 760,320 2015-2019 760,320 2020-2024 652,608 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. 46
    • 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 Research 31,542,768 Depreciation 14,821,517 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 47
    • 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 1.81%. 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. 48
    • 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 49
    • 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 campus funds. 50