1. Minnesota State Colleges and Universities Board of Trustees Meeting November 8, 2005

2. Table of Contents Audit Results, Reports Issued and New Standards Implemented, Including Component Units Management Recommendations Required Communication Financial Statement Highlights Questions and Open Discussion

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

4. New Standards GASB 40 – Deposit and Investment Risk Disclosures. Requires additional disclosure about credit quality and risks in MnSCU’s cash and investment portfolio. Covers –Credit risk –Concentration risk –Interest rate risk –Foreign currency risk

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

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

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

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

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

13. Financial Statement Overview – Expenses Operating Expenses increased 4.66% to $1,377,466,000 Salaries up 3.5% to $954,071,000 Expenses increasing in 2005 include: Purchased Services (+6.7%), Supplies (+6.1%), Depreciation (+3.5%), and Other (+38.5) Expenses decreasing in 2005 include: Repairs and Maintenance (-8.0%) and Financial Aid (-10.4%)

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

18. Financial Statement Overview - Statement of Revenues, Expenses & Changes in Net Assets Net Assets Increased $26,114,000 in 2005, compared to increase of $63,224,000 in 2004 and $73,286,000 in 2003 Net Assets decreased $11,509,000 prior to Capital Appropriations in 2005 compared to 2004 decrease of $5,324,000

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

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

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

25. Expendable Net Assets/Annual Operating Expenses

26. Equity/Total Assets

27. Expendable Net Assets/Outstanding Debt

28. Questions and Open Discussion