STATE OF ILLINOIS SOUTHERN ILLINOIS UNIVERSITY FINANCIAL AUDIT FOR THE YEAR ENDED JUNE 30, 2004 Performed as Special Assistant Auditors for the Auditor General, State of Illinois _part2 potx

8

Capital Asset and Debt Administration

Long-term debt activity included the issuance of Series 2004A Certificates of Participation (COPS) on June 17, 2004,
in the par amount of $32,740,000. The COPS were issued to finance, in combination with University funds, the
renovation of Morris Library, the construction of a library storage facility, the construction of a Research Park, the
replacement of campus signage, the purchase of computer and research equipment, and energy conservation measures,
all at Carbondale; the construction of a Pharmacy building and the renovation of the Dental School building, both at
Edwardsville; and energy performance measures at the School of Medicine in Springfield.

For additional information concerning the University’s Capital Assets and Debt Administration, see Note 5 in the
Notes to Financial Statements.

Economic Outlook

Fiscal year 2005 appropriations for higher education operations were approved at the same funding level as the fiscal
year 2004 original appropriations. The Governor and legislative leadership signed a memorandum of understanding
stating that there would be no reserve or other spending restrictions imposed by the State on the amounts appropriated
to the Illinois public universities for fiscal year 2005. The State continues to request that public universities contribute
toward the cost of group health insurance premiums, a cost previously paid in full by the State on behalf of the
universities. Southern Illinois University’s portion of the payment for health insurance is approximately $7 million
per year.

Effective for fiscal year 2005, all public universities in the state of Illinois were required to implement a “guaranteed
tuition program” in which charges to enrolling undergraduate resident freshmen students remain constant for four
continuous academic years following the initial enrollment. The implementation of this program required a hard look
at the budget process to assure that tuition levels approved balanced both operational needs with student affordability.
Southern Illinois University approved tuition increases for first time resident freshmen of 7.9% at Carbondale and
7.4% at Edwardsville for fall 2005.

As state funding has declined, Southern Illinois University will continue to develop and expand its resource base to
seek more funding from tuition and fees, grants, contracts, and fund raising activities. This is demonstrated in the
fiscal year 2005 budget in which, despite level funding levels from the state, there is a projected increase in revenues
of 2.4%. As part of the university’s normal budgetary process, 2% of state appropriated funds and tuition income are
held as a contingency reserve. During fiscal year 2004, Southern Illinois University successfully reduced
administrative costs by 27.3% or $19.67 million from the 2002 budget level and will continue to streamline
operations, reallocate funds, review priorities, and utilize other efficiency measures into fiscal year 2005.

Facts, Decisions or Conditions Significantly Affecting Net Assets

There are no facts, decisions, or conditions significantly affecting net assets other than those items explained in the
previous section of this discussion and analysis. Please see the notes to the financial statements for additional details
and further explanations of the data presented in the other sections of this discussion and analysis. The notes are an
integral part of the financial statements and should be included as part of any review or analysis.

This is trial version
www.adultpdf.com
Southern Illinois University
Statement of Net Assets
June 30, 2004 (with comparative totals for 2003)
2004 2003 (Restated) 2004 2003
ASSETS
Current Assets:
Cash and cash equivalents (Note 3)
32,559,288
$

42,379,832
$

594,712
$

1,309,378
$

Short-term investments (Note 3)
60,470,238


36,831,293


29,082,979


26,763,892


Deposits with University
-


-


9,895,974

6,690,484


Appropriations receivable from State of Illinois General Revenue
193,411


534,575


-


-


Appropriations receivable from State of Illinois Capital Development
2,901


429,701


-


-


Reimbursement due from State Treasurer

2,232,337


10,042,819


-


-


Accounts receivable, net (Note 6)
27,471,903


32,248,499


11,967,680


10,354,523


Notes receivable, net (Note 6)
5,115,493


4,509,277

678,876


-


Accrued interest receivable
1,467,335


1,500,971


108,712


102,639


Due from related organizations
2,380,522


1,504,748


508,322

208,551


Inventories
6,159,935


6,600,554


-


-


Prepaid expenses and other assets
1,250,171


858,835


629,783


815,156

Total Current Assets 139,303,534 137,441,104 53,467,038 46,244,623
Noncurrent Assets:
Cash and cash equivalents (Note 3)
3,179,552


1,105,181


48,542


48,570


Long-term investments (Note 3)
100,795,663


90,352,407


76,682,583


61,835,127


Notes receivable, net (Note 6)
14,521,247

14,028,104


29,791


27,040


Prepaid expenses and other assets
4,838,308


2,910,771


13,630,688


7,669,625


Due from related organizations
-


-

572,914


757,490


Capital assets, net (Note 7)
449,902,411


432,434,427


3,360,759


2,766,819


Total Noncurrent Assets 573,237,181 540,830,890 94,325,277 73,104,671
TOTAL ASSETS 712,540,715 678,271,994 147,792,315 119,349,294
LIABILITIES
Current Liabilities:
Accounts payable
20,508,322


17,751,983

746,817


913,006


Notes payable (Note 5)
313,939


624,397


308,239


147,670


Accrued interest payable
1,042,741


1,073,497


34,444

22,275


Accrued payroll
7,270,663


6,379,593


2,859,893


2,717,332


Accrued compensated absences (Note 5)
4,224,198


4,604,437


-


-


Revenue bonds payable (Note 5)

8,142,996


7,347,066


-


-


Certificates of participation (Note 5)
1,593,513


359,512


-


-


Liabilities under capitalized leases (Note 5)
1,244,336


1,597,098

-


-


Annuities payable (Note 5)
-


-


367,886


361,971


Accrued liability for self-insurance (Notes 4 and 5)
4,214,627


4,504,533


-

-


Deposits held for University related organizations
9,895,974


6,690,484


-


-


Deposits held in custody for others (Note 5)
1,197,490


1,078,502


53,341


37,539

Deferred revenue
47,460,922


51,092,228


434,116


362,412


Housing deposits (Note 5)
112,787


111,139


-


-


Due to related organizations (Note 5)
508,322

206,228


2,380,522


1,507,071


Total Current Liabilities 107,730,830 103,420,697 7,185,258 6,069,276
Noncurrent Liabilities:
Notes payable (Note 5)
669,247


983,186


1,204,264


725,075


Accrued compensated absences (Note 5)
40,205,928


42,105,257

-


-


Revenue bonds payable (Note 5)
139,190,892


143,354,747


1,650,000


1,650,000


Certificates of participation (Note 5)
34,881,856


3,823,317


-

-


Liabilities under capitalized leases (Note 5)
2,320,329


3,617,796


-


-


Annuities payable (Note 5)
-


-


3,629,144


3,480,361


Accrued liability for self-insurance (Notes 4 and 5)

14,565,994


17,287,026


-


-


Federal loan program contributions refundable (Note 5)
16,642,668


16,301,803


-


-


Due to related organizations (Note 5)
572,914


757,490

-


-


Housing deposits (Note 5)
137,850


135,836


-


-


Other accrued liabilities (Note 5)
191,645


201,677


1,233,026

1,361,784


Deposits held in custody for others (Note 5)
-


-


1,740,087


67,826


Total Noncurrent Liabilities 249,379,323 228,568,135 9,456,521 7,285,046
TOTAL LIABILITIES 357,110,153 331,988,832 16,641,779 13,354,322
NET ASSETS
Invested in capital assets, net of related debt
303,479,541


284,455,612


1,316,952

1,116,819


Restricted for:
Nonexpendable
3,780,020


3,009,559


57,610,111


50,129,307


Expendable
Quasi-endowment
213,711


251,121


-


-

Scholarships, research, instruction and other
8,693,709


6,805,080


43,272,936


30,268,830


Loans
3,880,665


5,533,816


202,163


127,970


Capital projects and debt service
24,168,223

28,531,472


2,329,006


2,483,168


Unrestricted
11,214,693


17,696,502


26,419,368


21,868,878


TOTAL NET ASSETS 355,430,562$ 346,283,162$ 131,150,536$ 105,994,972$
The accompanying notes are an integral part of this statement.
9
UNIVERSITY
UNIVERSITY RELATED ORGANIZATIONS
This is trial version
www.adultpdf.com

Southern Illinois University
Statement of Revenues, Expenses and Changes in Net Assets
For the Year Ended June 30, 2004 (with comparative totals for 2003)
2004 2003 (Restated) 2004 2003
REVENUES
Operating Revenues:
Student Tuition and Fees (net of scholarship allowances of $20,992,469) 128,651,935$ 114,958,280$ -$ -$
Federal grants and contracts 37,459,244 33,162,133 - -
State of Illinois grants and contracts 23,713,814 30,086,737 - -
Other government grants and contracts 6,241,787 5,128,571 - -
Private grants and contracts 20,595,461 13,616,055 - -
Sales and services of educational departments 72,907,124 69,202,526 - -
Auxiliary enterprises:
Funded debt enterprises (net of scholarship allowances of $4,397,968) 64,090,248 55,176,630 - -
Other auxiliary enterprises (net of scholarship allowances of $939,645) 6,588,766 9,738,334 - -
Loan interest income 325,567 257,961 - -
Other operating revenues 142,519 106,337 64,729,267 54,643,971
Total Operating Revenues 360,716,465 331,433,564 64,729,267 54,643,971
EXPENSES
Operating Expenses:
Instruction 225,548,481 215,399,317 - -
Research 48,493,944 45,042,557 - -
Public service 52,498,428 53,751,664 - -
Academic support 92,270,967 80,617,219 - -
Student services 47,787,416 42,418,011 - -
Institutional support 58,298,105 57,209,271 74,048,122 67,039,659
Operation and maintenance of plant 59,610,827 59,180,579 - -
Scholarships and fellowships 18,501,136 18,032,631 - -
Depreciation (Note 7) 29,140,624 28,585,677 199,817 180,491
Auxiliary enterprises:

Funded debt enterprises 62,597,481 49,676,540 - -
Other auxiliary enterprises 8,040,135 11,370,054 - -
Additional on behalf SURS allocation for unfunded liability (Note 2) 141,111,746 -
Provision for doubtful notes receivable (183,894) (233,883) - -
Loan cancellations 77,535 66,435 - -
Loan administrative expenses 196,687 101,981 - -
Total Operating Expenses 843,989,618 661,218,053 74,247,939 67,220,150
Operating Loss (483,273,153) (329,784,489) (9,518,672) (12,576,179)
NONOPERATING REVENUES (EXPENSES)
State appropriations - General Revenue Fund 213,458,064 195,609,913 - -
State appropriations - Education Assistance Fund - 31,796,200 - -
Gifts and contributions 7,840,550 7,179,972 9,046,021 13,126,155
Investment income (Note 3) 569,096 10,230,629 10,199,109 3,902,223
Grants and contracts 25,512,441 26,884,002 - -
Interest on capital asset-related debt (4,417,034) (4,165,370) (112,043) (125,755)
Accretion on bonds payable (3,979,140) (3,884,204) - -
University related organizations (2,291,754) 737,778 - -
Payments on behalf of the university (Note 2) 92,928,477 75,905,748 - -
Additional on behalf SURS allocation for unfunded liability (Note 2) 141,111,746 -
Other nonoperating revenues 968,349 1,339,777 6,140,359 2,155,002
Net Nonoperating Revenues 471,700,795 341,634,445 25,273,446 19,057,625
Income (Loss) Before Other Revenues (11,572,358) 11,849,956 15,754,774 6,481,446
Other Revenues:
Capital state appropriations 17,072,430 32,796,342 - -
Additions to permanent endowments - 555,034 3,587,322 1,246,642
Capital grants and gifts 3,647,328 12,168,173 5,813,468 664,081
Total Other Revenues 20,719,758 45,519,549 9,400,790 1,910,723
Increase in Net Assets 9,147,400 57,369,505 25,155,564 8,392,169
NET ASSETS
Net assets at beginning of year, as previously reported 332,207,010 273,680,561 105,994,972 98,449,682

Restatement of net assets (Note 2) 14,076,152 15,233,096 - (929,179)
Activity from inception through June 30, 2002 - - - 82,300
Net assets at beginning of year, as restated 346,283,162 288,913,657 105,994,972 97,602,803
Net Assets at End of Year 355,430,562$ 346,283,162$ 131,150,536$ 105,994,972$
The accompanying notes are an integral part of this statement.
10
UNIVERSITY
UNIVERSITY RELATED ORGANIZATIONS
This is trial version
www.adultpdf.com
Southern Illinois University
Statement of Cash Flows
For the Year Ended June 30, 2004 (with comparative totals for 2003)
2004 2003 (Restated) 2004 2003
Cash Flows from Operating Activities
Tuition and fees 142,649,900$ 126,936,367$ -$ -$
Grants and contracts 83,132,389 78,825,849 - -
Sales and services of educational activities 71,317,328 61,645,267 - -
Auxiliary enterprise revenues:
Funded debt 67,725,505 59,186,295 - -
Other auxiliary 7,582,185 9,925,290 - -
Payments to employees for salaries and benefits (390,034,765) (387,396,443) (20,485,310) (18,006,299)
Payments to suppliers (212,749,366) (196,194,950) (41,800,545) (37,378,214)
Payments for scholarships and fellowships (44,582,700) (35,843,453) (4,903,564) (3,814,705)
Loans issued to students (6,335,126) (1,625,994) - -
Interest earned on loans to students 309,456 254,289 - -
Collection of loans from students 5,406,218 1,249,492 - -
Patient service revenue - - 52,280,282 47,265,381
Other operating receipts 64,139,280 56,773,380 2,504,427 3,037,384
Net cash used by operating activities (211,439,696) (226,264,611) (12,404,710) (8,896,453)

Cash Flows from Noncapital Financing Activities
State appropriations 213,799,227 229,711,438 - -
Direct lending receipts 120,708,468 99,130,495 - -
Direct lending payments (120,470,794) (99,189,107) - -
Grants and contracts 25,512,441 27,769,412 - -
Government advances for federal loan funds 401,396 293,434 - -
Payments to annuitants - - (317,778) (312,883)
Other (3,395,639) (486,874) 2,017,173 273,945
Gifts for other than capital purposes 10,866,902 7,289,902 15,447,218 13,619,835
Net cash provided by noncapital financing activities 247,422,001 264,518,700 17,146,613 13,580,897
Cash Flows from Capital and Related Financing Activities
Capital appropriations 18,004,647 21,189,475 - -
Capital gifts received - - 827,768 664,081
Capital grants - 11,220,111 - -
Payments received on capital financing leases - - 232,940 218,415
Retained bond proceeds - 17,020,000 400,000 -
Deposit to bond escrow account - (8,391,544) - -
Sale of capital assets 18,000 24,000 - -
Purchases of capital assets (48,622,675) (71,380,888) (281,955) (147,417)
Proceeds from long-term debt - - - -
Proceeds from 2004A Certificates of Participation 32,648,520 - - -
Issuance costs paid on new debt issue (434,733) - - -
Principal paid on capital debt (7,820,000) (7,160,000) (153,863) (493,311)
Interest paid on capital debt (4,189,211) (4,399,182) (96,938) (151,897)
Net cash provided (used) by capital and related financing activities (10,395,452) (41,878,028) 927,952 89,871
Cash Flows from Investing Activities
Purchases of investments (104,245,825) (57,060,900) (10,783,125) (9,114,670)
Proceeds from sales of investments and maturities 65,610,138 63,376,255 2,155,044 2,127,558
Investment income 5,302,661 8,613,156 2,243,532 2,107,030
Net cash provided (used) by investing activities (33,333,026) 14,928,511 (6,384,549) (4,880,082)

Net increase (decrease) in cash (7,746,173) 11,304,572 (714,694) (105,767)
Cash and cash equivalents, beginning of the year 43,485,013 32,180,441 1,357,948 1,463,715
Cash and cash equivalents, end of the year 35,738,840$ 43,485,013$ 643,254$ 1,357,948$
11
UNIVERSITY RELATED ORGANIZATIONS
UNIVERSITY
This is trial version
www.adultpdf.com
Southern Illinois University
Statement of Cash Flows (Continued)
For the Year Ended June 30, 2004 (with comparative totals for 2003)
2004 2003 (Restated) 2004 2003
Reconciliation of Operating Loss
to Net Cash Used in Operating Activities
Operating loss (483,273,153)$ (329,784,489)$ (9,518,672)$ (12,576,179)$
Adjustments to reconcile operating loss to net cash
used in operating activities:
Depreciation expense 29,140,624 28,585,677 199,817 180,491
Impairment loss 3,787,837 - - -
Amortization expense - - 193,443 -
Noncash grants to University - - 1,181,247 1,911,540
Noncash expenditures for the benefit of the University - - 1,301 775,016
Budget expended at University (170,150) (155,801) - -
Payments on behalf of the university 234,040,223 75,905,748 - -
Change in assets and liabilities:
Accounts receivable (net) 979,183 161,422 (1,205,561) 901,905
Deposits with University - - (177,663) (177,408)
Reimbursement due from State Treasurer 7,810,483 810,843 - -
Inventories 440,619 (23,853) - -
Prepaid expenses (362,677) 535,920 7,604 (7,691)

Other assets 111,531 (190,095) (3,667,629) (1,150,996)
Accounts payable 3,661,329 (2,243,510) 700,797 1,185,578
Accrued payroll 891,070 452,267 - -
Deferred revenue (3,076,212) 1,158,795 (42,634) (11,117)
Compensated absences (2,279,568) (2,088,888) - -
Deposits held for others (19,195) (247,617) (2,900) 115
Other liabilities (3,007,277) 689,134 16,202 2,737
Due to/from related organizations (114,363) 169,836 (90,062) 69,556
Net cash used in operating activities (211,439,696)$ (226,264,611)$ (12,404,710)$ (8,896,453)$
The accompanying notes are an integral part of this statement.
12
UNIVERSITY RELATED ORGANIZATIONS
UNIVERSITY
This is trial version
www.adultpdf.com

13

Southern Illinois University
Notes to Financial Statements
June 30, 2004


Note 1 - The financial reporting entity and component unit disclosures

Southern Illinois University (the "University"), a component unit of the State of Illinois (the "State"), conducts
education, research, public service, and related activities principally at its two campuses. One is in Carbondale and
includes the School of Medicine in Springfield. The other is in Edwardsville and includes the School of Dental Medicine
in Alton and the East St. Louis Center. The governing body of the University is the Board of Trustees of Southern
Illinois University (the "Board"). As required by accounting principles generally accepted in the United States of

America, these financial statements present the financial position and financial activities of the University (the primary
unit) and its component units as well as certain activities and expenditures funded by other State agencies on behalf of
the University or its employees. The component units discussed below are included in the University's financial
reporting entity because of the significance of their financial relationship with the University.

The University Related Organizations’ column in the financial statements includes the financial data of the University’s
component units which consist of the following seven entities: the Southern Illinois University Foundation (at
Carbondale) and the Southern Illinois University at Edwardsville Foundation (the “Foundations”), The Association of
Alumni, Former Students and Friends of Southern Illinois University, Incorporated, and The Alumni Association of
Southern Illinois University at Edwardsville (the “Alumni Associations”), University Park, Southern Illinois University
at Edwardsville, Inc. (“University Park”), Southern Illinois Research Park, Inc., Carbondale, and SIU Physicians &
Surgeons, Inc. The University’s related organizations are reported in a separate column to emphasize that they are
Illinois non-profit organizations legally separate from the University. These entities are University Related
Organizations as defined under University Guidelines adopted by the State of Illinois Legislative Audit Commission in
1982 and amended in 1997.

The Foundations were formed for the purpose of providing fund raising and other assistance to the University in order to
attract private gifts to support the University's education, research, and public service goals. In this capacity, the
Foundations solicit, receive, hold, and administer gifts for the benefit of the University. Complete financial statements
for the Foundations may be obtained by writing: Southern Illinois University Foundation (at Carbondale), MC 6805,
1235 Douglas, Carbondale, IL 62901-6805 and Southern Illinois University at Edwardsville Foundation, Edwardsville,
IL 62026-1082.

The Alumni Associations were formed to promote the general welfare of the University and to encourage and stimulate
interest among students, former students, and others in the University's programs. In this capacity, the Alumni
Associations offer memberships to former students, conduct various activities for students and alumni, and publish
periodicals for the benefit of the alumni. Complete financial statements for the Alumni Associations may be obtained by
writing: The Association of Alumni, Former Students and Friends of Southern Illinois University, Incorporated, MC
6809, Colyer Hall, Carbondale, IL 62901-6809 and The Alumni Association of Southern Illinois University at
Edwardsville, Southern Illinois University, Edwardsville, IL 62026-1031.

University Park, Southern Illinois University at Edwardsville, Inc. was formed for the purpose of providing such
management, administrative, and other services as deemed essential to the operation and development of the University
Park facility. Complete financial statements for the University Park may be obtained by writing: University Park,
Southern Illinois University at Edwardsville, Inc., Southern Illinois University, Edwardsville, IL 62026-1333.

Southern Illinois Research Park, Inc.was formed to promote high technology and knowledge-based enterprise
development within Carbondale and southern Illinois. Complete financial statements for the Research Park may be
obtained by writing: Southern Illinois Research Park, 150 East Pleasant Hill Road, Carbondale, IL 62901-6891.

SIU Physicians & Surgeons, Inc. was formed to aid in the education and training of medical students, residents, fellows,
and physicians for the delivery of cost-effective, high-quality patient care and the conduct of medical and other scientific
investigations. Complete financial statements for SIU Physicians & Surgeons, Inc. may be obtained by writing: SIU
Physicians & Surgeons, Inc., SIU School of Medicine, P.O. Box 19606, Springfield, IL 62794-9606.
This is trial version
www.adultpdf.com

14

Note 1 - The financial reporting entity and component unit disclosures – Continued

The University is a component unit of the State of Illinois for financial reporting purposes. The financial balances and
activities included in these financial statements are, therefore, also included in the State's comprehensive annual financial
report.

Note 2 - Summary of significant accounting policies

Basis of presentation

These financial statements have been prepared in accordance with accounting principles generally accepted in the United

States of America as prescribed by the Governmental Accounting Standards Board (GASB), including Statement No. 35,
Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities. The
University now follows the business-type activity reporting requirements of GASB Statement No. 35 that provides a
comprehensive, entity-wide perspective of the University’s financial activities and replaces the fund group presentation
previously required.

For financial reporting purposes, the University is considered a special-purpose government engaged only in business-
type activities. Accordingly, the University’s financial statements have been presented using the economic resources
measurement focus and the accrual basis of accounting applicable to public colleges and universities. Under the accrual
basis, revenues are recognized when earned, and expenses are recorded when an obligation to pay has been incurred. All
significant intra-agency transactions have been eliminated. The University has the option to apply all Financial
Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with
GASB. The University has elected to not apply FASB pronouncements issued after the applicable date.

The accounts of the University's financial reporting entity are still maintained internally in accordance with the principles
of fund accounting. Under fund accounting, resources are classified for accounting and reporting purposes into funds
according to specified activities or objectives.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting Change and Restatement of Net Assets

Cougar Village, Edwardsville: The financial statements for fiscal year 2003 have been restated to correct an error in the
recording of a major renovation project at the Cougar Village apartment complex at the Edwardsville campus in 2001;
the project was expensed rather than capitalized. The effect of the restatement was to increase the beginning net assets
for 2003 by $15,233,096. Additional depreciation expense totaled $1,156,944 for fiscal year 2003 and has resulted in an
increase to the ending net assets invested in capital assets at June 30, 2003, of $14,076,152.

Allowance for uncollectibles

The University provides allowances for uncollectible accounts and notes receivable based upon management's best
estimate of uncollectible accounts and notes at the statement of net assets date, considering type, age, collection history
of receivables, and any other factors as considered appropriate. The University’s accounts receivable and notes
receivable are reported net of allowances of $7,790,487 and $2,371,818, respectively, at June 30, 2004.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market with the exception of the Textbook Rental
Service at the Edwardsville campus. The rental books are recorded at depreciated cost with the related expense reported
as depreciation expense.




This is trial version
www.adultpdf.com

15

Note 2 - Summary of significant accounting policies – Continued

Student Financial Assistance

In fiscal year 1996, the University was accepted to participate in the United States Department of Education Direct
Student Loan Program at both campuses. For fiscal year 2004, loans under the program amounted to $70,504,454 at the
Carbondale campus and $41,181,672 at the Edwardsville campus. The University has classified this loan program as
Noncash Federal Awards in the Office of Management and Budget (OMB) Circular A-133, Schedule of Expenditures of

Federal Awards, Note C in the Compliance Audit Report. Accordingly, no revenue or expenditures are included in the
financial statements of the University.

Capital assets

Capital assets are recorded at cost at the date of acquisition or at the fair market value at the date of donation in the case
of gifts. In accordance with accounting principles generally accepted in the United States of America for public colleges
and universities, depreciation is computed using the straight-line method over the estimated useful lives of the assets.
The following month prorate convention is being used, in which no depreciation is recorded in the month of acquisition
and an entire month of depreciation is recorded in the month of disposition. Capitalization thresholds and useful lives
are as follows:

Category Capitalization Threshold Useful Life
Land -$ not depreciated
Improvements 25,000 15 years
Infrastructure 1,000,000 20 years
Buildings 100,000 40 years
Building improvements 25,000 15 years
Equipment and library books 5,000 5-10 years
Works of art, historical treasures 5,000 not depreciated


Vehicles and electronic data processing equipment are depreciated over five years. Other equipment and books are
depreciated over seven years.

Revenue and expense recognition

In accordance with GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other
Financial Assistance, the University reported on-behalf payments of $92,928,477 for fiscal year 2004 for health care and
retirement costs. These costs are reflected in the Statement of Revenues, Expenses and Changes in Net Assets as

nonoperating revenues entitled “Payments on behalf of the University” and as operating expenses under the appropriate
functional classifications.

Substantially all employees participate in group health insurance plans administered by the State of Illinois. The
employer contributions to these plans for University employees paid from State appropriations and auxiliary enterprises
are paid by the State on behalf of the University. On-behalf payments for health care costs totaled $62,208,957 for the
year ended June 30, 2004. The employer contributions to these plans for employees paid from other University held
funds are paid by the University.

On-behalf payments of $30,719,520 for the year ended June 30, 2004, were made for retirement costs. In addition, the
State Universities Retirement System received a proportionate share of the proceeds from House Bill 3759 (PA 93-002),
allocating an additional $1.432 billion to be applied against the unfunded liability. This payment was in addition to the
regular state appropriation received each year. The University’s share of this allocation was $141,111,746 and has been
reflected in the Statement of Revenues, Expenses and Changes in Net Assets as nonoperating revenues and as operating
expenses entitled “Additional on behalf SURS allocation for unfunded liability.” This allocation is only for the year
ended June 30, 2004. No such allocation was made for fiscal year 2003.





This is trial version
www.adultpdf.com

16

Note 2 - Summary of significant accounting policies – Continued

Revenues

The University has classified its revenues as either operating or nonoperating revenues as follows:

Operating Revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as
student tuition and fees, sales and services of educational departments, sales and services of auxiliary enterprises, and most
grants and contracts. Tuition and fees are generally recognized as operating revenues as they are assessed. The summer
session tuition and fees are allocated between the two fiscal years.

Nonoperating Revenues: Nonoperating revenues include activities that have the characteristics of nonexchange
transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues by GASB
Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Government Entities that Use
Proprietary Fund Accounting, and GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion
and Analysis – for State and Local Governments, such as state appropriations, investment income, and federal student aid
programs. Appropriations made to the University from the State of Illinois General Revenue Fund are recognized as
nonoperating revenues in the year appropriated to the extent expended. Other nonoperating revenues include transactions
relating to capital and financing activities, noncapital financing activities, and investing activities.

Restricted grant revenues from external sources are recognized to the extent of related expenditures on the accrual basis.

Expenses

Accrued compensated absences for University personnel are charged to current funds based on earned but unused
vacation and sick leave days including the University's share of Social Security and Medicare taxes. At June 30, 2004,
the University estimates $35,672,206 will be paid from state appropriated accounts funded by the State of Illinois
General Revenue Fund and the Income Fund, and $8,757,920 from local funds in subsequent years for a combined total
of $44,430,126.

Adoption of New Government Accounting Standards (GASB Statement Nos. 40, 41, and 42)

GASB Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No. 3, is effective
for periods beginning after June 15, 2004. This statement addresses common deposit and investment risks related to

credit risk, interest rate risk, and foreign currency risk. The University will be required to disclose investments that have
fair values that are highly sensitive to changes in interest rates and its deposit and investment policies related to these
risks.

GASB Statement No. 41, Budgetary Comparison Schedules-Perspective Differences-an amendment of GASB Statement
No. 34, clarifies the budgetary presentation requirements for governments. It is not applicable to the University.

GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance
Recoveries, was established to recognize a reduction in the value of impaired capital assets whenever service utility has
declined significantly and unexpectedly and is effective for periods beginning after December 15, 2004. The University
has elected earlier application and has reported an impairment loss of $3,787,837 due to mold contamination at the
Edwardsville residence halls and $1,860,500 in mold remediation costs reported in maintenance and repairs in fiscal year
2004.


Note 3 – Cash and Investments

It is University policy to invest funds in a manner which will provide investment returns and security consistent with
good business practices, while meeting the daily cash flow demands of the University and conforming to all statutes
governing the investments of funds. Illinois Compiled Statutes, specifically the Public Funds Investment Act; the
policies of the Board; and covenants provided from the University’s bond issuance activities authorize the University to
invest in obligations of the U. S. Treasury, agencies, and instrumentalities; bank and savings and loan time deposits;
corporate bonds, stocks, and commercial paper; repurchase agreements; and money market mutual funds.


This is trial version
www.adultpdf.com
This is trial version
www.adultpdf.com

18

Note 3 – Cash and Investments - Continued

Western Asset Management manages a portion of the University’s operational funds, and The Northern Trust Company
keeps custody of these funds and assists in the accounting and reporting functions related to these investments. The
funds are allocated into a Short Maturity Portfolio and an Intermediate Maturity Portfolio.

At June 30, 2004, the actual bank balances related to the cash deposits of the University and the University Related
Organizations amounted to $22,157,674 and $6,716,635, respectively; all such balances were covered by federal
depository insurance or collateral held by an agent in the University or its related organizations' name, except for
$137,148 (foreign banks) which was uninsured and uncollateralized by the University.

The cash and investments have been classified into the following categories to reflect the University and University
Related Organizations’ level of risk as of June 30, 2004:


Category 1
Category 2
Category 3
Fair Value
U.S. Government securities
135,958,388
$

-
$

-
$

135,958,388
$

Other Investments
25,307,513


-


-


25,307,513


Total Investments 161,265,901$ -$ -$ 161,265,901
The Illinois Funds
28,496,787


Cash
7,242,053


Total Cash and Investments 197,004,741$
Category 1
Category 2
Category 3

Fair Value
U.S. Government securities
1,217
$

-
$

4,287,078
$

4,288,295
$

Stocks and corporate debt
2,015,008


-


4,880,991


6,895,999


Fixed income securities
177,792

-


1,400


179,192


Total Investments 2,194,017$ -$ 9,169,469$ 11,363,486
Mutual funds
84,079,773


Money market funds
6,672,087


Cash
643,254


Certificates of Deposit
3,650,216


Total Cash and Investments 106,408,816$
UNIVERSITY
UNIVERSITY RELATED ORGANIZATIONS

Category 1: Includes investments that are insured or registered, or for which the securities are held by the University or its
related organizations, or an agent in their name.

Category 2: Includes uninsured and unregistered investments for which the securities are held by the financial institutions'
trust department or agent in the name of the University or its related organizations.

Category 3: Includes uninsured and unregistered investments for which the securities are held by the financial institution or
by its trust department or agent but not in the name of the University or its related organizations.


Pooled funds, mutual funds, money markets, cash and certificates of deposit are not categorized because they are not
evidenced by securities that exist in physical or book entry form.

The University Related Organizations' exposure to potential losses from the respective mutual funds’ and money market
funds' investment in derivatives cannot be reasonably determined at June 30, 2004.






This is trial version
www.adultpdf.com