NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The Ohio State University is a land grant institution created in 1870 by the Ohio General Assembly under provisions of the Morrill Act. The University is one of several state-supported universities in Ohio. It is declared by statute to be a body politic and corporate and an instrumentality of the State. The University is governed by a nine member Board of Trustees which is granted authority under Ohio law to do all things necessary for the proper maintenance and continual successful operation of the University. The Trustees are appointed for staggered nine year terms by the Governor with the advice and consent of the State Senate. In addition, two non-voting student members are appointed to the Board of Trustees for staggered two year terms.
Basis of Presentation
The accompanying financial statements present the accounts of the following entities:
In accordance with Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, the University's financial statements are included as a discrete entity in the State of Ohio's Consolidated Annual Financial Report.
Basis of Accounting
The financial statements of the University have been prepared on the accrual basis in accordance with generally accepted accounting principles for state-assisted colleges and universities. Depreciation is not recognized for plant and equipment as it is not required for state-supported universities. The Statement of Revenues, Expenditures and Changes in Fund Equities represents the financial activities of funds related to the current reporting period.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenditures during the reporting period. Disclosure of contingent assets and liabilities at the date of the financial statements may also be affected. Actual results could differ from those estimates.
Resources are classified for accounting and reporting purposes into funds that reflect the specific activities, objectives or restrictions of the resources. Separate accounts are maintained within each fund.
In the accompanying financial statements, funds that have similar characteristics are combined into fund groups, and all financial transactions have been recorded and reported by fund group. Fund equities restricted by outside sources are so indicated and are distinguished from unrestricted funds.
Description of Funds
Each of the following fund groups is a self-balancing set of accounts:
Current Funds include those resources that are available for current operations. These funds can be either unrestricted or restricted and are used for educational and general purposes, auxiliary enterprises, or University Hospitals. Current funds are considered unrestricted unless donors or external agencies restrict their use to specific purposes, programs, colleges, departments, or schools.
Educational and general purposes include instruction, research, public service, academic support, student services, institutional support, scholarships, fellowships, and operation and maintenance of plant facilities.
Auxiliary enterprises are those activities designed to be substantially self-supporting. These activities primarily provide services for students, faculty and staff. Auxiliary enterprises include, but are not limited to, residence halls, food services, bookstores and intercollegiate athletics.
The Board of Trustees has responsibility for all the University's financial affairs and assets. The University operates largely on a decentralized basis by delegating this authority to its academic and support departments. The Board must approve the annual budgets for unrestricted academic and support functions, departmental earnings operations and restricted funds operations, but these budgets are managed at the department level. The balances resulting from these operations are used by the individual departments to support working capital needs, fund related academic programs and internally sponsored research, and provide for unanticipated shortfalls in revenues and deviations in enrollment.
Loan Funds include resources available for loans to students. These funds are primarily composed of federal Perkins loans. As these loans are repaid, the principal and accumulated interest are available for further student loans.
Endowment and Similar Funds include endowment funds and quasi-endowment funds. Characteristics of these funds are as follows:
|Endowment Funds|| Principal is not expendable per donor's or external agency's instructions. Investment income may be expended or added to principal.
|Quasi-Endowment Funds||Funds are University designated to be retained and invested. Principal and income may be utilized at discretion of Board of Trustees subject to any donor-imposed restrictions on use.|
For all types of endowment funds, the principal includes the original gift value of the endowment, subsequent additions, reinvestments of income, and realized gains/losses resulting from invasions of endowment principal.
Annuity and Life Income Funds consist primarily of life income funds which are resources acquired by the University provided that periodic income be paid during the lifetime of the income beneficiary per the donor's instructions.
Plant Funds consist of four self-balancing sub-groups whose characteristics are as follows:
|Unexpended Funds|| Resources are derived from various sources to finance the acquisition of long-life assets.
|Renewals and Replacements Funds||Resources are set aside for future renewal and replacement of current assets. The University maintains a program of regularly estimating future requirements for major maintenance and renovation of buildings and equipment. The cost of meeting those requirements is provided through regular transfers from current operating funds to funds reserved for renewals and replacements of plant.|
For the year ended June 30, 1998, non-capitalized expenditures for plant facilities for the Unexpended and Renewals and Replacements funds are $17,494.
|Retirement of Indebtedness Funds|| Resources are specifically accumulated for payment of principal and interest on debt incurred in connection with the acquisition of properties.
|Investment in Plant Funds|| All long-life assets in the service of the University and construction in progress are accounted for in this fund. Physical properties, which include land, buildings, improvements, equipment and library books, are principally stated at cost. In accordance with generally accepted accounting principles for state-assisted colleges and universities, depreciation is not provided.
To the extent current funds are used to finance plant assets, the amounts are accounted for during the year ended June 30, 1998 as (a) expenditures of current funds and additions to property and equipment in the plant fund of $55,045, (b) mandatory transfers in the case of required provisions for debt amortization and interest, and (c) transfers of a non-mandatory nature in other cases, principally provisions for renewals and replacements.
Agency Funds include resources held by the University on behalf of others in the capacity of custodian or fiscal agent. Resources owned by academic or scholarly journals but managed by faculty who serve as the publications' editors are one type of agency fund.
Cash and Investments
Cash and cash equivalents consist primarily of petty cash, demand deposit accounts, money market accounts, and savings accounts.
Investments are carried at market value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. The weighted average method is used for purposes of determining gains and losses on the sale of investments. The specific identification method is used for purposes of determining gains and losses on the sale of gifted securities.
Investment in real estate is carried at cost, if purchased, or appraised value at the date of the gift. The carrying and market values of real estate at June 30, 1998 are $24,629 and $49,536 respectively.
Investment income is recognized on an accrual basis. Interest and dividend income is recorded when earned.
The University's inventories, which consist principally of the bookstores, central food stores and general stores, are valued at the lower of moving average cost or market. The inventories of the hospitals, which consist principally of pharmaceuticals and operating supplies, are valued at cost on a first-in, first-out basis.
Deferred credits in the current unrestricted fund primarily consist of receipts relating to tuition, room, board, and athletic events received in advance of the services to be provided. Tuition and fees relating to the summer academic quarter are recorded as revenue in the following fiscal year. The University will recognize unrestricted revenue to the extent these services are provided over the coming fiscal year.
Gifts and Pledges
The University does not report pledges in the financial statements until the gifts are collected. The University's gift records indicate that approximately $89,251 in pledges are outstanding at June 30, 1998. Since those pledges are often payable either at the discretion of the donors or through their estates, neither the realizable value nor the period of collection can be determined prior to actual receipt.
Government Grants and Contracts
Government grants and contracts normally provide for the recovery of direct and indirect costs and are subject to audit by the appropriate government agency. Federal funds are subject to an annual OMB Circular A-133 audit. The University recognizes revenue associated with direct costs as the related costs are incurred. Recovery of related indirect costs is generally recorded at fixed rates negotiated for a period of one to three years.
Revenue received under third-party cost reimbursement agreements (primarily the federal Medicare and Medicaid programs) are subject to examination and retroactive adjustments by the agencies administering the programs. In the normal course of business, the hospitals contest certain issues resulting from examination of prior years' reimbursement reports. The accompanying financial statements include provisions for estimated retroactive adjustments arising from such examinations and contested issues. The hospitals recognize settlements of protested adjustments or appeals upon resolution of the matters.
Changes in Accounting Principle
Effective July 1, 1997 the University adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools.
GASB No. 31 establishes accounting and financial reporting standards for external investment pools and establishes fair value standards for certain investments, including open-end mutual funds, debt securities and equity securities. GASB No. 31 requires that all investment income, including changes in the fair value of investments, be reported as revenue in the Statement of Changes in Fund Balances. In addition, GASB No. 31 requires expanded disclosures for external investment pools. Under GASB No. 31 there is no change in the manner in which the University assigns investment income, including changes in the fair value of investments, to funds.
The University retroactively adopted the provisions of GASB No. 31 in the accompanying financial statements. The effect of adopting GASB No. 31 was recognized as a $108,053 increase in the total assets and fund equity of the University as of July 1, 1997.
In addition, during fiscal year 1997, the University changed its method of calculating accrued sick leave under the provisions of GASB Statement No. 16, Accounting for Compensated Absences.
GASB No. 16 requires the University to accrue sick leave liability for those employees who are currently eligible to receive termination payments as well as other employees who are expected to become eligible to receive such payments. Prior to July 1, 1996, the University calculated this liability using the "vesting method" which is set forth in Appendix C, Example 5 of GASB No. 16. However, further review of the University's methodology raised concerns that the probabilities used in the vesting method calculation may not have been an accurate reflection of the University's historical experience regarding sick leave termination payments.
To address these concerns, the University elected to change its sick leave liability calculation to the "termination payment method" which is set forth in Appendix C, Example 4 of the GASB No. 16. Under the termination method, the University calculates a ratio, Sick Leave Termination Cost per Year Worked, that is based on the University's actual historical experience of sick leave payouts to terminated employees. This ratio is then applied to the total years-of-service for current employees.
The cumulative effect on prior years of this change in accounting principle was recognized as a $9,254 increase in the total assets and fund equity of the University during fiscal year 1997.
The University is exempt from income taxes as a non-profit organization under Internal Revenue Code § 115 and Internal Revenue Service regulations. Any unrelated business income is taxable.
The financial information for the year ended June 30, 1997 has been presented for comparative purposes only and is not intended to be a complete presentation in accordance with generally accepted accounting principles. Certain reclassifications have been made to the 1997 comparative information to conform with the 1998 presentation.
NOTE 2 - ACCOUNTS AND NOTES RECEIVABLE
Accounts receivable at June 30, 1998 are net of allowances for doubtful accounts in current unrestricted and current restricted funds of $64,507 and $888, respectively.
Notes receivable at June 30, 1998 consist primarily of Perkins Loans and are net of an allowance for doubtful accounts of $6,007. The fund equities related to this and other federal loan programs principally represent advances which are ultimately refundable to the federal government.
NOTE 3 - CASH AND INVESTMENTS
At June 30, 1998, the carrying amount of the University's cash and cash equivalents for all funds is $51,673 as compared to bank balances of $95,763. The differences in carrying amount and bank balances are caused by outstanding checks and deposits in-transit. Of the bank balances, $1,773 is covered by federal deposit insurance and $93,990 is uninsured but collateralized by pools of securities pledged by the depository banks and held in the name of the respective banks.
The University's investment policy authorizes the University to invest non-endowment funds in the following investments:
|Category 1|| Insured or registered investments held by the University or its agent in the name of the University
|Category 2||Uninsured and unregistered investments for which securities are held by the broker's or dealer's trust department or agent in the name of the University|
|Category 3||Uninsured and unregistered investments for which securities are held by the broker or dealer but not in the University's name|
The values of investments at June 30, 1998 are as follows:
|US Government securities||$617,574|
|Money market - deposit with trustee||8,587|
| || $1,451,545|
The US Government securities are invested through trust agreements with banks who keep the securities in their safekeeping accounts at the Federal Reserve Bank in "book entry" form. The banks internally designate the securities as owned by or pledged to the University (Category 2). Common stocks, corporate bonds, money market instruments, mutual funds and other investments are invested through trust agreements with banks who keep the investments in their safekeeping accounts at the Depository Trust Company, Bank One or National City Bank in "book entry" form. The banks internally designate the securities as owned by or pledged to the University (Category 2).
Approximately $462,036 of the investments are accounted for on a pooled basis and are recorded in the unrestricted educational and general fund. A portion of these investments is due to other fund groups and is reflected on the interfund accounts line of the balance sheet.
Approximately $895,289 of the investments are accounted for on a pooled basis and are recorded in the endowment and annuity funds. The University employs the share method of accounting for pooled investments and for proportionate distribution of income to each fund which participates in the pool and reflects the ownership of such shares through the use of the interfund accounts. Based on this method, undistributed gains of $15,442 from prior years were transferred from the endowment fund to current restricted funds.
Net appreciation in the fair value of investments includes both realized and unrealized gains and losses on investments. During the year ended June 30, 1998, the University realized a net gain of $76,109 from the sale of investments. The calculation of realized gains is independent of the net appreciation in the fair value of investments held at year-end. Realized gains and losses on investments that have been held in more than one fiscal year and sold in the current year includes the net appreciation (depreciation) of these investments reported in the prior year. The net unrealized appreciation in the fair value of investments during the year ended June 30, 1998, was $134,747. This amount includes all changes in fair value, both realized and unrealized, that occurred during the year. The unrealized appreciation during the year on investments held at year-end was $58,638.
The components of the net appreciation of investments by fund group are as follows:
| Realized |
on Sales of
in Market Value
|Retirement of Indebtedness|| (3)||(43)||(46) |
| || $76,109||$58,638||$134,747|
NOTE 4 - INVESTMENT IN PLANT
|Improvements other than buildings||138,361|
|Movable equipment and furniture||659,537|
|Construction in progress|| 235,765|
NOTE 5 - DEBT
|Ohio Board of Regents Note, due through 2006||0.00%||$1,700|
|Ohio Board of Regents Note, due through 2001||0.00%||345|
|Ohio Department of Development, due through 2004||4.115%||684|
|General Receipt Bonds:|
Principal amounts due within each of the next five years and thereafter on obligations outstanding at June 30, 1998 are as follows:
|Year ending June 30,|
|2004 and thereafter|| 145,093|
General receipts bonds are backed by the unrestricted receipts of the University, excluding certain items as described in the bond indentures.
The bond indentures provide for mandatory reserves of $5,405 for future payment of principal and interest. At June 30, 1998, the University is in compliance with these requirements. In addition, the University has set aside $32,474 for future debt service which is included in unrestricted fund equities within the plant fund.
During the year, the University issued $79,540 of variable rate demand general receipt bonds with interest rates not to exceed 12%. The uses of the bond funds are as follows:
On March 3, 1998, the net proceeds relating to the current refunding in the amount of $21,450 were transferred to the trustee and the 1992B bonds were redeemed. As a result, the liability for the 1992B bonds has been removed from the accompanying financial statements. This refunding of debt had no effect on fund equity in the investment in plant fund for the year ended June 30, 1998 (the reacquisition price was equal to the net carrying value of the old bonds). The refunded 1992B bonds and the new 1997 bonds both have variable interest rates which are determined according to similar criteria. The economic gain associated with the 1992B bond refunding was not significant. The benefit of the refunding was the ability to make the bonds more marketable by having them part of a larger bond issue package.
In prior years, the University defeased various bonds by placing the proceeds of new bonds into an irrevocable trust to provide for all future debt service payments on the old bonds. The defeased bonds are as follows:
Outstanding as of
June 30, 1998
|Fixed Rate General Receipts Bonds:|
|General Receipts Bonds|
Neither the outstanding indebtedness nor the related trust account assets for the above bonds are included in the University's financial statements.
Series 1985B, 1986B, and 1997 variable rate demand bonds bear interest at rates based upon yield evaluations at par of comparable securities. The maximum interest rate allowable and the effective average interest rate from issue date to June 30, 1998 are as follows:
At the discretion of the University, the interest rate on the bonds can be converted to a fixed rate. The bonds may be redeemed by the University or sold by the bondholders to a remarketing agent appointed by the University at any time prior to conversion to a fixed rate at a price equal to the principal amount plus accrued interest. For the 1985B and 1986B bonds, a standby bond purchase agreement provides backup support in the event of a failed remarketing. For the 1997 bonds, the University will provide backup support in the event of a failed remarketing. In connection with the issuance of the bonds and the execution of the previously mentioned agreements, the University has agreed to certain restrictive covenants.
Total interest expense incurred on indebtedness for the year ended June 30, 1998 is $9,283 and is reflected in the total retirement of indebtedness fund deduction of $29,550. Interest of $3,087 was capitalized in the investment in plant fund.
NOTE 6 - LEASES
Computer equipment and the facilities for child care, stores/receiving and ATI residence hall are leased under capital leases. The original cost and lease obligations related to these capital leases as of June 30, 1998 are $20,013 and $16,438 respectively.
Future minimum lease payments for capital leases at June 30, 1998 are as follows:
|Year ending June 30,|
| || 11,967|
| || (5,980)|
|Net minimum lease payments||$16,438|
The University leases various buildings, office space, and equipment under operating lease agreements. These facilities and equipment are not recorded as assets on the balance sheet. The total rental expense under these agreements was $11,904 for the year ended June 30, 1998. Future minimum payments for all significant operating leases with initial or remaining terms in excess of one year as of June 30, 1998 are as follows:
|Year ending June 30,|
| || 7,892|
|Total minimum lease payments||$33,971|
NOTE 7 - ENDOWMENT AND ANNUITY FUNDS
NOTE 8 - STATE SUPPORT
The State also provides line-item appropriations which partially support the current operations of various activities which include clinical teaching expenditures incurred at The Ohio State University Hospitals and other health sciences teaching facilities, The Ohio State University Extension, The Ohio Agricultural Research and Development Center, and the Center for Labor Research.
In addition to current operating support, the State of Ohio provides the funding for and constructs major plant facilities on the University's campuses. The funding is obtained from the issuance of revenue bonds by the Ohio Public Facilities Commission (OPFC) which, in turn, initiates the construction and subsequent lease of the facility by the Ohio Board of Regents.
Such facilities are reflected as buildings or construction in progress in the accompanying balance sheet. The state appropriations for these facilities are recognized as fund additions in the plant funds of the financial statements when expended by the state. Neither the obligations for the revenue bonds issued by OPFC nor the annual debt service charges for principal and interest on the bonds are reflected in the University's financial statements. Debt service is funded through appropriations to the Ohio Board of Regents by the General Assembly.
These facilities are not pledged as collateral for the revenue bonds. Instead, the bonds are supported by a pledge of monies in the Higher Education Bond Service Fund and future payments to be received by such fund, which is established in the custody of the Treasurer of State.
NOTE 9 - CURRENT FUNDS REVENUES AND EXPENDITURES
Unrestricted revenues and other additions are considered revenue when earned. Restricted revenues and other additions are considered revenue when earned by satisfying the requirements for expenditure.
The current funds restricted revenues earned through expenditure for the year ended June 30, 1998 are as follows:
|Other state support||26,994|
|Endowment and investment income and realized gains|| 22,815|
Current funds expenditures for the year ended June 30, 1998 consist of the following:
|Educational and general:|
|Total educational and general||703,348||391,096|
NOTE 10 - RETIREMENT PLANS
275 East Broad Street
Columbus, OH 43215-3771
277 East Town Street
Columbus, OH 43215-4642
Funding Policy. The Ohio Revised Code (ORC) provides STRS and PERS statutory authority for employee and employer contributions. The required contribution rates for STRS plan members and the University are 9.3% and 14% of covered payroll, respectively. For PERS, the required contribution rates for plan members and the University are 8.5% and 13.31% (9.0% and 16.7% for law enforcement) of covered payroll, respectively. The University's contributions, representing 100% of employer contributions, for the year ended June 30, 1998 and for each of the two preceding years are as follows:
In addition to the retirement benefits described above, STRS and PERS provide postemployment health care benefits.
PERS provides postemployment health care benefits to retirees with ten or more years of qualifying service credit and to primary survivors of retirees. PERS determines the amount, if any, of the associated health care costs that will be absorbed by PERS. Under ORC, medical costs paid from the funds of PERS are included in the employer contribution rate. For the fiscal year ended December 31, 1997, PERS allocated 4.29% (5.48% for law enforcement) of the employer contribution rate to fund the health care program for retirees.
During 1997, the Retirement Board adopted a new calculation method for determining employer contributions applied to other postemployment health benefits. Under the new method, effective January 1, 1998, employer contributions, equal to 4.2% of member covered payroll, are used to fund health care expenses. Under the prior method (in effect for the period of July 1, 1997 through December 31, 1997), accrued liabilities and the normal cost rates were determined for retiree health care coverage. Assumptions and calculations for the prior method are outlined below and were based upon the PERS latest Actuarial Review performed as of December 31, 1996:
PERS expenditures for postemployment benefits during 1997 were $394 million. The unaudited net assets available for these benefits at December 31, 1997 were $8.3 billion. There were 113,906 benefit recipients eligible for postemployment benefits at that date.
STRS provides comprehensive health care benefits to retirees and their dependents. Coverage includes hospitalization, physician fees, prescription drugs, and reimbursement of monthly Medicare premiums. Pursuant to ORC, STRS has discretionary authority over how much, if any, of the associated health care costs will be absorbed by STRS. Most benefit recipients pay a portion of the health care cost in the form of monthly premiums. Under ORC, medical costs paid from the funds of STRS are included in the employer contribution rate. For the fiscal year ended June 30, 1997, STRS allocated employer contributions equal to 2% of covered payroll to a Health Care Reserve Fund (HCRF) from which payments for health care benefits are paid. The balance in the HCRF was $1.86 billion at June 30, 1997. For the fiscal year ended June 30, 1998, STRS allocated employer contributions equal to 3.5% of covered payroll to the HCRF.
STRS expenditures for postemployment benefits during the year ended June 30, 1997 were $192 million. There were 88,718 benefit recipients eligible for postemployment benefits at that date.
NOTE 11 - COMPENSATED ABSENCES
University employees earn vacation and sick leave on a monthly basis.
Classified civil service employees may accrue vacation benefits up to a maximum of three years credit. Administrative and professional staff and faculty may accrue vacation benefits up to a maximum of 240 hours. For all classes of employees, any earned but unused vacation benefit is payable upon termination.
Sick leave may be accrued without limit. However, earned but unused sick leave benefits are payable only upon retirement from the University with ten or more years of service with the State. The amount of sick leave benefit payable at retirement is one fourth of the value of the accrued but unused sick leave up to a maximum of 240 hours.
The liability for the cost of vacation and sick leave benefits is approximately $52,799 as of June 30, 1998.
NOTE 12 - CAPITAL PROJECT COMMITMENTS
At June 30, 1998, the University is committed to future contractual obligations for capital expenditures of approximately $170,257.
These projects are funded by the following sources:
|Internal and other sources||118,254|
NOTE 13 - SELF-INSURANCE PROGRAMS
The Hospitals' estimate of professional malpractice liability includes provisions for known claims and actuarially determined estimates of incurred but not reported claims and incidents. This liability at June 30, 1998 of the anticipated future payments on gross claims is estimated at its present value of $13,262 discounted at an estimated rate of 6.2%.
Although actual experience upon the ultimate disposition of the claims may vary from this estimate, the self-insurance fund assets of $22,222 are in excess of the recorded liability at June 30, 1998, and the excess of $8,960 is included in the Hospitals' fund equity.
The University is also self-insured with a stop-loss ceiling of $82,229 for employee health insurance. As of June 30, 1998, $8,948 is recorded as a liability relating to both claims received but not paid and estimates of claims incurred but not yet reported.
Changes in the reported liabilities since June 30, 1996 resulted from the following:
|Liability at beginning of fiscal year||$12,198||$11,084||$9,091||$17,545|
|Current year claims, changes in estimates||1,302||1,117>||53,134||47,600|
|Balance at year end||$13,262||$12,198>||$8,948||$9,091|
NOTE 14 - CONTINGENCIES
NOTE 15 - FUNDS HELD IN TRUST BY OTHERS
The University is the beneficiary of and annually receives income from funds held in trust by other trustees. These funds are administered by outside trustees and are neither in the possession nor under the control of the University. The principal amount of these funds is not determinable at the present time.
NOTE 16 - SUBSEQUENT EVENTS
In August 1998, the University established a $120,000 tax-exempt commercial paper program. The General Receipts Commercial Paper Notes (the "Notes") are limited obligations of the University secured by a pledge of the General Receipts of the University. The Notes are not debts or bonded indebtedness of the State of Ohio and are not general obligations of the State of Ohio or the University, and neither the full faith and credit of the State of Ohio nor the University are pledged to the payment of the Notes. The Notes have been issued to provide for interim financing of various projects approved by the Ohio Board of Regents.
The first issuance of commercial paper was on August 20, 1998, in the amount of $10,000 at a blended rate of 3.4%. The term of each Note is established at the time of issuance, but may not exceed 270 days and may not mature after January 15, 2000. It is the University's intention to roll each maturity into new Notes as they mature and to issue additional Notes as project expenditures are incurred. It is the University's intention ultimately to roll the Notes into permanent tax exempt bonds.
Copyright © 1998 by OSU Office of the Controller, Division of Accounting.