Finance and Administration - Board of Trustees - The University of ...

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Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - Information3S TATE OF TENNESSEECOMPTROLLER OF THE TREASURYDEPARTMENT OF AUDITDIVISION OF STATE AUDITSUITE 1500JAMES K. POLK STATE OFFICE BUILDINGNASHVILLE, TENNESSEE 37243-1402PHONE (615) 401-7897FAX (615) 532-2765Independent Auditor’s ReportDecember 9, 2011The Honorable Bill Haslam, GovernorandMembers of the General AssemblyState Capitol, Nashville, Tennessee 37243andMr. James E. Hall, ChairmanAudit CommitteeBoard of TrusteesThe University of Tennessee, Knoxville, Tennessee 37996-0180andDr. Joseph A. DiPietro, PresidentThe University of Tennessee, 800 Andy Holt Tower, Knoxville, Tennessee 37996-0180Ladies and Gentlemen:We have audited the accompanying basic financial statements of the University of Tennessee, which is a component unit of the State of Tennessee, as of and for the year ended June30, 2011, as listed in the table of contents. These financial statements are the responsibility of the university’s management. Our responsibility is to express opinions on these financialstatements, based on our audit. We did not audit the financial statements of the University of Chattanooga Foundation, Inc.; the University of Tennessee Foundation, Inc.; and theUniversity of Tennessee Research Foundation, Inc., discretely presented component units of the university. Those financial statements were audited by other auditors whose reportsthereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Chattanooga Foundation, Inc.; the University of TennesseeFoundation, Inc.; and the University of Tennessee Research Foundation, Inc., is based on the reports of the other auditors.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained ingenerally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditand the reports of the other auditors provide a reasonable basis for our opinions.In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial positionof the University of Tennessee and its discretely presented component units as of June 30, 2011, and the respective changes in financial position and cash flows for the year then endedin conformity with accounting principles generally accepted in the United States of America.As explained in Note 2, the financial statements include investments valued at $361,231,003.85 (14.1 percent of net assets), whose fair values have been estimated by managementin the absence of readily determinable fair values. Management’s estimates are based on information provided by the fund managers or the general partners.The management’s discussion and analysis and the schedule of funding progress are not a required part of the basic financial statements but are supplementary information requiredby accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of managementregarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.Our audit was conducted for the purpose of forming opinions on the basic financial statements. The schedules and charts presented outside of the basic financial statements arepresented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures appliedin the audit of the basic financial statements, and, accordingly, we express no opinion on it.In accordance with generally accepted government auditing standards, we have also issued our report dated December 9, 2011, on our consideration of the university’s internal controlover financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report isto describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal controlover financial reporting or on compliance. That report is an integral part of an audit performed in accordance with generally accepted government auditing standards and should beconsidered in assessing the results of our audit.Sincerely,Arthur A. Hayes, Jr., CPADirectorAAH/sds335
Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationManagement’s Discussionand Analysis3This section of the University of Tennessee’s annual financial report presentsa discussion and analysis of the financial performance of the university duringthe fiscal year ended June 30, 2011, with comparative information presentedfor the fiscal year ended June 30, 2010. This discussion has been prepared bymanagement along with the financial statements and related note disclosures andshould be read in conjunction with the Independent Auditor’s Report, the auditedfinancial statements, and the accompanying notes. The financial statements,notes, and this discussion are the responsibility of management.The university is component unit of the State of Tennessee and an integral partof the state’s Comprehensive Annual Financial Report (CAFR). The financialreporting entity for the financial statements is comprised of the university andthree component units. The component units are discretely presented based onthe nature and significance of their relationship to the university. The reader mayrefer to Note 1 for detailed information on the financial reporting entity.Using This Annual ReportThis report consists of three basic financial statements. The statement of netassets; the statement of revenues, expenses, and changes in net assets; and thestatement of cash flows provide information on the University of Tennessee as awhole and present a long-term view of the university’s finances.THE STATEMENT OF NET ASSETSThe statement of net assets presents the financial position of the university at theend of the fiscal year and includes all assets and liabilities of the university. Thedifference between total assets and total liabilities—net assets—is an indicatorof the current financial condition of the university. Assets and liabilities aregenerally measured using current values. Capital assets, however, are stated athistorical cost less an allowance for depreciation.Net assets are divided into three major categories. The first category, investedin capital assets, net of related debt, provides the university’s equity in property,plant, and equipment owned by the university. The next asset category isrestricted net assets, which is divided into two categories, nonexpendable andexpendable. The corpus of nonexpendable restricted resources is only availablefor investment purposes. Expendable restricted net assets are available forexpenditure by the university but must be spent for purposes as determined bydonors and/or external entities that have placed time or purpose restrictions onthe use of the assets. The final category is unrestricted net assets. Unrestrictednet assets are available to the university for any lawful purpose of the institution.See Table 1 (opposite page).The university had the following significant changes between fiscal years on thestatement of net assets:Current assets increased between fiscal years due to increases in investments andthe current portion of accounts, notes, and grants receivable. The most significantincrease is attributable to the portion of grants receivable deemed current.Noncurrent assets of cash and cash equivalents, investments, and capital assetsincreased between the fiscal years. Cash and cash equivalents increased due to achanging investment mix to adjust to activity in the capital markets. Investments36
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