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State of Montana
Office of the Legislative Auditor

REPORT TO THE LEGISLATURE

MONTANA STATE UNIVERSITY

MONTANA AGRICULTURAL
EXPERIMENT STATION

MONTANA COOPERATIVE
EXTENSION SERVICE

Financial-Compliance Audit for the r-.,~

Two Fiscal Years Ended June 30. 1987 S,h7F MCUMEfHS COLLECTION

This report contains nine recommendations for
improvement of the university operations. The
major items addressed in the report include:

►" Unrecorded financial transactions with the
foundation.

►- Compliance with state law governing appro-
priations.

►■ Compliance with state policy governing
use of Contingent Revolving funds.

^- Lost interest of approximately $66,000 due
to cash management practices.

SEPC4 1992

MONTANA STATE LIBRARY

1515 E. 6th AVE.
HELENA, MONTANA 59S20

- -. -

Direct comments/inquiries to:

Office of the Legislative Auditor

Room 135, State Capitol

59620

■

Helena, Montana

■

Montana Stale Library

3 0864 1004 7559 2

FINANCIAL-COMPLIANCE AUDITS

Financial-compliance audits are conducted by the Office of the Legislative Auditor to deter-
mine if an agency's financial operations are properly conducted, the financial reports are pre-
sented fairly, and the agency has complied with applicable laws and regulations which could
have a significant financial impact. In performing the audit work, the audit staff uses stand-
ards set forth by the American Institute of Certified Public Accountants and the United States
General Accounting Office. Financial-compliance audit staff members hold degrees with an
emphasis in accounting. Most staff members hold Certified Public Accountant (CPA) certifi-
cates.

The Single Audit Act of 1984 and OMB Circular A- 128 require the auditor to issue certain fi-
nancial, internal control, and compliance reports regarding the state's federal financial assist-
ance programs, including all findings of noncompliance and questioned costs. The Office of
the Legislative Auditor issues a biennial Single Audit Report for the state of Montana which
fulfills those requirements on a statewide basis. The audit report presented here is therefore not
intended to meet all reporting requirements of the Single Audit Act of 1984 and OMB Circular
A-128.

MEMBERS OF THE LEGISLATIVE AUDIT COMMITTEE

Senator Judy Jacobson,

Chairman

Representative John Cobb,

Senator Delwyn Gage

Vice Chairman

Senator Tom Keating

Representative Dorothy Bradley

Senator Ted Neuman

Representative Harry Fritz
Representative Bruce Simon

STATE OF MONTANA

LEGISLATIVE AUDITOR
SCOTT A. SEACAT

LEGAL COUNSEL:

JOHN W NORTHEY

Qttizz £tf tht Qtyhlntiixt ^ubitnx

STATE CAPITOL

HELENA, MONTANA 59620

406/444-3122

June 1988

DEPUTY LEGISLATIVE AUDITORS

MARY BRYSON
Operations and EDP Audit

JAMES GILLETT
Financial-Compliance Audit

JIM PELLEGRINI
Performance Audit

The Legislative Audit Committee
of the Montana State Legislature:

This is our financial-compliance audit report on the Montana State
University, Cooperative Extension Service, and Agricultural Experiment Station
financial activity for fiscal years 1985-86 and 1986-87. The university's
written response to audit recommendations is included in the back of the audit
report.

We thank the president and his staff for their cooperation and assistance
throughout the audit.

Respectfully submittec

Seacat
Legislative Auditor

Office of the Legislative Auditor

MONTANA STATE UNIVERSITY

MONTANA AGRICULTURAL EXPERIMENT STATION

MONTANA COOPERATIVE EXTENSION SERVICE

Financial and Compliance Audit
For the Two Fiscal Years Ended June 30, 1987

Audit staff involved in this audit included: Julie Barr, Joan Anderson, Becky
Dorwart, Wayne Kedish and Rich McRae.

TABLE OF CONTENTS

Page

Appointive and Administrative Officials iv

Summary of Audit Recommendations v

Introduction 1

Background 2

MSU Foundation 4

State Compliance 6

Accounting Records 6

Budget Approval 7

Audit Costs 9

Contingent Revolving Fund 9

Cash Management 1 1

Cash Deposits 12

Contracted Services 13

Federal Compliance 14

Guaranteed Student Loans 14

Student Financial Aid Refunds 15

Auditor's Opinion Letter and
Montana State University
Financial Statements

Summary of Audit Opinion

Auditor's Opinion Letter - MSU 17

MSU Financial Statements

Balance Sheets Year Ended June 30, 1987 19

Statement of Changes in Fund Balances

Year Ended June 30, 1987 23

TABLE OF CONTENTS (Continued)

Page

Statement of Current Funds Revenues,
Expenditures and Other Changes Year
Ended June 30, 1987 27

Notes to Financial Statements June 30, 1987 29

Balance Sheets Year Ended June 30, 1986 36

Statement of Changes in Fund Balances

Year Ended June 30, 1986 40

Statement of Current Funds Revenues,
Expenditures and Other Changes Year
Ended June 30, 1986 44

Notes to Financial Statements June 30, 1986 46

Schedule of Full-Time Equivalent (FTE)

Students For the Two Years Ending

June 30, 1987 52

Auditor's Opinion Letter and Agricultural
Experiment Station Financial Statements

Auditor's Opinion Letter - AES 53

AES Finn i\ Statements

Balance Sheets Year Ended June 30, 1987 55

Statement of Changes in Fund Balances

Year Ended June 30, 1987 57

Statement of Current Funds Revenues,
Expenditures and Other Changes Year
Ended June 30, 1987 59

Notes to Financial Statements June 30, 1987 60

Balance Sheets Year Ended June 30, 1986 63

Statement of Changes in Fund Balances

Year Ended June 30, 1986 65

Statement of Current Funds Revenues,
Expenditures and Other Changes Year
Ended June 30, 1986 67

TABLE OF CONTENTS (Continued)

Page

Notes to Financial Statements June 30, 1986 68

Auditor's Opinion Letter and Cooperative
Extension Service Financial Statements

Auditor's Opinion Letter - CES 71

CES Financial Statements

Balance Sheets Year Ended June 30, 1987 72

Statement of Changes in Fund Balances

Year Ended June 30, 1987 74

Statement of Current Funds Revenues,
Expenditures and Other Changes Year
Ended June 30, 1987 75

Notes to Financial Statements June 30, 1987 76

Balance Sheets Year Ended June 30, 1986 79

Statement of Changes in Fund Balances

Year Ended June 30, 1986 81

Statement of Current Funds Revenues,
Expenditures and Other Changes Year
Ended June 30, 1986 82

Notes to Financial Statements June 30, 1986 83

University Response 86

in

APPOINTIVE AND ADMINISTRATIVE OFFICIALS
BOARD OF REGENTS OF HIGHER EDUCATION

Ted Schwinden, Governor*

Ed Argenbright, Superintendent

*Ex officio members

Term
Expires

1988

of Public Instruction*

1988

Dennis E. Lind, Chairman

Missoula

1989

Burt Hurtwitz, Vice Chairman

White Sulpher Springs

1993

Leslie L. Kehoe

Bozeman

1988

Beatrice McCarthy

Anaconda

1990

Elsie Redlin

Lambert

1991

Jim Kaze

Havre

1992

William L. Mathers

Miles City

1994

COMMISSIONER OF HIGHER EDUCATION

Dr. Carrol Krause
John H. Noble, Jr.

Commissioner of Higher Education

Deputy Commissioner for Management
and Fiscal Affairs

MONTANA STATE UNIVERSITY ADMINISTRATION
Dr. William Tietz President

Dr. James Welsh Director of Agriculture and Extension

Dr. James Isch Director of Administration

IV

SUMMARY OF AUDIT RECOMMENDATIONS

This listing serves as means of summarizing the recommendations
contained in the report and the university's reply.

Recommendation #1
The University:

A. Enter into a written contract with
the Foundation setting forth rights
and duties of each party.

University Response: Concur. See page 87.

B. Monitor the contract to ensure state
funds were spent in accordance with
donor, state and university laws

and policies.

University Response: Concur. See page 87.

C. Account for donations to the
university in the appropriate state
funds.

University Response: Concur. See page 87.

Recommendation #2
The University establish procedures to
ensure the financial activity recorded
on SBAS is in accordance with GAAP.

University Response: Partially concur. See page 87.

Recommendation #3
The University:

A. Record the budgets approved by the
Board of Regents.

University Response: Concur. See page 88.

B. Obtain authorized budget amendments
before changing the approved amounts
recorded on the accounting system.

University Response: Concur. See page 88.

Recommendation #4

The University comply with the appropriation

bill language concerning allocation of audit

costs.

University Response: Concur. See page 88.

Page

SUMMARY OF AUDIT RECOMMENDATION

(continued)

Page

Recommendation #5

The University use the contingent revolving

account in compliance with state policy. 11

University Response: Concur. See page 88.

Recommendation #6

The University request grant moneys in a

manner which will minimize the necessity

for the state to advance cash to grant

programs. 12

University Response: Concur. See page 89.

Recommendation #7

The University deposit receipts on a

timely basis in accordance with state law. 13

University Response: Concur. See page 89.

Recommendation #8
The University:

A. Submit its student confirmation report
to the central processing center on

a timely basis. 15

University Response: Concur. See page 90.

B. Use its computer reports to identify
students and notify lenders directly of
enrollment changes when timely notifi-
cation cannot be met by the student

confirmation report process. 15

University Response: Concur. See page 90.

Recommendation #9

The University follow its policy and require

the signature of the financial aid office on

all student withdrawals. 16

University Response: Concur. See page 90.

VI

INTRODUCTION

We performed a financial-compliance audit of Montana State University
(MSU) and the related Cooperative Extension Service (CES) and Agricultural
Experiment Station (AES) for the two fiscal years ended June 30. 1987. The
objectives of the audit were to:

1. Determine if the university complied with applicable laws and
regulations which could have a significant effect on the financial
statements.

2. Make recommendations for improvements in the management and
internal accounting controls of the university.

3. Determine if the financial statements present fairly the financial
position and results of operations of the university for the two
fiscal years ended June 30, 1987.

4. Determine the implementation status of prior audit recommendations.

This report contains 9 recommendations which address areas where
compliance with laws and regulations, management and internal controls, and
financial reporting can be improved. Other areas of concern deemed not to
have a significant effect on the successful operations of the university
programs are not specifically included in the report, but have been discussed
with management.

Our last financial-compliance audit of the university for the two fiscal
years ended June 30, 1985, contained six recommendations still applicable to
the university. The university implemented one of the recommendations,
partially implemented four of the recommendations, and did not implement one
of the recommendations. The recommendations which the university partially
implemented concern compliance with state purchasing regulations, cash
management practices, recording of expenditure accruals, and plant, property
and equipment. These issues have been discussed with management and the
cash management practices issue is discussed on page 11. The recommendation
which the university did not implement concerns cash deposits and is discussed
on page 12.

In accordance with section 5-13-307, MCA, we analyzed the costs of

implementing the recommendations made in this report. Each report section
discloses the cost, if significant, of implementing the recommendation.

BACKGROUND

Montana State University was founded on February 15, 1893, as the
Agricultural College of the state of Montana, and instruction started on
April 17 of that year. The school was later named Montana State College, and
on July 1, 1965, it became Montana State University (MSU). The university is
a land-grant institution as authorized by the Morrill Act of 1862 and receives
part of its support from land-grant income, as well as state appropriations,
student fees, and federal and private grants.

The public service function of the university had its origin in the
establishment of the Cooperative Extension Service (CES) in 1915, created
under the federal Smith-Lever Act and state legislation. Financial support for
its operation comes from county, state, and federal governments, as well as
from federal and private grants. County agents and specialists are an integral
part of the university and channel information to Montanans to aid in solving
home, farm, and community problems.

The Agricultural Experiment Station (AES) is also an integral part of the
university. It was established in 1893 by the Montana Legislature under
authorization provided by the federal Hatch Act of 1887. The station receives
federal funds under the Hatch Act, as well as state appropriations, federal and
private grants, and funds from the sale of surplus agricultural products. The
Agricultural Experiment Station has eight locations in the state, in addition to
the Bozeman campus. The station components are devoted to solving present
and future agricultural and home economics problems of local, regional, and
national concern. The distribution of research centers is such that the
peculiarities of local or area soil, water, and climate can be considered.

According to estimates provided by the Office of Commissioner of Higher
Education, the University, AES, and CES had approximately 1,784.02, 285.62,
and 154.16 employee FTE's during fiscal year 1986-87, respectively. The
number of FTE by classification is shown in the following schedule:

ESTIMATED EMPLOYEE FTE
FISCAL YEAR 1986-87

MONTANA STATE UNIVERSITY

Contract Faculty
Contract Professional and

Administration
Classified
Grad. Teach. Asst.
Grad. Research Asst.
Part-time and Other
Total Restricted Fund
Total

Appropriated
Fund

522.09

117.88
292.08

60.15
4.25

77.26

Nonappropriated
Funds

Total

522.09

1.073.71

32.29

150.17

146.16

438.24

-

60.15

-

4.25

191.86

269.12

340.00

340.00

710.31

1.784.02

AGRICULTURAL EXPERIMENT STATION

App

iropriated
Fund

Nonappropriated
Funds

Contract Faculty

90.08

_

Contract Professional

and

Administration

27.96

-

Classified

127.00

5.51

Grad. Teach Asst .

15.50

-

Part-time and Other

17.23

2.34

Total

277.77

7.85

Total

90.08

27.96

132.51

15.50

19.57

285.62

COOPERATIVE EXTENSION SERVICE

Appropriated

Nonappropriated

Fund

Funds

Total

Contract Faculty

89.56

_

89.56

Contract Professional and

Administration

11.90

3.66

15.56

Classified

30.24

11.25

41.49

Part-time and Other

3.60

3.95

7.55

Total

135.30

18.86

154.16

The number by classification was not provided. This represents the
total FTE's paid out of Restricted Funds.

Compiled by the Commissioner of Higher Education.

The president of Montana State University is the chief executive officer

for all three units: MSU, AES, and CES. The president is responsible for the

immediate direction, management, and control of the institution under the

3

general supervision and direction of the Board of Regents. Effective July 1,
1987, AES and CES consolidated the administration function. However, AES
and CES will continue to receive separate funding and budgets.

MSU FOUNDATION

The university receives donations from outside parties. The Foundation
solicits and also receives donations from outside parties. The Foundation is a
nonprofit, tax-exempt corporation established to solicit and receive donations
to fund various activities at the university. During our audit, we noted it is
the university's policy to deposit and record receipts of donations it receives
for unknown beneficiaries into the university's uncleared collections Agency
Fund. At the time the university determines where the moneys should be
directed (the university or the Foundation) adjustments are made. If the
university determines the donations were intended for the Foundation, then the
university transfers the moneys to the Foundation. We also noted instances
where other donations the university received were not recorded on the
university's accounting records but were given to the Foundation. Types of
donations where the checks were made payable to the university but the funds
transferred to the Foundation include:

1. Funds from individuals.

2. Funds left to the university by individuals in their wills.

3. Funds from corporations.

4. Funds for scholarships which had been accounted for by the
university and at a later date (up to several years) the donor
requests the funds be transferred to the Foundation.

5. Funds received for an established Foundation program.

Donations made to the university are university assets and should be
recorded on the university's records as state assets. As a general rule, if the
Foundation is to handle donations, the university and the Foundation should
enter into a contract which clearly sets forth rights and duties of both
parties. The university may not donate assets to the Foundation, but may
contract with the Foundation to administer selected university assets. The
university and Foundation could enter into a broad-based, long-term agreement
for the Foundation to carrv out certain administrative functions related to

donations which would then eliminate the necessity of many individual
contracts relating to individual donations. For donations which are determined
to be university assets, the university should monitor its contract with the
Foundation to ensure the funds are spent in accordance with donor
restrictions and state laws and university policies. Monitoring activities could
include reviews of financial reports from the foundations, periodic audits, or
reviews of the foundation's audit reports. If a donor makes a donation to the
university, and subsequently requests the moneys be transferred to the
Foundation, the university should only transfer the donated assets pursuant to
a contractual arrangement whereby the Foundation will administer the funds.
Section 17-6-201(4), MCA, states "the board (of Investments) has the sole
authority to invest state funds. No other agency may invest such state funds."
Under the existing law, MSU does not have the authority to invest or to
contract for investing these moneys. The university should record revenue for
donations received and an advance for amounts disbursed to the Foundation in
the appropriate state fund. The university should record expenditures related
to each fiscal year in its accounting records based upon reports from the
Foundation. Currently, the university does not have a written contract with
the Foundation for administering donations. However, university officials

indicated they have started the process of writing a contract with the
Foundation.

According to university personnel, the university wanted a central office
to bear the responsibility of soliciting, administering, and acknowledging all
donations to and for the benefit of the university. Since the Foundation is
established specifically for that purpose, the university decided the Foundation
should be the primary source of formal acceptance and accounting for
donations to and for the benefit of the university. In addition, university
personnel also stated that many corporate foundations cannot donate directly
to other foundations. Since the university did not keep records of all receipts
and expenditures which were transferred to the Foundation for management, it
was not practical to determine the dollar misstatement on the university's
accounting records. The misstatement consists of donation revenue received
during the audit period and an asset value for the accumulation of unspent
donations the university received and transferred to the Foundation for
administration purposes.

RECOMMENDATION #1

WE RECOMMEND THE UNIVERSITY:

A. ENTER INTO A WRITTEN CONTRACT WITH THE FOUNDATION
SETTING FORTH RIGHTS AND DUTIES OF EACH PARTY.

B. MONITOR THE CONTRACT TO ENSURE STATE FUNDS WERE
SPENT IN ACCORDANCE WITH DONOR, STATE AND UNIVERSITY
LAWS AND POLICIES.

C. ACCOUNT FOR DONATIONS TO THE UNIVERSITY IN THE
APPROPRIATE STATE FUNDS.

STATE COMPLIANCE

We reviewed state laws and regulations pertaining to the university. The
following report sections discuss compliance issues we noted during our audit.

Accounting Records

Financial information of the university is used by university
administrators, regents, legislators, and others to manage and establish funding
levels for the university. The university uses the Statewide Budgeting and
Accounting System (SBAS) to record its financial activity. However, in order
to conform to generally accepted accounting principles (GAAP), the university
makes manual routine adjustments to the SBAS amounts when preparing its
financial statements. Section 17-1-102(4), MCA, indicates "all state agencies,
including units of the university system ... shall input all necessary
transactions to the accounting system ... before the accounts are closed at the
end of the fiscal year in order to present the receipt, use, and disposition of
all money and property for which the agency is accountable for in accordance
with (GAAP) ..."

We noted the following instances where the amounts the university
recorded on SBAS did not comply with state law:

1. Amounts relating to the recording of bond proceeds for defeased
bonds, expenditures for construction in progress, and bond payable
changes relating to the current year's amount of equipment
purchased or construction in progress are not recorded in compliance
with state policy.

2. Amounts for equipment, land, building and inventory represent the
actual balance as of the previous year.

3. Amounts relating to recording of the use of excess "fixed price"
contract moneys and termination pool activities are accounted for in
a Restricted Fund rather than an Unrestricted Fund.

4. Amounts do not reflect the recording of interdepartmental
eliminations, the total amount due from grantors and the total
amounts payable to grantors, or the intrafund cash cutoff
eliminations.

5. Amounts include a construction advance to Department of
Administration, Architecture and Engineering, for long range building
program (LRBP) activity even though no actual construction advance
is sent from the university.

6. Amounts include escrow activity for bonds defeased even though the
university is no longer liable for those bonds.

Without all financial activity recorded on the state's accounting records,
the quality, consistency, and comparability of the resulting financial
information is affected. Most of the above errors occurred because university
personnel would rather wait until after SBAS is closed and the actual figures
are known to make the necessary adjustments. In addition, the present
recording of some information is for management purposes rather than acc-
ounting purposes. The university should consider establishing separate
responsibility centers to record these GAAP adjustments. This would still
provide management information and also ensure financial information, in total,
is in accordance with GAAP.

RECOMMENDATION #2

WE RECOMMEND THE UNIVERSITY ESTABLISH PROCEDURES TO
ENSURE THE FINANCIAL ACTIVITY RECORDED ON SBAS IS IN
ACCORDANCE WITH GAAP.

Budget Approval

In May and June of each fiscal year, all university units are required to
submit budget proposals and operating plans to the Commissioner of Higher
Education (CHE) for the Board of Regents (BOR) approval. The units record
the budgets in the state's accounting records subsequent to the BOR's
approval. During our audit, we noted the fiscal year 1985-86 budgets approved
by the BOR differ from those recorded in the state's accounting system for

AES's and CES's Designated Funds and for the university's Restricted Fund.
For fiscal year 1986-87, the budgets approved by the BOR differ from those
recorded in the state's accounting system for AES's Restricted and Designated
Funds.

House Bill 500, Laws of 1985, and House Bill 30, Special Session June
1986, state "all funds other than plant funds and current unrestricted operating
funds, may be spent and are appropriated contingent upon approval by Board
of Regents by July 1 of each year of the comprehensive program budget."
Appropriations and state laws also designate the BOR or the Commissioner of
Higher Education as the approving authority for budget amendments. By
recording a different budget on the state's accounting records than the budget
approved by the BOR, the university bypasses the amendment process or
establishes an appropriation which is not considered or approved by the BOR.
As a result, unauthorized increases in the budget could occur and the chance
that the university, AES, and CES could overspend approved budget authority
increases.

The university personnel indicated the differences occurred because:

1. Between the time the BOR approves the operating plan submitted to
the CHE and the time the budgets are recorded on the state's
accounting records, the unit has obtained more precise budget
information. The unit records the updated budget information on
the accounting system but does not obtain approval from the BOR or
CHE of the change.

2. When the university submitted the input documents to the Office of
Budget and Program Planning, the university decided to leave some
appropriations open by recording one dollar.

3. CES personnel indicated the wrong dollar amount was copied from
the operating plan to the input document.

4. AES personnel indicated they were not aware of the need for
additional approval for the increases or decreases in the operating
plan.

In order to comply with appropriation laws the university should ensure
all budgets are approved by BOR.

RECOMMENDATION #3

WE RECOMMEND THE UNIVERSITY:

A. RECORD THE BUDGETS APPROVED BY THE BOARD OF REGENTS

OBTAIN AUTHORIZED BUDGET AMENDMENTS BEFORE CHANGING
THE APPROVED AMOUNTS RECORDED ON THE ACCOUNTING
SYSTEM.

Audit Costs

The Montana Legislature establishes appropriations in the Current
Unrestricted Operating Fund for each unit in the university system. House
Bill 500, Laws of 1985, and House Bill 30, Special Session June 1986, for the
1986-87 biennium established audit appropriations. Language in the House Bills
state the university must charge the actual audit costs 50 percent to
appropriated funds (Current Unrestricted Operating Fund) and 50 percent to
nonappropriated funds.

During fiscal year 1986-87, the university incurred $26,754 in audit costs
and paid 78 percent of these costs from the Current Unrestricted Operating
Fund audit appropriation. The university failed to comply with the

appropriation bill language governing the use of the Current Unrestricted
Operating Fund involving audit cost payments. As a result, the university
spent $7,382 of the Current Unrestricted Operating Funds that should have
been expended from nonappropriated funds. University officials indicated it
recorded the costs in this manner because they believed the appropriation
language meant the university could charge the Current Unrestricted Operating
Funds for the amount of the appropriation.

RECOMMENDATION #4

WE RECOMMEND THE UNIVERSITY COMPLY WITH THE APPROPRIATION

BILL LANGUAGE CONCERNING ALLOCATION OF AUDIT COSTS.

Contingent Revolving Fund

Section 17-2-201, MCA, allows the Department of Administration to
authorize the establishment and maintenance of contingent revolving funds
(CRF) for specific purposes. State policy indicates that "a revolving cash
account ... is used to make disbursements where timing needs cannot be met by
the state warrant system. The revolving cash account is to be used for
purposes demanding immediate payment ... Agencies should use their judgment

in deciding whether a particular transaction qualifies as a minor, immediate or
emergency payment. Under normal circumstances, transactions input to SBAS
will generate a warrant for mailout or pick-up the next afternoon." This
policy was developed to attempt to minimize the amount of cash and related
activity in nontreasury accounts, while maintaining a system to pay for items
on an emergency or immediate needs basis. If the moneys are in a treasury
account, the state can maximize the investment earnings on these funds.

During our audit we noted the university used its CRF for purposes other
than those specified in state policy (i.e., did not require immediate payment or
was not specifically listed in state policy). Some examples include:

1. Payments to the Endowment and Alumni Foundation for donations
and use agreements.

2. Payment of $64,069 for consulting services from November 1, 1986
through December 31, 1986.

3. Purchase of $63,000 of physics equipment. The invoice was received
December 9, 1986 and paid April 28, 1987.

4. Payment of $49,636 for utilities.

5. Payments of most travel advances even though not of an emergency
nature.

6. Two payments totaling $109,539 for a construction contract.

7. A $53,365 reimbursement of gate receipts to a national athletic
association.

In addition, we reviewed four months activity in the CRF. As shown
below, the university uses its CRF extensively.

Amount of
Month Checks *

September 1986 $484,018

December 1986 $646,980

March 1987 $577,894

June 1987 $669,959

♦Excludes student financial aid

University departments send invoices and the related claim to the
Business Office marked "special check." A claim marked "special check"

10

Number

Ch<

scks Written*

663

822

906

931

indicates the payment is to be made from the CRF. However, many of the
invoices could be sent through the state treasury system and still be paid on
time. In addition, some of the invoices have been sitting at the departments
for so long, an emergency situation has been created and it is necessary to
pay the invoice from the CRF. The university devotes more resources to
handling the CRF than is necessary because of the time involved in issuing the
check, getting the account reimbursed, and reconciling the account. After we
brought this issue to the university's attention, it revised its policy and sent a
memorandum to all departments clarifying the policy.

RECOMMENDATION #5

WE RECOMMEND THE UNIVERSITY USE THE CONTINGENT REVOLVING

ACCOUNT IN COMPLIANCE WITH STATE POLICY.

Cash Management

During fiscal year 1986-87, the university received approximately
SI9 million of federal, state, and private moneys for grants, contracts, and
student aid. The university receives these funds through cash requests (or
drawdowns) and reimbursement billings. Because drawdowns and billings are
predominantly on a reimbursement basis and are requested on a monthly or
longer basis, there is a time lag between an expenditure and subsequent
reimbursement that is filled by using state funds. Based on our analysis of
balances in project accounts, we estimated the university's use of state funds
to cover project cash shortfalls due to the time lag cost the state
approximately $23,845 in fiscal year 1985-86 and $42,119 in fiscal year 1986-87
in lost investment income.

Federal regulations state the recipient shall make drawdowns as close as
possible to the time of making disbursements. Section 17-2-108, MCA,
requires agencies to use non-General Fund moneys wherever possible before
using General Fund moneys. These federal and state regulations provide for
the use of frequent drawdowns in order to minimize lost investment income to
the state on state funds or to the federal government on federal funds.

According to university personnel, the reasons the university needs state
funds to cover project cash shortfalls is because of the timing and receipt of
drawdowns, and billings and also the time involved in preparing billings.

11

Drawdowns are generally made once a month after the payroll costs are paid.
Billings are generally made monthly or quarterly. If the university were to
request project funds more frequently and alter provisions in contracts to
allow more frequent billings, it should help reduce the amount of state funds
needed to temporarily support the projects.

In our prior audit we also recommended the university request moneys in
a manner which would minimize the necessity for the state to support projects.
Previously the university's drawdowns were made at the end of the month but
prior to the payroll costs being paid. These drawdowns did not include an
estimate for the payroll costs and therefore the university did not get
reimbursed for the payroll costs until the following month's drawdown. The
university altered the timing of the drawdowns so they were made after the
payroll was paid. This helped reduce the time lag. A certain amount of time
lag can be expected, however, we believe the university could reduce the time
lag further by projecting its cash needs more closely and requesting grant
funds as needed.

RECOMMENDATION #6

WE RECOMMEND THE UNIVERSITY REQUEST GRANT MONEYS IN A
MANNER WHICH WILL MINIMIZE THE NECESSITY FOR THE STATE TO
ADVANCE CASH TO GRANT PROGRAMS.

Cash Deposits

Section 17-6-105(6), MCA, requires all moneys received be deposited each
day when the accumulated amount of coin and currency exceeds $100 or total
collections exceed $500. In any event, all moneys collected shall be deposited
at least weekly. During our testing we noted CES's print shop (Multilith)
collections were not deposited on a timely basis. Multilith deposits its
collections approximately twice a month. For those tested, the deposits ranged
from $375 to $1,097. Mulitilith personnel did not deposit these collections
weekly or when the amount of coin and currency exceeded $100 or total
collections exceeded $500. Multilith personnel indicated this occurs because of
busy schedules and wanting to ensure deposits are accurate. The failure to
deposit receipts on a timely basis results in lost interest on the undeposited

12

amounts during the time period the deposits are delayed and increases
possibility of loss or misuse of funds.

RECOMMENDATION #7

WE RECOMMEND THE UNIVERSITY DEPOSIT RECEIPTS ON A TIMELY

BASIS IN ACCORDANCE WITH STATE LAW.

Contracted Services

Our office issued a performance audit report (report #87P-35) on state
agency use of contracted services in December 1987. The report discusses
concerns regarding management controls and agency use of contracted services
in state government. The performance audit results at the university indicated
that, overall, amounts and purposes were reasonable, monitoring procedures
were adequate, and modifications of contracts were not excessive or did not
cost a great amount. The performance audit report addressed specific concerns
affecting the state as a whole but did not discuss the university specifically.
The significant performance audit findings related to the university are
summarized below.

1. The university has policies, procedures, and guidelines regarding the
use of contracted services. However, the policy only covers internal
procedures and not actual contract content. Of the contracts
reviewed at the university, all were missing one or more of the 16
minimum requirements established by state policy. In order to
ensure adequate and consistent handling of contracts throughout the
university, the written policies and procedures should be more
specific and address contract content.

2. Two former employees of the university were found to have
contracted with the university within six months of their
termination. Section 2-2-201, MCA, states "a former employee may
not, within 6 months following the termination of his employment
contract ... with the state ... involving matters with which he was
directly involved during his employment."

3. The university did not document that all contracts were reviewed
by legal counsel prior to being finalized. State policy includes legal
approval as standard procedure prior to entering into professional
service contracts. The university should document the legal review
of contracts.

4. One user of the fieldhouse facility did not provide additional
required liability insurance. The fieldhouse has a user policy which
requires the user to provide liability insurance for extracurricular

13

activities held within the fieldhouse. Since a lack of coverage
creates a potential liability for the university, it should require all
users of the facility to furnish copies of an insurance policy to
document that insurance has been issued, as required by the
facilities users agreement.

In addition to the concerns noted above, the contracted services audit
also noted concerns regarding certification of workers' compensation,
procurement of services, maintenance of central bidders list, and adequacy of
backup documentation. Based on work performed in the current audit, the
university has corrected, or at least partially corrected, these concerns.

A state task force, organized to act in response to the contracted
services audit findings and recommendations included an individual from the
university. The task force drafted a management memorandum to eliminate
conflicting state policies and provide guidance in the area of contracted
services. The memorandum addresses a variety of issues including those
problems identified at the university. This section is for disclosure only and
we make no recommendations at this time.

FEDERAL COMPLIANCE

Our audit of federal moneys was performed in accordance with the
requirements of Standards for Audits of Governmental Organizations. Programs.
Activities, and Functions and Office of Management and Budget "Circular A-
128." Circular A- 128 provides for independent audits of financial operations,
including compliance with certain federal laws and regulations. The following
sections discuss two instances where the university is not in compliance with
federal regulations.

Guaranteed Student Loans

Federal regulations require schools to notify lenders who issue students
Guaranteed Student Loans (GSL) (CFDA #84.032) whenever the students
graduate, withdraw, or cease to be enrolled at least half-time. This

notification enables the lenders to place the loans in repayment status. The
university notifies GSL lenders of changes in students' enrollment status on a
semi-annual Student Confirmation Report (SCR). After university personnel
complete the SCR and send it back to a central processing company, the
company uses the information to notify applicable lenders. Federal regulations

14

require the university to return the SCR report within 30 days of its receipt.
For three out of four SCR reports tested, the university did not submit the
SCR to the central processing company within 30 days of receipt. University
personnel indicated this occurred due to problems encountered when it revised
its manual reporting system to an automated one.

Federal regulations also require the university to report the enrollment
status change directly to the lender if it does not expect to submit its next
SCR within 60 days. For five of six students tested, the university did not
report enrollment status changes directly to the lenders, as required by federal
regulations. University personnel indicated they relied on the SCR report to
notify lenders because the computer report used to identify the students did
not always contain accurate and complete information. University personnel
indicated the computer reports have been correct since fall quarter 1987.

To improve the ability to collect GSLs the university should notify
lenders in compliance with federal regulations.

RECOMMENDATION #8

WE RECOMMEND THE UNIVERSITY:

A. SUBMIT ITS STUDENT CONFIRMATION REPORT TO THE CENTRAL
PROCESSING CENTER ON A TIMELY BASIS.

B. USE ITS COMPUTER REPORTS TO IDENTIFY STUDENTS AND
NOTIFY LENDERS DIRECTLY OF ENROLLMENT CHANGES WHEN
TIMELY NOTIFICATION CANNOT BE MET BY THE STUDENT
CONFIRMATION REPORT PROCESS.

Student Financial Aid Refunds

According to federal regulations, if a student who had received student
financial aid, other than college work-study, is due a refund, the university
must return a portion of the refund to the student financial aid program.
According to university policy, when a student seeks a withdrawal, the student
must receive the signatures of various campus offices to ensure any financial
obligations of the student are met prior to the withdrawal. A financial aid
officer is one of the signatures required.

We tested eight student withdrawals in which the student received a
refund and also received student financial aid. Of the eight tested, we noted

15

one exception. The student withdrew after the cutoff date for refunds for fall
quarter 1985, but was granted a retroactive withdrawal. This retroactive
withdrawal entitled the student to a refund. Because the financial aid office
was verbally notified of the withdrawal and was not aware the withdrawal was
retroactive, the student received the entire refund even though the student
had received a Pell grant (CFDA #84.063). The Pell program should have been
reimbursed $228.

To avoid misunderstandings on the effective date of withdrawals, the
university should require the actual signature of a financial aid officer on the
withdrawal form.

RECOMMENDATION #9

WE RECOMMEND THE UNIVERSITY FOLLOW ITS POLICY AND REQUIRE

THE SIGNATURE OF THE FINANCIAL AID OFFICE ON ALL STUDENT

WITHDRAWALS.

16

AUDITOR'S OPINION LETTERS

AND

MONTANA STATE UNIVERSITY FINANCIAL STATEMENTS

AGRICULTURAL EXPERIMENT STATION FINANCIAL STATEMENTS

COOPERATIVE EXTENSION SERVICE FINANCIAL STATEMENTS

SUMMARY OF AUDIT OPINIONS

The auditor's opinions issued on Montana State University, Agricultural
Experiment Station and Cooperative Extension Service are intended to con\e\
to the reader of the financial statements the degree of reliance which can be
placed on the amounts presented. The reader may rely on the fairness of the
MSU amounts presented on the statements listed in paragraph one of the
auditor's opinion on page 17, except for the recording of interdepartmental
eliminations, charges to grants and contracts for future employee termina-
tions, construction in progress and funds held by an escrow agent during a
repurchase of defeased bonds, when analyzing MSU's operations.

The reader may rely on the fairness of the AES amounts presented on
the statements listed in paragraph one of the auditor's opinion on page 53.
except for the recording of changes to grants and contracts for future
employee terminations and misclassification of revenue when analyzing AES's
operations.

The reader may rely on the fairness of the CES amounts presented on the
statements listed in paragraph one of the auditor's opinion on page 71, except
for the recording of interdepartmental eliminations and expenditure accruals
when analyzing CES' operations.

STATE OF MONTANA

Qilit2 jxt tkt ^Ltqislntiixt AxuMiur

STATE CAPITOL

HELENA, MONTANA 59620

406/444-3122

LEGISLATIVE AUDITOR
SCOTT A SEACAT

LEGAL COUNSEL:

JOHN W NORTHEY

DEPUTY LEGISLATIVE AUDITORS

MARY BRYSON
Operations and EDP Audit

JAMES GILLETT
Financial-Compliance Audit

JIM PELLEGRINI
Performance Audit

The Legislative Audit Committee
of the Montana State Legislature:

We have examined the accompanying Balance Sheets of the Montana State
University (MSU) at June 30, 1986 and 1987, and the related Statements of
Changes in Fund Balances and Current Funds Revenues, Expenditures, and
Other Changes for the two fiscal years ended June 30, 1987. Our examination
was made in accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.

The university did not eliminate computer center interdepartmental
transactions in fiscal year 1985-86. As a result, revenue and expenditures in
the Designated Subfund are overstated by $1,074,718.

The university accounts for moneys charged to grants and designated to
pay for future employee terminations in the Restricted Subfund. The use of
these moneys is at the discretion of the university and, as such, should be
accounted for in the Unrestricted Designated Subfund. As a result, the
Restricted Subfund is overstated and the Unrestricted Designated Subfund is
understated by the following amounts:

Cash

Expenditures

Prior Year Expenditures

Compensated Absence Liability

Prior Year Revenue

Revenue

Beginning Fund Balance

Fiscal Year
1985-86

$ 36,569

134,117

180,647

229,668

35,485

86,180

Fiscal Year
1986-87

$ 46,559
160,057

300,976

98,738
193,099

The university did not capitalize construction in progress in accordance
with generally accepted accounting principles. As a result the Unexpended
Plant Subfund is over (under) stated by the following amounts:

17

Fiscal Year Fiscal Year

1985-86 1986-87

Transfer of Bond Liability $1,007,984 $6,531,166

Expenditures 1,007,984 5,776,258

Construction advance 272,318

Bond Payable (482,590)

The university improperly accounted for funds held by an escrow agent
during a repurchase of defeased bonds. As a result, Retirement of Indebtness
Subfund expenditures are overstated and accounts receivable are understated by
$2,150,063 in fiscal year 1986-87.

In our opinion, except for the effects of the matters discussed in
paragraphs two through five, the financial statements referred to above
present fairly the financial position of Montana State University as of June 30,
1986 and June 30, 1987, the changes in its fund balances, and the current
funds revenue, expenditures, and other changes for each of the two fiscal
years ended June 30, 1987, in conformity with generally accepted accounting
principles which have been applied on a consistent basis.

Our examination was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying Schedule of
Full-Time Equivalent (FTE) Students for the two fiscal years ending June 30,
1987, prepared in accordance with the Registrar's Manual for Reporting
Enrollment Data reporting requirements, is presented as supplemental
information and is not a required part of the basic financial statements. This
information has been subjected to the auditing procedures applied in our
examination of the basic financial statements. In our opinion, except for the
effects of the matter discussed in paragraphs two through five, the information
is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.

Respectfully submitted,

James Gillett, CPA
Deputy Legislative Auditor

March 18, 1988

18

MONTANA STATE UNIVERSITY

BALANCE SHEETS
Year Ended June 30, 1987

ASSETS

CURRENT FUNDS:
Unrestricted:

General operating:
Cash

Accounts receivable
Due from other fund groups

$ 857,423
3,239,228
2,166,521

Total general operating

Designated:-
Cash

Accounts receivable
Due from other fund groups
Investments (Note 3)
Inventories

Total designated

Auxiliary enterprises:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 3)
Inventories

6,263,172

438,359
453,722

1,523,948
102,800
501,688

3,020,517

188,981
438,252
230,776
2,191,500
338,005

Total auxiliary enterprises

Total unrestricted

Restricted:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 3)

3,387,514
12,671,203

502,472

1,215,794

63,300

533,313

Total restricted
Total current funds

2,314,879
$ 14,986,082

STUDENT LOAN FUNDS:
Cash
Loan receivable - less allowance for

bad debts
Accounts receivable
Investments (Note 3)

90,447

8,302,692

258

33,500

Total student loan funds
See notes to financial statements

19

$ 8.426.897

LIABILITIES AND FUND BALANCES

CURRENT FUNDS
Unrestricted:

General operating:
Accrued payroll

Accounts payable and accrued liabilities
Due to other fund groups
Depos i ts

Deferred revenue

Compensated absences payable (Note 7)
Fund balance (Note 1)

Total general operating

Designated:

Accrued payroll

Accounts payable and accrued liabilities
Due to other fund groups
Compensated absences payable (Note 7)
Fund balance (Note 1)
Total designated

Auxiliary enterprises:
Accrued payroll

Accounts payable and accrued liabilities
Deposits

Deferred revenue
Due to other fund groups
Compensated absences payable (Note 7)
Fund balance

Total auxiliary enterprises

Total unrestricted

Restricted:

Accrued payroll

Accounts payable and accrued liabilities

Due to other fund groups

Compensated absences payable (Note 7)

Fund balance

2,560,764

1,565,203

1,431,171

21,527

548,981

3,337,233

(3,201,707)

6,263,172

266,351
616,682

2,224,520
296,272
(383,308)

3,020,517

262,819

198,550

194,116

53,828

287,593

349,635

2,040,973

3,387,514

12,671,203

453,391
321,658
514,569
300,976
724,285

Total restricted
Total current funds

2,314,879
$ 14,986,082

STUDENT LOAN FUNDS:

Accounts payable and accrued liabilities

Fund oa lances:

U.S. Government grants refundable
University funds
Private gifts

7,531,549

836,839

57,621

Total student loan funds

8,426,009
$ 8,426,897

20

ENDOWMENT FUNDS:
Cash

Accounts receivable
Investments (Note 3)

MONTANA STATE UNIVERSITY

BALANCE SHEETS
Year Ended June 30, 1987

ASSETS

Total endowment funds

PLANT FUNDS:
Unexpended:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 3)
Construction advances to state

Total unexpended

1 i,

, ;rnt

59

590,

,600

592,

009

151,982
140,928
281,193
7,358,931
546,442

8,479,476

Renewals and replacements:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 3)

Total renewals and replacements

Retirement of indebtedness:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 3)

Total retirement of indebtedness

Investment in plant:

Land and land improvements

Buildings (including construction in progress)

Equipment

Livestock

Total investment in plant

Total plant funds

89,482

1,238

585

864,199

955,504

235,323

325,294

1,531

6,034,226

6,596,374

2,524,311

92,853,187

48,581,356

90,653

144,049,504

$160,080,858

AGENCY FUNDS:
Cash

Accounts receivable
Duo irom other fund groups
Investments (Note 3)

Total agency funds
See notes to financial statements

21

4,879
139,068
715,066
599,192

$ 1,458,205

LIABILITIES AND FUND BALANCES

ENDOWMENT FUNDS:

Fund balance $ 592,009

Total endowment funds $ 592,009

PLANT FUNDS:
Unexpended:

Accounts payable and accrued expenditures $ 80,378

Due to other fund groups 17,056

Compensated absences payable (Note 7) 500

Bonds payable (Note 4) 12,582,615

Fund balance (4,201,073)

Total unexpended 8,479,476

Renewals and replacements:

Accounts payable and accrued expenditures 29,533

Due to other fund groups 14,822

Bonds payable (Note 4) 767,251

Fund balance 143,898

Total renewals and replacements 955,504

Retirement of indebtedness:

Accounts payable and accrued expenditures 388,539

Due to other fund groups 250,000

Fund balance 5,957,835

Total retirement of indebtedness 6,596,374

Investment in plant:

Bonds payable (Note 4) 29,925,134

Other payables 218,750

Net investment in plant 113,905,620

Total investment in plant 144,049,504

Total plant funds $ 160,080,858

AGENCY FUNDS:

Accrued payroll $ 30,236

Accounts payable and accrued liabilities 1,107,140

Compensated absences payable (Note 7) 3,603

Due to other fund groups 243,505

Deposits held in custody for others 73,721

Total agency funds $~ 1,458,205

22

MONTANA STATE UNIVERSITY

STATEMENT OF CHANGES IN FUND BALANCES

Year Ended June 30, 1987

Current Funds

Unrestricted

General Auxiliary

Operating Designated Enterprises Restricted

Revenue and other additions:

Current funds revenue $43,514,850 $ 6,820,371 $11,610,346 $15,277,276

Federal capital contribution -

University capital contribution -

Private capital contribution -

Interest on loans receivable -

Bond indenture proceeds (Note 5) -

Student fees -

Investment income -

Endowment income & grants (Note 2) -

Debt retirement (Note 5) -

Transfer of bond liability -
Expended for plant facilities
(including $2,691,099 charged

to current funds) -

Loan proceeds -

State appropriations -

Other - - - -

Total revenue and other

additions 43,514,850 6,820,371 11,610,346 15,277,276

Expenditures and other deductions:
Current funds expenditures 43,387,742 6,924,289 9,784,932 15,061,147
Loan cancellations -

Refunded to grantors -

Administrative expenditures -

Provision for bad debts -

Loss on sale of investments -

Expended for plant facilities

(Including $687,990 non-capital

expenditures) -
Debt retirement (Note 5)
Interest on debt -
Transfer of bond liability -
Bond indenture/loan debt (Note 5) -
Loss on bond refunding (Note 5) - -
Other (Note 5) - - - -

Total expenditures and other

deductions 43,387,742 6,924,289 9,784,932 15,061,147

See notes to financial statements

23

Plant Funds

Loan Endowment and Renewals and Retirement of Investment

Funds similar funds Unexpended Replacements Indebtedness In Plant

$-3 -$ - $ -$ - $

111,388 - - - "

11,954 - - - -

725 3,266 - -

168,317 - - "

34,835,000

351,806 - 1,047,868

3,468 5,039 992,048 16,261 435,339

653,315

6,248,210 1,557,748

250,000
796,565
100,311 6,220 306,991

8,675,949 421,269

34,110,432
2,655,229

6,179,979
3,575,895

34,110,431

10,797,819

295,852 8,305 8,738,940 1,580,229 37,278,513 44,908,250

123,701
290
7,325
(659)

14,163

7,805,958
35,085,000

.30,657 14,163 8,675,949 421,269 46,521,535 42,890,958

24

MONTANA STATE UNIVERSITY

STATEMENT OF CHANGES IN FUND BALANCES (Continued)

Year Ended June 30, 1987

Current Funds

Unrestricted

General Auxiliary

Operating Designated Enterprises

Transfer among funds - additions

(deductions) :

Mandatory:

All fund groups

Voluntary:

General operating-net
Designated-net
Auxiliary enterprises-net
Unexpended plant-net
Repair and replacement-net
Retirement of debt-net
Total transfers

Net increase (decrease) in
fund balance

Fund balances at beginning of
year as previously reported

Adjustments: (Note 1 & 7)
Prior year revenues
Prior year expenditures
Compensated absences payable
Other

Total adjustments

Fund balances at beginning of
year as adjusted

Fund balances at end of year

$ (39,353) $ (954,000)

(30,935)

Restricted

-

30,935

-

-

-

7,094

(14,304)

-

-

-

(10,000)

-

344,305

-

-

-

344,305

(1,324)
(105,242)

(1,009,239)
816,175

-

471,413

216,129

$(3,428,825)

(383,376)

1,299,336

622,730

11,946

171,993

(1,175)

(166)

(201,223)

(68,617)

(33,537)

(64,981)

(55,018)

1,934

(39,826)

(4^,427)

(244,295)

105,310

(74,538)

(114,574)

(3,673,120)

(278,066)

1,224,798

508,156

$(3,201,707)

$ (383,308)

$2,040,973

$ 724,285

See notes to financial statements
25

Plant Funds

Loan Endowment and Renewals and Retirement of Investment

Funds Similar Funds Unexpended Replacements Indebtedness In Plant

$(6,883,904) $ (1,265,761) $ 9,143,018 $

(344,305)

-

-

(7,094)

-

-

-

-

-

14,304

10,000

-

-

-

-

-

-

(322,843)

-

-

-

-

-

125,000

-

-

-

322,843
(6,553,851)

(6,490,860)

(125,000)
(1,380,761)

(221,801)

-

-

-

-

8,600,870
(642,152)

-

±65,195

(5,858)

2,017,292

8,374,697

597,867

2,302,013

375,472

6,234,482

111,079,315

20,625

47,093

(2,000)

2,410

_

(134,508)

-

(58,819)

(7,773)

363,095

-

-

-

(500)

-

-

-

-

-

-

-

-

809,013

(113,883)

-

(12,226)
2,289,787

(9,773)
365,699

365,505
6,599,987

809,013

8,260,814

597,867

111,888,328

8,426,009

$ 592,009

$(4,201,073)

$ 143,898

5 5,957,835

$113,905,620

26

MONTANA STATE UNIVERSITY
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES

Year Ended June 30, 1987

Unrestricted

General
Operating

Designated

Revenues :

Tuition and fees
Federal appropriations
State appropriations
Federal grants and contracts
State grants and contracts
Private gifts, grants and contracts
Endowment income
Other sources
Sales and service
Total revenue

$10,170,040

50,000

32,131,515

782,276

75,548

198,874

106,597

43,514,850

6,S20, '71
6,820,371

Expenditures and mandatory transfers:
Education and general
Instruction
Research
Public service
Academic support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and fellowships
Other

Education and general expenditures

Designated and auxiliary enterprises:
Expenditures
Mandatory transfers

Total designated and auxiliary

Total expenditures and mandatory transfers

24,287,565
488,193
8,255
5,479,785
4,003,785
3,275,133
4,764,929
1,080,097

43,387,742

43,387,742

6,924,289

39,353

6,963,642

6,963,642

Other transfers and additions (deductions) :

Excess of restricted receipts over transfers to revenue

Transfers 344,305

Net increase (decrease) in fund balance

$ 471,413

38,029
$ (105,242)

See notes to financial statements
27

Auxiliary
Enterprises

Restricted Total

$ 34,927 $ 10,204,967

50,000

32,131,515

10,852,054 11,634,330

1,227,163 1,302,711

2,920,563 3,119,437

23,619 23,619

2,821 109,418

11,610,346 - 18,430,717

11,610,346 15,061,147 77,006,714

686,753 24,974,318

5,154,348 5,642,541

2,248,335 2,256,590

339,173 5,818,958

165,198 4,168,983

725,227 4,000,360

46,256 4,811,185

5,507,845 6,587,942

188,012 188,012

15,061,147 58,448,889

9,784,932 - 16,709,221

954,000 - 993,353

10,738,932 - 17,702,574

10,738,932 15,061,147 76,151,463

216,129 216,129

(55,239) z 327,095

816,175 $ $ 1,398,475

28

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

1. Summary of significant accounting policies

Related parties:

Montana State University, Montana Agricultural Exper invent Station and
Montana Cooperative Extension Service are related through common
management and control; however, they are separate and distinct
agencies and they receive separate federal and state appropriations.
These agencies have certain related-party transactions, including
sharing office facilities, management, accounting and office
services. The accounts of Montana Agricultural Experiment Station
and Montana Cooperative Extension Service have not been included in
the accompanying financial statements.

Financial Statements:

The accompanying financial statements have been prepared on the
accrual basis in accordance with generally accepted accounting
principles for colleges and universities except as noted hereafter.

The statement of current funds revenues, expenditures and
other changes is a statement of financial activities of current funds
related to the current reporting period and does not purport to
present the results of operations or the net income or loss for the
period.

Fund balance for unrestricted general operating funds includes
$119,980 allocated for encumbrances netted to the $15,546 revenue
overage and the unfunded liability of $3,337,233 for compensated
absences payable. Fund balance for unrestricted designated funds
includes negative fund balances of $87,037 combined with the
unfunded liability of $296,271 for compensated absences payable.

Fund accounting:

The accounts of the University are maintained in accordance with
the principles of fund accounting wherein resources are classified
for accounting purposes into funds that are identified by the
limitations and restrictions placed upon their use. Separate
accounts are maintained for each fund; however, accounts with common
characteristics are combined into fund groups and reflected as such
in the accompanying financial statements. The common characteristics
of the funds contained in the various fund groups are as follows:

Current funds:

The current funds group includes economic resources expendable
in performing the primary objectives of the University, i.e.,
Instruction, Research and Public Service. The current funds
group has two basic distinct sub-groups; unrestricted funds
which have no expenditure restrictions, and restricted funds
which have expenditure restrictions. Unrestricted current
funds are comprised of the following:

29

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

Summary of significant accounting policies (continued)

Fund account inj (continued) :

Current funds (continued) :

General Operating - utilized for general operations in
performing the primary objectives of the University.

Designated - utilized for educational related service
activities; these funds are separately classified in order
to accumulate and distinguish the costs of specialized
service function areas.

Auxiliary Enterprises - utilized in providing essential on-
campus services primarily to students, faculty, and staff.

Student loan funds:

The resources from this group of funds are available to students
to aid in financing their education. Funds for the loans are
provided by private and University sources with the majority of
the funds being provided by the Federal Government.

Endowment funds:

Endowment funds are funds with specific restrictions negating
the expenditure of the principal. Generally, the principal
is to be maintained in perpetuity and invested for the purpose
of producing income.

Plant funds:

Plant funds are separated into four distinct self -balancing
sub-group accounts:

Unexpended plant - utilized for acquisition of long-term
institutional assets.

Renewal and replacement - utilized for long-term
institutional asset maintenance.

Retirement of indebtedness - utilized for interest and debt
retirement.

Investment in plant - denotes the cost of long-term
institutional assets and related liabilities.

Inventories:

Inventories, which consist mainly of food and operating supplies, are
valued at cost (first-in, first-out method).

30

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

1. Summary of significant accounting policies (continued)

Investments:

Investments are carried at cost, which approximate market value at
June 30, 1987.

Plant and equipment:

At June 30, 1987, investment in plant was adjusted $809,013 tc
reflect the totals in the property control subsidiaries. Livestock
is carried at current market value with any difference from, the prior
year values recorded in the plant fund.

Depreciation:

No provision has been made for depreciation of plant facilities in
accordance with generally accepted accounting principles for
colleges and universities.

Allowance for Bad Debts:

Except for Loan Funds, an allowance for bad debts has not been
recorded. Losses from bad debts in other funds are recorded as
adjustments to revenue in the year in which they are deemed
uncollectable.

Allocated for encumbrances:

The University records encumbrances of general operating funds as
expenditures in conformance with the Statewide Budgeting and
Accounting System.

At June 30, 1987, the University had encumbered $119,980 of general
operating funds that are not included in expenditures in the
accompanying financial statements. The accrual basis of accounting
provides that expenditures include only amounts associated with goods
and services received and that liabilities include only the unpaid
amounts associated with such transactions.

Unearned tuition and fees:

Summer school tuition and fee revenues are deferred at June 30 and
recorded as revenue in the succeeding fiscal year.

2. Endowment funds - land grants

Montana State University oenefits from two separate land grants. The
first granted 90,000 acres for the University under provisions of the
Morriil Act of 1862 and the second, under the Enabling Act of 1889,
granted an additional 50,000 acres for the University.

31

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

Endowment funds - land grants (continued)

Under provisions of both grants, income from the sale of land and
land assets must be reinvested and constitutes, along with the
balance of the unsold land, a perpetual endowment fund. The State of
Montana, State Land Board administers both grants and holds all
assets.

Investment income from the first and second grant is currently
pledged to the retirement of indenture revenue bonds and is reported
as revenue in the retirement of indebtedness fund.

Investments

Investments at June 30, 1987 consist of the following:

Cost

State of Montana short-term investment pool $ 4,833,705

U.S. Treasury securities, held by trustees 13,474,557

S 18,308,262

The investments at June 30, 1987 are owned by the following funds:

Current funds:

Designated $ 102,800

Auxiliary enterprises 2,191,500

Restricted 533,313

Loan funds 33,500

Endowment funds 590,600

Plant funds:

Unexpended plant 7,358,931

Renewals and replacements 864,200

Retirement of indebtedness 6,034,226

Agency 599,192

$ 18,308,262

On January 30, 1987 the State Board of Investments converted all
units in the State of Montana short-term investment pool from $1,000
units to $100 units. The sale resulted in a loss to endowment funds
where funds are held in perpetuity.

Bonds payable

Revenue Bonds payable at June 30, 1987 with annual principal payments
and interest rates, are as following:

32

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1987

Bonds payable (continued)

Total Amount

$

1985

B

1986

A

$

1987

A

Payment

1988

440,000

6.00%

$

-0-

120,000

5.10%

S 560,000

1989

470,000

6.50

-0-

130,000

5.40

1 10,000

1990

500,000

7.00

-0-

135,000

5.90

635,000

1991

540,000

7.25

-0-

140,000

6.10

680,000

1992

580,000

7.50

-0-

155,000

6.30

735,000

1993-

7.75-

6.

60-

6.50-

2009

3

,585,000

8.65%

34,

,835

,000

i

-.40%

1

,645,000

8.00%

40,065,000

$6

,115,000

$34,

,835

,000

$2

,325,000

$43,275,000

The University's revenue bonds are audited annually by a certified
public accounting firm; copies of the report are available upon
request .

Debts refunded, issued, and escrowed

Refunding of October 1, 1985 and September 1, 1985 Indentures:

All bonds outstanding, under the October 1, 1985 (Series A) and
September 1, 1985 (Series A) Indentures were refunded when funds from
the sale of bonds issued under the August 15, 1986 (Series A)
Indenture, along with funds on hand, were deposited in an irrevocable
escrow account. Obligations of the United States Government,
calculated to be sufficient to provide for the payment of principal
and interest on the October 1, 1985 and ;'eptenux?r 1, 1985 refunded
bonds as they become due, were purchased and are held by the Escrow
Agent .

Issuance of November 1, 1985 Series B Indenture:

An original issue of $6,530,000 dated November 1, 1985 consisting of
fully registered bonds without coupons, 5.50% to 8.65=5, principal
maturing serially on November 15, 1986 through 1996, for the addition
of 63,600 square feet to the Museum of the Rockies, including
facilities for a planetarium, art collections, exhibits, auditoriums,
classrooms, offices, storage, and preparation areas.

Issuance of August 15, 1986 Series A Indenture:

An original issue of $34,835,000 dated August 15, 1986 consisting of
fully registered bonds without coupons, 6.60% to 7.40%, principal
maturing serially on November 15, 1993 through 2009, for the
refunding of all bonds outstanding under the October 1, 1935 and
September 1, 1985 Indentures. Other retirement of indebtedness
deductions include $1,290,173 to refund October 1, 1985 and September
1, 1985 Indentures and issue the August 15, 1986 Series A Indenture.

33

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1987

5. Debts refunded, issued, and escrowed (continued)

Issuance of June 15, 1987 Indenture:

An original issue of $2,325,000 dated June 15, 1987 consisting of
fully registered bonds without coupons, 5.10% to 8.00%, principal
maturing serially on January 1, 1988 through 2003, for the
acquisition, construction, repair, remodeling, replacement,
renovation, improvement, furnishing, and equipping of new and
existing facilities at the University. Other retirement of
indebtedness deductions include $88,825 to issue the June 15, 1987
Indenture.

Heating Plant Conversion loan:

The proceeds of a four-year loan of $250,000 with an interest rate of
6.50% with repayments on April 27, 1987 to 1990 is being used to
convert the MSU Heating Plant from natural gas to propane.

The principle repayments are as follows:

1988 $ 62,500

1989 62,500

1990 62,500

1991 31,250

$218,750

Retirement plans

All of the University's full-time employees are members of the
Montana Public Employees Retirement System or Montana Teacher's
Retirement System. The University's contributions to these plans,
which were determined to be actuarially sound by the most recent
biennial valuations, totaled $2,668,562 for the year ended June 30,
1987.

Commitments and contingencies

Compensated absences payable:

As of December 31 of each year, employees can accumulate vacation
leave up to twice the number of leave days earned annually and sick
leave can be accumulated without limitation. Upon termination, the
employee is paid the accumulated vacation leave and 25% of the
accumulated sick leave. Vacation and sick leave payments are
recorded as an expenditure at the time they are paid to the employee.

Due to system limitations, the change in the compensated absences
payable amount is stated as an adjustment and not identified with the
fiscal period earned or utilized by the employee.

34

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1987

7. Commitments and contingencies (continued)

Capital projects:

As of June 30, 1987, the University has initiated construction on the
following major capital projects:

Project

University apartments '84
Animal lab facility
Museum indenture project
Controlled environmental facility
Langford parking lot
1984B On campus living construction
1984 P.E. indenture construction
Heating plant conversion

Amount
Authorized

? 4,200,000
2,260,000
6,000,000
5,302,000
72,525
4,592,000
1,400,000
250,000

Amount Exp.
as of 6/30/87

$ 3,586,361
2,203,076
2,482,830
4,886,210
67,390
2,173,077
1,336,624
223,368

$24,076,525 $16,958,936

Leases

The University reserves the right to limit the amount of expenditures
associated with lease contracts without penalty when, in the sole
judgment of the University, annual funding or program changes necessi-
tate. Capital lease agreements for various purposes and time periods
totaling $135,276 at June 30, 1987 are not added to net investment in
plant and not deemed to be material to the overall consolidated
financial position of the University.

35

MONTANA STATE UNIVERSITY

BALANCE SHEETS
Year Ended June 30, 1986

ASSETS

CURRENT FUNDS:
Unrestricte.d:

General operating:

Cash $ 1,758,712

Accounts receivable 755,109

Due from other fund groups 2,778,843

Total general operating 5.292.664

Dos ignated :

Cash 152,164

Accounts receivable 312,230

Due from other fund groups 1,390,510

Investments (Note 3) 225,255

Inventories 5 10, 343

Total designated 2,590,502

Auxiliary enterprises:

Cash 116,101

Accounts receivable 219,884

Due from other fund groups 45,529

Investments (Note 3) 1,650,308

Inventories 453,202

Total auxiliary enterprises 2.485.024

Total unrestricted 10,368,190

Restr icted:

Cash 876,521

Accounts receivable 1,012,876

Due from other fund groups 17,162

Investments (Note 3 J 645,071

Total restricted 2.551.630

Total current funds $12,919,820

STUDENT LOAN FUNDS:

Cash $ 128,985

Loans receivable - less allowance for

bad debts $346,604 8,318,502

Accounts receivable 238

Investments (Note 3) 35,689

Total student loan funds $_Ai483^414

See notes to financial statements
36

LIABILITIES AND FUND BALANCES

CURRENT FUNDS:
Unrest r icted:

General operating:

Accrued payroll $ 2,694,164

Accounts payable and accrued liabilities 965,231

Due to other fund groups 1,238,055

Deposits 26,287

Deferred revenue 515,537

Compensated absences payable (Note 7) 3,282,215

Fund balance (Note 1) (3.428.825)

Total general operating 5 , 292,664

Dos i gnated :

Accrued payroll 253,603

Accounts payable and accrued liabilities 321,8')4

Due to other fund groups 2,129,720

Compensated absences payable (Note 7) 268,661

Fund balance (Note 1) (383,376)

Total designated 2,590,502

Auxiliary enterprises:

Accrued payroll 255,758

Accounts payable and accrued liabilities 122,271

Deposits 216,406

Deferred revenue 37,743

Duo to other fund groups 243,701

Compensated absences payable (Note 7) 309,809

Fund balance _ 1^299^336

Total auxiliary enterprises 2,485,024

Total unrestricted 10,368,190

Res tr icted :

Accrued payroll 413,275

Accounts payable and accrued liabilities 119,049

Due to other fund groups 1,166,908

Compensated absences payable (Note 7) 229,668

Fund balance 622. 730

Total restricted 2.551.630

Total current funds $12.919,820

STUDENT LOAN FUNDS:

Accounts payable and accrued liabilities $ 8,385

Due to other fund groups 100,332

Fund balances:

U.S. Government grants refundable $7,488,817

University funds 832,090

Private gifts 53,790

8,374,697
Total student loan funds $8,483,414

37

MONTANA STATE UNIVERSITY

BALANCE SHEETS
Year Ended June 30, 1986

ASSETS

ENDOWMENT FUNDS:

Cash 5 5'473

Accounts receivable

See notes to financial statements
38

101

Investments (Note 3) 592,293

Total endowment funds $ .. 597,867

PLANT FUNDS:
Unexpended:

Cash 5 147,950

Accounts receivable 760,704

Due from other fund groups 6,400

Investments (Note 3) 19,829,360

Construction advances to state 508,195

Total unexpended __2 1,252 ,609

Renewals and replacements:

Cash *>\l)

Accounts receivable '•

Due from other fund groups 82,000

Investments (Note 3) 283,156

Total renewals and replacements _ 40?_j_892

Retirement of indebtedness:

n u 27,888

97-1

Accounts receivable 475,273

Investments (Note 3) 6,159,058

Total retirement of indebtedness 6,662,219

Investment in plant:

Land and land improvements 2,4bH,J/J

Buildings (including construction in progress) 86,273,767

r «. 43,621,257

Equipment '

Livestock /:>,*' J

Total investment in plant 132,442,672

Total plant funds $160,767,392

AGENCY FUNDS:

Cash S

a . ,,„ 138,478

Accounts receivable ...„.,

Due from other fund groups

Investments (Note 3)

60,207

38,478

745.915

Total agency funds §.. 1^.402, 1_6_1

LIABILITIES AND FUND BALANCES

ENDOWMENT FUNDS:
Fund balance

597,867

Total endowment funds

$ 597.867

PLANT FUNDS:
Unexpended :

Accounts payable and accrued expenditures
Due to other fund groups
Bonds payable (Note 4)
Fund balance

67,668

52,103

18,830,825

2,302,013

Total unexpended

Renewals and replacements:

Accounts payable and accrued expenditures
Due to other fund groups
Fund balance

21.252.609

2,163

32,257

375,472

Total renewals and replacements

Retirement of indebtedness:

Accounts payable and accrued expenditures
Due to other fund groups
Fund balance

Total retirement of indebtedness

Investment in plant:
Bonds payable (Note 4)
Other payables
Net investment in plant

409.892

423,633

4,104

6,234,482

~6~, 662. 219

21,320,543

42,814

111,079,315

Total investment in plant

Total plant funds

132,442.672
$160,767.392

AGENCY FUNDS:
Accrued payroll

Accounts payable and accrued liabilities
Compensated absences payable (Note 7)
Due to other fund groups
Deposits held in custody for others

Total agency funds

11,459

763,840

3,059

99,178
524.625

$_ 1,402.161

39

MONTANA STATE UNIVERSITY

STATEMENT OF CHANGES IN FUND BALANCES

Year Ended June 30, 1986

Current Funds

Unrestricted

General Auxiliary

Operating Designated Enterprises Restricted

Revenue and other additions:

Current funds revenue $44,713,070 $ 7,566,544 $11,691,571 $13,264,785

Federal capital contribution - - -

University capital contribution - - -I

Private capital contribution - - -I

Interest on loans receivable - - - -

Bond indenture proceeds (Note 5) - - - -I

Student fees - -

Investment income - - -
Endowment income & grants (Note 2)

Discount on bonds purchased - - -

Debt retirement (Note 5) -I

Transfer of bond liability - - -
Expended for plant facilities
(including $2,843,621 charged

to current funds) - - - -

Insurance proceeds - - - -

State appropriations - - -

Other - - : :

Total revenue and other

additions 44.713.070 7.566.544 11.691.571 13.264.785

Expenditures and other deductions:

Current funds expenditures 45,108,944 7,752,625 10,337,442 12,835,108

Loan cancellations - - - -

Refunded to grantors - - - -

Administrative expenditures - -

Provision for bad debts - - - -
Expended for plant facilities
(Including $369,743 non-capital

expenditures) - - - -
Debt retirement (Note 5)

Interest on debt - - -

Transfer of bond liability - -
Bond indenture debt (Note 5)
Loss on bond refunding (Note 5)

Other (Note 5) - z - -_

Total expenditures and other

deductions 45.108.944 7.752,625 _10J_337J442 12.835.108

See notes to financial statements

40

Loan
Funds

Endowment and
Similar Funds

Unexpended

Plant Funds

Renewals and
Replacements

Retirement of
Indebtedness

Investment
In Plant

370,342

25,296

485

125,622

19,558

18,295

368,454
688 1,635,723

2,606,871

29,017

29,110,000

1,109,002

509,000

731,000

28,036,170

8,492,088

541,303

18.983

3,514,593
1,873

8.127,514

6.253

35.270

261,075

31.720.077 36.528.258

23,446

729

57,854

18,702

100,731

5,473,440

5.473.440

544,772

544,772

28,036,170
2,468,911

1,149,089
1,699,035

2,606,871
29,110,000

33.353,205 31.716.871

41

MONTANA STATE UNIVERSITY

STATEMENT OF CHANGES IN FUND BALANCES (Continued)

Year Ended June 30, 1986

Current Funds

Unrestricted

Transfer among funds - additions

(deductions) :

Mandatory:

All fund groups

Voluntary:

General operating
Designated

Auxiliary enterprises-net
Repair and replacement -net
Retirement of debt -net
Total transfers

Net increase (decrease) in
fund balance

Fund balances at beginning of
year as previously reported

Adjustments: (Note 1 & 7)
Prior year revenues
Prior year expenditures
Compensated absences payable
Other

Total adjustments

Fund balances at beginning of
year as adjusted

Fund balances at end of year

$

General
Operating Designated

(13,354) $
(9,320)

(22,674)

(418.548)

(3.206.965)

162,395
38,098
(3,805)

196.688

27,985

27.985

(158.096)
(134.369)

16,062
(83,686)
(23,287)

(90.911)

(3.010.277) (225.280)
$ (3.428.825) $ (383.376)

Auxiliary
Enterprises

$ (1,193,918)

(22,095)
(135,436)

143.706
(1.207.743)

146.386

1.267.260

(43,116)

(62,698)

(8,496)

(114.310)

1.152.950

$_

1.299.336

Restricted

429.677

405.529

(9,013)

(154,443)

(49,020)

(212.476)

193.053
$ 622.730

See notes to financial statements

42

Loan
Funds

Plant Funds

Endowment and Renewals and Retirement of Investment

Similar Funds Unexpended Replacements Indebtedness In Plant

$ 13,354 $

13,354

$(2,228,016) $

(5,890)
119,897
(4,557)
84,349
(2]L034J217)

30,000 $ 3,391,934 $

9,320

15,539

4,557

320,000

J70_,096

__(548,055)
2,853.199

453,926

18,983 61SL852

(139,406)

1,220,071 4,811,387

7,977, 449 573j 884 1, 692JL985

520^473 4,927,061 106,, 489^097

(34,024)
(22,654)

(56,678)

(7,285)
(3,544)

JLQOO

J _, 000

15
(5,610)

(10,829) (5,595)

87,350

(221,169)

87,350 (221,169)

7.920.771

578,884 1,682,156

> ±L V V J

514,878

5,014,411 106,267,928

$8.374.697 $ 597,867 $ 2,302,013 $ 375,472 $__6J234,482 $111,079,315

43

MONTANA STATE UNIVERSITY
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES

Year Ended June 30, 1986

Revenues :

Tuition and fees
Federal appropriations
State appropriations
Federal grants and contracts
State grants and contracts
Private gifts, grants and contracts
Endowment income
Other sources
Sales and services
Total revenue

Expenditures and mandatory transfers:
Education and general
Instruction
Research
Public service
Academic support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and fellowships
Other

Education and general expenditures

Designated and auxiliary enterprises:
Expenditures
Mandatory transfers

Total designated and auxiliary

Total expenditures and mandatory transfers

Other transfers and additions (deductions):

Excess of restricted receipts over transfers to revenue
Transfers

Net increase (decrease) in fund balance

General

Opera t ing

Unrpstr icted_

Dos ignated

$ 9,431,382

50,000

33,984,278

783,789

51 ,238

232,254

180, 129

44, 713, ~0 70

25, 199,895

578, 123

10,056

5,913, 180

4,215,244

3,450,639

4,844,928

896,879

45, 108,944

13,354
13*354

45,122,298

19,320)

lA 566J344
7,566,544

7,752,625
7.752 , 625
7.752.623

27,985

$ (418,548) $ (158,096)

See notes to financial statements

44

Auxi 1 iary
Ente rprises

Restricted

Total

11 .691 ,571

6,704

9,682,142

820,827

2,290,311

31,208

3,916

12,8357lQ8

9,438,086

50,000

33,984,278

10,465,931

872,065

2,522,565

31,208

184,045

19.258.115

76,806,293

704,029
4,278,671

1

347,911
187,991
208,822
327,031
10,447
560,917
209,289

12.835.108

25,903,924
4,856,794
1,357,967
6,101,171
4,424,066
3,777,670
4,855,375
6,457,796
209,289

57.944.052

10,337,
1^93,

,442
,918

11,

,531

,360

11

,531

,360

12,835,108

18,090,067
1,207,272

19,297,339

77,241.391

429,677

$ 429,677

429,677
4,840

(581)

45

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

1 . Summary of significant accounting policies

Related parties:

Montana State University, Montana Agricultural Experiment Station
and Montana Cooperative Extension Service are related through common
management and control; however, they are separate and distinct
agencies and they receive separate federal and state appropriations.
These agencies have certain related-party transactions, including
sharing office facilities, management, accounting and office ser-
vices. The accounts of Montana Agricultural Experiment Station and
Montana Cooperative Extension Service have not been included in the
accompanying financial statements.

Financial Statements:

The accompanying financial statements have been prepared on the ac-
crual basis in accordance with generally accepted accounting princi-
ples for colleges and universities except as noted hereafter.

The statement of current funds revenues, expenditures and other changes
is a statement of financial activities of current funds related to
the current reporting period and does not purport to present the re-
sults of operations or the net income or loss for the period.

Fund balance for unrestricted general operating funds includes
$43,273 allocated for encumbrances netted to the $189,883 revenue
shortage and the unfunded liability of $3,282,215 for compensated
absences payable. Fund balance for unrestricted designated funds
includes negative fund balances of $114,715 combined with the
unfunded liability of $268,661 for compensated absences payable.

The Department of State Lands has determined that the University
should be administering the Walsh Memorial Endowment, accordingly,
$5000 is included in adjustments to endowment funds.

Fund accounting:

The accounts of the University are maintained in accordance with the
principles of fund accounting wherein resources are classified for
accounting purposes into funds that are identified by the limita-
tions and restrictions placed upon their use. Separate accounts are
maintained for each fund; however, accounts with common characteris-
tics are combined into fund groups and reflected as such in the
accompanying financial statements. The common characteristics of
the funds contained in the various fund groups are as follows:

Current funds:

The current funds group includes economic resources expendable
in performing the primary objectives of the University, i.e.,

46

MONTANA STATE UNIVERSITY
NOTES TO FINANCIAL STATEMENTS
June 30, 1986
1. Summary of significant accounting policies (continued)
Fund accounting (continued):

Current funds (continued):

Instruction, Research and Public Service. The current funds
group has two basic distinct sub-groups; unrestricted funds
which have no expenditure restrictions, and restricted funds
which have expenditure restrictions. Unrestricted current

funds are comprised of the following:

General Operating - utilized for general operations in
performing the primary objectives of the University.

Designated - utilized for educational related service
activities; these funds are separately classified in order
to accumulate and distinguish the costs of these special-
ized service or function areas.

Auxiliary Enterprises - utilized in providing essential on-
campus services primarily to students, faculty, and staff.

Student loan funds:

The resources from this group of funds are available to stu-
dents to aid in financing their education. Funds for the loans
are provided by private and University sources with the major-
ity of the funds being provided by the Federal Government.

Endowment funds:

Endowment funds are funds with specific restrictions negating
the expenditure of the principal. Generally, the principal is
to be maintained in perpetuity and invested for the purpose of
producing income.

Plant funds:

Plant funds are separated into four distinct self-balancing
sub-group accounts:

Unexpended plant - utilized for acquisition of long-term
institutional assets.

Renewal and replacement - utilized for long-term institu-
tional asset maintenance.

Retirement of indebtedness - utilized for interest and
debt retirement.

Investment in plant - denotes the cost of long-term in-
stitutional assets and related liabilities.

47

MONTANA S'l'ATK UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

1 . Summary _oX^igni.ti^ai^^c_count ing po 1 ic ies ( cont i nued )

Inventories:

Inventories, which consist mainly of food and operating supplies,
are valued at cost (first-in, first-out method).

Investments :

Investments are carried at cost, which approximate market value at
June 30, 1986.

Plant and equipment:

At June 30, 1986, investment in plant was adjusted $221,169 to
reflect the totals in the property control subsidiaries. Livestock
is carried at current market value with any difference from the
prior year values recorded in the plant fund.

Depreciation:

No provision has been made for depreciation of plant facilities in
accordance with generally accepted accounting principles for col-
leges and universities.

Allowance for Bad Debts:

Except for Loan Funds, an allowance for bad debts has not been

recorded. Losses from bad debts in other funds are recorded as

adjustments to revenue in the year in which they are deemed uncol-
lectable.

Allocated for encumbrances:

The University records encumbrances of general operating funds as
expenditures in conformance with the Statewide Budgeting and Account'
ing System.

At June 30, 1986, the University had encumbered $43,273 of general
operating funds that are not included in expenditures in the accom-
panying financial statements. The accrual basis of accounting
provides that expenditures include only amounts associated with
goods and services received and that liabilities include only the
unpaid amounts associated with such transactions.

Unearned tuition and fees:

Summer school tuition and fee revenues are deferred at June 30 and
recorded as revenue in the succeeding fiscal year.

48

MONTANA STATE UNIVERSITY

NOTES TO FINANCIAL STATEMENTS

Juno 30, 1986

Endowment funds - land grants

Montana State University benefits from two separate land grants. The
first granted 90,000 acres for the University under provisions of
the Morrill Act of 1862 and the second, under the Enabling Act of
1889, granted an additional 50,000 acres for the. University.

Under provisions of both grants, income from the sale of land and
land assets must be reinvested and constitutes, along with the bal-
ance of the unsold land, a perpetual endowment fund. The State of
Montana, State Land Board administers both grants and holds all
assets .

Investment income from the first and second grant is currently
pledged to the retirement of indenture revenue bonds and is reported
as revenue in the retirement of indebtedness fund.

Investments

Investments at June 30, 1986 consist of the following:

Cost

State of Montana short-term investment pool $ 4,582,637
U.S. Treasury securities, held by trustees 24,848,465
Federal securities 446j648

$ 29,877,750

The investments at June 30, 1986 are owned by the following
funds :

Current funds :

Designated $ 225,254

Auxiliary enterprises 1,650,308

Restricted 645,071

Loan funds 35,689

Endowment funds 592,293

Plant funds:

Unexpended plant 19,829,360

Renewals and replacements 283,156

Retirement of indebtedness 6,159,058

Agency 457,561

$29,877,750

49

MONTANA STATE UNIVERSITY
NOTES TO FINANCIAL STATEMENTS
June 30, 1986

^ • Bonds payab le

Bonds payable at June 30, 1986 include the following:

Indenture - October 1, 1985 - Series A 1985 $29,110,000

Indenture - November 1, 1985 - Series B 1985 6,530,000

Indenture - September 1, 1985 - Sub series A 1985 4,511,367

§40,151,367

Principal payments due for the next five years and thereafter aggregate
the following: 1986 - $856,707; 1987 - $909,003; 1988 - $971,263;
1989 - $1,038,485; 1990 - $1,120,671; 1991 through 2009 - $35,255,238.

The University's revenue bonds are audited annually by a certified
public accounting firm; copies of the report are available upon request.

Bonds refunded, issued, and escrowed :

Refunding of December 1, 1984 and December 15, 1984 Indentures:

All bonds outstanding under the December 1, 1984 and December 15, 1984
Indentures totaling $28,030,000 were refunded when funds from the sale
of bonds issued under the October 1, 1985, Series A Indenture, along
with funds on hand were deposited in an irrevocable escrow account.
This resulted in a loss. Obligations of the United States Government,
calculated to be sufficient to provide for the payment of principal and
interest on the refunded bonds as they become due, were purchased and
are held by the Escrow Agent. Other retirement of indebtedness
deductions include $1,699,035 to refund the December 1, 1984 and
December 15, 1984 Indentures and issue the November 1, 1985, Series B
and September 1, 1985, Series A Indentures.

Issuance of October 1, 1985, Series A Indenture:

An original issue of $29,110,000 dated October 1, 1985 (restated in
the November 1, 1985 Indenture), consisting of fully registered bonds
without coupons, 9.00% to 9.75%, principal maturing serially on
November 15, 1996 through 2009, to refund all bonds outstanding under
the December 1, 1984 and December 15, 1984 Indentures.

Issuance of November 1, 1985, Series B Indenture:

An original issue of $6,530,000 dated November 1, 1985 consisting of
fully registered bonds without coupons, 5.50% to 8.65%, principal
maturing serially on November 15, 1986 through 1996, for the addition
of 63,600 square feet to the Museum of the Rockies, including facilities
for a planetarium, art collections, exhibits, auditoriums, classrooms,
offices, storage, and preparation areas.

Issuance of September 1, 1985, Series A Indenture:

Montana State University's portion ($4,511,367 Sub series A) of an
original issue of $9,090,000 (Series 1985) dated September 1, 1985,
consisting of fully registered bonds without coupons, 5.50% to 8.00%,
principal maturing serially on December 15, 1986 through 1992, for the
acquisition and installation of certain equipment.

50

MONTANA STATE UNIVERSITY
NOTES TO FINANCIAL STATEMENTS
June 30, 1986

Ret i rement plans

All of the University's full-time employees are members of the
Montana Public Employees Retirement System or Montana Teacher's
Retirement System. The University's contributions to these plans,
which were determined to be actuarially sound by the most recent
biennial valuations, totaled $2,908,819 for the year ended June 30,
1986.

Commitments and contingencies

Compensated absences payable:

As of December 31 of each year, employees can accumulate vacation
leave up to twice the number of leave days earned annually and sick
leave can be accumulated without limitation. Upon termination, the
employee is paid the accumulated vacation leave and 25% of the
accumulated sick leave. Vacation and sick leave payments are recorded
as an expenditure at the time they are paid to the employee.

Due to system limitations, the change in the compensated absences
payable amount is stated as an adjustment and not identified with
the fiscal period earned or utilized by the employee.

Capital projects:

As of June 30, 1986, the University has initiated construction on
the following major capital projects:

Amount Amount Exp.

Project Authorized as of 6/30/86

Student union bldg. addition/renovation $ 5,364,358 $ 5,364,358

Physical education facilities addition 2,500,000 2,497,320

University apartments '84 4,200,000 3,533,172

Animal lab facility 2,260,000 2,198,270

Visual communications building 4,598,000 4,596,378

Museum indenture project 6,000,000 219,883

Controlled environmental facility 5,302,000 4,094,451

Langford parking lot 72,525 5,610

1984B On campus living construction 4,592,000 138,663

1984 P.E. indenture construction 1,400,000 201,956

$36,288,883 $22,850,061

Leases :

The University reserves the right to limit the amount of expenditures
associated with lease contracts without penalty when in the sole
judgment of the University annual funding or program changes
necessitate. Capital lease agreements for various purposes and time
periods totaling $183,634 at June 30, 1986 are not added to net
investment in plant and not deemed to be material to the overall
consolidated financial position of the University.

51

MONTANA STATE UNIVERSITY

SCHEDULE OF FULL-TIME EQUIVALENT (FTE) STUDENTS

FOR THE TWO YEARS ENDING JUNE 30, 1987

Quarter

Summer

Autumn

Winter

Spring

Summer

Autumn

Winter

Spring

Year
1985
1985
1986
1986
1986
1986
1987
1987

Undergraduate Graduate Total
FTEs Reported1 FTEs Reported2 FTEs-'

L.194

458

1,652

9,571

487

10,158

9,348

514

9,862

8,225

513

8,738

1,042

491

1,533

9,079

492

9,571

8,950

479

9,429

7,982

499

8,481

Undergraduate quarterly credit hours divided by 15.

o

Graduate quarterly credit hours divided by 12.

Includes both Unrestricted and Restricted funded FTEs.

52

LEGISLATIVE AUDITOR:
SCOTT A SEACAT

LEGAL COUNSEL:

JOHN W NORTHEY

STATE OF MONTANA

f&iiitt xtf fits ^Ltqislntiixt Auititur

STATE CAPITOL

HELENA, MONTANA 59620

406/444-3122

DEPUTY LEGISLATIVE AUDITORS:

MARYBRYSON
Operations and EDP Audit

JAMES GILLETT
Financial-Compliance Audit

JIM PELLEGRINI
Perlormance Audit

The Legislative Audit Committee
of the Montana State Legislature:

We have examined the accompanying Balance Sheets of the Agricultural
Experiment Station (AES) at June 30, 1986 and 1987, and the related State-
ments of Changes in Fund Balances and Current Funds Revenues, Expenditures,
and Other Changes for the two fiscal years ended June 30, 1987. Our exam-
ination was made in accordance with generally accepted auditing standards
and, accordingly, included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.

The university accounts for moneys charged to grants and designated to
pay for future employee terminations in the Restricted Subfund. The use of
these moneys are at the discretion of the university and, as such, should be
accounted for in the Unrestricted Designated Subfund. As a result, the
Restricted Subfund is overstated and the Unrestricted Designated Subfund is
understated by the following amounts:

Expenditures
Prior Year Expenditures
Beginning Fund Balance
Compensated Absence Liability

Fiscal Year
1985-86

$69,271
18,798

88,069

Fiscal Year
1986-87

$(9,913)

88,069
78,156

The university improperly classified Restricted Subfund revenues in fiscal
year 1985-86. As a result, state appropriations revenue is overstated by
SI, 219, 631; federal grant and contract revenue is understated by $841,272; and
state grant and contract revenue is understated by $378,359.

53

In our opinion, except for the effects of the matters discussed in
paragraphs two and three, the financial statements referred to above present
fairly the financial position of the Agricultural Experiment Station at June 30,
1986 and June 30, 1987, the changes in fund balances, and the current funds
revenue, expenditures, and other changes for each of the two fiscal years
ended June 30, 1987, in conformity with generally accepted accounting
principles which have been applied on a consistent basis.

Respectfully submitted,

James Gillett, CPA
Deputy Legislative Auditor

March 18, 1988

54

AGRICULTURAL, EXPERIMENT STATION

BALANCE SHEETS

Year Ended June 30, 1987

ASSETS

jRRENT FUNDS:
Unrestricted:

General operating:

Cash

Accounts receivable

Due from other fund groups

Investments (Note 2)

Total general operating

Designated:
Cash

Accounts receivable
Due from other fund groups

766,405

118,351

161

57,000

941,917

135,463
15,463
26,901

Total designated

Total unrestricted

177,827

1,119,744

Restricted:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 2)

Total restricted
Total current funds

112,749

290,671

79,191

21,245

503,8"56

$ 1,623,600

PLANT FUNDS:
Unexpended :
Cash

Accounts receivable
Investments (Note 2)
Due from other fund groups
Total unexpended

Renewals and replacements:
Cash

Accounts receivable
Investments (Note 2)

Total renewals and replacements

Investment in plant:

Land and land improvements

Buildings

Equipment

Livestock

Total investment in plant

8,752

20,761

3,800

3,000

36,313

25,656
656

109,400

135,712

1,402,887
4,088,220
5,476,492
1,643,834
12,611,433

Total plant funds $ 12,783,458

See notes to financial statements

55

LIABILITIES AND FUND BALANCES

CURRENT FUNDS:
Unrestricted:

General operating:

Accrued payroll $ 452,821

Accounts payable and accrued liabilities 248,026

Due to other fund groups 30,031

Compensated absences payable (Note 4) 975,071

Fund balance (Note 1) (764,032)

Total general operating 941,917

Designated:

Accrued payroll 4,102

Accounts payable and accrued liabilities 28,072

Due to other fund groups 161

Compensated absences payable (Note 4) 7,177

Fund balance 138,315

Total designated 177,827

Total unrestricted 1,119,744

Restricted:

Accrued payroll 3,106

Accounts payable and accrued liabilities 217,777

Due to other fund groups 205,357

Compensated absences payable (Note 4) 86,500

Fund balance (8,884)

Total restricted 503,856

Total current funds $ 1,623,600

PLANT FUNDS:
Unexpended:

Accounts payable and accrued liabilities $ 347

Fund balances 35,966

Total unexpended 36,313

Renewals and replacements:

Fund balance 135,712

Total renewals and replacements 135,712"

Investment in plant:

Net investment in plant 12,611,433

Total investment in plant 12,611,433

Total plant funds $12,783,458

56

AGRICULTURAL EXPERIMENT STATION

STATEMENT OF CHANGES IN FUND BALANCES

Year Ended June 30, 1987

Current Funds

Revenue and other additions:
Current funds revenue
Miscellaneous income
State appropriation
Expended for plant facilities
(including $317,118 charged to
current funds)
Total revenue and other
additions

Expenditures and other deductions:
Current funds expenditures
Expended for plant facilities
(including $1,895 non-capital
expenditures)
Total expenditures and other
deductions

Transfers among funds-additions
(deductions) :
Voluntary:

Total transfers

Net increase (decrease) in fund balance

Fund balance at beg inning of year as
previously reported

Adjustments: (Note 1 & 4)
Prior year revenues
Prior year expenditures
Compensated absences payable
Other

Total adjustments

Fund balances at beginning of year as
adjusted

Fund balances at end of year

Unrestricted

General
Operating Designated Restricted

$8,151,585 $ 457,712 $ 2,497, 192

8,151,585

8,183,337

8,183,337

[3,000)

(729, 280)

118,055

457,712 2,497,192

437,452 2,491,332

437,452 2,491,332

(3,000)

-

-

(34,752)

20,260

5,860

(790,118)

119,110

8,5«0

106

75

(14,185)

(18)

(9,650)

74,917

(1,037)

(13,749)

60,838

(1,055)

(23,324)

(14,744)

$ (764,032) $ 138,315 $ (8,884)

See notes to financial statements

57

Plant Funds

Unexpended

Renewals and
Replacements

$

22,034

Investment
in Plant

S

39,355
11,542

$

318,722

50,897

22,034

318,722

35,533 17,663
35,533 17,663

3,000

3,000

675

18>364 4,371 318,722

16/^27 131,341 12,464,201

[171,490)

^21 - (171,490)

17>602 131,341 12,292,711
35>966 $ 135,712 $ 12,611.433

58

MONTANA AGRICULTURAL EXPERIMENT STATION
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES

Year Ended June 30, 1987

Unrestricted

General
Operating

Designated Restricted

Totals

Revenues :

Federal appropriations
State appropriations
Fed. grants and contracts
State grants and contracts
Private grants and con-
tracts
Sales and service of

$1,675,718
5,637,523

educational activities

830,376

Other sources

7,968

Total revenues

8,151,585

Expenditures:

Research

7,268,866

Institutional support

758,072

Operation and maintenance

of plant

156,399

Other

-

Total expenditures

8,183,337

Transfers and other additions
(deductions) :

Transfers (3,000)

Excess of restricted

receipts over transfers

to revenue -

Net increase (decrease)

in fund balance $ (34,752)

457,712
457,712

437,452

437,452 2,491,332

61,927
884,401
675,075

869,637

292

2,491,332

2,482,248

9,084

5,860

S 1,675,718

5,699,450

884,401

675,075

869,637

830,376

465,972

11,100,629

9,751,114
758,072

156,399

446,536

11,112,121

(3,000)

5,860

20,260 $ 5,860 $ (8,632)

See notes to financial statements

59

MONTANA AGRICULTURAL EXPERIMENT STATION

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

1. Sunmary of significant accounting policies

Related parties:

Montana State University, Montana Agricultural Experiment Station and
Montana Cooperative Extension Service are related through common
management and control; however, they are separate and distinct agencies
and they receive separate federal and state appropriations. These
agencies have certain related party transactions, including sharing
office facilities, management and accounting and office services. The
accounts of Montana State University and Montana Cooperative Extension
Service have not been included in the accompanying financial statements.

Financial statements:

The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles for
colleges and universities except as noted hereafter.

The statement of current funds revenues, expenditures and other changes
is a statement of financial activities of current funds related to the
current reporting period and does not purport to present the results of
operations or the net income or loss for the period.

Fund balance for unrestricted general operating funds includes $50,253
allocated for encumbrances netted to the $160,786 prior period revenue
overage and to the unfunded liability of $975,071 for compensated
absences payable. Fund balance for restricted current funds includes
unfunded liability of $8,884 for compensated absences payable.

Fund accounting:

The accounts of the Station are maintained in accordance with the
principles of fund accounting wherein resources are classified for
accounting purposes into funds that are identified by the limitations and
restrictions placed upon their use. Separate accounts are maintained for
each fund, however, accounts with common characteristics are combined
into groups and reflected as such in the accompanying financial
statements.

Plant and equipment:

At June 30, 1987 investment in plant was adjusted $171,490 to reflect the
totals in the property control subsidiaries. Livestock is carried at
current market value and any differences from the prior years values are
reflected in this adjustment. Livestock is purchased and raised for
experimental purposes; the revenues from livestock sales are recorded in
the general operating fund, except when a breeding animal is sold and is
expected to be replaced; then sales proceeds are recorded in designated
funds and used for replacements as needed.

60

MONTANA AGRICULTURAL EXPERIMENT STATION

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

Summary of significant accounting policies (continued)

Depreciation:

No provision has been made for depreciation of plant facilities in
accordance with generally accepted accounting principles for colleges
and universities.

Allowance of Bad Debts:

An allowance for bad debts has not been recorded. Losses from bad deots
are recorded as adjustments to revenue in the year in which they are
deemed uncollectable.

Allocated for encumbrances:

The Station may record encumbrances as expenditures in conformance with
the Statewide Budgeting and Accounting System. At June 30, 1987 the
University had encumbered $50,253 of general operating funds that are not
included in expenditures in the accompanying finaicial statements. The
accrual basis of accounting provides that expenditures include only
amounts associated with goods and services received and that liabilities
include only the unpaid amounts associated with such transactions.

Investments:

Investments are carried at cost, which approximate market value at June
30, 1987.

Investments

Investments at June 30, 1987 consist of the following:

Cost

Montana short-term investment pool $ 191,445

$ 191,445

Investments at June 30, 1987 are owned by the following funds:

Current funds:

General operating S 57,000

Restricted 21,245

Plant funds:

Unexpended 3,800

Renewals and replacements 109, 4DJ

$ 191,445

61

MONTANA AGRICULTURAL EXPERIMENT STATION

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

j. Retirement plans

All of the Station's full-time employees are members of the Montana
Puolic Employees Retirement System or the Montana Teachers Retirement
System. Employer contributions to these systems, which were determined
to be actuarially sound by the most recent biennial valuations, totaled
$417,128 for the year ended June 30, 1987.

Commitments and contingencies

Compensated absences payable:

As of December 31 of each year, employees can accumulate vacation leave
up to twice the number of leave days earned annually and sick leave can
be accumulated without limitation. Upon termination, the employee is
paid the accumulated vacation leave and 25% of the accumulated sick
leave. Vacation and sick leave payments are recorded as an expenditure
at the time they are paid to the employee.

Due to system limitations, the change in the compensated absences payable
amount is stated as an adjustment and not identified with the fiscal
period earned or utilized by the employee.

Leases :

The Station reserves the right to limit the amount of expenditures
associated with lease contracts without penalty when, in the sole
judgment of the Station, annual funding or program changes necessitate.
Capital lease agreements for various purposes and time periods totaling
$500 at June 30, 1987 are not added to net investment in plant and not
deemed to be material to the overall consolidated financial position of
the Station.

Capital projects:

As of June 30, 1987, the Station has initiated construction on the
following major capital projects:

Amount Amount Exp.
Project Authorized as of 6/30/87

Farm Shop $ 120,000 $_ 118,850

62

AGRICULTURAL EXPERIMENT STATION
BALANCE SHEETS
Year Ended June 30, 1986

ASSETS

CURRENT FUNDS:
Unrestricted:

General operating:

Cash $ 586,456

Accounts receivable 65,720

Due from other fund groups 10,224

Investments (Note 2) 203,007

Total general operating 865,407

Designated:

Cash 143,917

Accounts receivable 2,173

Total designated 146,090

Total unrestricted 1.011.497

Restricted:

Cash 218,227

Accounts receivable 457,481

Due from other fund groups 134

Investments (Note 2) 39,911

Total restricted 715.753

Total current funds $. 1,727.250

PLANT FUNDS:
Unexpended:

Cash $ 20,525

Accounts receivable 2,408

Investments (Note 2) 9,688

Total unexpended 32 j 621

Renewals and replacements:

Cash 13,381

Accounts receivable 749

Investments (Note 2) 133,611

Total renewals and replacements 147,741

Investment in plant:

Land and land improvements 1,400,724

Buildings 4,014,427

Equipment 5,360,122

Livestock 1,688,928

Total investment in plant 12,464,201

Total plant funds $12,644,563

See notes to financial statements
63

LIABILITIES AND FUND BALANCES

CURRENT FUNDS:
l.'nrpstr icted :

General operating:

Accrued payroll $ 441,872

Accounts payable and accrued liabilities 163,531

Due to other fund groups 134

Compensated absences payable (Note 41 1,049,988

Fund balance (Note 1) (790,118)

Total general operating 865 ,407

Des ignated :

Accrued payroll 7,088

Accounts payable and accrued liabilities 13,697

Due to other fund groups 55

Compensated absences payable (Note 41 6,140

Fund balance 119,110

Total designated 146,090

Total unrestricted 1,011,497

Restricted:

Accrued payroll 4,441

Accounts payable and accrued liabilities 607,232

Compensated absences payable (Note 4) 95,500

Fund balance 8,580

Total restricted 715,753

Total current funds $ 1,727,250

PLANT FUNDS:
Unexpended :

Accounts payable and accrued liabilities $ 15,694

Fund balances 16,927

Total unexpended 32 , 621

Renewals and replacements:

Accounts payable and accrued liabilities 6,231

Due to other fund groups 10,169

Fund balance 131 , 341

Total renewals and replacements 147 , 741

Investment in plant:

Net investment in plant 12,464,201

Total investment in plant 12^ 464^201

Total plant funds $12,644,563

64

AGRICULTURAL EXPERIMENT STATION
STATEMENT OF CHANGES IN FUND BALANCES
Year Ended June 30, 1986

Revenue and other additions:
Current funds revenue
Miscellaneous income
Expended for plant facilities
(including $362,973 charged to
current funds)
Total revenue and other
additions

Expenditures and other deductions:
Current funds expenditures
Expended for plant facilities
(including $7,570 non-capital
expenditures)
Total expenditures and other
deductions

Transfers among funds-additions
(deductions) :
Voluntary:

Total transfers

Net increase (decrease) in fund balance

Fund balance at beginning of year as
previously reported

Adjustments: (Note 1 & 4)
Prior year revenues
Prior year expenditures
Compensated absences payable
Other

Current Funds

Unrestricted

General
Operating Designated Restricted

$8,462,075 $ 339,372 $2,870,129

8,462,075

8,567,175

339,372 2,870,12?

392,937 2.729,536

^647^662) 171,459

7,935
(32,408)
(12,883)

8,567,175 392,937 2,729^536

(105,100) (53.565) 140,593

5,692

2,133 3,546
(148) (121,468)
(769) (19,783)

Total adjustments

Fund balances at beginning of year as
adjusted

Fund balances at end of year

37,356

1,216 (.137,705)

(685,018: 172,675 (.132,0131
$ (790, 118) $ 119,110 $ 8,580

See notes to financial statements
65

Une xp end e d

Plant Funds

Renewals and
Replacem e 1 1 ts

Investment
in Plant

161,053

55, 119

161,053

55.119

582_,?42
582,942

198,108
198^108

29.431

29.431

-

-

-

(37,055)

25^688
105^653

582.942

53^382

11.823.937

(50)
650

57,322

600

57,322

53_,982

105,653

11.881,259

$

16.927 $

131,341

$ 12,464.201

66

MONTANA AGRICULTURAL EXPERIMENT STATION
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES

Year Ended June 30, 1986

Unrestricted

General
Operating

Designated Restricted

Total

Revenues :

Federal appropriations
State appropriations
Fed. grants and contracts
State grants and contracts
Private grants and con-
tracts
Sales and service of

educational activities
Other sources
Total revenues

$1,766,806
5,954,537

706,759

33.973

8,462.075

$

1,254,686
463,956

1 ,008,932

339,372 1,2*2

339,372 2,729,536

$ 1,766,806

7,209,223

463,956

1,008,932

706,759

375.307

11,530,983

Expenditures :

Research 7,621,645

Institutional support 809,063
Operation and maintenance

of plant 136,467

Other -

Total expenditures 8,567 , 175

392,937

392,937 2,729, 536

2,716,615

12^921

10,338,260
809,063

136,467
405,858

11,689,648

Transfers and other additions
(deductions) :
Transfers
Excess of restricted

receipts over transfers
to revenue

1^0^593

140.593

Net increase (decrease)
in fund balance

$ (105,100) $ (53.565) $ 140,593 $__L1«L.Q_72)

See notes to financial statements

67

MONTANA AGRICULTURAL EXPERIMENT STATION

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

Summary of significant accounting policies

Related part i os :

Montana State. University, Montana Agr icul tural Experiment Station
and Montana Cooperative Extension Service are related through common
management and control; however, they are separate and distinct
agencies and they receive separate federal and state appropriations.
These agencies have certain related party transactions, including
sharing office facilities, management and accounting and office
services. The accounts of Montana State University and Montana
Cooperative Extension Service have not been included in the accom-
panying financial statements.

Financial statements:

The accompanying financial statements have been prepared on the
accrual basis in accordance with generally accepted accounting
principles for colleges and universities except as noted hereafter.

The statement of current funds revenues, expenditures and other
changes is a statement of financial activities of current funds re-
lated to the current reporting period and does not purport to present
the results of operations or the net income or loss for the period.

Fund balance for unrestricted general operating funds includes
$259,870 prior period revenue overage netted to the unfunded
liability of $1,049,988 for compensated absences payable.

Fund accounting:

The accounts of the Station are maintained in accordance with the
principles of fund accounting wherein resources are classified for
accounting purposes into funds that are identified by the limitations
and restrictions placed upon their use. Separate accounts are main-
tained for each fund, however, accounts with common characteristics
are combined into groups and reflected as such in the accompanying
financial statements.

Plant and equipment:

At June 30, 1986 investment in plant was adjusted $57,322 to reflect
the totals in the property control subsidiaries. Livestock is
carried at current market value and any differences from the prior
years values are reflected in this adjustment. Livestock is purchased
and raised for experimental purposes; the revenues from livestock
sales are recorded in the general operating fund, except when a
breeding animal is sold and is expected to be replaced; then sales
proceeds are recorded in designated funds and used for replacements
as needed.

68

MONTANA AGRICULTURAL EXPERIMENT STATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1986
Summary of significant accounting policies (continued)
Depreciation:

No provision has been made for depreciation of plant facilities in
accordance with generally accepted accounting principles for col-
leges and universities.

Allowance of Bad Debts:

An allowance for bad debts has not been recorded. Losses from bad
debts are recorded as adjustments to revenue in the year in which
they are deemed uncollectable.

Allocated for encumbrances:

The Station may record encumbrances as expenditures in conformance
with the Statewide Budgeting and Accounting System, however, at June
30, 1986, the Station had not encumbered any funds.

Investments:

Investments are carried at cost, which approximate market value
at June 30, 1986.

Investments

Investments at June 30, 1986 consist of the following:

Cost

Montana short-term investment pool $ 386,217

$ 386,217

Investments at June 30, 1986 are owned by the following funds:

Current funds:

General operating $ 203,007

Restricted 39,911

Plant funds:

Unexpended 9,688

Renewals and replacements 133,611

$ 386,217

69

MONTANA AGRICULTURAL EXPERIMENT STATION

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

Retirement pjans

All of the Station's full-time employees are members of the Montana
Public Employees Retirement System or the Montana Teachers Retirement
System. Employer contributions to these systems, which were determined
to be actuarially sound by the most recent biennial valuations, totaled
$372,283 for the year ended June 30, 1986.

Commitments and contingencies

Compensated absences payable:

As of December 31 of each year, employees can accumulate vacation
leave up to twice the number of leave days earned annually and sick
leave can be accumulated without limitation. Upon termination, the
employee is paid the accumulated vacation leave and 25% of the
accumulated sick leave. Vacation and sick leave payments are recorded
as an expenditure at the time they are paid to the employee.

Due to system limitations, the change in the compensated absences
payable amount is stated as an adjustment and not identified with
the fiscal period earned or utilized by the employee.

Leases :

The Station reserves the right to limit the amount of expenditures
associated with lease contracts without penalty when in the sole
judgment of the Station annual funding or program changes necessitate.
Capital lease agreements for various purposes and time periods
totaling $25,043 at June 30, 1986 are not added to net investment in
plant and not deemed to be material to the overall consolidated
financial position of the Station.

70

LEGISLATIVE AUDITOR:
SCOTT A SEACAT

LEGAL COUNSEL:

JOHN W NORTHEY

STATE OF MONTANA

STATE CAPITOL

HELENA, MONTANA 59620

406/444-3122

DEPUTY LEGISLATIVE AUDITORS:

MARY BRYSON
Operations and EDP Audit

JAMES GILLETT

Financial Compliance Audit

JIM PELLEGRINI
Performance Audit

The Legislative Audit Committee
of the Montana State Legislature:

We have examined the accompanying Balance Sheets of the Cooperative
Extension Service (CES) at June 30, 1 986 and 1 987, and the related Statements
of Changes in Fund Balances and Current Funds Revenues, Expenditures, and
Other Changes for the two fiscal years ended June 30, 1987. Our examination
was made in accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.

The university did not eliminate interdepartmental transactions. As a
result, revenues and expenditures in the Designated Subfund are overstated by
$88,890 in fiscal \ear 1985-86.

The university did not accrue expenditures. As a result, accounts payable
and expenditures in the Designated Subfund are understated by $26,641 in
fiscal year 1985-86.

In our opinion, except for the effects of the matters discussed in
paragraphs two and three, the financial statements referred to above present
fairly the financial position of the Cooperative Extension Service at June 30,
1986 and June 30, 1987, the changes in fund balances, and the current funds
revenue, expenditures, and other changes for each of the two fiscal years
ended June 30, 1987, in conformity with generally accepted accounting
principles which have been applied on a consistent basis.

Respectfully submitted.

James Gillett, CPA
Deputy Legislative Auditor

March 18, 1988

71

MONTANA COOPERATIVE EXTENSION SERVICE

BALANCE SHEETS

Year Ended June 30, 1987

ASSETS

CURRENT FUNDS:
Unrestricted:

General operating:
Cash

Accounts receivable
Due from other fund groups

Total general operating

Designated:
Cash

Accounts receivable
Due from other fund groups
Inventories

Total designated

Total unrestricted

$132,

68,

474
.441

200,

,992

87,
44,
32,
87,

,484
,245
,532
,809

252

,070

453

,062

Restricted:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 2)

17,346

21,455

8,376

1,44.

Total restricted
Total current funds

48,61'

$501,681

PLANT FUNDS

Investment in plant:
Buildings
Equipment

$ 44,993
846,380

Total plant funds

$891,37!

See notes to financial statements

72

LIABILITIES AND FUND BALANCES

CURRENT FUNDS:
Unrestricted:

General operating:

Accrued payroll $269,012

Accounts payable and accrued liabilities 151,087

Due to other fund groups 32,541

Compensated absences payable (Note 4) 745,176

Fund balance (Note 1) (996,824)

Total general operating 200,992

Designated:

Accrued payroll 27,090

Accounts payable and accrued liabilities 50,393

Due to other fund groups 48,097

Compensated absences payable (Note 4) 56,971

Fund balance 69,519

Total designated 252,070

Total restricted 453,062

Restricted:

Accrued payroll 38,786

Accounts payable and accrued liabilities 34,869

Due to other fund groups 37,284

Compensated absences payable (Note 4) 62,739

Fund balance (Note 1) (125,059)

Total restricted 48,619

Total current funds $501,681

PLANT FUNDS:

Investment in plant:
Net investment in plant $891,373

Total plant funds $891,373

73

MONTANA COOPERATIVE EXTENSION SERVICE

STATEMENT OF CHANGES IN FUND BALANCES

Year Ended June 30, 1987

Unrestricted

Revenues and other additions:
Current funds revenue
Expended for plant facilities
(including $51,759 charged
to current funds expenditure)
Total revenues and other
additions

Expenditures and other deductions:
Current funds expenditures
Total expenditures and other
deductions

Net increase (decrease) for the
year

Fund balances at beginning of year
as previously reported

Adjustments: (Note 1 & 4)
Prior year revenues
Prior year expenditures
Compensated absences payable
Other

Total adjustments

Fund balance at beginning of year
as adjusted

Fund balance at end of year

General

Operating

$3,922,056

3,922,056

4,058,220
4,058,220
(136,164)

Designated
$ 566,887

566,887

688,360

688,360

(121,473)

Plant Funds
Investment
Restricted In Plant

$ 868,972 $

868,972

928,652
928,652
(59,680)

(842,111)

229,005

(68,934)

(13,331)
(5,218)

(1,424)

(31,167)

(5,422)

3,346

(6,359)

6,568

(18,549)

(38,013)

3,555

(860,660)

190,992

(65,379)

$ (996,824)

$ 69,519

$(125,059)

51,759
51,759

51,759

871,654

(32,040)
(32,040)

839,614

See notes to financial statements

74

MONTANA COOPERATIVE EXTENSION SERVICE
STATEMENT OF CURRENT FUNDS REVENUES, EXPENDITURES AND OTHER CHANGES

Year Ended June 30, 1987

Unrestricted

Revenues :

Federal appropriations
State appropriations
Federal grants and contracts
State grants and contracts
Local grants and contracts
Private gifts, grants and

contracts
Other sources

Total revenues

Expenditures:
Public service
Institutional support
Operation and maintenance

of plant
Other

Total expenditures

Transfers and other additions
(deductions) :

Excess of transfers to revenue
over restricted receipts

General
Operating

$1,826,245
2,095,811

3,922,056

3,086,686
909,508

62,026

4,058,220

Net increase (decrease)
fund balances

in

Designated
$

566,887
566,887

688,360
688,360

Restricted

Total

$

$1,826,245

66,334

2,162,145

640,741

640,741

41,055

41,055

5,205

5,205

146,381

146,381

28,936

595,823

928,652

5,417,595

926,950

4,013,636

-

909,508

_

62,026

1,702

690,062

928,652

5,675,232

(59,680)

(59,680)

$ (136,164) $ (121,473) $ (59,680) $ (317,317)

See notes to financial statements

75

MONTANA COOPERATIVE EXTENSION SERVICE

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

1. Summary of significant accounting policies

Related parties:

Montana State University, Montana Agricultural Experiment Station and
Montana Cooperative Extension Service are related through common
management and control; however, they are separate and distinct
agencies and they receive separate federal and state appropriations.
These agencies have certain related-party transactions, including
sharing office facilities, management, and accounting and office
services. The accounts of Montana Agricultural Experiment Station and
Montana State University have not been included in the accompanying
financial statements.

Financial statements:

The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles for
colleges and universities except as noted hereafter. The statement of
current funds revenues and expenditures is a statement of financial
activities of current funds related to the current reporting period and
does not purport to present the results of operations or the net income
or loss for the period.

Fund balance for unrestricted general operating funds includes $1,485
allocated for encumbrances netted to $253,133 current and prior period
revenue shortages and the unfunded liability of $745,176 for
compensated absences payable. Fund balance for restricted current
funds includes $62,320 net unbilled charges combined with the unfunded
liability of $62,739 for compensated absences payable.

Fund accounting:

The accounts of the Service are maintained in accordance with the
principles of fund accounting wherein resources are classified for
accounting purposes into funds that are identified by the limitations
and restrictions placed upon their use. Separate accounts are main-
tained for each fund, however, accounts with common characteristics are
combined into groups and reflected as such in the accompanying
financial statements.

Inventory:

Inventory of paper and supplies are valued at cost (first-in, first-out
method) .

Plant and equipment:

At June 30, 1987 investment in plant was adjusted $32,040 to reflect
the totals in the property control subsidiaries.

70

MONTANA COOPERATIVE EXTENSION SERVICE

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

Summary of significant accounting policies (continued)

Depreciation:

No provision has been made for depreciation of plant facilities in
accordance with generally accepted accounting principles for colleges
and universities.

Allowance for Bad Debts:

An allowance for bad debts has not been recorded. Losses from bad
debts are recorded as adjustments to revenue in the year in which they
are deemed uncollectable.

Allocated for encumbrances:

The University records encumbrances of general operating funds as
expenditures in conformance with the Statewide Budgeting and Accounting
System.

At June 30, 1987, the University had encumbered $1,485 of general
operating funds that are not included in expenditures in the
accompanying financial statements. The accrual basis of accounting
provides that expenditures include only amounts associated with goods
and services received and that liabilities include only the unpaid
amounts associated with such transactions.

Investments

Investments are carried at cost, which approximates market value; at
June 30, 1987, investments consist of the following:

Cost

Montana short-term investment pool $1,442

$1,442

Investments at June 30, 1987, are owned by the following fund:

Current funds:

Restricted $1,442

$1,442

Retirement plans

All of the Service's full-time employees are members of the Montana
Public Employees Retirement System, Montana Teachers Retirement System
or the U.S. Civil Service Retirement System. Employer contributions to
these plans totaled $286,788 for the year ended June 30, 1987. The
State of Montana retirement plans were determined to be actuarially
sound by the most recent biennial valuations.

77

MONTANA COOPERATIVE EXTENSION SERVICE

NOTES TO FINANCIAL STATEMENTS

June 30, 1987

4. Commitments and contingencies

Compensated absences payable:

As of December 31 of each year, employees can accumulate vacation leave
up to twice the number of leave days earned annually and sick leave can
be accumulated without limitation. Upon termination, the employee is
paid the accumulated vacation leave and 25% of the accumulated sick
leave. Vacation and sick leave payments are recorded as an expenditure
at the time they are paid to the employee.

Due to system limitations, the change in the compensated absences
payable amount is stated as an adjustment and not identified with the
fiscal period earned or utilized by the employee.

Leases :

The Service reserves the right to limit the amount of expenditures
associated with lease contracts without penalty when, in the sole
judgment of the Service, annual funding or program changes
necessitate. No capital lease agreements for various purposes or time
periods exist at June 30, 1987.

78

MONTANA COOPERATIVE EXTENSION SERVICE

BALANCE SHEETS

Year Ended June 30, 1986

ASSETS

CURRENT FUNDS:
Unrestricted:

General operating

Cash $198,190

Accounts receivable 4,868

Due from other fund groups 1,336

Total genera] operating 204,394

Designated:

Cash 159,670

Accounts receivable 54,982

Due from other fund groups 3,338

Inventories 100,250

Total designated 318,240

Total unrestricted 522,634

Restricted:
Cash

Accounts receivable
Due from other fund groups
Investments (Note 2)

68,

600

18,

,594

170

1,

, 184

88,

,548

561 1 ,

, 182

Total restricted
Total current funds

PLANT FUNDS

Investment in plant:

Buildings $ 44, 508

Equipment 82 7,146

Total plant funds $87 1,654

See notes to financial statements
79

LIABILITIES AND FUND BALANCES

CL'RRENT FUNDs:
Unrestricted:

Genera] operating:

Accrued payroll $247,382

Accounts payable and accrued liabilities 56,404

Duo to other fund groups 2,762

Compensated absences payable (Note 4) 739,957

Fund balance (Note 1) (842, 111)

Total general operating 204, 394

Dos ignated:

Accrued payroll 23,785

Accounts payable and accrued liabilities 13,649

Due to other fund groups 253

Compensated absences payable (Note 4) 51,548

Fund balance 229,005

Total designated 318,240

Total unrestricted 522,634

Restr icted:

Accrued payroll 45,582

Accounts payable and accrued liabilities 41,632

Due to other fund groups 1,828

Compensated absences payable (Note 4) 68,440

Fund balance (Note 1) (68,934)

Total restricted 88x548

Total current funds $611 , 182

'LAST FUNDS:

Investment in plant:

Net investment in plant $871,654

Total plant funds $871,654

80

MONTANA COOPERATIVE EXTENSION SERVICE

STATEMENT OF CHANGES IN FUND BALANCES

Year Ended June 30, 1986

Unrestricted

Revenues and other additions:
Current funds revenue
Expended for plant facilities
(including $96,544 charged
to current funds expenditure)
Total revenues and other
additions

Expenditures and other deductions:
Current funds expenditures
Total expenditures and other
deductions

Net increase (decrease) for the
year

Fund balances at beginning of year
as previously reported

Adjustments: (Note 1 & 4)
Prior year revenues
Prior year expenditures
Compensated absences payable
Other

Total adjustments

Fund balance at beginning of year
as adjusted

Fund balance at end of year

Plant Funds

General Investment

Operating Designated Restricted In Plant

$4,072,105 $ 746,334 $ 904,942 $

4,072,105

4.050,956
4,050,956

21,149

32,287

746,334

(32,829)

(895.547) 277.516

(14,940)
(1,826) 578
34,113 (1,320)

(15,682)

(863.260) 261.834

904, 942

779,163 900.751
779,163 900.751

4,191

16,458)

5,113
(35,827)
(35,953)

166,667}

96,

544

96,

544

96,

544

751,

686

23,424

23,424

(73.125) ^17^110

$ (842,111) $ 229,005 $ (68,934) $ 871,654

See notes to financial statements

81

MONTANA COOPERATIVE EXTENSION SERVICE
STATEMENT OF CURRENT KINDS REVENUES, EXPENDITURES AND OTHER CHANGES

Year Ended June 30. 1986

Unrestricted

Genera]

Operating

Designated

Restricted

Total

Revenues :

Federal appropriations

$1,829,268

$

$

570,060

$2

,399,328

Stntf appropriations

2,242,837

-

99,223

2

,342,060

Federal grants and contracts

-

-

114,569

114,569

State grants and contracts

-

-

11,854

11,854

Local grants and contracts

-

-

Private gifts, grants and

contracts

-

-

81,901

81,901

Other sources

-

746,334
746.334

—

23,144
900,751

5

769,478

Total revenues

4,072.105

,719,190

Expend i lures :

Puhl ic serv ice

3. 103,600

-

898,937

4

,002,537

Institutional support

916,398

-

1 ,602

918,000

Operation and maintenance

of plant

30,958

-

-

30,958

Other

-

779,163
779.163

212

779j375

Total expenditures

4,050.956

900^751

5

,73jp_,870

Transfers and other additions
(deduct ions) :
Excess of restricted

receipts over transfers
to revenue

4,191

4.191

Net increase (decrease) in

fund balances $ 21,149

$ (32.829) | 4.191 |_

XL 489)

See notes to financial statements

32

MONTANA COOPERATIVE EXTENSION SERVICE

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

1 . Summary of significant accounting policies

Related parties:

Montana State University, Montana Agricultural Experiment Station
and Montana Cooperative Extension Service are related through common
management and control; however, they are separate and distinct
agencies and they receive separate federal and state appropriations.
These agencies have certain related-party transactions, including
sharing office facilities, management, and accounting and office
services. The accounts of Montana Agricultural Experiment Station
and Montana State University have not been included in the accompany-
ing financial statements.

Financial statements:

The accompanying financial statements have been prepared on the
accrual basis in accordance with generally accepted accounting
principles for colleges and universities except as noted hereafter.

The statement of current funds revenues and expenditures is a state-
ment of financial activities of current funds related to the current
reporting period and does not purport to present the results of
operations or the net income or loss for the period.

Fund balance for unrestricted general operating funds includes
$102,154 prior period revenue shortage combined with the unfunded
liability of $739,957 for compensated absences payable. Fund
balance for restricted current funds includes $494 of unbilled
charges combined with the unfunded liability of $68,440 for
compensated absences payable.

Fund accounting:

The accounts of the Service are maintained in accordance with the
principles of fund accounting wherein resources are classified for
accounting purposes into funds that are identified by the limitations
and restrictions placed upon their use. Separate accounts are main-
tained for each fund, however, accounts with common characteristics
are combined into groups and reflected as such in the accompanying
financial statements.

Inventory:

Inventory of paper and supplies are valued at cost (first-in, first-
out method).

Plant and equipment:

At June 30, 1986, investment in plant was adjusted $23,424 to
reflect the totals in the property control subsidiaries.

83

MONTANA COOPERATIVE EXTENSION SERVICE

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

1. Summary of significant accounting policies (continued)

Deproc i at ion :

No provision has been made for depreciation of plant facilities in
accordance with generally accepted accounting principles for colleges
and uni vers i t ies .

Allowance for Bad Debts:

An allowance for bad debts has not been recorded. Losses from bad
debts are recorded as adjustments to revenue in the year in which
they are deemed uncol lectable.

2. Investments

Investments are carried at cost, which approximates market value; at
June 30, 1986, investments consist of the following:

Cost
Montana short-term investment pool $1 , 184

$1.184

Investments at June 30, 1986, are owned by the following fund:

Current funds:

Restricted $1,1 84

$1,184

3. Retirement plans

All of the Service s full-time employees are members of the Montana
Public Employees Retirement System, Montana Teachers Retirement
System or the U.S. Civil Service Retirement System. Employer con-
tributions to these plans totaled $318,037 for the year ended June
30, 1986. The State of Montana retirement plans were determined to
be actually sound by the most recent biennial valuations.

4. Commitments and contingencies

Compensated absences payable:

As of December 31 of each year, employees can accumulate vacation
leave up to twice the number of leave days earned annually and sick
leave can be accumulated without limitation. Upon termination, the
employee is paid the accumulated vacation leave and 25% of the
accumulated sick leave. Vacation and sick leave payments are recorded
as an expenditure at the time they are paid to the employee.

Due to system limitations, the change in the compensated absences
payable amount is stated as an adjustment and not identified with
the fiscal period earned or utilized by the employee.

84

MONTANA COOPERATIVE EXTENSION SERVICE

NOTES TO FINANCIAL STATEMENTS

June 30, 1986

U. Commitments and contingencies (continued)

Leases :

The Service reserves the right to limit the amount of expenditures
associated with lease contracts without penalty when in the sole
judgment of the Service annual funding or program changes necessitate.
No capital lease agreements for various purposes or time periods
exist at June 30, 1986.

85

UNIVERSITY RESPONSE

Montana State University
Bozeman, Montana 59717

Office of the President

Telephone (406) 994-2341

June 3, 1988

;ea;

Legislative Auditor
Capitol Building, Roor
Helena, MT 5 96 20

135

REIVED

jUN 0 t 198J

montana legislative
auditor

Dea]

S e a c a t

recom
State
Agr i
years
by t
con"; a
opera
maint
regul

u_

te
ai
at

e responses of Montana State University to the audit
ndations made relative to the audit report on Montana
University, the Cooperative Extension Service, and the
tural Experiment Station financial activity for fiscal
985-86 and 1986-87 are submitted herewith. As reflected
number and magnitude cf the audit recommendations
ed in your report, we are continuing in our efforts tc
as efficiently and effectively as possible, while still
ning compliance with the multitude of State and Federal
ions which govern our activities.

bu
cc

*~

f -

de
as

th

si

r.t
oc

si

6

is

Th
nes

in;;

e e
s m
e w

> ccc

rec
sti

Boa

re

■_r s

ent

ng

rd

?or
1 ty

vidence of our sound and responsible financial and
anagement is contained in the audit report. As we
ith our daily business affairs, we believe that
s continually being made in improving our services,
e many carriers which have been placed in front of us
years. We are proud to play an active part in
and cooperating with the Commissioner's Office and

of Regents in resolving the audit issues raised in
t, and in improving the relationships between the

System and the State Legislature.

We look forward to meeting with the Audit Committee to
discuss the audit report and our responses, as well as any
ether issues which may be of interest to them.

6

William J. Tietz
President

86

RECOMMENDATION NO. 1

WE RECOMMEND THE UNIVERSITY:

A. ENTER INTO A WRITTEN CONTRACT WITH THE FOUNDATION
SETTING FORTH RIGHTS AND DUTIES OF EACH PARTY.

B. MONITOR THE CONTRACT TO ENSURE STATE FUNDS WERE SPENT
IN ACCORDANCE WITH DONOR, STATE, AND UNIVERSITY LAWS
AND POLICIES.

C. ACCOUNT FOR DONATIONS TO THE UNIVERSITY IN THE
APPROPRIATE STATE FUNDS.

RESPONSE NO. 1

A. WE CONCUR. PRIOR TO THIS ISSUE BEING RAISED BY THE
LEGISLATIVE AUDIT STAFF, WE HAD RECOGNIZED THE
ADVANTAGES OF HAVING SUCH A WRITTEN AGREEMENT, AND WE
HAD BEGUN TO WORK WITH THE FOUNDATION TO DEVELOP AND
ESTABLISH A FORMAL WRITTEN AGREEMENT.

B. WE CONCUR. A PRIMARY OBLIGATION OF THE FOUNDATION IS
TO ASSURE THAT DONOR FUNDS ARE SPENT IN ACCORDANCE WITH
DONOR STIPULATIONS. HOWEVER, THE FOUNDATION DOES NOT,
AND SHOULD NOT BE EXPECTED TO MONITOR THE USE OF STATE
FUNDS TO ASSURE THAT THEY ARE SPENT IN ACCORDANCE WITH
STATE AND UNIVERSITY POLICIES. AS A PRIVATE NON-PROFIT
CORPORATION WITH AN INTERNAL REVENUE SERVICE
DESIGNATED "FOUNDATION" TAX STATUS, THE FOUNDATION
RECORDS ARE AUDITED YEARLY BY A QUALIFIED INDEPENDENT
CERTIFIED PUBLIC ACCOUNTING FIRM. THE FOUNDATION WILL
DEVELOP POLICIES AND PROCEDURES WHICH ALLOW THEM TO
MAINTAIN THE SEPARATE IDENTITY OF STATE ASSETS FOR
REPORTING AND AUDITING PURPOSES. THE UNIVERSITY CAN
THEN REGULARLY MONITOR USE OF THE FUNDS FOR COMPLIANCE
WITH STATE AND UNIVERSITY LAWS AND POLICIES.

C. WE CONCUR. EFFECTIVE JULY 1, 1983, THE UNIVERSITY WILL
RECORD THE RECEIPT OF DONATIONS DETERMINED TO BE STATE
ASSETS, WITH APPROPRIATE ENTRIES IN THE SBAS RECORDS,
SHOWING THE RECEIPTS OF ASSETS AND THE AMOUNT OF ASSETS
TRANSFERRED TO THE FOUNDATION FOR MANAGEMENT PURPOSES.

RECOMMENDATION NO. 2

WE RECOMMEND THE UNIVERSITY ESTABLISH PROCEDURES TO ENSURE THE
FINANCIAL ACTIVITY RECORDED ON SBAS IS IN ACCORDANCE WITH GAAP.

RESPONSE NO. 2

WE PARTIALLY CONCUR. PROCEDURES HAVE BEEN ESTABLISHED TO
ACCOMMODATE AS MUCH FISCAL YEAR END ACTIVITY AS POSSIBLE IN THE
SBAS REPORTS. WE ARE NOW RESEARCHING FEDERAL REGULATIONS TO
DETERMINE WHETHER THE LOAN FUNDS WILL ALLOW AN EXPENDITURE FOR
BAD DEBTS. THE QUESTION ARISES BECAUSE THE NEW FEDERAL

87

REGULATIONS DO NOT ALLOW CERTAIN FEDERAL LOANS TO BE WRITTEN
OFF AS UNCOLLECTIBLE.

ANY UNEXPENDED FUNDS REMAINING IN A FIXED PRICE CONTRACT AFTER
THE COMPLETION OF THE CONTRACT MUST BE IDENTIFIED SO THAT THEY
CAN BE REMOVED FROM THE RESTRICTED ACCOUNTS AND PLACED IN
DESIGNATED FUNDS. IF THOSE FUNDS LOSE THEIR IDENTITY IN A
DESIGNATED FUND, SUCH A MOVE MAY REDUCE THE INCENTIVE FOR THE
PROJECT TO BE COMPLETED IN A TIMELY AND EFFICIENT MANNER.

RECOMMENDATION NO. 3

WE RECOMMEND THE UNIVERSITY:

A. RECORD THE BUDGETS APPROVED BY THE BOARD OF REGENTS.

B. OBTAIN AUTHORIZED BUDGET AMENDMENTS BEFORE CHANGING THE
APPROVED AMOUNTS RECORDED ON THE ACCOUNTING SYSTEM.

RESPONSE NO. 3

WE CONCUR. INTERNAL PROCEDURES WERE CHANGED TO ASSURE

THAT THE AMOUNTS RECORDED ON THE COMMISSIONER OF HIGHER

EDUCATION FORMS ARE THE SAME AS THE AMOUNTS REPORTED ON

THE SUBSEQUENT TURNAROUND DOCUMENTS.

WE CONCUR. THIS WAS ACCOMPLISHED EFFECTIVE JULY 1,

19S7.

RECOMMENDATION NO. 4

WE RECOMMEND THE UNIVERSITY COMPLY WITH THE APPROPRIATION BILL
LANGUAGE CONCERNING ALLOCATION OF AUDIT COSTS.

RESPONSE NO. 4

WE CONCUR. THE LEGISLATIVE AUDIT COSTS BILLED TO MSU WILL BE
SPLIT AND PAID, 50% BY STATE APPROPRIATED FUNDS AND 50% BY NON-
APPROPRIATED FUNDS EACH YEAR OF THE BIENNIUM, BEGINNING WITH
THE 1389 FISCAL YEAR.

RECOMMENDATION NO ,

WE RECOMMEND THE UNIVERSITY USE THE CONTINGENT REVOLVING
ACCOUNT IN COMPLIANCE WITH STATE POLICY.

88

RESPONSE NO. 5

WE CONCUR. IN NOVEMBER 1987, A MEMO WAS CIRCULATED TO ALL
DEPARTMENTS ADVISING THEM THAT THE USE OF THE CONTINGENT
REVOLVING FUND MUST BE REDUCED TO ASSURE COMPLIANCE WITH STATE
LAWS AND POLICIES. SUBSTANTIAL PROGRESS HAS BEEN MADE IN
REDUCING THE NUMBER OF TRANSACTIONS INVOLVING THE CONTINGENT
REVOLVING ACCOUNT DURING THE PAST SEVERAL MONTHS.

RECOMMENDATION NO.

WE RECOMMEND THE UNIVERSITY REQUEST GRANT MONEYS IN A MANNER
WHICH WILL MINIMIZE THE NECESSITY FOR THE STATE TO ADVANCE
CASH TO GRANT PROGRAMS.

RESPONSE NO. 6

WE CONCUR. WHEN THIS ISSUE WAS BROUGHT TO OUR ATTENTION IN THE
PREVIOUS AUDIT REPORT, WE CHANGED OUR PROCEDURES SO THAT THE
LETTER OF CREDIT DRAWDOWNS OCCURRED MID-MONTH, AFTER THE MAIN
PAYROLL EACH MONTH. THIS SIGNIFICANTLY REDUCED THE NEED FOR
STATE CASH ADVANCES TO THE GRANT PROGRAMS. IN ADDITION, WE
HAVE ATTEMPTED TO ORDER FEDERAL FUNDS BASED ON PLANNED NEEDS,
SUCH AS FOR THE QUARTERLY DISBURSEMENT OF FINANCIAL AID FUNDS
OR WHEN A MAJOR EXPENDITURE IS ANTICIPATED.

IN THE PAST, WE HAVE BEEN CRITICIZED BY THE FEDERAL AUDITORS
FOR HAVING EXCESS FEDERAL CASH ON HAND. WE ARE MAKING EVERY
ATTEMPT TO BALANCE THE CONCERNS OF THE FEDERAL AGENCIES WITH
THE CONCERNS VOICED BY THE STATE AUDITORS, AND WE WILL CONTINUE
TO PLAN AND ANTICIPATE NEEDS TO THE BEST OF OUR ABILITY.

RECOMMENDATION NO. 7

WE RECOMMEND THE UNIVERSITY DEPOSIT RECEIPTS ON A TIMELY 3ASIS
IN ACCORDANCE WITH STATE LAW.

RESPONSE NO. 7

WE CONCUR. PERSONNEL CHANGES HAVE BEEN MADE RECENTLY IN AN

ATTEMPT TO IMPLEMENT THIS RECOMMENDATION. THE EXTENSION

SERVICE PRINT SHOP (MULTILITH) WILL DEPOSIT RECEIPTS ON A
TIMELY BASIS IN ACCORDANCE WITH STATE LAW.

89

RECOMMENDATION NO. 8

WE RECOMMEND THE UNIVERSITY:

A. SUBMIT ITS STUDENT CONFIRMATION REPORT TO THE CENTRAL
PROCESSING CENTER ON A TIMELY BASIS.

B. USE ITS COMPUTER REPORTS TO IDENTIFY STUDENTS AND
NOTIFY LENDERS DIRECTLY OF ENROLLMENT CHANGES WHEN
TIMELY NOTIFICATION CANNOT BE MET BY THE STUDENT
CONFIRMATION REPORT PROCESS.

RESPONSE NO. 8

WE CONCUR. PRIOR TO APRIL 9, 1985, THE EXCHANGE OF
INFORMATION REQUIRED UNDER FEDERAL REGULATIONS BETWEEN THE
INSTITUTIONS, LENDERS, AND LOAN GUARANTEE AGENCIES WAS A LABOR
INTENSIVE MANUAL PROCESS. RECOGNIZING OUR INABILITY TO
ADEQUATELY COMPLY WITH THE FEDERAL REGULATIONS DUE TO OUR
STAFFING LEVELS, WE AUTOMATED OUR REPORTING SYSTEM TO PERMIT A
TAPE EXCHANGE BETWEEN AGENCIES AND TO VERIFY ENROLLMENT STATUS.
OUR RECORDS INDICATE THAT ALL STUDENT CONFIRMATION REPORTS
HAVE BEEN SUBMITTED WITHIN 30 DAYS OF RECEIPT SINCE OCTOBER
1986, AND THAT LENDERS ARE NOW BEING PROPERLY INFORMED OF
ENROLLMENT CHANGES AS SPECIFIED IN THE FEDERAL REGULATIONS.

RECOMMENDATION NO.

WE RECOMMEND THE UNIVERSITY FOLLOW ITS POLICY AND REQUIRE THE
SIGNATURE OF THE FINANCIAL AID OFFICE ON ALL STUDENT
WITHDRAWALS .

RESPONSE NO. 9

WE CONCUR. ALL STUDENT WITHDRAWALS NOW REQUIRE THE SIGNATURE
OF THE FINANCIAL AID ADMINISTRATOR AND/OR HIS DESIGNATED
REPRESENTATIVE IF THE STUDENT WAS A FINANCIAL AID RECIPIENT.

90