Agenda
Audit and Insurance Committee
December 19, 2008
3:30 p.m. EST or at conclusion of the
Physical Facilities Committee
Stewart Center, Room 326
Discussion items:
1. Review of the Fiscal Year 2008 Financial Report - J. S. Almond
• Management Discussion and Analysis - J. R. Shipley
• External Auditors Report - Jeff Arthur, Supervisor of University Audits, State
Board of Accounts
2. Review of the 2007-2008 Property and Liability Insurance Program - J. R. Shipley
3. Review of financial information for the medical benefits, long-term disability and term­life
insurance plans - J. S. Almond
PURDUE
UNIVERSITY
December 5, 2008
A&I Discussion Item I
Decernber19,2008
Office of the Executive Vice President for
Business and Finance and Treasurer
To:
Fr:
Re:
Members of the Audit and Insurance Committee
Thomas E. Spurgeon, Chair
William S. Oesterle
Mamon M. Powers, Jr. ()
James S. Almond ~f
Interim Executive~nt
For Business and Finance and Treasurer
Review of the 2007-2008 Financial Report
Attached for your review is the Purdue University Financial Report for fiscal year ending June 30, 2008 as well
as a copy of management's representation letter to the State Board of Accounts. The changes to this year's
report, along with financial highlights, will be briefly reviewed at the Committee Meeting on December 19,
2008.
The State Board of Accounts issued an unqualified opinion on Purdue's financial statements on October 15,
2008. This was the first full year of operation under the new financial system, and there were no audit findings
reported for the year.
The lead auditor for the State Board of Accounts was Ms. Luanne Lingenfelter and the audit was supervised by
Mr. Jeff Arthur. This was Ms. Lingenfelter's eighth year as the lead auditor and Mr. Arthur's first year as
supervisor. Mr. Arthur will attend the Committee Meeting and discuss the audit process and answer any
questions you may have.
Major changes in the financial report for the fiscal year included implementation of the Governmental
Accounting Standards Board (GASB) Statement No. 45 "Accounting and Financial Reporting by Employers for
Post-Employment Benefits Other Than Pensions." Several reclassifications were also made to the statements
for comparative purposes, the most notable of which was $138.3 million of bonds, leases and notes payable
from noncurrent liabilities to current liabilities.
This report is for information only and no action is required by the Committee. Please contact me at 765-494­9705
if you would like further information prior to the meeting.
Attachments
c: Chairman J. Timothy McGinley
Vice Chairman John D. Hardin, Jr.
President France A. Cordova
Interim Vice President John R. Shipley
Secretary Roseanna M. Behringer
Legal Counsel Anthony S. Benton
Director Peggy L. Fish
A&! Discussion Item!
December 19. 2008
URDUE
UNIVERSITY
Mr. Jeff Arthur
State Board ofAccounts
302 West Washington Street
4th Floor, Room E4l8
Indianapolis, Indiana 46204-2281
Dear Jeff,
OFFICE OF THE EXECUnVE VICE PRESIDENT
AND TREASURER
In connection with your audit of the financial statements of Purdue University as of June 30,
2008, and comparative statements as of June 30, 2007, and for the years then ended, for the
purpose of expressing an opinion as to whether the financial statements present fairly, in all
material respects, the financial position of Purdue University, results of its operations and
changes in its cash flows in conformity with accounting principles generally accepted in the
United States of America, we confirm, to the best of our knowledge and belief, the following
representations made to you during your audit:
I. We are responsible for the fair presentation in the financial statements of net assets,
results of operations, and cash flows in conformity with accounting principles generally
accepted in the United States of America, and the financial statements are fairly
presented. We are responsible for identification of component units and the financial
statements include component units determined to be significant, as previously discussed
with you. We are responsible for the measurement and presentation of required
supplementary information (RSI), specifically Management's Discussion and Analysis
(MD&A), within prescribed guidelines.
2. We have made available to you all:
a. Financial records and related data.
b. Minutes of meetings of the Purdue University Board of Trustees or agendas of
recent meetings for which minutes have not yet been prepared.
3. There have been no unreported:
a. Irregularities involving management or employees who have significant roles in
the internal control structure.
b. Irregularities involving other employees that could have a material effect on the
financial statements.
c. Communications from regulatory agencies concerning noncompliance with, or
deficiencies in, financial reporting practices that could have a material effect on
the financial statements.
d. Material shortages, irregularities, or fraud, which were discovered during the
period ending June 30, 2008, which have not been disclosed to you.
e. Conditions that we have knowledge of which are indicative of or conducive to
shortages or irregularities.
Hovde Hall, Room 230 a 610 Purdue Mall a West lafayette, IN 47907-2040 a (765) 494·9705 tJ Fax: (765) 494·9062
f. Conflict of interest situations which were not disclosed to you.
4. We have no plans or intentions to change accounting practices that may materially affect
the canying value or classification of assets, liabilities, or fund balances that have not
been disclosed in the footnotes to the financial statements.
5. We are responsible for establishing and maintaining effective internal controls over
financial reporting and those controls are adequate. We aclmowledge our responsibility
for the design and implementation ofprograms and controls to prevent and detect fraud.
6. The following have been properly recorded or disclosed in the financial statements:
a. Related party transactions and related accounts receivable or payable, including
revenues, expenditures, loans, transfers, leasing agreements, and guarantees.
b. Arrangements with financial institutions involving repurchase or reverse
repurchase agreements, compensating balances, or other arrangements, involving
restrictions on cash balances and line-of-credit or similar arrangements.
c. Agreements to repurchase assets previously sold.
7. There are no unreported:
a. Other material liabilities or gain or loss contingencies that are required to be
accrued or disclosed by Statement ofFinancial Accounting Standards No.5.
b. Reservations or designations of net assets that were not properly authorized and
approved.
8. There are no unasserted claims or assessments that our lawyer has advised us are probable
of assertion and must be disclosed in accordance with Statement ofFinancial Accounting
Standards No.5, Accounting for Contingencies.
9. There are no lmown material transactions that have not been properly recorded in the
accounting records underlying the financial statements.
10. We invest in non marketable securities and the valuations presented in the financial
statements represent our best estimate of fair value and all methods and significant
assumptions used to estimate the fair value have been disclosed to you.
11. Provision, when material, has been made to reduce excess or obsolete inventories to their
estimated net realizable value.
12. Purdue University has satisfactory title to all owned assets, and there are no liens or
encumbrances on such assets nor has any asset been pledged.
13. We are responsible for Purdue University compliance with laws and regulations
applicable to it; and we have identified, and disclosed to you, all laws and regulations that
have direct and material effect on the determination of financial statement amounts. We
have complied with all aspects of laws, regulations, and contractual agreements that
would have a material effect on the financial statements in the event ofnoncompliance.
14. We have identified all accounting estimates that could be material to the financial
statements, including the key factors and significant assumptions underlying those
estimates, and we believe the estimates are reasonable in the circumstances.
15. No events have occurred subsequent to the date of the statement of net assets that would
require adjustments to, or disclosure in, the financial stat=ents other than as disclosed to
you and included in the footnotes to the financial statements.
16. The Endowment Investment Policies approved by the Board of Trustees of Purdue
University on December 15, 2007, prohibit the use of derivative securities for funds
managed internally by University staff. Derivative securities are not used for investment
funds managed by University staff. The policy does permit use of derivative securities by
investment managers. All investments of investment managers are stated at fair value on
the Statement of Net Assets. Derivative securities are prohibited in the Cash
Management Investment Pool in accordance with the policy approved by the Trustees on
April 8, 2008.
The University does enter into forward contracts in the normal course of business in
limited situations in Agriculture and Physical Facilities. These contracts have been
evaluated and determined to qualify as exempt transactions and therefore not subject to
the reporting requirements of GASB Technical Bulletin 2003-1 "Disclosure
Requirements for Derivatives Not Reported at Fair Value on the Statement of Net
Assets." These contracts have been disclosed fully to you.
17. We believe that the effects of the uncorrected financial statement misstatements
summarized in the accompanying schedules are immaterial, both individually and in the
aggregate, to the financial stat=ent taken as a whole.
Very truly yours,
~ i cDOAC>--
M.R.o1sen
Executive Vice President and Treasurer
~.L~ J~o~
Vice President for Business Services
and Assistant Treasurer
Date (Opinion Letter Date): D~ IS', ~OD8
Attachment #1 to Management's Representations, 2008
Management adopted an accounting policy in fiscal year 2007-2008 to not include direct
invoice vouchers under $50,000 in its estimate of Accounts Payable. Management
expects this amount, estimated at $3.78 million for fiscal year 2007-2008, to be consistent
from year to year and, therefore, to have an immaterial effect on net assets. Since this is
the first year of implementation, the prior year is not comparable as the prior year does
contain this estimate.
PUfpose
Source
SUMMARY OF AUDIT DIFFERENCES
PURDUE UNIVERSITY
6f30/?'OO8
To accumulate and evallrdte the effect of monetary differences.
Workpapers as lnd:cated
Frn:mc!al statements Effect
Amount of Over (Under) Statement or
DewlptJon IN3lure of Aut!ll Olffereilcel
WIP
R,r
Tolal
As::;ets
Tolal Net
lbbtlllles Assets Revenues Expenses
Overstatement of Accounts Payable
Omstatement of Accrued Compensated Absences
L11
l28
1,044,126
619.540
(1.044.126)
(619,540)
1.044,126
619,540
Tola' 0 1,663,666 (1.663.600) 0 1,663.665
less Audit Adjustments Subsequently Booked
Net Un:Jd/usled Audit Differences - ThiS Year 0 1,663,666 (1.653,666) 0 1,663,666
Elrecl of Net Unadlusted Audit D:fferences - Prior Year
Net Audit Drtferences Q 1663666 (1 663 §§§) Q 1 66J 666
Absolute Net Audit Differences 0 1,663,666 1,653.666 0 1.663,656
Plamlng Matefla!rty 18,037013 16,037013 18037013 18.037013 18037013
Ma!erialtty I\'ot Material Not Material Not Material Not Material Not Material
Note to FE If the phrase -Matenaf IS shO'NIl on the materiality llne, then the examiner must either QuaJ:fy the Independent AudItor's Report or requesl the unIt to make additional
adjuSting entries
Conch,/s'on The net audit differences were eva!uate<:l in relation to planning materlalitv The aggregaled misstatements do nct cause the finanetal Gtatements to be materially misstaled.
Page 1of 1
__________________________________________________________________________________________
Hovde Hall, Room 230 • 610 Purdue Mall • West Lafayette, IN 47907-2040 • (765) 494-9705 • Fax: (765) 494-9062
OFFICE OF THE EXECUTIVE VICE PRESIDENT FOR
BUSINESS AND FINANCE AND TREASURER
A&I Discussion Item 3
December 19, 2008
December 5, 2008
To: Members of the Board of Trustees
Fr: James S. Almond
Interim Executive Vice President
for Business and Finance and Treasurer
Re: Review of University Benefit Programs
At the December 19, 2008 Audit and Insurance Committee meeting, I will review the attached benefits program
summary for three of the core university benefit programs that include the medical benefits, long-term
disability, and term-life insurance plans.
These programs are supported by both university contributions and participant contributions. The source of the
university contribution depends upon the funding source from which an individual is paid, such as general
funds, restricted funds or auxiliary funds. Revenues and expenses are periodically reviewed to determine rates
to support each program. The other major benefit programs include pension contributions for faculty and staff
and social security expenses not reflected in the summary document.
The general fund is the largest component within the $1.96 billion system-wide budget, at $1.03 billion for
2008-09. Approximately 71 percent of the general fund budget is allocated for salary and benefit costs. The
budgeted staff benefits are approximately 18.4 percent of the general fund budget. This number has increased
from 17.9 percent in 2004-05. The increase is largely attributable to the growth in the general fund medical
budget over this time period.
Please call me at 765-494-9705, if you have any questions regarding these programs or the attached
information. This report if for information only and no action is required.
Attachment
cc: President France A. Córdova
Interim Vice President John R. Shipley
Legal Counsel Anthony S. Benton
Secretary Roseanna M. Behringer
Director John H. Beelke
PURDUE
UNIVERSITY
University Benefits Program Summary December 19, 2008
Medical Benefits
Long-Term Disability
Purdue University offers three medical plans with varying deductibles, co-insurance, and co-pay levels. Employees who opt out of Purdue medical coverage
receive $550. Medical insurance premiums are reviewed annually and are chargeable to general funds, auxiliary funds, gifts and sponsored programs at all
campuses. Participants pay on average 15 percent of the total medical insurance premium and the University pays the remaining 85 percent.
Long-Term Disability (LTD) insurance provides income replacement during extended periods of total disability resulting from injury or illness and supports
University contributions to the medical benefits plan and pension contibutions while participants are on LTD. The LTD income benefit is equal to 65 percent of an
employee's annual salary. The employee and the University each pay 50 percent of the premium. The University portion of the premium is chargeable to general
funds, auxiliary funds, gifts and sponsored programs at all campuses.
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
2003 2004 2005 2006 2007
Revenue Expenses
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
2003-04 2004-05 2005-06 2006-07 2007-08
Revenue Expense
2003 2004 2005 2006 2007
Employer Contributions $ 63,507,396 $ 71,108,244 $ 77,077,901 $ 80,345,096 $ 88,929,574
Employee Contributions 7,660,477 9,141,675 9,874,062 10,203,782 11,711,069
Non-Active Contributions 3,045,735 3,411,786 3,284,083 3,178,680 3,393,333
Total Revenue $ 74,213,608 $ 83,661,705 $ 90,236,046 $ 93,727,558 $ 104,033,976
Claims and Premiums $ 65,531,262 $ 70,173,048 $ 72,821,516 $ 85,545,606 $ 96,193,362
Admin and Network Fees 3,790,635 3,758,542 2,985,911 3,202,711 4,140,533
Medical Opt Out Credits 608,326 572,548 551,432 521,469 479,098
Worklife & Wellness Programming 441,099 460,362 616,535 580,833 719,606
Healthy Purdue Programming 1,163,870 1,058,602
Healthy Purdue Incentives - 1,415,000 1,421,000
Total Expense $ 70,371,323 $ 74,964,501 $ 76,975,394 $ 92,429,490 $ 104,012,201
Change in Fund Balance +/- $ 3,842,285 $ 8,697,204 $ 13,260,652 $ 1,298,068 $ 21,775
2003-04 2004-05 2005-06 2006-07 2007-08
Employer Contributions $ 1,657,844 $ 1,763,755 $ 1,857,061 $ 1,934,380 $ 2,035,397
Employee Contributions 1,667,149 1,802,237 1,894,803 1,954,780 2,045,838
Total Revenue $ 3,324,993 $ 3,565,992 $ 3,751,864 $ 3,889,160 $ 4,081,235
Medical Benefit Premiums $ 1,315,244 $ 1,363,601 $ 1,325,920 $ 1,294,232 $ 1,239,135
Pension Contributions 274,766 306,618 321,568 259,191 237,969
Income Replacement Premiums 953,451 1,619,939 1,656,909 1,579,370 1,956,376
Claims 862,561 (112,727) (13,817) 50,178 -
Administration 1,537 725 21,252 19,893 23,768
Total Expenses $ 3,407,559 $ 3,178,157 $ 3,311,833 $ 3,202,865 $ 3,457,248
Change in Fund Balance +/- $ (82,566) $ 387,835 $ 440,031 $ 686,295 $ 623,987
Term-Life Insurance
Group Insurance Reserve
The Group Insurance Reserve is utilized for Medical Benefits, Long-Term Disability, and Term-Life Insurance plans and has a balance of $99,105,074. Changes
in fund balance from the operating accounts of these plans is moved to the reserve account on an annual basis along with any adjustments for prior period
activity. The reserve maintains balances to cover contingent liabilities such as those listed below:
The University provides term-life insurance equal to an employee's annual salary, effective on the date of hire. Based on age, employees may elect to purchase
additional coverage up to 3 times their annual salary and the university will share in the cost for the increased insurance. Life insurance premiums are charged to
the University and the employees based on the dollar amount of coverage and the employee's age. The University portion of the premium is chargeable to
general funds, auxiliary funds, gifts and sponsored programs at all campuses.
Life Insurance premium costs have been declining in recent years. Rates decreased in 2000, 2002, and 2008. Term-Life Insurance bids were accepted in 2008
and will result in a change in carrier and a change from a participating contract to a non-participating contract. Effective July 2009, a new plan will be offered at
significantly lower rates.
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
2003-04 2004-05 2005-06 2006-07 2007-08
Revenue Expense
2003-04 2004-05 2005-06 2006-07 2007-08
Employer Contributions $ 2,770,052 $ 2,978,553 $ 3,175,146 $ 3,345,899 $ 3,502,357
Employee Contributions 864,473 920,810 969,039 1,036,505 1,100,406
Non-Active Contributions 72,102 65,060 61,946 60,954 62,526
Total Revenue $ 3,706,627 $ 3,964,423 $ 4,206,131 $ 4,443,358 $ 4,665,289
Premiums $ 3,057,068 $ 3,087,536 $ 3,249,495 $ 3,416,810 $ 2,798,760
Total Expenses $ 3,057,068 $ 3,087,536 $ 3,249,495 $ 3,416,810 $ 2,798,760
Change in Fund Balance +/- $ 649,559 $ 876,887 $ 956,636 $ 1,026,548 $ 1,866,529
Obligations
Contingent Liabilities:
Active Staff Medical Claims, IBNR $ 9,621,512
Current Disabled Medical, TIAA, Life (1) $ 20,090,574
Future Retiree Medical (1) $ 27,709,000
Current Retiree Medical (1) $ 4,575,380
Future Disabled Medical, TIAA, Life (1) $ 20,573,000
Total Contingent Liabilities $ 82,569,466
(1) Liabilites reported in University financial statements as required by GASB 45 (OPEB) beginning with the 6/30/08 annual report. These dollars reflect
actuarially projected costs to age 65 and discounted back.
PURDUE
UXI" ••• JTT