South Carolina Research Foundation

Transcription

1 Financial Statements, Supplementary Financial Information, and Other Financial Information and Reports and Schedules Related to Office of Management and Budget Circular A-133 For the Years Ended June 30, 2010 and 2009 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Financial Statements, Supplementary Financial Information, and Other Financial Information and Reports and Schedules Related to Office of Management and Budget Circular A-133 Years Ended June 30, 2010 and 2009

3 Contents Independent Auditors Report 3-4 Management s Discussion and Analysis (unaudited) 5-9 Financial Statements Statements of Net Assets 10 Statements of Revenues, Expenses, and Changes in Net Assets 11 Statements of Cash Flows 12 Notes to Financial Statements Supplementary Financial Information Independent Auditors Report on Supplementary Financial Information 19 Health Sciences South Carolina Schedules of Net Assets 20 Health Sciences South Carolina Schedules of Revenues, Expenses, and Changes in Net Assets 21 Consortium for Enterprise Systems Management Schedule of Net Assets 22 Consortium for Enterprise Systems Management Schedule of Revenues, Expenses, and Changes in Net Assets 23 Other Financial Information and Reports and Schedules Related to Office of Management and Budget Circular A-133 Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards 44 Schedule of Findings and Questioned Costs Summary Schedule of Prior Year Findings 47 2

4 Tel: Fax: Wade Park Boulevard Suite 300 Raleigh, NC Independent Auditors Report The Board of Directors South Carolina Research Foundation We have audited the accompanying statement of net assets of South Carolina Research Foundation (the Foundation ) as of June 30, 2010, and the related statements of revenues, expenses, and changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of Foundation s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Foundation as of June 30, 2009 were audited by other auditors whose report, dated January 17, 2010, expressed an unqualified opinion. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of June 30, 2010, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March 31, 2011 on our consideration of the Foundation s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management s discussion and analysis information on pages 5 through 9 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 3 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO Internationa Limited, a UK limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

5 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Certified Public Accountants March 31,

6 Management s Discussion and Analysis (Unaudited) Overview of the Financial Statements and Financial Analysis The South Carolina Research Foundation (the Foundation ) is pleased to present its financial statements for fiscal years 2010 and The emphasis of discussions about these statements will be on the current year in comparison to our financial results for the previous two years. While audited financial statements for fiscal year 2008 are not presented with this report, operational and financial position data will be presented in this section in order to illustrate certain increases and decreases. This report consists of a series of financial statements, prepared in accordance with Governmental Accounting Standards Board ( GASB ) Codification Section 2200, Comprehensive Annual Financial Report and GASB Codification Section 2500, Notes to Financial Statements. The financial statements presented focus on the financial condition, the changes in net assets and cash flows of the Foundation. There are three financial statements presented: the Statement of Net Assets; the Statement of Revenues, Expenses, and Changes in Net Assets; and the Statement of Cash Flows. These statements present financial information in a form similar to that used by private-sector corporations. The Foundation s net assets (the difference between assets and liabilities) are one indicator of the current financial condition of the Foundation, while the change in net assets is an indicator of whether the overall financial condition has improved or worsened during the year. This discussion and analysis of the Foundation s financial statements provides an overview of its financial activities for the year in comparison to the past two years. Statements of Net Assets The Statements of Net Assets presents the assets, liabilities, and net assets of the Foundation as of the end of the fiscal year. The Statements of Net Assets is a point of time financial statement. The purpose of the Statement of Net Assets is to present to the readers of the financial statements a fiscal snapshot of the Foundation. The Statements of Net Assets presents end-of-year data concerning assets (property that we own), liabilities (what we owe to others), and net assets (assets minus liabilities). It is prepared under the accrual basis of accounting, whereby revenues and assets are recognized when the service is provided and expenses and liabilities are recognized when others provide the service to us, regardless of when cash is exchanged. From the data presented, readers of the Statements of Net Assets are able to determine the assets available to continue the operations of the Foundation. They are also able to determine how much the Foundation owes vendors and lending institutions. Finally, the Statements of Net Assets provides a picture of the net assets (assets minus liabilities) and their availability for expenditure by the Foundation. The net assets of the Foundation are divided into three categories. The first category is amounts invested in capital assets, net of related debt. This represents the Foundation s total investments in capital assets net of outstanding related debt obligations. The second category is net assets restricted-expendable for research. Expendable restricted net assets are available for expenditure by the Foundation but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the assets. The third category is unrestricted net assets. Unrestricted net assets are available to the Foundation for any lawful purpose of the Foundation. 5

7 Management s Discussion and Analysis (Unaudited) Condensed Statements of Net Assets June 30, Current assets $ 68,948,919 $ 59,068,048 $ 43,630,394 Total capital assets, net $ 126,333 $ 179,794 $ 17,677 Current liabilities $ 67,733,411 $ 58,211,393 $ 42,462,757 Net assets: Invested in capital assets, net of related debt $ 15,162 $ 22,480 $ 17,677 Restricted - expendable for research 298, , ,857 Unrestricted 1,027, , ,780 Total net assets $ 1,341,841 $ 1,036,449 $ 1,185, Current assets and current liabilities at June 30, 2010 increased by $9.9 million and $9.5 million respectively over June 30, The increase is based solely on activity resulting from the Master Agreement between the University of South Carolina (the University ) and the Foundation requiring the Foundation to provide fiscal and administrative management for virtually all the University s sponsored programs and on activity resulting from similar agreements with Health Sciences South Carolina and the Consortium for Enterprise Systems Management. Current assets are comprised almost entirely of cash and cash equivalents and grants and contracts receivable from sponsors, and Health Sciences South Carolina s Managed Care Organizations. Current liabilities are comprised primarily of payables to the University, payables to the Consortium for Enterprise Systems Management vendors, and payables to Health Sciences South Carolina s Medicaid Managed Care Providers, as well as, deferred revenue from grants and contract sponsors. Net assets increased at June 30, 2010 by $0.3 million over June 30, 2009 as a result of the Foundation s decision to reduce the number of grants awarded to fund research initiatives underway at the University Current assets and current liabilities at June 30, 2009 increased by $15.4 million and $15.7 million respectively over June 30, The increase is based solely on activity resulting from the Master Agreement between the University and the Foundation requiring the Foundation to provide fiscal and administrative management for virtually all the University s sponsored programs and on activity resulting from a similar agreement with Health Sciences South Carolina. Current assets are comprised almost entirely of cash and cash equivalents and grants and contracts receivable from sponsors, and Health Sciences South Carolina s Managed Care Organizations. Current liabilities are comprised primarily of 6

8 Management s Discussion and Analysis (Unaudited) payables to the University and payables to Health Sciences South Carolina s Medicaid Managed Care Providers, as well as, deferred revenue from grants and contract sponsors. Net assets decreased at June 30, 2009 by $0.1 million over June 30, 2008 as a result of the Foundation s decision to utilize expendable assets to fund research initiatives underway at the University. Statements of Revenues, Expenses, and Changes in Net Assets The Statements of Revenues, Expenses, and Changes in Net Assets presents the revenues earned and expenses incurred during the year. Activities are reported as either operating or nonoperating. Changes in total net assets as presented on the Statements of Net Assets are based on the activity presented in the Statements of Revenues, Expenses, and Changes in Net Assets. The purpose of the statement is to present the revenues received, both operating and nonoperating, and the expenses paid, operating and nonoperating, and any other revenues, expenses, gains and losses received or spent by the Foundation. Operating revenues are received from gifts, contributions, and grants and contracts from individuals, industrial or other private organizations, and government or other public agencies. Operating expenses are those expenses to conduct research and to acquire or produce the goods and services provided in return for the operating revenues and to carry out the mission of the Foundation. Nonoperating revenues are revenues received for which goods and services are not provided, including expenses for private gifts and donations, offset by interest income. 7

9 Management s Discussion and Analysis (Unaudited) Condensed Statements of Revenues, Expenses, and Changes in Net Assets For the years ended June 30, Operating revenues: Federal grants and contracts $ 99,744,389 $ 91,357,227 $ 83,897,605 Nongovernmental grants and contracts 66,185,644 63,672,357 20,912,040 Management fees and recoveries 20,677,506 19,513,170 19,075,292 Other operating revenues 403, , ,796 Total operating revenues 187,011, ,055, ,595,733 Operating expenses: Research and development direct costs 183,616, ,678, ,602,808 Other operating expenses 2,604,255 2,676,924 2,805,368 Total operating expenses 186,220, ,355, ,408,176 Operating income 790, ,520 2,187,557 Nonoperating (expenses) revenues: Private gifts and donations (556,885) (1,004,221) (3,325,806) Interest income 71, , ,964 Net nonoperating expenses (485,220) (848,385) (2,901,842) Change in net assets 305,392 (148,865) (714,285) Net assets, beginning of year 1,036,449 1,185,314 1,899,599 Net assets, end of year $ 1,341,841 $ 1,036,449 $ 1,185, Grants and contracts revenue increased $10.9 million at June 30, 2010 over June 30, 2009, solely due to activity resulting from the Master Agreement between the University and the Foundation requiring the Foundation to provide fiscal and administrative management for virtually all the University s sponsored programs and activity resulting from similar agreements with Health Sciences South Carolina and the Consortium for Enterprise Systems Management. Additionally, increase of $11.9 million for research and development direct costs over June 30, 2009 is the result of the increased activity resulting from agreements with the University, Health Sciences South Carolina and the Consortium for Enterprise Systems Management. 8

10 Management s Discussion and Analysis (Unaudited) Net assets increased at June 30, 2010 over June 30, 2009 by $0.3 million as a result of the Foundation s decision to reduce the number of grants awarded to fund the University s research initiatives Grants and contracts revenue increased $50.2 million at June 30, 2009 over June 30, 2008, solely due to activity resulting from the Master Agreement between the University and the Foundation requiring the Foundation to provide fiscal and administrative management for virtually all the University s sponsored programs and activity resulting from a similar agreement with Health Sciences South Carolina. Additionally, increase of $52.1 million for research and development direct costs over June 30, 2008 is the result of the increased activity resulting from agreements with the University and Health Sciences South Carolina. Net assets decreased at June 30, 2009 over June 30, 2008 by $0.1 million as a result of the Foundation s decision to utilize accumulated assets in support of University research initiatives. Statement of Cash Flows The final statement presented is the Statement of Cash Flows. The Statement of Cash Flows presents detailed information about the cash activity of the Foundation during the year by reporting the sources and uses of cash. The statement is divided into four sections. The first section is the operating cash flows and presents the net cash provided or used by the operating activities of the Foundation. The second section is the cash flows from noncapital financing activities. This section presents the cash received and spent for nonoperating, noninvesting, and noncapital financing purposes. The third section is the cash flows from capital and related financing activities and presents the cash used for the acquisition and construction of capital and related items. The fourth section is the cash flows from investing activities and presents the purchases, proceeds, and interest received from investing activities. A reconciliation of the net cash provided or used by operating activities to the operating income or loss presented on the Statements of Revenues, Expenses, and Changes in Net Assets is also included in the Statements of Cash flows. Capital Assets and Debt Administration The Foundation was founded for the purposes of supporting the research and other externally sponsored academic activities of the University of South Carolina. The Foundation operated primarily as a grants management organization and as such maintains limited amounts of capital assets and no long-term liabilities. 9

11 Statements of Net Assets June 30, Current assets: Cash and cash equivalents $ 1,087,549 $ 777,042 Restricted cash and cash equivalents 38,593,629 30,494,248 Accounts receivable, net 29,203,745 27,654,530 Prepaid expenses and deposits 63, ,228 Total current assets 68,948,919 59,068,048 Capital assets, net Computer equipment - 1,302 Furniture 37,806 52,929 Office equipment 9,178 11,800 Automobiles 22,171 32,713 Leasehold improvements 57,178 81,050 Total capital assets, net 126, ,794 Total assets 69,075,252 59,247,842 Current liabilities: Accounts payable and accrued expenses 42,913,742 25,413,373 Deferred revenue 24,819,669 32,798,020 Total current liabilities 67,733,411 58,211,393 Net assets: Invested in capital assets 15,162 22,480 Restricted expendable for research 298, ,791 Unrestricted 1,027, ,178 Total net assets $ 1,341,841 $ 1,036,449 See accompanying notes to financial statements. 10

12 Statements of Revenues, Expenses, and Changes in Net Assets For the years ended June 30, Operating revenues: Federal grants and contracts $ 99,744,389 $ 91,357,227 Nongovernmental grants and contracts 66,185,644 63,672,357 Management fees and recoveries 20,677,506 19,513,170 Royalty income 49,204 46,332 Rental income 141, ,292 Other operating revenues 212, ,706 Total operating revenues 187,011, ,055,084 Expenses: Research and development direct costs 183,616, ,678,640 Salaries and benefits 1,267,813 1,153,575 Services and supplies 1,336,442 1,523,349 Total operating expenses 186,220, ,355,564 Operating income 790, ,520 Nonoperating revenues (expenses): Private gifts and donations (556,885) (1,004,221) Interest income 71, ,836 Net nonoperating expenses (485,220) (848,385) Change in net assets 305,392 (148,865) Net assets, beginning of year 1,036,449 1,185,314 Net assets, end of year $ 1,341,841 $ 1,036,449 See accompanying notes to financial statements. 11

13 Statements of Cash Flows For the years ended June 30, Operating activities Payments from grants and contracts $ 157,978,556 $ 150,451,747 Payments to subcontractors (145,385,901) (143,163,144) Payments to suppliers (3,702,547) (3,018,024) Net cash provided by operating activities 8,890,108 4,270,579 Financing activities Cash flows from capital financing activities: Capital asset purchases (209,660) Reimbursements received on captial asset purchases 5,000 - Cash flows from non-capital financing activities: Private gifts and donations (556,885) (1,004,221) Total cash used in financing activities (551,885) (1,213,881) Investing activities Interest income 71, ,836 Net cash provided by investing activities 71, ,836 Net increase in cash and cash equivalents 8,409,888 3,212,534 Cash and cash equivalents, beginning of year 31,271,290 28,058,756 Cash and cash equivalents, end of year $ 39,681,178 $ 31,271,290 Reconciliation of operating income to net cash provided by operating activities: Operating income $ 790,612 $ 699,520 Adjustments to reconcile change in net assets to net cash provided by operating income: Depreciation expense 48,461 47,543 Changes in: Accounts receivable (1,549,215) (12,299,733) Prepaid expenses and deposits 78,232 74,613 Accounts payable and accrued expenses 17,500,369 6,512,575 Deferred revenue (7,978,351) 9,236,061 Net cash provided by operating activities $ 8,890,108 $ 4,270,579 See accompanying notes to financial statements. 12

14 Notes to Financial statements 1. Organization The South Carolina Research Foundation (the Foundation ) is a not-for-profit, IRC 501(c)(3) taxexempt organization incorporated in the State of South Carolina in December The Foundation operates as a supporting organization of the University of South Carolina (the University ) to promote, encourage, and aid scientific investigation and research by providing or assisting in providing the means and facilities. The Foundation has public charity status as an organization described in IRC 509(a)(3). Effective February 21, 2008, the Foundation entered into a Management Service Agreement with Health Sciences South Carolina ( HSSC ), a nonprofit corporation founded to improve the health and economic well-being of the State of South Carolina through a coordinated strategy to advance research and education. The Foundation supports HSSC by providing facilities, personnel and fiduciary services. HSSC includes participation from Clemson University, Medical University of South Carolina, Palmetto Health, Greenville Hospital System and Spartanburg Regional Hospital. HSSC is disregarded as an entity for federal tax purposes. Effective August 18, 2009, the Foundation entered into an Operating Agreement with the Consortium for Enterprise Systems Management, LLC, ( CESM ), a South Carolina limited liability company. CESM was founded to organize and operate an education and research consortium that, in the public interest, promotes effective utilization and management of information technology enterprise systems in business, government, and nonprofit organizations, while advancing the exempt purposes and objectives of the Foundation in the promotion of educational, research, and other programs of the University of South Carolina. CESM is disregarded as an entity for federal income tax purposes. 2. Summary of Significant Accounting Policies The Foundation applies all applicable Governmental Accounting Standards Board ( GASB ) pronouncements, and in accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and other Governmental Entities that use Proprietary Fund Accounting, has elected to apply only those Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, that do not conflict with GASB standards. The significant accounting policies used by the Foundation in preparing and presenting its financial statements are as follows: (a) Basis of Accounting The financial statements of the Foundation have been prepared using the economic resources measurement focus and the accrual basis of accounting. (b) Deposits At June 30, 2010 and 2009, the carrying value of cash deposits (with corresponding bank balances) totaled $39,681,178 and $31,271,290, respectively. Bank balances of $250,000 are fully insured with federal depository insurance coverage, thus amounts held in deposit greater than insured balances are subject to custodial credit risk. The Foundation does not have a formal policy on custodial credit risk. The Foundation considers all highly liquid investments with original maturities of three months or less to be cash equivalents. 13

15 Notes to Financial statements (c) Receivables Receivables consist of amounts due from the Federal government and private sources in connection with reimbursement of allowable expenditures made pursuant to the Foundation s grants and contracts, and HSSC s agreement with Managed Care Organizations. (d) Capital Assets Capital assets are recorded at cost at the date of acquisition or fair market value at the date of donation in the case of a gift. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 years for computer software and 5 years for computer equipment, furniture, office equipment, automobiles, and leasehold improvements. (e) Deferred Revenue Deferred revenue includes amounts received from grant and contract sponsors that have not yet been earned because the Foundation has not met all of the eligibility requirements of the applicable contract or grant and rental income received prior to the end of the fiscal year but related to a subsequent reporting period. (f) Net Assets The Foundation s net assets are classified as follows: Invested in Capital Assets: This represents the Foundation s total investment in capital assets, net of outstanding debt obligations related to those capital assets. The Foundation incurred no debt in its purchase of capital assets during the year ended June 30, Restricted Net Assets: Restricted net assets include resources in which the Foundation is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. Unrestricted Net Assets: Net assets that are not subject to externally imposed stipulations pertaining to their use. Unrestricted net assets are used for the general operations of the Foundation and may be used at the discretion of the governing board to meet current expenses for any purpose. The Foundation s policy for applying expenses that can use both restricted and unrestricted resources is delegated to Foundation management. General practice is to first apply the expense to restricted resources then to unrestricted resources. 14

16 Notes to Financial statements (g) Classification of Revenues The Foundation has classified its revenue as either operating or nonoperating revenues according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as Federal and nongovernmental grants and contracts, royalty income, rental income, and management fees. Nonoperating revenues: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as gifts, and interest income. (h) Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. Accounts Receivable, Net The Foundation s accounts receivable reported in the statements of net assets as of June 30, 2010 and 2009, consisted entirely of grants and contracts receivable. A summary of grants and contracts receivable is as follows at June 30: June 30, Private grants and contracts receivable $ 15,228,324 $ 14,832,339 Federal grants and contracts receivable 13,975,421 12,822,191 Total accounts receivables $ 29,203,745 $ 27,654,530 The Foundation s allowance for uncollectible receivables was $0 for the years ended June 30, 2010 and

17 Notes to Financial statements 4. Accounts Payable and Accrued Expenses The Foundation s payables reported in the statement of net assets as of June 30, 2010, were as follows: Private Federal Total Vendors $ 108,497 $ 20,125 $ 128,622 University of South Carolina 2,267,543 13,681,499 15,949,042 Health Sciences South Carolina 26,692,276-26,692,276 Consortium for Enterprise Systems Management 88,571-88,571 Royalty payments 55,231-55,231 Total accounts payable and accrued expenses $ 29,212,118 $ 13,701,624 $ 42,913,742 The Foundation s payables reported in the statement of net assets as of June 30, 2009, were as follows: Private Federal Total Vendors $ 37,456 $ 61,883 $ 99,339 University of South Carolina 3,097,661 13,894,594 16,992,255 Health Sciences South Carolina 8,241,297-8,241,297 Royalty payments 80,482-80,482 Total accounts payable and accrued expenses $ 11,456,896 $ 13,956,477 $ 25,413, Related Party The University contributes some personnel and the facilities utilized by the Foundation. There has been no value assigned (as it is undeterminable) to those administrative services in the financial statements. All of the research and development supported by grants and contracts are performed by the University and several of its various departments. 6. Commitments and Contingencies The Foundation is dependent upon federal and corporate funded research contracts, and must apply for annual renewals of grants and contracts. Funding is subject to both increases and decreases at the discretion of the contractors, and some agreements also call for termination by either party contingent upon certain conditions. The Foundation s federal awards are subject to financial and compliance audits. Such audits could lead to requests for reimbursements to the grantor agency for expenditures disallowed under the terms of the agreement. The amount of expenditures, if any, which may be disallowed by the granting agencies cannot be determined at this time although the Foundation expects such amounts, if any, to be immaterial. 16

18 Notes to Financial statements 7. Operating Expenses by Function Operating expenses by functional classification for the year ended June 30, 2010, are summarized as follows: Salaries and Services and Benefits Supplies Total Research and development $ - $ 183,616,298 $ 183,616,298 Management and general 1,267,813 1,336,442 2,604,255 Total $ 1,267,813 $ 184,952,740 $ 186,220,553 Operating expenses by functional classification for the year ended June 30, 2009, are summarized as follows: Salaries and Services and Benefits Supplies Total Research and development $ - $ 171,678,640 $ 171,678,640 Management and general 1,153,575 1,523,349 2,676,924 Total $ 1,153,575 $ 173,201,989 $ 174,355, The University of South Carolina Technology Incubator The University of South Carolina Technology Incubator (Incubator) was officially opened in November 1998 under the management of the Foundation. The Incubator s primary purpose is to recruit, build and deploy new technology driven companies that support the development of a highly skilled workforce, advance technology and research through the development of new products and services. The incubator is funded through donations from municipalities and corporations that have a vested interest in expanding a successful technology incubator. The Foundation received Incubator donations of approximately $95,000 and $230,000 for the years ended June 30, 2010 and 2009, respectively. 9. Risk Management The Foundation is exposed to various risks of loss related to torts, theft of assets, and errors and omissions. The Foundation s affairs are conducted by the employees of the University and exposures to loss resulting from this arrangement are handled by the University through a combination of methods, including participation in various risk pools administered by the State of South Carolina, purchase of commercial insurance and self retention of certain risks. Additional details on the University s risk management program are disclosed in the financial report of the University. 17

19 Notes to Financial statements 10. Subsequent Events The Foundation has evaluated subsequent events from June 30, 2010 (the date of the most recent statement of net assets presented) through March 31, 2011 (the date of the audit report and the date the financial statements were available to be issued). During this period, no material recognizable events were identified. 18

20 Supplementary Financial Information

21 Tel: Fax: Wade Park Boulevard Suite 300 Raleigh, NC Independent Auditors Report on Supplementary Financial Information The Board of Directors South Carolina Research Foundation Our audit of the basic financial statements included in the preceding section of this report was performed for the purpose of forming an opinion on those statements taken as a whole. The schedules of net assets and schedules of revenues, expenses, and changes in net assets of Health Science South Carolina and Consortium for Enterprise Systems Management presented in the following section of this report is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. March 31,

22 Health Sciences South Carolina Schedules of Net Assets June 30, Current assets Restricted cash and cash equivalents $ 23,143,595 $ 15,547,671 Accounts receivable, net 13,281,349 13,283,202 Prepaid expenses and deposits 41, ,950 Total current assets 36,466,792 28,953,823 Capital assets, net Furniture 31,822 44,551 Automobiles 22,171 32,713 Leasehold improvements 57,178 80,050 Total capital assets, net 111, ,314 Total assets 36,577,963 29,111,137 Current liabilities Accounts payable and accrued expenses 26,692,276 8,241,297 Deferred revenue 9,885,687 20,869,840 Total current liabilities 36,577,963 29,111,137 Total liabilities 36,577,963 29,111,137 Total net assets $ - $ - 20

23 Health Sciences South Carolina Schedules of Revenues, Expenses, and Changes in Net Assets For the years ended June 30, Operating revenues: Nongovernmental grants and contracts $ 52,705,629 $ 44,240,944 Total operating revenues 52,705,629 44,240,944 Operating expenses: Research and development direct costs 51,119,569 42,867,264 Salaries and benefits 850, ,952 Services and supplies 798, ,515 Total operating expenses 52,767,836 44,338,731 Operating loss (62,207) (97,787) Nonoperating revenues: Interest income 62,207 97,787 Total nonoperating revenues 62,207 97,787 Change in net assets $ - $ - 21

24 Consortium for Enterprise Systems Management Schedule of Net Assets June 30, 2010 Current assets Restricted cash and cash equivalents $ 278,737 Accounts receivable, net 112,750 Total current assets 391,487 Total assets 391,487 Current liabilities Accounts payable and accrued expenses 88,571 Deferred revenue 302,916 Total current liabilities 391,487 Total liabilities 391,487 Total net assets $ - 22

25 Consortium for Enterprise Systems Management Schedule of Revenues, Expenses, and Changes in Net Assets For the year ended June 30, 2010 Operating revenues: Nongovernmental grants and contracts $ 644,810 Total operating revenues 644,810 Operating expenses: Services and supplies 644,810 Total operating expenses 644,810 Operating Income - Change in net assets $ - 23

26 Other Financial Information and Reports and Schedules Related to Office of Management and Budget Circular A-133

27 Tel: Fax: Wade Park Boulevard Suite 300 Raleigh, NC Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Board of Directors South Carolina Research Foundation We have audited the financial statements of South Carolina Research Foundation (the Foundation ) as of and for the year ended June 30, 2010, and have issued our report thereon dated March 31, We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Foundation s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Foundation s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Foundation's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 24

28 This report is intended solely for the information and use of management, the Board of Directors, others within the Foundation, federal awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants March 31,

29 Tel: Fax: Wade Park Boulevard Suite 300 Raleigh, NC Independent Auditors Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133 The Board of Directors South Carolina Research Foundation Compliance We have audited South Carolina Research Foundation s (the Foundation ) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Foundation s major federal programs for the year ended June 30, The Foundation s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the Foundation s management. Our responsibility is to express an opinion on the Foundation s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Foundation s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Foundation s compliance with those requirements. In our opinion, the Foundation complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Internal Control Over Compliance Management of the Foundation is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the Foundation s internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Foundation s internal control over compliance. 26

30 A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. This report is intended solely for the information and use of management, the Board of Directors, others within the Foundation, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountant March 31,

31 Schedule of Expenditures of Federal Awards Federal CFDA Federal Federal and State Grantor/Pass-Through Grantor/Agency Number Expenditures Research and Development Cluster US Department of Agriculture Olfactory Proteins of the Yellow Fever Mosquito as Targets for the Study of Chemosensory Deterrents $ 40,567 Regulation of Iron Uptake in Arabidopsis Thaliana ,072 The Role of GATA4 and Phosphorylation Status in Porcine Follicular Development , ,557 Pass-through Colorado State University, Socially Responsible Advertising of Food, Fiber and Related Products ,895 Socially Responsible Advertising and Promotion of Food, Fiber and Related Products ,386 15,281 Assessing Alterative Policies for Improving the School Food Environment ,481 Seed Grant to Assess the Role of Specific, Highly Abundant Viral Small RNAs in Viral Pathogenesis in Corn ,113 Francis Marion and Sumter National Forest GIS Digital Update ,364 ARRA - Salkehatchie Lures(SL)/Regional Tourism Study ,846 Pass-through Western Carolina Higher Educ Commission, RBEG - Leadership Institute Operations Subaward , ,498 SC CNMP/Nutrient Management Template for MMP and Legacy Application Support for NRCS SC Based Application ,661 Pass-through US- Egypt Joint Science and Technology Fund, Treatment of Tannery Wastewater ,930 Assessment Matrix Development, Rapid Watershed Updates, and Technical /Support 10.xxx (1,364) Pass-through Western Carolina Higher Ed Commission, Salkehatchie Lures Tourism Program 10.xxx 23,364 Natural Resource Technology Transfer for SC USDA Natural Resources Conservation Service 10.xxx 51,719 Pass-through Mississippi State University, Child, Mother, and Other Choices About Food in Food-insecure Households 10.xxx 18,695 Pass-through Western Carolina Higher Education Commission, Salkehatchie Lures Marketing Plan 10.xxx 5,193 Natural Resource Technology Transfer for Cropland Conservation Systems 10.xxx 52,661 Use of Video Medium for Recruiting, Outreach, Training and Education 10.xxx 7,650 Total US Department of Agriculture 616,370 US Department of Commerce Center for Integrated Info Systems: Establishment of a Southeast Regional Integration Testbed ,836 Social Disruption from Oil Spills and Spill Response ,219 Genetic Diversity and Population Structure of Grass Shrimp in South Carolina Tidal Creeks ,137 North Inlet-Winyah Bay National Estuarine Research Reserve ,108 North Inlet-Winyah Bay National Estuarine Research Reserve, Georgetown, SC ,601 Continuing Support of the National Estuarine Research Reserve System Centralized Data Management Office ,922 North Inlet-Winyah Bay National Estuarine Research Reserve ,019 North Inlet-Winyah Bay NERR Education and Training Center - Phase Iib, Outdoor Classroom ,928 Continuing Support of the NERR System Centralized Data Management Office ,101 Improving Radium-based Submarine Groundwater Discharge Estimates: Implications for Coastal Nutrient Cycling ,363 Relative Influence of Underwater Light and Oyster Grazing on Phytoplankton Community Composition in North Inlet Estuary ,374 North Inlet-Winyah Bay National Estuarine Research Reserve ,629 Continuing Support of the NERR Centralized Data Management Office ,693 1,497,875 Integrating Climate Science and Water Management in the Carolinas ,168 Integrating Climate Science and Water Management in the Carolinas ,787 Implementation of a Drought Mapping Tool in the Eastern United States ,899 Long Daily Historical Climate Reconstructions for Southern Alaska ,666 Guidance for South Carolina on Near-Term Coastal Adaption Priorities ,029 Guidance for South Carolina on Near-Term Coastal Adaptation Priorities , ,128 Genetic Stock Identification and Dispersal in Black Sea Bass Along the Western Atlantic Coast ,523 NOAA Building Project ,060 Pass-through University of NC-Wilmington, Integration of Coastal Observations and Assets in the Carolinas ,002 Pass-through University of North Carolina, Expansion of the Carolinas Coast Marine Weather Template ,758 Pass-through University of North Carolina, Support of RCOOS Development in SECOORA ,329 OHHI 2008: Using Gene Expression Profiles of Estuarine Grass Shrimp as Biosensors/Monitors of Coastal Ecosystem Health ,001 1,004,150 ECOFORE 2004: Climate Change and Intertidal Risk Analysis ,422 ECOFORE 2004: Climate Change and Intertidal Risk Analysis (4) Ecological Effects of Sea-Level Rise on Coastal North Carolina Marshes , ,028 Pass-through Physical Acoustics, Self Powered Wireless Sensor Network for Structural Bridge Health Prognosis ,026 Pass-through Physical Acoustics: Self Powered Wireless Sensor Network for Structural Bridge Health Prognosis , ,717 Evaluating the Japanese Outbound Tourism Market 11.xxx 2,635 Total US Department of Commerce 3,971,111 28