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NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20011.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA.Accrual Basis - The financial statements of the North Central State College (the “College”)have been prepared on the accrual basis except that depreciation is not provided on the physicalplant and equipment. The Statement of Current Funds Revenues, Expenditures and OtherChanges is a statement of financial activity of current funds related to the current reportingperiod. It does not intend to present the result of operations or the net income or loss for theperiod as would a statement of income or a statement of revenues and expenses.To the extent that current funds are used to finance plant assets, the amounts so provided areaccounted for as (1) expenditures, in the case of normal replacement of movable equipment andlibrary books; (2) mandatory transfers, in the case of required provisions for debt amortizationand interest and equipment renewal and replacement; and (3) transfers of a non-mandatorynature for all other cases.B.Fund Accounting - In order to ensure observance of limitations and restrictions placed on theuse of the resources available to the College, the accounts of the College are maintained inaccordance with the principles of fund accounting and Governmental Accounting and FinancialReporting Standards. This is the procedure by which resources for various purposes areclassified for accounting and reporting purposes into funds that are in accordance with activitiesor objectives specified. Separate accounts are maintained for each fund; however, in theaccompanying financial statements, funds that have similar characteristics have been combinedinto fund groups. Accordingly, all financial transactions have been recorded and reported byfund groups described below.Within each fund group, fund balances restricted by outside sources are so indicated and aredistinguished from unrestricted funds allocated to specific purposes by action of the governingboard. Externally restricted funds may be utilized only in accordance with the purposesestablished by the source of such funds and are in contrast with unrestricted funds over whichthe governing board retains full control to use in achieving any of its institutional purposes.All gains and losses arising from the sale, collection or other disposition of investments or othernoncash assets are accounted for in the fund which owned such assets. Ordinary incomederived from investments, receivables and the like is accounted for in the fund owning suchassets.All other unrestricted revenue is accounted for in the unrestricted current fund. Restricted gifts,grants, appropriations and other restricted resources are accounted for in the appropriaterestricted funds. Restricted current funds are reported as revenues and expenditures whenexpended for current operating purposes.9

NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20011.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Current FundsThis group accounts for all funds which are available for current operations. It is furthersubdivided into two separately balanced groups: general funds, which are unrestricted andavailable for general operating purposes; and restricted funds, which are available for currentoperating purposes but only in compliance with restrictions specified by the donors or grantors.Additions to current restricted funds are considered as earned income only to the extentexpenditures are made for the restricted purposes specified.Loan FundThe loan fund consists of loans to students and of resources available for such purposes. Asignificant portion of the fund balance represents money granted from the federal government.Plant FundsPlant funds consist of three self-balancing subgroups:C.1.Unexpended funds include resources derived from various sources to finance theacquisition of long-life assets.2.Retirement of indebtedness funds include resources specifically accumulated forpayment of principal and interest or indebtedness incurred in connection with theacquisition of properties.3.Investment in plant includes all long-life assets in the service of the College andconstruction in progress. Physical properties, which include land, buildings andimprovements and equipment, are principally stated at cost. In accordance withgenerally accepted accounting principles for state-assisted colleges and universities,depreciation is not provided. To the extent current funds are used to finance plantassets, the amounts so provided are accounted for as (a) expenditures in the case ofnormal replacement of long-life assets; (b) mandatory transfers in the case of requiredprovisions for debt amortization and interest; and (c) transfers of a nonmandatory naturefor all other cases. When assets are sold or otherwise disposed of, the carrying value ofsuch assets is removed from the accounts, and net investments in plant is reducedaccordingly.Investments - For purposes of the presentation on the Balance Sheet, investments with originalmaturities of three months or less when purchased are reported as cash equivalents.During fiscal year 2001, investments were limited to STAR Ohio. These investments arereported as cash equivalents.10

NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20011.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)D.Investment in Plant – Land, buildings, improvements and equipment are stated at originalacquisition costs when such information was available. In cases when original costs were notpracticably determinable, estimates were arrived at by indexing estimated current costs back tothe estimated year of acquisition. Donated land, buildings, improvements and equipment arecapitalized at estimated fair market value on the date of the gift. Depreciation on physical plantand equipment is not recorded.The costs of normal maintenance and repairs that do not add to the value of the asset ormaterially extend asset lives are not capitalized. Improvements which extend the useful life orincrease the capacity or operating efficiency of the asset are capitalized at cost. Infrastructureassets consisting of sidewalks, parking lots, lighting systems and signage are not capitalized orreported, as these assets are immovable and of value only to the College.E.Deferred Income - Deferred income in the current unrestricted funds is principally comprised ofreceipts relating to tuition and fees in advance of the services to be provided. The Collegerecognizes unrestricted revenue in the fiscal year that the services are predominately provided.F.Compensated AbsencesGovernmental Accounting Standards Board (GASB) Statement No. 16, “Accounting forCompensated Absences”, specifies that vacation leave and other compensated absences withsimilar characteristics should be accrued as a liability as the benefits are earned by theemployees if both of the following conditions are met:1.The employees' rights to receive compensation are attributable to services alreadyrendered.2.It is probable that the employer will compensate the employees for the benefits throughpaid time off or some other means.Other compensated absences with characteristics similar to vacation leave are those which arenot contingent on a specific event outside the control of the employer and employee.Further, sick leave and other similar compensated absences are those which are contingent on aspecific event that is outside the control of the employer and employee. The College hasaccrued a liability for these compensated absences using the termination method when thefollowing criterion is met:1.The benefits are earned by the employees and it is probable that the employer willcompensate the employees for the benefits through cash payments conditioned on theemployees' retirement (“termination payments”).The sick leave liability has been based on the College's past experience of making terminationpayments for sick leave.11

NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20011.2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)G.Interfund Amounts - Amounts due to and from the fund groups are considered to be temporaryadvances.H.Use of Estimates - The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and disclosure in the footnotes. Actualresults could differ from those estimates.CASH AND CASH EQUIVALENTSA.Policies and PracticesIt is the responsibility of the Business and Finance Department to deposit and invest theCollege's idle funds. The College's practice is to limit investments to United States Treasurynotes and bills, collateralized certificates of deposit and repurchase agreements, insured and/orcollateralized demand deposit accounts or obligations of other United States agencies for whichthe principal and interest is guaranteed by the United States Government. The College does notenter into reverse repurchase agreements.The investment and deposit of College monies is governed by the Ohio Revised Code.Investment of the College's monies is restricted to certificates of deposit, savings accounts,money market accounts and the State Treasurer's Investment Pool (STAR Ohio), obligations ofthe United States Government or certain agencies thereof and certain industrial revenue bondsissued by other governmental entities. The College may also enter into repurchase agreementswith any eligible depository for a period not exceeding thirty days. Public depositories mustgive security for all public funds on deposit. These institutions may specifically collateralizeindividual accounts in lieu of amounts insured by the Federal Deposit Insurance Corporation(FDIC), or may pledge a pool of government securities. Repurchase agreements must besecured by the specific government securities upon which the repurchase agreements are based.State law does not require security for the public deposits and investments to be maintained inthe College's name.B.Cash on HandAt June 30, 2001, the College had 2,030 in undeposited cash on hand which is reported ascash on the Balance Sheet.12

NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20012.CASH AND CASH EQUIVALENTS (continued)C.DepositsAt June 30, 2001, the reported amount of the College's deposits was 519,930 and the bankbalance was 999,478. Of the bank balance, 128,676 was covered by federal depositoryinsurance and 870,802 was uninsured and uncollateralized as defined by GASB Statement No.3, “Deposits with Financial Institutions, Investments (including Repurchase Agreements) andReverse Repurchase Agreements”, because the collateral pledged by the financial institution orits trust department or agent is not in the College's name due to the fact that the pledging bankhas an investment and security pool used to collateralize all public deposits. This method ofcollateralization is expressly authorized by State statute.D.InvestmentsThe College has invested funds in the State Treasury Asset Reserve of Ohio (STAR Ohio)during the fiscal year ended June 30, 2001. STAR Ohio is an investment pool managed by theState Treasurer's Office which allows governments within the State to pool their funds forinvestment purposes. STAR Ohio is not registered with the SEC as an investment company,but does operate in a manner consistent with Rule 2a7 of the Investment Company Act of 1940.Investments in STAR Ohio are valued at STAR Ohio's share price which is the price theinvestment could be sold for on June 30, 2001. At June 30, 2001, the fair value of STAR Ohiowas 1,495,708. Investments in STAR Ohio are not categorized by level of custodial creditrisk since they are not evidenced by securities that exist in physical or book entry form.3.STATE SUPPORTThe College is a state-assisted institution of higher education which receives a student-based subsidyfrom the State of Ohio. The subsidy is determined annually based upon a formula devised by the OhioBoard of Regents, adjusted to state resources available.In addition to the student subsidies, the State of Ohio provides the funding for and constructs majorplant facilities on the College's campus. The funding is obtained from the issuance of revenue bondsby the Ohio Public Facilities Commission, which in turn causes the construction and subsequent leaseof the facility by the Ohio Board of Regents. Upon completion of the facility, the Board of Regentsturns over control to the College. Construction in progress for any portion of the facilities beingfinanced by the state agencies for use by the College is recorded on the College's book of account ascosts are incurred.The facilities are not pledged as collateral for the revenue bonds. Instead, the bonds are supported by apledge of monies in the Higher Education Bond Service Fund established in the custody of theTreasurer of State. If sufficient monies are not available from this fund, a pledge exists to assess aspecial student fee uniformly applicable to students in state-assisted institutions of higher educationthroughout the State.13

NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20013.STATE SUPPORT (continued)Outstanding debt issued by the Ohio Public Facilities Commission is not included on the College'sBalance Sheet. In addition, the appropriations by the Ohio General Assembly to the Board of Regentsfor payment of debt services are not shown as appropriation revenue received by the College, and therelated debt service payments are not recorded on the College's financial statements.4.PROPERTY, PLANT AND EQUIPMENTA summary of the changes in property, plant and equipment during fiscal year 2001 follows:Land, Buildings and ionsDeletionsBalance06/30/2001 15,520,4533,254,811 18,775,264 2,506,994243,297 2,750,291 0(42,008) (42,008) 18,027,4473,456,100 21,483,547DEFINED BENEFIT PENSION PLANSAll employees of the College are eligible to participate in one of two cost-sharing, multiple employerdefined benefit pension plans. Academic personnel participate in the State Teachers RetirementSystem (STRS) and nonacademic personnel participate in the School Employees Retirement System(SERS).A.State Teachers Retirement SystemThe College participates in the State Teachers Retirement System of Ohio (STRS), which is acost-sharing, multiple employer defined benefit pension plan. STRS is a statewide retirementplan for certified teachers and other faculty members employed in the public schools of Ohio orany school, college, university, institution or other agency wholly controlled, managed andsupported in whole, or in part, by the state or any political subdivision thereof. Any memberwho has (1) five years of service credit and attained age 60; (2) 25 years of service credit andattained age 55; or (3) 30 years of service credit regardless of age may retire. The maximumannual retirement allowance, payable for life, is the greater of the “formula benefit” or the“money-purchase benefit” calculation. Under the “formula benefit”, the retirement allowance isbased on years of credited service and final average salary, which is the average of themember’s three highest years’ salaries. The annual allowance is calculated by using a basepercentage of 2.1 percent multiplied by the total number of years of service credit (includingstOhio-valued purchased credit) times the final average salary. The 31 year of earned Ohioservice credit is calculated at 2.5 percent. An additional one-tenth of a percent is added to thecalculation for every year of earned Ohio service over 31 years (2.6 percent for 32 years, 2.7percent for 33 years and so on) until 100 percent of final average salary is reached.14

NORTH CENTRAL STATE COLLEGENOTES TO FINANCIAL STATEMENTSFOR THE FISCAL YEAR ENDED JUNE 30, 20015.DEFINED BENEFIT PENSION PLANS (continued)Legislation passed in April, 2000 with a July, 1999 effective date provided an adjustment forretirees whose benefits have not kept pace with the rate of inflation. The legislation alsochanged the formula for calculating the formula benefit. The formula benefit increased to 2.2percent from 2.1 percent per year for all years up to 30 years. For members with 35 or moreyears of earned Ohio service, the first 30 years will be calculated at 2.5 percent instead of 2.2percent. For earned Ohio service over 30 years, the formula will remain as current law, whichstndprovides an escalating formula of 2.5 percent for the 31 year, 2.6 percent for the 32 year, 2.7rdpercent for the 33 year, etc. until 100 percent of final average salary is reached.Under the “money-purchase benefit” calculation, a member’s lifetime contributions plusinterest at specified rates are matched by an equal amount from other STRS funds. This total isthen divided by an actuarially determined annuity factor to determine the maximum annualretirement allowance.Eligible faculty of the College may choose to enroll in either STRS or an alternative retirementplan (ARP) offered by the College. Full-time faculty with less than five years of service credithave a one-time option to select an ARP instead of STRS. Employees hired after the ARP isestablished have 90 days from their employment date to select a retirement plan.A retiree of STRS or other Ohio public retirement system is eligible for reemployment as ateacher following the elapse of two months from the date of retirement. Contributions are madeby the reemployed member and employer during the reemployment. Upon termination ofemployment or age 65, whichever comes later, the retiree is eligible for a money-purchasebenefit or a lump-sum payment in addition to the original retirement allowance.Retirement benefits are annually increased by the greater of the amount of the change in theConsumer Price Index (CPI) or the cumulative CPI increases since retirement, less previouscost-of-living increases, up to a maximum of three percent of the original base benefit. Theplan offers comprehensive health care benefits to retirees and their dependents. Coverageincludes hospitalization, physicians’ fees, prescription drugs and partial reimbursement ofmonthly Medicare premiums.A member with five or more years’ credited service who becomes disabled

North Central State College 2441 Kenwood Circle, Box 698 Mansfield, Ohio 44903 We have audited the accompanying financial statements of the North Central State College (the College), as of and for the year ended June 30, 2001, as listed in the table of contents. These financial statements are the responsibility of the College's management.