PAYROLL AND PAYABLES DIVISION PAYROLL DEPARTMENT

The Payroll Department is responsible for processing all payroll payments to employees of the University of Georgia through electronic payroll vouchers in accordance with the University’s policies and procedures. The department withholds proper taxes and other authorized deductions from those payments and transmits those deductions to the appropriate federal, state and local agencies. The department also prepares and transmits federal and state tax returns, and it maintains records on all personnel paid through the payroll system. Summary of Major Accomplishments Beginning fall semester 2006, the University offered faculty on a nine-month, full-time academic contract (A or L) the option of receiving 12 monthly paychecks during the year instead of 10. Approximately 300 interested faculty elected the option to move from 10 months to 12 months in February 2006, using the Faculty/Staff Self-Service Web Site. Payroll staff processed payments for these employees from August 2006 to July 2007 and worked closely with them to answer questions about the process. The new process resulted in annual increases for these employees going into effect in February 2007 instead of January as was the case for other employees of the University. This delay of one month caused concerns for some employees but was necessary in order for there to be six months of pay at the old rate and six months at the new rate. During open enrollment in November 2006, an additional 75 faculty members elected to receive 12 monthly paychecks, while some who had elected the option during the prior year changed back to 10 checks. Late in the year the Human Resources Department reported a problem with retirement benefits for employees who are covered by the Teachers Retirement System and who had elected the 12-month option. The retirement benefit for these employees was negatively impacted by the election. Work began to resolve this problem and, as of June 2007, research and discussion with the Benefits Committee of University Council had been initiated. The University implemented a Graduate Student Health Insurance plan during fall 2006, and Payroll staff worked to administer the deductions and answer numerous inquiries from affected employees. Graduate students who already had insurance were required to provide proof to the University’s vendor, Pearce and Pearce, in order to waive the coverage and the insurance deduction. The students disputed many deductions, and Payroll staff worked closely with Human Resources to resolve questions and conflicts. During Fiscal Year 2007, Payroll worked with personnel in Application Development and Data Management to provide paystubs to employees on the University’s secure Self-Service Web Site instead of sending paystubs by email. Although emails saved the University the time and money required to print paper advisements, the Payroll staff incurred significant time and effort establishing and maintaining employee passwords and distributing the emails. Pay days with three payrolls frequently required more than five hours to distribute the emails. Staff also expended a significant amount of time each pay

F-98

day working with employees who could not remember their passwords. With the new service University employees who had already elected to receive their paychecks by email obtain their pay information from the Self-Service Web Site. On the afternoon before a pay day, the new system automatically sends an email notification to employees notifying them when their pay information is available. In order to view the pay information, the employee must log into the site using his/her University MyID and password and answer a security question for access. Staff successfully phased in the new system by pay type from February to April 2007. The new electronic pay advisements on the Self-Service Web Site contain additional information concerning the total value of the employee’s compensation. Now employees not only see the amount of their paychecks but also the amount contributed by the University for fringe benefits. This new presentation provides employees with a more complete picture of the value of their total compensation earned at the University. The new process also gives employees online access to prior paycheck information, which is frequently needed for mortgage applications. This self-service expedites the process for employees and relieves staff of the efforts previously required to obtain this information. Employees’ pay information is linked to the Self-Service Web Site using the employee’s social security number, which is ultimately linked to a University identification number (CAN). Employees whose ID numbers are linked to numbers other than the social security number, such as the 777 number issued by the Registrar’s Office, experienced difficulty viewing their paystubs. Payroll worked with personnel in the Card Services Office to resolve these issues. The University’s electronic payroll voucher system supports the payroll process by serving as the conduit for source payroll and leave information submitted by departments. The University’s development staff created the system approximately seven years ago, but the language utilized by the system will no longer be supported by its vendor. During the past year staff from the Controller’s Division and from Enterprise Information Technology Services performed a detailed analysis of the available options to replace the voucher system. The analysis led to the selection of a vendor-supplied time and attendance product, and a project team was formed to work with the vendor on development of the new system. The University stands to gain some benefits from the new system, which should be functional by the beginning of the calendar year. The Payroll staff will be instrumental in the roll-out of the new system to campus, participating in training of key personnel and responding to issues that arise. For tax year 2007, the department developed electronic forms related to the payment process for foreign nationals providing services to the University and placed these forms on the Web. These forms include the W-4, 8233, W-8BEN and W9, and they can be completed online, printed, signed and submitted to the Payroll Department to ensure correct and timely processing of tax withholding and treaty exemptions. The staff utilized the Windstar’s Web-based Foreign National Information System (FNIS) to accomplish

F-99

this process. Previously the staff printed and mailed the forms to each foreign national employee (over 750 employees). Using FNIS, the Payroll Department was able to save a significant amount of resources related to the cost of printing, handling and mailing the forms. Payroll’s international tax coordinator continues to:

• Improve procedures to increase accuracy and efficiency in processing any payments to foreign nationals

• Assist the Athletic Department with tax liability issues, ITIN and income tax

returns for their foreign national athletes

• Participate in orientation for international students each semester, presenting useful information to the students and collecting tax-related documentation

• Participate in International Student Life’s tax workshops to assist international

students and scholars and those who are overseas to complete income tax returns

• Teach classes through Training and Development for the Global Certificate Program

Summary of FY 2008 Goals The Payroll staff will work on the successful implementation of the new payroll voucher system that will replace the current e-Payroll system. The Payroll Department will be involved with system testing during the early implementation efforts, will assist in training the staff from other departments in the use of the new vouchers and will function as a campus resource as units migrate to the new system. Implementation of the existing e-Payroll system took more than a year, but implementation of the replacement system is planned for less than half of that time. Payroll’s goal is to make this transition proceed as seamlessly as possible for campus payroll personnel. Payroll staff researched various possibilities during the past year to identify a system to support the electronic distribution of W-2s to employees. IRS allows electronic W-2s under stringent guidelines, but the staff also must ensure that systems maintain strict confidentiality of the data. The staff intended to utilize the vendor of the payroll check and paper W-2 processes to provide electronic W-2s, but that specific product does not appear to be adequately secure in a widely dispersed environment such as that of the University. During the coming year the staff will continue to investigate alternative solutions available from payroll software vendors and will work to identify a system that can be implemented at UGA. The staff also hope to develop functionality that will allow employees to obtain duplicate W-2s through the use of the Self-Service Web Site. The staff reprints hundreds of W-2s each year in a time-consuming process, so this improvement would result in significant time savings. During Fiscal Year 2008 Payroll would like to accomplish the following in regard to foreign nationals:

F-100

• FNIS implementation for new employees to collect required data from foreign

nationals via the Internet • Utilize the FNIS for 1042S processing • Implement detailed instructions and forms on the required documentation for each

type of non-employee payment • Modify IMS screens and programs to assist in efficiency with international data • Increase consistency in dispersing information to incoming international students

(i.e., the assistantship award letters) • Increase accuracy in the payroll system by collecting missing information on

foreign nationals • Attend training workshops

Statistical Information The department modified several computer programs in the payroll/personnel system for payroll payments in order to reflect revised regulations:

• Increased the maximum taxable wage base for FICA-OASDI from $94,200 to $97,500 effective January 1, 2007.

• Updated the federal income withholding tax tables, the standard deduction amounts and the personal exemption amount as each was indexed for inflation as of January 1, 2007.

• Updated the Earned Income Credit computational table as of January 1, 2007. Of the 25,583 W-2s issued, the U.S. Postal Service returned 645 to the Payroll Department as undeliverable. This number compares to the 657 that the Postal Service returned during the previous year. Payroll staff located correct addresses for 221, leaving 424 to be retained in the department, as required by Internal Revenue Service regulations. Of the 614 Form1042-S’s issued, the Postal Service returned 65 as undeliverable. Staff located addresses for 20 and the department retained 45, as required. The Payroll Department distributed the Employee Information Report on Use of Employer-Provided Vehicle to selected University and Athletic Association personnel in October 2006. The department utilizes this form to secure pertinent information from employees who are provided a vehicle so that the value of reported personal use may be calculated, appropriately withheld and included as income on each employee’s W-2. According to Internal Revenue Service regulations, the value of reported personal use may be determined based on the annual lease value if a vehicle is available to the employee for the entire year. The Payroll Department determined the fair market value of the vehicle described on each of the 95 forms returned by using the State of Georgia Motor Vehicle Ad Valorum Tax Assessment Web Site. The department then determined annual lease value by referencing the fair market value of the vehicle to the annual lease value table included in Internal Revenue Service regulations. Payroll personnel input the data provided on the Employee Information Report on Use of Employer-Provided Vehicle forms to the taxable fringe database, and the system calculated the value of personal use for each employee. The staff then loaded those values into the payment

F-101

database for inclusion in the calculation of the December payroll in order to comply with social security/Medicare withholding tax requirements. Additionally, the Financial Information Systems staff loaded the value of personal use into the W-2 database for inclusion as taxable income reported in box 12 on applicable 2006 W-2’s.

Section 79 of the Internal Revenue Code provides that an employee may have imputed income when the employer provides group life insurance in excess of $50,000, if the premium rate paid by the employee is less than the fair market value premium rate established by IRS regulations. The Employee Benefits Department provided the Payroll Department with a data set of calculated imputed income values for applicable University of Georgia supplemental life insurance participants. Additionally, the Athletic Association provided the Payroll Department with a data set of calculated discounts in excess of 20% for each employee who purchased season football and/or basketball tickets. These data sets were loaded into the payment database so that applicable social security tax would be withheld from a December payroll payment for affected employees. The department also loaded imputed income and ticket discount income data into the W-2 database for inclusion as taxable income on applicable 2006 W-2’s.

The following chart shows the employee debt collection responsibilities legally shifted to the University of Georgia:

FY 2005 FY 2006 FY 2007

Garnishments 150 271 174

Tax Levies 43 137 102

Child Support Wage Assignment 100 214 138

Non-child Support Wage Assignment 11 42 35

Chapter 13 Bankruptcies 59 101 58

In response to the above debt collection orders, the Payroll Department withheld $1,296,286.17 from the pay of affected employees and issued 1,844 petty cash checks to disburse the withheld amount to the proper agencies.

In addition to the staff reviewing the Georgia Defined Contribution Plan (GDCP) edits as each payroll is processed and the continuous visa reviews for nonresident aliens, the Payroll Department performs several scheduled internal audits to ensure the accuracy of data used to process payroll payments to University employees.

Departmental personnel conducted the following audits during FY 2007:

F-102

Nonresident Aliens Claiming Exemption From Withholding

The staff conducted this audit in December 2006 to identify alien employees claiming exemption from income-withholding tax based on the existence of reciprocal income tax treaties between the United States and the employees’ countries of citizenship. The department reviewed the records for participating employees to assure compliance with treaty provisions and sent letters as reminders that their Form PR140, Nonresident Aliens Claiming Exempt From Withholding, on file in the Payroll Department, would expire on December 31, 2006.

Employees With More Than 100% Time

Payroll staff perform monthly audits to review the pay records for those employees whose assignment data indicates employment on more than one pay type, resulting in excess of 100% time. The staff contacted departments as necessary to correct the record and/or payment to affected employees.

Future Pay

The system generates a report of all employees for whom an employing department submitted a payment for a future pay period ending date to the Payroll Department during the balancing process for each payroll. The staff uses this report to ensure that lump sum annual leave payments for terminating employees are processed with the correct deductions and to correct any payment records submitted with a future pay period other than that for payment of lump sum annual leave.

The following exhibits are provided as records of the Payroll Department’s activities for the periods ended June 30, 2003 through June 30, 2007:

Exhibit A - Comparison of Number of Employees Exhibit B - Comparison of Payroll Amounts Exhibit C - Comparison of Payroll Deductions

Exhibit D - Summary of Related Activities Exhibit E - Summary of e-Payroll Documents Exhibit F - Graph Comparison of Number of Employees Exhibit G - Graph Comparison of Payroll Amounts Exhibit H - Graph Summary of e-Payroll Documents

F-103

Fiscal Year

University 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007Monthly 6,892 6,790 6,742 7,003 7,432Academic 2,515 2,740 2,789 3,074 2,877Salaried 2,751 2,623 2,524 2,379 2,340Hourly 4,513 4,439 4,368 4,328 4,392

Total 16,671 16,592 16,423 16,784 17,041

AthleticMonthly 15 14 14 13 14Hourly 118 118 144 130 158

Total 133 132 158 143 172

TotalMonthly 6,907 6,804 6,756 7,016 7,446Academic 2,515 2,740 2,789 3,074 2,877Salaried 2,751 2,623 2,524 2,379 2,340Hourly 4,631 4,557 4,512 4,458 4,550

Total 16,804 16,724 16,581 16,927 17,213

Increase/Decrease over 2003University (79) (248) 113 370Athletic (1) 25 10 39

(80) (223) 123 409

Percent Increase/Decrease over 2003University -0.5% -1.5% 0.7% 2.2%Athletic -0.8% 18.8% 7.5% 29.3%

-1.3% 17.3% 8.2% 31.5%

The University of GeorgiaPayroll Department

Comparison of Number of EmployeesFor the period June 2003 through June 2007

F-104

Exhibit A

Fiscal YearUniversity 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007Monthly $286,240,710 $284,349,134 $282,315,257 $298,868,606 $332,196,596Academic $119,098,929 $124,629,799 $128,201,053 $134,413,498 $122,802,570Salaried $63,991,527 $61,269,079 $59,426,088 $56,176,881 $57,079,817Hourly $36,113,058 $35,989,104 $36,344,598 $37,971,717 $37,461,508

Total $505,444,224 $506,237,116 $506,286,996 $527,430,702 $549,540,491

AthleticMonthly $3,202,806 $3,851,754 $3,224,183 $4,055,714 $4,079,108Hourly $417,467 $458,368 $544,947 $576,688 $695,363

Total $3,620,273 $4,310,122 $3,769,130 $4,632,402 $4,774,471

TotalMonthly $289,443,516 $288,200,888 $285,539,440 $302,924,320 $336,275,704Academic $119,098,929 $124,629,799 $128,201,053 $134,413,498 $122,802,570Salaried $63,991,527 $61,269,079 $59,426,088 $56,176,881 $57,079,817Hourly $36,530,525 $36,447,472 $36,889,545 $38,548,405 $38,156,871

Total $509,064,497 $510,547,238 $510,056,126 $532,063,104 $554,314,962Increase/Decrease over 2003University University $792,892 $842,772 $21,986,478 $44,096,267Athletic Athletic $689,849 $148,857 $1,012,129 $1,154,198

Total $1,482,741 $991,629 $22,998,607 $45,250,465Percent Increase/Decrease over 2003University University 0.2% 0.2% 4.3% 8.7%Athletic Athletic 19.1% 4.1% 28.0% 31.9%

Total 19.3% 4.3% 32.3% 40.6%

The University of GeorgiaPayroll Department

Comparison of Payroll AmountsFor the period June 30, 2003 through June 30, 2007

F-105

Exhibit B

Fiscal Year2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Federal Witholding $55,905,376 $51,038,350 $50,582,267 $53,217,015 $58,365,582Retirement $22,545,066 $22,363,428 $22,434,591 $23,399,835 $25,504,631FICA OASDI & HI $30,196,629 $29,900,103 $29,766,126 $30,894,093 $33,924,945State Witholding $19,715,940 $19,541,368 $19,468,996 $20,388,557 $22,509,438Annuities $14,896,048 $15,698,124 $15,755,055 $16,211,383 $17,708,986Hospital Insurance $13,390,845 $13,650,333 $13,858,481 $14,926,734 $18,125,645Credit Union $6,403,941 $6,284,113 $5,840,641 $5,552,235 $5,776,695Life Insurance $1,474,831 $1,570,350 $1,585,848 $1,719,704 $1,913,162Federal Retirement $683,237 $588,861 $504,068 $501,867 $549,947Dependent Care $956,476 $979,030 $985,015 $1,055,777 $1,105,620Parking $1,467,514 $1,696,493 $1,632,713 $1,609,428 $1,690,491LTD Disability Insurance $855,217 $820,133 $827,816 $860,932 $955,893Charity $409,202 $375,431 $342,881 $343,732 $373,703AD&D Insurance $197,424 $195,357 $190,009 $188,899 $200,433Rent $132,753 $126,066 $134,088 $152,479 $220,866Alumni $182,651 $191,646 $183,572 $201,992 $243,562Federal Insurance $69,956 $57,752 $45,370 $49,251 $56,012Bankruptcies $376,396 $361,901 $413,548 $450,229 $499,557Dental Insurance $2,446,341 $2,673,616 $2,925,246 $3,040,098 $3,244,264Garnishments $113,623 $119,160 $144,692 $168,681 $196,898Wage Assignments $479,943 $533,343 $597,181 $619,671 $571,295Savings Bonds $45,050 $42,700 $34,850 $29,600 $20,000Tax Levies $29,836 $44,442 $39,899 $51,747 $61,280Traffic Fines $27,880 $42,800 $47,100 $41,895 $45,900TSP $1,654 $1,704 $1,704 $1,704 $19,846Golf Fees $15,403 $14,586 $11,069 $10,160 $10,595Student Fees $1,024,093 $964,009 $842,949 $953,782 $874,592Med Flex $2,509,230 $2,928,975 $3,065,302 $3,199,395 $3,557,854Ramsey Center $390,811 $372,492 $358,853 $341,207 $372,088Other $236,749 $294,142 $321,001 $396,544 $411,143

TOTAL $177,180,115 $173,470,808 $172,940,931 $180,578,626 $199,110,923

Increase/Decrease Over 2003 (3,709,307) (4,239,184) 3,398,511 21,930,808Percent Increase/Decrease Over 2003 -2.1% -2.4% 1.9% 12.4%

For the periods June 30, 2003 through June 30, 2007

The University of GeorgiaPayroll Department

Comparison of Payroll Deductions

F-106

Exhibit C

The University of Georgia

Payroll Department Summary of Related Activities

for the Period June 2003 through June 2007

Personnel Reports Processed FY2003 FY2004 FY2005 FY2006 FY2007 Deduction Cards Processed 42,257 35,474 37,714 28,122* 36,934 Exemption Cards Processed 6,438 5,558 4,233 3,768 1,718 Bank Forms 13,064 14,209 14,121 18,675** 19,093 Checks Held for Personnels, 888#, Human Res 15,035 18,783 19,206 6,974 6,275 Departmental Transfers 39 203 389 503 503 Manual/Replacement Checks Issued 2,874 2,431 2,880 2,093 2,401 Checks Cancelled 356 326 377 345 679 Adjusted Checks 242 283 416 375 746 Refunds 628 632 786 836 699 Number of Checks Issued 981 667 1,139 772 1,212 Number of Advisements Issued 72,068 58,632 46,994 44,811 44,161 Number of W-2's Issued 241,346 309,599 255,128 260,999 258,140 Number of 1042's Issued 25,171 25,205 25,589 25,298 25,583 * electronic forms processed 624 669 648 669 614 ** includes G-4s required as of 1/1/06

Exhibit E

The University of Georgia Payroll Department

Summary of e-Payroll Documents Processed for the Year Ended June 30, 2007

Payroll

Vouchers Average Per

Month Time

Detail/Records Average Per

Month Monthly 31,768 2,647 126,207 10,517 Academic/Summer School 8,403 700 50,740 4,228 Salaried 17,259 1,438 70,264 5,855 Hourly 30,438 2,537 136,499 11,375 Totals 87,868 7,322 383,710 31,975

F-107

Exhibit D

Total Employees

16200

16300

16400

16500

16600

16700

16800

16900

17000

17100

17200

17300

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Fiscal Year

Num

ber o

f Em

ploy

ees

Exhibit G

Comparison of Payroll Amounts

$480,000,000

$490,000,000

$500,000,000

$510,000,000

$520,000,000

$530,000,000

$540,000,000

$550,000,000

$560,000,000

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Fiscal Year

F-108

Exhibit F

Payroll Voucher Documents Processed FY 2006-07

35%

10%20%

35%

Monthly

Academic/SummerSchoolSalaried

Hourly

F-109

Exhibit H

Payroll Specialist IIDarshna Patel

Payroll Specialist IMary Jane Cadwell

Payroll Specialist ICarolina Wood

Payroll Specialist IDebbie Christopher

PAYROLL DEPARTMENTORGANIZATION CHART

ManagerJulie Camp

Senior AccountantLisa Westmoreland

Senior Financial AccountantInt’l Tax Coordinator

Susan Caldwell

Operations SupervisorChristy Coddington

AccountantChristi Holbert

AccountantTomekia Wilson

Associate AccountantTiffany Haag

Associate AccountantVacant

Administrative Associate ICrystal Alewine

Payroll Specialist IGinger Ayers

Payroll Specialist IAlice Moreland

F-110