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KEAN UNIVERSITY (A Component Unit of the State of New Jersey)

REPORT ON FINANCIAL STATEMENTS AND FEDERAL AND STATE AWARDS

IN ACCORDANCE WITH OMB CIRCULAR A-133 AND

NEW JERSEY OMB CIRCULAR 04-04

YEARS ENDED JUNE 30, 2009 AND 2008

KEAN UNIVERSITY

(A Component Unit of the State of New Jersey)

TABLE OF CONTENTS Page Independent Auditors’ Report 1-2

Management’s Discussion and Analysis 3-12

Basic Financial Statements

Statements of Net Assets (Kean University) 13

Statements of Financial Position (Kean University Foundation, Inc.) 14

Statements of Revenues, Expenses and Changes in Net Assets (Kean University) 15

Statements of Activities (Kean University Foundation, Inc.) 16

Statements of Cash Flows (Kean University) 17

Statements of Cash Flows (Kean University Foundation, Inc.) 18

Notes to Basic Financial Statements 19-40

Supplementary Information:

Schedule of Expenditures of Federal Awards 41

Schedule of Expenditures of State of New Jersey Awards 42

Notes to Schedules of Expenditures of Federal and State of New Jersey Awards 43-44

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 45-46

Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 and New Jersey OMB Circular 04-04 47-48

Schedule of Findings and Questioned Costs 49-51

Summary Schedule of Prior Year Audit Findings 52

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Also discussed in Note 18 to the financial statements, certain errors related to amounts owed to the University by the Foundation resulted in an understatement of net assets as of June 30, 2008. Accordingly, the 2008 basic financial statements have been restated to correct the error. In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2009 on our consideration of Kean University’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 the 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. Management’s Discussion and Analysis on pages 3 through 12 is not a required part of the basic financial statements but is supplementary information required by The Governmental Accounting Standards Board. 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. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying schedules of expenditures of Federal Awards and State of New Jersey Awards are presented for purposes of additional analysis as required by OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and New Jersey Office of Management and Budget OMB Circular 04-04, Single Audit Policy for Recipients of Federal Grants/State Grants and State Aid are 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.

WISS & COMPANY, LLP Iselin, New Jersey December 17, 2009


MANAGEMENT’S DISCUSSION AND ANALYSIS

(Required Supplementary Information)

YEAR ENDED JUNE 30, 2009 and 2008 (Unaudited)

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Overview of Basic Financial Statements and Financial Analysis This section of the audited financial statements for Kean University of New Jersey (the “University”) presents management’s discussion and analysis of the University’s financial position for the years ended June 30, 2009 and June 30, 2008. It is an overview of the University’s financial activities and should be read in conjunction with the financial statements and notes, which follow this section. Management has prepared the financial statements and the related note disclosures, along with this discussion and analysis. Responsibility for the completeness and fairness of this information rests with management. All dollar amounts referred to in this Management’s Discussion and Analysis are expressed in thousands. University Overview Kean University of New Jersey, one of twelve public institutions in the New Jersey system of public higher education, offers programs in the liberal arts and sciences as well as in business and other professional studies within a liberal context at both the bachelor’s and master’s level. Organized into schools, which provide thematic learning communities, the University presents a curriculum of traditional majors and innovative programs in an interdisciplinary fashion. Supported by global partnerships and telecommunications, international and intercultural educations have become central themes in Kean’s programming. The University purposely involves students in the cultural diversity of the world and of American society. Financial Statements The University’s financial statements include the following: the Statements of Net Assets, Statements of Revenues, Expenses, and Changes in Net Assets and the Statements of Cash Flows. These financial statements are prepared in accordance with Governmental Accounting Standards Board (“GASB”) principles and accounting principles generally accepted in the United States of America. The University adopted GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, as of July 1, 2003. GASB Statement No. 39 establishes criteria for determining whether certain organizations should be reported as component units of the financial reporting entity. Kean University Foundation, Inc. (the “Foundation”) is a legally separate component unit of Kean University and is exempt from tax under the Internal Revenue Code Section 501(c)(3). The Foundation’s purpose is to obtain private funding to enhance the educational goals of Kean University. Because the resources of the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University’s financial statements. Complete financial statements can be obtained from the Kean University Foundation, Inc. at 1000 Morris Avenue, T-130, Union, NJ 07083 and/or from the Foundation’s website at www.keanfoundation.org.





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Statement of Net Assets Net assets represent the residual interest in the University’s assets after liabilities are deducted. Net assets consist of three categories: invested in capital assets (net of related debt), restricted and unrestricted. Net assets invested in capital assets reflect the equity in capital assets. Restricted net assets primarily include grants and contracts and capital funds that are subject to regulations or restrictions governing their use. Unrestricted net assets are available to the University for general purposes, but are internally designated for various academic and student programs. The following represents the assets, liabilities and net assets of the University at June 30, 2009, 2008 and 2007:

2009 2008 * 2007

Current assets 99,223$ 95,684$ 178,048$ Capital assets, net 335,948 228,643 204,572 Other noncurrent assets 103,256 193,967 119,135

Total Assets 538,427 518,294 501,755

Current liabilities 53,884 35,399 26,388 Noncurrent liabilities 329,575 333,521 335,276

Total Liabilities 383,459 368,920 361,664

Net assets:Invested in capital assets, net of related debt 68,067 85,693 75,226 Restricted 41,409 27,273 12,914 Unrestricted 45,492 36,408 51,951

Total Net Assets 154,968$ 149,374$ 140,091$ * Restated - see Note # 18

Net Assets(in thousands)

June 30,

Kean University’s net assets increased approximately $5.6 million during fiscal 2009, as operating revenues of $143.8 million, plus non-operating revenues of $56.6 million, exceeded operating expenses of $194.8 million. State appropriations and State payment of fringe benefits totaling $65.1 million more than offset the year’s operating loss of $50.9 million and net interest expense of $9.1 million. The decrease in net assets invested in capital net of related debt is due primarily to the increase in new debt issued for the refunding exceeding the debt refunded in order to finance the bond issuance costs and interest rate swap termination fees. Restricted net assets increased due to reserves for refinancing-related





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payments made after June 30, 2009. The increase in net assets in the 2008 fiscal year of $9.3 million was primarily due to non-operating revenues from State appropriations and State payment of fringe benefits more than offsetting the year’s operating loss and net interest expense. Current assets consist primarily of cash and equivalents, deposits held by trustees under bond agreements for capital activities and accounts receivable. Noncurrent assets consist primarily of long-term deposits held by trustees and capital assets. Current liabilities consist primarily of accounts payable, accrued expenses and deferred revenue. Noncurrent liabilities consist primarily of long-term debt. Graphically displayed are net assets by category for the years ended June 30, 2009, June 30, 2008 and June 30, 2007:

NET ASSETS

-10,00020,00030,00040,00050,00060,00070,00080,00090,000

FY 2009 FY 2008 FY 2007

Invested in CapitalAssetsRestricted

Unrestricted

Statements of Revenues and Expenses and Changes in Net Assets The statements of revenues, expenses and changes in net assets present the University’s changes in net assets. The purpose of the statement is to present the revenues earned by Kean University, both operating and non-operating and expenses incurred by Kean University, both operating and non-operating. A summary of the University’s revenues for the years ended June 30, 2009, June 30, 2008 and June 30, 2007 follows:





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2009 2008 2007

Operating revenues:Student revenues, net 104,117$ 97,461$ 86,663$ Grants and contracts 30,409 26,563 27,271 Other 9,309 3,843 3,223

Total Operating Revenues 143,835 127,867 117,157

Non-operating revenues:State appropriation/paid fringe benefits 65,087 66,685 59,963 Private gift, investment income and other (8,512) (2,396) 1,209

Total Non-operating Revenues 56,575 64,289 61,172

Total Revenues 200,410$ 192,156$ 178,329$

Year Ended June 30,

Total Revenues

Kean University earns revenues from a variety of sources. These sources include: student tuition and fees, State appropriations and payment of fringe benefits, housing rentals, gifts, grants and contracts and investment income. Operating revenues are defined as revenues earned in exchange for providing goods and services. Non-operating revenues are defined as revenues received for which no exchange of goods or services is provided. The following chart provides a graphical breakdown of total revenues by category for the fiscal years ended June 30, 2009, June 30, 2008 and June 30, 2007:

TOTAL REVENUE

(20,000)-

20,00040,00060,00080,000

100,000120,000140,000160,000

FY 2009 FY 2008 FY 2007

Operating

StateAppropriationsInvestment andOther





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Operating Revenues Operating revenues are recognized by Kean University for providing goods and services directly to its customers (students). Operating revenue increased $16.0 million in fiscal 2009 versus fiscal 2008. The primary increase in operating revenues for 2009 was due to an increase in student tuition and fees of approximately $10.8 million over the year ended June 30, 2008. Increased enrollment (602 FTE’s) and a 7.9% tuition rate increase combined to produce the additional tuition revenue in 2009. Other operating revenue increased $5.5 million year-to-year, primarily due to $5.0 million earned in fiscal 2009 from the provision of rights to use University facilities to the Union County Vocational-Technical School District. Following is a breakdown of operating revenue by category for the years ended June 30, 2009, June 30, 2008 and June 30, 2007:

OPERATING REVENUES

-10,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000110,000

FY 2009 FY 2008 FY 2007

Student Revenues

Grants andContracts

Other

Non-Operating Revenues Non-operating revenues are revenues earned for which no goods or services have been provided. The primary non-operating revenues earned by the University are State appropriations and State payment of fringe benefits (on-behalf) which totaled $65.1 million and $66.7 million in 2009 and 2008, respectively. This decrease, combined with decreased investment income of $4.5 million and increased interest expense of $1.6 million resulted in a decrease in non-operating revenues of $7.7 million in fiscal 2009 versus fiscal 2008. Operating Expenses Operating expenses are those incurred to acquire or produce goods and services in return for operating revenues, and to carry out the mission. Non-operating expenses are those for which Kean University does not receive goods or services in return.





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For the year ended June 30, 2009, operating expenses increased by approximately $11.9 million. The primary reasons were due to increases in instructional expenses of $3.3 million, operation and maintenance of plant expenses of $4.8 million, scholarships and fellowships of $0.9 million and auxiliary enterprises of $2.0 million. The increase in instructional expenses was primarily due to salary and benefit increases, while the increase in operation and maintenance of plant expenses resulted from salary increases as well as increased costs for improvements to buildings and grounds and snow removal. Scholarships and fellowships rose due to increased need for financial aid arising from higher enrollment. Expenses related to auxiliary enterprises rose due to increased improvements and repairs to dormitories.

2009 2008 * 2007

Operating expenses:Instruction 82,350$ 79,025$ 74,691$ Public service 2,377 2,509 2,605 Academic support 5,015 4,732 4,389 Student services 15,853 15,665 15,072 Operation and maintenance of plant 33,495 28,718 23,962 Institutional support 32,241 32,179 30,244 Scholarships and fellowships 4,847 3,980 3,332 Research 1,054 818 700 Auxiliary enterprises 10,352 8,337 8,043 Depreciation and amortization expenses 7,232 6,910 6,139

Total Operating Expenses 194,816$ 182,873$ 169,177$ * - Restated - see Note # 18

Total Operating Expenses(in thousands)

Year Ended June 30,

The following chart provides a graphical breakdown of operating expenses by category for the fiscal years ended June 30, 2009, June 30, 2008 and June 30, 2007:





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OPERATING EXPENSES

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

FY 2009 FY 2008 FY 2007

InstructionPublic ServiceAcademic SupportStudent ServicesPlant OperationsInstitutional SupportScholarshipsResearchAuxiliaryDepreciation

Capital Assets and Debt Administration Capital Assets Capital assets, net of accumulated depreciation, increased approximately $107.3 million primarily due to new capital construction-in-progress. The University had approximately $335.9 million invested in capital assets, net of accumulated depreciation of $82.8 million at June 30, 2009 as compared to approximately $228.6 million net of accumulated depreciation of $75.5 million at June 30, 2008. Depreciation charges totaled $7.2 and $6.7 million for the years ended June 30, 2009 and 2008. Details of these assets, net of accumulated depreciation, are as follows (in thousands):





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2009 2008 2007

Construction-in-progress 161,790$ 50,923$ 34,623$

Land 9,123 9,123 9,123 Land improvements 14,886 14,655 9,042 Buildings and improvements 136,324 140,808 139,597 Equipment 5,621 4,672 3,466 Infrastructure 8,204 8,462 8,721

174,158 177,720 169,949

335,948$ 228,643$ 204,572$

June 30,

Major capital additions during the 2009 fiscal year included:

New Residence Halls 65,459$ Center for Science, Technology & Mathematics Education 28,122 East Campus Renovation 9,681 Nancy Thompson Library Human Rights Addition 7,199

Total 110,461$ See Note 3 to the financial statements for more information relating to the capital assets of the University.





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Debt The University has $331.4 and $332.9 million in outstanding debt for the years ended June 30, 2009 and 2008, respectively. The outstanding debt is summarized below by type of debt instrument.

2009 2008 2007

EFA Bonds 341,770$ 319,675$ 320,525$ Lease obligations 6,131 6,723 7,332 Notes payable 749 856 963 Unamortized premium (discount) 2,756 7,736 7,968 Deferred loss on refinancing of debt (20,016) (2,109) (2,182)

331,390$ 332,881$ 334,606$

Outstanding Debt, at Year-End

June 30,

The increase in EFA Bonds for the year ended June 30, 2009 was due to the issuance of Revenue Refunding Bonds during the year by the University. See Note 4 to the financial statements for more information relating to the University’s debt. Summary and Outlook Although operating expenses plus interest at Kean University increased from $124.7 million in FY 2002 to $205 million in FY 2009 (7.3% CAGR), State Aid revenue (appropriations and revenue) only increased from $53.1 million in FY 2002 to $65.1 million in FY2009 (3.0% CAGR). It is anticipated that State Aid appropriations in future years will continue to remain relatively flat. In its effort to limit tuition increases and offset the gap created by the relatively flat State Aid revenues, the University will continue its effort to pursue alternate funding sources from outside contributors and other gifts and grants. The number of students enrolled in the University’s undergraduate and graduate programs continues to rise and the demand for on-campus housing continues to increase. In response to increasing enrollment, the University is expanding and improving its capital facilities. Construction has been completed on two new undergraduate residence halls which will provide housing for an additional 848 students beginning with the Fall 2009 semester. The renovation of the East Campus is essentially complete with the opening of the Eugene and Shelley Enlow Recital Hall in October, 2009.





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Construction of the 105,000 square-foot, six-story New Jersey Center for Science, Technology and Mathematics Education continues with occupancy scheduled for Spring 2010. The 12,000 square-foot expansion of the Nancy Thompson Library housing the new Human Rights Institute opens this Fall. The University is party to two ventures that expand outside the main campus. In Spring 2006, the University entered into an agreement establishing a partnership between Kean University and Wenzhou University in China. While the Kean University administration and Chinese officials pursue the establishment of the first US campus in China, Kean has entered into a number of partnerships with various Chinese universities (and some high schools) in Zhejiang Province. For example, in Fall 2008, Kean welcomed its first cohort of students from Wenzhou University, as part of a “two-plus-two program,” where the students complete their degrees at Kean as majors in Management Science, with an International Business option. The University also entered into a partnership with Ocean County College in Fall 2005, where students may take the courses needed to complete the requirements for certain Kean University undergraduate and graduate degree programs on the Ocean County campus. Enrollment at Ocean County has grown steadily to over 1,200 students (over 600 FTE’s) for Fall 2009. To meet the needs of this growing population, planning has commenced for the new Gateway Building to be jointly built and shared with our OCC partners. See Note 17 to the financial statements for more information concerning this planned construction. Requests for Information This financial report is designed to provide a general overview of Kean University’s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Dennis Oblack, 1000 Morris Avenue, Union, New Jersey 07083.


NOTES TO FINANCIAL STATEMENTS

(See auditor’s report) (dollars in thousands)

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Note 1 - Nature of the Organization and Summary of Significant Accounting Policies: Nature of the Organization - Nature of the Organization - Kean University (the “University”), a multi-purpose institution of higher education, offers graduate and undergraduate programs that are administered through the University’s six (6) colleges: the Nathan Weiss Graduate College, College of Education, College of Business and Public Administration, College of Natural, Applied, and Health Sciences, College of Humanities and Social Sciences, and the College of Visual and Performing Arts. The University is recognized as a public institution of higher education by the State of New Jersey (the “State”). This recognition is supported by an annual appropriation between the University and the State whereby the University agrees to render services of public higher education for the State. In 1986, State College Autonomy legislation was enacted, which granted certain fiscal and financial responsibility to the University Board of Trustees. In 1994, the Higher Education Restructuring Act further expanded the role of the Board of Trustees. However, under Governmental Accounting Standards Board (“GASB”) Statement No. 14, “The Financial Reporting Entity,” the University is considered a component unit of the State of New Jersey for financial reporting purposes. Accordingly, the University’s financial statements are included in the State of New Jersey’s Comprehensive Annual Financial Report. Kean University Foundation, Inc. (the “Foundation”) is a legally separate component unit of Kean University, exempt from tax under the Internal Revenue Code Section 501(c)(3). The Foundation’s purpose is to obtain private funding to enhance the educational goals of Kean University. Because the resources of the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University’s financial statements. During the years ended June 30, 2009 and 2008, the Foundation distributed $1,119 and $979 to the University for unrestricted and restricted purposes. Complete financial statements can be obtained from the Kean University Foundation, Inc. at 1000 Morris Avenue, T-130, Union, NJ 07083-01 or from the Foundation’s website at www.keanfoundation.org. The significant accounting policies employed by the University are described below: Basis of Presentation - The accounting policies of the University conform to accounting principles generally accepted in the United States of America as applicable to colleges and universities and the accounts are maintained on the accrual basis of accounting. The University reports are based on all applicable Governmental Accounting Standards Board (“GASB”) pronouncements as well as applicable Financial Accounting Standards Board (“FASB”) Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Review Boards of the Committee on Accounting Procedures issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The University has not elected to apply FASB Statements and Interpretations issued after November 30, 1989.




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The University adopted GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, as of July 1, 2003. GASB Statement No. 39 establishes criteria for determining whether certain organizations should be reported as component units of the financial reporting entity. Kean University Foundation, Inc. is a private not-for-profit organization that reports under Financial Accounting Board Standards, including FASB 117, Financial Reporting for Not-for-Profit Organizations and FASB 116, Contributions Received and Contributions Made. These standards provide for certain revenue recognition and presentation features which may be different from GASB criteria. No modifications have been made to the Foundation’s financial information as discretely presented in these statements.

Net Assets - GASB Statement No. 35 establishes the standards for external financial reporting for public colleges and universities. The University classifies its resources into three net asset categories in accordance with the provisions of this Statement.

• Invested in Capital Assets, Net of Related Debt: Capital assets, net of accumulated depreciation, and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets.

• Restricted:

Nonexpendable - Net assets subject to externally imposed stipulations that they be maintained permanently by the University. Expendable - Net assets whose use by the University is subject to externally imposed stipulations that can be fulfilled by actions of the University pursuant to the stipulations or that expire by the passage of time.

• Unrestricted: Net assets that are not subject to externally imposed stipulations. They may

be designated by specific purposes, by action of management to the Board of Trustees or may otherwise be limited by contractual agreements with outside parties.

Measurement Focus and Basis of Accounting - The financial statements of the University have been prepared on the accrual basis of accounting using the economic resources measurement focus, in accordance with the Governmental Accounting Standards Board. The University reports its financial statements as a business type activity, as defined by GASB Statement No. 34. Business type activities are those that are financed in whole or in part by fees charged to external parties for goods or services. Estimates and Uncertainties - The preparation of 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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results, as determined at a later date, could differ from those estimates.




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Cash and Equivalents - Cash and equivalents consist of cash and highly liquid investments with maturities of three months or less when purchased. The University invests a certain portion of its cash in the State of New Jersey Cash Management Fund. This is an interest-bearing account from which funds are available upon demand. Deposits Held by Trustees - Deposits held by trustees are recorded in the financial statements at fair value, which is based on quoted market price and consist of cash and equivalents and U.S. Treasury securities. Capital Assets - Capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. Construction-in-progress is recorded as expenses are incurred during construction. Donated capital assets are recorded at estimated fair market value at the date of donation. Capital assets of the University are depreciated using the straight-line method over the following useful lives:

Useful Lives

Land improvements 15Buildings and improvements 40Equipment 5-7Infrastructure 40

Deferred Financing Costs - Deferred financing costs are capitalized and amortized over the life of the related long-term debt. Deferred Revenue - Deferred revenue consists primarily of amounts received from grants, which have not yet been earned under the terms of the agreement. Deferred revenue also includes student tuition and fees collected in advance of the applicable academic term. Student Tuition and Fees - Student tuition and fees are presented net of scholarships applied to student accounts, while other payments made directly to students are presented as scholarships expenses, and are recognized in the period earned. Student tuition and fees collected in advance of the academic year are recorded as deferred revenue in the accompanying financial statements. Grants and Contracts - Federal, State and local grants and contracts revenue is comprised mainly of grant revenues received from the Federal Government and State of New Jersey and are recognized as the related expenses are incurred. Amounts received from grants, which have not yet been earned under the terms of the agreement, are recorded as deferred revenue in the accompanying statement of net assets. State Appropriation - Revenues from State appropriations is recognized in the fiscal year during which the State of New Jersey appropriates the funds to the University.




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Financial Dependency - One of the University’s largest sources of revenue is appropriations from the State of New Jersey. The University is economically dependent on these appropriations to carry on its operations.

Classification of Operating Revenues and Expenses - The University’s policy for defining operating activities in the statement of revenues, expenses, and changes in net assets are those that serve the University’s principal purpose and generally result from exchange transactions such as payments received for services and payments made for the purchase of goods and services. Examples include (1) student tuition and fees, net of scholarship allowances, (2) sales and services of auxiliary enterprises and (3) most Federal, State and local grants and contracts. Operating expenses include administrative and educational costs, as well as depreciation and amortization. All revenues and expenses not meeting this definition including formula-based state aid are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the University’s policy to use restricted resources first, then unrestricted resources as they are needed. Income Taxes - The University and Foundation are exempt from Federal income taxes under Internal Revenue Code Section 115. Reclassifications - Certain 2008 amounts have been reclassified to conform to the 2009 presentation. Note 2 - Cash and Equivalents, Investments and Deposits held by Trustees: Statutes of the State of New Jersey and regulations of the State Investment Council authorize the New Jersey Division of Investments to invest in obligations of the U.S. Treasury agencies, and other municipal or political subdivisions of the State; commercial paper; bankers acceptances; revenue obligations of public authorities; debt instruments of banks; collateralized notes and mortgages; certificates of deposit; repurchase agreements; equity and convertible equity securities; and other common types of investment securities. Investee institutions and organizations are prescribed by the statutes and regulations based on such things as minimum capital, dividend paying history, credit history and other evaluation factors.

As of June 30, 2009 and 2008, the University’s carrying amount of deposits was $64,098 and $68,399, respectively, and the bank balance was $65,011 and $72,986, respectively. Of the bank balance as of June 30, 2009 and 2008, $750 and $300 of the University’s deposits were secured by federal depository insurance, respectively.

GASB Statement No. 40 requires that the University disclose whether its deposits are exposed to custodial credit risk (risk that in the event of failure of the counterparty, the University would not be able to recover the value of its deposit or investment). Deposits are considered to be exposed to custodial credit risk if they are: uncollateralized (securities are not pledged to the depositor), collateralized with the securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution’s trust department or agent but not in the name of the University. Deposits in excess of FDIC insurance are uncollateralized at June 30, 2009 and 2008.

The University does not have a policy for the management of custodial credit risk.




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Cash and equivalents are as follows:

Total Total Total TotalBank Carrying Bank Carrying

Balance Balance Balance Balance

Cash and equivalents 65,011$ 64,098$ 72,986$ 68,399$

2009 2008

The deposits held by bond trustees under bond indenture agreements are maintained for the

following:

2009 2008

Construction fund 93,754$ 179,012$ Debt service fund for principal and interest 4,755 10,852 Debt service reserve fund 6,477 6,748 Renewal and replacement fund 704 1,110 Rental pledge fund 510 281 Cost of issuance account 16,821 197 Rebate fund 200 - Revenue fund - 8

123,221 198,208 Less: Current portion 24,849 8,912

Non-current deposits held by Trustees 98,372$ 189,296$

June 30,




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Deposits held by Trustees are recorded in the financial statements at fair value, as determined by quoted market prices, and consist of the following:

Cost Fair Value Cost Fair Value

Cash and equivalents -Cash and cash equivalents 24,849$ 24,849$ 8,912$ 8,912$

Investments -U.S. Treasury notes and governmentssecurities 98,211 98,372 188,831 189,296

123,060$ 123,221$ 197,743$ 198,208$

2009 2008June 30,

The University’s investment securities are exposed to custodial credit risk if the securities are uninsured, are not registered in the name of the University, and are held by either the counterparty or the counterparty’s trust department or agent but not in the University’s name. As of June 30, 2009 and 2008, the University’s deposits held with bond trustees are invested in money market accounts or U.S. Treasury notes or government securities guaranteed by the U.S. government. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As of June 30, 2009 and 2008, no investments had maturities greater than one year.

Investments of the discretely presented Foundation are stated at fair value and consist of the following:

2009 2008

Mutual Funds 6,044$ 9,382$ International Funds - 1,362 Fixed Income Securities 1,801 - Equities 1,973 - Charitable Gift Annuities 1,054 930

Investments carried at fair value 10,872 11,674

Limited partnership interests 2,459 562 Investments carried at the lower of cost or fair value 2,459 562

Total investments 13,331$ 12,236$

June 30,




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For additional information regarding the investments of the discretely presented Foundation, please refer to the separately issued Foundation report.

Custodial Credit Risk - Custodial credit risk is the risk that in the event of a bank failure, the University’s deposits may not be returned to it. The University does not have a deposit policy for custodial credit risk. The University participates in the State of New Jersey Cash Management Fund (“NJCMF”) wherein amounts also contributed by other State entities are combined into a large-scale investment program. The NJCMF is administered by the State of New Jersey, Department of the Treasury. It invests pooled monies from various State and non-State agencies in primarily short-term investments. These investments include: U.S. Treasuries, short-term Commercial Paper, U.S. Agency Bonds, Corporate Bonds, and Certificates of Deposit. Agencies that participate in the NJCMF typically earn returns that mirror short-term investments rates. Monies can be freely added or withdrawn from the NJCMF on a daily basis without penalty. The carrying amount of cash and equivalents in the State of New Jersey Cash Management Fund as of June 30, 2009 and 2008 was $29,708 and $11,133, respectively, which represented the amount on deposit with the Fund.

In addition, the University invests in an external investment pool called MBIA CLASS. The pool invests in obligations permissible for public entities under the Statutes of New Jersey. MBIA CLASS invests pooled money from local government agencies with other units of government into short-term investments with daily liquidity and the fair value of the position in the pool is the same as its value of the pool shares. These investments include: U.S. Treasuries, short-term Commercial Paper, U.S. Agency Bonds, Corporate Bonds, and Certificates of Deposit. Agencies that participate in MBIA CLASS typically earn returns that mirror short-term investment rates. Monies can be freely added or withdrawn from the MBIA CLASS on a daily basis without penalty. The carrying amount of cash and equivalents in MBIA CLASS as of June 30, 2009 and 2008 was $354 and $389, respectively. The amount of cash and equivalents is equal to the amount on deposit with the pool.

The University also invests in U.S. Treasury Bills with maturities of 13 weeks or less. The

carrying amount of these investments as of June 30, 2009 and 2008 was $11,795 and $0, respectively. Lastly, assets held by the Trustee are carried in the financial statements at fair value, and consist of cash and equivalents and U.S. Government obligations.

Pursuant to GASB 40, New Jersey Cash Management Fund and MBIA CLASS, which are pooled investments, as well as, U.S. Government obligations are exempt from custodial credit risk exposure disclosure. Interest Rate Risk - Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. The University does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The average maturity of the University’s investments, the NJCMF and MBIA CLASS, are less than one year.




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Credit Risk - The University does not have an investment policy regarding the management of credit risk. GASB 40 requires that disclosure be made as to the credit rating of all debt security investments except for obligations of U.S. government investments guaranteed by the U.S. government. The New Jersey Cash Management Fund and MBIA CLASS are not rated by a rating agency. Concentration of Credit Risk - This is the risk associated with the amount of investments the University has with any one issuer. Assets held under bond indenture agreements represent assets held by bond trustees under the terms of various bond and other long-term debt agreements. Assets held under bond indenture agreements are carried in the financial statements at fair value, and consist of cash and equivalents and U.S. Government obligations. Note 3 - Capital Assets: The University’s principal capital assets are in buildings, which are owned by the State of New Jersey and are dedicated for use to the University. Although legal title rests with the State of New Jersey, the University has been given, through legislation, exclusive use of the buildings and has included the cost of capital assets in the accompanying statement of net assets. For the years ended June 30, 2009 and 2008, capital assets and accumulated depreciation activity was as follows:




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AssetsPlaced

Beginning Into Endof Year Additions Retirements Service of Year

Nondepreciable assets:Construction-in-progress 50,923$ 113,087$ -$ (2,220)$ 161,790$ Land 9,123 - - - 9,123

60,046 113,087 - (2,220) 170,913

Depreciable assets:Land improvements 24,015 239 - 1,492 25,746 Buildings and improvements 198,614 23 - 19 198,656 Equipment 11,173 1,188 - 709 13,070 Infrastructure 10,330 - - - 10,330

244,132 1,450 - 2,220 247,802

Less: Accumulated depreciation:Land improvements 9,360 1,500 - - 10,860 Buildings and improvements 57,806 4,526 - - 62,332 Equipment 6,501 948 - - 7,449 Infrastructure 1,868 258 - - 2,126

75,535 7,232 - - 82,767

Capital assets, net 228,643$ 107,305$ -$ -$ 335,948$

June 30, 2009




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AssetsPlaced

Beginning Into Endof Year Additions Retirements Service of Year

Nondepreciable assets:Construction-in-progress 34,623$ 21,763$ -$ (5,463)$ 50,923$ Land 9,123 - - - 9,123

43,746 21,763 - (5,463) 60,046

Depreciable assets:Land improvements 17,184 6,611 - 220 24,015 Buildings and improvements 192,926 445 - 5,243 198,614 Equipment 9,224 1,949 - - 11,173 Infrastructure 10,330 - - - 10,330

229,664 9,005 - 5,463 244,132

Less: Accumulated depreciation:Land improvements 8,142 1,218 - - 9,360 Buildings and improvements 53,329 4,477 - - 57,806 Equipment 5,758 743 - - 6,501 Infrastructure 1,609 259 - - 1,868

68,838 6,697 - - 75,535

Capital assets, net 204,572$ 24,071$ -$ -$ 228,643$

June 30, 2008

Depreciation expense for the years ended June 30, 2009 and 2008 was $7,232 and $6,697, respectively. During 2009 and 2008, net interest expense costs of $4,371 and $(6,217) were capitalized and included in construction-in-progress. Commitments outstanding on construction projects amounted to approximately $26,104 and $132,233 as of June 30, 2009 and 2008, respectively.




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Note 4 - Long-Term Debt: The Board of Trustees of the University, the New Jersey Board of Higher Education and the New Jersey Educational Facilities Authority (the “Authority”) have entered into various agreements whereby the University is given use of buildings, improvements and equipment and the University agrees to make lease payments equal to the related debt and interest payments of the underlying revenue bonds issued by the Authority.

On April 1, 2007, the Authority issued $156,240 of revenue refunding bonds (Series 2007 E) on behalf of the University. The proceeds of the bonds, together with other available funds, were used to finance (1) the costs of advance refunding and defeasing the Authority’s outstanding revenue bonds, Kean University Issues: Series 1998 A, Series 2001 A, Series 2003 D (partial refunding), and Series 2005 B (partial refunding), and (2) the payment of the costs of issuing the bonds. As of June 30, 2009, $137,545 of defeased bonds remains outstanding. On June 24, 2009, the Authority issued $179,380 of revenue refunding bonds (Series 2009 A) on behalf of the University. The proceeds of the bonds were used to (1) currently refund all of the Authority’s outstanding Revenue Refunding Bonds, Kean University Issue, Series 2007 E issued as auction rate securities and consisting of (i) $78,115 aggregate principal amount of Revenue Refunding Bonds, Kean University Issue, Sub-Series 2007 E-1 and (ii) $78,125 aggregate principal amount of Revenue Refunding Bonds, Kean University Issue, Sub-Series 2007 E-2, and (2) pay the costs of issuance of the Series 2009 A Bonds, including certain termination fees relating to the interest rate swap agreement entered into in connection with the issuance of the Series 2007 E Bonds. The refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $20,031. This difference, reported in the accompanying financial statements as a deduction from bonds payable, is being charged to operations through 2036. The following represents the components and changes in bonds payable for the years ended June 30, 2009 and 2008:

Amount DueBeginning End Within One

of Year Additions Reductions of Year Year

Bonds payable - gross 327,254$ 179,380$ (157,984)$ 348,650$ 4,094$

Unamortized premium 7,990 - (262) 7,728

Unamortized discount (254) (4,751) 33 (4,972)

Deferred loss on refundings (2,109) (20,031) 2,124 (20,016)

Total Bonds Payable - Net 332,881$ 154,598$ (156,089)$ 331,390$

June 30, 2009




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Amount DueBeginning End Within One

of Year Additions Reductions of Year Year

Bonds payable - gross 328,820$ -$ (1,566)$ 327,254$ 1,598$

Unamortized premium 8,253 - (263) 7,990

Unamortized discount (285) 31 (254)

Deferred loss on refundings (2,182) - 73 (2,109)

Total Bonds Payable - Net 334,606$ -$ (1,725)$ 332,881$

June 30, 2008




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The following principal payments due were outstanding at June 30, 2009 and 2008:

Interest Rates 2009 2008New Jersey Educational Facility

Authority Revenue Bonds:Series 1974 B, due serially to 2008 6.00%-7.50% -$ 515$ Series 1998 B, due serially to 2021 3.90%-5.00% 7,065 7,450 Series 2003 D, due serially to 2033 3.30%-5.25% 13,290 13,290 Series 2005 B, due serially to 2037 4.00%-5.00% 24,240 24,385 Series 2007 D, due serially to 2039 4.00%-5.00% 117,795 117,795 Series 2007 E, due serially to 2037 various - 156,240 Series 2009 A, due 2013 to 2037 3.24% - 5.73% 179,380 -

341,770 319,675 Other debt:

Higher Education Capital Improvement FundSeries 2000 B, due serially to 2020 4.50%-5.70% 5,253 5,561

Higher Education Equipment Leasing Fund Series 2001 A, due serially to 2009 3.50%-5.00% 124 242

Higher Education Equipment Leasing Fund Series 2003 A, due serially to 2010 3.00%-4.46% 13 19

Higher Education Dormitory Safety Trust Fund Series 2001 A, due serially to 2016 4.50% 749 856

Higher Education Capital Improvement Fund Series 2004 A, due serially to 2024 5.00%-5.25% 170 177

Master Equipment Lease2007, due serially to 2014 4.064% 571 724

6,880 7,579

Total principal 348,650 327,254

Additional amounts representing: Net premiums/discounts 2,756 7,736 Deferred loss on refinancing (20,016) (2,109)

(17,260) 5,627

Total long-term debt 331,390 332,881 Less: Non-current portion 327,296 331,283

Long-term debt - current portion 4,094$ 1,598$

June 30,




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Payments due on long-term debt, including mandatory sinking fund payments on the Authority and Higher Education revenue bonds, for the next five years and thereafter are as follows as of June 30, 2009:

Year Ending June 30, Principal Interest

20 10 4,094$ 14 ,606$ 20 11 5,033 17 ,433 20 12 7,020 17 ,234 20 13 7,549 16 ,936 20 14 8,211 16 ,587 20 15-201 9 4 7,066 76 ,721 20 20-202 4 5 6,129 64 ,368 20 25-202 9 6 9,185 49 ,222 20 30-203 4 8 4,045 29 ,092 20 35-203 9 6 0,318 7 ,870

To tal 34 8,650$ 310 ,069$

Interest Rate Swaps and Associated Bonds In connection with the issuance of the Series 2007 E Bonds, the Authority, on behalf of the University, entered into an interest rate swap agreement with Citibank, N.A., New York (“Swap Provider”) with respect to the Sub-Series E-1 Bonds and the Sub-Series E-2 Bonds (collectively, the Prior Swap Agreement”) in the combined aggregate outstanding notational amount of $156,240. The University did not have any associated costs to enter into these interest rate swap agreements. As of June 30, 2008, the combined fair value of the two interest rate swaps was a negative $6,641 indicating the amount that the University would be required to pay the counterparty to terminate the swap agreements. The University was not exposed to credit risk because the swap had a negative fair value. As of June 30, 2008, the counterparty, Citibank, N.A., New York, was rated by Moody’s and S&P as Aa1 and AA, respectively. The swap exposes the University to basic risk should the relationship between BBA and/or LIBOR and the variable rates converge, changing the synthetic rate on the bonds. If a change occurs that results in the rates moving to convergence, the expected cost savings may not be realized. The Prior Swap Agreement was terminated in connection with the issuance of the Series 2009 A Bonds and the refunding of the Series 2007 E Bonds. Upon termination, the Authority was obligated to make a payment to the Swap Provider. Pursuant to the terms of the lease and agreement executed by the University in connection with the issuance of the Series 2007 E Bonds, the University was responsible for the payment of all amounts payable by the Authority in respect of the Prior Swap Agreement, including Swap Termination Payments with respect thereto. As of June 30, 2009, the University had accrued a $15,000 liability for this payment, which is included in accounts payable and accrued expenses in accompanying statement of net assets. This obligation was subsequently fully discharged on July 1, 2009.




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The objective of each swap was to lower borrowing costs by synthetically fixing interest rates on the Series 2007 E Bonds. Through regression analyses of the changes in fair value, as allowed under GASB No. 53, each swap has been determined to be an effective hedge against interest rate risk. Accordingly, the Swap Termination Payment has been included in the calculation of the deferred amount of the refunding in the accompanying statement of net assets, and is being amortized over the life of the new Series 2009 A Bonds. Note 5 - Accounts Payable and Accrued Expenses: Accounts payable and accrued expenses were as follows:

2009 2008

Salaries and fringe benefits 92$ 97$ Accounts payable - construction related 14,156 8,456 Accounts payable - other 22,384 5,322

Total 36,632$ 13,875$

June 30,

Note 6 - Other Non-current Liabilities: Activity in other non-current liabilities was as follows:

June 30, June 30, Current2008 Additions Reductions 2009 Portion

Compensated absences 3,822$ 204$ 187$ 3,839$ 2,568$ U.S. Government

grants refundable 1,008 - - 1,008 -

4,644$ 204$ 187$ 4,847$ 2,568$ Activity in other non-current liabilities was as follows:

June 30, June 30, Current2007 Additions Reductions 2008 Portion

Compensated absences 3,636$ 412$ 226$ 3,822$ 2,592$ U.S. Government

grants refundable 1,008 - - 1,008 -

4,644$ 412$ 226$ 4,830$ 2,592$




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Note 7 - Jobs, Education, and Competitiveness Bond Issue Project Reserve: The University is required to establish a Maintenance Reserve Fund in order to comply with contracts with the Commission of Higher Education for projects funded by the Job, Education and Competitiveness (JEC) Bond Act of 1988. The project contract requires a reserve fund equal to 10% of the project’s construction costs to be accumulated over a seven-year period. As of June 30, 2009, the University has met its requirement. The University has a project with JEC funding, as follows:

Reserve requirement 786$

FY 2009 allocation -$ FY 2008 allocation - FY 2007 allocation 197 FY 2006 allocation 169 FY 2005 allocation 140 FY 2004 allocation 112 FY 2003 allocation 84 FY 2002 allocation 56 FY 2001 allocation 28

Total allocation 786$

NewAcademicBuilding

Note 8 - Benefits Paid by the State of New Jersey: The State of New Jersey pays certain fringe benefits on behalf of University employees. It is the policy of the University to reflect such amounts, aggregating $26,016 and $24,150 in 2009 and 2008, respectively, in the financial statements as part of nonoperating revenues and as expenses, which are distributed to the various functional categories. Note 9 - Retirement Plans: The State of New Jersey funds post-retirement medical benefits for those State employees who retire after age 60 and accumulated 25 years of credited service by July 1, 1998. For those who attain 25 years of services credit in the retirement system on or after July 1, 1998, State payment of State health benefit costs in retirement will be based on the union contract that applies when the employee reaches 25 years of service credit in the retirement system, regardless of the retirement date. These expenses are not included in the University’s financial statements.




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In June 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45, Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This statement established standards of accounting and financial reporting for other postemployment benefits (OPEB) expense/expenditures and related OPEB liabilities or OPEB assets, note disclosures and required supplementary information (RSI) in the financial reports of state and local government employers. Since the State of New Jersey pays OPEB benefits on behalf of the University and the State is recording the OPEB liability on its financial statements, this GASB statement does not apply to the University. Plan Descriptions - All full-time employees of the University participate in a retirement program. The University has four retirement plans for its employees - Public Employees’ Retirement System (“PERS”), Police and Fireman’s Retirement System (“PFRS”), the Teacher’s Pension and Annuity Fund (“TPAF”), and the Alternate Benefit Program (“ABP”) which offers the Teachers Insurance and Annuity Association - University Retirement Equities Fund (“TIAA/CREF”), The Aetna Life Insurance and Annuity Company, Variable Annuity Life Insurance Company, Travel Insurance, Lincoln National Life Insurance Company and Metropolitan Life Insurance Company. PERS and PFRS are cost-sharing multiple-employer defined benefit pension plans administered by the State of New Jersey. PERS was established under the provisions of N.J.S.A. 43:15A to provide coverage, including post-retirement health care, to substantially all full-time employees of the State of New Jersey or public agency provided the employee is not a member of another State-administered retirement system. PFRS was established under the provisions of N.J.S.A. 43:16A to provide coverage to substantially all full-time county and municipal police or firemen and State of New Jersey firemen appointed after June 30, 1994. Certain faculty members of the University participate in the Teachers’ Pension and Annuity Fund (“TPAF”) which is a State of New Jersey cost-sharing, defined benefit plan. TPAF was established under the provisions of N.J.S.A. 18A:66 to provide coverage including post-retirement health care, to substantially all full-time public school employees in the State of New Jersey. The plans eligibility requirements are similar to PERS’ requirements. PERS replaced this plan for all new employees and members of TPAF were able to transfer to PERS. The State of New Jersey issues publicly available financial reports that include financial statements and required supplementary information for PERS, PFRS and TPAF. These reports may be obtained by writing to the State of New Jersey, Department of the Treasury, Division of Pension and Benefits, P.O. Box 295, Trenton, New Jersey 08625-0295. PERS Funding Policy - PERS members are required to contribute 5.5% of their annual covered salary for the years ended June 30, 2009 and 2008. The State of New Jersey, in accordance with State statutes, makes employer contributions on behalf of the University. The State of New Jersey contribution is based upon annual actuarially determined percentages of total compensation of all active members. The State of New Jersey’s annual contribution approximates the actuarially determined pension cost for the year. Employers were not required to contribute in 2009 and 2008 due to legislation enacted in 1997 by the State of New Jersey, which fully funded previously existing unfunded accrued liabilities of PERS through State of New Jersey bonds. The contribution requirements of the plan members and the University are established and may be amended by the State of New Jersey.

PFRS Funding Policy - PFRS members are required to contribute 8.5% of their annual covered salary for the years ended June 30, 2009 and 2008. The State of New Jersey, in accordance with State statutes, makes employer contributions on behalf of the University. The State of New Jersey contribution is based upon annual actuarially determined percentages of total compensation of all active members.




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The State of New Jersey’s annual contribution approximates the actuarially determined pension cost for the year. Employers were not required to contribute in 2009 and 2008 due to legislation enacted in 1997 by the State of New Jersey, which fully funded previously existing unfunded accrued liabilities of PFRS through State of New Jersey bonds. The contribution requirements of the plan members and the University are established and may be amended by the State of New Jersey. Alternate Benefits Program Information - The Alternate Benefits Program (“ABP”) is a defined contribution retirement program for eligible full time non-temporary appointed employees of the public institutions of higher education in New Jersey. Participation eligibility as well as contributory and noncontributory requirements are established by the State of New Jersey Retirement and Social Security Law and IRS Code. An employee is a vested member if he/she has an existing qualified retirement account from his/her previous employer. From that point on, all of the contributions and accumulations in the account belong to employees and provide benefit. An employee never enrolled in a retirement plan will be considered as delayed enrollment and will be vested on the second year of employment. ABP provides retirement benefits, life insurance, long-term disability and loans for vested members. The University assumes no liability for ABP members other than payment of contributions. Participating University employees are required to contribute 5% and may contribute a voluntary additional contribution of salary up to the maximum Federal statutory limit, on a pre-tax basis. Employer contributions are 8% of salary. During the year ended June 30, 2009 and 2008, ABP received employer and employee contributions of $4,209 and $3,843 and $2,631 and $2,402, respectively, which was based on participating employee salaries of approximately $52,611 and $48,032. Employer contributions to ABP are paid by the State of New Jersey and are reflected in the accompanying financial statements as appropriation revenues and expenses. Note 10 - Compensated Absences: The University has recorded a liability for compensated absences in the amount of $3,839 and $3,822 as of June 30, 2009 and 2008, respectively. The liability is calculated based upon employees’ accrued vacation leave as of each respective year-end, as well as an estimated vested amount for accrued sick leave. Payments for accumulated sick leave balances are made to retiring employees upon regular retirement. The payment is based on 50% of the employee’s sick leave accumulation, at the pay rate in effect at the time of retirement up to a maximum of $15. Employees separating from University service prior to retirement are not entitled to payments for accumulated sick leave balances. The University paid approximately $47 and $69 in sick leave payments for employees who retired during the years ended June 30, 2009 and 2008, respectively. Note 11 - Agency Transactions: The University collects and distributes monies as the agent for various student organizations and certification programs, as well as the Federal Direct Loan Program. The revenues and related expenses have not been included in the accompanying financial statements. However, the related assets and liabilities are presented in the statement of net assets.




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Note 12 - Contingencies: The University receives support from Federal and State of New Jersey grant programs, primarily student financial assistance. Entitlement to the resources requires compliance with terms of the grant agreements and applicable regulations, including the expenditure of the resources for eligible purposes. Substantially all grants are subject to financial and compliance audits by the grantors. As of June 30, 2009, the University estimates that adjustments, if any, as a result of such audits would not have a material adverse effect on the University’s financial statements. The University was a co-defendant in a suit that alleged, among other things, delays, tortuous conduct, fraud and antitrust violations in connection with a construction project at the University. Claims outstanding against the University related to this matter approximated $3,400. As of June 30, 2008, the University had accrued $3,400 as a loss contingency, which is included in accounts payable and accrued expenses in the accompanying statement of net assets. However, based on a ruling from the New Jersey Supreme Court in August 2009, the University was ordered to pay the Final Judgment of approximately $381, plus interest of approximately $44. As of June 30, 2009, the University has accrued approximately $425 as a loss contingency, which is included in accounts payable and accrued expenses in the accompanying statement of net assets. This judgment was fully satisfied on September 2, 2009. The University is also involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the University’s financial position. Liabilities for claims are accrued when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. There have been no significant reductions in insurance coverage from the prior year and there have been no settlements in the prior three years that exceeded insurance coverage. Note 13 - Unrestricted Net Assets: As described in Note 1 to the financial statements, unrestricted net assets are those net assets not subject to externally imposed stipulations. These net assets may be designated for specific purposes by action of management to the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Unrestricted net assets of the University are comprised of the following:




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2009 2008

Academic and other programs 4,795$ 4,795$ Quasi-endowment 3,728 3,728 Capital - renewal and replacement 10,334 9,485 Student loan program 1,170 1,129 Operating programs 3,442 1,258 Operating reserve 10,876 4,867 Capital project reserve 11,147 11,146

45,492$ 36,408$

June 30,

Note 14 - Government Relations and Legal Fees: The New Jersey Higher Education Restructuring Act of 1994 requires the University to make available the costs incurred associated with government and public relations and legal costs. During the years ended June 30, 2009 and 2008, the University expended $236 and $203 for government and public relations and $260 and $221 for legal fees, respectively. Note 15 - Operations in China On May 8, 2006, Kean University entered into an agreement with Wenzhou University in China and signed a cooperation agreement (the “Agreement”) on the establishment and operation of Kean University, Wenzhou. The Agreement is to establish a co-operative university in Wenzhou, China which will provide the first independent Sino-American co-operative educational institution with legal status and qualified to grant certificates, diplomas and degrees independently. Additionally, this institution will introduce high-quality educational resources and will advance teaching, research and management methods, to provide easier access to high-class educational opportunities and resources to students and to contribute to the development and internationalization of Chinese Higher Education. While the Kean University administration and Chinese officials pursue the establishment of the first US campus in China, Kean has entered into a number of partnerships with various Chinese universities (and some high schools) in Zhejiang Province. For example, in Fall 2008, Kean welcomed its first cohort of students from Wenzhou University, as part of a “two-plus-two program,” where the students complete their degrees at Kean as majors in Management Science, with an International Business option. Note 16 - Acquisition of Liberty Hall Museum

On December 22, 2006, the University entered into an agreement with the Liberty Hall Foundation (the “Foundation”) for the sale of real estate and the formation of a Historic Precinct. The Foundation and the University have jointly organized the Liberty Hall Museum, Inc. (“LHM”).




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As part of the agreement, the University purchased property from the Foundation in the amount of $5,150,000, which represents the land and the museum building. At the time of the closing, the University took ownership of the land and Museum building, but did not take ownership of the Historical Documents contained in the Museum. In accordance with the terms of the agreement, the Foundation will retain possession of the Historical Documents until they are formally donated to the University after a Cataloging Period has been completed. The Cataloging Period represents the period beginning on the closing date and ending on the first to occur of (i) the completion of the identification and cataloging process with respect to the Historical Documents, determined in the Foundation’s reasonable discretion, or (ii) the third anniversary of the closing date, unless the Cataloging Period is extended by the mutual agreement of the parties. The Foundation and the University agreed that from the date of the closing, LHM will perform the cataloging process until its completion. Until the completion of the Cataloging Period through to the donation of the Historical Documents, the Foundation will maintain possession of and control over the Historical Documents. As a result, the fair value of the Historical Documents has not been recorded in the University’s financial statements. As of June 30, 2009, the cataloging of the historical documents is not complete. LHM was established to operate and preserve the Museum and the Historic Precinct. An initial Board of Trustees was established consisting of five individuals, two from the University and three from the Foundation. At closing, LHM and the University entered into a ground lease, which provides for the lease of the Historical Precinct, including the Museum and all other buildings and improvements within the Historical Precinct to LHM for a period of ninety-eight years at an annual rent of $1.00. Annually, LHM is responsible for establishing an operating budget for the Museum and the Historic Precinct approved by its Board of Trustees. Annually, the Foundation provides funding to LHM is an amount not to exceed five percent of the Foundation’s total endowment. In the event that LHM’s annual operating expenses exceed the amount contributed by the Foundation, the University is required to contribute to the shortfall in an amount not to exceed $200,000 per year for the first five years. This amount will be adjusted by the CPI Index at the beginning of the sixth in which the University was required to contribute to the shortfall. Note 17 – Memorandum of Understanding Among Kean University, Ocean County College and The Kean University Foundation In February, 2009, Kean University (KU) executed a Memorandum of Understanding with Ocean County College (OCC) and The Kean University Foundation (KUF) intended to set forth issues of agreement among the parties concerning the construction of the Gateway Building at the Ocean County College campus and infrastructure sufficient to support the use of the Gateway Building by students, faculty, administrators and staff. The Gateway Building, with a total project budget of $30,000, will be constructed on a portion of a 34+/- acre site reserved for use by KU at the OCC campus. The Memorandum is subject to and contingent upon detailed agreements among the parties concerning construction of the Gateway Building and the negotiation of a land lease between OCC (the Lessor) and KUF (the Lessee) for the footprint under one-half of the Gateway Building. KUF and KU agree with OCC that any funds expended on the basis of this agreement will be shared equally between OCC (50% of fees and costs) and KU and KUF (50% of fees and costs). It is agreed among the parties that the agreement is contingent upon obtaining all necessary governmental permits and approvals for the construction.




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It is contemplated that KUF will borrow $15,000 from the Monmouth County Improvement Authority or the New Jersey Educational Facilities Authority and will mortgage its leasehold interest to secure its financing. KUF will then sub-lease its leasehold interest to KU. It is anticipated that the County of Ocean (OC) will provide the basic site infrastructure needs to within a ten-foot construction limit of the building, and this agreement is contingent on OC providing said infrastructure. The construction of said infrastructure is specifically contingent upon receipt of all necessary governmental approvals and the availability of sufficient capacity of the utility companies to supply water, sewer, gas, electric, and other necessary utilities to the site. In the event that the necessary governmental approvals cannot be obtained or the utility companies cannot supply the utilities for this project or the infrastructure cannot be constructed for any reason, the agreement may be terminated by any party. Note 18 – Restatement of June 30, 2008 Financials The accompanying financial statements for the year ended June 30, 2008, have been restated to adopt the provisions of GASB No. 53, Accounting and Financial Reporting for Derivative Instruments. This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by State and local governments, as well as colleges and universities. Government entities are required to implement GASB No. 53 no later than the first fiscal year beginning after June 15, 2009. However, as allowed by the pronouncement, the University has implemented GASB No. 53 for the 2009 fiscal year. GASB No. 53 requires any accounting changes adopted to conform to the provision of this statement, be applied retroactively by restating financial statements, if practical, for all prior periods presented. The effect of this restatement did not affect net assets as of June 30, 2008. See Note 4 to the financial statements for more information. The accompanying financial statements for the year ended June 30, 2008, have also been restated to correct an error in charges to Kean University Foundation for the reimbursement of expenses in 2008. The effect of the restatement was to increase unrestricted net assets for 2008 by $230. Note 19 – Subsequent Events Management has reviewed and evaluated all events and transactions from June 30, 2009 through November 16, 2009, the date that the financial statements are available to be issued. The effects of those events and transitions that provide additional information about conditions that existed at the balance sheet date, have been recognized in the accompanying financial statements.

KEAN UNIVERSITY

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE OF NEW JERSEY AWARDS

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1. Basis of Presentation: The accompanying Schedules of Expenditures of Federal Awards and State of New Jersey Awards have been prepared in the format required under OMB Circular No. A-133, Audits of States, Local Governments, and Non-Profit Organizations and State of New Jersey Office of Management and Budget Circular 04-04, Single Audit Policy for Recipients of Federal Grants, State Grants and State Aid. The purpose of these schedules is to present a summary of those activities of Kean University (the “University”) for the year ended June 30, 2009 which have been financed by the Federal Government and State of New Jersey. For the purposes of these schedules, Federal awards and State Awards include any assistance provided by a Federal and State agency directly or indirectly in the form of grants, contracts, cooperative agreements, loans, loan guarantees, property, interest subsidies, insurance, direct appropriations and other non-cash assistance. Because these schedules present only a selected portion of the activities of the University, it is not intended to, and does not, present the financial position, or changes in net assets of the University in conformity with accounting principles generally accepted in the United States of America. The accounting practice followed by the University in preparing the accompanying schedules is as follows: Expenditures for direct costs are recognized as incurred using the accrual method of accounting contained in the U.S. Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions. Under those cost principles, certain types of expenditures are not allowable or are limited as to reimbursement.

2. The University administers the following Federal loan program:

Loans OutstandingExtended for Principal

the Year Ended Balance atCFDA # June 30, 2009 June 30, 2009

Perkins Loan Program 84.038 $172,463 $1,705,281

KEAN UNIVERSITY

NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE OF NEW JERSEY AWARDS

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3. During the fiscal year ended June 30, 2009, the University processed the following amount of new loans under the Stafford Student Loans program (which includes Stafford Loans and Parents’ Loans for Undergraduate Students):

Value

CFDA # of Loans

Stafford Loans (Direct): 84.268Subsidized 30,483,365$ Unsubsidized 24,582,619

55,065,984$

Parent Loans for Undergraduate Students (PLUS) 3,009,227$

4. Sub-recipients Of the Federal expenditures presented in the Schedule of Expenditures of Federal Awards, the University provided Federal awards to sub-recipients for the New Jersey Consortium of Middle Schools (CFDA #84.336B) in the amount of $502,440 and the Child Care and Development Fund - N.J. Professional Center (CFDA #93.596) in the amount of $124,153.

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The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to the management of the University in a separate letter dated December 17, 2009. This report is intended solely for the information and use of the audit committee, management, the Board of Trustees of Kean University, others within the University, the State of New Jersey and federal and state awarding agencies and is not intended to be and should not be used by anyone other than these specified parties.


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A control deficiency in an entity’s internal control over compliance 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 noncompliance with a type of compliance requirement of a federal or State of New Jersey program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to administer a federal or State of New Jersey program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal or State of New Jersey program that is more than inconsequential will not be prevented or detected by the entity’s internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal or State of New Jersey program will not be prevented or detected by the entity’s internal control. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiency in internal control over compliance that we consider to be material weakness, as defined above. This report is intended solely for the information and use of the audit committee, management, the Board of Trustees of Kean University, others within the University, the State of New Jersey and federal and state awarding agencies and is not intended to be and should not be used by anyone other than these specified parties.


KEAN UNIVERSITY

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

YEAR ENDED JUNE 30, 2009

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Section I - Summary of Auditor’s Results Financial Statements Type of auditor’s report issued: Unqualified Internal control over financial reporting:

• Material weakness(es) identified Yes X No

• Significant deficiency(cies) identified that are not considered to be material weaknesses? Yes X None reported

Noncompliance material to financial statements noted? Yes X No Federal and State Awards Internal control over major programs:

• Material weakness(es) identified Yes X No

• Significant deficiency(cies) identified that are not considered to be material weaknesses? Yes X None reported

Type of auditor’s report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133 or NJ OMB 04-04? Yes X No

KEAN UNIVERSITY



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Identification of major programs: CFDANumber Name of Federal Program or Cluster

Student Financial Assistance Cluster:84.268 Federal Direct Loan U.S. Department of Education84.038 Federal Perkins Loans - Federal Capital U.S. Department of Education

Contributions84.063 Federal Pell Grant Program U.S. Department of Education84.007 Federal Supplemental Educational U.S. Department of Education

Opportunity Grant 84.033 Federal Work-Study Program U.S. Department of Education84.376 National Science and Mathematics U.S. Department of Education

Access to Retain Talent Grant84.375 Academic Competitive Grant U.S. Department of Education84.379 Teacher Education Assistance for U.S. Department of Education

and Higher Education Grants

Trio Cluster:84.047 Upward Bound U.S. Department of Education84.217 McNair Scholars U.S. Department of Education

GrantNumber Name of State Program or Cluster

08-100-074-2455-001 Grants-In-Aid Appropriations to Senior Higher Education AdministrationPublic Colleges and Universities Department of State, Department

of Treasury08-100-094-9410-1205 Fringe Benefits Other than FICA for Higher Education Administration

Senior Public Colleges and Universities Department of State, Departmentof Treasury

08-100-094-9410-137 FICA (Social Security Tax) for Seniors Higher Education AdministrationPublic Colleges and Universities Department of State, Department

of Treasury Dollar threshold used to distinguish between Type A and Type B programs: $490,791 (3% of federal awards expended, not including loan programs) $2,373,019 (3% of state awards expended, not including loan programs) Auditee qualified as low-risk auditee? Yes X No

KEAN UNIVERSITY



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______________________________________________________________________________ Section II - Financial Statement Findings

NONE ______________________________________________________________________________ Section III – Federal and State Awards Findings and Questioned Costs

NONE

KEAN UNIVERSITY

SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS


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NONE

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