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financial practices, internal controls, financial management, and standards of conduct. The subcommittee is responsible for reviewing financial statements, assuring the Board that the statements reflect the financial condition of UK, determining the accuracy of internal controls, assuring the Board that any significant non-compliance with regulatory matters will be brought to the Board's attention, and insuring adherence to UK's conflict-of-interest policy.
Ms. Wickliffe reported that the subcommittee met with Mr. Joe Reed, the internal auditor of the internal audit committee of the university, and the external auditors Deloitte & Touche. Internal controls have been reviewed and found to be very good. Mr. Reed and his staff seem to have a strong internal program as confirmed by the external auditors. Ms. Wickliffe commended Mr. Reed and his staff on the professional performance of the work. The annual report is available to all Board members of the internal audit committee.
Mr. Hardymon and Ms. Wickliffe met with the external auditors, specifically Mr. Jim Carpenter, and discussed the audit and management's cooperation. Mr. Carpenter assured them that there were no problems in getting information to them to perform their audit.
Ms. Wickliffe reported that the other item discussed in the Audit Subcommittee meeting was the renewal option for the independent auditors. The university's four-year contract ended on June 30, 2004, but UK had the option to renew two one-year contracts, which it did. At the end of the two-year contract, the partner will be changed even though the second-line partner has been changed every year in the last three years. The increase in the price of that will be according to the CPI (consumer price index) and that right now is somewhere between the 2 percent and 3 percent.
Ms. Wickliffe reported that the Audit Subcommittee did have a good discussion on the Sarbanes Oxley Act that the Board discussed at its retreat. All of the items that UK was not complying with, even though UK does not have to be in compliance at this time, have been or will be corrected by this time next year.
Ms. Wickliffe thanked Mr. Reid and his staff for the progress they have made on the internal audit. It looks as though it is a good program. It has been reviewed by the external auditors, and they were very pleased as well. She recognized Mr. Reid who was in the audience.
L.        Finance Committee Report- Gifts and Pledges (FCR 1 through 19)
Ms. Wickliffe noted that FCRs 1 through 20 are consent items. FCR 1 through 19 are gifts and pledges that total $9.7 million: $4.4 million will be matched by the state under the endowment match program, and $5.3 million for the basketball practice facility.
M.       Report of Lease (FCR 20)
Ms. Wickliffe reported that FCR 20, which is on the consent agenda, is the report of leases not exceeding $30,000. There are three renewals and one new lease.