Nyack College and Subsidiary

Transcription

1 Nyack College and Subsidiary Independent Auditor s Reports and Consolidated Financial Statements

2 Nyack College and Subsidiary Contents Independent Auditor s Report... 1 Consolidated Financial Statements Statements of Financial Position... 3 Statement of Activities Year Ended June 30, Statement of Activities Year Ended June 30, Statements of Cash Flows... 6 Notes to Financial Statements... 8 Supplementary Information Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Independent Auditor s Report Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings... 41

3 Independent Auditor s Report Board of Trustees Nyack College and Subsidiary Nyack, New York Report on the Financial Statements We have audited the accompanying consolidated financial statements of Nyack College and Subsidiary (the College), which comprise the consolidated statements of financial position as of June 30, 2017 and 2016, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Board of Trustees Nyack College and Subsidiary Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nyack College and Subsidiary as of, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter The accompanying financial statements have been prepared assuming the College will continue as a going concern. As discussed in Note 23, the College has suffered recurring losses in unrestricted net assets and recurring negative cash flows from operations, and has a deficiency in unrestricted net assets, which raise substantial doubt about its ability to continue as a going concern. Management s plans in regard to these matters are also described in Note 23. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 22, 2017, on our consideration of the College s internal control over financial reporting and 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 in considering the College s internal control over financial reporting and compliance. Colorado Springs, Colorado December 22,

5 Nyack College and Subsidiary Consolidated Statements of Financial Position Assets Cash and cash equivalents $ 1,761,275 $ 720,048 Certificate of deposit - 3,700,000 Accounts and interest receivable, less allowance for doubtful accounts; $2,327,078 and $2,931,345 2,269,756 2,349,275 Inventories and prepaid expenses 605, ,447 Due from government entities 696, ,686 Contribution receivable 4,321,733 4,497,206 Restricted cash 169, ,978 Loans to students, less allowance for doubtful accounts; $267,000 and $267, , ,973 Investments 5,077,608 10,137,957 Beneficial interest in perpetual trusts 1,949,818 1,838,728 Land, buildings and equipment 70,686,828 72,296,050 Total assets $ 88,106,126 $ 97,488,348 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses $ 4,918,401 $ 3,671,094 Deferred revenue 1,905,471 1,755,927 Line of credit - 2,350,000 Deposits and other liabilities 74,002 73,409 U.S. government grants refundable 508, ,498 Postretirement liability 1,233,915 1,560,234 Notes and loans payable 70,487,474 72,178,568 Total liabilities 79,127,465 82,089,730 Net Assets Unrestricted (4,678,587) 2,767,289 Temporarily restricted 3,615,682 2,994,914 Permanently restricted 10,041,566 9,636,415 Total net assets 8,978,661 15,398,618 Total liabilities and net assets $ 88,106,126 $ 97,488,348 See 3

6 Consolidated Statement of Activities Year Ended June 30, 2017 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Income and Other Support Tuition and fees Gross tuition and fees $ 41,655,470 $ - $ - $ 41,655,470 Less scholarships (15,495,387) - - (15,495,387) Net tuition and fees 26,160, ,160,083 Contributions, gifts and grants 2,429, , ,729 2,833,180 Net investment return 12, , ,422 1,180,482 Other income 622, ,619 Sales and services of auxiliary enterprises 6,293, ,293,136 Net assets released from restrictions 544,861 (544,861) - - Total revenues, income and other support 36,063, , ,151 37,089,500 Expenses Program services Instruction 18,449, ,449,103 Academic support 2,633, ,633,608 Student services 9,809, ,809,024 Auxiliary enterprises 6,993, ,993,619 Total program services 37,885, ,885,354 Supporting services Management and general 5,529, ,529,902 Fundraising 94, ,201 Total supporting services 5,624, ,624,103 Total expenses 43,509, ,509,457 Change in Net Assets (7,445,876) 620, ,151 (6,419,957) Net Assets, Beginning of Year 2,767,289 2,994,914 9,636,415 15,398,618 Net Assets, End of Year $ (4,678,587) $ 3,615,682 $ 10,041,566 $ 8,978,661 See 4

7 Consolidated Statement of Activities Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Income and Other Support Tuition and fees Gross tuition and fees $ 43,450,200 $ - $ - $ 43,450,200 Less scholarships (15,374,927) - - (15,374,927) Net tuition and fees 28,075, ,075,273 Contributions, gifts and grants 2,670, , ,644 3,352,357 Net investment return 9,886 87,749 (40,277) 57,358 Gain on sale of assets and insurance claims 213, ,719 Other income 311, ,008 Sales and services of auxiliary enterprises 6,316, ,316,001 Net assets released from restrictions 517,745 (517,745) - - Total revenues, income and other support 38,114,536 (163,187) 374,367 38,325,716 Expenses Program services Instruction 20,911, ,911,721 Academic support 3,208, ,208,431 Student services 10,581, ,581,176 Auxiliary enterprises 6,219, ,219,201 Total program services 40,920, ,920,529 Supporting services Management and general 5,843, ,843,903 Fundraising 140, ,868 Total supporting services 5,984, ,984,771 Total expenses 46,905, ,905,300 Change in Net Assets (8,790,764) (163,187) 374,367 (8,579,584) Net Assets, Beginning of Year 11,558,053 3,158,101 9,262,048 23,978,202 Net Assets, End of Year $ 2,767,289 $ 2,994,914 $ 9,636,415 $ 15,398,618 See 5

8 Consolidated Statements of Cash Flows Years Ended Operating Activities Change in net assets $ (6,419,957) $ (8,579,584) Items not requiring (providing) operating activities cash flows Depreciation 3,526,909 2,793,810 Amortization of debt issuance costs 214,109 63,277 Contributions restricted for long-term investment and capital projects (133,979) (431,514) Net loss (gain) on investments (635,526) 392,393 Net investment income restricted for long-term investment (64,213) (79,323) Change in beneficial interest in perpetual trusts (111,090) 47,653 Gain from insurance claim and sale of property - (213,719) Changes in Accounts and interest receivable 79, ,451 Inventories and prepaid expenses (26,149) (264,586) Contributions receivable 175,473 (315,696) Due from government entities (93,706) 292,910 Loans to students (13,251) (15,965) Accounts payable and accrued liabilities 1,247, ,021 Deferred revenue 149,544 (253,507) Deferred rent - (1,179,988) Deposits and other liabilities 593 (17,576) U.S. government grants refundable 7,704 31,312 Postretirement liability (326,319) (69,961) Net cash used in operating activities (2,423,032) (7,147,592) Investing Activities Purchases of fixed assets (1,917,687) (48,833,361) Deposit for purchase of New York City campus - 4,923,345 Proceeds from insurance claim and sale of property - 1,657,151 Proceeds from sale of investments 21,047,085 11,437,105 Purchases of investments (15,351,210) (11,938,743) Redemption of certificate of deposit 3,700, ,000 Net cash provided by (used in) investing activities 7,478,188 (42,554,503) See 6

9 Consolidated Statements of Cash Flows (continued) Years Ended Financing Activities Proceeds from contributions restricted for long-term investment Investment in permanent endowment 116, ,644 Capital projects 17,250 16,870 Other financing activities Net investment income restricted for reinvestment in long-term investment 64,213 79,323 Proceeds from borrowing on long-term debt and line of credit 8,137,830 64,074,526 Payments on long-term debt and line of credit (12,393,033) (15,064,688) Net cash (used in) provided by financing activities (4,057,011) 49,520,675 Net Increase (Decrease) in Cash and Cash Equivalents 998,145 (181,420) Cash and Cash Equivalents, Beginning of Year 933,026 1,114,446 Cash and Cash Equivalents, End of Year $ 1,931,171 $ 933,026 Supplemental Cash Flows Information Interest paid $ 3,823,470 $ 2,001,974 Consolidated Statement of Financial Position Classification Cash and cash equivalents $ 1,761,275 $ 720,048 Restricted cash 169, ,978 $ 1,931,171 $ 933,026 See 7

10 Note 1: Nature of Operations Nyack College (the College) is a school of The Christian and Missionary Alliance (C&MA), an extensive missionary denomination headquartered in Colorado Springs, Colorado. The College is a private educational institution which offers undergraduate and graduate studies including a seminary. The College is chartered by the Board of Regents of the University of the State of New York. Its curricula are registered by the State Education Department (the Department) and approved by the Department for the training of veterans under Public Laws 550 and 894. It is accredited by the Middle States Association of College and Secondary Schools and approved for teacher certification by the Association of Christian Schools International. It is an accredited institutional member of the National Association of Schools of Music. In addition, the Alliance Theological Seminary is accredited by the Association of Theological Schools. The College is listed by the United States Department of Justice for training of foreign students. Note 2: Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the College and its majority-owned subsidiary, Nyack 2 Washington LLC. Nyack 2 Washington LLC is a limited liability company that is considered a disregarded entity for income tax purposes. It is organized to lease space for classroom and administrative offices in Manhattan, New York for the College. Nyack 2 Washington LLC s financial statements are consolidated with the College s financial statements since the College is the sole member owner of the limited liability company. All significant intercompany accounts and transactions have been eliminated in consolidation. Basis of Accounting The financial statements of the College have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables and other liabilities. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Codification (ASC) Topic 958, Not-for-Profit Organizations. Under ASC Topic 958, the College is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. 8

11 Use of Estimates 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, expenses, gains, losses and other changes in net assets during the reporting period. Accordingly, actual results could differ from those estimates. Cash and Cash Equivalents The College considers all liquid investments with original maturities of three months or less to be cash equivalents. At, cash equivalents consisted primarily of money market accounts and short-term certificates of deposit. The College, as of, also has $169,896 and $212,978, respectively, of restricted cash held in escrow accounts related to Nyack 2 Washington LLC. At June 30, 2017, the College s cash accounts exceeded federally insured limits by approximately $1,380,000. The College has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Certificate of Deposit On May 19, 2017, the College closed the certificate of deposit that was on the books at the time for $3,700,000. The proceeds were used to pay off a loan with M&T Bank which had a balance of $3,550,000 at the time of pay off. At June 30, 2016, the certificate of deposit with the financial institution, had a balance of $3,700,000. The certificate of deposit was subject to the FDIC s insurance limits and exceeded federally insured limits by approximately $3,450,000. Accounts, Interest and Loans to Students Accounts, interest and loans receivable are stated at the amount billed to customer/students or net amount of outstanding loans from students. The College provides allowances for doubtful accounts and loans, which are based upon a review of outstanding receivables and student loans, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 30 days after the issuance of the invoice. Accounts past due more than 90 days are considered delinquent. Delinquent accounts and loans receivable are written-off based on individual credit evaluation and specific circumstances of the customer or student. Loans receivable consist of amounts due under the Federal Perkins Loan Program and are stated at their outstanding principle amount, net of an allowance for doubtful notes. Under the terms of the program, these loans are subject to forgiveness or assignment back to the federal government under certain circumstances. Loans are made to students based on demonstrated financial need and satisfaction of federal eligibility requirements. Principal and interest payments on loans generally do not commence until nine months after the borrower graduates or otherwise ceases enrollment. The College provides an allowance for doubtful notes, which is based upon a review of outstanding loans, historical collection information and existing economic conditions. Loans that are delinquent continue to accrue interest. Loans that are past due for at least one payment are 9

12 considered delinquent. Loan balances considered past due were approximately $229,000 and $243,000 at, respectively. Inventories Inventories are stated at the lower of cost or market determined by the first-in, first-out method. Revenue Recognition Revenues are recognized over the academic year as services are provided. Student tuition and fee revenue are presented net of scholarship allowances in the consolidated statement of activities. Scholarship allowances are the difference between the stated charge for goods and services provided by the College and the amount expected to be paid by students and/or third parties making payments on students behalf. Scholarship allowances for the years ended June 30, 2017 and 2016 were $15,495,387 and $15,374,927, respectively. Contributions Receivable Unconditional contributions expected to be collected within one year are reported at their net realizable value. Unconditional contributions expected to be collected in future years are initially reported at fair value determined using the discounted present value of estimated future cash flows. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. Investments and Investment Income Investments are stated at fair value. The fair value of all debt and equity securities with a readily determinable fair value are based on quotations obtained from national securities exchanges. Investment gains and losses are included in the statement of activities. Donated investments are reflected as contributions at their fair values at the date of receipt. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is first recorded as temporarily restricted and then released from restriction. Other investment income is reflected in the consolidated statement of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. Land, Buildings and Equipment Depreciable assets are recorded at cost at date of acquisition or fair value at date of donation in the case of gifts. Depreciation is recorded on a straight-line basis over the estimated useful lives as follows: Buildings and improvements Furniture and equipment Automobiles Library assets 5 40 years 3 10 years 5 years 10 years 10

13 Leases Leases which meet certain criteria are classified as capital leases, and assets and liabilities are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased properties at the beginning of the respective lease terms. Such assets are depreciated using the straight-line method over the estimated useful lives. The net book value of assets acquired under capital leases is reclassified as land, buildings and equipment upon discharge of lease obligations. Interest expense relating to the lease liabilities is recorded to effect constant rates of interest over the terms of the leases. Leases which do not meet such criteria are classified as operating leases and related rentals are charged to expense as incurred. Deferred Revenue Deferred revenue consists of tuition income relating to summer and organizational management courses, which is deferred and recognized over the period to which the income relates. Government Grants Support funded by grants is recognized as the College incurs outlays eligible for reimbursement under the grant agreements. Grant activities and outlays are subject to audit and acceptance by the granting agency and, as a result of such audit, adjustments could be required. Restricted and Unrestricted Revenue and Support Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. Federal grant awards are classified as refundable advances until expended for the purposes of the grants. Permanently Restricted Net Assets Permanently restricted net assets consist of contributions received subject to the restriction that principal be retained in perpetuity, and that only income and gains on invested assets be utilized. In some instances, donors have required that portions of such income and gains be added to principal. Functional Allocation of Expenses The costs of supporting the various programs and other activities have been summarized on a functional basis in the consolidated statement of activities. Certain costs have been allocated among the program, management and general and fundraising categories based on the actual direct expenditures and allocation of indirect costs based on various assumptions of resources expended in support of the College. 11

14 Tax-exempt Status Nyack College is incorporated as a nonprofit organization in the State of New York and is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. In addition, the College qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization that is not a private foundation under Section 509(a)(2). The College is subject to federal income tax on any unrelated business taxable income. The College files tax returns in the U.S. federal jurisdiction. Copies of those returns are also furnished to the New York State Charities Bureau. Subsequent Events Subsequent events have been evaluated through December 22, 2017, which is the date the financial statements were available to be issued. Note 3: Property Held for Sale On March 14, 2016, the College sold property that was previously reported as property held for sale to an unrelated party for $1,450,000. After adjustment for closing costs, the college received $1,404,309 at closing and reported a gain from sale of $187,433. Note 4: Contribution Receivable Contribution receivable consisted of an unrestricted donation of $5,000,000, with an unamortized discount of $578,267 and $502,794 for the years ended, respectively. The College received $100,000 against this donation during 2017 leaving a remaining net balance of $4,321,733. The balance is expected to be collected over four years starting in fiscal year ending June 30, 2018 with $100,000 expected over the next three years and the remaining balance due by June 30, The discount rate used was 3.64% for 2017 and

15 Note 5: Investments The cost and fair value of investments as of June 30, 2017 are as follows: Cost Fair Value Certificate of deposit $ 100,000 $ 100,692 Mutual funds invested in equities 1,247,743 1,387,949 Mutual funds invested in bonds/notes 1,230,093 1,255,753 Mutual funds invested in real estate 94,466 97,017 Exchange traded funds invested in equities 974,260 1,167,484 Other 24,000 24,000 Money market funds 1,044,713 1,044,713 $ 4,715,275 $ 5,077,608 The cost and fair value of investments as of June 30, 2016 are as follows: Cost Fair Value Certificate of deposit $ 100,000 $ 101,391 Mutual funds invested in equities 4,857,789 5,064,531 Mutual funds invested in bonds/notes 2,236,308 2,242,594 Mutual funds invested in real estate 314, ,024 Exchange traded funds invested in equities 1,600,069 2,090,267 Other 24,000 24,000 Money market funds 214, ,150 $ 9,346,627 $ 10,137,957 Net investment return for the year ended June 30, 2017 consisted of: Temporarily Permanently Unrestricted Restricted Restricted Total Interest and dividend income $ 12,700 $ 334,682 $ 72,227 $ 419,609 Distributions from trust - 59,407-59,407 Investment fees - (37,136) (8,014) (45,150) Net investment return , , ,526 Unrealized gain from beneficial interest in perpetual trust , ,090 Net investment return $ 12,946 $ 879,114 $ 288,422 $ 1,180,482 13

16 Net investment return for the year ended June 30, 2016 consisted of: Temporarily Permanently Unrestricted Restricted Restricted Total Interest and dividend income $ 9,534 $ 391,534 $ 87,812 $ 488,880 Distributions from trust - 54,861-54,861 Investment fees - (37,848) (8,489) (46,337) Net investment return 352 (320,798) (71,947) (392,393) Unrealized loss from beneficial interest in perpetual trust - - (47,653) (47,653) Net investment return $ 9,886 $ 87,749 $ (40,277) $ 57,358 Internal Borrowings As discussed in Note 17, the College has various endowments. The assets of the endowment are included in the College s financial statements. During the year ended June 30, 2017, the College borrowed $7,000,000, in various increments throughout the year, from the endowment fund to fund operations due to cash flow constraints. As of year-end, $1,000,000 has been repaid. The College has accrued interest earnings of approximately $44,000 that will be repaid with the outstanding balance. Subsequently, the College borrowed an additional $3,000,000 in July. During the year ended June 30, 2016, the College borrowed $1,000,000 from the endowment fund to fund operations due to cash flow constraints. The amount borrowed, plus interest, was repaid in full prior to year-end. Note 6: Beneficial Interest in Perpetual Trusts The College is the income beneficiary of five permanently restricted trusts held with The Orchard Foundation, an affiliate of the College. The principal must be held in perpetuity by the trustee, and the earnings will be distributed to the College according to the trust agreement. The estimated fair market value of the expected future cash flows is $1,949,818 and $1,838,728 at June 30, 2017 and 2016, respectively. The College received $59,407 and $54,861 in distributions from these trusts during the years ended, respectively. 14

17 Note 7: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Recurring Measurements Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statements of financial position, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, Investments Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include certificates of deposit, mutual funds and money market funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities are investment certificates. Beneficial Interest in Perpetual Trusts Fair value is estimated at the present value of the future distributions expected to be received over the term of the agreement. Due to the nature of the valuation inputs, the interest is classified within Level 2 of the hierarchy. 15

18 The following tables presents the fair value measurements of assets recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2017 and Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobserv- Assets Inputs able Inputs Fair Value (Level 1) (Level 2) (Level 3) Investments Certificate of deposit $ 100,692 $ 100,692 $ - $ - Mutual funds invested in equities 1,387,949 1,387, Mutual funds invested in bonds/notes 1,255,753 1,255, Mutual funds invested in real estate 97,017 97, Exchange traded funds invested in equities 1,167,484 1,167, Other 24,000-24,000 - Money market funds 1,044,713 1,044, $ 5,077,608 $ 5,053,608 $ 24,000 $ - Beneficial interest in perpetual trusts $ 1,949,818 $ - $ 1,949,818 $ - 16

19 2016 Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobserv- Assets Inputs able Inputs Fair Value (Level 1) (Level 2) (Level 3) Investments Certificate of deposit $ 101,391 $ 101,391 $ - $ - Mutual funds invested in equities 5,064,531 5,064, Mutual funds invested in bonds/notes 2,242,594 2,242, Mutual funds invested in real estate 401, , Exchange traded funds invested in equities 2,090,267 2,090, Other 24,000-24,000 - Money market funds 214, , $ 10,137,957 $ 10,113,957 $ 24,000 $ - Beneficial interest in perpetual trusts $ 1,838,728 $ - $ 1,838,728 $ - Note 8: Land, Buildings and Equipment A summary of land, buildings and equipment as of June 30, 2017 is as follows: Accumulated Cost Depreciation Net Land $ 7,175,227 $ - $ 7,175,227 Buildings and improvements 85,200,919 27,423,056 57,777,863 Library assets 1,618,298 1,244, ,150 Furniture and equipment 11,696,474 7,978,845 3,717,629 Automobiles 238, ,317 - Construction in progress 1,641,959-1,641,959 $ 107,571,194 $ 36,884,366 $ 70,686,828 17

20 A summary of land, buildings and equipment as of June 30, 2016 is as follows: Accumulated Cost Depreciation Net Land $ 7,175,227 $ - $ 7,175,227 Buildings and improvements 85,067,498 25,074,828 59,992,670 Library assets 1,590,895 1,138, ,794 Furniture and equipment 11,581,570 6,906,211 4,675,359 Automobiles 238, ,317 - $ 105,653,507 $ 33,357,457 $ 72,296,050 On March 17, 2016, the College finalized the purchase of the Manhattan campus. The purchase price of the space used by the College was $49,233,450. After consideration for closing costs incurred related to the purchase of the building and the applying of deferred rent reflected on the books of $1,241,468, the total amount added to buildings and improvements from this transaction was $48,518,250. The College also incurred costs related to the financing of this transaction of $1,842,869 which are reflected on the statements of financial position as an offset of debt (see inclusion of these costs in Note 10). Note 9: Line of Credit The College had a line of credit with a local bank secured by a first lien on all non-realty assets of the College, including all accounts receivable and an unfilled negative pledge on all parcels of the Rockland Campus not currently encumbered. The total commitment was $2,000,000 bearing interest at a variable rate (4.5% at June 30, 2016), which was due on demand. The balance due under this line of credit as of June 30, 2016 was $1,500,000. The College also had a seasonal line of credit with a local bank secured by a perfected first-position security interest in all non-real estate assets of the College including, but not limited to, accounts receivable, inventory, equipment, furniture, fixtures and general intangibles whether now owned or hereafter acquired or arising. The total commitment was $3,000,000 bearing interest at a variable rate based on the one-month LIBOR plus 350 basis points (4.0% at June 30, 2016), due on demand. The balance due under this line of credit at June 30, 2016 was $850,000. Per agreement with the local bank that had secured these lines of credit, on May 1, 2017, it was agreed that these lines of credit would no longer be available for use by the College. Both lines of credit were paid off as of February

21 Note 10: Notes and Loans Payable M&T Bank on mortgage refinance, maturity date July 2019, interest at 4.87% and monthly payments of $59,171, secured by the College's North Campus, Hillside Terrace Apartments and Bradley property $ 8,244,479 $ 8,539,469 Mortgage payable secured on New York City campus, maturity date April 2026, interest at 5.15% with monthly payment of interest only of $240,631 (effective rate of 5.6% considering debt issuance costs) until May 2018, then monthly payment of principal and interest of $300,314 55,000,000 55,000,000 Mortgage payable on Puerto Rico property, maturity date July 2025, interest at 4.95% 303, ,627 M&T Bank on capital projects, maturity date May 2017, variable interest (1.26% at June 30, 2016) and quarterly principal payments of $50,000, plus interest - 3,700,000 M&T Bank Tax Exempt Leasing Program (TELP) due September 2018, interest at 3.8% and monthly payments of $70,269. The loan is secured by first lien on equipment purchased in relation to the leasing program 1,027,870 1,815,856 Alliance Development Fund mortgage, maturity date November 2020, interest at 6.15% with monthly payment of interest only of $11,070 until November 2016 and then monthly payment of principal and interest of $15,662, secured by seven residential properties owned by the College 2,127,358 2,160,000 Alliance Development Fund unsecured line of credit, maturity date March 2020, monthly interest only payments at an annual rate of 6.15% 2,500,000 2,500,000 19

22 Metropolitan District secured promissory note, maturity date of May 2020, interest at 4.60% with monthly payment of interest only of $11,500, secured by seminary property located in Upper Nyack, NY. The note has the capacity for an additional $2 million of borrowing that is contingent upon the Metropolitan District consummating two unrelated transactions 3,000,000 - Notes and loans payable 72,202,918 74,045,952 Unamortized debt issue costs (1,715,444) (1,867,384) Total notes and loans payable $ 70,487,474 $ 72,178,568 Total interest expense incurred on notes and loans payable (including lines of credit) was $3,865,545 and $2,122,436 for the years ended, respectively. The loan agreements with M&T Bank state the following: The College shall maintain a debt service coverage ratio as of the end of each fiscal year of at least 1.00 to At June 30, 2017, the College was not in compliance with this covenant. The College shall maintain a Department of Education Financial Responsibility Standard composite score of 1.50 to As of June 30, 2017, the College was not in compliance with this covenant. See Note 19 for further disclosure of this ratio. As the College was unable to obtain waivers for these covenants, while the College believes debt will not be called within the near term, the bank reserves the right to call the debt, therefore all debt is classified as current as of June 30, If the bank does not exercise its right to call the debt within the next fiscal year, maturities over the next five fiscal years and thereafter are as follows: 2018 $ 1,336, ,367, ,987, ,795, ,496 Thereafter 51,814,377 $ 72,202,918 20

23 Note 11: Operating Leases The College leases additional space for educational uses as follows: Nyack, NY expired June 2016 under a cancelable agreement. Rent expense under this lease was $254,122 and $245,575 for the years ended, respectively. The College currently does not have a lease agreement in place, but continues to pay and use this location on a month to month basis. Note 12: Retirement Plan The College participates in a retirement plan centrally administered by TIAA/CREF (Teacher Insurance Annuity Association of America College Retirement Equity Fund). All non-student employees may elect to participate in the plan. Participants are fully vested in the College s contributions after two years of service. The College s policy is to fund the cost as it is accrued. Effective September 1, 2015, the College amended the plan document to reflect that contributions by the College into the plan are a discretionary match to be determined from year to year. The amount, the allocation formula, and the percentage or dollar amount limit applicable to such match, if any, is at the complete and sole discretion of the College and may vary from year to year. The College elected not to make any contributions to the plan after September 1, Total expense was $8,669 and $116,778 for the years ended, respectively. Note 13: Transactions with Related Parties C&MA, an affiliated organization, made the following grants to the College for the years ended as follows: Toward Nyack College $ 193,927 $ 228,430 Toward Alliance Theological Seminary 623, ,813 Total $ 817,169 $ 844,243 The College has invested with The Alliance Development Fund, Inc., a subsidiary of C&MA, a savings account in the amount of $379,585 and investment certificates in the amount of $227,828 with various maturity dates through 2021 and at interest rates ranging from.84% to 1.64%. The College has a line of credit with The Alliance Development Fund, Inc. for $2,500,000. In addition, the College has a mortgage payable with The Alliance Development Fund, Inc. on property in Nyack, New York in the amount of $2,127,358 and in Puerto Rico of $303,211. The mortgage on the property in Nyack, New York is guaranteed by the C&MA. 21

24 The mortgage payable on property in Puerto Rico has a variable rate based on The Alliance Development Fund, Inc. base rate which is based on internal factors and fluctuations in interest rates that may not reflect changes in the commercial loan market. Many Directors, Trustees, Officers, and employees of the College, C&MA and C&MA s affiliates made charitable contributions to the College during the year. Note 14: Net Assets Released from Restrictions Net assets were released from donor restrictions during 2017 and 2016 by incurring expenses satisfying the restricted purposes specified by donors as follows: Scholarships and fellowships $ 290,912 $ 303,610 Building fund 17,250 1,870 General building and renovation 21,000 18,000 Other educational and general expenses 215, ,265 Total $ 544,861 $ 517,745 Note 15: Permanently Restricted Net Assets Permanently restricted net assets are restricted to investment in perpetuity, the income from which is expendable to support: Scholarships and fellowships $ 9,429,230 $ 9,070,542 Library acquisitions 137, ,516 Any activities of the College 474, ,357 Total $ 10,041,566 $ 9,636,415 22

25 Note 16: Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes: Scholarships and fellowships $ 3,232,275 $ 2,658,587 Institutional and academic support 376, ,708 Trust agreements 6,619 6,619 Total $ 3,615,682 $ 2,994,914 Note 17: Endowment The College s endowment consists of approximately 125 individual funds established for a variety of purposes, but predominantly for scholarships and fellowships. The College s endowment consists of donor-restricted endowment funds only. As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The College s Board of Trustees has interpreted New York s Prudent Management of Institutional Funds Act (NYPMIFA) as requiring the preservation of the fair value of the original gift date absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets (a) the original fair value of the initial gifts donated to the permanent endowment, (b) the original fair value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standard of prudence prescribed by NYPMIFA. In accordance with the NYPMIFA, the College considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund; 2. The purposes of the institution and the endowment fund; 3. General economic conditions; 4. The possible effect of inflation or deflation; 5. The expected total return from income and the appreciation of investments; 6. Other resources of the institution; 7. Where appropriate and circumstances would otherwise warrant, alternative to expenditure of the endowment fund, giving due consideration to the effect that such alternatives may have on the institution; and 8. The investment policy of the institution 23

26 The changes in endowment net assets for the years ended were: 2017 Temporarily Permanently Unrestricted Restricted Restricted Total Opening endowment assets $ (1,393) $ 2,529,297 $ 9,636,415 $ 12,164,319 Contributions , ,729 Interest and dividends - 297,546 64, ,759 Realized and unrealized gains on investments , , ,616 Appropriated for expenditure - (259,463) - (259,463) Closing endowment assets $ (1,147) $ 3,089,541 $ 10,041,566 $ 13,129, Temporarily Permanently Unrestricted Restricted Restricted Total Opening endowment assets $ (1,746) $ 2,744,610 $ 9,262,048 $ 12,004,912 Contributions - 8, , ,644 Interest and dividends - 355,752 79, ,075 Realized and unrealized gains (losses) on investments 353 (322,865) (119,600) (442,112) Appropriated for expenditure - (256,200) - (256,200) Closing endowment assets $ (1,393) $ 2,529,297 $ 9,636,415 $ 12,164,319 Amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at consisted of: Permanently restricted net assets - portion of perpetual endowment funds required to be retained permanently by explicit donor stipulation or NYPMIFA $ 10,041,566 $ 9,636,415 Temporarily restricted net assets - portion of perpetual endowment funds subject to spending policy and appropriation $ 3,089,541 $ 2,529,297 24

27 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or NYPMIFA requires the College to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $1,147 and $1,393 at, respectively. Return Objectives and Risk Parameters The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to its charitable programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds the College must hold in perpetuity or for a donorspecified period as well as board-designated funds. Under this policy the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 while assuming a moderate level of investment risk. The College expects its endowment funds over time to provide an average rate of return in excess of the 3% - 4% endowment draw. Actual returns in any given year may vary from this amount. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the College relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The College targets a diversified assets allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy The spending policy as set forth by the College is that all gains and losses (interest and dividend income and realized and unrealized capital gains and losses) will be allocated to the temporarily restricted fund quarterly. In those cases where the donor has specified that a certain portion of the earnings should be reinvested, only the remaining portion of all gains and losses will be allocated to the temporarily restricted fund. The amount to be made available for distribution each year will be equal to 3% to 5% of the total individual endowment fund provided the total temporarily restricted balance of these funds is at least between 10% and 25% of their permanently restricted balance. 25

28 Note 18: Postretirement Benefits Other Than Pensions The College has a noncontributory defined benefit postretirement health care plan (the Plan) covering retirees with 10 years of full-time service after attainment of age 65. Retirees will receive continuation of the College s group medical plan, assuming that the employee and spouse are covered by Medicare parts A and B. Spouse benefits are assumed to continue for life, independent of continued survival of the retired employee. The retiree is covered for $5,000 of life insurance under the group life insurance plan. The College s funding policy is to make the minimum annual contribution that is required to cover benefits paid. The College curtailed the Plan effective June 30, Amendments to the Plan restrict participation to a group consisting of employees who were retired on June 30, 2002, and other employees who were born before 1950 and who had at least 20 years of service on June 30, As of June 30, 2017, there was one active employee and 23 retirees with five dependents on the plan. Actuarial Present Value of Benefit Obligations The following table sets forth the Plan s funded status and amounts shown in the College s statements of financial position as of, the measurement date for the Plan: Projected benefit obligation for service rendered to date Benefit obligation at beginning of year $ 1,560,234 $ 1,630,195 Interest cost 41,443 57,213 Actuarial gain (250,387) (10,340) Benefits paid (117,375) (116,834) Benefit obligation at end of year $ 1,233,915 $ 1,560,234 Plan assets activity Employer contributions $ 117,375 $ 116,834 Benefits paid (117,375) (116,834) Change in plan assets $ - $ - Fair value of plan assets, beginning of year $ - $ - Fair value of plan assets, end of year $ - $ - For the year ended June 30, 2017, updated mortality and health care trend rates, age-adjusted claims costs as required under Actuarial Standard of Practice (ASOP) No. 6, and actual benefit payments made throughout the year were used to calculate the present value of benefit obligations. 26

29 Assumptions The weight-average assumptions used to determine the benefit obligation and net periodic benefit cost for the years ended, are as follows: Discount rate - benefit obligations 3.19% 2.76% Discount rate - net periodic benefit cost 2.76% 3.64% Expected return on plan assets N/A N/A Rate of compensation increase N/A N/A Assumed health care cost trend rates as of : Health care cost trend rate assumed for next year 5.75% 5.75% Rate to which the cost trend rate is assumed to decline/increase (the ultimate trend rate) 3.89% 3.89% Year that the rate reaches the ultimate trend rate Plan Assets The College does not have assets set aside for this Plan. Cash Flows The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as of June 30: 2018 $ 107, , , , , ,559 $ 988,672 27

30 Note 19: U.S. Department of Education Ratios The College s calculation of financial responsibility ratios under U.S. Department of Education guidelines at June 30, 2017 is as follows: Strength Factor Weighted Primary reserve ratio (0.01) 0.00 Equity ratio Net income ratio (1.00) (0.20) Composite score (rounded) 0.04 The College has calculated its financial stability ratio for the fiscal year ended June 30, 2017 at 0.04, which fails the U.S. Department of Education s financial stability ratios. Failure is defined as below As such, the Department could require the College to post an irrevocable letter of credit equal to at least 50% of the Title IV funding the College received during its most recently completed fiscal year. As of the date of the Independent Auditor s Report, the College has not received such notification or demand from the U.S. Department of Education as it pertains to the current year ratio results. On July 12, 2016, the College was notified by the U.S. Department of Education (the Department) that based on the audit results from the June 30, 2015 year-end, which included an explanatory paragraph expressing doubt about the College s ability to continue as a going concern, the College was not considered financially responsible and could only continue participating in the Title IV Higher Education Act (HEA) programs by electing one of two alternatives. The first alternative was to obtain a letter of credit equal to 50% of the Title IV HEA program funds received during the June 30, 2015 year-end. The second alternative was to obtain a letter of credit for 10% of the Title IV HEA program funds received during the June 30, 2015 year-end and then be placed on a Provisional Program Participation Agreement (the Agreement) for the period of up to three complete award years. The Agreement would require the College to be in compliance with zone alternative requirements, and would place them on the heightened cash monitoring 1 (HCM1) method of payment. Since receipt of this letter, the College s June 30, 2015 auditor s report was reissued on December 6, 2016 which removed the Emphasis of Matter explanatory paragraph expressing doubt about the College s ability to continue as a going concern. On August 11, 2017, the College received notification from the U.S. Department of Education that a separate letter of credit as noted above was appealed by the College and ultimately rescinded under the reissuance of the June 30, 2015 financial statements. However, the College is required to post a letter of credit in the amount of $34,500 related to Finding , Return of Title IV Funds (R2T4) calculation errors. The letter of credit must be in effect until the College has no late return findings that exceed the limits for two consecutive fiscal years. 28

31 In addition, the College was notified by the U.S. Department of Education (the Department) that based on the audit results from the June 30, 2016 year-end, which results yielded a composite score of 0.6 out of a possible 3.0, the minimum score of 1.5 being necessary to meet the requirement of the financial standards, the College was not considered financially responsible and could only continue participating in HEA programs by electing one of two alternatives. The first alternative was to obtain a letter of credit equal to 50% of the Title IV HEA program funds received during the June 30, 2016 year-end. The second alternative was to obtain a letter of credit for 10% of the Title IV HEA program funds received during the June 30, 2016 year-end and then be placed on the Agreement for the period of up to three complete award years. The Agreement would require the College to be in compliance with zone alternative requirements, and would place them on the HCM1 method of payment. Note 20: Commitments and Contingencies Litigation In the normal course of business, the College is involved in various legal matters. Management does not currently believe that any liability related to this litigation would be material to the consolidated financial statements. Therefore, no liability has been recorded in these consolidated financial statements. Events could occur that would change this estimate materially in the near term. Construction Commitments As of June 30, 2017 the College, as owners in a condominium association at 2 Washington Street, New York, New York, as it relates to Nyack 2 Washington, LLC, had contractual construction commitments of approximately $1,396,000, related to lobby renovations. Note 21: Asset Retirement Obligation Accounting for Conditional Asset Retirement Obligations, requires that an asset retirement obligation (ARO) associated with the retirement of tangible long-lived assets be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the standard) even when the timing and/or method of settlement may be conditional on a future event. The College s conditional AROs primarily relate to asbestos contained in buildings that the College owns. The College operates in states where environmental regulations exist and that require the College to handle and dispose of asbestos in a special manner if a building undergoes major renovations or is demolished. 29

32 A summary of changes in AROs for the years ended is included in the table below. This liability is included in accounts payable and accrued liabilities on the College s statements of financial position at : Liability, beginning of year $ 143,543 $ 136,708 Accretion expense 7,177 6,835 Liability, end of year $ 150,720 $ 143,543 Note 22: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Contributions Approximately 50% and 37% of all contributions were received from one donor in 2017 and 2016, respectively. Asset Retirement Obligation As discussed in Note 21, the College has recorded a liability for its conditional AROs related to potential asbestos remediation in buildings owned by the College. Other Postretirement Obligation As discussed in Note 18, the College has a noncontributory defined benefit postretirement health care plan whereby it agrees to provide certain postretirement benefits to eligible employees. The benefit obligation is the actuarial present value of all benefits attributed to service rendered prior to the valuation date. It is reasonably possible that events could occur that would change the estimated amount of this liability materially in the near term. Note 23: Management s Consideration of Going Concern Matters The College has faced numerous financial and operating difficulties in recent years including, but not limited to the following: Recurring decreases in unrestricted net assets Negative cash flows from operating activities Declining student enrollments Failure of debt covenants and inability to pay debt, if called 30

33 These factors have given rise to substantial doubt about the College s ability to continue as a going concern. The College s administration has taken various steps to ensure the continued operation of the College including the following: The College obtained a secured loan with the Metropolitan District of the Christian & Missionary Alliance for $5.0 million of which $3.0 million was funded at closing (see Note 10). The remaining $2.0 million of funding is contingent upon a pending property sale and refinancing of a mortgage loan by the Metropolitan District which has not occurred as of the date of the financial statements. Final funding of this loan is expected by June 30, Obtained a line of credit of $2.5 million with the Alliance Development Fund, Inc. (see Note 10). The terms of the line of credit include a fixed interest rate of 6.15% with monthly payments of interest only, due March 1, The College had two lines of credit with a local bank that provided access year round to $2.0 million and a seasonal line of credit for $3.0 million that was available June 1 to September 30 and from December 15 to February 15 (see Note 9). Per agreement with the local bank, on May 1, 2017, the College would no longer have availability to these lines of credit. As referenced in Note 10, the bank reserves the right to call debt due to the College not meeting its debt covenants. The College believes the bank will not call the debt in the near term. Sales of certain non-essential real estate as described later in this note would provide liquidity to pay off the College s outstanding balance. The College has remained current with its debt obligations and payments to vendors. Management of the College believes it is current with payments to significant vendors. As a result of actions taken by the local bank on the lines of credit, the College borrowed funds from endowment in excess of plans previously proposed. The initial intentions of the College was to borrow up to a maximum of $5.0 million from its endowment investments. Due to the cancellation of the lines of credit, the College borrowed $6.0 million as of June 30, 2017, with subsequent borrowings of an additional $3.0 million in July 2017 as described in Note 5. In addition, the College is anticipating borrowing an additional $1.0 million by June 30, The terms of the investment borrowing is at a fixed one-year LIBOR rate plus 1% at the time of each borrowing with interest accrued monthly. Notice of borrowing from the endowment fund has been provided to the donors that have contributed to the fund as required by the New York State Attorney General office. The donors confirmed their agreement of borrowing, giving the College the ability to borrow on its endowment. The College is currently partnering with a consortium of unrelated not-for-profit organizations to share space in the College s New York City Campus. In addition to providing a revenue source for the use of the space, it is expected that this relationship would provide a source of additional revenue from individuals interested in attending the College and/or Seminary. 31

34 The College has also secured an agreement with a broker to develop a plan to sell non-essential real estate owned by the College. The sale of real estate would occur over the next 12 to 18 months providing the College the necessary resources for operations. The Board of Trustees of the College approved plans to begin this process at its October 2017 board meetings. In addition to the funding strategies presented above, the College has implemented plans for reducing operating expenses, including the elimination of certain employee benefits and realigning certain programs in the year ending June 30,

35 Supplementary Information

36 Nyack College and Subsidiary Schedule of Expenditures of Federal Awards Year Ended June 30, 2017 Federal Agency/Pass Through Grantor/Program or Cluster Title Passed Federal CFDA Through to Academic Academic Academic Total Federal Number Subrecipients Year Year Year Expenditures U.S. Department of Education/ Direct Program Student Financial Assistance Cluster Federal Pell Grant Program $ - $ - $ 3,579,270 $ - $ 3,579,270 Federal Supplemental Educational Opportunity Grant , ,987 Federal Work-Study Program , ,307 Federal Perkins Loan Program , ,723 Federal Direct Student Loans ,272 16,398, ,443 16,824,532 Federal TEACH Grant ,578-12,578 Notes to Schedule $ - $ 236,272 $ 21,248,682 $ 189,443 $ 21,674, The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Nyack College and Subsidiary (the College) under programs of the federal government for the year ended June 30, The accompanying notes are an integral part of this schedule. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the College, it is not intended to and does not present the consolidated financial position, changes in net assets or cash flows of the College. 2. Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. The College has elected not to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. 3. The federal loan programs listed subsequently are administered directly by the College, and balances and transactions relating to these programs are included in the College s basic financial statements. Loans outstanding at the beginning of the year and loans made during the year are included in the federal expenditures presented in the Schedule. The balance of loans outstanding at June 30, 2017, consist of: Outstanding CFDA Program Balance at Number Name June 30, Federal Perkins Loan Program $ 834,223 33

37 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Board of Trustees Nyack College and Subsidiary Nyack, New York We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the consolidated financial statements of Nyack College and Subsidiary (the College), which comprise the consolidated statement of financial position as of June 30, 2017, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated December 22, 2017, which contained an Emphasis of Matter paragraph regarding substantial doubt about the College s ability to continue as a going concern for a reasonable period for time. Internal Control Over Financial Reporting Management of the College is responsible for establishing and maintaining effective internal control over financial reporting (internal control). In planning and performing our audit of the consolidated financial statements, we considered the College s internal control to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we do not express an opinion on the effectiveness of the College s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the College s consolidated financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

38 Board of Trustees Nyack College and Subsidiary Compliance and Other Matters As part of obtaining reasonable assurance about whether the College s consolidated financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of consolidated financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to the College s management in a separate letter dated December 22, Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Colorado Springs, Colorado December 22,

39 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Independent Auditor s Report Board of Trustees Nyack College and Subsidiary Nyack, New York Report on Compliance for Each Major Federal Program We have audited Nyack College and Subsidiary s (the College) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the College s major federal program for the year ended June 30, The College s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, contracts and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for the College s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the College s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the College s compliance.

40 Board of Trustees Nyack College and Subsidiary Opinion on Each Major Federal Program In our opinion, the College complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, Report on Internal Control Over Compliance Management of the College is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the College s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the College s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Colorado Springs, Colorado December 22,

41 Nyack College and Subsidiary Schedule of Findings and Questioned Costs Year Ended June 30, 2017 Summary of Auditor s Results Financial Statements 1. The type of report the auditor issued on whether the financial statements audited were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) was: Unmodified Qualified Adverse Disclaimer 2. The independent auditor s report on internal control over financial reporting disclosed: Significant deficiency(ies)? Yes None reported Material weakness(es)? Yes No 3. Noncompliance considered material to the financial statements was disclosed by the audit? Yes No Federal Awards 4. The independent auditor s report on internal control over compliance for major federal awards programs disclosed: Significant deficiency(ies)? Yes None reported Material weakness(es)? Yes No 5. The opinion expressed in the independent auditor s report on compliance for major federal awards was: Unmodified Qualified Adverse Disclaimer 6. The audit disclosed findings required to be reported by 2 CFR (a)? Yes No 38

42 Nyack College and Subsidiary Schedule of Findings and Questioned Costs (continued) Year Ended June 30, The College s major program was: Cluster/Program Student Financial Assistance Cluster CFDA Number , , , , , The threshold used to distinguish between Type A and Type B programs was $750, The College qualified as a low-risk auditee? Yes No 39

43 Nyack College and Subsidiary Schedule of Findings and Questioned Costs (continued) Year Ended June 30, 2017 Findings Required to be Reported by Government Auditing Standards Reference Number Finding No matters are reportable. Findings Required to be Reported by the Uniform Guidance Reference Number Finding No matters are reportable. 40

44 Nyack College and Subsidiary Summary Schedule of Prior Audit Findings Year Ended June 30, 2017 Reference Number Summary of Finding Enrollment Reporting: Of the 40 students selected for testing in the prior year, our audit procedures identified four instances where incorrect enrollment status was reported, one instance where the student was not reported to NSLDS, and one instance where the status was not reported timely. In addition we noted that the College was not clearing errors on roster files within the required 15 day timeframe. The College should continue to refine its policies and procedures for enrollment reporting, including modifying the date in which the Fall Semester graduation roster file is run. In addition, based on new information indicating that the NSC is not automatically clearing errors noted on Roster Files submitted to NSLDS, we recommend that the College work with the NSC to request and resolve errors noted on Roster Files within the required 15 day timeframe. Status Implemented Return of Title IV Funds: Of the 11 students tested in the prior year, we noted two instances where inaccurte information was used in original calculations. We acknowledge that both issues were internally identified and corrected by the College prior to year-end. However, we recommend that the College continue to enhance policies and procedures over this requirement to ensure proper information is used, and a timely review is completed, at the time of initial calculation, to help ensure the proper amount is returned to the Department of Education within the required time frame. Implemented 41

45 To: BKD Auditors of A-133 Supplemental Audit From: Steve Phillips, Director of Financial Aid Date: October 5, 2017 Summary Schedule of Prior Year Findings For the Fiscal Year Ended June 30, 2017 Fiscal year: 2016 Finding Number: 001 CFDA # & Name: Federal Direct Student Loans (CFDA No ) Federal Pell Grant Program (CFDA No ) Federal Perkins Loan Program (CFDA No ) Department of Education - Award Number: None Provided, Award Year Finding: Per the OMB Compliance Supplement and per 34 CFR and (b)(2), a school must report within 30 days to the National Student Loan Data System (NSLDS), or directly to a guaranty agency, a change in enrollment status, including (a) withdrawal; (b) graduation; (c) reduction or increase in attendance level; or (d) approved leaves-of-absence unless an enrollment roster file will be submitted within 60 days. Of the 40 students selected for enrollment reporting testing, our audit procedures identified the following: 1. Four instances where the incorrect enrollment status was reported. 2. One instance where a student was not reported to the NSLDS. 3. One instance where the withdrawal was not reported to NSLDS timely. Additionally, the College was not clearing errors on the roster files within the required 15-day timeframe. Questioned costs: None Status: Corrective action taken, no current year audit finding Corrective action taken: Nyack established an Internal Student Financial Aid Review Committee that met on a monthly basis to review data selection criteria; data submissions, schedules, and error reports; and ensure a monthly review is performed for students who withdraw or change status. The committee also worked with the National Student Clearinghouse (NSC) to clear all SSCR errors from NSLDS within the 15 day requirement. Person Responsible for Corrective Action: Steve Phillips, Director of Financial Aid Fiscal year: 2016 Finding Number: 002 CFDA # & Name: Federal Supplemental Educational Opportunity Grants (FSEOG) (CFDA No ) Federal Work-Study Program (CFDA No ) Federal Perkins Loan Program (CFDA No ) Federal Pell Grant Program (CFDA No ) Federal Direct Student Loans (CFDA No ) Federal TEACH Grant (CFDA No ) Department of Education - Award Number: None provided, Award Year South Boulevard, Nyack, NY