Consolidated Financial Statements and Report of Independent Certified Public Accountants in Accordance with the Uniform Guidance

Transcription

1 Consolidated Financial Statements and Report of Independent Certified Public Accountants in Accordance with the Uniform Guidance Thunderbird School of Global Management and Subsidiaries (A Blended Component Unit of Arizona State University) June 30, 2017

2 Contents Management s Discussion and Analysis (unaudited) Report of Independent Certified Public Accountants Consolidated Statement of Net Position Consolidated Statement of Revenue, Expenses, and Changes in Net Position Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Report of Independent Certified Public Accountants on Internal Control over Financial Reporting and on Compliance and Other Matters Required by Government Auditing Standards Report of Independent Certified Public Accountants on Compliance for Each Major Federal Program Audit and on Internal Control over Compliance required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Management s Corrective Action Plan Page

3 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) This section of the Thunderbird School of Global Management s ( TSGM ) annual financial report presents management s discussion and analysis of the financial performance of TSGM for the fiscal year ended June 30, This discussion and analysis has been prepared by management and should be read in conjunction with the accompanying financial statements and footnotes. Reporting Entity Thunderbird School of Global Management is an Arizona nonprofit corporation whose mission is to educate global leaders who create sustainable prosperity worldwide. TSGM includes in its financial reporting its component units in Switzerland, Kazakhstan, Russia, and United Arab Emirates. In December 2014, TSGM and Arizona State University ( ASU ) finalized an agreement to integrate TSGM into ASU, making TSGM a component unit of ASU. TSGM offers non-degree programs distinguished by their global business, cross cultural, ethical, and multilingual components. These programs are divided into two distinct categories. Executive Education: Thunderbird Executive Education ( TEE ) began in 1989 on TSGM s main campus in Glendale, Arizona. TEE delivers impactful programs to international and multinational companies around the globe. TSGM has facilities that include the Thunderbird Executive Inn, four auditoriums, and a two-story administration and classroom building for on-campus programs. TEE s headquarters remains based in Glendale, with other locations around the globe including Geneva, Switzerland, Moscow, Russia, and Dubai, UAE. Thunderbird for Good: Created in 2005, Thunderbird for Good s mission is to create prosperity through business education for all. To accomplish this, the initiative leverages Thunderbird s expertise in international business education to provide non-traditional students with business and management skills to fight poverty, secure peace, and improve living conditions in their communities. Introduction to the Financial Statements TSGM s financial statements include the following: Statement of Net Position: The Statement of Net Position includes all assets and liabilities. Assets and liabilities are reported on an accrual basis as of June 30, This statement is presented with five major categories: assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. The assets are classified between current and noncurrent. The current assets include cash and cash equivalents, short-term investments, accounts receivable (net), and prepaid expenses. The non-current assets include restricted cash, student loans receivable, capital assets (net) and other assets. Liabilities are also classified between current and noncurrent. Current liabilities include accounts payable and accrued expenses, unearned revenues and advances from federal government. Prior year noncurrent liabilities consist of advances from federal government. Statement of Revenues, Expenses, and Changes in Net Position: The Statement of Revenues, Expenses, and Changes in Net Position presents the revenues earned and expenses incurred during the year on an accrual basis. 1

4 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) Statement of Cash Flows: The Statement of Cash Flows presents the inflows and outflows of cash for the year and are summarized by operating, noncapital financing, capital and related financing, and investing activities. This statement is prepared using the direct method of cash flows and, therefore, presents gross rather than net amounts for the year s activities. These statements are supported by the notes to the financial statements and this Management s Discussion and Analysis. All sections must be considered together to obtain a complete understanding of the financial picture of TSGM. Financial Overview The following discussion highlights the key financial aspects of TSGM s financial activities as of and for the year ended June 30, Included are analyses of current activities and balances in TSGM s net position. A comparison of June 30, 2017 and 2016 Statements of Net Position is shown below (in thousands): Increase/ (decrease) Assets: Current assets: $ 7,833 $ 7,281 $ 552 Noncurrent assets: 24,902 31,192 (6,290) Total assets $ 32,735 $ 38,473 $ (5,738) Deferred outflows of resources $ - $ - $ - Liabilities: Current liabilities: 4,121 2,821 1,300 Noncurrent liabilities - 5,309 (5,309) Total liabilities $ 4,121 $ 8,130 $ (4,009) Deferred inflows of resources $ - $ - $ - Net position: Net investment in capital assets $ 22,916 $ 25,057 $ (2,141) Restricted for: Nonexpendable Expendable Unrestricted 5,577 5, Total net position $ 28,614 $ 30,343 $ (1,729) 2

5 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) Assets: Total assets decreased by $5,738 during the year ended June 30, Noncurrent assets decreased $6,290 due to the $3,610 loan assignment of TSGM s Federal Perkins Loan portfolio to the U.S. Department of Education and a $2,141 reduction in net capital assets. Capital assets decreased because there were negligible capital asset purchases during the year offset by $2,471 of current year depreciation. Liabilities: Total liabilities decreased by $4,009 during the year ended June 30, Current liabilities increased $1,300 primarily due to $1,460 now due to the Department of Education related to the assignment of Federal Perkins loans. Noncurrent liabilities decreased by $5,309 due to the Federal Perkins Loan assignments mentioned above. Net Position: The $1,729 decrease in net position was primarily due to a $2,000 cash transfer to ASU. 3

6 MANAGEMENT S DISCUSSION AND ANALYSIS (UNAUDITED) A comparison of fiscal year 2017 to 2016 Statements of Revenues, Expenses, and Changes in Net Position is shown below (in thousands): Increase/ (decrease) Revenues: Operating revenues: Executive education program fees $ 15,691 $ 20,141 $ (4,450) Auxiliary enterprises 1,206 1,521 (315) Total operating revenues 16,897 21,662 (4,765) Expenses: Operating expenses: $ 18,291 $ 23,069 $ (4,778) Operating loss $ (1,394) $ (1,407) $ 13 Nonoperating revenues (expenses): Contributions $ 924 $ 554 $ 370 Investment income Other income Realized and unrealized losses on investments - (4) 4 Payment to the benefit of ASU (2,000) (23,494) 21,494 Foreign currency translation adjustment 81 (165) 246 Net nonoperating revenues (expenses) (335) (22,972) 22,637 Change in net position $ (1,729) $ (24,379) $ 22,650 Net position: Net position at beginning of year 30,343 54,722 (24,379) Net position at end of year $ 28,614 $ 30,343 $ (1,729) Revenues: Total operating revenues decreased $4,765 from fiscal year 2016 to fiscal year The decrease is primarily due to a decline in executive education program fees. Expenses: Total operating expenses decreased by $4,778 from fiscal year 2016 to fiscal year The decrease was primarily due to a $3,023 decrease in instructional and educational services. The decrease in nonoperating expenses was primarily due to a decline in transfers to ASU for the benefit of Thunderbird academic programs. 4

7 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Trustees Thunderbird School of Global Management Report on the financial statements Grant Thornton LLP 2398 E Camelback Road, Suite 600 Phoenix, AZ T F We have audited the accompanying consolidated financial statements of Thunderbird School of Global Management and Subsidiaries (a blended component unit of Arizona State University) (the Entity ), which comprise the consolidated statement of net position as of June 30, 2017, and the related consolidated statements of revenues, expenses and changes in net position and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the Entity s basic consolidated financial statements as listed in the table of contents. 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 audit. We conducted our audit 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 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 5

8 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Thunderbird School of Global Management and Subsidiaries as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other matters Required supplementary information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis (on pages 1 through 4, respectively) be presented to supplement the basic consolidated financial statements. Such information, although not a required part of the basic consolidated financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic consolidated financial statements in an appropriate operational, economic, or historical context. This required supplementary information is the responsibility of management. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America. These limited procedures consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements that collectively comprise the Entity s basic consolidated financial statements. The schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the basic consolidated financial statements or to the basic consolidated financial statements themselves, and other additional procedures in accordance with auditing standards Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 6

9 generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic 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 September 7, 2017, on our consideration of the Entity 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 effectiveness of 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 Entity s internal control over financial reporting and compliance. Phoenix, Arizona September 7, 2017 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 7

10 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT Consolidated Statement of Net Position As of June 30, 2017 (in thousands) Assets: Current assets: Cash and cash equivalents, unrestricted $ 4,973 Short-term investments 1 Accounts receivable, net 2,404 Prepaid expenses 455 Total current assets 7,833 Noncurrent assets: Restricted cash 1,449 Student loans receivable 11 Capital assets, net 22,916 Other assets 526 Total noncurrent assets 24,902 Total assets $ 32,735 Deferred outflows of resources $ - Liabilities: Current liabilities: Accounts payable and accrued expenses $ 1,374 Unearned revenues 1,287 Advances from federal government 1,460 Total current liabilities 4,121 Total liabilities $ 4,121 Deferred inflows of resources $ - Net position: Net investment in capital assets $ 22,916 Restricted for: Nonexpendable - Expendable 121 Unrestricted 5,577 Total net position $ 28,614 The accompanying notes are an integral part of this consolidated financial statement. 8

11 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT Consolidated Statement of Revenues, Expenses and Changes in Net Position For the year ended June 30, 2017 (in thousands) Revenues: Operating revenues: Executive education program fees $ 15,691 Auxiliary enterprises 1,206 Total operating revenues 16,897 Expenses: Operating expenses: Instructional and educational services 12,734 Auxiliary enterprise services 1,111 Institutional support 1,475 Operations and maintenance of plant 500 Depreciation 2,471 Total operating expenses 18,291 Operating loss (1,394) Nonoperating revenues (expenses): Contributions 924 Investment income 3 Other income 657 Payment to the benefit of ASU (2,000) Foreign currency translation adjustment 81 Net nonoperating expenses (335) Change in net position (1,729) Net position: Net position at beginning of year, as previously reported 30,343 Net position at end of year $ 28,614 The accompanying notes are an integral part of this consolidated financial statement. 9

12 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT Consolidated Statement of Cash Flows For the year ended June 30, 2017 (in thousands) Cash flows from operating activities: Executive education contracts $ 15,814 Sales and services of auxiliary enterprises 1,424 Retainment of Perkins institutional capital contribution (293) Student loans and other notes collected 55 Change in restricted cash 239 Payments for employees' salaries and benefits (5,411) Payments to vendors for supplies and services (10,381) Net cash provided by operating activities 1,447 Cash flows from noncapital financing activities: Payment to the benefit of ASU (2,000) Donor contributions 924 Other receipts 657 Net cash used for noncapital financing activities (419) Cash flows from capital and related financing activities: Purchases of capital assets (51) Net cash used for capital and related financing activities (51) Cash flows from investing activities: Investment income, net 3 Net cash provided by investing activities 3 Effect of exchange rate changes on cash 81 Net increase in cash and cash equivalents 1,061 Cash and cash equivalents - beginning of year 3,912 Cash and cash equivalents - end of year $ 4,973 The accompanying notes are an integral part of this consolidated financial statement. 10

13 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT Consolidated Statement of Cash Flows For the year ended June 30, 2017 (in thousands) Reconciliation of operating loss to net cash used for operating activities: Operating loss $ (1,394) Adjustments to reconcile operating loss to net cash used for operating activities: Depreciation 2,471 Change in assets and liabilities: Accounts and student loan receivable, net 465 Prepaid expenses 45 Other assets 20 Accounts payable and accrued expenses (36) Unearned revenues (124) Net cash provided by operating activities $ 1,447 The accompanying notes are an integral part of this consolidated financial statement. 11

14 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2017 (dollars in thousands) NOTE 1 - PURPOSE AND HISTORY OF SCHOOL Thunderbird School of Global Management ( TSGM ) is an Arizona not-for-profit corporation and was chartered in 1946 to offer programs distinguished by their global business, cross cultural, ethical, and multilingual components. TSGM s mission is to educate global leaders who create sustainable prosperity worldwide. TSGM includes component units in Switzerland, Kazakhstan, Russia, and United Arab Emirates ( UAE ). In January 2015, TSGM was integrated into the Arizona State University ( ASU ) knowledge enterprise. TSGM is legally separate from ASU, however, all TSGM trustees are members of ASU s administration and TSGM s financial statements are included as a blended component unit of ASU s reporting entity. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting - The consolidated financial statements of TSGM are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ) applicable to governmental entities, established primarily by the Governmental Accounting Standards Board (the GASB ). Consolidation - The consolidated financial statements of TSGM include TSGM and its wholly owned subsidiaries. These subsidiaries, described below, operate the majority of the foreign activities of TSGM. Material inter-company balances and transactions, including inter-company profits and losses, are eliminated in consolidation. Thunderbird Europe SARL ( SARL ) is a Swiss entity, operating a significant portion of TSGM s executive education programs. SARL is located in Geneva, Switzerland, and is the gateway of TSGM s involvement in Europe, Middle East and Africa ( EMEA ). This entity acts as the hub to engage corporations, governments, and not-for-profit entities seeking to develop their leaders throughout the EMEA region. SARL is managed by the TSGM Board of Trustees. Center for Business Skills Development ( CBSD ) is a Russian non-governmental educational institute located in Moscow, Russia. CBSD offers executive development programs and customized training to help solve business issues and nurture strong, innovative leaders in Eastern Europe and beyond. CBSD is managed by the TSGM Board of Trustees. Kazakhstan Limited Liability Partnership ( KZ ) is a partnership organized under Kazakhstan law to enhance the services offered from CBSD and better service clients in the Kazakhstan region. KZ is managed by the TSGM Board of Trustees. Thunderbird International is a not-for-profit Arizona corporation with operations recently started in Dubai, UAE. Executive education programs will be created and offered to clients in this region. Thunderbird International is managed by the TSGM Board of Trustees. Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures 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 could differ from those estimates. Significant estimates include the allowance for uncollectible receivables and useful lives of depreciable assets. 12

15 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) JUNE 30, 2017 (dollars in thousands) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign Currency Translation - The financial position and results of operations for the foreign subsidiaries are measured using the local currency as the functional currency. The assets and liabilities of these subsidiaries are translated to U.S. dollars using exchange rates in effect at the statement of net position dates. Revenues and expenses are translated at monthly average rates of exchange. The resulting translation adjustments are included as a component of the change in unrestricted net assets. Cash and Cash Equivalents - Cash equivalents include highly liquid investments with original maturities of three months or less held in U.S. and foreign bank accounts. Custodial credit risk for demand deposits is the risk that in the event of a bank failure, TSGM s demand deposits may not be returned. Funds held in the U.S. bank accounts are insured by the Federal Deposit Insurance Corporation ( FDIC ) and, at times, such cash may be in excess of FDIC insurance limits. TSGM also has cash balances in foreign bank accounts that are not insured. TSGM does not have a deposit policy for custodial credit risk but has not experienced any losses in such accounts, and management believes it is not exposed to any significant risks related to these accounts. Foreign Currency Risk - Foreign currency risk is the risk that changes in the foreign exchange rate will adversely impact the fair market value of an investment or deposit. TGSM does not have a formal policy regarding foreign currency risk. SARL, CBSD, and KZ maintain cash on deposit in foreign currencies, and the following table summarizes TSGM s foreign currency risk as of June 30, Currency Cash on Deposit (USD) Euro currency $ 557 Kazakhstan Tenge 11 Russian Ruble 283 Swiss Franc 130 Total $ 981 Restricted Cash - Restricted cash primarily consists of advances from the federal government to fund the Perkins loan program. These advances are not available for use in operations until funds have been disbursed to the students. The program has been discontinued and the cash is being transferred to the federal government. Accounts and Loans Receivable - Accounts and loans receivable consist primarily of receivables related to executive education programs delivered by TSGM. At June 30, 2017, receivables consisted of the following: 2017 Federal government Perkins Loan program $ 11 Student institutional loans and receivables 3 Executive education receivables 2,327 Other receivables 75 2,416 Allowance for doubtful accounts (1) Receivables, net $ 2,415 13

16 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) JUNE 30, 2017 (dollars in thousands) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts and Loans Receivable (continued) TSGM participates in the Perkins federal revolving loan program. The availability of funds for loans under the program is dependent on reimbursements to the pool from repayments on outstanding loans. Funds advanced by the federal government of $1,460 at June 30, 2017, are classified as liabilities in the statement of net position. Outstanding loans cancelled under the program result in a reduction of the funds available for loan and a decrease in the liability to the government. In conjunction with the ASU integration, TSGM has assigned all but $11 of its Federal Perkins Loan portfolio to the U.S. Department of Education and is in the process of liquidating this program. Allowances for doubtful accounts are established based on prior collection experience and current economic factors which, in management s judgment, could influence the ability of clients to repay the amounts per the payment terms. Accounts receivable balances are written off only when they are deemed to be uncollectible. Amounts due under the Perkins loan program are guaranteed by the government, and therefore, no reserves are placed on any past-due balances under the program. Capital Assets Capital assets are stated at cost or if acquired by gift, at the fair market value at date of receipt. Items with a useful life greater than one year and unit cost of $1 or more are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives ranging from 10 to 40 years for buildings and land improvements; 3 to 7 years for computers, furnishings, and equipment; and 4 to 10 years for library books. TSGM continually monitors events and changes in circumstances that could indicate the carrying amount of long-lived assets may not be recoverable. No such indicators of impairment were present as of June 30, Art Collections - Art collections are recorded at a cost of $279 as of June 30, 2017, and are included in capital assets, net on the statement of net position. TSGM does not depreciate works of art. Revenue Recognition and Unearned Revenue - Revenue is recognized when earned. Unearned revenue represents funding received in advance of work performed. Classification of Revenues and Expenses - TSGM considers operating revenues and expenses to be those revenues and expenses that result from exchange transactions or from other activities that are connected directly to TSGM s primary functions, which are executive education, auxiliary operations, student services, and the administrative support associated with each of the programs. Certain other transactions are reported as nonoperating revenues and expenses, including donor contributions, investment income, other income, payment to the benefit of ASU, and foreign currency translation adjustments. Income Taxes - TSGM has been recognized by the Internal Revenue Service and the Arizona Department of Revenue as exempt from federal and state income taxes on revenues in excess of costs and expenses realized from activities related to its exempt function under Internal Revenue Code Section 501(c)(3). Income taxes would be provided on revenues in excess of costs and expenses from activities unrelated to TSGM s exempt function. Income taxes in foreign jurisdictions would be provided on the unrelated income generated in the foreign jurisdictions. TSGM does, however, have sole ownership of taxable entities in Russia, Switzerland, Kazakhstan, and UAE and as such, is subject to income taxes if any of those entities produces taxable income. 14

17 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) JUNE 30, 2017 (dollars in thousands) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) Functional Expense Reporting - Expenses are charged to program services and management and general categories based on expenditures incurred. Contributions - Contributions are recognized when an unconditional promise to give is made or when cash is received, if an unconditional promise does not exist. TSGM reports monetary gifts as contribution revenue and an increase to expendable restricted net position if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), expendable restricted net position is decreased and unrestricted net position is increased. All contributions are considered available for the general programs of TSGM, unless specifically restricted by the donor. TSGM is the beneficiary under various wills and trust agreements; the total realizable amount of which is not presently determinable. Such amounts are recorded when a will is declared valid by a probate court and the proceeds are measurable. Accounting for Net Position - TSGM s net position is classified into the following categories: Net Investment in Capital Assets - This category groups all capital assets into one component of net position. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition, construction or improvement of those assets reduces the balance in this category. Restricted Net Position - This category presents external restrictions imposed by creditors, grantors, donors, laws or regulations of other governments, and restrictions imposed by law through constitutional provision or enabling legislation. Unrestricted Net Position - This category represents the net position that is not restricted for any project or other purpose. When an expenses is incurred that can be paid for either restricted or unrestricted resources, TSGM s policy is to allow the department incurring the expense to determine the appropriate funding source. Deferred Outflows of Resources - In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. TSGM has no amounts that qualify as deferred outflows of resources at June 30, Deferred Inflows of Resources - In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. TSGM has no amounts that qualify as deferred inflows of resources at June 30,

18 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) JUNE 30, 2017 (dollars in thousands) NOTE 3 - CAPITAL ASSETS Property, buildings, furnishings, and equipment consisted of the following: Beginning of Year Additions Disposals and Other Foreign Currency Translation Adjustment End of Year Land $ 820 $ - $ - $ - $ 820 Land improvements 5, ,770 Buildings 58, ,800 Equipment, furnishings, and computers 25, (77) 54 25,976 Library books 1, ,163 Constructions in progress 56 - (56) - - Works of art , (133) 92 92,808 Less accumulated depreciation Land improvements (3,786) (137) - - (3,923) Buildings (37,220) (1,888) (8) (38) (39,154) Equipment, furnishings, and computers (25,337) (410) 85 (54) (25,716) Library books (1,063) (36) - - (1,099) $ (67,406) $ (2,471) $ 77 $ (92) $ (69,892) $ 25,336 $ 22,916 NOTE 4 - COMMITMENTS AND CONTINGENCIES Litigation - In the normal course of business, TSGM may be party to suits, claims, or proceedings. It is the opinion of management, upon consultation with the statutory agent, no current or pending claims are expected to have a material effect on the results of operations or financial condition. Operating Leases - In May 2017, TSGM entered into a short-term operating lease for office space in Dubai, which is effective June 1, 2017 through May 31, Lease expense was $34 for the year ended June 30, Effective July 1, 2014, TSGM entered into a five-year operating lease for office space in Russia. The lease expires on September 30, Lease expense was $449 for the year ended June 30, This lease contains an annual increase in rent, effective each October. In April 2016, TSGM entered into a five-year operating lease for office space in Switzerland. The lease expires on March 31, Lease expense was $130 for the year ended June 30, TSGM also has a lease for copier equipment that is accounted for as an operating lease. The lease expired in December 2012 and was renewed for a five-year term, expiring in December Lease expense was approximately $96 for the year ended June 30,

19 THUNDERBIRD SCHOOL OF GLOBAL MANAGEMENT AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) JUNE 30, 2017 (dollars in thousands) NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued) Operating Leases (continued) The following is a schedule of the future minimum lease payments for the leases: For the years ending June 30, UAE Russia Switzerland Copier Total 2018 $ 47 $ 416 $ 189 $ 48 $ $ 47 $ 521 $ 709 $ 48 $ 1,325 NOTE 5 MAJOR CUSTOMER AND CONCENTRATION IN FOREIGN MARKETS TSGM had one major customer in 2017 that accounted for approximately 31% of revenues. In addition, operations in Russia and Switzerland accounted for approximately 22% and 12% of revenues, respectively. TSGM had one customer that accounted for 29% of accounts receivable at June 30, A majority of the remaining accounts receivable are held by the Switzerland (47%) and Russia (21%) operations. TSGM expects to maintain these relationships. NOTE 6 RELATED PARTY As part of ongoing collaboration between TSGM and ASU, there are instances where revenues and expenses are invoiced between the two entities. Faculty, staff, and students of the ASU Thunderbird School of Global Management, which is an academic unit within ASU, are housed on TSGM s Glendale campus, and faculty and staff provide services to TSGM. These financial transactions netted to a reimbursement of $1,699 to ASU for the year ending June 30, Included in this figure are $3,669 in expenses transferred to TSGM such as payroll, travel, and an 8.5% administrative service charge on expenses. These expenses are included in instructional and educational services and institutional support on the statement of revenues, expenses, and changes in net position. Revenue transactions in the amount of $300 include dormitory fees for the TSGM campus that were collected by ASU and included in auxiliary enterprise revenue on the statement of revenues, expenses and changes in net position. TSGM is reimbursed by ASU for facility and utility expenses. All of these transactions are accounted for in an intercompany receivable and payable account and are settled monthly. As of June 30, 2017, there was a net $365 payable to ASU, which is included in accounts payable and accrued expenses on the statement of net position. In addition, TSGM transferred $2,000 to ASU for the benefit of TSGM academic programs during the year ended June 30, NOTE 7 - SUBSEQUENT EVENTS TSGM has evaluated subsequent events through September 7, 2017, which is the date of the financial statements were available to be issued. TSGM is not aware of any subsequent events that would require recording or disclosure in the consolidated financial statements other than those disclosed in these consolidated financial statements and the related footnotes. 17

20 REPORTS AND SCHEDULES REQUIRED BY THE UNIFORM GUIDANCE

21 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS REQUIRED BY GOVERNMENT AUDITING STANDARDS Grant Thornton LLP 2398 E Camelback Road, Suite 600 Phoenix, AZ T F Board of Trustees Thunderbird School of Global Management 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 Thunderbird School of Global Management and Subsidiaries (a blended component unit of Arizona State University) (the Entity ), which comprise the consolidated statement of net position as of June 30, 2017, and the related consolidated statements of revenues, expenses and changes in net position and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the Entity s basic consolidated financial statements, and have issued our report thereon dated September 7, Internal control over financial reporting In planning and performing our audit of the financial statements, we considered the Entity s internal control over financial reporting ( internal control ) to design 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 internal control. Accordingly, we do not express an opinion on the effectiveness of the Entity 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 Entity s 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. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 19

22 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 and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, we identified a deficiency in internal control, described in the accompanying schedule of findings and questioned costs, as item that we consider to be a material weakness in the Entity s internal control. Compliance and other matters As part of obtaining reasonable assurance about whether the Entity s financial statements are free from 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 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. Entity s response to findings The Entity s response to our findings, which is described in the accompanying schedule of findings and questioned costs and in management s corrective action plan, was not subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we express no opinion on the Entity s response. Intended purpose 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 Entity s internal control and compliance. Accordingly, this report is not suitable for any other purpose. Phoenix, Arizona September 7, 2017 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 20

23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Grant Thornton LLP 2398 E Camelback Road, Suite 600 Phoenix, AZ T F Board of Trustees Thunderbird School of Global Management Report on compliance for each major federal program We have audited the compliance of Thunderbird School of Global Management and Subsidiaries (the Entity ) with the types of compliance requirements described in the U.S. Office of Management and Budget s OMB Compliance Supplement that could have a direct and material effect on its major federal program for the year ended June 30, The Entity s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Our audit of, and opinion on, the Entity s compliance for its major federal program does not include the compliance requirements governing Perkins student loan repayments under the Student Financial Assistance cluster, because the Entity engaged University Accounting Service, LLC to perform these compliance activities. This third-party servicer has obtained a compliance examination from another practitioner for the year ended June 30, 2017 in accordance with the U.S. Department of Education s Audit Guide, Audits of Federal Student Financial Assistance Programs at Participating Institutions and Institution Servicers. Management s responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal award applicable to the Entity s federal program. Auditor s responsibility Our responsibility is to express an opinion on compliance of the Entity 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 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 21

24 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 Entity 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 Entity s compliance. Opinion on each major federal program In our opinion, the Entity 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 Entity 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 Entity s internal control over compliance with the types of compliance requirements that could have a direct and material effect on the major federal program to design audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the 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 Entity s internal control over compliance. As described in our Report on Compliance for Each Major Federal Program above, this Report on Internal Control Over Compliance does not include the results of the other auditors testing of internal control over compliance that is reported on separately by those auditors. 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 a 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. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 22

25 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. Given these limitations, during our audit we did not identify any deficiencies in the Entity s 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. Phoenix, Arizona September 7, 2017 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 23

26 Thunderbird School of Global Management and Subsidiaries SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the year ended June 30, 2017 CFDA Federal Grantor, Grant, or Program Title Number Expenditures Department of Education Student Financial Aid Cluster Outstanding Federal Perkins Loans $ 11,078 TOTAL FEDERAL AWARDS $ 11,078 There were no new loans disbursed during the fiscal year. See notes to Schedule of Expenditures of Federal Awards. 24

27 Thunderbird School of Global Management and Subsidiaries NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 1. BASIS OF PRESENTATION June 30, 2017 The accompanying Schedule of Expenditures of Federal Awards (the Schedule ) includes the federal grant activity of Thunderbird School of Global Management and Subsidiaries (a blended component unit of Arizona State University) ( TSGM ). The amount expended equals the beginning balance of loans from previous years for which the federal government imposes continuing compliance requirements. The proceeds of loans that were received and expended in prior years are not considered federal awards expended under the Uniform Guidance (as defined below) when the federal statutes, regulations, and the terms and conditions of federal awards pertaining to such loans impose no continuing compliance requirements other than to repay the loans. The information in this Schedule is presented in accordance with the requirements of Uniform Administration Requirements, Cost Principles, and Audit Requirements for Federal Awards ( Uniform Guidance ). Therefore, some amounts presented in this Schedule may differ from amounts presented in, or used in the preparation of, the basic consolidated financial statements. Because this Schedule presents only a selected portion of the operations of TSGM, it is not intended to, and does not, present the financial position, changes in net assets or cash flows of TSGM or Arizona State University. The U.S. Department of Education acts as the oversight agency for TSGM. 2. FEDERAL STUDENT LOAN PROGRAMS Loans issued to students of TSGM under the Federal Perkins Loan Program and which are still outstanding are summarized in the federal expenditures column of the Schedule of Expenditures of Federal Awards. TSGM is responsible for the performance of certain administrative duties with respect to this federal student loan program. Perkins loans are in the process of being reassigned to the Department of Education. Total outstanding loans under the Perkins Loan Program at June 30, 2017, were $11,078, which is included in the Schedule. No new loans were issued for the year ended June 30, TSGM has not elected to use the 10% de minimus cost rate as covered in 2 CFR indirect costs. 3. RECONCILIATION TO FINANCIAL STATEMENTS Perkins loans outstanding are reported in the line item Student loans receivable on the TSGM consolidated statement of net position. The related liability is recorded in the line item Advances from federal government, which also includes $1,449,054 of cash repayments, classified as restricted cash. 4. SUBSEQUENT EVENTS TSGM has evaluated subsequent events through September 7, 2017, the date this Schedule was available to be issued. TSGM is not aware of any subsequent events that would require recognition or disclosure in this Schedule. 25