ADELPHI UNIVERSITY. For the years ended August 31, 2016 and 2015

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1 Independent Auditors Reports as Required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and Government Auditing Standards and Related Information ADELPHI UNIVERSITY For the years ended August 31, 2016 and 2015

2 C O N T E N T S Report of Independent Certified Public Accountants 1-2 Consolidated Financial Statements: Consolidated Statements of Financial Position as of August 31, 2016 and Consolidated Statement of Activities for the year ended August 31, 2016 (with summarized comparative financial information for the year ended August 31, 2015) 4 Consolidated Statement of Activities for the year ended August 31, Consolidated Statements of Cash Flows for the years ended August 31, 2016 and Page(s) Notes to Consolidated Financial Statements 7-26 Schedule of Expenditures of Federal Awards for the year ended August 31, Notes to Schedule of Expenditures of Federal Awards for the year ended August 31, 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 and on Internal Control over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs for the year ended August 31, Summary Schedule of Prior Year Audit Findings and Corrective Action Plan 35

3 Grant Thornton LLP 445 Broad Hollow Road, Suite 300 Melville, NY T F GrantThornton.com linkd.in/grantthorntonus twitter.com/grantthorntonus REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Trustees of Adelphi University: Report on the financial statements We have audited the accompanying consolidated financial statements of Adelphi University and subsidiary (collectively, the University ), which comprise the consolidated statements of financial position as of August 31, 2016 and 2015, 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 University 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 University 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. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd

4 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adelphi University and subsidiary as of August 31, 2016 and 2015, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other matters Supplementary information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. 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 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the 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 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 supplementary 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 November 28, 2016, on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the 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 University s internal control over financial reporting and compliance. Melville, New York November 28,

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF AUGUST 31, 2016 AND 2015 ASSETS NOTES Cash and Short-Term Investments, at fair value 2 $ 27,645,286 $ 22,885,222 Accounts Receivable, net 3 1,781,985 2,052,545 Grants Receivable 1 336, ,145 Prepaid Expenses and Other Assets 7,913,581 8,035,180 Contributions Receivable, net 1, 4 5,857,663 6,203,627 Student Loans Receivable, net 5 6,721,412 6,525,165 Investments, at fair value 1, 6 164,847, ,458,191 Amounts Held in Trust 1, 8 2,048,743 1,644,820 Land, Buildings, and Equipment, net 1, 9 256,128, ,043,264 TOTAL ASSETS $ 473,281,451 $ 467,473,159 LIABILITIES AND NET ASSETS LIABILITIES Accounts Payable and Accrued Expenses 1,10 $ 24,061,223 $ 21,912,594 Deferred Revenues 1 33,327,691 29,848,014 U.S. Government Grants Refundable 5 5,802,724 5,647,384 Long-Term Debt ,553, ,127,554 Total Liabilities 186,744, ,535,546 COMMITMENTS AND CONTINGENCIES 15 NET ASSETS Unrestricted Net Assets: 1, 7 Operations and Designated 201,767 78,458 Long-Term Investment 124,318, ,721,011 Plant 110,483, ,002,330 Total Unrestricted Net Assets 235,004, ,801,799 Temporarily Restricted Net Assets 1, 7 20,318,668 18,552,520 Permanently Restricted Net Assets 1, 7 31,213,791 30,583,294 Total Net Assets 286,536, ,937,613 TOTAL LIABILITIES AND NET ASSETS $ 473,281,451 $ 467,473,159 The accompanying notes are an integral part of these consolidated financial statements 3

6 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2016 (WITH SUMMARIZED COMPARATIVE FINANCIAL INFORMATION FOR THE YEAR ENDED AUGUST 31, 2015) REVENUES UNRESTRICTED OPERATIONS 2015 TOTAL LONG-TERM TEMPORARILY PERMANENTLY (Details provided NOTES OPERATIONS DESIGNATED TOTAL INVESTMENT PLANT TOTAL RESTRICTED RESTRICTED TOTAL on next page) Tuition and Fees $ 214,767,977 $ - $ 214,767,977 $ - $ - $ 214,767,977 $ - $ - $ 214,767,977 $ 212,424,954 Less: Scholarships and Fellowships 1 (54,681,053) - (54,681,053) - - (54,681,053) - - (54,681,053) (52,493,809) Net Tuition and Fees 160,086, ,086, ,086, ,086, ,931,145 Contributions 1 1,020,399-1,020, ,590 1,143,989 2,071, ,087 3,723,804 5,341,904 Government Grants and Contracts 1,13 4,645,313-4,645, ,645, ,645,313 4,293,508 Investment Gain (Loss) 6 6,018,466-6,018,466 1,347,571 1,010 7,367,047 1,938, ,459 9,410,933 (8,069,288) Sales and Services of Educational Departments 1,579,427-1,579, ,579, ,579,427 1,444,975 Sales and Services of Auxiliary Enterprises 14,566,775-14,566, ,566, ,566,775 14,564,955 Other Sources 3,259,134-3,259,134 42,300 94,196 3,395,630 1,607,300 2,991 5,005,921 5,001, ,176, ,176,438 1,389, , ,785,105 5,617, , ,019, ,508,652 Net Assets Released from Restrictions and Reclassifications 3,599,669-3,599, ,678 3,837,347 (3,851,307) 13, TOTAL REVENUES 194,776, ,776,107 1,389, , ,622,452 1,766, , ,019, ,508,652 EXPENSES 14 Instruction 87,387,668-87,387,668-4,047,264 91,434, ,434,932 90,407,150 Research and Public Service 7,681,873 52,510 7,734, ,309 8,302, ,302,692 8,167,280 Academic Support 20,402,657-20,402,657-1,056,569 21,459, ,459,226 20,782,775 Student Services 27,974,445-27,974,445-2,803,847 30,778, ,778,292 28,850,024 Institutional Support 29,274,412-29,274,412 67, ,910 30,228, ,228,432 29,197,738 Auxiliary Enterprises 11,424,306-11,424,306-2,891,715 14,316, ,316,021 13,913,329 TOTAL EXPENSES 184,145,361 52, ,197,871 67,110 12,254, ,519, ,519, ,318,296 CHANGE IN NET ASSETS, before transfers and amounts designated 10,630,746 (52,510) 10,578,236 1,322,761 (11,798,140) 102,857 1,766, ,497 2,499,502 (8,809,644) TRANSFERS Mandatory Transfer for Debt Service (7,724,994) - (7,724,994) - 7,724, Matching and Other Contributions (25,096) - (25,096) 25, Property, Plant and Equipment (4,554,286) - (4,554,286) - 4,554, Transfer from Board-Designated Funds 1,750,000-1,750,000 (1,750,000) CHANGE IN NET ASSETS, before amounts designated 76,370 (52,510) 23,860 (402,143) 481, ,857 1,766, ,497 2,499,502 (8,809,644) AMOUNTS DESIGNATED UNRESTRICTED Faculty Research (76,370) 76, TOTAL AMOUNTS DESIGNATED (76,370) 76, CHANGE IN NET ASSETS, before postretirement changes - 23,860 23,860 (402,143) 481, ,857 1,766, ,497 2,499,502 (8,809,644) Postretirement Changes Other than Net Periodic Benefit Costs 10 99,449-99, , ,449 - CHANGE IN NET ASSETS 99,449 23, ,309 (402,143) 481, ,306 1,766, ,497 2,598,951 (8,809,644) NET ASSETS, BEGINNING OF YEAR - 78,458 78, ,721, ,002, ,801,799 18,552,520 30,583, ,937, ,747,257 NET ASSETS, END OF YEAR $ 99,449 $ 102,318 $ 201,767 $ 124,318,868 $ 110,483,470 $ 235,004,105 $ 20,318,668 $ 31,213,791 $ 286,536,564 $ 283,937, The accompanying notes are an integral part of this consolidated financial statement 4

7 CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED AUGUST 31, 2015 REVENUES UNRESTRICTED UNRESTRICTED OPERATIONS LONG-TERM TEMPORARILY PERMANENTLY NOTES OPERATIONS DESIGNATED TOTAL INVESTMENT PLANT TOTAL RESTRICTED RESTRICTED TOTAL Tuition and Fees $ 212,424,954 $ - $ 212,424,954 $ - $ - $ 212,424,954 $ - $ - $ 212,424,954 Less: Scholarships and Fellowships 1 (52,493,809) - (52,493,809) - - (52,493,809) - - (52,493,809) Net Tuition and Fees 159,931, ,931, ,931, ,931,145 Contributions 1 1,026,670-1,026,670-59,187 1,085,857 1,492,631 2,763,416 5,341,904 Government Grants and Contracts 1,13 4,293,508-4,293, ,293, ,293,508 Investment Income (Loss) 6 3,126,730-3,126,730 (9,319,158) 11,824 (6,180,604) (1,865,698) (22,986) (8,069,288) Sales and Services of Educational Departments 1,444,975-1,444, ,444, ,444,975 Sales and Services of Auxiliary Enterprises 14,564,955-14,564, ,564, ,564,955 Other Sources 2,876,104-2,876, , ,753 3,442,293 1,556,402 2,758 5,001, ,264, ,264,087 (8,943,722) 261, ,582,129 1,183,335 2,743, ,508,652 Net Assets Released from Restrictions and Reclassifications 3,811,426 4,800 3,816, ,800 4,369,026 (4,386,281) 17,255 - TOTAL REVENUES 191,075,513 4, ,080,313 (8,943,722) 814, ,951,155 (3,202,946) 2,760, ,508,652 EXPENSES 14 Instruction 86,167,927-86,167,927-4,239,223 90,407, ,407,150 Research and Public Service 7,511,126 73,540 7,584, ,614 8,167, ,167,280 Academic Support 19,696,076-19,696,076-1,086,699 20,782, ,782,775 Student Services 25,968,624-25,968,624-2,881,400 28,850, ,850,024 Institutional Support 28,226,681-28,226,681 72, ,072 29,197, ,197,738 Auxiliary Enterprises 10,819,680-10,819,680-3,093,649 13,913, ,913,329 TOTAL EXPENSES 178,390,114 73, ,463,654 72,985 12,781, ,318, ,318,296 CHANGE IN NET ASSETS, before transfers and amounts designated 12,685,399 (68,740) 12,616,659 (9,016,707) (11,967,093) (8,367,141) (3,202,946) 2,760,443 (8,809,644) TRANSFERS Mandatory Transfer for Debt Service (7,492,083) - (7,492,083) - 7,492, Matching and Other Contributions (29,967) - (29,967) 29, Property, Plant and Equipment (5,094,455) - (5,094,455) - 5,094, CHANGE IN NET ASSETS, before amounts designated 68,894 (68,740) 154 (8,986,740) 619,445 (8,367,141) (3,202,946) 2,760,443 (8,809,644) AMOUNTS DESIGNATED Faculty Research (68,894) 68, CHANGE IN NET ASSETS, before postretirement changes (8,986,740) 619,445 (8,367,141) (3,202,946) 2,760,443 (8,809,644) Postretirement Changes Other than Net Periodic Benefit Costs CHANGE IN NET ASSETS (8,986,740) 619,445 (8,367,141) (3,202,946) 2,760,443 (8,809,644) NET ASSETS, BEGINNING OF YEAR - 78,304 78, ,707, ,382, ,168,940 21,755,466 27,822, ,747,257 NET ASSETS, END OF YEAR $ - $ 78,458 $ 78,458 $ 124,721,011 $ 110,002,330 $ 234,801,799 $ 18,552,520 $ 30,583,294 $ 283,937,613 The accompanying notes are an integral part of this consolidated financial statement 5

8 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 2016 AND Cash Flows from Operating Activities: Change in Net Assets $ 2,598,951 $ (8,809,644) Adjustments to Reconcile Change in Net Assets to Net Cash Flows Provided by Operating Activities: Nonoperating Items: Realized Gain on Investments (5,550,562) (8,808,817) Contributions and Investment Income Restricted for Long-Term Investment (1,946,942) (2,316,717) Noncash Items: Depreciation, Accretion, and Amortization 7,418,473 7,499,002 Amortization of Bond Premium (192,188) (181,956) Net Unrealized (Gain) Loss on Investments (3,635,168) 17,003,989 Loss on Disposals of Equipment 26,581 12,738 Cancellations of Notes Receivable 143, ,176 Increase (Decrease) in Allowance for Doubtful Accounts 24,631 (52,201) Change In Operating Assets and Liabilities: Decrease (Increase) in Accounts Receivable 245,929 (152,544) Decrease (Increase) in Grants Receivable 288,786 (121,382) Decrease (Increase) in Prepaid Expenses and Other Assets 121,599 (1,987,017) Decrease (Increase) in Contributions Receivable 400,972 (698,877) Increase in Amounts Held in Trust (403,923) (131,111) Increase in Accounts Payable and Accrued Expenses 2,014,769 2,047,611 Increase in Deferred Revenues 3,479, ,321 Increase (Decrease) in U.S. Government Grants Refundable 155,340 (18,778) Net Cash Flows Provided by Operating Activities 5,190,361 4,252,793 Cash Flows from Investing Activities: Proceeds from Sale of Investments 46,756,574 54,949,381 Purchase of Investments (24,015,328) (32,804,789) Student Notes Receivable: New Loans Made (1,219,539) (1,152,335) Principal Collected 879, ,091 Expenditures for Plant Facilities (22,298,802) (39,688,409) Net Cash Flows Provided by (Used in) Investing Activities 102,761 (17,832,061) Cash Flows from Financing Activities From Borrowings: Proceeds from Issuance of Bonds, Net of Bond Issuance Costs - 35,794,812 Use of Proceeds of Bonds and Return on Proceeds of Bonds - 23,843,492 Retirement of Debt (2,480,000) (36,101,599) Proceeds from Contributions and Investment Earnings Restricted for: Investment in Endowment 1,684,177 1,711,363 Plant Improvements 261, ,907 Student Loan Funds 1,547 1,447 Net Cash Flows (Used in) Provided by Financing Activities (533,058) 25,853,422 Net Increase in Cash and Short-Term Investments 4,760,064 12,274,154 Cash and Short-Term Investments: Beginning of Year 22,885,222 10,611,068 End of Year $ 27,645,286 $ 22,885,222 Supplemental Disclosures: Interest Paid $ 5,602,402 $ 4,897,087 Assets Acquired through Capital Lease $ 40,465 $ - The accompanying notes are an integral part of these consolidated financial statements 6

9 1. Summary of Significant Accounting Policies a. Nature of Operations Adelphi University (the University ) is an independent not-for-profit institution of higher education with programs at the undergraduate and graduate levels. The University s main campus is located in Garden City, New York. The University is tax exempt under Section 501(c)(3) of the Internal Revenue Code. Black Cat Advertising, a wholly-owned subsidiary of the University, began operations in 2004 and is consolidated in the accompanying financial statements. All intercompany transactions have been eliminated in consolidation. b. Basis of Presentation The consolidated financial statements of the University have been prepared in accordance with accounting principles generally accepted in the United States of America ( US GAAP ) using the accrual basis of accounting. The University maintains its accounts in accordance with the principles and practices of fund accounting. Fund accounting is the procedure by which resources are classified for accounting purposes in accordance with activities or objectives specified by donors, in accordance with regulations, restrictions, or limitations imposed by sources outside the institution, or in accordance with directions by the Board of Trustees (the Board ). The University follows the provisions of ASC 958, Not-For-Profit Entities. ASC 958 specifies that financial statements provided by not-for-profit organizations include statements of financial position, activities, and cash flows and that net assets be classified as unrestricted, temporarily restricted or permanently restricted based on the existence or absence of donor-imposed restrictions. A description of the three net asset classifications is as follows: Unrestricted net assets include the following: Operations: Operations include the revenues and expenses associated with the principal educational mission of the University. Amounts Designated: The amounts designated to support (i) certain research activities (ii) related changes in personnel and (iii) strategic planning initiatives. Long-Term Investment: Long-term investment includes Board designations to funds functioning as endowment, cumulative realized and unrealized gains on board-designated endowment funds, and the University s required matching contribution on government student loan funds. Plant: Plant net assets include: (i) transfers from operations designated by the University to fund future capital projects and debt service payments; (ii) amounts held in trust for payment of outstanding long-term debt; (iii) the deficit of construction expenditures in excess of fundraising; and (iv) amounts invested in land, buildings and equipment net of accumulated depreciation. Contributions restricted for the acquisition of land, buildings and equipment are reported as temporarily restricted revenues. These contributions are reclassified to unrestricted net assets upon acquisition of the assets. In the accompanying consolidated statements of activities, expenses represent primarily interest on debt service and depreciation. 7

10 Temporarily restricted net assets generally result from contributions whose use by the University is limited by donor-imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations and/or that expire by the passage of time. When donor restrictions expire, that is, when a restriction is fulfilled or a time restriction ends, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying consolidated statements of activities as net assets released from restrictions. When a temporarily restricted contribution is received and the restriction is fulfilled in the same period, the corresponding revenue is recorded as unrestricted in the accompanying consolidated statements of activities. Permanently restricted net assets generally represent the historical cost of contributions whose use is limited by donor-imposed stipulations requiring that the original principal be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the investment return on these assets for specific purposes or general university operations. Such assets primarily include the University s permanent endowment funds. c. Deferred Revenues The University derives its revenue primarily from student tuition and fees. Revenue is recorded on the accrual basis of accounting. Deferred revenues primarily represent payments received from students relating to registrations for the following fall semester. Such amounts are recognized as revenue during the subsequent fiscal year. On February 4, 2013, the University entered into a transaction, whereby the University provided a 360 month assignment of its interest in and rent revenue associated with five operating leases between the University and certain cell phone providers. The University, in providing the 360 month assignment, received $3,000,000, which has been recorded as deferred revenue within the consolidated statements of financial position and will be amortized into revenue over the life of the assignment. The total amount of revenue with a related interest expense component recognized for the years ended August 31, 2016 and 2015 totaled $165,186 and $204,910, respectively, and has been recorded in the caption other sources within the accompanying consolidated statements of activities. d. Land, Buildings and Equipment, Net Land, buildings and equipment, net, are based on the following valuations: Land and improvements - at appraised value in 1958, plus subsequent improvements at cost. Buildings - at approximate fair value in accordance with a survey by the Home Insurance Company made in February 1967, plus a six percent estimate for excavations, foundations and underground facilities; additions subsequent to February 1967 are recorded at cost. Equipment and Library Books - recorded at cost. Donated assets are stated at fair value as of the date of the gift. The University follows the guidance of ASC 360, Accounting for the Impairment or Disposal of Long-lived Assets. The University reviews long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Some factors the University considers important, which could trigger an impairment review, include: (i) significant underperformance compared to expected historical or projected future operating results; (ii) significant changes in the University s use of the acquired assets or the strategy for its overall business; and (iii) significant negative industry or economic trends. 8

11 Depreciation on land, buildings and equipment has been computed on the straight-line basis over the estimated useful lives of the assets as follows: Buildings and additions 75 years Building improvements and renovations 15 years Furniture and equipment 5-10 years Software 5 years Library books 20 years Depreciation, accretion and amortization expense on assets for the years ended August 31, 2016 and 2015 amounted to $7,418,473 and $7,499,002, respectively. Upon retirement or disposal, the asset cost and related accumulated depreciation and amortization are eliminated from the respective accounts and the resulting gain or loss, if any, is included in the accompanying consolidated statements of activities. During the years ended August 31, 2016 and 2015, the University disposed of fully depreciated assets totaling approximately $500,000 and $4,500,000, respectively. e. Amounts Held in Trust Amounts held in trust are recorded at fair value. Amounts held for agency funds totaled $677,146 and $480,755 at August 31, 2016 and 2015, respectively. The corresponding liability for the amounts held for agency funds are included in accounts payable and accrued expenses within the accompanying consolidated statements of financial position. The University provides a 457(b) deferred compensation plan (the Plan ) primarily for a select group of management and highly compensated employees. The University is the custodian of the Plan and records both an asset and a corresponding liability for the amounts included within the Plan. As of August 31, 2016 and 2015, amounts recorded for this plan totaled $1,371,597 and $1,164,065, respectively. The corresponding liability for the amounts included within the Plan are included in accounts payable and accrued expenses within the accompanying consolidated statements of financial position. f. Investments Investments consist primarily of equities, publicly traded fixed income funds and alternative investments. Purchases and sales of securities are reflected on a trade-date basis. Gains and losses on sales of securities are based on average cost and are recorded in the consolidated statements of activities in the period in which the securities are sold. Dividends are accrued based on the ex-dividend date. Interest is recognized as earned. All investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the consolidated statements of financial position. g. Fair Value Measurements The fair values of all financial instruments, other than contributions receivable, investments, long-term debt and loans receivable from students under government loan programs, approximate carrying values because of the short maturity of these instruments. A reasonable estimate of the fair value of loans receivable from students under government loan programs cannot be made because the notes are not saleable and can only be assigned to the U.S. Government or its designees. 9

12 The fair value of long-term debt approximates the carrying value since the interest rates charged, as disclosed in Note 11, approximate the University s current borrowing rate for similar instruments. For all other financial instruments, the carrying amounts as disclosed in the accompanying consolidated financial statements approximate fair value. The University follows Fair Value Measurements guidance which establishes a framework for measuring fair value, expands disclosures about fair value measurements and provides a consistent definition of fair value, which focuses on an exit price between market participants in an orderly transaction. The guidance also prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information and establishes a three-level hierarchy for fair value measurements based on the transparency of information used in the valuation of an asset or liability as of the measurement date. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The type of investments in Level 1 include listed equities held in the name of the University, and exclude listed equities and other securities held indirectly through commingled funds. Level 2 - Pricing inputs, including broker quotes, are generally those other than exchange quoted prices in active markets. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments. This category generally includes certain U.S. government and agency mortgage-backed securities, and corporate-debt securities. Level 3 - Pricing inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value require significant management judgment or estimation. Investments that are included in this category generally include privately held investments and partnership interests. h. New Accounting Pronouncements In 2015, the Financial Accounting Standards Board ( FASB ) issued guidance amending the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share as a practical expedient. The amendments within this update must be applied retrospectively to all periods presented. As such, the University has adopted this guidance for the years ended August 31, 2016 and This new guidance only amended disclosure requirements and did not have any impact on the University s consolidated statements of financial position or consolidated statements of activities for the years presented (Note 6). Also in 2015, the FASB issued guidance to simplify the presentation of debt issuance costs by requiring debt issuance costs related to a recognized debt liability to be presented as a direct deduction from the carrying amount of that debt liability. The amendments within this update must be applied retrospectively to all periods presented. As such, the University has adopted this guidance for the years ended August 31, 2016 and 2015 (Note 11). i. Concentration of Credit Risk Cash and investments are exposed to various risks, such as interest rate, market and credit risks. To minimize such risks, the University maintains its cash in various bank deposit accounts which, at times, may exceed federally insured limits, and in a diversified investment portfolio. At August 31, 2016 and 2015, the University s cash and investments were placed with high credit quality financial institutions and, accordingly, the University does not expect nonperformance. 10

13 j. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the allowance for accounts receivable, valuation of alternative investments, actuarial assumptions related to the postretirement plan, useful lives of plant assets and certain accrued liabilities. Actual results could differ from those estimates. k. Contributions and Government Grants and Contracts Contributions, including unconditional promises to give, are reported as revenue in the period received. Contributions are recorded at fair value, net of estimated uncollectible amounts. Conditional contributions are recognized as revenue when the conditions on which they depend have been substantially met. Fundraising costs of $2,286,015 and $2,375,076 have been included in institutional support expenses in the accompanying consolidated statements of activities for the years ended August 31, 2016 and 2015, respectively. Revenues from government grants and contracts for specific programs are recognized in the period when expenditures have been incurred in compliance with the respective contract. Amounts received in advance are recorded as deferred revenue. Contracts awarded for the acquisition of long-lived assets are reported as unrestricted revenue during the fiscal year in which the assets are acquired. Governmental grants and contracts are subject to audit and potential disallowance. It is management s opinion that any potential disallowances will not have a material effect on the accompanying consolidated financial statements. l. Tuition Discounting The University maintains a policy of offering qualified applicants admission to the University without regard to financial circumstances. The University provides institutional financial aid to those admitted on the basis of merit or need in the form of direct grants or employment during the academic year. Tuition and fees have been reduced by institutional directed grants in the amount of $54,681,053 and $52,493,809 for the years ended August 31, 2016 and 2015, respectively. m. Temporarily Restricted and Permanently Restricted Net Assets Temporarily restricted net assets, at August 31, 2016 and 2015, were available for the following purposes: Education $ 6,297,615 $ 4,833,096 Endowment Cumulative Gain on Donor Restricted Net Assets 9,668,742 9,414,166 Annuity Trust Agreements 2,386,692 2,315,059 Building Renovations 1,965,619 1,990,199 $ 20,318,668 $ 18,552,520 Permanently restricted net assets, at August 31, 2016 and 2015, consisted of the following: Endowment - Corpus $ 31,106,300 $ 30,477,349 Loan Fund 107, ,945 $ 31,213,791 $ 30,583,294 11

14 n. Conditional Asset Retirement Obligations The University recognizes the cost associated with the eventual remediation and abatement of asbestos located within its facilities. The cost of the abatement was estimated using historical construction and renovation documents. The University recognized accretion expense relating to these obligations of $93,395 and $89,709 for the years ended August 31, 2016 and 2015, respectively. These obligations were reduced by remediation costs of $82,158 and $75,861 for the years ended August 31, 2016 and 2015, respectively. The obligation amounted to $1,595,811 and $1,531,061 at August 31, 2016 and 2015, respectively, and is included within accounts payable and accrued expenses in the accompanying consolidated statements of financial position. o. Income Taxes The University follows ASC which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. This section provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more-likely-than-not to be sustained if the position were to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of the position, without regard to the likelihood that the tax position may be challenged. The University is exempt from federal income taxation by virtue of being an organization described in Section 501(c)(3) of the Internal Revenue Code. Nevertheless, the University may be subject to tax on income unrelated to its exempt purpose, unless that income is otherwise excluded by the Code. The tax years ended August 31, 2013, 2014, 2015 and 2016 are still open to audit for both federal and state purposes. Management has determined that there are no material uncertain tax positions within its consolidated financial statements. p. Reclassification Certain information in the fiscal 2015 consolidated financial statements has been reclassified to conform to the fiscal 2016 presentation. 2. Cash and Short-Term Investments Cash and short-term investments include cash and cash equivalents with an original maturity of three months or less at the time of purchase, and other short-term investments maturing within a year of the consolidated statement of financial position date. As of August 31, 2016 and 2015, cash and short-term investments consisted of the following: Cash and Cash Equivalents $ 27,089,700 $ 19,677,526 Certificates of Deposit (Short-Term Investments) 555,586 3,207,696 $ 27,645,286 $ 22,885,222 Investment income on cash and short-term investments, included in unrestricted net assets, amounted to $224,193 and $114,061 for the years ended August 31, 2016 and 2015, respectively. 12

15 3. Accounts Receivable, net Accounts receivable primarily consist of amounts due from students and are recorded net of an allowance for doubtful accounts of $825,000 and $800,000 at August 31, 2016 and 2015, respectively. The carrying value of receivables has been reduced by an appropriate allowance for uncollectible accounts, based on historical collection experience, and therefore, approximates net realizable value. Receivables are written off in the period in which they are deemed to be uncollectible. Accounts receivable are expected to be collected within one year. 4. Contributions Receivable, net Contributions receivable consisted of the following: Amounts expected to be collected: Within 1 year $ 1,017,205 $ 1,169,801 1 to 5 years 2,491,507 2,545,258 Thereafter 75, ,000 3,583,712 4,051,059 Less: allowance for doubtful pledges (18,225) (18,225) Less: discount to present value (rates ranging from 0.4% - 4.7%) (109,601) (170,893) 3,455,886 3,861,941 Bequests 150, ,000 Charitable Remainder Trusts 2,251,777 2,166,686 $ 5,857,663 $ 6,203,627 The University is a beneficiary of irrevocable charitable remainder trusts held by others. At the dates these charitable remainder trusts are either established or the University becomes aware of their existence, contribution revenue and receivables are recognized at the present value of the estimated future benefits to be received when the trust assets are distributed, at discount rates ranging from approximately 1.2% to 6.2%. The receivable is adjusted during the term of the trusts for changes in the value of assets, accretion of the discount, and other changes in the estimates of future benefits. The income (loss) on the investments within charitable remainder trusts for the years ended August 31, 2016 and 2015 amounted to $55,008 and ($107,125), respectively, and is included in investment income (loss) in the accompanying consolidated statements of activities. The University s interest in the charitable remainder trusts is considered to be Level 3 under the fair value hierarchy. 5. Student Loans Receivable, net and U.S. Government Grants Refundable The University makes uncollateralized loans to students based on financial need under the Perkins Federal loan program, Nursing Student Loan program and the Nurse Faculty Student Loan program. Student loans are funded through Federal government loan programs or institutional resources. At August 31, 2016 and 2015, student loans represented approximately 1.5% and 1.4% of total assets, respectively. At August 31, 2016 and 2015, gross student loans receivable for Federal government programs totaled $6,893,212 and $6,695,865, respectively. Of these amounts, as of August 31, 2016 and 2015, $4,295,035 and $4,617,351, respectively, were not in repayment status. Amounts due under the Federal loan programs are guaranteed by the government and therefore, no reserves are placed on any past due balances under the program. The University does have an allowance for doubtful accounts of approximately $173,000 relating to the institutional share of these loan programs for each of the years ended August 31, 2016 and

16 At August 31, 2016 and 2015, the following amounts were past due under the student loan programs. In default > 240 days In In default < 240 days (monthly installments) default > 2 (monthly installments) or 270 days years, In or 270 days (other (other installments) up to 5 default > 5 Total August 31, installments) and < 2 years years years past due 2016 $ 190,216 $ 85,251 $ 141,293 $ 112,813 $ 529, , , ,489 76, ,993 The availability of funds for loans under the Perkins Federal loan program is dependent on reimbursement to the pool from repayments on outstanding loans. Funds advanced by the Federal government of $5,802,724 and $5,647,384 at August 31, 2016 and 2015, respectively, are ultimately refundable to the government and are classified as liabilities in the accompanying consolidated statements of financial 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. 6. Investments Investments are recorded at fair value. At August 31, 2016 and 2015, the composition of investments was as follows: Money Market Funds $ 2,878,307 $ 2,388,470 Equity Investments 42,047,620 43,874,937 Corporate Bonds - 15,029,736 Pooled Hybrid Funds - 4,892,678 Distressed Debt 868,881 9,461,102 Fixed Income Investments 42,138,777 34,434,723 Pooled Equity Funds 73,420,792 64,585,255 Pooled Commodity Funds 3,493,290 3,791,290 $ 164,847,667 $ 178,458,191 The following summarizes the return on investments and its classification in the accompanying consolidated statements of activities: 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Interest and Dividends (Net of Expenses) $ 2,387,898 $ 663,615 $ 2,985 $ 3,054,498 Net Realized and Unrealized Gains 4,689,472 1,378,461 8,291 6,076,224 $ 7,077,370 $ 2,042,076 $ 11,276 $ 9,130,722 14

17 Temporarily Permanently Unrestricted Restricted Restricted Total Interest and Dividends (Net of Expenses) $ 2,764,969 $ 697,903 $ 3,064 $ 3,465,936 Net Realized and Unrealized Loss (9,019,820) (2,519,977) (14,696) (11,554,493) $ (6,254,851) $ (1,822,074) $ (11,632) $ (8,088,557) Interest and dividends are net of investment manager fees of $323,841 and $493,511 for the years ended August 31, 2016 and 2015, respectively. These fees exclude manager fees for approximately 69% and 68% of the investment portfolio for the years ended August 31, 2016 and 2015, respectively, as those fees are netted with the investment return reported by the manager. The following table summarizes the University s fair value hierarchy for its investments, measured at fair value, as of August 31, 2016 and 2015: 2016 Level 1 Level 2 Level 3 Total Equity Investments $ 42,047,620 $ - $ - $ 42,047,620 Fixed Income Investments 37,531, ,531,876 Equity Funds 59,923, ,923,065 Commodity Funds 3,493, ,493,290 Subtotal $ 142,995,851 $ - $ - 142,995,851 Money Market Funds 2,878,307 Alternative Investments at NAV 18,973,509 $ 164,847, Level 1 Level 2 Level 3 Total Equity Investments $ 43,874,937 $ - $ - $ 43,874,937 Corporate Bonds 15,029, ,029,736 Hybrid Funds 4,892, ,892,678 Fixed Income Investments 30,084, ,084,213 Equity Funds 51,675, ,675,276 Commodity Funds 3,791, ,791,290 Subtotal $ 149,348,130 $ - $ - 149,348,130 Money Market Funds 2,388,470 Alternative Investments at NAV 26,721,591 $ 178,458,191 During the years ended August 31, 2016 and 2015, there were no transfers between Level 1, 2 or 3 investments. At August 31, 2016 and 2015, alternative investments comprised approximately 12% and 15% of the University s total investments at fair value, respectively. The University uses NAV to determine the fair value of all the underlying investments which (1) do not have a readily determinable fair value and (2) prepare their financial statements consistent with the measurement principles of an investment company

18 The following summarizes the strategy of the alternative investments: Distressed Debt - uses a multi-manager approach that seeks to pursue an investment program comprised of restructured debt, stressed debt, mezzanine debt, special situations and distressed debt. Pooled Fixed Income Funds - investment funds are pooled with other large investors in domestic and foreign fixed income strategies allowing for greater diversification. Pooled Equity Funds - investment funds are pooled with other large investors in domestic and foreign equity strategies allowing for greater diversification. Investments valued at NAV or its equivalent as of August 31, 2016, consisted of the following: Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Distressed Debt $ 606,140 $ 305,200 Annual/Quarterly 60/120 Days Distressed Debt (in Upon completion liquidation) 262,741 - of 2016 investment 8 Months year end audit Pooled Fixed Income Funds 4,606,901 - Quarterly Pooled Equity Funds 13,497,727 - Monthly/Annual 60 Days 10/45 Days $ 18,973,509 $ 305,200 Investments valued at NAV or its equivalent as of August 31, 2015, consisted of the following: Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Distressed Debt $ 9,461,102 $ 305,200 Annual/Quarterly 60/120 Days Pooled Equity Funds (in liquidation) 193,653 - As underlying assets are sold 95 Days Pooled Fixed Income Funds 4,350,510 - Quarterly 60 Days Pooled Equity Funds 12,716,326 - Monthly/Annual 10/45 Days $ 26,721,591 $ 305,200 All net return (loss) amounts are reflected in investment income within the accompanying consolidated statements of activities. 7. Endowment Funds On September 17, 2010, New York State passed the New York State Prudent Management of Institutional Funds Act ( NYPMIFA ), its version of the Uniform Prudent Management of Institutional Funds Act ( UPMIFA ). All not-for-profit organizations formed in New York must apply this law. The University classifies donor-restricted endowment funds as permanently restricted net assets, unless otherwise stipulated by the donor: (a) the original value of gifts donated to the permanent endowment, (b) the original 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 funds. 16

19 From time to time, the fair value of assets associated with an individual donor-restricted endowment fund may fall below the fund s historic dollar value. Under NYPMIFA, the University may spend below the historical dollar value of its endowment funds unless specific donors have stipulated to the contrary. Deficiencies of this nature that are reported in unrestricted net assets totaled $94,542 and $111,782 as of August 31, 2016 and 2015, respectively. To date, the University has received instruction from donors, who have contributed $5,724,769 in permanently restricted contributions (with a fair value of $6,812,863 as of August 31, 2016), for which the University must maintain the historical dollar value of these funds and not adopt NYPMIFA as it relates to these particular endowment contributions. The investment objectives for the University s endowment are to preserve the principal value of those funds, in both absolute as well as real terms, and to maximize over the long-term the total rate of return earned without assuming an unreasonable degree of risk. In connection with these investment objectives, the Board of Trustees has adopted a spending policy. The amount available for spending is determined annually by applying a rate of 5% to the average fair value of the endowment for the preceding five fiscal years. The remaining portion of the donor-restricted 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 University s Board of Trustees in a manner consistent with the standard of prudence prescribed by NYPMIFA. In accordance with NYPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the fund The purposes of the University and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of the University The investment policies of the University and Where appropriate, alternatives to spending from the donor-restricted endowment fund and the possible effects of the University. At August 31, 2016, the endowment net asset composition by type of fund consisted of the following: 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-Restricted Funds $ (94,542) $ 12,055,434 $ 31,106,300 $ 43,067,192 Board-Designated Funds 123,124, ,124,800 $ 123,030,258 $ 12,055,434 $ 31,106,300 $ 166,191,992 17