Wilson College. Financial Statements. Years Ended June 30, 2017 and 2016 with Independent Auditor s Report

Transcription

1 Wilson College Financial Statements Years Ended June 30, 2017 and 2016 with Independent Auditor s Report Pursuing the profession while promoting the public good cpas.com

2 YEARS ENDED JUNE 30, 2017 TABLE OF CONTENTS Independent Auditor's Report Financial Statements: Statements of Financial Position 1 Statement of Activities Year Ended June 30, Statement of Activities Year Ended June 30, Statements of Cash Flows 6 Notes to Financial Statements 8

3 Independent Auditor s Report Board of Trustees Wilson College Report on the Financial Statements We have audited the accompanying financial statements of Wilson College (College), which comprise the statement of financial position as of June 30, 2017 and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 Board of Trustees Wilson College Independent Auditor s Report Page 2 of 2 Emphasis of Matter As discussed in Note 1 to the financial statements, the June 30, 2016 net assets have been restated to correct a misstatement. Our opinion is not modified with respect to this matter. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the College as of June 30, 2017 and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Prior Period Financial Statements The financial statements of the College as of June 30, 2016 were audited by other auditors whose report dated October 28, 2016, expressed an unmodified opinion on those statements. As discussed in Note 1, the College restated its June 30, 2016 financial statements to correct a misstatement. The other auditors reported on the June 30, 2016 financial statements before the restatement. As part of our audit of the June 30, 2017 financial statements, we also audited adjustments described in Note 1 that were applied to restate the June 30, 2016 financial statements. In our opinion, the adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the June 30, 2016 financial statements of the College other than with respect to these adjustments and accordingly we do not express an opinion or any other assurance on the June 30, 2016 financial statements as a whole. Maher Duessel Harrisburg, Pennsylvania October 21, 2017

5 STATEMENTS OF FINANCIAL POSITION Assets Cash and cash equivalents $ 3,620,412 $ 3,095,919 Accounts receivable, net Student 805, ,064 Inventories 104, ,977 Prepaid expenses 511, ,927 Contributions receivable, net 1,800,049 1,847,662 Investments 48,882,411 51,295,411 Student loans receivable 1,572,953 1,370,978 Funds held in trust by others 11,126,195 10,459,947 Cash restricted for purchase of property and equipment - 229,299 Property and equipment, net 44,677,646 44,819,491 Total Assets $ 113,101,240 $ 114,221,675 Liabilities and Net Assets Liabilities: Accounts payable $ 647,199 $ 519,050 Construction accounts payable - 622,521 Accrued expenses 779, ,768 Deposits and deferred revenue 625, ,769 Funds held in custody for others 195, ,968 Bond payable 31,003,248 30,994,564 Obligations under capital lease 150,668 68,988 Interest rate swap agreements 3,496,929 4,908,268 Refundable advances from federal government 556, ,460 Total Liabilities 37,454,762 39,065,356 Net Assets: Unrestricted: Investment in plant and equipment 10,026,801 8,847,671 College loan funds 265, ,910 Other 20,640,600 23,643,486 Total unrestricted net assets 30,932,664 32,721,067 Temporarily restricted 4,108,299 3,851,580 Permanently restricted 40,605,515 38,583,672 Total Net Assets 75,646,478 75,156,319 Total Liabilities and Net Assets $ 113,101,240 $ 114,221,675 The accompanying notes are an integral part of the financial statements. 1

6 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 (With Comparative Totals for Year Ended June 30, 2016) 2017 Temporarily Permanently 2016 Unrestricted Restricted Restricted Total Total Revenue and Support: Educational and general: Student tuition and fees (net of college financial aid of $6,266,267) $ 9,814,232 $ - $ - $ 9,814,232 $ 8,427,139 Private gifts, grants and contributions 1,754,688 1,211,518 1,344,773 4,310,979 5,173,962 Governmental grants 209, , , ,580 Interest and dividends 103, , , ,295 Income received from trusts held by others 442, , ,745 Other sources 503,892 55, , ,555 Auxiliary revenues 3,382, ,382,441 3,372,922 Change in donor intent (7,500) - 7, Net assets released from restrictions for operations 3,111,656 (3,111,656) Total revenues and support 19,315,026 (1,302,962) 1,352,273 19,364,337 19,535,198 Operating Expenses: Educational and general: Instructional 6,177, ,177,391 5,144,152 Academic support 4,681, ,681,349 5,292,795 Student services 4,388, ,388,054 4,032,701 Institutional support 6,733, ,733,210 6,168,359 Auxiliary enterprises 2,563, ,563,782 2,546,626 Total operating expenses 24,543, ,543,786 23,184,633 Change in net assets from operating activities (5,228,760) (1,302,962) 1,352,273 (5,179,449) (3,649,435) (Continued) The accompanying notes are an integral part of the financial statements. 2

7 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 (With Comparative Totals for Year Ended June 30, 2016) (Continued) 2017 Temporarily Permanently 2016 Unrestricted Restricted Restricted Total Total Nonoperating: Realized and unrealized (losses) gains on investments 1,551,931 2,034,317-3,586,248 (2,984,245) Private gifts received for purchase of property and equipment - 2,451-2, ,285 Net assets released from restriction for purchase of property and equipment 477,087 (477,087) Gains (losses) on funds held in trust by others , ,570 (979,746) Unrealized (loss) gain on interest rate swaps 1,411, ,411,339 (681,916) Change in net assest from nonoperating activities 3,440,357 1,559, ,570 5,669,608 (4,402,622) Change in Net Assets (1,788,403) 256,719 2,021, ,159 (8,052,057) Net Assets: Beginning 32,721,067 3,851,580 38,583,672 75,156,319 83,208,376 Ending $ 30,932,664 $ 4,108,299 $ 40,605,515 $ 75,646,478 $ 75,156,319 (Concluded) The accompanying notes are an integral part of the financial statements. 3

8 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenue and Support: Educational and general: Student tuition and fees (net of college financial aid of $5,584,219) $ 8,427,139 $ - $ - $ 8,427,139 Private gifts, grants and contributions 2,471,513 1,461,182 1,241,267 5,173,962 Governmental grants 193, , ,580 Interest and dividends 230, , ,295 Income received from trusts held by others 463, ,745 Other sources 403,691 81, ,555 Auxiliary revenues 3,372, ,372,922 Change in donor intent - 16,020 (16,020) - Net assets released from restrictions for operations 3,272,047 (3,272,047) - - Total revenue and support 18,835,015 (525,064) 1,225,247 19,535,198 Operating Expenses: Educational and general: Instructional 5,144, ,144,152 Academic support 5,292, ,292,795 Student services 4,032, ,032,701 Institutional support 6,168, ,168,359 Auxiliary enterprises 2,546, ,546,626 Total operating expenses 23,184,633-23,184,633 Change in net assets from operating activities (4,349,618) (525,064) 1,225,247 (3,649,435) (Continued) The accompanying notes are an integral part of the financial statements. 4

9 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 (Continued) Temporarily Permanently Unrestricted Restricted Restricted Total Nonoperating: Realized and unrealized (losses) gains on investments (1,835,425) (1,148,820) - (2,984,245) Private gifts received for purchase of property and equipment - 243, ,285 Net assets released from restriction for purchase of property and equipment 4,972,103 (4,972,103) - - Losses on funds held in trust by others - - (979,746) (979,746) Unrealized loss on interest rate swaps (681,916) - - (681,916) Change in net assest from nonoperating activities 2,454,762 (5,877,638) (979,746) (4,402,622) Change in Net Assets (1,894,856) (6,402,702) 245,501 (8,052,057) Net Assets: Beginning of year, as previously stated 33,280,952 10,426,664 39,500,760 83,208,376 Restatement 1,334,971 (172,382) (1,162,589) - Beginning, as restated 34,615,923 10,254,282 38,338,171 83,208,376 Net assets ending $ 32,721,067 $ 3,851,580 $ 38,583,672 $ 75,156,319 (Concluded) The accompanying notes are an integral part of the financial statements. 5

10 STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities: Change in net assets $ 490,159 $ (8,052,057) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 2,829,241 2,428,185 Net realized and unrealized losses (gains) (3,586,248) 2,984,245 Loss on disposal of equipment - 9,144 Noncash donations (75,236) (30,089) Losses on funds held in trust by others (669,570) 979,746 Restricted contributions for endowment (1,344,773) (1,241,267) Restricted contributions for purchase of property and equipment (2,451) (243,285) Change in student accounts receivable allowance for doubtful accounts (53,410) (6,694) Unrealized loss on interest rate swap agreements (1,411,339) 681,916 Changes in assets and liabilities: Accounts receivable (151,501) (85,330) Contributions receivable (50,503) (933,196) Inventories (588) 12,057 Prepaid expenses (113,107) 138,254 Accounts payable 128, ,758 Accrued expenses (39,628) 122,073 Deposits and deferred revenue 154, ,727 Funds held in custody for others 90,030 13,379 Net cash used in operating activities (3,806,424) (2,688,434) Cash Flows From Investing Activities: Purchases of property and equipment (2,867,377) (3,942,187) Purchase of property and equipment with restricted contributions (477,087) (4,972,103) Sale of assets restricted to investment in property and equipment 413,973 4,569,875 Proceeds from sales/maturities of investments 13,202,092 14,273,206 Purchases of investments (7,203,620) (10,486,726) Disbursements of student and other loans (399,328) (331,553) Repayments of student and other loans 197, ,498 Net cash (used in) provided by investing activities 2,866,007 (481,990) The accompanying notes are an integral part of the financial statements. 6 (Continued)

11 STATEMENT OF CASH FLOWS (Continued) Cash Flows From Financing Activities: Payments on capital lease (59,764) (46,219) Cash collections of restricted contributions for the endowment 1,461,560 1,315,860 Cash collections of restricted contributions for the purchase of property and equipment 63, ,228 Net cash provided by financing activities 1,464,910 1,671,869 Net Increase (Decrease) in Cash and Cash Equivalents 524,493 (1,498,555) Cash and Cash Equivalents: Beginning of year 3,095,919 4,594,474 End of year $ 3,620,412 $ 3,095,919 Supplemental Disclosure of Noncash Investing and Financing Activities Property and equipment purchased through capital lease $ 141,444 $ - Property and equipment in accounts payable $ - $ 622,521 Cash paid for interest $ 2,010,305 $ 1,751,007 (Concluded) The accompanying notes are an integral part of the financial statements. 7

12 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND HUMANITIES Nature of Operations Wilson College (College) is a private, not-for-profit, liberal arts college, established in 1869 in Chambersburg, Pennsylvania. The College offers baccalaureate degree programs and a residential experience for students. The College s Adult Degree Program offers baccalaureate and associate degree programs, a post-baccalaureate Teacher Intern Program, and evening, weekend, summer, and off-campus courses. The College also offers Masters of Education, Humanities, Accountancy, Fine Arts, Nursing, and Health Care Sustainability. The significant accounting policies followed by the College are described below to enhance the usefulness of the financial statements to the reader. The College evaluated subsequent events for recognition or disclosure through October 21, 2017, the date the financial statements were issued. Subsequent Events In July 2017, the College received $3,945,421 from the sale of 6, net mineral acres, a partial portion of mineral rights in Laramie, Wyoming. This amount was placed into the unrestricted endowment which is consistent with the Board approved gift policy. Basis of Accounting These financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP). The College reports information regarding its financial position and activities according to three classes of nets assets, depending on the existence or nature of any donor restrictions, as follows: Unrestricted Net assets that are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees and accordingly would include any quasi endowment investments. Temporarily restricted Net assets whose use by the College is subject to donor-imposed restrictions that can be fulfilled by actions of the College pursuant to those restrictions or that expire by the passage of time. The Commonwealth of Pennsylvania law permits the College 8

13 to allocate to income each year a portion of endowment net realized and unrealized gains under the total return concept. The amount allocated, when added to the interest and dividends earned on endowment assets, cannot exceed 7% of the rolling three-year average of the market value of endowment assets. Since endowment net realized and unrealized gains may eventually be spent by the College, these gains are recorded in the financial statements as temporarily restricted net assets until transferred to unrestricted net assets. This transfer is based on an annual authorization by the Board only to the extent of the percentage limitation applicable to the year in which the funds are to be released. Permanently restricted Net assets subject to donor-imposed restrictions that they be maintained permanently by the College. Generally, the donors of these assets permit the College to use all or part of the income from these assets. Such assets primarily include the College s permanent endowment funds and funds held in trust by others. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor-imposed restrictions. Revenue from third party trusts restricted for scholarships is classified as unrestricted if used for its intended purpose during the year. Expenses are generally reported as decreases in unrestricted net assets. Expirations of donorimposed stipulations that simultaneously increase one class of net assets and decrease another are reported as net assets released from restrictions. Restatement During the year ended June 30, 2017, the College determined that one donor fund was improperly restricted during prior periods. It was also determined that the restatement related to improper restriction of three donor funds in the prior year ended June 30, 2016 required an additional adjustment. The net effect of these adjustments to beginning of the year net assets for June 30, 2016 is a decrease in permanently restricted nets assets in the amount of $1,162,589, a decrease in temporarily restricted net assets in the amount of $172,382, and an increase in unrestricted net assets in the amount of $1,134,841. These prior period adjustments had no impact on the change in net assets or on cash flows. Reclassification Certain reclassifications have been made to the prior year financial statements in order for them to be in conformity with the current year presentation. Student Tuition Revenue Student tuition revenue is recorded at the established rates net of financial aid provided directly by the College, endowed scholarships, and certain federal grants. The College 9

14 recognizes tuition revenue in the semester that it is earned. Any payments received in advance for the subsequent year are classified as deferred tuition, which is included with deposits and deferred revenue in the statements of financial position. Government Grants and Student Aid The government grants and student aid amounts reported do not include funds credited to students under the Federal PELL Grants Program nor programs administered by the Pennsylvania Higher Education Assistance Agency (PHEAA). These grants are similar to agency funds as the College acts only as custodian and disbursing agent. Had these amounts been included, revenues and expenses would have increased by $1,899,647 in 2017 and $1,733,163 in Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. Contributions, including unconditional promises to give, are recorded as revenues in the period the promise is made. Conditional promises to give are not recognized until the conditions are met or the pledges are received. Contributions of assets other than cash are recorded at their estimated fair value. Contributions to be received after one year (including those under the terms of gift annuities and charitable remainder trusts) are discounted at an appropriate discount rate commensurate with the risks involved. Amortization of discounts is recorded as additional contribution revenue in accordance with donor-imposed restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable is provided based upon management s judgment including such factors as prior collection history, type of contribution, and nature of the fund-raising activity. Contributions and endowment income with donor-imposed restrictions are reported as temporarily restricted revenues and are reclassified to unrestricted net assets when an expense is incurred that satisfies the donor-imposed restriction. Contributions restricted for the acquisition of property and equipment are reported as temporarily restricted revenue. These contributions are reclassified to unrestricted net assets when restrictions have been met. Contributed property and equipment is recorded at fair value at the date of donation. If donors stipulate how long the assets must be used, the contributions are recorded as restricted support. In the absence of such stipulations, contributions of property and equipment are recorded as unrestricted support. Conditional promises to give are not included as support until such times as the conditions are substantially met. 10

15 Concentrations The College received contributions as follows for the years ended June 30, 2017 and 2016: Amount Percentage of Percentage of Operating Revenues Amount Operating Revenues $4,310, % $5,173, % The College received contributions in the amount of $4,310,979 in Of these contributions, the College received $2,890,000 or 67.04% contribution from four donors. The College received contributions in the amount of $5,173,962 in Of these contributions, the College received $2,539,487 or 49.08% contribution from four donors. Cash and Cash Equivalents Cash and cash equivalents represent demand deposits and other investments (including overnight repurchase agreements), with original maturities of three months or less, that are not held for endowment or other long-term purposes. The College requires all repurchase agreements to be collateralized by the underlying securities of the agreement, which are held in the bank s name. The College maintains its cash accounts in various financial institutions. Portions of the College s cash balances may exceed FDIC insurance coverage at various times throughout the year. Management considers these excesses to be normal business risks. Cash Restricted for Purchase of Property and Equipment In October of 2011, the Board approved a capital library renovation project to be fully funded by donor contributions. The design and cost options for the project were determined through discussions with the college campus and the Board. In May 2014, the Board approved renovations to the library in the amount of $12 million. The project includes construction of a new addition to the building, renovation of the original building, a building plaza, and the common space between the library and science center. Cash restricted for purchase of property and equipment in the amount of $229,299, as of June 30, 2016, represents monies received for this project. These monies are externally restricted by the donors for this purpose. These monies are not considered cash and cash equivalents as they have donor-imposed restrictions that limit their use to long-term investment in property and equipment. Cash restricted for purchase of property and equipment was $0 as of June 30, 2017 as this project was complete. 11

16 Student and Loans Receivable Student receivables are not collateralized. Reserves have been provided for based on management s estimate of credit losses. Accounts are written off when they are determined to be uncollectible based upon management s assessment of individual accounts. The allowance for losses on student receivables was $286,115 and $232,705 at June 30, 2017 and 2016, respectively. The student loans receivables represent loans to students funded by advances to the College by the federal government under the Federal Perkins Student Loan Program (Program). In the event that the College ceases to participate in the Program, the amounts are refundable to the federal government. The federal government s portion of these funds at June 30, 2017 and 2016 was $556,460. The College matches and contributes approximately one third of the amount contributed by the U.S. Government. The prescribed practices for the Program does not provide for accrual of interest on student loans receivable. Accordingly, interest on loans is recorded as received and is reinvested to support additional loans; uncollectible loans are not recognized until the loans are canceled or written-off in conformity with the Program requirements. The impact of recording interest income on a cash basis is not considered significant. In addition, the credit quality of the student is not evaluated after the initial approval and calculation of the loan. Delinquent loans and the allowance for losses on loans receivable are reviewed by management, but are not material to the overall financial statements. Inventories Inventories consist primarily of bookstore, food service, and maintenance and operating supplies and are valued at the lower of cost or market. Cost is determined by the first-in, first-out method (FIFO). Investments Investments in marketable securities with readily-determinable fair values and all investments in debt securities are valued at their fair values in the statement of financial position. The College s principal instruments subject to credit risk are its investments. The College s investments are exposed to various risks, including interest rate, market, currency, and credit risks. Due to the levels of risk associated with certain investments and the levels of uncertainty related to changes in the values of those investments, a reasonable possibility exists that near-term changes in risks may materially affect the values of the College s investments reported in these financial statements. 12

17 Fair values are based upon values provided by external investment managers or quoted market prices. Real estate investments received by gift and held for resale are carried at an independent appraised market value as of the date of acquisition less estimated selling costs. Alternative investments are valued at the net asset value of the underlying holding. Net realized and unrealized gains and losses on investments and investment income (interest and dividend income) are reflected in the statements of activities as changes in unrestricted net assets unless their use is temporarily or permanently restricted by donor stipulations, or by law. Investment earning are reported net of related fees. Property and Equipment Property and equipment values represent cost at date of acquisition, or fair values at dates of donation in cases of gifts. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements Equipment and vehicles years 3 20 years The cost and accumulated depreciation of property sold or retired is removed from the related asset and accumulated depreciation accounts and any resulting gains or losses are recorded in the period of disposal. Renovations and improvements which extend the useful lives of existing buildings are capitalized at cost if cost exceeds $15,000. Equipment with a cost of $2,000 or more is capitalized. Library books are expensed when purchased. Maintenance and repairs are included as expenses in the statements of activities. When events or circumstances indicate possible impairment may have occurred, the College evaluates long-lived assets, for possible impairment based on whether the carrying value exceeds the estimated future cash flows from use and disposition value attributable to such assets. Impairment losses are recorded for the excess of the carrying value over fair value. The College has not identified any impairment as of June 30, 2017 and Fundraising Costs Fundraising costs are expensed as incurred and amounted to approximately $1,248,462 in 2017 and $1,206,931 in 2016 and are included in institutional support in the statements of activities. 13

18 Funds Held in Trust by Others Funds held in trust by others represent the College s share of these funds based on the terms of various irrevocable trusts. These funds are not in the possession of the College. Such terms provide that the College is to receive annually a certain percentage of the income earned by the funds which are held in trust. The College does not have access to the principal. The present values of the estimated future cash flows from the trusts are recognized as assets and contribution revenues at the dates the trusts are established. Distributions from the trusts are recorded as investment income and the carrying value of the assets is adjusted for changes in the estimates of future receipts. Because of the irrevocable right of the College to its share of the trusts earnings, the College reports its share of these trusts on its financial statements as funds held in trust by others, which are classified as permanently restricted net assets. Deposits and Deferred Revenue Deposits and deferred revenue relates primarily to summer and fall session tuition received prior to June 30. Refundable Advances from Federal Government Funds provided by the United States Government under the Federal Perkins Loan Program are loaned to qualified students and may be reloaned after collection. These funds are ultimately refundable to the government and are reported as long-term liabilities in the statement of financial position. Functional Expenses Depreciation of property and equipment, interest on long-term debt, and plant operations and maintenance costs are allocated to program and supporting activities based upon the facilities primary uses. Use of Estimates Management of the College has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting periods to prepare these financial statements in conformity with GAAP. Actual results could differ from those estimates. Significant estimates that could ultimately result in changes to amounts reflected in these financial statements include allowances for uncollectible accounts, student loans and contributions receivable, depreciation of property and equipment, the present values of longterm contributions receivable, the fair values of investments, obligations under interest rate 14

19 swap agreements, and estimate of cash flows related to real estate as utilized in evaluating its long-lived assets for impairment. Income Taxes The College is a not-for-profit organization as described in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal income taxes on related income pursuant to Section 501(a) of the Code. The College accounts for uncertainty in income taxes using a recognition threshold of morelikely-than-not to be sustained upon examination by the appropriate taxing authority. Measurement of the tax uncertainty occurs if the recognition threshold is met. Management determined there were no tax uncertainties that met the recognition threshold in fiscal 2017 and The College s policy is to recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. Title IV Requirements The College participates in Government Student Financial Assistance Programs (Title IV) administered by the U.S. Department of Education (ED) for the payment of student tuitions. Substantial portions of the revenue and collection of accounts receivable as of June 30, 2017 and 2016, are dependent upon the College s continued participation in the Title IV programs. Institutions participating in Title IV programs are required by ED to demonstrate financial responsibility. ED determines an institution s financial responsibility through the calculation of a composite score based upon certain financial ratios as defined in regulations. Institutions receiving a composite score of 1.5 or greater are considered fully financially responsible. Institutions received a composite score between 1.0 and 1.4 are subject to additional monitoring and institutions receiving a score below 1.0 are required to submit financial guarantees in order to continue participation in the Title IV programs. As of and for the years ended June 30, 2017 and 2016, the College s composite score exceeded 1.5. Nonoperating Activities For the purpose of the statements of activities, the College considers its changes in unrestricted net assets to be operational changes, except for changes related to realized and unrealized gains and losses on investments, and the College s interest rate swap agreements. 15

20 Derivative Financial Instruments The College has entered into three interest rate swap agreements, which are considered derivative financial instruments, to manage its interest exposure on its bonds payable. The interest rate swap agreements are reported at fair value on the statements of financial position, and the related changes in fair value are reported in the statements of activities as an unrealized gain (loss) on interest rate swaps. Endowment Spending Policy Commonwealth of Pennsylvania law permits the College to allocate to income each year a portion of endowment return. The law allows non-profit organizations to spend a percentage of the market value of their endowment funds, including realized and unrealized gains. The percentage, which by law must be between 2% and 7%, is elected annually by the Board. The endowment fair value is determined based on an average spanning three years. The College s policy for fiscal years 2017 and 2016 allowed for a payout of 6.65% and 6.75%, respectively of the three-year average balance, which is based on fair value. New Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Revenue from Contracts with Customers. This new accounting guidance outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers. For public business entities, including not-forprofit organizations that have issued or are a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-the-counter market, ASU No is effective for fiscal years beginning after December 15, For all other entries, the ASU is effective for fiscal years beginning after December 15, Early application is permitted for all entities for fiscal years beginning after December 16, The College is assessing the impact this new standard will have on its financial statements. In January 2016, FASB issued ASU , Financial Instruments Overall (Subtopic ): Recognition and Measurement of Financial Assets and Financial Liabilities. This new guidance is intended to improve the recognition and measurement of financial instruments and eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for institutions that are not public business entities. For nonpublic business entities, ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted for fiscal years beginning after December 15, However, the new guidance permits entities that are not public business entities to adopt upon issuance the provision that eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost. The College elected to adopt this provision 16

21 in fiscal ASU is to be applied by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of ASU The College is assessing the impact the remainder of this standard will have on its financial statements. In February 2016, FASB issued ASU No , Leases. ASU No was issued to increase transparency and comparability among entities. Lessees will need to recognize nearly all lease transactions (other than leases that meet the definition of a short-term lease) on the statement of financial position as a lease liability and a right-of-use asset (as defined). Lessor accounting under the new guidance will be similar to the current model. For public business entities, including not-for-profit organizations that have issued, or are a conduit bond obligor for, securities that are traded, listed or quoted on an exchange or an over-thecounter market, ASU No is effective for fiscal years beginning after December 15, For all other entities, the ASU is effective for fiscal years beginning after December 15, Early application is permitted for all entities. Upon adoption, lessees and lessors will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply. The College is assessing the impact this standard will have on its financial statements. In August 2016, the FASB issued ASU , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The new guidance is intended to improve and simplify the current net asset classification requirements and information presented in financial statements and notes that is useful in assessing a not-forprofit s liquidity, financial performance and cash flows. ASU is effective for the College for fiscal 2019, with early adoption permitted. ASU is to be applied retroactively with transition provisions. Management is currently evaluating the impact of this guidance on the College s financial statements. 17

22 2. ACCOUNTS RECEIVABLE, STUDENTS Student accounts receivable represent amounts due for tuition, fees, and room and board from currently enrolled and former students. The College extends unsecured credit to students and parents of dependent students in connection with their studies. Some of those students are no longer enrolled or have completed their degrees. When an account becomes delinquent the student is required to sign a note with specific terms. Student accounts receivable consists of the following at June 30, 2017 and 2016: Accounts receivable $ 1,092,090 $ 833,769 Allowance for doubtful accounts (286,115) (232,705) Accounts receivable, net $ 805,975 $ 601, CONTRIBUTIONS RECEIVABLE Contributions receivable, representing donor promises to give, have been discounted to their present values at June 30, 2017 and 2016 based upon their respective terms and various discount rates. The discounted pledges and related allowance for uncollectible contributions, established by management, are scheduled to be collected as follows: Unconditional promises expected to be collected in: Less than one year $ 1,215,400 $ 1,081,892 One year to five years 1,056, ,605 Over five years - - Total 2,271,400 2,036,497 Allowance for doubtful collections (109,955) (77,440) Discount on pledges (361,396) (111,395) Contributions receivable, net $ 1,800,049 $ 1,847,662 Management believes the College s allowance for doubtful collections at June 30, 2017 and 2016 is adequate based upon information currently known. However, events impacting donors ability to fulfill their commitments can occur in subsequent years which may result in a material change in the allowance for doubtful collections. 18

23 4. FAIR VALUE MEASUREMENTS, INVESTMENTS, AND OTHER FINANCIAL INSTRUMENTS For financial instruments required to be measured at fair value on a recurring basis, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value if measured using a hierarchy prioritizing the inputs used in determining valuations into three levels. The level within the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 Fair value is based on unadjusted quoted prices in active markets that are accessible to the College for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever possible. Level 2 Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the same term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs. Level 3 Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows, and other similar techniques. 19

24 The following tables present the financial instruments measured at fair value as of June 30, 2017 and 2016 by caption on the statements of financial position by the valuation hierarchy defined above: 2017 Level 1 Level 2 Level 3 Total Fair Value Assets - reported at fair value Investments: Cash and cash equivalents $ 3,076,501 $ - $ - $ 3,076,501 Equity securities: Technology 1,249, ,249,177 Healthcare 536, ,735 Communication 513, ,849 Energy 1,920, ,920,900 Basic materials 177, ,466 Financial 1,455, ,455,877 Industrial goods 197, ,965 Services 205, ,170 Consumer goods 984, ,484 Other 62, ,074 Equity mutual funds: Blend 4,450, ,450,444 Foreign 5,149, ,149,434 Other 45, ,552 Fixed income mutual funds: Corporate bonds 7,679, ,679,433 US Government 5,126, ,126,090 Other investments - 28,170-28,170 Total investments by valuation hierarchy 32,831,151 28,170-32,859,321 Alternative investments 15,888,090 Real Estate 135,000 Total Investments 48,882,411 Funds held in trust by others ,126,195 11,126,195 Total assets $ 32,831,151 $ 28,170 $ 11,126,195 $ 60,008,606 20

25 2017 Level 1 Level 2 Level 3 Total Fair Value Liabilities - reported at fair value, Interest rate swap payable $ - $ - $ 3,496,929 $ 3,496,929 The Level 3 reconciliation at June 30, 2017 is as follows: Fund Held in Trust by Others Interest Rate Swap Payable Balance at June 30, 2016 $ 10,459,947 $ 4,908,268 Additions: Contributions - - Change in value (Net of income received from trusts held by others of $442,510) 666,248 (1,411,339) Balance at June 30, 2017 $ 11,126,195 $ 3,496,929 21

26 2016 Level 1 Level 2 Level 3 Total Fair Value Assets - reported at fair value Investments: Cash and cash equivalents $ 4,241,720 $ - $ - $ 4,241,720 Equity securities: Technology 1,058, ,058,878 Healthcare 430, ,894 Communication 457, ,907 Energy 112, ,602 Basic materials 182, ,088 Financial 1,122, ,122,504 Industrial goods 159, ,387 Services 163, ,476 Consumer goods 862, ,076 Other 24, ,804 Equity mutual funds: Blend 2,483, ,483,629 Foreign 5,821, ,821,373 Other 20, ,623 Fixed income mutual funds: Corporate bonds 9,558, ,558,994 US Government 4,715, ,715,892 Other investments - 27,571-27,571 Total investments by valuation hierarchy 31,416,847 27,571-31,444,418 Alternative investments 19,715,993 Real Estate 135,000 Total Investments 51,295,411 Funds held in trust by others ,459,947 10,459,947 Total assets $ 31,416,847 $ 27,571 $ 10,459,947 $ 61,755,358 22

27 2016 Level 1 Level 2 Level 3 Total Fair Value Liabilities - reported at fair value, Interest rate swap payable $ - $ - $ 4,908,268 $ 4,908,268 The preceding tables include real estate in the amount of $135,000 as of June 30, 2017 and 2016 which is carried at the appraised value at the date of gift, and which is included in the investments in the statements of financial position. The Level 3 reconciliation at June 30, 2016 is as follows: Fund Held in Trust by Others Interest Rate Swap Payable Balance at June 30, 2015 $ 11,438,426 $ 4,226,352 Additions: Contributions - - Change in value (Net of income received from trusts held by others of $463,745) ($978,479) 681,916 Balance at June 30, 2016 $ 10,459,947 $ 4,908,268 Net gains and losses (realized and unrealized) and unrealized loss on interest rate swaps are reported as nonoperating activity in the statements of activities. Net unrealized gain (loss) on beneficial interest in perpetual trust is recorded as changes in permanently restricted net assets. Valuation Methodologies Cash and cash equivalents to be received in less than one year The carrying amounts approximate fair value because of the short maturity of those financial instruments. Investments The valuation methodology of utilizing closing prices in an active exchange market was applied to equity securities and traded mutual funds. Alternative Investments The College measures the fair value for these alternative investments based on NAV as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a significantly different value. If not determined as of the Fund s measurement date, NAV is adjusted to reflect any significant events that would materially affect the security s value. Certain attributes that impact the security s fair value may not be reflected in NAV, including, but not limited to, the investor s ability to 23

28 redeem the investment at the measurement date and unfunded purchase commitments. If the College sold all or a portion of its alternative investments, it is reasonably possible that the transaction value could differ significantly from the estimated fair value at the measurement date, because of the nature of the investments, changes in market conditions and the overall economic environment. Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position. The alternative investments represent investments that pursue multiple strategies to diversify risks and reduce volatility. The alternative investments pursue multiple strategies as follows: AG Realty Fund VII is a partnership which has as its principal investment objective capital appreciation primarily through investments in distressed real estate assets and subperforming and non-performing mortgages. Silver Creek Low Vol Strategies II, Ltd. is a Cayman Islands exempted company which has as its principal strategy providing investors with access to a diversified multi-strategy investment portfolio designed to achieve stable, long-term, nonmarket directional positive returns with low relative volatility. HCP Absolute Return Fund Offshore Feeder, L.P. is a Cayman Islands exempted limited partnership which is a feeder fund in a master-feeder structure and invests substantially all of its assets in HCP Absolute Return Fund Master Feeder, LLC which was organized for the purpose of investing in limited partnerships, offshore investment funds and other investment vehicles whose funds generally implement nontraditional or alternative investment strategies. Archipelago Holdings, Ltd. is a company incorporated with limited liability in Bermuda. The company s investment objective is to seek capital appreciation through investing in certain private investment funds. Certain private investment funds concentrate their investment programs in specific industries and sectors or markets. In addition, certain private investment funds will utilize short positions, leverage (including margin borrowing), options, futures, commodities and other derivatives and may invest in non-u.s. securities and illiquid securities. Pershing Square International, Ltd. and Subsidiary is an exempted company under the laws of the Cayman Islands. The fund s investment objective is to preserve capital and seek maximum, long term capital appreciation commensurate with reasonable risk. The fund seeks to achieve its objective through long and short positions in equity or debt securities of public U.S. and non-u.s. issuers (including securities convertible into equity or debt securities), 24

29 derivative instruments and any other financial instruments that the investment manager believes will achieve the fund s investment objective. Harvest MLP Income Fund II LLC is a Delaware limited liability company. The Fund s investment objective is to seek absolute total return by investing directly or via equity swaps long-only without leverage in income-producing publicly traded MLPs, with a particular focus on energy sector MLPs. Highline Capital International Ltd. is an exempted company under the laws of the British Virgin Islands. The Fund seeks to achieve above-average returns primarily through investing in securities of both U.S. and foreign issuers. The Fund will engage in short sales and use this strategy to hedge, and/or offset other long positions in the fund or as a means of increasing total return. Hudson Bay International Fund Ltd. is an exempted company under the laws of the Cayman Islands. The investment objective of the Fund is to target traditional and nontraditional sources of alpha by employing a diverse set of catalyst-driven absolute return strategies that are intended to be uncorrelated to each other and to the major indices. In deploying its trading and investing strategies, the Fund expects to hold both long and short positions in a broad range of debt and equity securities, derivatives and other financial instruments on a global basis. Hawk Ridge Partners II, L.P. is a Delaware limited partnership which seeks to achieve equity like investment returns while taking on significantly less market risk than the broad market indices. The General Partner seeks to achieve this goal through superior security selection on both long and short equity positions. Cooper Creek Partners, Ltd, a Cayman Islands exempted company, is an equity long/short strategy that invests in a concentrated portfolio consisting primarily of listed smallcapitalization and mid-capitalization equity securities (market capitalization of generally $250 million to $10 billion) of U.S. issuers, and to a limited extent, issuers in Canada and developed markets in Western Europe. Canyon Value Realization Fund, Ltd., a Cayman Islands exempted company, is a global, value-oriented alternative strategy that employs a variety of event-driven and distressed strategies across a broad spectrum of asset classes with an emphasis on debt instruments. Net gains and losses (realized and unrealized) are reported as temporarily restricted or unrestricted nonoperating activity investment gain/(loss) in the statements of activities. The College may redeem shares in whole or in part, on 5 to 90 day prior written notice as of the last business day of each quarter. The investments have a one year redemption restriction. 25