WESTMINSTER THEOLOGICAL SEMINARY IN CALIFORNIA dba WESTMINSTER SEMINARY CALIFORNIA FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Years Ended June 30, 2016 and 2015

2 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Years Ended June 30, 2016 and 2015 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT 1-2 FINANCIAL STATEMENTS Statements of Financial Position 3 Statements of Activities 4-5 Statements of Functional Expenses 6-7 Statements of Cash Flows 8 Notes to Financial Statements 9-18 SUPPLEMENTARY INFORMATION Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed In Accordance with Government Auditing Standards Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards 23 Note to Schedule of Expenditures of Federal Awards 24 Schedule of Findings and Questioned Costs 25 Page

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5 STATEMENTS OF FINANCIAL POSITION June 30, 2016 and 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,856,569 $ 209,169 Investments 5,561,732 5,724,413 Accounts receivable 23,662 7,169 Prepaid expenses 44,900 48,000 Inventory 80,229 88,996 TOTAL CURRENT ASSETS 7,567,092 6,077,747 PROPERTY AND EQUIPMENT, net 5,842,470 5,378,998 OTHER ASSETS Collectibles 17,900 17,900 LIABILITIES AND NET ASSETS TOTAL ASSETS $ 13,427,462 $ 11,474,645 CURRENT LIABILITIES Current portion of mortgage payable $ 45,793 $ 43,847 Personal notes payable 40,000 40,000 Accounts payable 3,973 39,285 Accrued expenses and other liabilities 162, ,467 Deferred tuition 22,171 17,712 TOTAL CURRENT LIABILITIES 274, ,311 OTHER LIABILITIES Mortgage payable, net of current portion 498, ,765 TOTAL LIABILITIES 773, ,076 NET ASSETS Unrestricted 6,691,064 5,840,690 Temporarily restricted 5,488,327 4,318,913 Permanently restricted 474, ,966 TOTAL NET ASSETS 12,653,557 10,621,569 TOTAL LIABILITIES AND NET ASSETS $ 13,427,462 $ 11,474,645 The notes to the financial statements are an integral part of the statement. 3

6 STATEMENT OF ACTIVITIES Year Ended June 30, 2016 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions $ 2,201,307 $ 2,068,638 $ 12,200 $ 4,282,145 Tuition 1,569,316 1,569,316 Bequests 666, ,539 Rent income 164, ,885 Bookstore income 84,901 84,901 Investment return 21,525 (14,900) 6,625 Other income 16,943 16,943 Net assets released from restrictions, satisfaction of program restrictions 884,324 (884,324) - TOTAL REVENUE AND SUPPORT 5,609,740 1,169,414 12,200 6,791,354 EXPENSES Program services 3,526,429 3,526,429 Supporting services General and administrative 759, ,374 Fundraising 473, ,563 TOTAL EXPENSES 4,759, ,759,366 INCREASE IN NET ASSETS 850,374 1,169,414 12,200 2,031,988 NET ASSETS AT BEGINNING OF YEAR 5,840,690 4,318, ,966 10,621,569 NET ASSETS AT END OF YEAR $ 6,691,064 $ 5,488,327 $ 474,166 $ 12,653,557 The notes to the financial statements are an integral part of the statement. 4

7 STATEMENT OF ACTIVITIES Year Ended June 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUE AND SUPPORT Contributions $ 2,510,184 $ 1,049,585 $ 10,000 $ 3,569,769 Tuition 1,694,666 1,694,666 Bequests 615, ,945 Rent income 152, ,617 Bookstore income 107, ,068 Investment return 16,415 23,941 40,356 Other income 21,404 21,404 Net assets released from restrictions, satisfaction of program restrictions 528,646 (528,646) - TOTAL REVENUE AND SUPPORT 5,646, ,880 10,000 6,201,825 EXPENSES Program services 3,362,935 3,362,935 Supporting services General and administrative 719, ,404 Fundraising 513, ,542 TOTAL EXPENSES 4,595, ,595,881 INCREASE IN NET ASSETS 1,051, ,880 10,000 1,605,944 NET ASSETS AT BEGINNING OF YEAR 4,789,626 3,774, ,966 9,015,625 NET ASSETS AT END OF YEAR $ 5,840,690 $ 4,318,913 $ 461,966 $ 10,621,569 The notes to the financial statements are an integral part of the statement. 5

8 STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2016 Supporting Services Program General and Services Administrative Fundraising Total Advertising $ 7,142 $ 7,142 Benefits 632, ,979 69, ,739 Depreciation 116,011 26, ,992 Dues and subscriptions 2,121 3,984 6,105 Equipment leases 13,077 2,359 15,436 Grants 584, ,439 Hospitality 14,812 5,312 12,197 32,321 Insurance 23,050 5,361 28,411 Interest 20,676 4,809 25,485 Miscellaneous 63,173 20,887 84,060 Outside services 116,767 81,587 19, ,945 Personnel expenses 9, ,057 10,978 Repairs and maintenance 36,979 17,692 54,671 Salaries and related costs 1,673, , ,927 2,366,262 Seminars 11,895 11,895 Supplies 117,819 14,166 24, ,932 Telephone 6,939 1, ,962 Travel 25,213 23,284 32,691 81,188 Utilities 51,521 11,163 8,719 71,403 $ 3,526,429 $ 759,374 $ 473,563 $ 4,759,366 The notes to the financial statements are an integral part of the statement. 6

9 STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2015 Supporting Services Program General and Services Administrative Fundraising Total Advertising $ 6,727 $ $ $ 6,727 Benefits 554, ,786 77, ,304 Depreciation 135,533 30, ,577 Dues and subscriptions 1,978 3,135 5,113 Equipment leases 16,572 2,998 19,570 Grants 558, ,171 Hospitality 9,002 4,107 9,724 22,833 Insurance 22,946 5,087 28,033 Interest 22,235 4,929 27,164 Miscellaneous 66,933 5,775 72,708 Outside services 116,428 97,298 24, ,459 Personnel expenses 6,454 1,282 7,736 Repairs and maintenance 11,577 10,679 22,256 Salaries and related costs 1,613, , ,754 2,318,837 Seminars 9,521 9,521 Supplies 123,246 17,524 22, ,905 Telephone 6,743 1,175 1,143 9,061 Travel 24,528 20,065 29,340 73,933 Utilities 54,784 12,144 66,928 Website 2,045 2,045 $ 3,362,935 $ 719,404 $ 513,542 $ 4,595,881 The notes to the financial statements are an integral part of the statement. 7

10 STATEMENTS OF CASH FLOWS Years Ended June 30, 2016 and CASH FLOWS FROM OPERATING ACTIVITIES Increase in net assets $ 2,031,988 $ 1,605,944 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Depreciation 142, ,577 Unrealized loss on investments, net 60,224 88,025 Donated securities (38,382) (39,082) (Increase) decrease in operating assets: Accounts receivable (16,493) 6,562 Prepaid expenses 3,100 (14,919) Inventory 8,767 (6,680) Increase (decrease) in operating liabilities: Accounts payable (35,312) 28,937 Accrued expenses (4,471) 3,329 Deferred tuition 4,459 (981) Contributions restricted for long-term purposes (12,200) (10,000) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,144,672 1,826,712 CASH FLOWS FROM INVESTING ACTIVITIES Net proceeds from (purchases of) investments 140,840 (1,572,985) Purchases of property and equipment (606,465) (237,012) NET CASH USED BY INVESTING ACTIVITIES (465,625) (1,809,997) CASH FLOWS FROM FINANCING ACTIVITIES Payments of mortgage and personal notes payable (43,847) (119,606) Collections of contributions restricted for long-term purposes 12,200 10,000 NET CASH USED BY FINANCING ACTIVITIES (31,647) (109,606) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,647,400 (92,891) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 209, ,060 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,856,569 $ 209,169 SUPPLEMENTAL DISCLOSURE Interest paid $ 25,634 $ 27,310 The notes to the financial statements are an integral part of the statement. 8

11 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Activities Westminster Theological Seminary in California dba Westminster Seminary California ( the Seminary ) was incorporated in October The Seminary is a Christian institute of higher education offering instruction in biblical, theological, and ministerial disciplines. During 2003, the Seminary started doing business as Westminster Seminary California. Basis of Accounting The financial statements of the Seminary have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables and other liabilities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Financial Statement Presentation The Seminary reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Unrestricted net assets represent expendable funds available for operations, which are not otherwise limited by donor restrictions. Temporarily restricted net assets consist of contributed funds subject to donor-imposed restrictions contingent upon specific performance of a future event or a specific passage of time before the Seminary may spend the funds. Permanently restricted net assets are subject to donor-imposed restrictions requiring that the assets be maintained in perpetuity generally for the purpose of generating investment income to fund current operations. Cash and Cash Equivalents For purposes of the statements of cash flows, the Seminary considers all highly liquid investments available for current use to be cash equivalents. Investments The Seminary carries investments in marketable securities with readily determinable fair values and all investments in debt securities at their fair values in the statements of financial position. Donated securities are originally carried at their fair market value at the date of donation. Investment gains and losses are included in the change in net assets in the statements of activities. 9

12 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts Receivable The accounts receivable arise in the normal course of operations. It is the policy of management to review the outstanding accounts receivable at year-end and establish an allowance for doubtful accounts for uncollectible amounts. No allowance is considered necessary at June 30, 2016 and 2015 because management believes all amounts are collectible. Inventory Inventory consists of education and ministry-related books available for sale. Inventory is valued at the lower of cost (first-in, first-out method) or market. Property and Equipment Acquisitions of property and equipment of $1,000 or more are capitalized. Property and equipment are stated at cost, or if donated, at the approximate fair market value at the date of donation. Expenditures for maintenance and repairs are charged against operations. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets of five to forty years. Revenue and Support Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Contributions received with donorimposed restrictions that are satisfied within the same reporting period are reported as unrestricted support in that period. Income Taxes The Seminary is a qualified nonprofit organization that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. In addition, the Seminary has been determined by the Internal Revenue Service not to be a private foundation within the meaning of Section 509(a) of the code. Advertising The Seminary expenses the costs of advertising as they are incurred. Comparative Information Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. Subsequent Events The Seminary has evaluated subsequent events through October 4, 2016 which is the date the financial statements were available to be issued. 10

13 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 2. FUNCTIONAL ALLOCATION OF EXPENSES The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited based on time and usage. NOTE 3. CONCENTRATION OF CREDIT RISK The Seminary maintains its cash balances and certain investment balances at financial institutions where the balances are insured by the Federal Deposit Insurance Corporation (FDIC). At June 30, 2016 the Seminary s cash balance in excess of $250,000 per institution was not insured. Cash on hand $ 1,856,569 Certificate of deposits in investments 2,458,149 FDIC insured (500,667) Concentrated risk $ 3,814,051 NOTE 4. INVESTMENTS Investments consist of the following: Investment in land 10,000 10,000 $ 5,561,732 $ 5,724,413 Investment return and its classification included in the statements of activities are as follows: Interest and dividends $ 66,299 $ 12,688 (Loss) gain on investments, net (59,674) 27,668 $ 6,625 $ 40,356 11

14 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 5. PROPERTY & EQUIPMENT Property & Equipment consist of the following: Land - campus $ 2,595,106 $ 2,595,106 Buildings - campus 3,169,119 3,131,037 Construction in progress -student housing 1,229, ,795 Furniture and equipment 988, ,921 Library books 1,324,531 1,287,400 Total Property & Equipment 9,306,724 8,700,259 Less accumulated depreciation (3,464,254) (3,321,261) $ 5,842,470 $ 5,378,998 Depreciation expense for the years ended June 30, 2016 and 2015 was $142,992 and $165,577, respectively. In 2014 the Seminary purchased land adjacent to its campus in order to build graduate student housing. The construction of the student housing is expected to begin in late NOTE 6. COLLECTIBLES The Seminary has a collection of artwork appraised at $17,900 at the time of its donation in NOTE 7. LINE OF CREDIT In 2011 the Seminary established a line of credit with its bank in the amount of $700,000. The line of credit is secured by a second trust deed on property owned by the Seminary. The line bears interest based on the prime rate published in the Wall Street Journal not to exceed an annual percentage rate of 18% (5.0% at June 30, 2016). Interest is payable monthly. The maturity date of the line of credit was extended to June No loan balance was outstanding at June 30, 2016 or NOTE 8. PERSONAL NOTES PAYABLE The Seminary has two unsecured notes payable to private individuals. Two additional notes were repaid during the year ended June 30, The remaining notes are due on demand with interest rates between 3.5 to 6%. NOTE 9. MORTGAGE PAYABLE The Seminary has a mortgage from its bank that is secured by a first trust deed on property owned by the Seminary in Escondido, California. The terms of the loan were modified in 2013, and the interest rate was reduced to a fixed rate 4.15%. Payments of principal and interest of $5,653 are payable monthly. The mortgage is due in April

15 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 9. MORTGAGE PAYABLE (continued) Future principal payments are due as follows at June 30, 2016: Year Ending June $ 45, ,972 $ 544,765 NOTE 10. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for various purposes which include funding endowed professorships and making scholarship grants. The funds which make up the temporarily restricted net assets are listed below Campus Development Fund $ 2,728,659 $ 1,590,772 J. Gresham Machen Chair 1,255,850 1,326,130 Strimple Chair 1,025,551 1,071,576 CF Scholarship 180,382 5,585 URC/CRC scholarship 102,748 92,748 Owens Scholarship Income 53,010 54,317 Machen Scholarship 27,561 50,561 Christian College Scholarship 26,056 26,056 Van Til Scholarship 19,108 19,458 OPC Scholarship 9,500 12,500 Awes Presidential Fund Income 9,007 11,739 Walter Swets Scholarship Income 7,350 8,188 Timoteo Scholarship 7,255 6,555 Wells Scholarship 6,765 7,040 Haan Family Scholarship 5,000 - Psalm 133 Books Scholarship 4,870 3,440 Presidential Fund for Students 4,769 3,769 Special Mdiv 4,000 - Trinity URC Scholarship 2,667 - Campus Care Fund 2,313 - New Zealand Scholarship Income 1,749 1,722 Bielema International Fund 1,460 4,697 McGill Scholarship Income 1,297 6,104 Im Family Scholarship 1,250 1,250 Lilly Grant for CPR 150 9,206 Winter Term Funding - 5,000 You-Kye-Soon Memorial Scholarship $ 5,488,327 $ 4,318,913 13

16 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 11. PERMANENTLY RESTRICTED NET ASSETS (ENDOWMENT) The Uniform Prudent Management of Institutional Funds Act (UPMIFA) and the Financial Accounting Standards Board FAS establish the accounting and reporting requirements for donor-restricted endowment funds. The Board of Trustees has interpreted the UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result, the Seminary classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment and the original value of subsequent gifts to the permanent endowment. The remaining portion of the donor-restricted endowment fund is classified as temporarily restricted net assets until those amounts are appropriated for expenditure. The investment strategy for endowment funds emphasizes total return, which is the aggregate return from capital appreciation, dividends and interest income. Funds are invested in a manner that balances income and capital growth. Under normal circumstances, this means that the expected total return and expected risk should be less than or equal to a well-diversified portfolio comprised of 60% investment grade fixed income securities and 40% common equity securities representative of major U.S. market indexes. Risk is measured by the standard deviation of quarterly returns, and, if applicable, beta factors or other measures of total return volatility. The income from the endowment funds is to be used for the purposes of making scholarship grants and paying honorariums for guest lecturers. Appropriations of endowment assets are authorized annually based on recent investment returns and the needs of the Seminary Bielema International Fund $ 96,458 $ 96,458 Awes Presidential Fund 85,252 85,252 McGill Scholarship Fund 68,503 68,503 Walter Swets Scholarship 64,136 54,136 Scholarship Endowment 45,520 45,520 den Dulk Endowment Fund 43,440 43,440 Owens Scholarship 30,000 30,000 You-Kye-Soon Memorial Scholarship 26,930 26,930 New Zealand Scholarship 8,727 8,727 General Endowment 5,200 3,000 $ 474,166 $ 461,966 14

17 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 11. PERMANENTLY RESTRICTED NET ASSETS (ENDOWMENT) (continued) The following disclosures related to Endowment Net Assets are required by FAS of the Financial Accounting Standards Board which governs the reporting requirements for donor-restricted endowment funds. Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2016: Endowment Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ (9) $ 86,768 $ 461,966 $ 548,725 Investment return: Investment income 59 9,006-9,065 Net appreciation (realized and unrealized) (42) (7,611) - (7,653) Total investment return 17 1,395-1,412 Contributions - 10,000 12,200 22,200 Appropriation of endowment assets for expenditure (8) (24,290) - (24,298) Endowment net assets, end of year $ - $ 73,873 $ 474,166 $ 548,039 15

18 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 11. PERMANENTLY RESTRICTED NET ASSETS (ENDOWMENT) (continued) Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2015: Endowment Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ (1,374) $ 106,915 $ 451,966 $ 557,507 Investment return: Investment income 1,717 6,733-8,450 Net appreciation (realized and unrealized) (352) (1,380) - (1,732) Total investment return 1,365 5,353-6,718 Contributions ,000 10,000 Appropriation of endowment assets for expenditure - (25,500) - (25,500) Endowment net assets, end of year $ (9) $ 86,768 $ 461,966 $ 548,725 NOTE 12. PENSION PLAN The Seminary provides a retirement plan which covers all employees after they reach 21 years of age in each year in which they complete 1,000 hours of service. The plan is noncontributory, and the Seminary pays 7% of each participating employee s base salary. Participating employees may make supplemental contributions to the plan. The plan is administered through TIAA-CREF. Ordained ministers have the option of choosing their denominational retirement plan instead of TIAA-CREF to administer their retirement benefits. Total pension expense was $146,290 and $150,744 for the years ended June 30, 2016 and 2015, respectively. 16

19 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 13. OPERATING LEASES The Seminary leases equipment under operating lease agreements which expire at various dates through March Total rent expense was $15,392 and $15,478 for the years ended June 30, 2016 and 2015, respectively. Future minimum lease payments under operating leases at June 30, 2016 are due as follows: NOTE 14. PLEDGES RECEIVED Year Ending June $ 18, , , , ,323 $ 76,605 The Seminary has received pledges of support for several capital projects, including the construction of student housing on the campus. The amounts pledged are being collected over a period of time, initially a three-to five-year period. Although the Seminary believes that pledged amounts will be collected, they are not recorded in the financial statements since they are conditional promises to give. Pledged income is reported as it is received. Economic barriers have prevented priority capital projects from commencing as originally planned. In 2014 donors provided the funds needed to purchase property adjacent to the campus that would improve and expand the student housing plans. This purchase of land enables the Seminary to renew its plans to build graduate student housing on campus and to renew efforts to procure the outstanding pledges. NOTE 15. RELATED PARTY TRANSACTIONS Rent Income and Reimbursements The Seminary rents office space to White Horse, Inc. and is reimbursed for various expenses. The two organizations share common board members. During the years ended June 30, 2016 and 2015, the transactions between the organizations totaled $56,800 and $48,600, respectively. There was a balance of $1,879 due from White Horse, Inc. at June 30, NOTE 16. COMMUNICATIONS EQUIPMENT LEASES The Seminary leases a portion of its property to various entities under operating lease agreements for the construction of mobile/wireless communications equipment (cell towers). The agreements provide for multiple options to renew for five year periods. They may be terminated by either party upon written notice. Rent income under these agreements totaled $88,292 and $83,557 during the years ended June 30, 2016 and 2015, respectively. Property taxes related to the leased property are approximately $5,000 annually. 17

20 NOTES TO FINANCIAL STATEMENTS June 30, 2016 and 2015 NOTE 17. SUBSEQUENT EVENTS Construction Financing In August 2016 the Seminary obtained a construction loan in the amount of $7,500,000 to aid in the financing of the graduate student housing building project. The loan is secured by a third trust deed on real property, an assignment of rents, and by construction materials, fixtures and equipment, and personal property. The interest rate is fixed at 3.25%. The loan provides for interest only payments over the initial 24 months (the construction phase) but only on the loan proceeds that have been disbursed. This is followed by monthly principal and interest payments for the next seven years (the permanent phase) in an amount sufficient to fully amortize the loan over 20 years. The loan is due in The Seminary is required to make a capital contribution of approximately $11,000,000 prior to any loan disbursements. During the initial 24 months (construction phase), loan proceeds will also be used to refinance existing loans including the mortgage loan due April During the permanent financing phase of the loan, no additional loan advances will be made. 18

21 SUPPLEMENTARY INFORMATION Year Ended June 30, 2016

22 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Trustees Westminster Theological Seminary in California dba Westminster Seminary California Escondido, California We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Westminster Theological Seminary in California dba Westminster Seminary California (the Seminary ) (a nonprofit organization) which comprise the statement of financial position as of June 30, 2016, and the related statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated October 4, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Seminary s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Seminary s internal control. Accordingly, we do not express an opinion on the effectiveness of the Seminary s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

23 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Seminary s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Escondido, California October 4, 2016

24 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Board of Trustees Westminster Theological Seminary in California dba Westminster Seminary California Escondido, California Report on Compliance for Each Major Federal Program We have audited Westminster Theological Seminary in California dba Westminster Seminary California s (the Seminary ) (a nonprofit organization) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Seminary s major federal programs for the year ended June 30, The Seminary s major federal programs are identified in the summary of auditor s results section of the accompanying Schedule of Findings and Questioned Costs. Management s Responsibility Management is responsible for compliance with the requirements of federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Seminary s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Seminary s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination of the Seminary s compliance.

25 Opinion on Each Major Federal Program In our opinion, the Seminary complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control over Compliance The management of the Seminary is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Seminary s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Seminary s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Escondido, California October 4, 2016

26 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2016 Federal/Pass-Through Grantor and Program Title Agency or Federal Pass-through CFDA Grantor Number Number Expenditures U. S. Department of Education Federal Family Education Loan Program N/A $ 787,413 See accompanying notes to schedule of federal awards. 23

27 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended June 30, 2016 Note 1. Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of Westminster Theological Seminary in California dba Westminster Seminary California (the Seminary) under programs of the federal government for the year ended June 30, The information is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Seminary, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the Seminary. Note 2. Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 24

28 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2016 SECTION I SUMMARY OF AUDITOR S RESULTS Financial Statements Type of auditors report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiencies identified? Noncompliance material to financial statements noted? unmodified no none reported no Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiencies identified? Type of auditor s report issued on compliance for major programs Any audit findings disclosed that are required to be reported in accordance with 2 CFR section (a)? no none reported unmodified no Identification of major program: CFDA Number Name of Federal Program or Cluster Federal Direct Student Loans Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as a low-risk auditee? yes SECTION II FINANCIAL STATEMENT FINDINGS None SECTION III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None SECTION IV STATUS OF CORRECTIVE ACTION ON PRIOR YEAR FINDINGS Explanation If Findings/Recommendations Current Status Not Implemented NONE N/A N/A 25