DENMARK TECHNICAL COLLEGE DENMARK, SOUTH CAROLINA FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION. Year Ended June 30, 2016

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1 DENMARK, SOUTH CAROLINA FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION Year Ended June 30, 2016

2 Denmark, South Carolina Organizational Data Year Ended June 30, 2016 AREA COMMISSION MEMBERS AND OFFICERS Mr. Thomas Williams, Chairperson Mrs. Peggy Faust, Vice Chairperson Mr. James Hayes, Secretary Mr. Calvin Wright Mr. DeWayne Ennis Mr. Leon Harden Ms. Brenda Williams Ms. Gwendolyn Bright Representative of State Board for Technical and Comprehensive Education Barnwell County Bamberg County Barnwell County At Large Allendale County Allendale County At Large Ex-Officio Key Administrative Staff Dr. Leonard A. McIntyre Dr. Lamin E. Drammeh Mr. Ram on O. Wideman Mrs. Tia Wright-Richards Mrs. Teresa Mack Mr. Stephen Mason Mr. Fred Bove Ms. Cheryl Washington President Vice President for Institutional Planning and Development/ Special Assistant to the President Vice President for Fiscal Affairs Interim Vice President for Academic Affairs Interim Vice President for Student Affairs/Director of Grants and Contracts/Title III Associate Vice President for Economic and Workforce Development Director of Information Resource Management Director of Human Resources

3 DENMARK, SOUTH CAROLINA TABLE OF CONTENTS Page Independent Auditors Report 1 Management s Discussion and Analysis 3 FINANCIAL STATEMENTS Statement of Net Position 11 Statement of Revenues, Expenses and Changes in Net Position 12 Statement of Cash Flows 13 Notes to Financial Statements 14 Required Supplementary Information 37 Schedule of Proportionate Share of the Net Pension Liability SC Retirement System and Police Officer s Retirement System Required Supplementary Information 38 Schedule of College Contributions SC Retirement System and Police Officer s Retirement System SINGLE AUDIT COMPLIANCE SECTION Schedule of Expenditures of Federal Awards 40 Independent Auditor s report on Internal Control over Financial Reporting 41 and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s report on Compliance for each Major Program and on Internal Control Over Compliance required by the Uniform Guidance 43 Schedule of Findings and Questioned Costs 45 Independent Accountants Report on State Lottery Tuition Assistance 52

4 INDEPENDENT AUDITOR S REPORT To the Area Commissioners Denmark Technical College Denmark, South Carolina Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of Denmark Technical College, Denmark, South Carolina, a component unit of the State of South Carolina and a member institution of the South Carolina Technical College System, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Denmark Technical College, Denmark, South Carolina s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 opinions 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 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 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 opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of Denmark Technical College, Denmark, South Carolina, as of June 30, 2016, and the respective changes in financial position, and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1

5 INDEPENDENT AUDITOR S REPORT (continued) Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the schedule of proportionate share of South Carolina Retirement System (SCRS) and the Police Officer s Retirement System (PORS) net pension liability, and the schedule of the College s contributions to the South Carolina Retirement System( SCRS) and the Police Officer s Retirement System (PORS) on page 37 and be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Denmark Technical College, Denmark, South Carolina s basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis 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, and is also not a required part of the basic financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic 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 30, 2016, on our consideration of Denmark Technical College, Denmark, South Carolina 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 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 Denmark Technical College, Denmark, South Carolina s internal control over financial reporting and compliance. Orangeburg, South Carolina November 30,

6 MANAGEMENT S DISCUSSION AND ANALYSIS As management of Denmark Technical College, we offer readers of the College s financial statements this narrative overview and analysis of the financial activities of the College for the fiscal year ended June 30, This discussion should be read in conjunction with the financial statements and the notes thereto, which follow this section. The College s financial statements are presented in accordance with the Governmental Accounting Standards Board (GASB) Statements No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. The financial statement presentation required by GASB Statements No. 34 and No. 35 provides a comprehensive, entity-wide perspective of the College s assets, deferred outflows, liabilities, deferred inflows, net position, revenues, expenses, changes in net position, and cash flows and replaces the fund-group perspective previously required. Financial Highlights The assets and deferred outflows exceeded its liabilities and deferred inflows at June 30, 2016 by $284,918. Due to the implementation of GASB 68, the unrestricted net position is ($5,509,895). Without GASB 68 being implemented, unrestricted net position would be $3,971,970, which may be used to meet the College s ongoing obligations from unrestricted activities. Recorded liabilities include a net pension liability of $10,571,802 representing the College s share of the State s total net pension liabilities for two of its pension plans. This greatly affects the reported net position and the amount available to meet the College s ongoing obligations from unrestricted activities. The College s net position decreased by $1,332,396, a net result of an approximately $0.1 million decrease in assets and an increase in liabilities of approximately $1.2 million. Accounts receivable increased by approximately $245,306. The College increased its funds invested in a certificate of deposit from $614,809 at June 30, 2015 to $875,286 at June 30, Non-capital appropriations from the State increased by approximately $124,338. Funding from Federal sources decreased during the year by approximately $3.1 million overall from last year as a result of increases in federal grant awards leveraged against decreases in student federal aid awards. The College did not have any outstanding debt during the fiscal year or at year end. Overview of the Financial Statements The College is engaged only in Business-Type Activities (BTA) which is financed in part by fees charged to students for educational purposes. Accordingly, its activities are reported using the three financial statements required for proprietary funds: Statement of Net Position; Statement of Revenues, Expenses and Changes in Net Position, and the Statement of Cash Flows. These statements present financial information in a format similar to that used by the private sector. 3

7 The College implemented GASB Statement No. 68, Accounting & Financial Reporting for Pensions, as reflected in these financial statements. The Statement requires participating employers to report their proportionate share of their retirement plans net pension liability, pension expense, and deferred inflows and outflows of resources. For the year ended June 30, 2016, the College s reported net pension liability was $10,571,802. This accounting treatment has a major negative impact on the presentation of the College s net position and financial condition. GASB Statement No. 68 also calls for the reporting of deferred inflows and outflows of resources, which relate to such factors as differences occurring between expected and actual experience, differences between projected and actual earnings on pension plan investments, and plan contributions made subsequent to the measurement date. Total assets and deferred outflows at June 30, 2016 include deferred outflows of resources of $1,190,463, while total liabilities and deferred inflows include deferred inflows of resources of $100,526. The College s reported expenses also include $344,128 in additional pension expense required by the GASB statement. Statement of Net Position The Statement of Net Position provides a snapshot of the College s assets, deferred outflows, liabilities, deferred inflows and net position at the end of the fiscal year. It provides the reader with information concerning the College s ability to continue its operations and to determine its financial stability. Assets and liabilities are separated into current, those that are due or to be paid within the current year and non-current, those that are longer term in nature. Net position is divided into three major categories. The first, net investment in capital assets provides the equity in property, plant and equipment owned by the College. The next category, which is restricted net position, can be defined as those net assets where constraints are placed on them either externally by creditors, grantors, contributors, or laws and regulations of other governments or by law through constitutional provisions or enabling legislation of the government itself. The College restricted net position for capital projects for the fiscal year just ended is $1,817,350. The final category of net position is unrestricted. These funds may be used to meet the College s ongoing obligations from unrestricted activities. The following schedule is a condensed version of the College s assets, deferred outflows, liabilities, deferred inflows and net position and is prepared from the Statement of Net Position. 4

8 Condensed Statement of Net Position As of June 30, 2016 and 2015 (In millions) Increase (Decrease) Current Assets $ 7.2 $ 7.4 $ (0.2) Non-current Assets: Capital Assets, Net of Accumulated Depreciation (0.3) Deferred Outflows of Resources Total Assets and deferred outflows (0.1) Current Liabilities Non-current Liabilities Deferred Inflows of Resources (0.6) Total Liabilities and deferred inflows Net Position: Net Investment in Capital Assets (0.3) Restricted Unrestricted (5.5) (2.7) (2.8) Total Net Position $ 0.3 $ 1.6 $ (1.3) Net position may serve over time as a useful indicator of an entity s financial health. Assets and deferred outflows exceed liabilities and deferred inflows by $0.3 million, a decrease of approximately $1.3 million over the prior fiscal year. Analysis of revenues and expenses for the fiscal year provide details of the increase. Assets Current assets, which are more liquid in nature, consist of cash and cash equivalents, investments, accounts receivable net of allowances, prepaid expenses and inventories. Current assets exceed current liabilities by a ratio of approximately 8 to 1. This shows ample liquidity to satisfy liabilities and results in a healthy financial condition for the college. Current assets decreased by a net of $0.2 million, cash and cash equivalents were $2,370,161, a net decrease of $1,440,562 from the prior fiscal year. 5

9 Capital Assets and Debt Administration The College s investment in capital assets (land, buildings, machinery and equipment, net of accumulated depreciation), reflects approximately $4.0 million for the fiscal year. The capitalized value of assets acquired during the year was less than the amount of the annual depreciation expense on the College s total capitalized assets, thereby causing a decrease in capital assets. The College does not use debt to finance the acquisition of capital assets. Liabilities Current liabilities increased by approximately $0.4 million. This is primarily due to an increase in accounts payable of approximately $0.2 million. Non-current liabilities consist of the long term portion of compensated absences and the net pension liability as discussed earlier. The change in non-current liabilities from the prior year relates almost entirely to the pension liabilities. Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position presents revenues earned and expenses incurred during the year under the categories of operating and non-operating. Generally, operating revenues and expenses are those that are received and used to carry out the mission of the College; however, the College depends heavily on financial support from the state. This support is reflected as non-operating revenue based on governmental accounting standards; therefore, the College will likely report an operating deficit due to its dependence on state and local funding. Non-operating revenues and expenses offset the operating deficit and usually result in an overall increase in net position for the year. In past years, Higher Education institutions have treated Pell Grants to students as operating grants. However, in accordance with GASB standards the State Comptroller General s Office has revised its policy and is now requiring Pell grants to be reported as non-operating. 6

10 Operating Results A summary of the College s operating results for the fiscal year is presented below. Operating Results for the Fiscal Years Ended June 30, 2016 and June 30, 2015 (in millions) Increase REVENUES (Decrease) Operating Revenues: Student tuition and fees, net (0.7) Grants and contracts (0.4) Auxiliary enterprises, Net (0.3) Other (0.8) (2.2) Less Operating Expenses (1.5) Net Operating Loss (8.8) (8.1) (0.7) Non-operating Revenue: State appropriations Grants and contracts (3.4) Other Total Non-operating Revenue (1.8) Decrease in net position (1.3) 1.2 (2.5) Net position, beginning of year (as restated) Net position, end of year (1.3) Total Revenue (4.0) 7

11 Revenue Total revenue for June 30, 2016 decreased by just over $4.0 million from the prior fiscal year. State funding increased overall by approximately $0.1 million, while federal revenue decreased by over $3.4 million, made up almost entirely of a reduction in Pell grant revenue. Sources of revenue and corresponding amounts are shown in millions in the following chart. 8

12 Expenses Operating expenses for the fiscal year total $15.3 million, down by $1.5 million from the prior fiscal year. The most significant change occurred in the area of Scholarships, which decreased by almost $2.0 million. A comparison of operating expenses by classification is found in the following chart. Statement of Cash Flows The Statement of Cash Flows is the final statement to be presented. It presents detailed information about the cash activity of the College during the year and provides the reader with the sources and uses of cash by the major categories of operating, non-capital financing, capital and related financing, and investing activities. This statement will likely report a use of cash in the section Cash Flows from Operating Activities due to the College s dependence on state and local appropriations. The statement is divided into five parts. The first section reflects the operating cash flows and identifies the net cash used in the operating activities of the College. The second section reflects cash flows from non-operating financing activities. This section shows the cash received and spent for non-operating, non-investing, and non-capital financing activities. The third section expresses cash flows from capital and related financing activities and highlights the cash used for the acquisition and construction of capital and related items. The fourth section reflects the cash flows from investing activities and shows the purchases, proceeds, and interest received from investing activities. The final section reconciles the net cash used to the operating loss reflected on the Statement of Revenues, Expenses and Changes in Net Position. Cash decreased by approximately $1.4 million from last year. 9

13 Economic Factors The economic condition of the College is dependent to a large degree on that of the state and local governments. South Carolina s economy has continued to grow its way out of the prolonged recession, which had significantly impacted the College through reductions in state funding for current operations. The College receives approximately 36 percent of its total revenue from state sources. The College also received $1,500 from county sources during the fiscal year. Summary The College has entered a period of right-sizing and resetting its operations based on changes in enrollment trends and economic condition. The College remains in sound financial condition, despite a decrease in total revenue of just over $4.0 million. Unrestricted net position, excluding GASB 68 adjustments to reflect a pension liability is still nearly $4.0 million. The College continues to provide affordable, post-secondary education to individuals from diverse educational and socioeconomic backgrounds seeking skills and knowledge for the emerging job market, culminating in associate degrees, diplomas, certificates, and transitions to four-year institutions. Contact Information Additional questions related to the Management Discussion and Analysis and the accompanying financial statements should be directed to Mr. Ram on O. Wideman, Vice President of Fiscal Affairs at (803)

14 Statement of Net Position June 30, 2016 ASSETS Cash and cash equivalents $ 2,370,161 Investments 875,286 Accounts receivable, net 3,634,846 Inventories 290,636 Total Current Assets 7,170,929 Capital assets, net of accumulated depreciation 3,977,463 Total Assets 11,148,392 Deferred Outflows of Resources 1,190,463 Total Assets and Deferred Outflows of Resources $ 12,338,855 LIABILITIES Accounts payable $ 259,563 Accrued payroll and related liabilities 128,711 Unearned revenue and deposits 176,095 Funds held for others 314,989 Compensated absences payable, current portion 43,942 Total Current Liabilities 923,300 Compensated absences payable, long term portion 458,309 Net pension liability 10,571,802 Total Non-current Liabilities 11,030,111 Total Liabilities 11,953,411 Deferred Inflows of Resources 100,526 Total Liabilities and Deferred Inflows of Resources $ 12,053,937 NET POSITION Net Investments in capital assets $ 3,984,349 Restricted - capital projects 1,817,350 Unrestricted - unfunded pension obligation (9,481,865) Unrestricted - other 3,965,084 Total Net Position $ 284,918 The accompanying notes are an integral part of these financial statements. 11

15 Statement of Revenues, Expenses and Changes in Net Position For the Fiscal Year Ended June 30, 2016 REVENUES Operating Revenue: Student tuition and fees (net of scholarship allowance of $1,374,861) $ 840,268 Federal grants and contracts 4,249,488 State grants and contracts 741,731 Other grants and contracts 277,566 Auxiliary enterprises (net of scholarship allowances of $884,216) 337,827 Other revenues 57,416 Total Operating Revenue 6,504,296 EXPENSES Operating Expenses: Salaries 6,071,034 Employee benefits 2,214,653 Scholarships 1,396,031 Utilities 518,869 Supplies and other services 4,768,743 Depreciation 331,938 Total Operating Expenses 15,301,268 OPERATING LOSS (8,796,972) NONOPERATING REVENUES State appropriations 2,404,896 County appropriations 1,500 Interest income 408 Federal grants and contracts 2,758,048 State and local grants and contracts 475,692 Capital appropriations 1,400,000 Student capital fees (net of scholarship allowances of $200,008) 424,032 Total Nonoperating Revenues 7,464,576 Decrease in Net Position (1,332,396) Net Position Beginning of Year 2,062,749 Prior Period Adjustments (445,435) Net Position Beginning of Year (as restated) 1,617,314 Net Position End of Year $ 284,918 The accompanying notes are an integral part of these financial statements. 12

16 Statement of Cash Flows For the Fiscal Year Ended June 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees (net of scholarship allowances) $ 848,500 Federal, state and local grants and contracts 6,537,812 Auxiliary enterprise charges (net of scholarship allowances) 337,709 Other receipts 57,416 Payments to vendors (8,680,342) Payments to employees (5,979,185) Net Cash Used in Operating Activities (6,878,090) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 2,404,896 County appropriations 1,500 Funds held for others (60,263) Non-operating federal, state and local grants and contracts 2,954,317 Net Cash Provided by Noncapital Financing Activities 5,300,450 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Student capital fees (net of scholarship allowances) 424,032 Purchase of capital assets (26,885) Net Cash Provided by Capital and Related Financing Activities 397,147 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (260,477) Interest on investments 408 Net Cash Used in Investing Activities (260,069) Net Decrease in Cash and Cash Equivalent (1,440,562) Cash and Cash Equivalents - Beginning of Year 3,810,723 Cash and Cash Equivalents - End of Year $ 2,370,161 Reconciliation of Net Operating Revenues (Expenses) to Net Cash Used in Operating Activities Operating expenses over revenue $ (8,796,972) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Depreciation expense 331,938 Change in Assets and Liabilities: Receivables, net 1,458,780 Inventories (47,894) Deferred outflows (354,019) Accounts payable (355,689) Accrued payroll and related liabilities 76,127 Unearned revenue and deposits 120,831 Federal liability (25,061) Compensated absences 15,722 Deferred inflows (683,210) Net pension liability 1,381,357 Net Cash Used in Operating Activities $ (6,878,090) The accompanying notes are an integral part of these financial statements. 13

17 Notes to the Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Nature of Operations: Denmark Technical College (the College ), a member institution of the South Carolina Technical College System, provides a range of educational programs to meet the needs of the adult population of Allendale, Bamberg, and Barnwell counties. Included in this range of programs are technical and occupational associate degree, diploma and certificate curricula that are consistent with the needs of employers in the College s service area. As an integral part of this mission, the College provides a program of continuing education designed to satisfy the occupational demands of employers through retraining and upgrading the skills of individual employees. The College also provides a variety of developmental education programs, support services and offerings to assist students in meeting their personal and professional educational objectives. B. Reporting Entity: The financial reporting entity, as defined by the Governmental Accounting Standards Board (GASB) consists of the discrete component units of the State, organizations for which the State is financially accountable and other organizations for which the nature and significance of their relationship with the State are such that exclusion could cause the financial statements to be misleading or incomplete. Accordingly, the financial statements include the accounts of Denmark Technical College, as the discrete component unit of the State. C. Financial Statements: The financial statements are presented in accordance with Governmental Accounting Standards Board ( GASB ) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. The financial statement presentation required by GASB Statements No. 34 and No. 35 provides a comprehensive, entity-wide perspective of the College s assets, deferred outflows, liabilities, deferred inflows, net position, revenues, expenses, changes in net position and cash flows that replaces the fund-group perspective previously required. Effective for fiscal year 2013, the State required the implementation of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. As a result, The Statement of Net Assets has been replaced by the Statement of Net Position. Effective for fiscal year ended June 30, 2015, The College implemented GASB Statement No. 68, Accounting & Financial Reporting for Pensions, as reflected in these financial statements. The Statement is effective for fiscal years beginning after June 15, It requires participating employers to report their proportionate share of their retirement plans net pension liability, pension expense, and deferred inflows and outflows of resources, as well as additional note disclosures and required supplementary information. 14

18 Notes to the Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued D. Basis of Accounting: For financial reporting purposes, the College is considered a specialpurpose government entity engaged only in business-type activities. Accordingly, the College s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. Student tuition and auxiliary enterprise fees are presented net of scholarships and fellowships applied to student accounts, while stipends and other payments made directly are presented as scholarship expenses. All significant intra-institutional transactions have been eliminated. The College has elected not to apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, E. Cash and Cash Equivalents: For purposes of the statement of cash flows, the College considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Funds invested through the State of South Carolina State Treasurer s Office are considered cash equivalents. F. Investments: Deposits and investments for the College are governed by the South Carolina Code of Laws, Section , and Investment of Funds. GASB Statement No. 40, Deposits and Investment Risk Disclosures an amendment to GASB Statement No. 3, requires disclosures related to deposit risks, such as custodial credit risk, and investment risks, such as credit risk (including custodial credit risk and concentrations of credit risks) and interest rate risk. The college accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the fair value of investments are reported as a component of investment income in the statement of revenues, expenses and changes in net assets. G. Accounts Receivable: Accounts receivable consists of tuition and fee charges to students, gift pledges and auxiliary enterprise services provided to students, faculty and staff. Accounts receivable also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the College s grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. H. Inventories: Inventories for internal use are valued at cost. Inventories for resale are carried at the lower of cost or market on the first-in, first-out ("FIFO") basis. 15

19 Notes to the Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued I. Capital Assets: Capital assets are recorded at cost at the date of acquisition or fair market value at the date of donation in the case of gifts. The College follows capitalization guidelines established by the State of South Carolina. All land is capitalized, regardless of cost. Qualifying improvements that rest in or on the land itself are recorded as depreciable land improvements. Major additions, renovations, and other improvements that add to the usable space, prepare existing buildings for new uses, or extend the useful life of an existing building are capitalized. The College capitalizes movable personal property with a unit value in excess of $5,000 and a useful life in excess of two years and depreciable land improvements, buildings and improvements, and intangible assets costing in excess of $100,000. Routine repairs and maintenance and library materials, except individual items costing in excess of $5,000, are charged to operating expenses in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 15 to 50 years for buildings and improvements and land improvements and 2 to 25 years for machinery, equipment, and vehicles. A full year of depreciation is taken the year the asset is placed in service and no depreciation is taken in the year of disposition. J. Unearned Revenues and Deposits: Unearned revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Unearned revenues also include amounts received from grant and contract sponsors that have not yet been earned. Total deferred revenues at June 30, 2016 amounted to $117,545. Deposits represent dormitory room deposits, security deposits for possible room damage and key loss, student fee refunds, and other miscellaneous deposits. Student deposits are recognized as revenue during the semester for which the fee is applicable and earned when the deposit is nonrefundable to the student under the forfeit terms of the agreement. Student deposits at June 30, 2016 totaled $58,550. K. Compensated Absences: Employee vacation pay expense is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as a component of long-term liabilities in the statement of net assets and as a component of benefit expenses in the statement of revenues, expenses, and changes in net assets. L. Net Position: The College s net position is classified as follows: Net Investment in Capital Assets: This represents the College s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of invested in capital assets, net of related debt. Restricted net position - expendable: Restricted expendable net position include resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Restricted expendable net position consists of amounts restricted for capital improvements. 16

20 Notes to the Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Unrestricted net position: Unrestricted net position represents resources derived from student tuition and fees, appropriations, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the College, and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources also include auxiliary enterprises, which are substantially self-supporting activities that provide services for students, faculty and staff. The College s policy for applying expenses that can use both restricted and unrestricted resources is delegated to the departmental administrative level. General practice is to first apply the expense to restricted resources and then to unrestricted resources. M. Income Taxes: The College is exempt from income taxes under the Internal Revenue Code. N. Classification of Revenues: The College has classified its revenues as either operating or nonoperating revenues according to the following criteria: Operating revenues: Operating revenues generally result from exchange transactions to provide goods or services related to the College s principal ongoing operations. These revenues include (1) student tuition and fees received in exchange for providing educational services, housing, and other related services to students; (2) receipts for scholarships where the provider has identified the student recipients; (3) fees received from organizations and individuals in exchange for miscellaneous goods and services provided by the College; and (4) grants and contracts that are essentially the same as contracts for services that finance programs the College would not otherwise undertake. Non-operating revenues: Non-operating revenues include activities that have the characteristics of non-exchange transactions. These revenues include gifts and contributions, appropriations, investment income, and any grants and contracts that are not classified as operating revenue or restricted by the grantor to be used exclusively for capital purposes. O. Auxiliary Enterprises and Internal Service Activities: Auxiliary enterprise revenues primarily represent revenues generated by bookstores and food services. Revenues of internal service and auxiliary enterprise activities and the related expenditures of college departments have been eliminated. P. Pensions: For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the South Carolina Retirement System and the South Carolina Police Officers Retirement System and additions to/deductions from the Systems fiduciary net position have been determined on the same basis as they are reported by the Systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 17

21 Notes to the Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Q. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and affect disclosure of contingent assets and liabilities at the date of the financial statements. Accordingly, actual results could differ from those estimates. Significant estimates inherent in the preparation of financial statements include estimates of the allowance for uncollectible accounts and useful lives of depreciable assets. NOTE 2 - STATE APPROPRIATIONS State funds for the South Carolina Technical College System are appropriated to the State Board for Technical and Comprehensive Education (the Board), and the Board allocates funds budgeted for the technical colleges in a uniform and equitable manner. Appropriations are recognized as revenue when received and available. Amounts that are not expended by fiscal year-end lapse and are required to be returned to the General Fund of the State unless the Board receives authorization from the General Assembly to carry the funds over to the next year. The following is a reconciliation of the state appropriations revenue reported in the financial statements for the fiscal year ended June 30, NON-CAPITAL APPROPRIATIONS Appropriations per State Board Allocation $ 2,404,896 Total non-capital appropriations recorded as current year revenue $ 2,404,896 CAPITAL APPROPRIATIONS Appropriations per State Board Allocation $ 1,400,000 Total capital appropriations recorded as current year revenue $ 1,400,000 NOTE 3 CASH, DEPOSITS, AND INVESTMENTS DEPOSITS State Law requires that a bank or savings and loan association receiving State funds must secure the deposits by deposit insurance, surety bonds, collateral securities, or letters of credit to protect the State against any loss. 18

22 Notes to the Financial Statements NOTE 3 CASH, DEPOSITS, AND INVESTMENTS continued Custodial Credit Risk Custodial credit risk for deposits is the risk that the college will not be able to recover deposits if the depository financial institution fails or to recover the value of collateral securities that are in the possession of an outside party if the counterparty to the deposit transaction fails. The College s policy concerning credit risk permits the College President to invest surplus funds in approved financial institutions investment accounts. The College has contracted with a local financial institution to collateralize all deposits in excess of federally insured amounts with securities held in the College s name. The cash and cash equivalent deposits with a book balance of $2,370,161 and bank balance of $2,524,812 were insured by the Federal Deposit Insurance Corporation or collateralized with securities held by the College s custodial bank in the College s name at June 30, INVESTMENTS The College is authorized, by the South Carolina Code of Laws, Section , to invest in obligations of the United States and its agencies, obligations of the State of South Carolina and its political subdivisions, collateralized or federally insured certificates of deposit, and collateralized repurchase agreements. The College s investment at June 30, 2016 consisted of a collateralized bank certificate of deposit of $875,286 yielding 1.5% maturing August 10, Subsequent to year end, this Certificate and the accumulated earnings were reinvested for 6 months yielding 1.2%. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of a failure of the counterparty to a transaction, the college will not be able to recover the investment s value or collateral securities that are in the possession of the outside party. The College does not have a formally adopted policy on custodial credit risk. The College s investment in a bank collateralized certificate of deposit at June 30, 2016 was held by the South State Bank. The College recognized no losses due to the default by counterparties to investment transactions. 19

23 Notes to the Financial Statements NOTE 3 CASH, DEPOSITS, AND INVESTMENTS continued Credit Risk Credit Risk is the risk that an insurer or other counterparty to an investment will not fulfill its obligation. The College does not have a formally adopted policy on credit risk. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of a government s investment in a single issuer. The College does not have a formally adopted policy on concentration of credit risk. Interest Rate Risk Interest rate risk is the risk that changes in interest rates of debt investments will adversely affect the fair value of an investment. It occurs because potential purchasers of debt securities will not agree to pay face value for those securities if interest rates subsequently increase, thereby affording potential purchasers more favorable rates on essentially equivalent securities. The College does not have a formally adopted policy concerning interest rate risk. The following schedule reconciles cash and investments reported on the Statement of Net Position to footnote disclosure provided for deposits and investments. Statement of Net Position: Cash and Cash Equivalents $ 2,370,161 Investments 875,286 Total Statement of Net Position: $ 3,245,477 Disclosure, Cash, Deposits and Investments: Carrying value of deposits: Not Held by State Treasurer $ 2,370,161 Investment not held by State Treasurer 875,286 Total Disclosure, Cash, Deposits and Investments $ 3,245,477 20

24 NOTE 4 ACCOUNTS RECEIVABLE DENMARK TECHNICAL COLLEGE Notes to the Financial Statements Accounts receivable as of June 30, 2016 including applicable allowances, were as follows: Receivables: Student Accounts $ 519,742 Other Accounts 160,830 Due from Federal and Other Grantors 1,724,843 Due from State Capital Appropriations 1,400,000 Gross Receivables $ 3,805,415 Less: Allowance for Uncollectible: Student Accounts $ (170,569) Total Allowances for Uncollectible $ (170,569) Receivables, net $ 3,634,846 Allowances for losses for student accounts receivable are established based upon actual losses experienced in prior years and evaluations of the current account portfolio. NOTE 5 CAPITAL ASSETS Beginning Ending Balance Balance 6/30/2015 Increases Decreases 6/30/2016 Capital Assets not being depreciated Land and improvements $ 174,020 $ 174,020 Construction in Progress - 18,400-18, ,020 18, ,420 Other Capital Assets: Building and improvements 7,997, ,997,123 Machinery,Equipment and other 3,390,443 8,485-3,398,928 Vehicles 672, ,714 Intangibles 151, ,286 Total Other Capital Assets at Historical Cost 12,211,566 8,485-12,220,051 Less Accumulated Depreciation for: Building and Improvements 4,508, ,644-4,638,075 Machinery, Equipment and Other 2,859, ,148-3,036,916 Vehicles 583,585 25, ,731 Intangibles 151, ,286 Total Accumulated Depreciation 8,103, ,938-8,435,008 Other Capital Assets, Net 4,108,496 (323,453) - 3,785,043 Capital Assets, Net $ 4,282,516 $ (305,053) $ - $ 3,977,463 21

25 NOTE 6 PENSION PLAN(S) DENMARK TECHNICAL COLLEGE Notes to the Financial Statements Plan Description/Membership The majority of employees of the Denmark Technical College are covered by a retirement plan through the South Carolina Retirement System (SCRS), a cost-sharing multiple-employer defined benefit pension plan administered by the Retirement Division of the South Carolina Public Employee Benefit Authority (PEBA). Generally, all full-time or part-time equivalent State employees in a permanent position are required to participate in and contribute to the SCRS as a condition of employment. The SCRS plan provides life-time monthly retirement annuity benefits to eligible members as well as disability, survivor options, annual benefit adjustments, and incidental death benefits to eligible employees and retired members. An employee member of the system with an effective date of membership prior to July 1, 2012, is a Class Two member. An employee member of the system with an effective date of membership on or after July 1, 2012, is a Class Three member. As an alternative to membership in SCRS, newly hired State, public school, and higher education employees and individuals newly elected to the S.C. General Assembly beginning with the November 2012 general election have the option to participate in the State Optional Retirement Program (ORP), a defined contribution plan. State ORP participants direct the investment of their funds into a plan administered by one of four investment providers. PEBA assumes no liability for the State ORP plan other than for the employer s payment of contributions to designated companies. The benefits are the liability of the investment providers. Employee and employer contributions to the ORP are at the same rates as SCRS. A direct remittance is required from the employer to the member s account with investment providers for the employee contribution and a portion of the employer contribution (5 percent). A direct remittance is also required to SCRS for the remaining portion of the employer contribution and an incidental death benefit contribution, if applicable, which is retained by SCRS. The South Carolina Police Officers Retirement System (PORS) is a cost-sharing multipleemployer defined benefit pension plan. Generally, to be eligible for PORS membership, employees must be required by the terms of their employment, by election or appointment, to preserve public order, protect life and property, and detect crimes in the state; to prevent and control property destruction by fire; or to serve as a peace officer employed by certain State agencies. Probate judges and coroners may elect membership in PORS. Magistrates are required to participate in PORS. PORS members, other than magistrates and probate judges, must also earn at least $2,000 per year and devote at least 1,600 hours per year to this work, unless exempted by statute. This plan provides for lifetime monthly annuity benefits as well as disability, survivor benefits and incidental death benefits to eligible employees and retirees. In addition, participating employers in the PORS may elect to contribute to the accidental death program which provides annuity benefits to beneficiaries of police officers and firemen killed in the actual performance of their duties. These benefits are independent of any other retirement benefits available to the beneficiary. An employee member of the system with an effective date of membership prior to July 1, 2012, is a Class Two member. An employee member of the system with an effective date of membership on or after July 1, 2012, is a Class Three member. 22