Montcalm Community College. Years Ended June 30, 2018 and Financial Statements and Supplementary Information

Transcription

1 Montcalm Community College Years Ended June 30, 2018 and 2017 Financial Statements and Supplementary Information

2 Board of Trustees June 30, 2018 Karen Carbonelli Carol Deuling-Ravell Robert Marston Roger Thelen Joyce Kitchenmaster Patricia Hinrichs Esther Combs Chairperson Secretary Vice Chairperson Treasurer Trustee Trustee Trustee Officers of Administration June 30, 2018 Robert C. Ferrentino Connie Stewart Robert Spohr Debra Alexander President Vice President for Administrative Services Vice President for Student and Academic Affairs Dean of Student and Enrollment Services

3 Table of Contents Page Management's Discussion and Analysis 1 Independent Auditors' Report 12 Basic Financial Statements for the Years Ended June 30, 2018 and Statements of Net Position 17 Statements of Revenues, Expenses and Changes in Net Position 18 Statements of Cash Flows 19 Notes to Financial Statements 21 Required Supplementary Information 54 MPSERS Cost Sharing Multiple-Employer Plan Schedule of the College's Proportionate Share of the Net Pension Liability 55 Schedule of the College's Pension Contributions 56 Schedule of the College's Proportionate Share of the Net Other Postemployment Benefits Liability 57 Schedule of the College's Other Postemployment Benefits Contributions 58 Supplementary Information as of and for the Year Ended June 30, 2018 (Unaudited) 59 Combining Statement of Net Position 60 Combining Statement of Revenues, Expenses, Transfers and Changes in Net Position 62

4 MANAGEMENT'S DISCUSSION AND ANALYSIS 1

5 Management s Discussion and Analysis The discussion and analysis of Montcalm Community College s (the College ) financial statements provides an overview of the College s financial activities for the years ended June 30, 2018, 2017 and Management has prepared the financial statements and the related footnote disclosures along with the discussion and analysis. Responsibility for the completeness and fairness of this information rests with the College s management. Using this Report This annual financial report includes the report of independent auditors, this management s discussion and analysis, the basic financial statements and notes to financial statements. Following the basic financial statements and footnotes are required supplementary information and two supplementary schedules, the Combining Statement of Net Position and the Combining Statement of Revenue, Expenses, Transfers and Changes in Net Position. Though the Governmental Accounting Standards Board (GASB) does not require the supplementary combining statements be present for a fair and complete presentation, these additional statements do provide additional information regarding the various funds and activities of the College that is not disclosed in the basic statements. The Montcalm Community College Foundation (the Foundation ) is a legally separate, tax-exempt notfor-profit organization that was formed to solicit, collect, and invest donations made for the promotion of educational activities at and to augment the facilities of the College. The Foundation acts primarily as a fundraising organization to supplement the resources of the College in support of its programs and facilities. Since the restricted resources held by the Foundation can be used only by, or for the benefit of, the College, the Foundation is considered a component unit of the College under governmental accounting standards. Because College management has operational responsibility for the Foundation in addition to meeting other criteria, the Foundation is blended into the College s financial statements. Financial Highlights The College s financial position decreased $2,429,171 during the year ended June 30, The College was able to offset some of the negative impact with an increase in cash and continued favorable markets related to investments. The major impact related to a decrease net position resulted primarily due to the addition of other postemployment benefits ( OPEB ) liabilities of approximately $6 million related to the OPEB implementation of Governmental Accounting Standards Board Statement No. 75, Postemployment Benefits Other Than Pensions (GASB 75) for the year ended June 30, This standard for the first time requires the College to record its proportionate share of the OPEB liability associated with providing healthcare to retirees in the Michigan Public School Employees Retirement System (MPSERS), the defined benefit plan in which the majority of the employees of the College participate. This standard, coupled with the pension-related liability disclosures first reported for the fiscal year ended June 30, 2015 under Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68), has had a significant impact on the liabilities and net position of the College as discussed below. Additional information is also included in Note 8 to the financial statements, and in the required supplementary information following the footnotes. 2

6 The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position One of the most important questions asked about the College s finances is, Is Montcalm Community College as a whole better off or worse off as a result of the year s activities? The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position report information on the College as a whole and on its activities in a way that helps answer this question. When revenues and other support exceed expenses, the result is an increase in net position. When the reverse occurs, the result is a decrease in net position. The relationship between revenues and expenses may be thought of as Montcalm Community College s operating results. These two statements report Montcalm Community College s net position and changes in them. You can think of Montcalm Community College s net position the difference between assets, deferred outflows of resources, liabilities and deferred inflows of resources as one way to measure the College s financial health, or financial position. Over time, increases or decreases in the College s net position are one indicator of whether its financial health is improving or deteriorating. You will need to consider many other nonfinancial factors, such as the trend in college applicants, student retention, condition of the buildings, and strength of the faculty and staff, to assess the overall health of the College. These statements include all assets, deferred outflows of resources, liabilities and deferred inflows of resources using the accrual basis of accounting, which is similar to the accounting used by most privatesector institutions. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. 3

7 Following is a comparative analysis of the major components of the net position of the College as of June 30, 2018 and 2017, and as of June 30, 2017 and 2016 (in millions): Increase Increase (Decrease) (Decrease) Current Assets $7.2 $5.6 $1.6 $5.6 $4.9 $0.7 Restricted Assets Property and Equipment (net) (1.0) (1.0) Total Assets Deferred Outflows of Resources Current Liabilities Long-term Liabilities Total Liabilities Deferred Inflows of Resources Net Assets: Invested in capital assets (0.8) (0.6) Restricted expendable Restricted nonexpendable Unrestricted (deficit) (9.4) (6.7) (4.5) (6.7) (8.1) 3.2 Total Net Position $14.8 $17.2 $(2.4) $17.2 $13.8 $3.4 The largest contributing factor to long-term liabilities lies with the implementation of the GASB 75 standard (as previously mentioned) for the year ending June 30, 2018 with a substantial increase in this current year of $6 million. In totality, the Pension and OPEB liabilities reflect $23.8 million for June 30, 2018 and $16.9 million for June 30, In addition, total assets increased $3.6 million for June 30, 2018 which is comparative to $3.2 million increase for June 30, The majority of the increases are related to increases in investments. See Note 8 of the financial statements for more information regarding the MPSERS Pension and OPEB liability details

8 Following is a comparative analysis of the major components of the operating results of the College as of June 30, 2018 and 2017 and as of June 30, 2017 and 2016 (in millions): Increase Increase (Decrease) (Decrease) Operating Revenues: Tuition and Fees $4.3 $4.1 $0.2 $4.1 $3.0 $1.1 Federal Grants and Contracts (0.1) State Grants and Contracts (1.1) Other Total Operating Revenues (0.1) Operating Expenses: Instruction (1.3) Public Service Instructional Support (0.3) Student Services (0.1) (0.2) Institutional Administration (0.3) (0.1) Information Technology (0.3) Operation and Maintenance of Physical Plant Depreciation and other Total Operating Expenses (0.2) (0.2) Net Operating Loss (12.1) (12.6) 0.5 (12.6) (12.7) 0.1 Non operating Revenues: State Appropriations (0.1) Federal Grants PELL (0.3) Property Taxes Other Non operating Revenues (Expenses) (0.8) 3.9 (0.1) (4.0) Net Non operating Revenues (0.2) Other Revenue (0.1) (2.0) Increase in Net Position Net Assets Beginning Implementation of GASB 75 (6.0) - (6.0) - - Adjusted Net Position beginning Net Assets - Ending $14.8 $17.2 $(2.5) $17.2 $13.8 $3.4 5

9 Operating Revenues Operating revenues include all transactions that result in the sales and/or receipts from goods and services such as tuition and fees, food services and auxiliary operations. In addition, certain federal, state, and private grants are considered operating if they are not for capital purposes and are considered a contract for services. Operating revenue changes between 2018 and 2017 were the result of the following factors: Student tuition and fee revenue increased 4% and included a Board approved tuition increase of 3% and enrollment, in regard to contact hours, increased 1.1% overall. Grants and contracts revenues increased from 2017 mostly due to the Michigan New Jobs Training Program. Operating revenue changes between 2017 and 2016 were the result of the following factors: Student tuition and fee revenue increased from the Board approved tuition increase of 5% and additional technology fees, but enrollment in regard to contact hours decreased 10.5% Tuition and fees $ 4,299,850 $ 4,121,309 $ 2,970,709 Federal grants and contracts 245, , ,750 State grants and contracts 358, , ,856 Nongovernmental grant 12, Other operating revenues 264, , ,756 Total operating revenue $ 5,180,219 $ 4,886,656 $ 3,948,071 The following is a graphic illustration of 2018 operating revenues by source: Other Operating 5% State Grants 7% Federal Grants 5% Tuition & Fees 83% 6

10 Operating Expenses Operating expenses are all the costs necessary to perform and conduct the programs and primary purposes of the College. The operating expense changes were the result of variations due to enrollment changes and staffing changes. Enrollment, measured in student contact hours, overall increased 1.1% during the year ended June 30, This is a stark contract to the decline of 10.5% experienced during the year ended June 30, The operating expense changes between 2018 and 2017 were the result of the following factors: Instruction costs increased in 2018 due to a slight increase in hiring qualified instructors as there is continued growth in dual enrollment and industrial programs. Instructional support costs increased slightly in 2018 due to the cost of unique software and equipment. Student services costs decreased in 2018 due to continuing efforts to reorganization of related departments and personnel changes. Institutional administration costs decreased in 2018 due to the minor staffing changes. During fiscal 2018, the State of Michigan implemented a new activities classification structure to include information technology. These costs were retroactively allocated and reclassified in fiscal 2017 for comparative purposes. Operation and maintenance of plant increased slightly in 2018 due to continuation of repairs and improvements. The operating expense changes between 2017 and 2016 were the result of the following factors: Instruction costs decreased in 2017 and increased in 2016 due to variations in enrollment, the cost of instructional technologies and average class sizes. Instructional support costs increased slightly in 2017 due to the cost of unique software, equipment, and instructional technologies. Student services costs decreased in 2017 due to reorganization of related departments and personnel changes. Institutional administration costs increased in 2017 and 2016 due to fluctuating technology and similar costs. Operation & maintenance of plant increased in 2017 due to improvement/repair projects Instruction $ 6,263,521 $ 6,022,754 $ 7,317,784 Public services 344, , ,677 Instructional support 2,526,358 2,440,267 2,713,402 Student services 1,891,143 1,951,808 2,225,648 Institutional administration 1,945,572 2,134,797 2,266,177 Information technology 965,267 1,287,119 - Operation and maintenance of plant 1,738,690 1,696,137 1,464,280 Depreciation 1,204,337 1,240,874 1,139,615 Other 461, , ,415 Total operating expenses $17,340,405 $17,447,725 $17,724,998 7

11 The following is a graphic illustration of operating expenses by source: IT 6% Oper/Maint. 10% Depreciation 7% Other 3% Instruction 36% Instit. Admin. 11% Nonoperating Revenues Student Services 11% Public Service 2% Instr. Support 14% Nonoperating revenues are all revenue sources that are primarily non-exchange in nature. They consist primarily of state appropriations, property tax revenue, investment income (including realized and unrealized gains and losses), and grants and contracts that do not require any services to be performed. Nonoperating revenue changes were principally due to decreased growth in the economic markets compared to 2017 and are related to foundation investments. A significant increase occurred with property taxes. Federal Pell grants continue to be a funding source for students for financial aid and we experienced a slight increase for fiscal year 2018 related to the slight increase in enrollment State appropriations $ 3,525,853 $ 3,553,204 $ 3,607,744 Property tax levy 6,610,536 6,083,652 5,904,506 Federal grants - Pell 2,477,990 2,438,283 2,699,020 Investment income (loss) and other 3,061,233 3,915,875 (209,615) $15,675,612 $15,991,014 $12,001,655 The following is a graphic illustration of 2018 nonoperating revenues by source: Other 20% Property Tax 42% Federal Grants 16% State Appropriations 22% 8

12 Other Revenue Other revenue consists of items that are typically nonrecurring, extraordinary, or unusual to the College. Other revenue for the year ended June 30, 2018 was zero compared to the year ended June 30, 2017 which was $72,324 compared to $2,145,573 for year ended June 30, In fiscal 2016, the College received a CCSTEP grant from the State of Michigan. Statement of Cash Flows Another way to assess the financial health of a College is to look at the Statement of Cash Flows. Its primary purpose is to provide relevant information about the cash receipts and cash payments of an entity during a period. The Statement of Cash Flows also helps users assess: An entity s ability to generate future net cash flows Its ability to meet its obligations as they come due Its needs for external financing Cash Flows: Increase (Decrease) Cash Provided (Used) by: Operating Activities (10,547,504) (11,038,893) 491,389 Noncapital Financing Activities 13,809,768 14,310,914 (501,146) Capital and Related Financing Activities (590,721) (630,547) 39,826 Investing Activities (1,255,223) (1,602,493) 347,270 Net Increase in Cash 1,416,320 1,038, ,339 Cash beginning 4,184,097 3,145,116 Cash - ending $5,600,417 $4,184,097 Increase (Decrease) Cash Provided (Used) by: Operating Activities (11,038,893) (12,049,992) 1,011,099 Noncapital Financing Activities 14,310,914 12,176,243 2,134,671 Capital and Related Financing Activities (630,547) 207,554 (838,101) Investing Activities (1,602,493) 324,983 1,927,476 Net Increase in Cash 1,038, , ,193 Cash - beginning 3,145,116 2,486,328 Cash - ending $4,184,097 $3,145,116 The College s liquidity increased significantly during The following discussion amplifies the overview of cash flows presented above. 9

13 Cash used in operating activities was approximately $10.5 million. Major sources of funds came from student tuition and fees ($4.3 million), and a mixture of state and federal grants and contracts ($.5 million). Primary uses were payments to employees and suppliers ($15.6 million). Gifts from donors was approximately $1.8 million during Cash flows from tuition and fees increased along with Pell grants during Property tax revenue for operations increased during All of which resulted in the overall increase in noncapital financing sources during Cash provided by investing activities related primarily to the investing of donated funds during Capital Asset and Debt Administration Capital Assets: At June 30, 2018, the College had approximately $14.9 million invested in capital assets, net of accumulated depreciation of approximately $25.5 million. Depreciation charges totaled $1,204,337 for Details of these assets are shown below Land and infrastructure $ 3,650,498 $ 3,604,501 $ 3,604,501 Buildings 32,005,573 32,034,291 32,005,573 Furniture, fixtures and equipment 4,746,980 4,630,613 4,511,440 $40,403,051 $40,269,405 $40,121,514 More detailed information about the College s capital assets is presented in the footnotes to the financial statements. Debt: At year-end, June 30, 2018, the College had $3,583,534 in debt outstanding versus $3,827,091 in June 30, 2017 and $4,142,270 at June 30, These include general obligation bonds related to the extensive construction and renovation projects that occurred in years prior to June 30, 2008, bonds issued in 2012 for the Advanced Technology Center construction project, and the installment purchase agreement described in the following paragraph. During fiscal 2018, the College issued $3,165,000 in bonds refunding the 2007 and 2012 bonds in the amounts of $1,555,000 and $1,610,000, respectively. Prior to the refunding, $125,000 was repaid on the 2007 bond, and $80,000 was repaid subsequent to the refunding on the new bonds before year end. During the year ended June 30, 2012, the College entered into an Installment Purchase Agreement to finance a program of energy conservation improvements. The approximately $1.2 million cost of these improvements is being repaid in monthly installments over a ten-year period. The College made scheduled debt repayments of $128,557 during More detailed information about the College s long-term liabilities is presented in the footnotes to the financial statement. 10

14 Economic Factors That Will Affect The Future The economic position of the College is closely tied to that of the State. Because of limited economic growth and increased demand for state resources, the current state budget provides an approximate 1.5% increase from the previous year in funding to the College in Property values, and related property tax revenues, are expected to remain flat for fiscal year Enrollment for the fall 2018, semester is down in headcount by 1%, and contact hours are down 1.6% as well, compared to the previous year, indicating that recent enrollment declines are continuing to level off. With enrollment, property tax revenue and state appropriation levels all remaining relatively flat, the College Board decided to maintain tuition levels at the current rates which result in no tuition increase for the coming fiscal year. The College continues to work with all staff members to increase work efficiencies while reducing costs where possible while planning for the future of the College. College personnel also continue working with area economic development officials to bring new employers into the area, creating job-training opportunities for the College. The College will be working with these companies to provide much of the training necessary for these workers. The College is also in the process of creating a new fiveyear master plan which will assist with future growth opportunities. With the additions of GASB 75 and GASB 68 in June 30, 2018 and June 30, 2015, respectively, the lasting impact on the College s net position will continue in future years. We expect these amounts to change annually based on actuarial calculations and updating of related assumptions. This change in accounting is expected to be taken into consideration by the bond rating agencies and as well as with the Higher Learning Commission. It is important to note that while this new standard raises awareness of potential future obligations of the College, its implementation has no immediate impact on the cash position of the College or its ability to meet current obligations. MPSERS was created and is administered by the State of Michigan. The College has no input into the benefits it provides, its investments or investment strategies, the rate that MPSERS charges the College, or its resulting net pension and OPEB liabilities. 11

15 INDEPENDENT AUDITORS' REPORT 12

16 Rehmann Robson 2330 East Paris Ave. SE Grand Rapids, MI Ph: Fx: rehmann.com INDEPENDENT AUDITORS' REPORT November 14, 2018 To the Board of Trustees Montcalm Community College Sidney, Michigan Report on Financial Statements We have audited the accompanying financial statements of the business-type activities of Montcalm Community College (the College ) as of and for the years ended June 30, 2018 and 2017, and the related notes to the financial statements, which collectively comprise the College 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. Independent Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 auditors 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. Rehmann is an independent member of Nexia International. CPAs & Consultants Wealth Advisors Corporate Investigators 13

17 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of Montcalm Community College as of June 30, 2018 and 2017, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Implementation of GASB Statement No. 75 As described in Notes 2 and 8, the College implemented the provisions of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, in the current year. Accordingly, beginning net position of business-type activities as of July 1, 2017 was restated. Application of this new standard to July 1, 2016, the earliest year presented, is not practical as complete information is not available. Our opinion is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the schedules for the pension and OPEB plans, as listed in the table of contents, 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 audits were conducted for the purpose of forming an opinion on the financial statements that collectively comprise the College's basic financial statements. The supplementary information identified in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in our audits of the financial statements and, accordingly, we do not express an opinion or provide any assurance on it. 14

18 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued under separate cover, our report dated November 14, 2018, on our consideration of Montcalm Community College 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 Montcalm Community College s internal control over financial reporting and compliance. 15

19 FINANCIAL STATEMENTS 16

20 Statements of Net Position June 30 Assets Current assets Cash and cash equivalents $ 5,600,417 $ 4,184,097 Accounts receivable, less allowance for uncollectible accounts of $697,631 ($890,340 in 2017) 293, ,566 Property taxes receivable 180, ,217 State appropriations receivable 769, ,366 Federal and state grants receivable 98, Pledges receivable 207,913 21,838 Prepaids and other assets 6, ,282 Total current assets 7,156,701 5,572,681 Noncurrent assets Pledges receivable, net of current portion 400,000 - Investments 19,445,665 16,798,044 Capital assets Nondepreciable 854, ,786 Depreciable, net 14,039,967 15,087,109 Total noncurrent assets 34,740,415 32,693,939 Total assets 41,897,116 38,266,620 Deferred outflows of resources Deferred pension and OPEB amounts 4,247,286 2,135,223 Liabilities Current liabilities Accounts payable 386, ,491 Accrued interest 11,260 27,580 Accrued payroll, vacation (current portion) and other compensation 782, ,501 Deposits 398, ,360 Unearned revenue 111, ,368 Current portion of bonds and note payable 376, ,558 Total current liabilities 2,067,150 1,872,858 Bonds and note payable, net of current portion 3,206,869 3,498,533 Net pension liability 17,710,136 16,904,228 Net OPEB liability 6,092,951 - Accrued vacation, net of current portion 86,545 92,284 Total liabilities 29,163,651 22,367,903 Deferred inflows of resources Deferred pension and OPEB amounts 2,138, ,574 Net position Net investment in capital assets 11,311,216 12,068,803 Restricted for Expendable scholarships and grants 12,575,430 11,482,012 Nonexpendable endowments (Note 10) 312, ,539 Unrestricted deficit (Note 7) (9,356,990) (6,591,988) Total net position $ 14,842,195 $ 17,271,366 The accompanying notes are an integral part of these financial statements. 17

21 Statements of Revenues, Expenses and Changes in Net Position Year Ended June Operating revenues Tuition and fees, net of scholarship allowance of $1,970,118 ($1,996,935 in 2017) $ 4,299,850 $ 4,121,309 Federal grants and contracts 245, ,593 State grants and contracts 358, ,339 Nongovernmental grant 12,500 - Auxiliary activities 115, ,253 Other 148, ,162 Total operating revenues 5,180,219 4,886,656 Operating expenses Instruction 6,263,521 6,022,754 Public services 344, ,792 Instructional support 2,526,358 2,440,267 Student services 1,891,143 1,951,808 Institutional administration 1,945,572 2,134,797 Information technology 965,267 1,287,119 Operation and maintenance of plant 1,738,690 1,696,137 Depreciation 1,204,337 1,240,874 Other 461, ,177 Total operating expenses 17,340,405 17,447,725 Operating loss (12,160,186) (12,561,069) Nonoperating revenues (expenses) State appropriations 3,525,853 3,553,204 Federal Pell grants 2,477,990 2,438,283 Property taxes 6,610,536 6,083,652 Interest and dividend income 252, ,274 Net realized and unrealized gain on investments 1,139,742 1,679,807 Interest on capital asset - related debt (127,652) (130,032) Gifts 1,796,487 2,197,826 Net nonoperating revenues 15,675,612 15,991,014 Other revenue Capital gifts and grants - 72,324 Increase in net position 3,515,426 3,502,269 Net position - beginning of year 17,271,366 13,769,097 Implementation of GASB 75 (Notes 2 and 8) (5,944,597) - Net position, beginning of year, as adjusted 11,326,769 13,769,097 Net position - end of year $ 14,842,195 $ 17,271,366 The accompanying notes are an integral part of these financial statements. 18

22 Statements of Cash Flows Year Ended June Cash flows from operating activities Tuition and fees, net $ 4,268,822 $ 4,170,644 Grants and contracts 518, ,830 Payments to suppliers (4,012,584) (4,238,732) Payments to employees (11,586,258) (12,062,050) Auxiliary enterprises 115, ,253 Other 148, ,162 Net cash used in operating activities (10,547,504) (11,038,893) Cash flows from noncapital financing activities Property taxes 6,628,123 6,087,874 Federal Pell grants 2,477,990 2,438,283 State appropriations 3,493,243 3,539,619 Direct loans/ffel receipts 2,631,915 2,780,064 Direct loans/ffel disbursements (2,631,915) (2,780,064) Gifts 1,210,412 2,245,138 Net cash provided by noncapital financing activities 13,809,768 14,310,914 Cash flows from capital and related financing activities Purchases of capital assets (203,192) (258,129) Proceeds from sale of capital assets - 2,000 Principal paid on bonds and note payable (3,408,557) (315,179) Capital grant and gift proceeds - 72,324 Proceeds from issuance of bonds 3,165,000 - Interest paid on capital asset - related debt (143,972) (131,563) Net cash used in capital and related financing activities (590,721) (630,547) Cash flows from investing activities Proceeds from sales and maturities of investments 4,905,023 11,985,486 Interest and dividends on investments 252, ,274 Purchase of investments (6,412,902) (13,756,253) Net cash used in investing activities (1,255,223) (1,602,493) Net increase in cash and cash equivalents 1,416,320 1,038,981 Cash and cash equivalents Beginning of year 4,184,097 3,145,116 End of year $ 5,600,417 $ 4,184,097 The accompanying notes are an integral part of these financial statements. (Continued...) 19

23 Statements of Cash Flows (Concluded) Year Ended June Reconciliation of operating loss to net cash used in operating activities Operating loss $ (12,160,186) $ (12,561,069) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 1,204,337 1,240,874 Gain on sale of capital assets - (2,000) Change in operating assets and liabilities which provided (used) cash: Accounts receivable 8,071 32,392 Federal and state grants receivable (97,853) 327,898 Prepaids and other assets 123,180 (45,430) Accounts payable 78,882 29,346 Accrued payroll, vacation and other compensation 64,546 (68,642) Deposits 52,437 30,053 Unearned revenue (39,099) 16,943 Change in net pension and OPEB liability and deferred amounts 218,181 (39,258) Net cash used in operating activities $ (10,547,504) $ (11,038,893) (Concluded) The accompanying notes are an integral part of these financial statements. 20

24 Notes to Financial Statements 1. MISSION Montcalm Community College (the College ) is a Michigan community college whose mission is to create a learning community, contributing to shared economic, cultural and social prosperity for all citizens. The College offers associate degrees, numerous certificate programs, and other educational programs while being accredited by the Higher Learning Commission. The primary education centers for the College are its main campus situated northeast of Greenville, and extension centers located in Greenville, Ionia, and Howard City. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The College s financial statements have been prepared in accordance with the generally accepted accounting principles (GAAP) as applicable to public colleges and universities outlined in Governmental Accounting Standards Board (GASB) Statement No. 35 and the Manual for Uniform Financial Reporting - Michigan Public Community Colleges, The College reports as a business-type activity, as defined by governmental accounting standards. Business-type activities are those that are financed in whole or in part by fees charged to external parties for goods and services. The Montcalm Community College Foundation (the Foundation ) is a legally separate, tax-exempt not-for-profit organization that was formed to solicit, collect, and invest donations made for the promotion of educational activities at and to augment the facilities of the College. The Foundation acts primarily as a fundraising organization to supplement the resources of the College in support of its programs and facilities. Since the restricted resources held by the Foundation can be used only by, or for the benefit of, the College, the Foundation is considered a component unit of the College under governmental accounting standards. Because College management has operational responsibility for the Foundation in addition to meeting other criteria, the Foundation is blended into the College s financial statements. 21

25 Notes to Financial Statements The condensed financial information for the Foundation as of and for the years ended June 30 is as follows: Condensed statement of net position Total assets $ 20,341,732 $ 17,588,813 Total liabilities (6,675) (22,868) Total net position $20,335,057 $17,565,945 Condensed statement of revenues, expenses and changes in net position Revenues $ 3,424,941 $ 4,263,290 Expenses (655,829) (663,113) Changes in net position 2,769,112 3,600,177 Beginning net position 17,565,945 13,965,768 Ending net position $20,335,057 $17,565,945 Condensed statement of cash flow Net cash provided by (used in) Operating activities $ (219,704) $ (191,102) Non-capital financing activities 1,200,412 2,240,138 Investing activities (1,507,879) (1,772,217) Net change in cash and cash equivalents (527,171) 276,819 Beginning cash and cash equivalents 653, ,340 Ending cash and cash equivalents $ 125,988 $ 653,159 Significant accounting policies followed by the College and Foundation are described below: Basis of Accounting and Presentation The financial statements have been prepared using the economic resource management focus and accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when the related liabilities are incurred and certain measurement and matching criteria are met. The College follows all applicable GASB pronouncements. Certain revenue recognition criteria and presentation features are different under the Financial Accounting Standards Board, which is applicable to the Foundation, from GASB. 22

26 Notes to Financial Statements Cash and Cash Equivalents Cash and cash equivalents consist of demand deposits, cash on hand, and all highly liquid investments with an original maturity of three months or less. Accounts Receivable Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense when necessary and an adjustment to an allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable. Revenue Recognition Revenue from state appropriations are recognized in accordance with the accounting method described in the Manual for Uniform Financial Reporting Michigan Public Community Colleges, 2001, which provides that state appropriations are recorded as revenue in the period for which such amounts are appropriated. Student tuition and related revenues and expenses of an academic semester are reported in the fiscal year in which the program is conducted. Operating revenues of the College consist of tuition and fees, grants other than Federal Pell grants, and contracts, sales and services of educational activities and auxiliary enterprise revenues. Transactions related to capital and financing activities, noncapital financing activities, investing activities, state appropriations, property taxes and Federal Pell grants are components of nonoperating and other revenues. For financial reporting purposes, restricted resources are deemed to be utilized first when both restricted and unrestricted resources are available to satisfy any expenses. Investments The Foundation carries investments in cash as well as in investment securities of mutual funds and exchange traded funds at fair value, which is determined generally by using quoted market prices. Realized and unrealized gains and losses are reflected in the statements of revenues, expenses and changes in net position. The Foundation maintains investment accounts for its nonexpendable and expendable endowments. Realized and unrealized gains and losses from securities in the investment accounts are allocated quarterly based on the relationship of the market value of each endowment fund to the total market value of the investment accounts, as adjusted for additions to or deductions from those accounts. 23

27 Notes to Financial Statements Fair Value Measurements The Foundation has categorized its financial assets and liabilities carried at fair value into a three-level fair value hierarchy, based on the nature of the inputs used in determining fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). For a further discussion of fair value, refer to Note 4. Capital Assets and Depreciation Capital assets, which the College defines as property and equipment with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year, are recorded at cost or, if acquired by gift, at the fair value on the date of acquisition. Management reviews capital assets for impairment. Depreciation is provided for property and equipment on a straight-line basis over the estimated useful lives of the assets as follows: Classifications Estimated Useful Lives Accrued Vacation Buildings 40 Infrastructure and land improvements 15 Building improvements 10 Furniture and fixtures 5 Computer equipment 4 Library materials 7 Accrued vacation represents the accumulated liability to be paid under the College s current vacation pay policy. Unearned Revenue Unearned revenue at June 30, 2018 and 2017, consists of revenue received prior to year-end that relates to summer semester tuition for the period subsequent to July 1 for the semester, which began May 30 and concluded on July 30 in 2018 and began May 22 and concluded August 1 in Gifts and Pledges Gifts are recorded at estimated fair value when received, and pledges are recorded at their net present value when it is determined that the gift is probable of collection. 24

28 Notes to Financial Statements Internal Service Activities Both revenue and expenses related to internal service activities including office equipment, maintenance, and telecommunications have been eliminated in the presentation of these financial statements. Property Taxes Property taxes levied by the College are collected by various municipalities and periodically remitted to the College. The taxes are levied as of July 1 and December 1 and are due upon receipt of the billing by the taxpayer and become a lien on the first day of the levy year. The actual due dates are September 14 and February 14, after which time the bills become delinquent and penalties and interest may be assessed by the collecting entity. Property tax revenues are recognized when levied to the extent that they are determined to be collectible. For both the years ended June 30, 2018 and 2017, the College levied mills, per $1,000 of taxable value for general operations. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Significant estimates include but are not limited to the accounts receivable allowance, net pension liability, net OPEB liability, and deferred outflows and inflows related to pension and OPEB amounts. Income Taxes The Internal Revenue (IRS) has determined that the Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code; accordingly, no provision for income taxes has been recorded. The Foundation analyzes its filing positions in the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Foundation also treats interest and penalties attributable to income taxes, and reflects any charges for such, to the extent they arise, as a component of its operating expenses. The Foundation has evaluated its income tax position for the years 2015 through 2018, the years which remain subject to examination by major tax jurisdictions as of June 30, The Foundation concluded that there are no significant uncertain tax positions requiring recognition in these financial statements. The Foundation does not expect the total amount of unrecognized tax benefits ( UTB ) (e.g. tax deductions, exclusions, or credits claimed or expected to be claimed) to significantly change in the next twelve months. The Foundation does not have any amounts accrued for interest and penalties related to UTBs at June 30, 2018 or 2017, and it is not aware of any claims for such amounts by federal or state income tax authorities. 25

29 Notes to Financial Statements Deferred Outflows of Resources In addition to assets, the statement of net position reports a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to one or more future periods and so will not be recognized as an outflow of resources (expense) until then. The College reports deferred outflows of resources for certain pension and other postemployment benefits ("OPEB") related amounts, such as change in expected and actual experience, changes in assumptions, and certain contributions made to the plan subsequent to the measurement date. More detailed information can be found in Note 8. Deferred Inflows of Resources In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to one or more future periods and so will not be recognized as an inflow of resources (revenue) until that time. The College reports deferred inflows of resources for certain pension and OPEB related amounts, such as the difference between projected and actual earnings of the pension plans' investments, changes in proportion and differences between employer contributions and proportionate share of contributions, and state appropriations for pensions and OPEB received subsequent to the measurement dates. More detailed information can be found in Note 8. Net Pension and OPEB Liabilities For purposes of measuring the net pension and OPEB liabilities, deferred outflows of resources and deferred inflows of resources related to pensions and OPEB, pension and OPEB expense, information about the fiduciary net position of the Plan and additions to/deductions from the plan fiduciary net position have been determined on the same basis as they are reported by the plan. 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. Net Investment in Capital Assets Net investment in capital assets represents capital assets, net of accumulated depreciation and related debt. 26

30 Notes to Financial Statements New and Upcoming Accounting Pronouncements GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits ("OPEB") Other Than Pensions - College As of July 1, 2017, the College adopted GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits ("OPEB") Other Than Pensions. This statement requires the College recognize a net OPEB liability on the statement of net position, equal to the College's proportionate share of the net OPEB liability of the Michigan Public School Employees Retirement System ("MPSERS"), as defined and calculated in accordance with the new standard. More detail information can be found in Note 8. As a result of this change, the College recognized a net OPEB liability of $6,426,714 and deferred outflows of resources of $482,117, which resulted in a decrease in net position of $5,944,597, as of July 1, Application of this new standard to July 1, 2016, the earliest year presented, is not practical as complete information is not available. ASU No , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities - Foundation In August 2016, the Financial Accounting Standards Board issued ASU No , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, which will be effective for the Foundation s annual financial statements for the year ending June 30, This ASU 1) reduces the number of net asset classes presented from three to two; (2) modifies the presentation of underwater endowment funds and related disclosures; (3) requires enhanced disclosures concerning board designated net assets; (4) requires the presentation of expenses by functional and natural classification in one location; (5) requires quantitative and qualitative disclosures about liquidity and availability of financial assets; and (6) requires the presentation of investment return net of external and direct internal investment expenses. Management has evaluated the provisions of ASU and has determined that the presentation of the financial statements will need to be modified as required by the ASU; however, there will be no significant changes in the Foundation s accounting policies. Reclassification Certain amounts as reported in the 2017 financial statements have been reclassified to conform with the 2018 presentation. Subsequent Events - Foundation In preparing these financial statements, the Foundation has evaluated, for potential recognition or disclosure, significant events or transactions that occurred during the period subsequent to June 30, 2018, the most recent statement of net position presented herein, through November 14, 2018, the date these financial statements were available to be issued. No significant such events or transactions were identified by the Foundation. 27