AUDITED FINANCIAL STATEMENTS REQUIRED SUPPLEMENTAL INFORMATION OTHER FINANCIAL INFORMATION AND SUPPLEMENTAL REPORTS COMMUNITY COLLEGE DISTRICT OF

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1 AUDITED FINANCIAL STATEMENTS REQUIRED SUPPLEMENTAL INFORMATION OTHER FINANCIAL INFORMATION AND SUPPLEMENTAL REPORTS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY IRONWOOD, MICHIGAN June 30, 2011

2 CONTENTS Audited Financial Statements: Independent Auditor s Report... Page 3 Management s Discussion and Analysis... 5 Basic Financial Statements: Statements of Net Assets Statements of Revenues, Expenses and Changes in Net Assets Statements of Cash Flows Notes to Financial Statements Other Financial Information: Consolidating Statement of Nets Assets (2011) Consolidating Statement of Revenues, Expenses and Changes in Net Assets (2011) Consolidating Statement of Nets Assets (2010) Consolidating Statement of Revenues, Expenses and Changes in Net Assets (2010) Details of General Fund Expenses Details of Auxiliary Activities Fund (2011) Details of Auxiliary Activities Fund (2010) Schedule of Expenditures of Federal Awards Supplemental Reports: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards... A-1 Independent Auditor s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A B-1 Schedule of Findings and Questioned Costs... C-1 Summary Schedule of Prior Audit Findings... C-2

3 JOKI, MAKELA, POLLACK & AHONEN, P.L.L.C. CERTIFIED PUBLIC ACCOUNTANTS 301 N. SUFFOLK STREET IRONWOOD, MICHIGAN TELEPHONE T. J. MAKELA, C.P.A. (906) W. J. JOKI, C.P.A. FAX A. R. POLLACK, C.P.A., C.S.E.P. (906) K. T. AHONEN, C.P.A. MEMBERS INDEPENDENT AUDITOR S REPORT Board of Trustees Community College District of Gogebic County Ironwood, Michigan We have audited the accompanying financial statements of the business type activities of Community College District of Gogebic County and the discretely presented component unit, Gogebic Community College Foundation as of and for the years ended June 30, 2011 and 2010, which collectively comprise the College s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Community College District of Gogebic County s management. Our responsibility is to express opinions 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 and with the standards prescribed by the State Treasurer. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of the business type activities of Community College District of Gogebic County and its discretely presented component unit as of June 30, 2011 and 2010, and the changes in financial position and cash flows, thereof for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 25, 2011, on our consideration of Community College District of Gogebic County s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 3

4 Accounting principles generally accepted in the United States of America require that the management s discussion on pages 5 through 13 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Community College District of Gogebic County s financial statements as a whole. The accompanying Other Financial Information, which includes the Schedule of Expenditures of Federal Awards as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Other Financial Information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Ironwood, Michigan October 25, 2011 Certified Public Accountants 4

5 MANAGEMENT S DISCUSSION AND ANALYSIS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY Year ended June 30, 2011 Management s Discussion and Analysis The discussion and analysis of Community College District of Gogebic County s financial statements provides an overview of the College s financial activities for the year ended June 30, 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 In June 1999, the Governmental Accounting Standards Board (GASB) released statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Government. Statement No. 34 requires a comprehensive look at the entity as a whole, including capitalization and depreciation of assets. In November 1999, GASB issued Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, which applies these standards to public colleges and universities. The State of Michigan has adopted these standards and has revised and issued the Manual for Uniform Financial Reporting for Michigan Public Community Colleges, In May 2002, GASB released Statement No. 39, Determining Whether Certain Organizations are Component Units. Statement No. 39 requires that separate legal entities which are associated with a primary government that meet certain criteria be included with the financial statements of the Primary Reporting Unit. In compliance with this statement, the Gogebic Community College Foundation is reported as a component unit of the College and its financial activity is discretely reported herein. Separately issued financial statements for the Foundation are also available from the Foundation office. This annual financial report includes the report of independent auditors, management s discussion and analysis, the basic financial statements in the format described above, notes to the financial statements, other information and supplemental reports. Financial Highlights The College s financial position remained strong at June 30, 2011, with assets of $16.1 million and liabilities of $5.5 million. Net assets, which represent the residual interest in the College s assets after liabilities are deducted, are $10.6 million. The net assets consist of $8.75 million invested in capital assets, net of related debt, $.175 million restricted and $1.7 million unrestricted. Net assets increased for the year by $633,521. 5

6 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) The Statement of Net Assets and the Statement of Revenues, Expenses, and Changes in Net Assets The Statement of Net Assets and the Statement of Revenues, Expenses, and Changes in Net Assets report information on the College as a whole. These statements report the College s financial position as of June 30, 2011 and 2010 and changes in net assets for the years then ended. When revenues and other support exceed expenses, the result is an increase in net assets. When the reverse occurs, the result is a decrease in net assets. The relationship between revenues and expenses may be thought of as Gogebic Community College s operating results. The Statement of Net Assets and the Statement of Revenues, Expenses, and Changes in Net Assets include all assets, liabilities, revenues and expenses using the accrual basis of accounting which is similar to the accounting used by most private sector entities. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. Condensed Statement of Net Assets ASSETS June 30, CURRENT ASSETS Cash, cash equivalents and investments $ 1,544,270 $ 1,529,403 Receivables 1,555,096 1,354,659 Other assets 430, ,671 TOTAL CURRENT ASSETS $ 3,529,573 $ 3,148,733 NONCURRENT ASSETS Property and equipment, net 12,599,363 12,642,988 LIABILITIES AND NET ASSETS TOTAL ASSETS $ 16,128,936 $ 15,791,721 CURRENT LIABILITIES Note payable $ 750,000 $ 750,000 Other current liabilities 764, ,362 Current portion of long-term debt 553, ,384 TOTAL CURRENT LIABILITIES $ 2,067,629 $ 2,039,746 Long-term debt, net 3,427,814 3,752,003 TOTAL LIABILITIES $ 5,495,443 $ 5,791,749 TOTAL NET ASSETS $ 10,633,493 $ 9,999,972 6

7 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Condensed Statement of Revenues, Expenses and Changes in Net Assets Year ended June 30, Operating revenues $ 4,381,857 $ 3,687,812 Operating expenses (11,976,250) (10,959,301) OPERATING LOSS $ (7,594,393) $ (7,271,489) Nonoperating revenue 8,227,914 7,830,930 INCREASE IN NET ASSETS $ 633,521 $ 559,441 Net Assets - Beginning of year 9,999,972 9,440,531 Operating Revenues NET ASSETS - END OF YEAR $ 10,633,493 $ 9,999,972 Operating revenues include all transactions that result in the sales and/or receipts from goods and services such as tuition and fees, Lindquist Student Center, Student Housing, Snack Bar, and Bookstore 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 were the result of the following factors: For the year ended June 30, 2011, student tuition and fee revenue increased $487,558 as a result of a Board approved tuition increase of $4 per credit hour for In-District and $7 per credit hour for Out-of-District and Out-of-District Reciprocity, $9 per credit hour for Out-of-State, and $13 per credit hour tuition increase for International and the college incurred a 7% increase in enrollment. The Board also approved fee increases for a small number of courses. For the year ended June 30, 2010, student tuition and fee revenue increased $618,061 as a result of a Board approved tuition increase of $5 per credit hour for In-District and $7 per credit hour for all remaining categories of students and a 7% increase in enrollment. The Board also approved fee increases for a small number of courses. For the year ended June 30, 2011, auxiliary services revenues increased by 15% and expenses increased by 26%, due to increased expenses across all auxiliary service operations. This and a $57,552 decrease in transfers to other funds resulted in a $33,888 increase in net assets. For the year ended June 30, 2010, auxiliary services revenues increased by 11% and expenses decreased by 3%, due to increased profits in the Bookstore and Residential Housing caused by an overall increase in attendance and the Residential Housing being at full capacity and savings incurred by a vacancy in the Lindquist Center Director position. This and a $106,286 increase in transfers to other funds resulted in a $62,949 increase in net assets. 7

8 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Operating Revenues (Continued) The following is a graphic illustration of operating revenues by source: Operating Revenue Auxiliary Enterprises 20% Other Revenue 3% State & Local Grants/Contracts 1% Federal Grants/Contracts 14% Tuition and Fees 62% Operating Revenue Auxiliary Enterprises 21% Other Revenue 4% State & Local Grants/Contracts 1% Federal Grants/Contracts 9% Tuition and Fees 65% 8

9 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Operating Expenses Operating expenses are all the costs necessary to perform and conduct the programs and primary purposes of the College. The operating expenses of the General Fund for the year ended June 30, 2011 increased $545,911 to $8,666,792. The operating expenses of the General Fund for the year ended June 30, 2010 increased $502,564 to $8,120,881. Instruction, Instructional Support, and Student Services account for 74% and 72% of all expenses respectively. The following is a graphic illustration of the operating expenses by function: Independent Operations 2% Operation of Maintenance 6% Operating Expenses Depreciation/ amortization Expense 6% Instruction 35% Institutional Administration 12% Student Services 32% Instructional Support 7% Independent Operations 2% Operating Expenses Depreciation/ Amortization Expense 7% Physical Plant 6% Institutional Administration 13% Student Services 27% Instructional Support 7% Instruction 38% 9

10 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Non-operating Revenues Non-operating revenues are all revenue sources that are primarily non-exchange in nature. They consist of state appropriations, property tax revenue, investment income, and grants and contracts that do not require any services to be performed, in addition to the clarification of GASB 34/35 which reclassifies Pell grants as non-operating revenue. Non-operating revenue changes were the result of the following factors: Pell funding increased $397,567 The taxable value of property within the Community College district increased by.73%, contributing an additional $14,970 in property tax revenue. Other Revenue Other revenue consists of items that are typically nonrecurring, extraordinary, or unusual to the College. Examples are additions to permanent endowments and transfers in (out) from other funds. Statement of Cash Flows The Statement of Cash Flows primary purpose is to provide relevant information about the cash receipts and cash payments of the College during the 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 need for external financing The College s cash position increased during the year by $13,785, with cash and cash equivalents of $1,433,694 as of June 30, Details of how the increase occurred are contained in the Statement of Cash Flows. 10

11 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) General Fund Expenditures General Fund salaries and wages increased $317,889 for the year ended June 30, Fringe benefits increased by $365,258 for the year. This amounted to a 7% increase in salaries and an 18% increase in benefits. Increased enrollment caused faculty overload and adjunct instructor costs to significantly increase. This was coupled with other following factors: The State s mandated contribution rate for the College to the state retirement system increased by 3.72% The college granted early retirement payments to two employees, totaling $52,000. The college incurred increased health insurance costs for the year. Since General Fund salaries, wages and fringe benefits accounted for 81% and 78% of total expenditures for the years ending June 30, 2011 and 2010, the College maintains a prudent watch over these categories and has and will continue a concerted effort to keep these costs contained and still maintain financial viability while continuing the mission of the College. The following is a graphic illustration of the breakdown of total General Fund expenditures for the year ended June 30, Supplies, Expenses, and Capital Outlay 19% Salary, Wage, and Fringe Benefits 81% 11

12 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Capital Asset and Debt Administration Capital Assets As of June 30, 2011, the College had $12.5 million invested in capital assets, net of accumulated depreciation of $11.5 million. Capital investments for the year were $709,710 and depreciation charges totaled $744,648. Details of these assets as of June 30, 2011 are outlined below. Balance June 30, Land $ 95,968 $ 95,968 Land improvements 1,346,018 1,346,018 Buildings 16,589,166 16,589,166 Equipment 5,900,884 5,259,357 Construction in progress 20,625 $ 23,952,661 $ 23,290,509 Accumulated depreciation: Land improvements $ 869,863 $ 775,940 Buildings 6,581,374 6,260,699 Equipment 4,000,777 3,715,561 $ 11,452,014 $ 10,752,200 $ 12,500,647 $ 12,538,309 The majority of the College s investment in capital assets is in buildings. Buildings have a cost value of $16.6 million before depreciation. College buildings have been well maintained with several having undergone major renovation and repairs in recent years. These buildings have significant useful lives remaining and will provide functional use for many years to come. The College has invested $5.9 million in furniture, fixtures, equipment, library materials and vehicles, listed above as equipment. Although a significant portion of these assets have been depreciated, these assets continue to provide functional benefit and utility for the College in both instructional and non-instructional areas. Construction in progress consists of payments for a new backup generator systems completed in fall of 2011 at a total cost of $31,003. Debt As of June 30, 2011, the College had long term debt totaling $3.98 million. This amount consists of $.25 million in refunding bonds outstanding, $2.39 million of revenue bonds, $1.12 million in capital leases and installment agreement, $.22 million in retirement incentives and post employment health insurance payable to employees and capital leases payable. $594,566 was paid on this debt during the year ended June 30,

13 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Economic Factors That Will Affect The Future The economic position of the College is closely tied to that of the State of Michigan with appropriations amounting to 41% of its General Fund revenues. Gogebic Community College has been instrumental in workforce retraining over the last two (2) years as reflected in the increased enrollment at the College. The College is currently researching new programs to deliver to students which will increase student head count and remedy the state s need for a skilled workforce in numerous high demand occupations. Gogebic Community College continues to strive to become more employment market sensitive and is investing time and resources to determine the programs and services that need to be invested in to become the regional educational learning resource center. Investing in these identifiable programs will make the College more profitable and bring resources to students, staff, and community members that were never before available. The College continues to diversify its income streams, but with the State of Michigan reducing funding to education and increasing mandatory retirement contributions, the task of educating students and maintaining tuition restraint is becoming stressed. The College will enter the fiscal year with 3.4% reduction in appropriations from the State of Michigan. The College continues to keep tuition as affordable as possible and increase student retention rates as shown by numerous citations the College has received for its efforts over the past years. The College is positioned to remain sustainable and is dedicated to providing a quality education to the student body even in the economic times that are encompassing the institution currently. The Gogebic Range has two separate mining projects underway in our service region. The projects are at different levels of progression and the College has been in contact with the employers to provide training for the organization's workforce. The College will stay in contact with the companies to continue to provide any information on educational services that the College can facilitate. 13

14 B A S I C F I N A N C I A L S T A T E M E N T S

15 STATEMENTS OF COMMUNITY COLLEGE DISTRICT Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) June 30, June 30, ASSETS CURRENT ASSETS Cash $ 1,433,694 $ 1,419,909 $ 53,088 $ 8,683 Investments 110, ,494 1,948,413 1,572,545 State appropriation receivable 777, ,311 Property taxes receivable 10,864 6,822 Other accounts receivable 766, ,526 Inventories 358, ,448 Due (to) from component unit (78,000) 1,117 78,000 (1,117) Prepaid expenses and other assets 149,331 35, TOTAL CURRENT ASSETS $ 3,529,573 $ 3,148,733 $ 2,079,501 $ 1,581,002 NONCURRENT ASSETS Bond issuance costs, net of amortization $ 98,716 $ 104,679 Capital assets, net of accumulated depreciation 12,500,647 12,538,309 $ 15,406 $ 16,560 TOTAL NONCURRENT ASSETS $ 12,599,363 $ 12,642,988 $ 15,406 $ 16,560 TOTAL ASSETS $ 16,128,936 $ 15,791,721 $ 2,094,907 $ 1,597,562 15

16 NET ASSETS OF GOGEBIC COUNTY Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) June 30, June 30, LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 222,646 $ 201,527 Salaries, wages and related liabilities payable 448, ,855 Interest payable 41,979 36,248 Note payable 750, ,000 Due to depositors and other liabilities 39,494 46,693 Deferred revenue 11,733 36,039 Current portion of long-term debt 553, ,384 TOTAL CURRENT LIABILITIES $ 2,067,629 $ 2,039,746 LONG-TERM DEBT Long-term debt, net of current portion 3,427,814 3,752,003 TOTAL LIABILITIES $ 5,495,443 $ 5,791,749 NET ASSETS Invested in capital assets, net of related debt $ 8,753,407 $ 8,572,271 $ 15,406 $ 16,560 Net assets restricted for: Instructional Support 104, ,353 Expendable scholarships 69,354 69,592 Other ,156 Temporarily restricted Foundation assets 7,436 4,023 Permanently restricted Foundation assets 1,586,645 1,342,761 Unrestricted 1,705,415 1,216, , ,218 TOTAL NET ASSETS $ 10,633,493 $ 9,999,972 $ 2,094,907 $ 1,597,562 TOTAL LIABILITIES AND NET ASSETS $ 16,128,936 $ 15,791,721 $ 2,094,907 $ 1,597,562 The accompanying notes are an integral part of the financial statements. 16

17 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) Year ended June 30, Year ended June 30, OPERATING REVENUES Tuition and fees (net of scholarship allowances: $2,374,986; $2,021,546) $ 1,791,133 $ 1,657,015 Federal grants and contracts 961, ,526 State and local grants and contracts 89,641 85,152 Intermediate School District rent 10,943 15,937 Sales and Services of Education Activities 66,006 78,916 Sales and Services of Auxiliary Enterprises 1,361,652 1,209,912 Other revenues 100, ,354 $ 14,962 $ 10,152 TOTAL OPERATING REVENUES $ 4,381,857 $ 3,687,812 $ 14,962 $ 10,152 OPERATING EXPENSES Instruction $ 4,384,533 $ 4,221,200 Instruction support 898, ,223 Student services 3,395,590 2,983,658 $ 34,456 $ 31,625 Institutional administration 1,561,413 1,384, , ,697 Operation and maintenance of plant 731, ,412 Independent operations 253, ,408 Depreciation and amortization expense, unallocated 750, ,017 TOTAL OPERATING EXPENSES $ 11,976,250 $ 10,959,301 $ 152,178 $ 143,322 OPERATING LOSS $ (7,594,393) $ (7,271,489) $ (137,216) $ (133,170) NONOPERATING REVENUES (EXPENSES) State appropriation $ 4,275,200 $ 4,275,200 Federal grants and contracts 2,740,279 2,342,712 Property tax levy 1,333,863 1,342,431 Gifts 73,815 80,937 $ 379,629 $ 351,426 Investment income 2,669 4, , ,706 Loss on disposal of asset (2,724) (942) Interest on capital asset related debt (195,188) (213,866) NET NONOPERATING REVENUES $ 8,227,914 $ 7,830,930 $ 634,561 $ 495,132 INCREASE IN NET ASSETS $ 633,521 $ 559,441 $ 497,345 $ 361,962 17

18 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS (CONTINUED) Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) Year ended June 30, Year ended June 30, NET ASSETS - BEGINNING OF YEAR 9,999,972 9,440,531 1,597,562 1,235,600 NET ASSETS - END OF YEAR $ 10,633,493 $ 9,999,972 $ 2,094,907 $ 1,597,562 The accompanying notes are an integral part of the financial statements. 18

19 STATEMENTS OF CASH FLOWS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) Year ended June 30, Year ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 1,758,084 $ 1,696,673 Grants and contracts 819, ,252 Auxiliary enterprise and other revenues 1,584,052 1,533,418 $ 14,962 $ 10,152 Payments to suppliers and employees (11,361,670) (10,479,708) (229,250) (154,441) NET CASH USED IN OPERATING ACTIVITIES $ (7,200,514) $ (6,535,365) $ (214,288) $ (144,289) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations $ 4,275,200 $ 4,275,198 Property tax collections 1,329,821 1,345,569 Gifts 73,815 80,937 $ 379,629 $ 351,426 Federal grants and contracts 2,740,279 2,342,712 Student organization and agency transactions (7,199) (3,289) NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES $ 8,411,916 $ 8,041,127 $ 379,629 $ 351,426 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets $ (415,181) $ (1,316,456) Proceeds from the issuance of long-term debt 1,076,575 Principal paid on long-term debt (594,566) (499,638) Interest paid (189,457) (188,614) NET CASH USED IN CAPITAL AND RELATED FINANCING ACTIVITIES $ (1,199,204) $ (928,133) CASH FLOWS FROM INVESTING ACTIVITIES Investment activity (net) $ (1,082) $ (2,752) $ (178,624) $ (275,635) Investment income 2,669 4,458 57,688 51,961 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 1,587 $ 1,706 $ (120,936) $ (223,674) NET INCREASE (DECREASE) IN CASH $ 13,785 $ 579,335 $ 44,405 $ (16,537) Cash at beginning of year 1,419, ,574 8,683 25,220 CASH AT END OF YEAR $ 1,433,694 $ 1,419,909 $ 53,088 $ 8,683 19

20 STATEMENTS OF CASH FLOWS (CONTINUED) Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) Year ended June 30, Year ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES Operating loss $ (7,594,393) $ (7,271,489) $ (137,216) $ (133,170) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Depreciation and amortization expense $ 750,610 $ 720,017 $ 1,154 $ 1,155 Contributed collection (12,500) Deferred compensation and other postemployment benefits accrued 54, ,478 (Increase) decrease in current assets: Accounts receivable (196,395) (232,542) 891 (891) Inventories (130,428) (76,211) Prepaid expenses and other assets (114,224) 148,310 Due to Foundation 78,000 (78,000) Increase (decrease) in current liabilities: Accounts payable (68,233) 54,978 Salaries, wages and related liabilities payable 43,316 (7,895) Due from Foundation 1,117 (1,117) 1,117 Deferred revenue (24,306) 23,989 Total adjustments $ 393,879 $ 736,124 $ (77,072) $ (11,119) NET CASH USED IN OPERATING ACTIVITIES $ (7,200,514) $ (6,535,365) $ (214,288) $ (144,289) Supplemental schedule of noncash capital and related financing activities: Capital lease obligation and accounts payable to purchase equipment $ 294,529 Early Retirement Incentives and Other Postemployment benefits accrued $ 21,813 $ 105,478 The accompanying notes are an integral part of the financial statements. 20

21 N O T E S TO F I N A N C I A L S T A T E M E N T S

22 NOTES TO FINANCIAL STATEMENTS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY June 30, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in accordance with the generally accepted accounting principles outlined in the Manual for Uniform Financial Reporting--Michigan Public Community Colleges, Reporting Entity and Basis of Presentation Community College District of Gogebic County (the College) is a community college district organized under Act No. 188, Michigan Public Acts of 1954, as amended, the boundaries of which are coterminous with the boundaries of the County of Gogebic, Michigan. The College reports as a Business Type Activity, as defined by GASB Statement No. 35. Business Type Activities are those that are financed in whole or in part by fees charged to external parties for goods or services. Reporting for business-type activities is based on all applicable GASB pronouncements, as well as certain applicable Financial Accounting Standards Board pronouncements, except for those pronouncements that conflict with GASB pronouncements. The accompanying financial statements have been prepared in accordance with criteria established by GASB for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational or financial relationships with the College. Based on application of the criteria, the College has one component unit. The Gogebic Community College Foundation (Foundation) is a separate legal entity established as a 501(c)(3) corporation formed for the purpose of receiving funds for the sole benefit of the College and its students. The College provides accounting services and office space to the Foundation. The assets and activity of the Foundation are included in the financial statements of the College as a discretely presented component unit. The separately issued financial statements of the Foundation can be obtained by contacting its Executive Director at the Foundation office at the College. Basis of Accounting The financial statements of the College have been prepared on the accrual basis of accounting, whereby revenue is recognized when earned and expenditures are recognized when the related liabilities are incurred and certain measurement and matching criteria are met. Cash and Investments - Cash includes cash on hand, demand deposits and certificates of deposit with a maturity date of less than three months. Investments include certificates of deposit with a maturity date of more than three months, mutual funds and United States government securities. State of Michigan statutes authorize investments in direct obligations of the United States or an agency of the United States; banks which are a member of the federal deposit insurance corporation; commercial paper that is supported by an irrevocable letter of credit issued by an eligible bank; commercial paper of corporations located in the State of Michigan rated prime by at least one of the standard rating services; bankers acceptances of United States banks; certain mutual funds and repurchase agreements. 22

23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Capital Assets Assets with a stated cost or a market value at date of gift of $5,000 or more are capitalized and depreciated. Office equipment items are capitalized and depreciated, regardless of cost. Major renovations of $20,000 or more to buildings or other long-lived assets are considered for capitalization and depreciation. The Dean of Business Services has final authority over capitalization determinations. Depreciation is provided for on the straight-line method over the useful lives of the assets, as follows: Land improvements 20 years Buildings years Equipment 5-15 years Capitalized Interest Interest incurred on debt related to the construction of fixed assets, net of interest earned on the funds prior to distribution, is capitalized as part of the assets. Inventories and Prepaid Expenses Inventories are stated at cost and consist principally of supplies and merchandise for sale in the Auxiliary Activities Fund. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid expenditures. Property Taxes Property taxes attach as an enforceable lien on property as of December 31. Current property taxes are collected for the College by the Cities of Bessemer, Ironwood and Wakefield and the Townships of Bessemer, Erwin, Ironwood, Marenisco, Wakefield and Watersmeet. Each unit forwards the taxes to the County of Gogebic for disbursement to the College. College taxes are levied on July 1 and must be paid to collecting units by February 15 of each year. Delinquent real property taxes of the College are purchased annually by the County of Gogebic. Unemployment Insurance The College reimburses the Michigan Employment Security Commission for the actual amount disbursed on behalf of the College. Deferred Revenues Revenues received prior to the College s fiscal year end relating to future periods are recorded as deferred revenues. Deferred revenues relate principally to tuition and unearned grant revenues. Investment in Capital Assets, Net of Related Debt This is a portion of the net assets of the College that consists of capital assets, net of accumulated depreciation and reduced by long-term liabilities for notes, bonds and other debt attributable to the acquisition, construction or improvement of those assets. Restricted Net Assets Net assets are restricted when there are constraints on their use by external parties or by statute. The Foundation s restricted assets consist mainly of endowed funds with the use of the income restricted for student scholarships by the benefactors. Unrestricted Net Assets Net assets not meeting either criteria above are considered unrestricted. 23

24 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events - Subsequent events have been evaluated through the date of the audit report, the date the financial statements were available to be issued. NOTE B CASH, CASH EQUIVALENTS AND INVESTMENTS Cash, cash equivalents and investments consisted of the following: College Foundation June 30, June 30, Cash and cash equivalents $ 1,433,694 $ 1,419,909 $ 53,088 $ 8,683 Investments: Certificates of deposit 110, , ,000 Mutual Funds 1,948,413 1,347,545 $ 1,544,270 $ 1,529,403 $ 2,001,501 $ 1,581,228 The Foundation s investment policy objectives are to invest long-term in a manner that will provide current income to support its current goals and objectives, preserve and maintain the principal value of assets and optimizing the total rate of return on investable assets. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Foundation Board of Directors began utilizing the services of an investment manager with guidelines of investing one-half of the net assets in fixed income securities and one-half in equity investments, with a ten percent fluctuation allowed, as a way to minimize the interest rate risk. 24

25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE B CASH, CASH EQUIVALENTS AND INVESTMENTS (CONTINUED) Cash, Cash Equivalents and Certificates of Deposit Deposits were made in accordance with State of Michigan statutes and under authorization of the College Board of Trustees. Deposits are carried at cost as listed above. Following is a summary of the bank balances at June 30, 2011 and June 30, Deposits in banks insured by federal depository insurance: Insured $ 564,565 $ 437,498 Uncollateralized amounts exceeding insurance limits and uninsured money market funds 1,183,530 1,115,402 $ 1,748,095 $ 1,552,900 The College places its deposits with what it believes to be high quality financial institutions. Although such deposits exceed federally insured limits, they are, in the opinion of the College, subject to minimal custodial credit risk. Investments All investments were made in accordance with State of Michigan statutes and under authorization of the College Board of Trustees. The certificates of deposit and mutual funds are stated at the market value in the statement of net assets. The cost, credit quality rating and maturity dates for various individual investments was not available. 25

26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE C ACCOUNTS RECEIVABLE The College extends credit to students who will be having their expenses paid by scholarships, grants or entitlements. The direct charge-off method is used for recognizing uncollectible accounts. Accounts receivable were comprised of the following at June 30, 2011: Auxiliary General Designated Enterprise Restricted Plant Fund Fund Fund Fund Fund Total State of Michigan $ 2,586 $ 103,905 $ 106,491 Federal government 275, ,123 Other local units 66,161 66,161 Students 162, ,973 Sundry 151,830 $ 4, ,173 TOTALS $ 383,550 $ 0 $ 4,343 $ 379,028 $ 0 $ 766,921 NOTE D CAPITAL ASSETS Capital asset balances and activity for the year ended June 30, 2011, were as follows: Balance Balance July 1, 2010 Additions Disposals June 30, 2011 Land $ 95,968 $ 95,968 Land improvements 1,346,018 1,346,018 Buildings 16,589,166 16,589,166 Equipment 5,259,357 $ 689,085 $ 47,558 5,900,884 $ 23,290,509 $ 689,085 $ 47,558 $ 23,932,036 Accumulated depreciation: Land improvements $ 775,940 $ 93,923 $ 869,863 Buildings 6,260, ,675 6,581,374 Equipment 3,715, ,050 $ 44,834 4,000,777 $ 10,752,200 $ 744,648 $ 44,834 $ 11,452,014 Construction in progress 20,625 20,625 $ 12,538,309 $ (34,938) $ 2,724 $ 12,500,647 All depreciation expense was not allocable to specific functions. Construction in progress consists of payments for a new backup generator system completed in fall of 2011 at a total cost of $31,

27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT The $750,000 note payable recorded in the General Fund is a $750,000 State Anticipation Note payable to a bank, due on August 10, Interest accrued on the note is payable on a monthly basis at an interest rate of 2.25%. Changes in long-term debt are summarized as follows: Balance Balance July 1, June 30, Current 2010 Additions Reductions 2011 Portion 1998 Refunding Bonds $ 490,000 $ 240,000 $ 250,000 $ 250,000 Community College Facilities Bonds, Series ,479,882 91,413 2,388,469 96,042 Capital Leases Payable 54,771 $ 205,177 83, ,677 19,465 Energy Conservation Installment Purchase Agreement 1,046, , , ,606 Deferred Compensation Payable 114,667 52,000 42, ,000 60,000 Other Postemployment Benefits See Note G 131,003 2,422 32, ,816 23,493 $ 4,316,387 $ 259,599 $ 594,566 $ 3,981,420 $ 553,606 The aggregate amounts of long-term debt principal and interest maturities for the five years ending June 30, 2016, and five year totals to maturity, are: Year ending June 30, Principal Interest Total 2012 $ 553,606 $ 187,473 $ 741, , , , , , , , , , , , , ,112, ,222 1,537, , ,735 1,069, ,032 12, ,164 $ 3,981,420 $ 1,392,648 $ 5,374,068 27

28 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) 1998 Refunding Bonds The 1998 Refunding Bonds, Series 1998 consist of general obligation bonds, the proceeds of which were used to refund a portion of the College Building and Site Bonds, Series The principal and interest are secured by the College s pledge of its full faith, credit and tax revenues. Data relative to the bonds at June 30, 2011, were as follows: 1998 Refunding Bonds, Series 1998 issued May 19, 1998 Amount of original issue - $2,170,000 Principal outstanding at June 30, $250,000 Interest rate - 4.8% Payment dates - Interest on November 1 and May 1 and principal on May 1 Debt service charges until maturity are as follows: Rate of Year ending June 30, Interest Principal Interest Total % $ 250,000 $ 12,000 $ 262,000 The Bonds or portions of Bonds in multiples of $5,000 are subject to redemption prior to maturity at the option of the College in such order as the College may determine, by lot within any maturity, on any interest payment date at par and accrued interest to the date fixed for redemption. 28

29 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) Community College Facilities Bonds, Series 2006 On December 20, 2005, the College passed a resolution to issue $2,757,630 of Community College Facilities Bonds, Series 2006 for the purpose of constructing dormitory facilities on the campus. The Bonds are dated January 25, 2006, mature December 15, 2027, and bear an interest rate of 4.95%. The bonds are payable on the 15 th of each month with principal and interest payments totaling $17,676 each month until maturity. Bond issuance costs were $131,167 and are being amortized over the bond repayment period. A summary of the annual principal and interest requirements until maturity follows: Year ending June 30, Principal Interest Total 2012 $ 96,042 $ 116,070 $ 212, , , , , , , , , , ,023 95, , ,950 89, , ,176 82, , ,717 76, , ,590 69, , ,810 62, , ,396 54, , ,367 46, , ,741 38, , ,539 29, , ,782 20, , ,494 10, , ,538 1, ,052 $ 2,388,469 $ 1,111,374 $ 3,499,843 The bonds are now subject to optional redemption in whole or in part in such order as the College may determine on any date, at the following redemption prices plus accrued interest to the redemption date: 29

30 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) Community College Facilities Bonds, Series 2006 (Continued) Period During Which Redeemed Redemption Price October 1, 2009, through September 30, 2011, inclusive 101% October 1, 2011, and thereafter 100% Capital Leases Payable On June 30, 2011, the College was obligated under two capital leases entered into during the year ended June 30, 2011, to finance the purchase of a postage meter and a snow groomer. Two leases that were entered into in prior years to finance the purchase of a new accounting and student information system were paid up during the year ended June 30, These assets and the related liabilities are recorded in the Plant Fund. Data relative to these capital leases at June 30, 2011, was as follows: Postage Meter Snow Groomer Capital asset cost $ 15,177 $ 190,000 Date of lease 6/6/ /1/2010 Quarterly payments, including interest $ 1,053 Annual payments, including interest Various Interest rate 14.61% 6.689% Minimum lease payments: June 30, 2012 $ 4,211 $ 28,000 June 30, ,211 28,000 June 30, ,211 30,000 June 30, ,211 40,000 June 30, ,210 76,500 Future net minimum payments $ 21,054 $ 202,500 Less amount for interest 5,877 41,000 Present value of future net minimum payments $ 15,177 $ 161,500 30

31 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) Energy Conservation Installment Purchase Agreement On August 27, 2009, the College financed numerous energy conservation improvements costing $1,046,064 through an installment purchase agreement, which was assigned to a local bank at an interest rate of 5.25%. The agreement requires interest payments each January 1 and principal and interest payments due each July 1. A summary of the annual principal and interest requirements until maturity follows: Deferred Compensation Payable Principal Interest Year ending June 30, Payment Payment Total 2012 $ 104,606 $ 46,658 $ 151, ,606 41, , ,606 35, , ,606 30, , ,606 24, , ,607 19, , ,607 13, , ,607 8, , ,607 2, ,330 $ 941,458 $ 222,397 $ 1,163,855 Deferred compensation payable consists of early retirement incentives that the College pays to instructors, secretaries and custodians as required by the union contract and to administrators and support staff per Board policy. The College currently has seven employees each receiving early retirement incentives of $5,333 to $10,667 each year with total payments of $16,000 to $32,000. Following is a summary of future required payments: Amount Cash payments during year ending: June 30, 2012 $ 60,000 June 30, ,667 June 30, ,333 $ 124,000 31

32 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE F EMPLOYEE RETIREMENT SYSTEMS Defined Benefit/Contribution Plan Substantially all of the College s employees are eligible to participate in the statewide Michigan Public School Employees Retirement System (MPSERS), a multiple-employer, cost-sharing public employee retirement system. The MPSERS plan is administered by a nine-member board and provides retirement benefits and postretirement benefits for health, dental and vision. The MPSERS was established by Public Act 136 of 1945 and operated under the provisions of Public Act 300 of 1980, as amended. The MPSERS issues a publicly available financial report that includes financial statements and required supplementary information for MPSERS. That report may be obtained by writing to Michigan Public School Employees Retirement System, P.O. Box 30026, Lansing, Michigan or by calling (517) There are three types of plans enrollees can be participating in Basic Plan or the Member Investment Plan (MIP), which are defined benefit plans, or the Pension Plus Plan, which combines a defined benefit plan and a defined contribution plan. Each plan is described below: MIP members enrolled in MIP prior to January 1, 1990, contribute a permanently fixed rate of 3.9% of gross wages. Members first hired between January 1, 1990 and June 30, 2010 and returning members who did not work between January 1, 1987 and December 31, 1989, contribute at the following graduated permanently fixed contribution rate: 3% of the first $5,000; 3.6% of $5,001 through $15,000; 4.3% of all wages over $15,000. For members hired after July 1, 2008, the rate is 6.4% of all wages over $15,000. Basic Plan members make no contributions. For a limited period ended December 31, 1992, an active Basic Plan member could enroll in the MIP by paying the contributions that would have been made had enrollment occurred initially on January 1, 1987, or on the date of hire, plus interest. MIP contributions at the rate of 3.9% of gross wages begin at enrollment. Market rate interest is posted to member accounts on July 1 on all MIP monies on deposit for 12 months. If a member leaves MPSERS service and no pension is payable, the member s accumulated contribution plus interest, if any, is refundable. Pension Plus members are those who first worked on or after July 1, The members contribute to the defined benefit portion using the same graduated rates as the MIP members use. The College contributed to the defined benefit portion plan at the following rates: 15.44%, 17.91% and 19.16% for the time periods listed below. The members have the option to participate in the defined contribution portion of the plan where members could contribute 2% or higher and the College matches the contribution up to 1%. 32