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, 2013

2 CONTENTS Audited Financial Statements: Independent Auditor s Report... Page 3 Management s Discussion and Analysis... 6 Basic Financial Statements: Statements of Net Position Statements of Revenues, Expenses and Changes in Net Position Statements of Cash Flows Notes to Financial Statements Other Financial Information: Consolidating Statement of Net Position (2013) Consolidating Statement of Revenues, Expenses and Changes in Net Position (2013) Consolidating Statement of Net Position (2012) Consolidating Statement of Revenues, Expenses and Changes in Net Position (2012) Details of General Fund Expenses Details of Auxiliary Activities Fund (2013) Details of Auxiliary Activities Fund (2012) 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 for 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 Report on the Financial Statements 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, 2013 and 2012, 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. Auditor s Responsibility 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. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 3

4 accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Community College District of Gogebic County and its discretely presented component unit as of June 30, 2013 and 2012, and the respective changes in financial position, and, where applicable, cash flows, thereof, for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 6 through 14 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 opinions on the financial statements that collectively comprise the Community College District of Gogebic County s basic financial statements. The accompanying Other Financial Information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements. The Other Financial Information and the Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such 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. 4

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated October 31, 2013 on our consideration of Community College District of Gogebic County 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 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 in considering Community College District of Gogebic County s internal control over financial reporting and compliance. Ironwood, Michigan October 31, 2013 Certified Public Accountants 5

6 MANAGEMENT S DISCUSSION AND ANALYSIS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY Year ended June 30, 2013 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, 2013, with assets of $16.1 million, liabilities of $6 million and deferred inflow of resources of under $10 thousand. Net position, which represents the residual interest in the College s assets after liabilities are deducted, is $10.1 million. The net position consists of $8.7 invested in capital assets, net of related debt, $.3 million restricted and $1.1 million unrestricted. Net position decreased for the year by $262,849. 6

7 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position report information on the College as a whole. These statements report the College s financial position as of June 30, 2013 and 2012 and changes in net assets for the years then ended. 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 Gogebic Community College s operating results. The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position 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 Position ASSETS June 30, Cash, cash equivalents and investments $ 1,785,022 $ 823,184 Receivables 1,507,092 1,322,184 Other assets 527, ,972 Capital assets and bond discount, net of depreciation 12,307,158 12,124,726 TOTAL ASSETS $ 16,126,709 $ 15,009,066 LIABILITIES Note payable $ 850,000 $ 650,000 Other current liabilities 1,074, ,301 Long term debt: Due in one year 377, ,457 Due in more than one year 3,706,668 3,153,834 TOTAL LIABILITIES $ 6,008,934 $ 4,620,592 DEFERRED INFLOW OF RESOURCES Summer school tuition and state grants $ 9,467 $ 17,317 NET POSITION $ 10,108,308 $ 10,371,157 7

8 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Condensed Statement of Revenues, Expenses and Changes in Net Position Year ended June 30, Operating revenues $ 4,022,871 $ 3,789,384 Operating expenses (12,299,475) (11,950,069) OPERATING LOSS $ (8,276,604) $ (8,160,685) Nonoperating revenue 8,013,755 7,898,349 DECREASE IN NET POSITION $ (262,849) $ (262,336) Net Position - Beginning of year 10,371,157 10,633,493 Operating Revenues NET POSITION - END OF YEAR $ 10,108,308 $ 10,371,157 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, 2013, student tuition and fee revenue increased $69,354 as a result of the College incurring an 8% decrease in enrollment and a Board approved tuition increase of $3 per credit hour for In-District and $6 per credit hour for Out-of-District and Out-of-District Reciprocity, $7 per credit hour for Out-of-State, and $10 per credit hour tuition increase for International. The Board also approved fee increases for a small number of courses. For the year ended June 30, 2012, student tuition and fee revenue decreased $96,493 as a result of the College incurring an 11.5% decrease in enrollment and a Board approved tuition increase of $6 per credit hour for In-District and $12 per credit hour for Out-of-District and Out-of-District Reciprocity, $14 per credit hour for Out-of-State, and $22 per credit hour tuition increase for International. The Board also approved fee increases for a small number of courses. For the year ended June 30, 2013, auxiliary services revenues increased by 6.1% and expenses increased by 9.5%, due to the operation of the Porcupine Mountain Ski Area. These factors resulted in a $48,909 increase in transfers to the auxiliary services. There was a decrease of $2,491 in the amount transferred from the Bookstore to the General Fund. The net effect resulted in a $10,696 increase in net position. For the year ended June 30, 2012, auxiliary services revenues decreased by 9.5% and expenses decreased by 20%, due to decreased student headcount and the allocation of Public Service expenditures to the General Fund. These factors resulted in a $164,746 decrease in transfers to the auxiliary services. An additional $23,461 was transferred from the Bookstore to the General Fund. The net effect resulted in an $18,909 decrease in net position. 8

9 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Operating Revenues (Continued) The following is a graphic illustration of operating revenues by source: Operating Revenues Auxilary Enterprises 22% Other Revenue 4% State & Local Grants/Contracts 0% Federal Grants/Contracts 7% Tuition and Fees 67% Auxiliary Enterprises 21% Operating R evenues Other Revenue 2% State & Local Grants/Contracts 0% Federal Grants/Contracts 8% Tuition and Fees 69% 9

10 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, 2013 increased $141,410 to $9,335,346. The operating expenses of the General Fund for the year ended June 30, 2012 increased $527,144 to $9,193,936 due in part to the allocation of Public Service expenditures to the General Fund this year. Instruction, Instructional Support, and Student Services account for 69% and 70% of all expenses respectively. The following is a graphic illustration of the operating expenses by function: Operation and Maint. of Plant 6% Institutional Administration 14% Operating Expenses Independent Operations 3% Depreciation Expense 6% Instruction 36% Public Service 3% Student Services 23% Instructional Support 9% Independent Operations 1% Operation and Maint of P lant 6% Public Service 3% Operating E xpenses Depreciation/ Amortization Expense 7% Ins truc tion 37% Ins titutional Administration 13% Student Services 25% Ins truc tional Support 8% 10

11 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 decreased $168,331. The taxable value of property within the Community College district increased by 2%, contributing an additional $30,256 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 $961,252, with cash and cash equivalents of $1,673,027 as of June 30, Details of how the decrease occurred are contained in the Statement of Cash Flows. 11

12 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) General Fund Expenditures General Fund salaries and wages increased $87,173 for the year ended June 30, Fringe benefits decreased by $2,277 for the year. This amounted to a 1.7% increase in salaries and a less than.1% decrease in benefits. Increased wages were reflective of an increase in time for the new Welding Instructor, a new Certified Medical Assistant Instructor, and miscellaneous intermittent time increases for current staff. This was coupled with the following factors: The college granted early retirement payments to four employees, totaling $75,000. The college incurred decreased health insurance costs for the year. Since General Fund salaries, wages and fringe benefits accounted for 81% of total expenditures for the years ending June 30, 2013 and 2012, 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 Outlays 19% Salaries, Wages and Fringe Benefits 81% 12

13 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Capital Asset and Debt Administration Capital Assets As of June 30, 2013, the College had $12 million invested in capital assets, net of accumulated depreciation of $12.8 million. Capital investments for the year were $949,044 and depreciation charges totaled $760,650. Details of these assets as of June 30, 2013 are outlined below. Balance June 30, Land $ 95,968 $ 95,968 Land improvements 1,346,018 1,346,018 Buildings 16,608,935 16,589,166 Equipment 6,430,553 6,133,745 Construction in progress 614,547 $ 25,096,021 $ 24,164,897 Accumulated depreciation: Land improvements $ 1,057,022 $ 963,432 Buildings 7,232,155 6,904,250 Equipment 4,586,478 4,265,243 $ 12,875,655 $ 12,132,925 $ 12,220,366 $ 12,031,972 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 $6.4 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 consisted of two projects. A major renovation to the Kleimola Tech Building is expected to cost $1,460,000, with $574,243 of costs incurred by year end, and a pole building expected to cost $68,400, with $40,304 of costs incurred by year end. Debt As of June 30, 2013, the College had long term debt totaling $4.08 million. This amount consists of $3.02 million of revenue bonds, $.87 million in capital leases and an installment agreement, $.19 million in retirement incentives and post employment health insurance payable to employees and capital leases payable. $320,744 was paid on this debt during the year ended June 30,

14 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 43% of its General Fund revenues. The College is involved in and is watching very closely the Governor s review of the School Aid Funding process in the upcoming year as the College is funded through the Michigan School Aid Fund and any changes will have an impact on the College s funding. Gogebic Community College will be subject to GASB 68 in the 2015 fiscal year, and will be recognizing the unfunded Michigan Pension Cost allocated to the College. This recording will have an impact on the College s financial statements as the unfunded liability in the State pension plan will now be pushed down to the individual community colleges, even though the colleges have little to no input on the fiscal management of the funds. The College is investing in their satellite campus in the Copper County of Upper Michigan. The site has proven to be a positive investment and the needs of the surrounding areas are still unmet. The growth is welcome and the educational reach of the College will continue to expand as there remains a gap in educational services. Gogebic Community 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 with diversified and new programs, even in the economic times that are encompassing the institution currently. The Gogebic Range and the Upper Peninsula of Michigan have many opportunities for economic expansion and the college is working with numerous businesses, governmental agencies, and others to provide educational assistance and training to enhance the economic development in the region. Contacting the College If you have any questions about this report or need additional information, contact the Dean of Business s office at Gogebic Community College, 4946 Jackson Road, Ironwood, MI

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

16 STATEMENTS OF COMMUNITY COLLEGE DISTRICT Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) June 30, June 30, ASSETS Cash $ 1,673,027 $ 711,775 $ 3,985 $ 17,311 Investments 111, ,409 3,139,413 2,354,512 State appropriation receivable 854, ,821 Property taxes receivable (net of allowance: $4,188; $2,645) 34,378 13,239 Other accounts receivable 618, ,124 Inventories 389, ,931 Prepaid expenses and other assets 137, ,041 Bond discount 131, ,167 Less accumulated amortization (44,375) (38,413) Capital assets 25,096,021 24,164,897 23,764 23,764 Less accumulated depreciation (12,875,655) (12,132,925) (10,373) (9,512) TOTAL ASSETS $ 16,126,709 $ 15,009,066 $ 3,156,789 $ 2,386,075 16

17 NET POSITION OF GOGEBIC COUNTY Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) June 30, June 30, LIABILITIES Accounts payable $ 578,142 $ 100,098 Salaries, wages and related liabilities payable 413, ,221 Interest payable 37,751 40,775 Note payable 850, ,000 Due to depositors and other liabilities 44,980 42,207 Long-term debt: Due in one year 377, ,457 Due in more than one year 3,706,668 3,153,834 TOTAL LIABILITIES $ 6,008,934 $ 4,620,592 DEFERRED INFLOW OF RESOURCES Unavailable revenue - Summer school tuition and state grants $ 9,467 $ 17,317 NET POSITION Invested in capital assets, net of related debt $ 8,664,285 $ 8,840,840 $ 13,391 $ 14,252 Net position restricted for: Instructional Support 241, ,681 Expendable scholarships 100,438 97,478 Other 2, Temporarily restricted Foundation assets 600,019 79,947 Permanently restricted Foundation assets 1,874,893 1,669,366 Unrestricted 1,099,674 1,242, , ,510 TOTAL NET POSITION $ 10,108,308 $ 10,371,157 $ 3,156,789 $ 2,386,075 The accompanying notes are an integral part of the financial statements. 17

18 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION 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: $2,114,264; $2,160,598) $ 2,024,716 $ 1,909,028 Federal grants and contracts 465, ,688 State and local grants and contracts 19,324 14,153 Intermediate School District rent 21,395 11,755 Sales and Services of Education Activities 61,600 21,546 Sales and Services of Auxiliary Enterprises 1,279,123 1,271,955 Other revenues 150,810 68,259 $ 15,877 $ 17,325 TOTAL OPERATING REVENUES $ 4,022,871 $ 3,789,384 $ 15,877 $ 17,325 OPERATING EXPENSES Instruction $ 4,443,624 $ 4,443,228 Instruction support 1,097,952 1,001,650 Student services 2,869,613 2,975,669 $ 60,625 $ 67,039 Public Service 321, ,704 Institutional administration 1,753,186 1,550,517 Operation and maintenance of plant 672, , , ,627 Independent operations 374, ,266 Depreciation and amortization expense, unallocated 766, ,936 TOTAL OPERATING EXPENSES $ 12,299,475 $ 11,950,069 $ 180,336 $ 177,666 OPERATING LOSS $ (8,276,604) $ (8,160,685) $ (164,459) $ (160,341) 18

19 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (CONTINUED) Gogebic Community Community College District College Foundation of Gogebic County (Component Unit) Year ended June 30, Year ended June 30, NONOPERATING REVENUES (EXPENSES) State appropriation $ 4,361,923 $ 4,140,500 Federal grants and contracts 2,287,507 2,455,838 Property tax levy 1,444,145 1,412,117 Gifts 79,495 72,608 $ 681,780 $ 356,490 Investment income 1,221 1, ,393 95,019 Interest on capital asset related debt (160,536) (184,463) NET NONOPERATING REVENUES $ 8,013,755 $ 7,898,349 $ 935,173 $ 451,509 INCREASE (DECREASE) IN NET POSITION $ (262,849) $ (262,336) $ 770,714 $ 291,168 NET POSITION - BEGINNING OF YEAR 10,371,157 10,633,493 2,386,075 2,094,907 NET POSITION - END OF YEAR $ 10,108,308 $ 10,371,157 $ 3,156,789 $ 2,386,075 The accompanying notes are an integral part of the financial statements. 19

20 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 $ 2,030,859 $ 1,862,956 Grants and contracts 465, ,064 Auxiliary enterprise and other revenues 1,472,175 1,376,745 $ 15,877 $ 17,325 Payments to suppliers and employees (10,866,709) (11,703,582) (179,475) (98,512) NET CASH USED IN OPERATING ACTIVITIES $ (6,898,031) $ (7,697,817) $ (163,598) $ (81,187) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations $ 4,260,197 $ 4,164,990 Property tax collections 1,423,006 1,409,742 Gifts 79,495 72,608 $ 681,780 $ 356,490 Federal grants and contracts 2,287,507 2,455,838 Student organization and agency transactions 2,773 2,713 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES $ 8,052,978 $ 8,105,891 $ 681,780 $ 356,490 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets $ (545,026) $ (385,651) Proceeds from the issuance of long-term debt 835,000 Principal paid on long-term debt (320,744) (559,591) Interest paid (163,560) (185,667) NET CASH USED IN CAPITAL AND RELATED FINANCING ACTIVITIES $ (194,330) $ (1,130,909) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investments $ 738,756 $ 14,850 Purchase of investments $ (586) $ (833) (1,336,424) (397,067) Investment income 1,221 1,749 66,160 71,137 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 635 $ 916 $ (531,508) $ (311,080) NET INCREASE (DECREASE) IN CASH $ 961,252 $ (721,919) $ (13,326) $ (35,777) Cash at beginning of year 711,775 1,433,694 17,311 53,088 CASH AT END OF YEAR $ 1,673,027 $ 711,775 $ 3,985 $ 17,311 20

21 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 $ (8,276,604) $ (8,160,685) $ (164,459) $ (160,341) Adjustments to reconcile operating loss to net cash provided by (used in) operating activities: Depreciation and amortization expense $ 766,612 $ 770,936 $ 861 $ 1,154 Deferred compensation and other postemployment benefits accrued 112,791 35,462 (Increase) decrease in current assets: Accounts receivable (62,043) 210,797 Inventories 82,029 (113,055) Prepaid expenses and other assets 129,506 (117,710) Due (to) from Foundation (78,000) 78,000 Increase (decrease) in current liabilities: Accounts payable 74,026 (33,196) Note payable 200,000 (100,000) Salaries, wages and related 83,502 (117,950) liabilities payable Unavailable revenue (7,850) 5,584 Total adjustments $ 1,378,573 $ 462,868 $ 861 $ 79,154 NET CASH USED IN OPERATING ACTIVITIES $ (6,898,031) $ (7,697,817) $ (163,598) $ (81,187) Supplemental schedule of noncash capital and related financing activities: Capital lease obligation to purchase equipment $ 404,018 $ (89,352) Early Retirement Incentives and Other Postemployment Benefits accrued $ 79,174 $ 5,985 The accompanying notes are an integral part of the financial statements. 21

22 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

23 NOTES TO FINANCIAL STATEMENTS COMMUNITY COLLEGE DISTRICT OF GOGEBIC COUNTY June 30, 2013 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. 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. 23

24 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. Impairment of Long-lived Assets - Management reviews long-lived assets held and used by the College for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. 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 expenses. 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. 24

25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position and balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until then. The College has no items that qualify for reporting in this category. In addition to liabilities, the statement of financial 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 future periods and so will not be recognized as an inflow of resources (revenue) until that time. The College reports unavailable revenue from federal and state grants. These amounts are unavailable and recognized as an inflow of resources in the period that the amounts become available. 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 Position Net position is restricted when there are constraints on their use by external parties or by statute. The Foundation s restricted position consists mainly of endowed funds with the use of the income restricted for student scholarships by the benefactors. Restricted resources are utilized first to finance qualifying activities. Unrestricted Net Position Net position not meeting either criteria above are considered unrestricted. 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. 25

26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 $ 1,673,027 $ 711,775 $ 3,985 $ 17,311 Investments: Certificates of deposit 111, ,409 Mutual Funds 3,139,413 2,354,512 $ 1,785,022 $ 823,184 $ 3,143,398 $ 2,371,823 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 optimize 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. 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, 2013 and June 30, Deposits in banks insured by federal depository insurance: Insured $ 315,638 $ 356,962 Uncollateralized amounts exceeding insurance limits and uninsured money market funds 1,613, ,666 $ 1,929,047 $ 1,182,628 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. 26

27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE B CASH, CASH EQUIVALENTS AND INVESTMENTS (CONTINUED) 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 are stated at the market value in the statement of net position and the mutual funds, considered Category I type investments, are valued at quoted market prices. 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, 2013: Auxiliary General Designated Enterprise Restricted Plant Fund Fund Fund Fund Fund Total State of Michigan $ 3,508 $ 35,016 $ 16,671 $ 55,195 Federal government 9, , ,693 Other local units 30,040 30,040 Students 214, ,746 Sundry 170,531 20,406 2, ,493 TOTALS $ 428,091 $ 0 $ 55,422 $ 134,654 $ 0 $ 618,167 27

28 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE D CAPITAL ASSETS Capital asset balances and activity for the year ended June 30, 2013, were as follows: Balance Balance July 1, 2012 Additions Disposals June 30, 2013 Land $ 95,968 $ 95,968 Land improvements 1,346,018 1,346,018 Buildings 16,589,166 $ 19,769 16,608,935 Equipment 6,133, ,728 $ 17,920 6,430,553 $ 24,164,897 $ 334,497 $ 17,920 $ 24,481,474 Accumulated depreciation: Land improvements $ 963,432 $ 93,590 $ 1,057,022 Buildings 6,904, ,905 7,232,155 Equipment 4,265, ,155 $ 17,920 4,586,478 $ 12,132,925 $ 760,650 $ 17,920 $ 12,875,655 Construction in progress 614, ,547 $ 12,031,972 $ 188,394 $ 0 $ 12,220,366 Depreciation expense was not allocable to specific functions. Construction in progress consists of two projects. One project is major renovation to the Kleimola Tech Building. This project was started during the year ended June 30, 2013 and will cost $1,460,000. At June 30, 2013, costs incurred were $574,243, including capitalized interest of $6,728. On January 8, 2013, the College issued $835,000 of bonds to finance this project. See Note E for details on this 2013 bond issue. The balance of the project will be funded through state grants. This project was completed in August The other project in progress at June 30, 2013, is a pole building. This building will cost $68,413. At June 30, 2013, costs incurred were $40,304. This building was completed in August 2013 and was funded internally. 28

29 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT The short-term state aid anticipation note payable is recorded in the General Fund and activity for the year ended June 30, 2013, was as follows: Balance Balance at July 1, at June 30, 2012 Additions Deductions 2013 River Valley Bank, due August 9, 2012, with interest at 2.34% $ 650,000 $ 650,000 Merit Bank, due August 9, 2013, with interest at.98% $ 850,000 $ 850,000 Changes in long-term debt are summarized as follows: $ 650,000 $ 850,000 $ 650,000 $ 850,000 Balance Balance July 1, June 30, Current 2012 Additions Reductions 2013 Portion 2013 Community College Facility Bonds $ 835,000 $ 835,000 $ 65,000 Community College Facilities Bonds, Series 2006 $ 2,292,428 $ 100,905 2,191, ,015 Capital Leases Payable 157,211 20, ,262 24,555 Energy Conservation Installment Purchase Agreement 836, , , ,606 Deferred Compensation Payable 96,000 75,000 60, ,333 53,000 Other Postemployment Benefits See Note H 74,801 37,791 33,617 78,975 24,494 $ 3,457,291 $ 947,791 $ 320,744 $ 4,084,338 $ 377,670 29

30 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) The aggregate amounts of long-term debt principal and interest maturities for the five years ending June 30, 2018, and five year totals to maturity, are: Year ending June 30, Principal Interest Total 2014 $ 377,670 $ 169,549 $ 547, , , , , , , , , , , , , ,445, ,897 1,794, , , , Community College Facility Bonds $ 4,084,338 $ 1,136,156 $ 5,220,494 On December 18, 2012, the College passed a resolution to issue $835,000 of 2013 Community College Facility Bonds for the purpose of remodeling, equipping and re-equipping and furnishing and refurnishing a college facility. The Bonds are dated January 8, 2013, mature November 1, 2022, and bear interest rates of 1.70% to 2.60%. The bonds are payable on each November 1 and interest is payable on each May 1 and each November 1. A summary of the annual principal and interest requirements until maturity follows: Year ending June 30, Principal Interest Total 2014 $ 65,000 $ 18,122 $ 83, ,000 13,235 83, ,000 12,626 87, ,000 11,756 86, ,000 10,717 90, ,000 9,413 94, ,000 7,847 97, ,000 5, , ,000 3, , ,000 1, ,311 $ 835,000 $ 94,736 $ 929,736 30

31 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 discount 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 2014 $ 106,015 $ 106,097 $ 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, , ,539 1, ,053 $ 2,191,523 $ 884,098 $ 3,075,621 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 a redemption price of 100%. 31

32 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E CURRENT NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) Capital Leases Payable On June 30, 2013, 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. These assets and the related liabilities are recorded in the Plant Fund. Data relative to these capital leases at June 30, 2013, 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, 2014 $ 4,211 $ 30,000 June 30, ,211 40,000 June 30, ,210 76,500 Future net minimum payments $ 12,632 $ 146,500 Less amount for interest 2,325 20,545 Present value of future net minimum payments $ 10,307 $ 125,955 32

33 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 2014 $ 104,606 $ 35,674 $ 140, ,606 30, , ,606 24, , ,607 19, , ,607 13, , ,607 8, , ,606 2, ,329 $ 732,245 $ 134,452 $ 866,697 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 $3,333 to $10,667 each year with total payments of $10,000 to $32,000. Following is a summary of future required payments: Amount Cash payments during year ending: June 30, 2014 $ 53,000 June 30, ,667 June 30, ,666 $ 110,333 33