STATE OF NORTH CAROLINA

Transcription

1 STATE OF NORTH CAROLINA WESTERN PIEDMONT COMMUNITY COLLEGE MORGANTON, NORTH CAROLINA FINANCIAL STATEMENT AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2010 OFFICE OF THE STATE AUDITOR BETH A. WOOD, CPA STATE AUDITOR

2 WESTERN PIEDMONT COMMUNITY COLLEGE MORGANTON, NORTH CAROLINA FINANCIAL STATEMENT AUDIT REPORT FOR THE YEAR ENDED JUNE 30, 2010 STATE BOARD OF COMMUNITY COLLEGES THE NORTH CAROLINA COMMUNITY COLLEGE SYSTEM DR. R. SCOTT RALLS, PRESIDENT BOARD OF TRUSTEES ROBERT L. CALDWELL, CHAIRMAN ADMINISTRATIVE OFFICERS DR. JIM W. BURNETT, PRESIDENT C. MALONE MCNEELY, EXECUTIVE VICE PRESIDENT & CHIEF FINANCIAL OFFICER

3 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) Internet AUDITOR S TRANSMITTAL The Honorable Beverly E. Perdue, Governor The General Assembly of North Carolina Board of Trustees, Western Piedmont Community College We have completed a financial statement audit of Western Piedmont Community College for the year ended June 30, 2010, and our audit results are included in this report. You will note from the independent auditor s report that we determined that the financial statements are presented fairly in all material respects. Our consideration of internal control over financial reporting and compliance and other matters based on an audit of the financial statements disclosed certain deficiencies and/or instances of noncompliance that are detailed in the Audit Findings and Responses section of this report. The College s response is included following the finding. North Carolina General Statutes require the State Auditor to make audit reports available to the public. Copies of audit reports issued by the Office of the State Auditor may be obtained through one of the options listed in the back of this report. Beth A. Wood, CPA State Auditor

4 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR S REPORT...1 MANAGEMENT S DISCUSSION AND ANALYSIS...3 BASIC FINANCIAL STATEMENTS College Exhibits A-1 Statement of Net Assets...9 A-2 Statement of Revenues, Expenses, and Changes in Net Assets...10 A-3 Statement of Cash Flows...11 Component Unit Exhibits B-1 Statement of Financial Position...13 B-2 Statement of Activities...14 Notes to the Financial Statements...15 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...33 AUDIT FINDINGS AND RESPONSES...35 ORDERING INFORMATION...37

5 STATE OF NORTH CAROLINA Office of the State Auditor Beth A. Wood, CPA State Auditor 2 S. Salisbury Street Mail Service Center Raleigh, NC Telephone: (919) Fax: (919) Internet INDEPENDENT AUDITOR S REPORT Board of Trustees Western Piedmont Community College Morganton, North Carolina We have audited the accompanying financial statements of Western Piedmont Community College, a component unit of the State of North Carolina, and its discretely presented component unit, as of and for the year ended June 30, 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 College s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of Western Piedmont Foundation, Inc., the College s discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinions, insofar as they relates to the amounts included for that entity, are based on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of Western Piedmont Foundation, Inc. were not audited in accordance with Government Auditing Standards. 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 and the report of other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of Western Piedmont Community College and its discretely presented component unit as of June 30, 2010, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 15 to the financial statements, the College implemented Governmental Accounting Standards Board Statement No. 51, Accounting and Financial Reporting for Intangible Assets during the year ended June 30,

6 INDEPENDENT AUDITOR S REPORT (CONCLUDED) In accordance with Government Auditing Standards, we have also issued our report dated May 11, 2011 on our consideration of the College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, 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. The Management s Discussion and Analysis, as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Beth A. Wood, CPA State Auditor May 11,

7 WESTERN PIEDMONT COMMUNITY COLLEGE MANAGEMENT S DISCUSSION AND ANALYSIS This section of Western Piedmont Community College s annual financial report presents management s discussion and analysis of the College s financial activity for the fiscal year ended June 30, The discussion should be read in conjunction with the financial statements and notes to the financial statements of the College. The financial statements, notes to the financial statements, and this discussion are the responsibility of management. Using the Annual Report This report consists of financial statements prepared in accordance with the Governmental Accounting Standards Board Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis - for Public Colleges and Universities. The statement format presents financial information in a form similar to that used by corporations. The statements are prepared under the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recorded when an obligation has been incurred. The full scope of the College s activities is considered to be a single business-type activity and is reported in a single column on the statements. Three basic financial statements are included in this report along with the required supplementary information: Statement of Net Assets; Statement of Revenues, Expenses and Changes in Net Assets; and the Statement of Cash Flows. Statement of Net Assets includes all assets and liabilities. This statement combines current financial resources and capital assets. Statement of Revenues, Expenses, and Changes in Net Assets presents the revenues earned and the expenses incurred during the year. Activities are reported as operating or nonoperating. The financial reporting model classifies State and County appropriations as nonoperating revenue. Because the College receives the majority of its funding from appropriations, this classification of appropriations results in an operating loss on the statements. Depreciation is recognized and is presented as an operating expense. The College s net assets (the difference between assets and liabilities) are one indicator of the financial well being of the College. Nonfinancial factors must also be analyzed to determine the complete picture of the College s condition. Enrollment levels and the age and condition of its buildings are examples of non-financial factors that have an impact on the College s condition. Statement of Cash Flows presents an analysis of cash receipts and cash payments during the period. It shows the College s ability to meet financial obligations as they mature. The information is summarized by the different types of activities: operating, noncapital financing, capital and related financing and investing activities. 3

8 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Analysis of Financial Position and Results of Operations Condensed Statement of Net Assets FY FY Increase / (Decrease) Change Assets Current Assets $ 4,719, $ 3,928, $ 791, % Noncurrent Assets: Capital Assets - Nondepreciable 907, ,226, (318,483.36) -26% Capital Assets - Depreciable 13,216, ,116, ,099, % Other Noncurrent Assets 811, ,678, (866,889.05) -52% Total Assets 19,654, ,949, , % Liabilities Current Liabilities 931, , , % Noncurrent Liabilities: Long-Term Liabilities 570, , , % Other Noncurrent Liabilities 31, , (2,365.75) -7% Total Liabilities 1,533, ,142, , % Net Assets Invested in Capital Assets 14,123, ,342, , % Restricted: Nonexpendable 59, , % Expendable 1,030, ,823, (792,728.98) -43% Unrestricted 2,907, ,581, , % Total Net Assets $ 18,121, $ 17,807, $ 314, % Assets and Liabilities The assets of the College are divided between current and noncurrent assets. Current assets include cash and cash equivalents, receivables, inventories and notes receivable for student loans. Noncurrent assets consist of cash, receivables, investments and capital assets (land, construction in progress, buildings, infrastructure, and equipment). The College s capital assets are stated at historical cost less depreciation. A purchase is recorded as a capital asset if the item costs $5,000 or more and has a useful life of more than one year. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 100 years for infrastructure, 10 to 100 years for buildings, and 2 to 30 years for equipment. Current assets on June 30, 2010 had an increase of $791, Cash and cash equivalents increased by $466, as of June 30, 2010 which includes cash with the State Treasurer s Short-Term Investment. This increase is attributed to an increase in enrollment which generated sales increases for the Bookstore. Inventory for materials and supplies also increased $206, due to the addition of the Foothills Higher Education Center. Receivables increased $39, due to economic restraints on our students and increased R2T4 (Return to Title IV) calculations. Noncurrent assets decreased from $15,021, to $14,935, for the 2010 fiscal year due to decreases in other investments, restricted state aid, and nondepreciable capital assets. 4

9 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) However, the Foothills Higher Education Center and the Emergency Services Training Center were asset additions for the 2010 fiscal year which primarily attributed to the increase in depreciable capital assets by $1,099, The College s liabilities are divided between current liabilities payable within 12 months and noncurrent liabilities that extend beyond a year. Current liabilities increased due to an increase in Accounts Payable and Accrued Liabilities. Accrued accounts payable increased over the previous year due to a few more invoices, higher amounts, and the addition of utilities for the Foothills Higher Education Center. Also, accrued salaries increased due to the increase in part-time faculty for our Foothills Higher Education Center and additional full-time faculty spreading their annual contract over 12 months. Noncurrent liabilities include compensated absences that will not be paid within the next fiscal year and Funds Held for Others which represents cash held in the College s bank account for students and clubs. Net Assets Net assets are a measure of the value of all the College s assets less liabilities. The College s net assets increased $314, for a year end total of $18,121, The increase of net assets is primarily due to the increases in investment in capital assets and unrestricted assets. Investment in capital assets increased due to the need for capital purchases of equipment due to the enrollment growth and unrestricted assets increased because of the increase in fees, tuition, and bookstore sales related to the enrollment growth also. Capital projects decreased $846, which is attributable to the completion of Foothills Higher Education Center and the Emergency Services Training Center. 5

10 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Condensed Statement of Revenues, Expenses, and Changes in Net Assets Increase / FY FY (Decrease) Change Operating Revenues Student Tuition and Fees, Net $ 1,683, $ 1,328, $ 355, % Sales and Services, Net 982, , (3,737.50) 0% Other Operating Revenues 41, , , % Total Operating Revenues 2,708, ,348, , % Operating Expenses Salaries and Benefits 16,895, ,377, , % Supplies and Materials 4,245, ,889, , % Services 1,139, ,144, (5,018.60) 0% Scholarships and Fellowships 6,934, ,031, ,902, % Utilities 480, , , % Depreciation 551, , (32,119.64) -6% Total Operating Expenses 30,246, ,459, ,786, % Operating Loss (27,537,241.86) (24,110,795.65) (3,426,446.21) -14% Nonoperating Revenues State Aid 12,199, ,207, (1,008,536.11) -8% County Appropriations 2,115, ,850, , % Noncapital Grants and Gifts 11,684, ,227, ,456, % Other Nonoperating Revenues (Expenses) 103, (202,043.16) 305, % Net Nonoperating Revenues 26,102, ,083, ,018, % Loss Before Other Revenues (1,434,851.38) (2,026,958.35) 592, % Capital Contributions 1,749, ,653, , % Increase\ (Decrease) in Net Assets 314, (373,232.97) 687, % Net Assets Beginning of Year 17,807, ,180, (373,232.97) -2% Net Assets End of Year $ 18,121, $ 17,807, $ 314, % Revenues and Expenses Operating Revenues The College s revenues are classified as operating, nonoperating revenues and capital contributions. Total revenues increased from $26,085, to $30,560, for 2010 fiscal year, an increase of $4,474, The largest increase was in student financial aid assistance from federal and state grants of $4,456, due to increased enrollment and the amount awarded to students. There were restraints on the state budget therefore; the state aid and state capital aid decreased $1,047, Operating revenues experienced an increase of $360, due primarily to Student Tuition and Fees revenue. The student enrollment (Full Time Equivalent) increased by 14.7%. The bookstore operations had an increase in fund balance for the year of $215,

11 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTINUED) Operating Expenses The majority of operating expenses are for salaries and fringe benefits. Other expenses are for operating activities, which are necessary and essential to the mission of the College. The depreciation expense is recognized in accordance with GASB Statements No. 34/35. Operating expenses showed a net increase of $3,786, for the 2010 fiscal year. Salaries and benefits increased by $517, due to increase in medical insurance premiums and retirement rate as well as an increased number of retirees. Supplies and materials, and scholarships and fellowships increased by $356, and $2,902, respectively due to increased enrollment. Services and depreciation had a slight decrease of $37, Utilities increased $47, mostly due to the operation of the new Foothills Higher Education Center. Nonoperating Revenues Nonoperating revenues comprise the major portion of the College s income and include appropriations from state and local governments, noncapital grants and gifts, and investment income. State Aid consists of amounts allotted from the North Carolina State Board of Community Colleges to the College for operations. State Aid decreased by $1,008, due to budget constraints on State funds across the state. Spending restrictions were not enforced but highly recommended to conserve as much state funds as possible. Noncapital Grants consists of revenue from the Federal Title IV student financial aid and various state student financial aid programs. The Pell grant program is the largest and accounts for $9,184, of the Noncapital Grants and Contracts. The increase in Noncapital Grants is due to the increase in the amount awarded to students and the increase in enrollment. Investment income experienced an increase due to the Ruth Mull investments. Capital Contributions Capital contributions consist of state and local appropriations for equipment, construction, building improvements and infrastructure. The federal portion of the State Capital Aid is classified as capital grants. Capital Asset Activity Western Piedmont Community College s capital assets as of June 30, 2010 amount to $14,123, During the 2010 fiscal year, Foothills Higher Education Center and Emergency Services Training Center were completed. During the 2011 fiscal year capital projects planned include renovation of a chemistry lab and various other small renovations throughout the campus. Burke County Board of Commissioners is funding the majority of a tiered parking lot which is expected to be completed in the 2011 fiscal year. Analysis of Financial Position For the year ended June 30, 2010, the College had an increase in cash and cash equivalents of $466,191.77, representing a 15.21% increase as compared to the June 30, 2009 balance. Net Assets increased by $314, reflecting a 2% increase from net assets as of June 30, Construction of the Foothills Higher Education Center which started in the 7

12 MANAGEMENT S DISCUSSION AND ANALYSIS (CONCLUDED) 2009 fiscal year was completed in the 2010 fiscal year. The Emergency Service Training Center was also completed in 2010 fiscal year. Management concludes that while the current recession has affected the College, the financial position of Western Piedmont Community College is still strong. The College will continue its mission to provide accessible, high-quality education that improves lives and promotes growth in our community. Economic Factors and Next Year s Budget The State of North Carolina has experienced a revenue shortfall during the past several years and expects fiscal year to be much the same, if not worse. During this recession the Community College System as a whole and Western Piedmont specifically has experienced record enrollment growth. So while we have not had drastic cuts like many state agencies, we have not been able to fully fund our growth needs. The College continues to work hard to ensure that budget shortfalls will not impact the quality of its educational products. The primary funding for College operations is based upon budget FTE (Full Time Equivalent). The formula budget is based on the Curriculum, Occupational Extension and Basic Skills FTE. The FTE used for budget allocation will be either the prior year s FTE or the average of the past three years, whichever is greater. The following tables illustrate the FTE trend for budget allocation over the past several years for the College. This trend shows the strong enrollment growth we have experienced. The prison FTE was only funded at 68% of what was earned which contributed to the decrease in Occupational Extension. CURRICULUM FTE Reporting Year Actual FTE 3 Year Average Actual Budget FTE CONTINUING EDUCATION FTE OCCUPTIONAL EXTENSION BASIC SKILLS Reporting Year Budget FTE Budget FTE

13 Western Piedmont Community College Statement of Net Assets June 30, 2010 Exhibit A-1 ASSETS Current Assets: Cash and Cash Equivalents $ 3,531, Restricted Cash and Cash Equivalents 322, Receivables, Net (Note 4) 405, Inventories 459, Notes Receivable, Net (Note 4) Total Current Assets 4,719, Noncurrent Assets: Restricted Cash and Cash Equivalents 124, Restricted Due from Primary Government 73, Other Investments 613, Capital Assets - Nondepreciable (Note 5) 907, Capital Assets - Depreciable, Net (Note 5) 13,216, Total Noncurrent Assets 14,935, Total Assets 19,654, LIABILITIES Current Liabilities: Accounts Payable and Accrued Liabilities (Note 6) 540, Due to Primary Government 8, Unearned Revenue 299, Long-Term Liabilities - Current Portion (Note 7) 82, Total Current Liabilities 931, Noncurrent Liabilities: Funds Held for Others 31, Long-Term Liabilities (Note 7) 570, Total Noncurrent Liabilities 601, Total Liabilities 1,533, NET ASSETS Invested in Capital Assets 14,123, Restricted for: Nonexpendable: Scholarships and Fellowships 59, Expendable: Scholarships and Fellowships 896, Loans 7, Capital Projects 80, Other 45, Unrestricted 2,907, Total Net Assets $ 18,121, The accompanying notes to the financial statements are an integral part of this statement 9

14 Western Piedmont Community College Statement of Revenues, Expenses, and Changes in Net Assets For the Fiscal Year Ended June 30, 2010 Exhibit A-2 REVENUES Operating Revenues: Student Tuition and Fees, Net (Note 9) $ 1,683, Sales and Services, Net (Note 9) 982, Other Operating Revenues 41, Total Operating Revenues 2,708, EXPENSES Operating Expenses: Salaries and Benefits 16,895, Supplies and Materials 4,245, Services 1,139, Scholarships and Fellowships 6,934, Utilities 480, Depreciation 551, Total Operating Expenses 30,246, Operating Loss (27,537,241.86) NONOPERATING REVENUES (EXPENSES) State Aid 12,199, County Appropriations 2,115, Noncapital Grants - Student Financial Aid 10,667, Noncapital Grants 936, Noncapital Gifts 80, Investment Income 132, Other Nonoperating Expenses (28,778.82) Net Nonoperating Revenues 26,102, Loss Before Other Revenues (1,434,851.38) State Capital Aid 1,560, County Capital Aid 122, Capital Grants 59, Capital Gifts 7, Increase in Net Assets 314, NET ASSETS Net Assets, July 1, ,807, Net Assets, June 30, 2010 $ 18,121, The accompanying notes to the financial statements are an integral part of this statement. 10

15 Western Piedmont Community College Statement of Cash Flows For the Fiscal Year Ended June 30, 2010 Exhibit A-3 CASH FLOWS FROM OPERATING ACTIVITIES Received from Customers $ 2,696, Payments to Employees and Fringe Benefits (16,578,451.10) Payments to Vendors and Suppliers (6,046,089.27) Payments for Scholarships and Fellowships (6,934,395.97) Loans Issued to Students (18,107.70) Collection of Loans to Students 19, Other Payments (2,486.29) Net Cash Used by Operating Activities (26,863,497.13) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Aid Received 12,199, County Appropriations 2,115, Noncapital Grants - Student Financial Aid 10,697, Noncapital Grants Received 929, Noncapital Gifts 80, Cash Provided by Noncapital Financing Activities 26,021, CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES State Capital Aid Received 2,391, County Capital Aid 122, Capital Grants Received 59, Capital Gifts Received 7, Proceeds from Sale of Capital Assets Acquisition and Construction of Capital Assets (1,361,061.92) Net Cash Provided by Capital and Related Financing Activities 1,219, CASH FLOWS FROM INVESTING ACTIVITIES Loss from Sales and Maturities of Investments (3.44) Investment Income 168, Net Cash Provided by Investing Activities 168, Net Increase in Cash and Cash Equivalents 545, Cash and Cash Equivalents, July 1, ,433, Cash and Cash Equivalents, June 30, 2010 $ 3,978,

16 Western Piedmont Community College Statement of Cash Flows Exhibit A-3 For the Fiscal Year Ended June 30, 2010 Page 2 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss $ (27,537,241.86) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation 551, Provision for Uncollectible Loans and Write-Offs (877.42) Miscellaneous Nonoperating Expense (120.54) Changes in Assets and Liabilities: Receivables, Net (63,013.73) Inventories (206,479.90) Notes Receivable, Net 1, Accounts Payable and Accrued Liabilities 281, Due to Primary Government 6, Unearned Revenue 50, Funds Held for Others (2,365.75) Compensated Absences 55, Net Cash Used by Operating Activities $ (26,863,497.13) RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets: Cash and Cash Equivalents $ 3,531, Restricted Cash and Cash Equivalents 322, Noncurrent Assets: Restricted Cash and Cash Equivalents 124, Total Cash and Cash Equivalents - June 30, 2010 $ 3,978, NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES Assets Acquired through Assumption of a Liability $ 4, Change in Fair Value of Investments (35,706.49) The accompanying notes to the financial statements are an integral part of this statement. 12

17 Western Piedmont Foundation, Inc. Statement of Financial Position June 30, 2010 Exhibit B-1 ASSETS Cash and Cash Equivalents $ 1,512,779 Student Loans Receivable 3,188 Marketable Securities 507,086 Total Assets 2,023,054 NET ASSETS Unrestricted 29,241 Temporarily Restricted 216,706 Permanently Restricted 1,777,107 Total Net Assets $ 2,023,054 The accompanying notes to the financial statements are an integral part of this statement. 13

18 Western Piedmont Foundation, Inc. Statement of Activities For the Fiscal Year Ended June 30, 2010 Exhibit B-2 TEMPORARILY RESTRICTED PERMANENTLY RESTRICTED UNRESTRICTED TOTAL SUPPORT AND REVENUE Donations $ 2,879 $ 140,022 $ 15,500 $ 158,401 Investment Return (3,395) 47,520 2,930 47,055 Program Grants Golf Tournament Revenue 13,245 13,245 Net Assets Released from Restrictions: Satisfaction of Program Restrictions 107,857 (107,857) Total Support and Revenue 107,341 93,751 18, ,523 EXPENSES Program Services: Instructional Awards 2,000 2,000 Institutional Development Grants 4,063 4,063 Scholarship Awards 90,064 90,064 Fund Raising Expenses: General Fund Raising Expense Golf Tournament Expense 8,118 8,118 Management and General: Professional Fees 6,000 6,000 Other Expense 34,494 34,494 Total Expenses 144, ,773 Change in Net Assets (37,433) 93,751 18,430 74,750 NET ASSETS Net Assets, Beginning of Year 27, ,545 1,696,525 1,948,306 Transfers In (Out) 39,438 (101,590) 62,152 Net Assets, End of Year $ 29,241 $ 216,706 $ 1,777,107 $ 2,023,054 The accompanying notes to the financial statements are an integral part of this statement. 14

19 WESTERN PIEDMONT COMMUNITY COLLEGE NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity - The concept underlying the definition of the financial reporting entity is that elected officials are accountable to their constituents for their actions. As required by accounting principles generally accepted in the United States of America (GAAP), the financial reporting entity includes both the primary government and all of its component units. An organization other than a primary government serves as a nucleus for a reporting entity when it issues separate financial statements. Western Piedmont Community College is a component unit of the State of North Carolina and an integral part of the State s Comprehensive Annual Financial Report. The accompanying financial statements present all funds of the College and its component unit for which the College s Board of Trustees is financially accountable. The College s component unit is discretely presented in the College s financial statements. The discretely presented component unit s financial data is reported in separate financial statements because of its use of different GAAP reporting models and to emphasize its legal separateness. Discretely Presented Component Unit - Western Piedmont Foundation, Inc. is a legally separate not-for-profit corporation and is reported as a discretely presented component unit based on the nature and significance of its relationship to the College. The Foundation acts primarily as a fundraising organization to supplement the resources that are available to the College in support of its programs. The Foundation board consists of 20 members. Although the College does not control the timing or amount of receipts from the Foundation, the majority of resources or income thereon that the Foundation holds and invests are restricted to the activities of the College by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of the College, the Foundation is considered a component unit of the College and is reported in separate financial statements because of the difference in its reporting model, as described below. Western Piedmont Foundation, Inc. is a private not-for-profit organization that reports its financial results under Financial Accounting Standards Board (FASB) Statements. As such, certain revenue recognition criteria and presentation features are different from the Governmental Accounting Standards Board (GASB) revenue recognition criteria and presentation 15

20 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) features. No modifications have been made to the Foundation s financial information in the College s financial reporting entity for these differences. During the year ended June 30, 2010, the Foundation distributed $120, to the College for both restricted and unrestricted purposes. Complete financial statements for the Foundation can be obtained from Lowdermilk Church and Co., L.L.P., located in Morganton, North Carolina. B. Basis of Presentation - The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board (GASB). Pursuant to the provisions of GASB Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments, as amended by GASB Statement No. 35, Basic Financial Statements - and Management s Discussion and Analysis - for Public Colleges and Universities, the full scope of the College s activities is considered to be a single business-type activity and accordingly, is reported within a single column in the basic financial statements. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the College does not apply Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless the GASB amends its pronouncements to specifically adopt FASB pronouncements issued after that date. C. Basis of Accounting - The financial statements of the College have been prepared using the economic resource measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred, regardless of the timing of the cash flows. Nonexchange transactions, in which the College receives (or gives) value without directly giving (or receiving) equal value in exchange includes State appropriations, certain grants, and donations. Revenues are recognized, net of estimated uncollectible amounts, as soon as all eligibility requirements imposed by the provider have been met, if probable of collection. D. Cash and Cash Equivalents - This classification includes undeposited receipts, petty cash, cash on deposit with private bank accounts, money market accounts, and deposits held by the State Treasurer in the short-term investment fund. The short-term investment fund maintained by the State 16

21 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) State Treasurer has the general characteristics of a demand deposit account in that participants may deposit and withdraw cash at any time without prior notice or penalty. E. Investments - Investments generally are reported at fair value, as determined by quoted market prices or estimated amounts determined by management if quoted market prices are not available. Because of the inherent uncertainty in the use of estimates, values that are based on estimates may differ from the values that would have been used had a ready market existed for the investments. The net increase (decrease) in the fair value of investments is recognized as a component of investment income. F. Receivables - Receivables consist of tuition and fees charged to students and charges for auxiliary enterprises sales and services. Receivables also include amounts due from the federal government, State and local governments, private sources in connection with reimbursement of allowable expenditures made pursuant to contracts and grants. Receivables are recorded net of estimated uncollectible amounts. G. Inventories - Inventories, consisting of expendable supplies, are valued at cost using the first-in, first-out, method. Merchandise for resale is valued at the lower of cost or market using the retail inventory method. H. Capital Assets - Capital assets are stated at cost at date of acquisition or fair value at date of donation in the case of gifts. The value of assets constructed includes all material direct and indirect construction costs. Interest costs incurred are capitalized during the period of construction. The College capitalizes assets that have a value or cost of $5,000 or greater at the date of acquisition and an estimated useful life of more than one year. Library books are generally not considered to have a useful life of more than one year unless part of a collection and are expensed in the year of acquisition. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 10 to 100 years for general infrastructure, 10 to 100 years for buildings, and 2 to 30 years for equipment. The Senator Sam J. Ervin Library and Museum collection is capitalized at fair value at the date of donation. This collection is considered inexhaustible and is therefore not depreciated. I. Restricted Assets - Certain resources are reported as restricted assets because restrictions on asset use change the nature or normal understanding of the availability of the asset. Resources that are not available for current operations and are reported as restricted include resources restricted or designated for the acquisition or construction of 17

22 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) capital assets and resources whose use is limited by external parties or statute. J. Noncurrent Long-Term Liabilities - Noncurrent long-term liabilities include compensated absences that will not be paid within the next fiscal year. K. Compensated Absences - The College s policy is to record the cost of vacation leave when earned. The policy provides for a maximum accumulation of unused vacation leave of 30 days which can be carried forward each September 1 or for which an employee can be paid upon termination of employment. When classifying compensated absences into current and noncurrent, leave is considered taken using a last-in, first-out (LIFO) method. Also, any accumulated vacation leave in excess of 30 days at year-end is converted to sick leave. Under this policy, the accumulated vacation leave for each employee at June 30 equals the leave carried forward at the previous August 31 plus the leave earned, less the leave taken between September 1 and June 30. In addition to the vacation leave described above, compensated absences include the accumulated unused portion of the special annual leave bonuses awarded by the North Carolina General Assembly. The bonus leave balance is retained by employees and transferred into the next fiscal year. It is not subject to the limitation on annual leave carried forward described above and is not subject to conversion to sick leave. There is no liability for unpaid accumulated sick leave because the College has no obligation to pay sick leave upon termination or retirement. However, additional service credit for retirement pension benefits is given for accumulated sick leave upon retirement. L. Net Assets - The College s net assets are classified as follows: Invested in Capital Assets - This represents the College s total investment in capital assets. Restricted Net Assets - Nonexpendable - Nonexpendable restricted net assets include endowments and similar type assets whose use is limited by donors or other outside sources, and, as a condition of the gift, the principal is to be maintained in perpetuity. Restricted Net Assets - Expendable - Expendable restricted net assets include resources for which the College is legally or contractually obligated to spend in accordance with restrictions imposed by external parties. 18

23 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Unrestricted Net Assets - Unrestricted net assets include resources derived from student tuition and fees, sales and services, unrestricted gifts, and interest income. Restricted and unrestricted resources are tracked using a fund accounting system and are spent in accordance with established fund authorities. Fund authorities provide rules for the fund activity and are separately established for restricted and unrestricted activities. When both restricted and unrestricted funds are available for expenditure, the decision for funding is transactional based within the departmental management system in place at the College. M. Scholarship Discounts - Student tuition and fees revenues and certain other revenues from College charges are reported net of scholarship discounts in the accompanying Statement of Revenues, Expenses, and Changes in Net Assets. The scholarship discount is the difference between the actual charge for goods and services provided by the College and the amount that is paid by students or by third parties on the students behalf. Student financial assistance grants, such as Pell grants, and other federal, State, or nongovernmental programs, are recorded as either operating or nonoperating revenues in the accompanying Statement of Revenues, Expenses, and Changes in Net Assets. To the extent that revenues from these programs are used to satisfy tuition, fees, and other charges, the College has recorded a scholarship discount. N. Revenue and Expense Recognition - The College classifies its revenues and expenses as operating or nonoperating in the accompanying Statement of Revenues, Expenses, and Changes in Net Assets. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the College s principal ongoing operations. Operating revenues include activities that have characteristics of exchange transactions, such as (1) student tuition and fees, (2) sales and services of auxiliary enterprises, and (3) certain federal, State, and local grants and contracts. Operating expenses are all expense transactions incurred other than those related to capital and noncapital financing or investing activities as defined by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. Nonoperating revenues include activities that have the characteristics of nonexchange transactions. Revenues from nonexchange transactions and State aid that represent subsidies or gifts to the College, as well as investment income, are considered nonoperating since these are either investing, capital, or noncapital financing activities. Capital contributions are presented separately after nonoperating revenues and expenses. 19

24 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) O. Internal Sales Activities - Certain institutional auxiliary operations provide goods and services to College departments, as well as to its customers. These institutional auxiliary operations include activities such as the College bookstore. In addition, the College has other miscellaneous sales and service units that operated either on a reimbursement or charge basis. All internal sales activities to College departments from auxiliary operations and sales and service units have been eliminated in the accompanying financial statements. These eliminations are recorded by removing the revenue and expense in the auxiliary operations and sales and service units and, if significant, allocating any residual balances to those departments receiving the goods and services during the year. P. County Appropriations - County appropriations are provided to the College primarily to fund its plant operation and maintenance function and to fund construction projects, motor vehicle purchases, and maintenance of equipment. Unexpended county current appropriation and county capital appropriation do not revert and are available for future use as approved by the county commissioners. NOTE 2 - DEPOSITS AND INVESTMENTS A. Deposits - All funds of the College are deposited in board-designated official depositories and are required to be collateralized in accordance with North Carolina General Statute 115D Official depositories may be established with any bank or savings and loan association whose principal office is located in North Carolina. Also, the College may establish time deposit accounts, money market accounts, and certificates of deposit. The amount shown on the Statement of Net Assets as cash and cash equivalents includes cash on hand totaling $2,600.00, and deposits in private financial institutions with a carrying value of $693,248.99, and a bank balance of $968, The North Carolina Administrative Code (20 NCAC 7) requires all depositories to collateralize public deposits in excess of federal depository insurance coverage by using one of two methods, dedicated or pooled. Under the dedicated method, a separate escrow account is established by each depository in the name of each local governmental unit and the responsibility of monitoring collateralization rests with the local unit. Under the pooling method, each depository establishes an escrow account in the name of the State Treasurer to secure all of its public deposits. This method shifts the monitoring responsibility from the local unit to the State Treasurer. 20

25 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) Custodial credit risk is the risk that in the event of a bank failure, the College s deposits may not be returned to it. As of June 30, 2010, the College s bank balance in excess of federal depository insurance coverage was covered under the pooling method. B. Investments - In addition to donated securities held by the College, the College is authorized to invest idle funds as provided by G.S. 115D In accordance with this statute, the College and the Board of Trustees manage investments to ensure they can be converted into cash when needed. Generally, funds belonging to the College may be invested in the form of investments pursuant to G.S (c), as follows: a commingled investment pool established and administered by the State Treasurer pursuant to G.S (STIF); obligations of or fully guaranteed by the United States; obligations of the State of North Carolina; bonds and notes of any North Carolina local government or public authority; obligations of certain nonguaranteed federal agencies; prime quality commercial paper bearing specified ratings and banker s acceptances; The North Carolina Capital Management Trust, an SEC registered mutual fund; repurchase agreements; and evidences of ownership of, or fractional undivided interests in, future interest and principal payments on either direct obligations of or fully guaranteed by the United States government, which are held by a specified bank or trust company or any state in the capacity. At June 30, 2010, the amount shown on the Statement of Net Assets as cash and cash equivalents includes $3,282,904.09, which represents the College s equity position in the State Treasurer s Short-Term Investment Fund. The Short-Term Investment Fund (a portfolio within the State Treasurer s Investment Pool, an external investment pool that is not registered with the Securities and Exchange Commission and does not have a credit rating) had a weighted average maturity of 1.6 years as of June 30, Assets and shares of the Short-Term Investment Fund are valued at amortized cost, which approximates fair value. Deposit and investment risks associated with the State Treasurer s Investment Pool (which includes the State Treasurer s Short-Term Investment Fund) are included in the State of North Carolina s Comprehensive Annual Financial Report. An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page and clicking on Proceed directly to OSC s index page, then Reports, or by calling the State Controller s Financial Reporting Section at (919) Except as specified by the donor, endowment funds belonging to the College may be invested pursuant to G.S This statute 21

26 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) authorizes investments for special funds held by the State Treasurer and includes the following investments: obligations of or fully guaranteed by the United States; obligations of certain federal agencies; repurchase agreements; obligations of the State of North Carolina; certificates of deposit of specified institutions; prime quality commercial paper; specified bills of exchange; asset-backed securities and corporate bonds/notes with specified ratings; general obligations of other states; and general obligations of North Carolina local governments. The College held fair value of $613, in closed-end mutual fund investments at June 30, While this mutual fund is not an authorized investment type, the College received this investment as a donation. Custodial Credit Risk: For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the College will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The College does not have a formal policy for custodial credit risk. The College s investments of $613, in closed-end mutual funds were exposed to custodial credit risk. A reconciliation of deposits and investments for the College to the basic financial statements at June 30, 2010, is as follows: Cash on Hand $ 2, Carrying Amount of Deposits with Private Financial Institutions 693, Investments in the Short Term Investment Fund 3,282, Other Investments 613, Total Deposits and Investments $ 4,592, Current: Cash and Cash Equivalents $ 3,531, Restricted Cash and Cash Equivalents 322, Noncurrent: Restricted Cash and Cash Equivalents 124, Other Long-Term Investments 613, Total $ 4,592, Component Unit - Investments of the College s discretely presented component unit, Western Piedmont Foundation, Inc. are subject to and restricted by G.S. 36E Uniform Prudent Management of Institutional Funds Act (UPMIFA) and any requirements placed on them by contract or donor agreements. Because the Western Piedmont Foundation, Inc. reports under the FASB reporting model, disclosures of the various 22

27 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) investment risks are not required. The following is an analysis of investments by type: Market Value June 30, 2010 Cost Unrealized Gain (Loss) 2 Shares Mimosa Hills Golf Club Shares of Merck & Co., Inc. (114 Shares) Shares of Medco Health Solutions (26 Shares) Washington Mutual Fund Smith Barney Portfolio $ 4,000 $ 3,750 $ 250 3,974 7,274 (3,300) 1,432 1,432 21,811 26,834 (5,023) 475, ,008 (73,139) Total $ 507,086 $ 586,866 $ (79,780) NOTE 3 - DONOR RESTRICTED ENDOWMENTS The College s endowment assets are pooled with State agencies and similar institutions in short-term investments with the State Treasurer s Cash and Investment Pool and are reported as restricted cash and cash equivalents - noncurrent on the accompanying financial statements. If a donor has not provided specific instructions, State law permits the Board of Trustees to authorize for expenditure the net appreciation, realized, and unrealized, of the assets of the endowment funds. Annual payouts from the College s endowment funds are based on an adopted spending policy, which limits spending to 100% of the interest earnings unless the donor has stipulated otherwise. At June 30, 2010, net appreciation of $ was available to be spent, all of which was restricted to specific purposes. 23