PALOMAR COMMUNITY COLLEGE DISTRICT

Transcription

1 AUDIT REPORT JUNE 30, 2014

2 TABLE OF CONTENTS FOR THE YEAR ENDED JUNE 30, 2014 FINANCIAL SECTION Independent Auditors Report... 1 Management s Discussion and Analysis... 4 Basic Financial Statements Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Post Employment Healthcare Benefit Funding Progress Notes to Required Supplementary Information SUPPLEMENTARY INFORMATION History and Organization Schedule of Expenditures of Federal Awards Schedule of State Financial Assistance Schedule of Workload Measure for State General Apportionment Annual (Actual) Attendance Reconciliation of Annual Financial and Budget Report with Audited Fund Balances Schedule of General Fund Financial Trends and Analysis Reconciliation of the ECS (50 Percent Law) Calculation Details of the Education Protection Account Notes to Supplementary Information... 55

3 TABLE OF CONTENTS FOR THE YEAR ENDED JUNE 30, 2014 OTHER INDEPENDENT AUDITORS REPORTS 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 Report on Compliance For Each Major Federal Program; and Report on Internal Control Over Compliance Required by OMB Circular A Report on State Compliance SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditors Results Schedule of Findings and Questioned Costs Related to the Financial Statements Schedule of Findings and Questioned Costs Related to Federal Awards Schedule of Findings and Questioned Costs Related to State Awards Status of Prior Year Findings and Questioned Costs... 66

4 FINANCIAL SECTION

5 INDEPENDENT AUDITORS REPORT Christy White, CPA Michael Ash, CPA Tanya M. Rogers, CPA, CFE John Whitehouse, CPA Heather Rubio SAN DIEGO LOS ANGELES SAN FRANCISCO/BAY AREA Corporate Office: 2727 Camino Del Rio South Suite 219 San Diego, CA toll-free: tel: fax: The Board of Trustees Palomar Community College District 1140 W. Mission Road San Marcos, CA Report on the Financial Statements We have audited the accompanying basic financial statements of the business type activity and fiduciary funds of the Palomar Community College District, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Palomar Community College District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditorʹs 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 entityʹs 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 entityʹs internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1

6 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 Palomar Community College District, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof for the year 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 required supplementary information, such as management s discussion and analysis on pages 4 through 17 and the schedule of funding progress on page 46 be presented to supplement the basic financial statements. Such information, although not 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 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Palomar Community College District s basic financial statements. The supplementary information listed in the table of contents, including the schedule of expenditures of Federal awards, which is required by the U.S. Office of Management and Budget Circular A 133, Audits of State, Local Governments, and Non Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information listed in the table of contents is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

7 Other Reporting Required by the Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 28, 2014 on our consideration of Palomar Community College Districtʹs internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Palomar Community College District s internal control over financial reporting and compliance. San Diego, California November 28,

8 MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2014 INTRODUCTION The following discussion and analysis provides an overview of the financial position and activities of the Palomar Community College District (the District ) for the year ended June 30, This discussion has been prepared by college administration and should be read in conjunction with the financial statements and notes thereto which follow this section. The District is using the Business Type Activity (BTA) model in which financial reports are generated using the full accrual basis of accounting. The California Community College Chancellor s Office, through its Fiscal Standards and Accountability Committee, recommended that all community college districts implement the reporting standards of the BTA model. To comply with the recommendation of the Chancellor s Office and to report in a manner consistent with other California Community College Districts, the District has adopted the BTA reporting model for these financial statements. THE COLLEGE The California Community Colleges system is comprised of 72 districts, 112 campuses, and 71 approved Education Centers. Palomar College currently operates a campus in the City of San Marcos, an approved Education Center in the City of Escondido, and four outreach sites throughout north San Diego County in the following communities: Fallbrook, Pauma Valley, Mt. Carmel and Camp Pendleton. In addition, the District received California Postsecondary Education Commission (CPEC) and Board of Governors (BOG) approval for its North Education Center. The District also purchased a site in June 2010, which has an existing three story shell building, a parking garage, and surface parking along with site improvements on the approximately 28 acre site in the community of Rancho Bernardo, for a future education center to serve the southern portion of the District s boundaries. The Palomar College District serves approximately 26,000 full time and part time students each fall and spring semester, while about 9,900 students attend during summer semester. Approximately 32% of the students are enrolled full time, while about 61% are enrolled part time in credit classes, and 7% are enrolled in non credit classes. About 62% of our students are aged 24 or younger, while 38% are 25 or older. 4

9 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 THE COLLEGE (continued) Palomar College is currently offering over 200 Associate Degree and Certificate programs; in addition, it is currently offering not for credit community development and personal enrichment classes for life long learning. Palomar College is accredited through the Accrediting Commission for Community and Junior Colleges and the Western Association of Schools and Colleges. Palomar College has transfer agreements with the California State University and University of California systems, and our high level coursework in transferable classes fully prepares our students for success at four year colleges and universities. FINANCIAL AND ENROLLMENT HIGHLIGHTS As required by the Governmental Accounting Standards Board (GASB) reporting standards, the annual report consists of three basic financial statements that provide information on the District as a whole: Statement of Net Position The Statements of Revenue, Expenses, and Changes in Net Position The Statement of Cash Flows Each of these statements as well as the below indicated schedules will be discussed and will include comparisons between the prior and current year, along with selected highlights. Capital Assets Schedule Long Term Debt Schedule The State of California s economic situation has been slowly recovering, and the State has been sharing part of the recovery with the California Community Colleges in the form of restoration of previous cuts and increasing funding for categorical and block grant funds. Deficit coefficients continue to be applied, but are diminishing in amount. Unfortunately the restoration is tied to actual growth in Full Time Equivalent Students (FTES) which means the District has to continue to grow its class offerings. At a time when everyone State wide scaled back their instructional programs because of the cuts to funding, suddenly gearing up to not only accommodate growth, but to chase it, can be difficult. For FY the Districts total actual FTES increased approximately 1.5% for credit and remained stable for noncredit courses which resulted in an overall increase of 1.5%. A District s CAP (maximum funded FTES) for a fiscal year represents a benchmark for growth that the State has determined it would fund each college/district throughout the Community College system in a given fiscal year. The amount a single district receives is contingent upon how much is budgeted by the State and how much growth is experienced both system and District wide. The percentage of growth funded and how it is distributed could change several times during a fiscal year depending on various factors and would be subject to change until the State closes out all apportionment reporting for a given budget year. Consequently, the final funded growth percentage would not be known at the District level until February or March of the year after the fiscal year has ended (in this case February or March 2015), which is when all the final FTES have been reported and calculated system wide. On the following page are charts that show the trend for both credit and non credit FTES for the past 5 years. 5

10 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, ,000 19,500 19,000 18,500 Palomar Community College District Credit Full Time Equivalent Students (FTES) 18,000 17,500 CAP Actual 17,000 16,500 16, Palomar Community College District Non Credit Full Time Equivalent Students (FTES) 1,400 1,200 1, CAP Actual

11 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF NET POSITION The Statement of Net Position presents the assets, liabilities, and Net Position of the District as of the end of the fiscal year and is prepared using the full accrual basis of accounting, which is similar to the accounting basis used by most private sector organizations. The Statement of Net Position is a point of time financial statement whose purpose is to present to the readers a fiscal snapshot of the District. The Statement of Net Position presents end ofyear data concerning assets (current and non current), liabilities (current and non current), and net position (assets minus liabilities). From the data presented, readers of the Statement of Net Position are able to determine the assets available to continue the operation of the District. Readers are also able to determine how much the District owes vendors and employees. Finally, the Statement of Net Position provides a picture of the net position and their availability for expenditure by the District. The difference between total assets and total liabilities (net position) is one indicator of the current financial condition of the District; the change in net position is an indicator of whether the overall financial condition has improved or worsened during the year. Assets and liabilities are generally measured using current values. One notable exception is capital assets, which is stated at historical cost less an allocation for depreciation expense. The Net Position listed on the Statement of Net Position is divided into three major categories. The first category, Net Investment in Capital Assets, provides the equity amount in property, plant, and equipment owned by the District with the debt related to those amounts subtracted. The second category is Restricted; this net position are available for expenditure by the District, but must be spent for purposes as determined by external entities and/or donors that have placed time or purpose restrictions on the use of the assets. The final category is Unrestricted; this net position is available to the District for any lawful purpose of the District. 7

12 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF NET POSITION (continued) A Statement of Net Position as of June 30, for each year is summarized below: Net Change ASSETS Current assets $ 137,105,621 $ 177,640,354 $ (40,534,733) Non current assets 320,493, ,193,601 10,300,101 Total Assets 457,599, ,833,955 (30,234,632) LIABILITIES Current liabilities 22,277,919 27,879,916 (5,601,997) Non current liabilities 342,896, ,525,965 3,370,590 Total Liabilities 365,174, ,405,881 (2,231,407) NET POSITION Net investment in capital assets 87,870,596 94,052,966 (6,182,370) Restricted 20,699,825 23,037,079 (2,337,254) Unrestricted (16,145,572) 3,338,029 (19,483,601) Total Net Position $ 92,424,849 $ 120,428,074 $ (28,003,225) The District s total assets decreased $30 million or 6.2% from the previous year, which was mostly due to the spending of cash on the District s Proposition M bond building program. The majority of the decrease in current liabilities was related to construction activities in the Proposition M bond building program which had less outstanding invoices as of the year ending FY13 14 when compared to year end FY The increase in noncurrent liabilities was due to additional accreted interest on the Proposition M bonds and an additional liability for the Other Post Employment Benefits (OPEB). STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION Changes in total net position as presented on the Statement of Net Position are based on the activity presented in the Statement of Revenues, Expenses, and Changes in Net Position. The purpose of this statement is to present the operating and non operating revenues earned, whether received or not, by the District; the operating and nonoperating expenses incurred, whether paid or not, by the District; and any other revenues, expenses, gains and/or losses earned or incurred by the District. Thus, this statement presents the District s results of operations. 8

13 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (continued) Generally, operating revenues are earned for providing goods and services to the various customers and constituencies of the District. Operating expenses are those expenses incurred to acquire or produce the goods and services provided in return for the operating revenues earned and to fulfill the mission of the District. Nonoperating revenues are those received or pledged for which goods and serviced are not provided; for example, state appropriations are non operating because they are provided by the legislature to the District without the legislature directly receiving commensurate goods and services for those revenues. On this page and the following page are charts that show the distribution by major category of total revenues and expenses. Total Revenues June 30, 2014 Capital Revenue 2% Other nonoperating 3% Tuition and Fees 13% Grants and contracts, noncapital 23% Local property taxes 41% State apportionments, non capital 18% 9

14 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (continued) Total Expenses June 30, 2014 Depreciation 2% Other outgo 4% Interest expense 9% Supplies, materials, & other operating expenses 14% Salaries 43% Financial aid 10% Benefits 18% 10

15 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (continued) A Statement of Revenues, Expenses and Changes in Net Position for the year ended June 30 for each year is summarized below: Net Change REVENUES Tuition and fees (net) $ 15,380,379 $ 15,052,142 $ 328,237 Grants and contracts, noncapital 36,626,146 35,456,545 1,169,601 General revenues property taxes 70,026,624 70,357,051 (330,427) General revenues unrestricted federal and state aid 17,594,528 12,374,247 5,220,281 General revenues other 24,886,468 20,917,352 3,969,116 Total Revenue 164,514, ,157,337 10,356,808 EXPENSES Operating expenses 172,036, ,474,928 16,561,530 Interest 18,187,022 16,943,143 1,243,879 Total Expenses 190,223, ,418,071 17,805,409 CHANGE IN NET POSITION $ (25,709,335) $ (18,260,734) $ (7,448,601) NET POSITION BEGINNING, AS RESTATED* $ 118,134,184 $ 127,762,436 $ (9,628,252) ENDING NET POSITION $ 92,424,849 $ 120,428,074 $ (28,003,225) * Restatement to Beginning Net Position relates to the 2014 year only Tuition and fees are generated by the resident, non resident, and international students attending Palomar College, including fees such as health fees, parking fees, community services classes and other related fees. Grants and contracts, noncapital are primarily funds received from Federal, State, and local sources and used in the instructional program. The increase was due to increases in federal grant funding. Local property taxes are received through the Auditor Controller s Office for San Diego County. The amount received for property taxes is deducted from the total State general apportionment amount calculated by the State for the District. General revenues unrestricted federal and state aid represents the amount received from the State based on FTES. This increased due to funds received from the State for restoration, COLA and a decrease in the deficit coefficient. General revenues this category includes the Education Protection Account funds received as a result of Proposition 30. This increase was due to the recording of the STRS payments on behalf of the District made by the State. 11

16 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (continued) Total operating expenses increased as a result of several factors. Benefit costs continued to rise, both in health care and retirement. A raise given in FY13 14 increased the salaries paid. In the Personnel costs made up 84% of the total operating expenses excluding depreciation, Prop M expenditures and financial aid for all funds. The balance of the operating expenses is for supplies, other services, capital outlay items below the capitalization threshold, insurance, utilities, and depreciation expense. Financial Aid increased significantly as more students were seeking tuition assistance. STATEMENT OF CASH FLOWS The Statement of Cash Flows provides information about cash receipts and cash payments during the fiscal year. This Statement also helps users assess the District s ability to generate positive cash flows, meet obligation as they come due and determine the need for external financing. The Statement of Cash Flows is divided into five parts. The first part reflects operating cash flows and shows the net cash provided by the operating activities of the District. The second part details cash received for nonoperating, non investing, and non capital financing purposes. The third part shows cash flows from capital and related financing activities. This section deals with the cash used for the acquisition and construction of capital and related items. The fourth provides information from investing activities and the amount of interest received. The fifth and final section reconciles the net cash provided by operating activities to the operating loss reflected on the Statement of Revenues, Expenses, and Changes in Net Position. A Statement of Cash Flows for the fiscal year ended June 30, 2014 and 2013 is summarized and presented below: Operating activities $ (118,093,896) $ (98,577,433) Noncapital financing activities 115,707, ,989,271 Capital and related financing activities (42,637,079) (60,172,339) Investing activities 920, ,754 Net Change in Cash and Cash Equivalents (44,103,339) (47,888,747) Cash and Cash Equivalents Beginning of Year 169,278, ,167,255 Cash and Cash Equivalents End of Year $ 125,175,169 $ 169,278,508 Cash and Cash Equivalents Consists of the Following: Cash on hand and in banks $ 5,443,114 Cash in county treasury 119,732,055 Total Cash and Cash Equivalents $ 125,175,169 12

17 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 STATEMENT OF CASH FLOWS (continued) Cash receipts from operating activities are from student tuition and from federal, state, and local grants. Uses of cash are payments to employees, vendors, and students related to the instructional programs. The increase was due mostly to payments to vendors for Prop M construction related items and an increase in payments to or on behalf of employees, which includes $2 million of STRS payments made on behalf of the District by the State. Restoration and COLA payments received from the State explains the majority of the increase in noncapital financing activities. The primary amounts included in capital and related financing activities are any financing activities and the purchase of capital assets (building improvements and equipment). The decrease was due to an decrease in the acquisition and construction of capital assets in the Prop M program. Cash from investing activities is interest earned on cash in bank and cash invested through the San Diego County Treasury and on Investments with the Local Agency Investment Fund (LAIF) and other various investments and bank accounts. DISTRICT S FIDUCIARY RESPONSIBILITY The District is the trustee, or fiduciary, for certain funds held on behalf of students, clubs, and donors for student loans and scholarships. The District s fiduciary activities are reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. These activities are excluded from the District s other financial statements because these assets may not be used to finance District operations. The District is responsible for ensuring that assets reported in these funds are used for their intended purposes. 13

18 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As of June 30, 2014, the District had $320.5 million in net capital assets. Total capital assets consist of land, buildings, and building improvements, construction in progress, vehicles, data processing equipment, and other equipment. Accumulated depreciation related to these assets is $60 million. Depreciation expense of $7.4 million was recorded for the fiscal year. The increase in buildings and building improvements, along with the corresponding decrease in Construction in Progress, was primarily related to the construction activities at the San Marcos campus and Escondido Center. These activities included design and construction of the Humanities Building, Escondido Center Remodel, Baseball Field Relocation and Child Development Center. Note 5 to the financial statements provides additional information on capital assets. A summary of capital assets, net of depreciation, is presented below: Net Change Land and construction in progress $ 149,039,307 $ 181,762,313 $ (32,723,006) Buildings and equipment 222,424, ,778,383 46,646,098 Accumulated depreciation (50,970,086) (49,640,985) (1,329,101) Total Capital Assets $ 320,493,702 $ 307,899,711 $ 12,593,991 Debt At June 30, 2014, the District had $350.2 million in debt, $4.9 million of this total is related to Lease Revenue Bonds and $338.1 million is related to General Obligation Bonds issued in May 2007 for Proposition M, Series A and General Obligation Bonds issued in October 2010 for Proposition M, Series B and B 1. The increase in General obligation bond debt is related to interest which has accreted to the bonds. Compensated absences had been reported as a current liability in past audit reports, which is why there is no dollar amount for 2013 in the long term debt schedule. The amount for 2013 in current liabilities was $3.1 million. An additional long term debt of $3.9 million is related to Other Post Employment Benefits (OPEB). The recording of the District s OPEB liabilities began in the fiscal year financial statements brought Palomar College in compliance with GASB No. 45, which requires districts to disclose a liability for future retiree benefits. See Note 11 to the financial statements for additional information. Note 9 to the financial statements provide additional information on long term liabilities. A summary of long term debt is presented below: Net Change General obligation bonds $ 338,055,899 $ 334,908,767 $ 3,147,132 Lease revenue bonds 4,855,000 5,345,000 (490,000) Compensated absences 3,386,413 3,386,413 Other long term liabilities 3,885,656 2,822,198 1,063,458 Total Long term Liabilities $ 350,182,968 $ 343,075,965 $ 7,107,003 14

19 MANAGEMENT S DISCUSSION AND ANALYSIS, continued FOR THE YEAR ENDED JUNE 30, 2014 ECONOMIC FACTORS THAT MAY AFFECT THE FUTURE Governor Jerry Brown s Fiscal Year budget continued to reflect good news for the State s economy and fiscal position. California Community Colleges received COLA of.85%, $200 million for additional student support services, and $140.4 million for general apportionment in workload restoration. Also in the budget is $148 million for deferred maintenance and instructional equipment on a one time basis. Under Proposition 39 s 5 year plan, Palomar College will receive approximately $500,000 for energy efficiency projects. The District will be refunding approximately $130 million in Proposition M Series A bonds during FY14 15 and issuing Series C bonds in the amount of $220 million to continue the District s capital improvement plans. Other than the items above, the District is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during the fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. Management will maintain a close watch over resources to maintain the ability to react to internal and external issues if and when they arise to ensure the fiscal stability of the District. 15

20 STATEMENT OF NET POSITION JUNE 30, 2014 ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,443,114 Investments 119,732,055 Accounts receivable 11,534,764 Prepaid expenses 395,688 Total Current Assets 137,105,621 NONCURRENT ASSETS Capital assets, net of accumulated depreciation 320,493,702 Total Noncurrent Assets 320,493,702 TOTAL ASSETS 457,599,323 LIABILITIES CURRENT LIABILITIES Accounts payable 10,162,649 Deferred revenue 1,164,472 Accrued interest payable 3,664,385 Current Portion Long term debt 7,286,413 Total Current Liabilities 22,277,919 NONCURRENT LIABILITIES Noncurrent Portion Long term debt 342,896,555 TOTAL LIABILITIES 365,174,474 NET POSITION Net investment in capital assets 87,870,596 Restricted for: Debt service 8,719,311 Capital projects 11,706,191 Other special services 274,323 Unrestricted (16,145,572) TOTAL NET POSITION $ 92,424,849 See accompanying notes to the financial statements. 16

21 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 OPERATING REVENUES Student Tuition and Fees $ 26,129,521 Less: Scholarship discount & allowance (10,749,142) Net tuition & fees 15,380,379 Grants and Contracts, noncapital: Federal 24,879,425 State 9,744,931 Local 2,001,790 Subtotal Grants and Contracts, noncapital: 36,626,146 Total Operating Revenues 52,006,525 OPERATING EXPENSES Salaries 78,243,816 Benefits 36,181,308 Financial aid 19,633,317 Supplies, materials & other operating expenses 30,589,714 Depreciation 7,388,303 Total Operating Expenses 172,036,458 OPERATING LOSS (120,029,933) NONOPERATING REVENUES/(EXPENSES) State apportionments, noncapital 17,594,528 Local property taxes 67,878,984 State taxes & other revenues 19,764,916 Investment income noncapital 993,697 Other local revenues 3,459,573 Interest expense (18,187,022) Total Nonoperating Revenues 91,504,676 LOSS BEFORE OTHER REVENUES AND GAINS (28,525,257) OTHER REVENUES AND GAINS/(LOSSES) State apportionments, capital 668,282 Local property taxes and revenues, capital 2,147,640 Total Other Revenues and Gains 2,815,922 CHANGE IN NET POSITION (25,709,335) NET POSITION BEGINNING, AS RESTATED 118,134,184 NET POSITION, END OF YEAR $ 92,424,849 See accompanying notes to the financial statements. 17

22 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 15,666,666 Grants and contracts 37,527,606 Payments to or on behalf of employees (115,177,512) Payments to vendors for supplies and services (36,477,339) Payments to students for scholarships and grants (19,633,317) Net Cash Used by Operating Activities (118,093,896) CASH FLOWS FROM NON CAPITAL FINANCING ACTIVITIES State apportionments 24,603,702 Property taxes 67,878,984 State taxes and other revenues 19,764,916 Other local revenues 3,459,573 Net Cash Provided by Non capital Financing Activities 115,707,175 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Acquisition and construction of capital assets (23,789,215) State apportionments, capital projects 668,282 Local revenues, capital projects 2,147,640 Principal paid on capital debt (3,550,000) Interest paid on capital debt (18,187,022) Interest received on capital debt 73,236 Net Cash Used by Capital Financing Activities (42,637,079) CASH FLOWS FROM INVESTING ACTIVITIES Investment income 920,461 Net Cash Provided by Investing Activities 920,461 NET DECREASE IN CASH & CASH EQUIVALENTS (44,103,339) CASH & CASH EQUIVALENTS, BEGINNING OF YEAR 169,278,508 CASH & CASH EQUIVALENTS, END OF YEAR $ 125,175,169 See accompanying notes to the financial statements. 18

23 STATEMENT OF CASH FLOWS, continued FOR THE YEAR ENDED JUNE 30, 2014 RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (120,029,933) Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities: Depreciation expense 7,388,303 Changes in Assets and Liabilities: Receivables, net 3,984,623 Prepaid items 179,493 Accounts payable and accrued liabilities (10,047,174) Deferred revenue 129,134 Compensated absences 301,658 Total Adjustments 1,936,037 Net Cash Used by Operating Activities $ (118,093,896) CASH AND CASH EQUIVALENTS CONSISTS OF THE FOLLOWING: Cash on hand and in banks $ 5,443,114 Cash in county treasury 119,732,055 Total Cash and Cash Equivalents $ 125,175,169 NONCASH TRANSACTIONS On behalf payments for benefits $ 2,036,267 See accompanying notes to the financial statements. 19

24 STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2014 ASSETS Cash in county treasury $ 1,581,834 Cash on hand and in banks 128,724 Accounts receivable 10,108 Total Assets 1,720,666 LIABILITIES Accounts payable 11,351 Deferred revenue 41,924 Total Liabilities 53,275 NET POSITION Restricted 1,667,391 Total Net Position $ 1,667,391 See accompanying notes to the financial statements. 20

25 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 Additions Student fees $ 291,621 Interest and investment income 5,769 Contributions and other local revenues 589,877 Total Additions 887,267 Deductions Salaries 1,602 Supplies and materials 25,791 Other operating expenses and services 59,201 Capital outlay 13,055 Student financial aid 765,241 Total Deductions 864,890 CHANGE IN NET POSITION 22,377 NET POSITION, BEGINNING OF YEAR 1,645,014 NET POSITION, END OF YEAR $ 1,667,391 See accompanying notes to the financial statements. 21

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The Palomar Community College District (District) is the level of government primarily accountable for activities related to public education. The governing authority consists of elected officials who, together, constitute the Board of Trustees. Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organizationʹs relationship with the District is such that exclusion would cause the Districtʹs financial statements to be misleading or incomplete. For financial reporting purposes, the component units have a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, as amended by GASBS No. 39, Determining Whether Certain Organizations Are Component Units and GASBS No. 61, The Financial Reporting Entity: Omnibus, and thus are included in the financial statements of the District. Based upon the application of the criteria listed above, the following potential component unit has been excluded from the Districtʹs reporting entity: Palomar College Foundation The Foundation is a separate not for profit corporation. Separate financial statements for the Foundation may be obtained through the District. B. Financial Statement Presentation The accompanying financial statements have been prepared in conformity with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), including Statement No. 34, Basic Financial Statements and Management ʹs Discussion and Analysis for State and Local Governments and including Statement No. 35, Basic Financial Statements and Management ʹs Discussion and Analysis of Public College and Universities, issued in June and November 1999 and Audits of State and Local Governmental Units issued by the American Institute of Certified Public Accountants. The financial statement presentation required by GASB No. 34 and No. 35, as amended by GASB Statements No. 37 and No. 38, provides a comprehensive, entity wide perspective of the Districtʹs financial activities. The entity wide perspective replaces the fund group perspective previously required. Fiduciary activities, with the exception of the Student Financial Aid Fund and the Retiree Benefits Fund, are excluded from the basic financial statements. 22

27 NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Accounting Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of measurement made, regardless of the measurement focus applied. For financial reporting purposes, the District is considered a special purpose government engaged in businesstype activities. Accordingly, the Districtʹs basic financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra agency transactions have been eliminated. For internal accounting purposes, the budgetary and financial accounts of the District have been recorded and maintained in accordance with the Chancellorʹs Office of the California Community Collegeʹs Budget and Accounting Manual. To ensure compliance with the California Education Code, the financial resources of the District are divided into separate funds for which separate accounts are maintained for recording cash, other resources and all related liabilities, obligations and equities. By State law, the Districtʹs Governing Board must approve a budget no later than September 15. A public hearing must be conducted to receive comments prior to adoption. The Districtʹs Governing Board satisfied these requirements. Budgets for all governmental funds were adopted on a basis consistent with generally accepted accounting principles (GAAP). These budgets are revised by the Districtʹs Governing Board during the year to give consideration to unanticipated income and expenditures. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. Expenditures cannot legally exceed appropriations by major object account. 23

28 NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Accounting (continued) In accordance with GASB Statement No. 20, the District follows all GASB statements issued prior to November 30, 1989 until subsequently amended, superseded or rescinded. The District also applies all Financial Accounting Standards Board (FASB) pronouncements issued after November 30, 1989 unless FASB conflicts with GASB. 1. Cash and Cash Equivalents Cash in the County Treasury is recorded at fair value, in accordance with the requirements of GASB Statement No. 31. The Districtʹs cash and cash equivalents are considered to be cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition. 2. Accounts Receivable Accounts receivable consists primarily of amounts due from the Federal government, State and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the Districtʹs grant and contracts. All material receivables are considered fully collectible. Student loans receivable are included in accounts receivable and consist of loan advances to students awarded under the student financial aid programs the District administers for federal agencies. Student loans receivable are recorded net of cancelled principal. The receivables are held in trust for the awarding federal agency. 3. Prepaid Expenses Payments made to vendors for services that will benefit periods beyond June 30, 2014, are recorded as prepaid items using the consumption method. A current asset for the prepaid amount is recorded at the time of the purchase and an expenditure/expense is reported in the year in which services are consumed. 4. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents are those amounts externally restricted as to use pursuant to the requirements of the Districtʹs grants, contracts and debt service requirements. 24

29 NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Accounting (continued) 5. Capital Assets Capital assets are recorded at cost at the date of acquisition. Donated capital assets are recorded at their estimated fair value at the date of donation. For equipment, the Districtʹs capitalization policy includes all items with a unit cost of $5,000 or more and an estimated useful life of greater than one year. Buildings, renovations to buildings and infrastructure with a unit cost of $100,000 or more, and land and site improvements, with a unit cost of $50,000 or more, that significantly increase the value or extend the useful life of the structure, are capitalized. Interest incurred during construction is not capitalized. The cost of normal maintenance and repairs that does not add to the value of the asset or materially extend the assetʹs life is recorded in operating expense in the year in which the expense was incurred. Depreciation is computed using the straight line method with a half year convention over the estimated useful lives of the assets, generally 50 years for buildings and certain major building and site improvements, 15 years for modular buildings and land improvements to 8 years for equipment and 3 years for technology. Land and construction in progress are not depreciated. 6. Accounts Payable, Accrued Liabilities and Accrued Interest Payable Accounts payable consists of amounts due to vendors. Accrued liabilities consist of salaries and benefits payable and load banking hours as described on the next page. Accrued interest is the amount due on general obligation bonds at fiscal year end. 7. Deferred Revenue Cash received for Federal and State special projects and programs and for student fees is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent cash received on specific projects and programs exceed qualified expenditures. 8. Deferred Outflows/Deferred Inflows of Resources In addition to assets, the District 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 a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the District 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 a future period and so will not be recognized as an inflow of resources (revenue) until that time. 25

30 NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Accounting (continued) 9. Compensated Absences In accordance with GASB Statement No. 16, accumulated unpaid employee vacation benefits are recognized as liabilities of the District as compensated absences in the Statement of Net Position. The District has accrued a liability for the amounts attributable to load banking hours within accounts payable. Load banking hours consist of hours worked by instructors in excess of a full time load for which they may carryover for future paid time off. Sick leave benefits are accumulated without limit for each employee. The employees do not gain a vested right to accumulated sick leave. Accumulated employee sick leave benefits are not recognized as liabilities of the District. The Districtʹs policy is to record sick leave as an operating expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits when the employee retires and within the constraints of the appropriate retirement systems. 10. Net Position GASB Statements No. 34 and No. 35 report equity as ʺNet Positionʺ and represent the difference between assets and liabilities. The net position is classified according to imposed restrictions or availability of assets for satisfaction of District obligations according to the following net asset categories: Net Investment in Capital Assets: Consists of capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, or improvement of those assets. To the extent debt has been incurred, but not yet expended for capital assets, such accounts are not included as a component of net investment in capital assets. Restricted: Net position is reported as restricted when there are limitations imposed on their use, either through enabling legislation adopted by the District, or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted resources are available. Unrestricted: Net position that is not subject to externally imposed constraints. Unrestricted net position may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. 26

31 NOTES TO FINANCIAL STATEMENTS, continued JUNE 30, 2014 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) C. Basis of Accounting (continued) 11. State Apportionments Certain current year apportionments from the State are based upon various financial and statistical information of the previous year. Any prior year corrections due to the recalculation in February of 2015 will be recorded in the year computed by the State. 12. Property Taxes Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 15 and March 15. Unsecured property taxes are payable in one installment on or before August 31. Real and personal property tax revenues are reported in the same manner in which the County auditor records and reports actual property tax receipts to the Department of Education. This is generally on a cash basis. A receivable has not been recognized in the General Fund for property taxes due to the fact that any receivable is offset by a payable to the State for apportionment purposes. Property taxes for debt service purposes have not been accrued in the basic financial statements as the amount is not material. 13. On Behalf Payments GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, requires that direct on behalf payments for fringe benefits and salaries made by one entity to a third party recipient for the employees of another, legally separate entity be recognized as revenue and expenditure by the employer government. The State of California makes direct on behalf payments for retirement benefits to the State Teachers Retirement Systems (STRS) on behalf of all Community Colleges in California. The amount of on behalf payments made for the District is estimated at $2,036,267 for STRS for the year ended June 30, This amount has been reflected in the basic financial statements as a component of non operating revenue and employee benefit expense. 27