Bates Technical College Annual Financial Report

Transcription

1 Bates Technical College 2016 Annual Financial Report

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4 Bates Technical College 2016 Financial Report Table of Contents Trustees and Administrative Officers... 4 Independent Auditor s Report... 5 Management s Discussion and Analysis Bates Technical College Statement of Net Position Bates Technical College Statement of Revenues, Expenses and Changes in Net Position Bates Technical College Statement of Cash Flows Foundation Statement of Financial Position Foundation Statement of Unrestricted Revenues, Expenses, and Other Changes in Unrestricted Net Assets Foundation Statement of Changes in Net Assets Notes to the Financial Statements Required Supplementary Information For information about the financial data included in this report, contact: Holly Woodmansee, Vice President of Administrative Services Bates Technical College 1101 S Yakima Ave. Tacoma, WA Page 3

5 Trustees and Administrative Officers BOARD OF TRUSTEES Lillian Hunter, Board Chair Karen Seinfeld, Vice Chair Layne Bladow Christina Blocker Cathy Pearsall-Stipek EXECUTIVE OFFICERS Ron Langrell, President Al Griswold, Executive Vice President of Instruction/Chief Academic Officer Holly Woodmansee, Vice President of Administrative Services Lin Zhou, Vice President of Institutional Effectiveness and Student Success ACADEMIC DEANS Brandon Rogers, Assistant Vice President/Executive Dean South Campus Josh Clearman, Dean of Instruction Caryn Fosnaugh, Dean of Instruction Peter Hauschka, Dean of Instruction Blake Ingram, Dean of Instruction Diane Nauer, Dean of Instruction Trustees and Officers list effective as of March 31, 2017 Page 4

6 Independent Auditor s Report Financial Statements Audit Report Bates Technical College For the period July 1, 2015 through June 30, 2016 Published Report No Page 5

7 Office of the Washington State Auditor Pat McCarthy Issue Date (Issued by OS) Board of Trustees Bates Technical College Tacoma, Washington Report on Financial Statements Please find attached our report on the Bates Technical College s financial statements. We are issuing this report in order to provide information on the College s financial condition. Sincerely, Pat McCarthy State Auditor Olympia, WA Insurance Building, P.O. Box Olympia, Washington (360) Pat.McCarthy@sao.wa.gov Page 6

8 TABLE OF CONTENTS 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... 8 Independent Auditor s Report On Financial Statements About The State Auditor s Office Page 7

9 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 Bates Technical College July 1, 2015 through June 30, 2016 Board of Trustees Bates Technical College Tacoma, Washington We have audited, 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, the financial statements of the business-type activities and the aggregate discretely presented component units of the Bates Technical College, Pierce County, Washington, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the College s basic financial statements, and have issued our report thereon dated June 27, Our report includes a reference to other auditors who audited the financial statements of the Bates Technical College Foundation, as described in our report on the College s financial statements. This report includes our consideration of the results of the other auditor s testing of internal control over financial reporting and compliance and other matters that are reported on separately by those other auditors. However, this report, insofar as it relates to the results of the other auditors, is based solely on the reports of the other auditors. The financial statements of the Bates Technical College Foundation were not audited in accordance with Government Auditing Standards and accordingly this report does not include reporting on internal control over financial reporting or instances of reportable noncompliance associated with the Bates Technical College Foundation. The financial statements of the Bates Technical College, an agency of the state of Washington, are intended to present the financial position, and the changes in financial position, and where applicable, cash flows of only the respective portion of the activities of the state of Washington that is attributable to the transactions of the College. They do not purport to, and do not, present fairly the financial position of the state of Washington as of June 30, 2016, the changes in its financial position, or where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Page 8

10 INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the College s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we do not express an opinion on the effectiveness of the College s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the College's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the College s financial statements are free from material misstatement, we performed tests of the College s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the College s internal control or on compliance. This report is an integral part of an audit performed Page 9

11 in accordance with Government Auditing Standards in considering the College s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. Pat McCarthy State Auditor Olympia, WA June 27, 2017 Page 10

12 INDEPENDENT AUDITOR S REPORT ON FINANCIAL STATEMENTS Bates Technical College July 1, 2015 through June 30, 2016 Board of Trustees Bates Technical College Tacoma, Washington REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of the Bates Technical College, Pierce County, Washington, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the College s basic financial statements. 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 an opinion on these financial statements based on our audit. We did not audit the financial statements of the Bates Technical College Foundation, which represents 100 percent of the assets, net position and revenues of the aggregate discretely presented component units. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Bates Technical College Foundation, is based solely 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 from material misstatement. The financial statements of the Bates Technical College Foundation were not audited in accordance with Government Auditing Standards. Page 11

13 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the College s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our report and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the businesstype activities and the aggregate discretely presented component units of the Bates Technical College,, as of June 30, 2016, and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Matters of Emphasis As discussed in Note 1, the financial statements of the Bates Technical College, an agency of the state of Washington, are intended to present the financial position, and the changes in financial position, and where applicable, cash flows of only the respective portion of the activities of the state of Washington that is attributable to the transactions of the College and its aggregate discretely presented component units. They do not purport to, and do not, present fairly the financial position of the state of Washington as of June 30, 2016, the changes in its financial position, or where applicable, its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Page 12

14 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, the Schedules of Bates Technical College s Share of Net Pension Liability and Schedules of Contributions be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the College s basic financial statements as a whole. The information identified in the table of contents as the Trustees and Administrative Officers is presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated June 27, 2017 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 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 Page 13

15 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 the College s internal control over financial reporting and compliance. Pat McCarthy State Auditor Olympia, WA June 27, 2017 Page 14

16 ABOUT THE STATE AUDITOR S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. We work with our audit clients and citizens to achieve our vision of government that works for citizens, by helping governments work better, cost less, deliver higher value, and earn greater public trust. In fulfilling our mission to hold state and local governments accountable for the use of public resources, we also hold ourselves accountable by continually improving our audit quality and operational efficiency and developing highly engaged and committed employees. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments as well as fraud, state whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our website and through our free, electronic subscription service. We take our role as partners in accountability seriously, and provide training and technical assistance to governments, and have an extensive quality assurance program. Contact information for the State Auditor s Office Public Records requests PublicRecords@sao.wa.gov Main telephone (360) Toll-free Citizen Hotline (866) Website Page 15

17 Management s Discussion and Analysis Bates Technical College The following discussion and analysis provides an overview of the financial position and activities of Bates Technical College (the College) for the fiscal year ended June 30, This overview provides readers with an objective and easily readable analysis of the College s financial performance for the year, based on currently known facts and conditions. This discussion has been prepared by management and should be read in conjunction with the College s financial statements and accompanying note disclosures. Reporting Entity The College first opened by the Tacoma School District with vocational training on Sept. 4, 1940, the program became known as the Tacoma Vocational School. The school's name was changed to the Tacoma Vocational-Technical Institute in In 1969, the name was changed to the L. H. Bates Vocational Technical Institute. In 1991, state legislation separated the state's vocational technical institutes from local school districts and merged them under the State Board for Community and Technical Colleges (SBCTC). The College s primary purpose is to enrich diverse communities by inspiring student learning, challenging greater achievement, and educating for employment Bates Technical College is one of 34 public community and technical college districts in the State of Washington overseen by then SBCTC. The College annually serves approximately 3,000 career training students and 10,000 more community members on three campuses in programs such as Continuing Education, Child Studies, High School, General Education and Basic Studies, and others. Classroom settings mirror the workplace, providing students with opportunities to practice and develop skills to levels required for successful employment. The College offers two-year associate of applied science degrees, certificates of competency, certificates of training, industry certifications and in specific programs prepares students for the achievement of state licensure. The College maintains articulation degrees with several four-year universities, making some of the College's two-year degrees transferable. The College has three campuses which are located in Tacoma, Washington, a community of about 205,000 residents. The College is governed by a five member Board of Trustees appointed by the Governor of the state with the consent of the state Senate. In accordance with Washington State law governing technical colleges, the College s board includes one member from business and one member from labor. By statute, the Board of Trustees has full control of the College, except as otherwise provided by law. Using the Financial Statements The College reports as a business-type activity as defined by Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements Management s Discussion and Analysis for Public Colleges and Universities, an amendment of GASB Statement No. 34. The basic financial statements of the College report information similar to the presentation used by private sector companies. These statements are prepared in accordance with generally accepted accounting principles (GAAP) as prescribed by GASB, which establishes standards for external financial reporting for public colleges and universities. The basic financial statements are Page 16

18 comprised of three components: (1) Statement of Net Position, (2) Statement of Revenues, Expenses and Changes in Net Position, and (3) Statement of Cash Flows. The Statement of Net Position presents information as of June 30, 2016, on all of the College s assets, deferred outflow of resources, liabilities, deferred inflow of resources with the difference being reported as net position. The Statement of Revenue, Expenses and Changes in Net Position and the Statement of Cash flows provide information about operations and activities over the entire fiscal year. Together, these statements, along with the accompanying notes, provide a comprehensive way to assess the college s financial health. The Statement of Net Position and Statement of Revenues, Expenses and Changes in Net position are reported under the accrual basis of accounting where all of the current year s revenues and expenses are taken into account regardless of when cash is received or payments are made. Full accrual statements are intended to provide a view of the College s financial position similar to that presented by most private-sector companies. 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. GASB Statement No. 39, Determining Whether Certain Organizations are Component Units requires a college to report an organization that raises and holds economic resources for the direct benefit of a government unit. Under this requirement, the Bates Technical College Foundation is a component unit of the College and their financial statements are discretely presented into this financial report. Page 17

19 STATEMENT OF NET POSITION The Statement of Net Position provides information about the College s financial position, and presents the College s assets, deferred outflows, liabilities, deferred inflows and net position at year-end. A condensed comparison of the Statement of Net Position as of June 30, 2016 and 2015 follows: CONDENSED STATEMENTS OF NET POSITION (in thousands) As of June 30, Increase (Decrease) % variance ASSETS Current Assets $ 20,768 $ 20,856 $ (88) -0.4% Capital Assets, net 55,553 50,095 5, % Total Assets 76,321 70,951 5, % DEFERRED OUTFLOWS 1, % LIABILITIES Current Liabilities 5,991 6,830 (839) -12.3% Noncurrent Liabilities 8,173 7,047 1, % Total Liabilities 14,164 13, % DEFERRED INFLOWS 949 1,995 (1,046) -52.4% NET POSITION $ 62,290 $ 55,655 $ 6, % Current assets consist primarily of cash, various accounts receivables and inventories. Total current assets remained steady as compared to last year. The increase in cash and accounts receivable offset a decrease in due from state treasurer. This decrease is attributed to the completion of the Advanced Technology Building that was funded by the State. Capital assets, net increased $5.5 million from 2015 to After taking into consideration current depreciation expense of $1.4 million, the majority of the $6.9 million in asset increases was mainly due to a construction of Advanced Technology Building which had a grand opening in January Deferred outflows for 2016 increased as a result of 1) legislatively required increases to employer contributions to state administered pension plans in 2016 and 2) changes in expected versus actual experience in the PERS 2/3 pension plan. Current liabilities include amounts payable to suppliers for goods and services, accrued payroll and related liabilities, the current portion of Certificate of Participation (COP) debt, and unearned revenue. Current liabilities can fluctuate from year to year depending on the timeliness of vendor invoices and resulting vendor payments, especially in the area of capital assets and improvements. The decrease in current liabilities of $0.8 million from 2015 to 2016 is mainly due to decrease in accounts payable. Page 18

20 Noncurrent liabilities primarily consist of the value of vacation and sick leave earned but not yet used by employees, pension liability and the long-term portion of COP debt. The College s noncurrent liabilities increased $1.1 million in This is mainly due to increase in pension liability for the recorded difference between projected and actual earnings on pension plan investments. Deferred inflows for 2016 decreased because of lower actual returns on state s pension plans investments as compared to the projected investment earnings. Net position represents the value of the College s assets and deferred outflows after liabilities and deferred inflows are deducted. The College experienced an increase in the overall net position of $6.6 million which is reported per accounting standards in the following three categories: Net Investment in Capital Assets the College s total investment in property, plant, equipment, and infrastructure net of accumulated depreciation and outstanding debt obligations related to those capital assets. In 2016, net investment in capital assets increased $5.6 million from 2015 due to an increase in capital assets, net of depreciation and related debt. Restricted: Expendable resources the College is legally or contractually obligated to spend in accordance with restrictions placed by donor and/or external parties who have placed time or purpose restrictions on the use of the asset. The primary expendable funds for the College are institutional financial aid which remained steady from 2015 to Unrestricted includes all other assets not subject to externally imposed restrictions, but which may be designated or obligated for specific purposes by the Board of Trustees or management. Prudent balances are maintained for use as working capital, as a reserve against emergencies and for other purposes, in accordance with policies established by the Board of Trustees. The unrestricted portion of net position increased $1.0 million from prior year primarily due to continued prudent financial stewardship by the College. CONDENSED NET POSITION (in thousands) As of June 30, Increase (Decrease) % variance Net Investment in Capital Assets $ 54,731 $ 49,104 $ 5, % Restricted: Expendable (3) -0.9% Unrestricted 7,235 6,224 1, % Total Net Position $ 62,290 $ 55,655 $ 6, % Page 19

21 The College had a strong balance sheet for both 2015 and One measure of the College s ability to pay its short-term obligations is the current ratio which is calculated by dividing current assets over current liabilities. The College s current ratio increased from 3.05 in 2015 to 3.47 in Quick ratio is another financial measure to assess College s ability to pay its short-term obligations using its most liquid assets which is calculated by dividing cash, accounts receivable, and due from state treasurer over current liabilities. The College s quick ratio also increased from 3.01 in 2015 to 3.45 in STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION The Statement of Revenues, Expenses and Changes in Net Position provides information about the details of the changes and accounts for the College s changes in total net position during In accordance with GASB reporting principles, revenues and expenses are classified as either operating or non-operating. Generally, operating revenues are earned by the College in exchange for providing goods and services. Tuition, grants and contracts are included in this category. In contrast, non-operating revenues include monies the College receives from another government without directly giving equal value to that government in return. Accounting standards require that the College categorize state operating appropriations and Pell Grants as non-operating revenues. Operating expenses are incurred in the normal operation of the College, including depreciation on property and equipment assets. When operating revenues, excluding state appropriations and Pell Grants, are measured against operating expenses, the College shows an operating loss. The operating loss is reflective of the external funding necessary to keep tuition lower than the cost of the services provided. A condensed comparison of the College s revenues, expense and changes in net position for the years ended June 30, 2016 and 2015 is presented below. CONDENSED STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION (in thousands) Years ended June 30, Increase (Decrease) % variance Operating Revenues $ 18,722 $ 18,208 $ % Operating Expenses 42,948 39,422 3, % Net Operating Loss (24,226) (21,214) (3,012) 14.2% Nonoperating Revenues 23,386 22, % Nonoperating Expenses (690) (738) % Net Income Before Capital Appropriations (1,530) 855 (2,385) % Capital Appropriations 8,165 18,805 (10,640) -56.6% Increase in Net Position 6,635 19,660 (13,025) -66.3% Net Position, Beginning of the Year 55,655 35,995 19, % Net Position, End of the Year $ 62,290 $ 55,655 $ 6, % Page 20

22 Revenues State operating appropriations, grants and contracts, student tuition and fees (net of scholarship discounts and allowances) are the primary sources for funding the College s academic programs. The $9.5 million overall decrease in revenues were primarily due to decrease in state capital appropriations of $10.6 million for the Advanced Technology Building. The following table shows a comparison of revenues for years ended June 30, 2015 and REVENUES BY SOURCE (in thousands) Years ended June 30, 2016 Percentage 2015 Percentage State Operating Appropriations $ 20, % $ 19, % Grants and Contracts 14, % 13, % State Capital Appropriations 8, % 18, % Student Tuition and Fees, net 5, % 6, % Auxiliary Enterprise Sales, net % % Other Revenues % % Total Revenues $ 50, % $ 59, % Student tuition and fees decreased $0.5 million as College s enrollment continued to soften in Grants and contracts increased $0.8 million due to increase in state and local grants and contracts as College continued to serve students under the terms of contracted programs and higher Technical High School enrollment. Page 21

23 The following chart shows a comparison of revenues in percentages by source, both operating and non-operating used to fund the College s programs for years ended June 30, 2015 and REVENUES IN PERCENTAGES BY SOURCE % 1.1% 1.5% 1.2% Percentages 40.6% 33.0% 28.3% 22.5% 16.2% 31.4% 11.8% 10.8% State Operating Appropriations Grants and Contracts State Capital Appropriations Student Tuition and Fees, net Auxiliary Other Revenues Enterprise Sales, net Expenses Operating expenses increased in 2016 by $3.5 million from 2015 which was mainly attributable to the rising cost of salaries and wages and employee benefits. Salaries and wages increased $1.6 million due to additional grant and contract funded positions in Adult Basic Education, Technical High School, Fire Service Training, and U.S. Department of Labor WISE grant. In addition, state employees received a 3% cost of living adjustment (COLA). There was also a corresponding increase in employee benefits of $1.8 million as a result of higher employer health insurance premiums and increase in pension obligations. The following table shows a comparison of operating expenses for years ended June 30, 2015 and Page 22

24 OPERATING EXPENSES (in thousands) Years ended June 30, 2016 Percentage 2015 Percentage Salaries and Wages $ 20, % $ 19, % Employee Benefits 6, % 4, % Other Expenses 5, % 5, % Scholarships and Fellowships 3, % 3, % Supplies and Materials 2, % 2, % Purchased Services 1, % 1, % Depreciation 1, % 1, % Utilities % % Total Revenues $ 42, % $ 39, % The following chart shows a comparison of expenses in percentages by natural classification for years ended June 30, 2015 and % 48.6% OPERATING EXPENSES IN PERCENTAGES BY NATURAL CLASSIFICATION Percentages 15.0% 11.8% 13.6% 14.5% 7.3% 8.4% 6.6% 7.3% 3.7% 4.0% 3.3% 2.8% 2.3% 2.5% Salaries and Wages Employee Benefits Other Expenses Scholarships Supplies and and Materials Fellowships Purchased Services Depreciation Utilities The chart below shows a comparison of expenses in percentages by functional area for years ended June 30, 2015 and Page 23

25 OPERATING EXPENSES IN PERCENTAGES BY FUNCTIONAL AREA 37.5% 36.4% Percentages 8.4% 7.2% 13.7% 13.5% 11.0% 7.4% 14.2% 13.9% 4.3% 9.1% 8.3% 9.8% 2.6% 2.7% Instruction Academic Support Services Student Services Institutional Support O&M of Plant Scholarships and Other Fin Aid Auxiliary Enterprises Depreciation Capital Assets and Long-Term Debt Activities The community and technical college system submits a single prioritized request to the Office of Financial Management and the Legislature for appropriated capital funds, which includes major projects, minor projects, repairs, emergency funds, alternative financing and major leases. The primary funding source for college capital projects is state general obligation bonds. In recent years, declining state revenues significantly reduced the state s debt capacity and are expected to continue to impact the number of new projects that can be financed. At June 30, 2016, the College had invested $55.6 million in capital assets, net of accumulated depreciation. This represents an increase of $5.5 million from last year, as shown in the table below. ASSET TYPES (in thousands) Years ended June 30, Increase (Decrease) % variance Land $ 4,506 $ 4,506 $ - 0.0% Buildings, net 48,316 26,265 22, % Equipment, net 2,579 1,562 1, % Library Resources, net % Construction in Progress - 17,613 (17,613) % Total Capital Assets, Net $ 55,553 $ 50,095 $ 5, % Page 24

26 The increase in net capital assets is attributed to the completion of Advanced Technology Building and acquisition of equipment and library resources. Advanced Technology Center is a two-story, 53,000 square foot building to house engineering, information technology and digital media programs. Additional information on capital assets can be found in Note 5 of the Notes to the Financial Statements. At June 30, 2016, the College had $0.8 million in outstanding debt as compared to $0.9 million at June 30, The debt is made up entirely of the Certificate of Participation (COP) for the lighting HVAC and controls upgrade during The decrease of $0.1 million was the payment of debt principal. Additional information of notes payable, long term debt and debt service schedules can be found in Notes 12 and 13 of the Notes to the Financial Statements. Economic Factors That May Affect the Future In the most recent forecast from Washington s Economic and Revenue Forecast Council (March 2017), it was observed that the Washington s economy continues to experience slightly stronger growth compared to the national economy. Forecasted economic growth is projected to decline from a real GDP of 2.3% in 2017 to 2.1% in It has been surveyed that consumers expect the economy to continue expanding in the months ahead but had a slightly less positive views on future economic conditions. Major threats to the U.S. and Washington State economies include slower growth in developed economies, weaker exports, sluggish growth in labor productivity, and uncertainty regarding federal fiscal and trade policy. Solid employment growth and stronger residential construction activity suggests projected strength in the economy. Following a trend that began in fiscal year 2009, the College s state operating appropriations continued to decrease. Beginning fiscal year 2016, the Legislature enacted the Affordable Education Act, which reduced tuition by 5% at the College. This further reduced the amount of tuition collected by the College. The Legislature did however partially backfill this loss. Fiscal year 2017 represents year two of a four year rebasing of the College enrollment target and state allocation. In addition, in fiscal year 2017, the State Board for Community and Technical Colleges has elected to move to a new allocation model, changing how the state allocated funds are distributed to each college. The new model is based on performance in several key indicators, from general enrollments to enrollments in high cost programs, as well as student completion and achievement points. The model is based on a three-year rolling average of enrollments and completions, comparative to other institutions in the state. Due to declining enrollment, it is estimated that the College will likely see a decline in state operating appropriations in future years, until the three-year average is increased above our target enrollment allocation. It is unclear how much opportunity there may be for additional investments in community and technical colleges in the next few years, as state budget writers continue to grapple with courtmandated basic education obligations under the McCleary Act. As state funding becomes less and less reliable, the College will continue to pursue other funding sources. The College will seek opportunities to increase local fund revenues and continue to develop and expand high demand programs in response to the needs of the community and industry. Page 25

27 Bates Technical College Statement of Net Position Bates Technical College Statement of Net Position June 30, 2016 ASSETS Current assets Cash $ 15,090,012 Accounts receivable, net 2,953,146 Due from state treasurer 2,618,001 Inventories 96,748 Prepaid expenses 9,696 Total current assets 20,767,603 Non-current assets Land and construction in progress 4,506,414 Capital assets, net of depreciation 51,046,522 Total non-current assets 55,552,936 Total assets 76,320,539 DEFERRED OUTFLOWS OF RESOURCES RELATED TO PENSIONS 1,082,330 LIABILITIES Current liabilities Accounts payable 1,000,893 Accrued liabilities 2,481,769 Compensated absences, current 166 Due to state treasurer 412,284 Unearned revenue 1,962,723 Certificates of participation, current portion 133,745 Total current liabilities 5,991,580 Non-current liabilities Compensated absences, non-current 2,046,279 Pension liability 5,438,488 Certificates of participation, long-term portion 688,108 Total non-current liabilities 8,172,875 Total liabilities 14,164,455 DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS 948,613 NET POSITION Net investment in capital assets 54,731,083 Restricted for: Expendable 324,180 Unrestricted 7,234,538 Total net position $ 62,289,801 The notes to the financial statements are an integral part of this statement Page 26

28 Bates Technical College Statement of Revenues, Expenses and Changes in Net Position Bates Technical College Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2016 Operating revenues Student tuition and fees, net $ 5,950,993 Auxiliary enterprise sales 788,782 State and local grants and contracts 11,113,983 Federal grants and contracts 137,036 Other revenues 723,181 Interest on loans to students 7,425 Total operating revenue 18,721,400 Operating expenses Salaries and wages 20,715,917 Benefits 6,453,925 Scholarships and fellowships, net 3,123,947 Supplies and materials 2,815,599 Depreciation 1,425,998 Purchased services 1,607,337 Utilities 977,849 Other expenses 5,827,276 Total operating expenses 42,947,848 Operating loss (24,226,448) Non-operating revenues (expenses) State appropriations 20,397,245 Federal pell grant revenue 2,988,438 Building fee remittance (497,977) Innovation fund remittance (148,026) Interest on indebtedness (44,066) Net non-operating revenues (expenses) 22,695,614 Income before capital appropriations (1,530,834) Capital appropriations 8,165,412 Increase in net position 6,634,578 Net position Net position, beginning of year 55,655,223 Net position, end of year $ 62,289,801 The notes to the financial statements are an integral part of this statement Page 27

29 Bates Technical College Statement of Cash Flows Bates Technical College Statement of Cash Flows For the Year Ended June 30, 2016 Cash flow from operating activities Student tuition and fees $ 5,825,967 Grants and contracts 10,814,472 Payments to vendors (5,040,338) Payments for utilities (708,506) Payments to employees (20,606,962) Payments for benefits (6,829,937) Auxiliary enterprise sales 762,779 Payments for scholarships and fellowships (3,123,947) Loans issued to students and employees 7,425 Other receipts 113,216 Other payments (6,868,014) Net cash used by operating activities (25,653,845) Cash flow from noncapital financing activities State appropriations 21,186,747 Pell grants 2,988,438 Building fee remittance (398,822) Innovation fund remittance (112,575) Net cash provided by noncapital financing activities 23,663,788 Cash flow from capital and related financing activities Capital appropriations 14,331,725 Purchases of capital assets (6,791,569) Principal paid on capital debt (106,753) Interest paid (44,066) Net cash used by capital and related financing activities 7,389,337 Increase in cash 5,399,280 Cash at the beginning of the year 9,690,732 Cash at the end of the year $ 15,090,012 e notes to the financial statements are an integral part of this statement Page 28

30 Statement of Cash Flows, continued Reconciliation of Operating Loss to Net Cash used by Operating Activities Operating loss Adjustments to reconcile net loss to net cash used by operating activities $ (24,226,448) Depreciation expense 1,425,998 Changes in assets and liabilities Receivables, net (1,479,079) Inventories 200,653 Other assets (4,052) Accounts payable (1,710,822) Accrued liabilities 162,936 Unearned revenue 270,268 Compensated absences 74,938 Pension liability adjustment expense (368,237) Net cash used by operating activities $ (25,653,845) The notes to the financial statements are an integral part of this statement Page 29

31 Foundation Statement of Financial Position Bates Technical College Foundation Statement of Financial Position June 30, 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 441,257 Short-term investments 753,829 Prepaid expenses 3,051 Total Current Assets 1,198,137 FIXED ASSETS Equipment 24,181 Less accumulated depreciation 24,181 Total Fixed Assets - TOTAL ASSETS $ 1,198,137 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 9,725 NET ASSETS Deficit (23,417) Temporarily restricted 405,286 Permanently restricted 806,543 Total Net Assets 1,188,412 TOTAL LIABILITIES AND NET ASSETS $ 1,198,137 Page 30

32 Foundation Statement of Unrestricted Revenues, Expenses, and Other Changes in Unrestricted Net Assets Bates Technical College Foundation Statement of Unrestricted Revenues, Expenses and Other Changes in Unrestricted Net Assets For the Year Ended June 30, 2016 UNRESTRICTED NET ASSETS Support Contributions $ 20,654 In-kind contributions 223,312 Realized and unrealized losses on short-term investments (86) Investment loss (6) Total Support 243,874 Net assets released from donor restrictions 102, ,399 Expenses Program services In-kind services 194,300 Meetings and travel 11,804 Printing 4,106 Miscellaneous 9,720 Scholarships 66,732 Fundraising 18,294 Supplies 30,932 Software and equipment 1,614 Total Program Services 337,502 Supporting services In-kind expenses 29,012 Dues and memberships 4,610 Insurance 2,555 Miscellaneous 735 Total Supporting Services 36,912 Total Expenses 374,414 DECREASE IN UNRESTRICTED NET ASSETS $ (28,015) Page 31

33 Foundation Statement of Changes in Net Assets Bates Technical College Foundation Statement of Changes in Net Assets For the Year Ended June 30, 2016 UNRESTRICTED NET ASSETS Support $ 243,874 Expenses (374,414) Net assets released from donor restrictions 102,525 Increase in Unrestricted Net Assets (28,015) TEMPORARILY RESTRICTED NET ASSETS Contributions 142,532 Realized and unrealized losses (64,184) Investment income 54,174 Net asstes released from donor restrictions (102,525) Decrease in Temporarily Restricted Net Assests 29,997 PERMANENTLY RESTRICTED NET ASSETS Contributions - Decrease in Net Assets 1,982 Net Assets at Beginning of Year 1,186,430 NET ASSETS AT END OF YEAR $ 1,188,412 Page 32

34 Notes to the Financial Statements June 30, 2016 These notes form an integral part of the financial statements. NOTE 1 - Summary of Significant Accounting Policies Financial Reporting Entity Bates Technical College (the College) is a comprehensive technical college offering open-door academic programs, workforce education, basic skills, and community services. The College confers associates degrees, certificates and high school diplomas. It is governed by a five-member Board of Trustees appointed by the Governor and confirmed by the state Senate. The College is an agency of the State of Washington. The financial activity of the college is included in the State s Comprehensive Annual Financial Report. The Bates Technical College Foundation (the Foundation) is a separate but affiliated non-profit entity, incorporated under Washington law in 1992 and recognized as a tax-exempt 501(c)(3) charity. The Foundation s charitable purpose is to support student and program success by securing resources through building community relationships and awareness. Because the majority of the Foundation s income and resources are restricted by donors and may only be used for the benefit of the college or its students, the Foundation is considered a discrete component unit based on the criteria contained in Governmental Accounting Standards Board (GASB) Statement Nos. 61, 39 and 14. A discrete component unit is an entity which is legally separate from the College, but has the potential to provide significant financial benefits to the College or whose relationship with the College is such that excluding it would cause the College s financial statements to be misleading or incomplete. The Foundation s financial statements are discretely presented in this report. The Foundation s statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Intra-entity transactions and balances between the College and the Foundation are not eliminated for financial statement presentation. During the fiscal year ended June 30, 2016, the Foundation distributed approximately $338,000 to the College for restricted and unrestricted purposes. A copy of the Foundation s complete financial statements may be obtained from the Foundation s Administrative Offices at (253) Basis of Presentation The financial statements have been prepared in accordance with Generally Accepted Accounting Principles. For financial reporting purposes, the College is considered a special-purpose government engaged only in Business Type Activities (BTA). In accordance with BTA reporting, the College presents a Management s Discussion and Analysis; a Statement of Net Position; a Statement of Revenues, Expenses and Changes in Net Position; a Statement of Cash Flows; and Notes to the Financial Statements. The format provides a comprehensive, entity-wide perspective of the college s assets, deferred inflows, liabilities, deferred outflows, net position, revenues, expenses, changes in net position and cash flows. Page 33

35 Basis of Accounting The financial statements of the College have been prepared 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, regardless of the timing of the cash flows. Non-exchange transactions, in which the College receives (or gives) value without directly giving (or receiving) equal value in exchange includes state and federal appropriations, and 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. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. During the course of operations, numerous transactions occur between funds for goods provided and services rendered. For the financial statements, interfund receivables and payables have generally been eliminated. However, revenues and expenses from the College s auxiliary enterprises are treated as though the College were dealing with private vendors. For all other funds, transactions that are reimbursements of expenses are recorded as reductions of expense. Cash Cash includes cash on hand and bank demand deposits. Cash that is held with the intent to fund College operations is classified as current assets. The College combines unrestricted cash operating funds from all departments into an internal investment pool, the income from which is allocated for general operating needs of the College. The internal investment pool is comprised of cash as authorized by RCW Accounts Receivable Accounts receivable consists of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. This also includes amounts due from federal, state and local governments or private sources as allowed under the terms of grants and contracts. Accounts receivable are shown net of estimated uncollectible amounts. Inventories Inventories, consisting primarily of merchandise for resale in the college bookstore and courserelated supplies, are valued at cost using the First-in First-out (FIFO) valuation method. Capital Assets In accordance with state law, capital assets constructed with state funds are owned by the State of Washington. Property titles are shown accordingly. However, responsibility for managing the assets rests with the College. As a result, the assets are included in the financial statements because excluding them would have been misleading to the reader. Page 34