HOLYOKE COMMUNITY COLLEGE (an agency of the Commonwealth of Massachusetts)

Transcription

1 HOLYOKE COMMUNITY COLLEGE INDEPENDENT AUDITORS' REPORTS AS REQUIRED BY THE UNIFORM GUIDANCE AND GOVERNMENT AUDITING STANDARDS AND RELATED INFORMATION JUNE 30, 2016

2 Independent Auditors' Reports as Required by the Uniform Guidance and Government Auditing Standards and Related Information June 30, 2016 C O N T E N T S Independent Auditors' Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 1-3 Independent Auditors' 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 4-5 Schedule of Expenditures of Federal Awards 6-7 Notes to the Schedule of Expenditures of Federal Awards 8 Schedule of Findings and Questioned Costs 9-12 Required Auditee Information: Management s Summary Schedule of Prior Audit Finding(s) 13

3 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE To the Board of Trustees of Holyoke Community College Holyoke, Massachusetts Report on Compliance for Each Major Federal Program We have audited Holyoke Community College s (an agency of the Commonwealth of Massachusetts) (the "College") compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the College s major federal programs for the year ended June 30, The College s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of the College s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance ). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the College s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 25 Braintree Hill Office Park Suite 102 Braintree, MA P: F: Church Street Winchester, MA P: F:

4 We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the College s compliance. Opinion on Each Major Federal Program In our opinion, the College complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Report on Internal Control over Compliance Management of the College is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the College s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the College s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, however, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

5 Schedule of Expenditures of Federal Awards We have audited the financial statements of the College, as of and for the year ended June 30, We issued our report thereon dated October 10, 2016, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance. Such information 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. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Certified Public Accountants Braintree, Massachusetts January 27, 2017 (except for the Schedule of Expenditures of Federal Awards, for which the date is October 10, 2016)

6 INDEPENDENT AUDITORS 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 To the Board of Trustees of Holyoke Community College Holyoke, Massachusetts 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 Holyoke Community College (the College ), which comprise the statement of net position as of June 30, 2016, the related statements of revenues, expenses and changes in net position and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the College s basic financial statements and have issued our report thereon dated October 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 entity'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. 25 Braintree Hill Office Park Suite 102 Braintree, MA P: F: Church Street Winchester, MA P: F:

7 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 its 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 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. Certified Public Accountants Braintree, Massachusetts October 10, 2016

8 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

9 Holyoke Community College (an Agency of the Commonwealth of Massachusetts) Schedule of Expenditures of Federal Awards Year Ended June 30, 2016 Passed CFDA Pass-Through Entity Federal Through to Number Pass-Through Entity Award Number Expenditures Subrecipients STUDENT FINANCIAL ASSISTANCE CLUSTER U.S. Department of Education: Direct Awards: Federal Supplemental Educational Opportunity Grant N/A N/A $ 185,800 $ - Federal Work-Study Program N/A N/A 188,826 - Federal Pell Grant Program N/A N/A 11,134,949 - Federal Direct Student Loans N/A N/A 6,865,592 - Total Student Financial Assistance Cluster 18,375,167 - TRIO CLUSTER U.S. Department of Education: Direct Awards: TRIO - Student Support Services N/A N/A 314,283 - Total TRIO Cluster 314,283 - RESEARCH AND DEVELOPMENT CLUSTER National Science Foundation Direct Awards: Education and Human Resources N/A N/A 288,553 67,344 NON-CLUSTER U.S. Department of Labor: Pass-through Awards: WIA Dislocated Worker Formula Grants Regional Employment Board N/A 17,480 - Trade Adjustment Assistance Community College and Quinsigamond Community College ($1,093) N/A 257,903 - Career Training (TAACCCT) Grants Massasoit Community College ($256,810) National Endowment for the Humanities Direct Awards: Promotion of the Humanities, Teaching and Learning N/A N/A 38,278 - Resources and Curriculum Development Department of State Bureau of Education and Cultural Affairs Pass-through Awards: Academic Exchange Programs - Teachers Institute for Training and Development N/A 39,

10 Holyoke Community College (an Agency of the Commonwealth of Massachusetts) Schedule of Expenditures of Federal Awards - Continued Year Ended June 30, 2016 Passed CFDA Pass-Through Entity Federal Through to Number Pass-Through Entity Award Number Expenditures Subrecipients U.S. Department of Education Pass-through Awards: Higher Education - Institutional Aid A N/A N/A 32,912 - Adult Education - Basic Grants to States Commonwealth of Massachusetts, Department N/A 443,015 - Career and Technical Education - Basic Grants to States of Elementary, and Secondary Education N/A 316,024 - Twenty-First Century Community Learning Centers N/A 27,938 - Improving Teacher Quality State Grants Commonwealth of Massachusetts, Department N/A 64,345 - College Access Challenge Program of Higher Education N/A 98,012 - Adult Education - Basic Grants to States A Regional Employment Board N/A 6,358 - Total Non-Cluster 1,630,011 - Total Expenditures of Federal Awards $ 20,319,461 $ 67,

11 (an Agency of the Commonwealth of Massachusetts) Notes to the Schedule of Expenditures of Federal Awards - Continued Year Ended June 30, 2016 Note 1 - Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule ) includes the federal award activity of Holyoke Community College (the College ) (an agency of the Commonwealth of Massachusetts) under programs of the Federal Government for the year ended June 30, The information on this Schedule is prepared in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards ( Uniform Guidance ). Because the Schedule presents only a selected portion of the operations of the College, it is not intended to and does not present the financial position, changes in net position or cash flows of the College. Note 2 - Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance. Note 3 - Indirect Cost Rate The College has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. Note 4 - Federal Student Loan Programs Direct Student Loan Program The College disbursed $6,865,592 of loans under the Federal Direct Student Loans program, which include Stafford Subsidized and Unsubsidized Loans and Parent Plus Loans. It is not practical to determine the balances of the loans outstanding to students of the College under the program as of June 30, The College is only responsible for the performance of certain administrative duties and, accordingly, these loans are not included in the College s financial statements

12 (an Agency of the Commonwealth of Massachusetts) Schedule of Findings and Questioned Costs Year Ended June 30, 2016 Section I Summary of Auditors Results: Financial Statements Type of auditors report issued: Unmodified Internal control over financial reporting: Material weaknesses identified? yes x no Significant deficiencies identified that are not considered to be material weaknesses? yes x no Noncompliance material to the financial statements noted? yes x no Federal Awards Type of auditors report issued on compliance for major programs: Unmodified Internal control over major programs: Material weaknesses identified? yes x no Significant deficiencies identified that are not considered to be material weaknesses? yes x no Any audit findings disclosed that are required to be reported in accordance with the Uniform Guidance? yes x no - 9 -

13 (an Agency of the Commonwealth of Massachusetts) Schedule of Findings and Questioned Costs - Continued Year Ended June 30, 2016 Identification of Major Programs Name of Federal Program or Cluster CFDA Number Student Financial Assistance Cluster Federal Supplemental Educational Opportunity Grant Program Federal Work-Study Program Federal Pell Grant Program Federal Direct Student Loans (Note 3) Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as a low-risk auditee? x yes no

14 (an Agency of the Commonwealth of Massachusetts) Schedule of Findings and Questioned Costs - Continued Year Ended June 30, 2016 Section II Financial Statement Findings: None

15 (an Agency of the Commonwealth of Massachusetts) Schedule of Findings and Questioned Costs - Continued Year Ended June 30, 2016 Section III Federal Award Findings and Questioned Costs: None

16 (an Agency of the Commonwealth of Massachusetts) Management s Summary Schedule of Prior Audit Finding Year Ended June 30, 2016 Finding number: Federal agency: U.S. Department of Education Programs: Federal Supplemental Educational Opportunity Grants Federal Pell Grant Program, Federal Direct Student Loans Federal Work Study CFDA # s: , , , Award year: 2015 Condition Federal regulations require an institution to return unclaimed funds issued by check or EFT within 240 days. Award Year 2015: Out of a sample of forty students, we noted one student had unclaimed funds exceeding the federal limit. Current Year Status: Corrective action was taken in the current year. The auditor s test in this area resulted in no findings in this area

17 FINANCIAL STATEMENTS AND MANAGEMENT S DISCUSSION AND ANALYSIS JUNE 30, 2016

18 Financial Statements and Management s Discussion and Analysis June 30, 2016 C O N T E N T S Independent Auditors' Report 1-2 Management s Discussion and Analysis (Unaudited) 3-18 Financial Statements: Statements of Net Position 19 Statements of Revenues and Expenses 20 Statements of Cash Flows Notes to the Financial Statements Required Supplementary Information: Schedule of the College s Proportionate Share of the Net Pension Liability 50 Schedule of the College s Contributions 51 Notes to the Required Supplementary Information 52 Internal Auditors' 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 53-54

19 INDEPENDENT AUDITORS' REPORT To the Board of Trustees of Holyoke Community College Holyoke, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of Holyoke Community College (an agency of the Commonwealth of Massachusetts) (the "College"), which comprise the statements of net position as of and the related statements of revenues, expenses and changes in net position and cash flows for the years then ended, and the related notes to the 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. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Holyoke Community College Foundation, Inc. (the "Foundation") as discussed in Note 1. 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, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the 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 auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. 25 Braintree Hill Office Park Suite 102 Braintree, MA P: F: Church Street Winchester, MA P: F:

20 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 audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the net position of Holyoke Community College as of June 30, 2016 and 2015 and the respective changes in net position and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis on pages 3-18, the schedule of the College s proportionate share of the net pension liability on page 50, the schedule of the College s contributions on page 51 and the notes to the required supplementary information on page 52 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 10, 2016, on our consideration of Holyoke Community 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 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 Holyoke Community College's internal control over financial reporting and compliance. Certified Public Accountants Braintree, Massachusetts October 10, 2016

21 Management's Discussion and Analysis June 30, 2016 (Unaudited) The following discussion and analysis provides management s view of the financial position of Holyoke Community College (the College) as of June 30, 2016, 2015 and 2014, and the results of operations for the years then ended. This analysis should be read in conjunction with the College s financial statements and notes thereto which are also presented in this document. GSB Statement No. 68 of the Governmental Accounting Standard Board (GASB), Accounting and Reporting for Pensions establishes new standards for how governmental employers that contribute to pension plans report liabilities and plan details on their financial statements. GASB 68 requires that the Commonwealth report its unfunded pension liability on its statements of net position. As permitted by GASB 68, the Commonwealth will report its net pension liability as of 06/30/15 on the FY 16 statements. The pension plan is a cost sharing multiple-employer plan that pools retirement assets to pay benefits to any participating plan members. GASB 68 requires that pension liabilities and costs must be allocated to participating employers including Holyoke Community College. Holyoke Community College s FY 16 statements reflect the implementation of GASB 68. Please see footnote 13, on page 43. The College is a public institution of higher education serving approximately 11,267 students, with 127 faculty and 274 staff, as well as part-time faculty and employees. The campus is located in Holyoke, Massachusetts. The College offers more than 80 programs of study leading to an associate s degree, certificate programs and noncredit programs. Financial Highlights At June 30, 2016, the College s assets of $66,384,054 exceeded its liabilities of $28,075,708 and deferred inflows of resources of $3,750,527 by $34,557,819. At June 30, 2015, the College s assets of $62,242,370 exceeded its liabilities of $22,923,404 and deferred inflows of resources of $4,893,367 by $34,425,599. At June 30, 2014, the College s assets, and deferred outflow of resources of $59,983,526, exceeded its liabilities of $26,207,188 by $33,776,338. These resulting net position are summarized into the following categories: Net invested in capital assets $ 28,558,337 28,184,391 28,315,305 Restricted, expendable 499, , ,439 Unrestricted 5,499,870 5,981,523 5,349,594 Total net position $ 34,557,819 34,425,599 33,776,

22 Management's Discussion and Analysis (Unaudited) The College s Trustees may use the unrestricted net position to meet the College s ongoing obligations to its stakeholders. Additionally, the restricted, expendable net position may also be expended, but only for the purposes for which the donor or grantor intended. The College s Trustees have designated certain unrestricted net position for a number of purposes including: capital expansion funds; capital adaptation and renewal funds; new program funds; and long-term investment funds. Net position reflect the impact of College s portion of the Commonwealth s unfunded pension liability of $9,174,886 in FY16, $5,028,761 in FY15 and 7,083,129 in FY14. The current year s increase in net position was negatively impacted by two significant liabilities that we had to recognize in the current year: an unfunded pension liability expense (net) of $547,026; and an agreement between the Commonwealth and the community colleges faculty and professional staff bargaining unit to pay salary increases retroactive to 7/1/2015 totaling $333,643. As of June 30, 2016, the legislature had yet to fund any portion of this increase and therefore the entire cost was absorbed by the College in the current year. The College anticipates the legislature funding approximately 60% of the retroactive salary costs in FY These two provisions combined to reduce the increase in net position by $880,669 to $132,220. The College s total net position increased by $132,220, $649,261 and $698,313 in 2016, 2015 and 2014 respectively. In FY16 the increase is the result of capital appropriations totaling $1,304,270, partially offset by operating deficits net of non-operating revenues of $625,024 and a net negative unfunded pension adjustment of $547,026. The FY15 increase is attributable to investment income of $529,928, capital appropriation of $577,563 offset by operating deficits net of non-operating revenue (excluding investment income) totaling $458,230. The FY14 increase is attributable to investment income of $1,759,142, capital appropriation of $299,957 offset by operating deficits net of non-operating revenue totaling $1,360,786. The College s allocation of the Commonwealth s Pension Liability required a restatement that lowered its beginning net position for FY14 by $6,684,692. More information can be found in the capital assets discussion in this report and footnote 5 on page 37. Overview of the Financial Statements The College s financial statements comprise two primary components: 1) the financial statements and 2) the notes to the financial statements. Additionally, the financial statements focus on the College as a whole, rather than upon individual funds or activities

23 Management's Discussion and Analysis (Unaudited) In May 2002, GASB issued Statement No. 39 of the Governmental Accounting Standards Board (GASB), Determining Whether Certain Organizations are Component Units (an amendment of GASB 14). GASB 39 establishes new criteria for evaluating the need to include component units of the College. The College adopted GASB 39 as of July 1, The Holyoke Community College Foundation (Foundation) is a legally separate tax-exempt component unit of Holyoke Community College. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the College in support of its programs. The board of directors of the Foundation is self-perpetuating and primarily consists of graduates and friends of the College. Although the College does not control the timing or the amount of receipts from the Foundation, the majority of resources received or held by the Foundation are restricted to the activities of the College by the donors. Because these resources held by the Foundation can only be used for the benefit of the College, the Foundation is considered a component unit of the College and is discretely presented in the College s financial statements. Management s Discussion and Analysis is required to focus on the College, not its component unit. The Financial Statements The financial statements are designed to provide readers with a broad overview of the College s finances and are comprised of three basic statements. The Statements of Net Position presents information on all of the College s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the College is improving or deteriorating. The Statements of Revenues and Expenses presents information showing how the College s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g. the payment for accrued compensated absences, or the receipt of amounts due from students and others for services rendered)

24 Management's Discussion and Analysis (Unaudited) The Statements of Cash Flows is reported on the direct method. The direct method of cash flow reporting portrays net cash flows from operations as major classes of operating receipts (e.g. tuition and fees) and disbursements (e.g. cash paid to employees for services). The Government Accounting Standards Board (GASB) Statements 34 and 35 require this method to be used. In accordance with GASB 39, the Foundation is not required to present the Statements of Cash Flows. The financial statements can be found on pages of this report. Holyoke Community College reports its activity as a business-type activity using the full accrual measurement focus and basis of accounting. The College is a component unit of the Commonwealth of Massachusetts. Therefore, the results of the College s operations, its net position and cash flows are also summarized in the Commonwealth s Comprehensive Annual Financial Report in its government-wide financial statements. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes provide information regarding both the accounting policies and procedures the College has adopted, as well as additional detail of certain amounts contained in the financial statements. The notes to the financial statements can be found on pages of this report. Financial Analysis As noted earlier, net position may serve over time as a useful indicator of the College s financial position. The College s assets exceeded liabilities by $34,557,819, $34,425,599 and $33,776,338 at the close of FY16, FY15, and FY14 respectively

25 Management's Discussion and Analysis (Unaudited) June 30 Net Assets (In thousands) Current assets $ 14,810 13,959 14,807 Noncurrent assets 49,225 47,722 44,778 Total assets $ 64,035 61,681 59,585 Deferred outflows of resources $ 2, Current liabilities $ 9,062 7,386 8,128 Noncurrent liabilities 19,014 15,537 18,078 Total liabilities $ 28,076 22,923 26,206 Deferred inflows of resources $ 3,750 4,893 Net position: Net investment in capital assets $ 28,558 28,184 28,315 Restricted, expendable Unrestricted 5,500 5,982 5,350 Total net position $ 34,558 34,426 33,777 The largest portion of the College s net position reflects its investment in capital assets (e.g., land, buildings, machinery, and equipment); less any related debt used to acquire those assets that are still outstanding. In FY16, investment in capital assets totaled $28,558,337 or 43.0% of total assets. The College uses these capital assets to provide services to students, faculty, administration, and the community. Consequently, these assets are not available for future spending. Although the College s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Also, in addition to the debt noted above, which is reflected in the College s financial statements, the Commonwealth of Massachusetts regularly provides financing for certain capital projects through the issuance of general obligation bonds. These borrowings by the Commonwealth are not reflected in these financial statements. The restricted portion of the College s net position represents resources that are subject to external restrictions on how they must be used. In FY16, restricted net position totaled $499,612 or 0.7% of total position.unrestricted net position may be used to meet the College s ongoing obligations to its stakeholders. In FY16, unrestricted net position total $5,499,870, $5,981,523 in FY15, and $5,349,594 in FY

26 Management's Discussion and Analysis (Unaudited) To account for the College s allocation of the Commonwealth s Unfunded Pension Liability, the FY 2014 unrestricted net position were decreased by $6,684,692 to $5,349,594. The prior year s net impact increased unrestricted net position by $631,929 and the current year decreased unrestricted net position by $547,026. The total impact of the unfunded pension liability reduced unrestricted net position by $6,599,787. Excluding the impact of the unfunded pension liability, unrestricted net position would in the current fiscal year increase to $12,099,657 from the reported $5,499,870. The College s Trustees have determined that these funds be designated for long-term investment, capital expansion, plant adaptation and renewal and other uses (see note 8 on page 40 of this report). The College s net positon increased $132,220 in fiscal 2016, $649,261 in fiscal 2015, and $698,313 in fiscal The schedule below provides a summary of Changes in Net Position. Year ended June 30 Changes in Net Position (In thousands) Operating revenues: Tuition and fees, net of tuition waivers, and remissions $ 16,908 15,871 16,214 Other operating sources 20,964 22,465 22,340 Total operating revenues 37,872 38,336 38,554 Operating expenses 63,609 62,498 62,436 Net operating loss (25,737) (24,162) (23,882) Nonoperating revenues (expenses): State appropriation 24,760 23,999 22,829 Other nonoperating income (expenses) (195) 234 1,451 Total nonoperating revenues 24,565 24,233 24,280 Income (loss) before other revenues, expenses, gains, or losses (1,172) Capital revenues (expenses): State capital appropriations 1, Net capital revenues 1, Increase (decrease) in net assets Net position: Beginning of year 34,426 33,777 33,079 End of year $ 34,558 34,426 33,

27 Management's Discussion and Analysis (Unaudited) State Appropriation 39% Sources of Revenue - FY16 Other 2% Auxiliaries 2% Grants & Contracts 30% Tuition & Fees 27% State Appropriation 38% Sources of Revenue - FY15 Other 2% Auxiliaries 3% Grants & Contracts 32% Tuition & Fees 25% - 9 -

28 Management's Discussion and Analysis (Unaudited) State Appropriation 36% Sources of Revenue - FY14 Other 4% Auxiliaries 3% Grants & Contracts 31% Tuition & Fees 26% Revenue from all sources (excluding capital appropriations) totaled $62,717,269, $62,864,961 and $63,142,099 in FY16, FY15 and FY14 respectively. Highlights of revenue include: State appropriations, which include the cost of fringe benefits (excluding capital appropriations), totaled $24,759,813, $23,999,262, and $22,829,133 in FY16, FY15, and FY14, respectively, and amount to 39.5%, 38%, and 36% of all revenue. The State Appropriation increased modestly $760,551 or 3.2% from prior year. The appropriation increased in FY15 $1,746,579 or 7.6% due to additional funding formula appropriations and funding for the MCCC and AFSCME increases net of the College s transfer to the state. In FY15, the Governor implemented a MGL Chapter 29, Section 9C reduction of $283,175 to the College s original appropriation, and the College transferred this amount to the State Treasurer to satisfy this obligation. In FY14 the State Appropriation increased due to a new state funding formula, and the funding of impact bargaining salary increases. The category tuition and fees represents approximately 50% of our unrestricted revenue and totaled $24,046,634, $23,403,789 and $22,143,670 in FY16, FY15, and FY14, respectively. Of this amount, $7,138,568, $7,533,270, and $6,928,830 are tuition and fees paid by various financial aid programs including local funds designated by the College. Tuition and Fees per credit hour were increased $12 or 7.6% in FY16; this increase was substantially reduced by a 5.3% decline in credit enrollment resulting in a net 2.7% increase before allowances and

29 Management's Discussion and Analysis (Unaudited) discounts. The credit cost per hour increased $11 or 7.0% in FY15 and was substantially offset by a 4.4% decline in credit enrollment, resulting in a net increase of 1.1%. In FY 2014, a 3% increase in tuition and fees was partially offset by a 5.2% decline in credit enrollments. A 5% decline in enrollment is anticipated for the coming year and the decline is expected to be substantially offset by a $14 Tuition and Fee increase. The category Grants and Contracts totaled $18,618,289, $19,944,269, and $19,714,412 in FY16, FY15, and FY14 respectively, of which $13,998,232, $15,127,437 and $15,330,500 was state and federal student financial aid. Grants and contracts for college programs increased in FY16 by $1,382,246 in FY15 by $592,490, and in FY14 by $60,635. The FY16 increase is the result of equipment grants from the HCC Foundation and MA Life Sciences. Auxiliary enterprises revenue is comprised principally of College bookstore operation, and is reported net of sales that are paid by financial aid. Auxiliary revenue totaled $3,021,944, $3,592,702, and $3,744,995 in FY16, FY15, and FY14, respectively. Included in this amount are $1,710,477, $2,027,615, and $2,080,396 in sales paid by financial aid. Sales declined $507,758 (14.1%) from the prior year due to enrollment declines and the continued market share encroachment by online retailers offering lower costs options. Sales decreased by $152,293 (4.1%) in FY15 and by $308,849 (7.6%) in FY14. Other sources of revenues in this discussion include the Other Sources reported under Operating Revenues, in the Statement of Revenues and Expenses, and represents Sales and Services of Educational Departments and Commissions. Other operating revenues amounted to $1,034,504, $955,896, and $959,973 in FY16, FY15, and FY14, respectively. Instruction 39% Public Service 0% FY16 Expenditures Depreciation 4% Auxiliaries 5% Scholarship 8% Operation & Maintenance of Plant 7% Institutional Support 14% Student Support 16% Academic Support 7%

30 Management's Discussion and Analysis (Unaudited) FY15 Expenditures Instruction 38% Public Service 0% Depreciation 4% Auxiliaries 5% Scholarship 11% Operation & Maintenance of Plant 7% Institutional Support 13% Student Support 15% Academic Support 7% Instruction 36% Public Service 0% FY14 Expenditures Depreciation 4% Auxiliaries 5% Scholarship 12% Operation & Maintenance of Plant 7% Institutional Support 14% Student Support 16% Academic Support 6% Not including expense impact for the Commonwealth s Net Pension Liability

31 Management's Discussion and Analysis (Unaudited) Expenditures from all sources totaled $63,609,757, $62,498,376, and $62,435,477 in FY16, FY15, and FY14, respectively. Highlights of expenditures include: In the current year, the College had a net pension expense of $547,026 resulting from the College's allocation of the Commonwealth's net Pension Liability impacting all expense categories except Scholarships and Depreciation. The following program categories experienced the following: Instruction costs increased $1,129,444 in the current year principally due to incremental grant funding for instructional programs. In FY15, instruction increased $1.5 million due to contractual salary increases, additional full time faculty, and new grant funded part time faculty positions in equal proportions. FY14 cost were level compared to FY13. Scholarships (payments directly to students) There was a substantial decrease of $1.6 million in the current year due to an 18% decline in Pell awards to students. Scholarships decreased $713,087 in FY15 due to increased tuition and fees being paid with financial aid. In FY14, there was a modest increase of $34,688. Operation and maintenance of plant decreased $477,096 in FY16, principally due to lower energy costs and open positions in public safety. The increase of $314,972 in FY15 was due to contractual salary increases which accounted for two-thirds of the increase with noncapital improvements accounting for the balance. In FY14, expenses increased by $456,817 due to higher energy and rental costs, increased maintenance of physical plant, and increased payroll expense. Institutional support increased by $808,878 in FY16 as labor costs were 2.7% higher than prior year while expenses increased across all categories for a total increase of 30%. Institutional Support decreased by $633,869 in FY15 with lower bad debt expense accounting for a third of the decrease, the balance due to lower costs in equipment, consulting, and general expenses. Expenses increased by $317,965 in FY14 due to an increase in the College s provision for allowances on bad debt and a provision for a judgment from a law suit

32 Management's Discussion and Analysis Expenditure classifications are defined below: (Unaudited) Instruction costs directly related to the classroom, i.e., faculty salaries, instructional supplies, and equipment. Academic support academic computing, library, academic administration. Student services Admissions, Registrar, and Financial Aid offices, as well as counseling, tutoring, interpreters and athletics. Scholarships all student aid including federal, state, and private grants, i.e., Pell, S.E.O.G., Mass State Cash Grants and Mass State Scholarship which was not used to pay tuition and fees. Public services includes funds expended for activities established primarily to provide noninstructional service programs to individuals and groups external to the institution. Operation and maintenance of plant all costs of operating and direct maintenance of the physical plant and grounds. Institutional support President s office, business operations, development office, and all other administrative functions including campus police. Auxiliary Bookstore. Because dining services is operated by a private contractor, any expenses related to this activity are categorized under Institutional Support. Non-operating Revenues and Expenses For non-operating revenues and expenses, the Commonwealth s unrestricted appropriation increased $857,210 or 3.6% in FY16, $1,292,893 or 5.75% in FY15, and $2,282,765 or 11.3% in FY14. The unrestricted state appropriation is the primary funding provided by the Commonwealth to support the operation of the College. The Commonwealth experienced revenue shortfalls and resulted in reduced support for Higher Education. Investment gains were $85,130, $529,928, and $1,759,142 in FY16, FY15, and FY14, respectively

33 Management's Discussion and Analysis (Unaudited) Loss from Operations Due to the nature of public higher education, institutions incur a loss from operations. The Commonwealth s Board of Higher Education sets tuition. The College sets fees and other charges. Commonwealth appropriations to the College make up the loss from operations not covered by tuition and fees. The College, with the purpose of balancing educational and operational needs with tuition and fee revenue, approves budgets to adequately manage the operation of the institution taking into consideration such issues as physical plant maintenance, delivery of instruction and student services, long range plans, and enrollment growth. The following schedule presents the College s incurred losses from operations for the fiscal years ended June 30, 2016, 2015, and 2014: Year ended June Tuition and fee revenue $ 16,908,066 15,870,519 16,214,840 Other revenue 20,964,260 22,465,252 22,338,984 Operational expenses (63,609,766) (62,498,376) (62,435,477) Operating loss (25,737,440) (24,162,605) (23,881,653) Commonwealth direct appropriations, fringe benefits for employees on the Commonwealth s payroll, net of remitted tuition to the Commonwealth 24,759,813 23,999,262 22,829,133 Other nonoperating revenues, net (194,423) 235,041 1,450,876 Net change before capital $ (1,172,050) 71, ,356 appropriations Capital Assets and Debts of the College Capital Assets The College s investment in capital assets as of June 30, 2016, 2015, and 2014 amounts to $37,130,884, $35,665,684, and $33,171,105, respectively, net of accumulated depreciation. This investment in capital assets includes land, buildings (including improvements), furnishings, and equipment (including the cost of capital leases). Capital assets increased by $1,465,200 or 4.1% in FY16, increased $2,494,579 or 7.5% in FY15, and decreased $1,207,588 or 3.5% in FY14. The increases in FY16 and FY15 are due to capital improvements exceeding depreciation. The decrease in FY14 is due to depreciation exceeding capital improvements.

34 Management's Discussion and Analysis (Unaudited) The College will use operating funds and proceeds from bond financing to invest in capital projects that enhance student services and learning. Holyoke Community College and the Holyoke Community College Foundation opened Doyle Drive in March of Doyle Drive provides the campus community access to the college from Westfield Road. The road was funded by grants received from Federal and State agencies through the Holyoke Community College Foundation. The planning process for the roadway had identified the need for the construction of a water infrastructure improvement to loop the water system of the college and thus improve the delivery system to the college. The college funded $465,000 towards the water system upgrade and the access road. The College has been awarded a $3,800,000 grant from Massachusetts Center for Life Sciences to renovate 13,000 square feet of space in the Marieb building to create a Center for Life Sciences. The Center for Life Sciences is a $4,550,000 project that will include the only clean room in Western Massachusetts to support training for students, faculty, and industry partners. The schematic design of the project began during the summer of 2015, and construction is planned to start early in calendar The Center for Health Education opened at the start of the fall 2015 semester. In fiscal year 2013 the college purchased the land and building for $1,925,000. Construction costs totaled $4,000,000. Funding for the project has come from bond financing and gifts from the Holyoke Community College Foundation. In August of 2015, Governor Baker announced that the state would fund $2,500,000 for the design phase of improvements to the Campus Center. Additional funds of approximately $8,500,000 were approved in March of 2016 to move the project forward. The construction will include new exterior sheathing, new windows and doors, and new mechanical and electrical systems. Once the campus center is completed it will house the college store, admissions, student activities, testing and advising services, and expanded cafeteria seating and food service area. This overall $43,500,000 project is expected to begin in January of 2017 and last 18 to 24 months. The Massachusetts Department of Capital Maintenance & Management (DCAMM) and Holyoke Community College are collaborating on an Accelerated Energy Program for the campus. The total cost of the project is estimated to be $9,000,000. Holyoke Community College has pledged to reimburse DCAMM approximately $3,000,000 of the total project cost over the next 20 years with the funds realized from energy cost savings. The project