Association of Governing Boards of Universities and Colleges and Subsidiaries

Transcription

1 Association of Governing Boards of Universities and Colleges and Subsidiaries Consolidating Financial Statements, Independent Auditor s Report and Supplemental Material Years Ended June 30, 2016 and 2015 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Association of Governing Boards of Universities and Colleges and Subsidiaries Consolidating Financial Statements, Independent Auditor s Report and Supplemental Material Years Ended June 30, 2016 and 2015

3 Contents Independent Auditor s Report 3-4 Consolidating Financial Statements Consolidating Statements of Financial Position 5 Consolidating Statements of Activities 6-7 Consolidating Statements of Cash Flows 8 Notes to Consolidating Financial Statements 9-20 Supplemental Material Consolidating Schedule of Functional Expenses 21 2

4 Tel: Fax: Greensboro Drive, Suite 800 McLean, VA Independent Auditor s Report Board of Directors Association of Governing Boards of Universities Washington, D.C. We have audited the accompanying consolidating financial statements of the Association of Governing Boards of Universities (collectively referred to as the Association), which comprise the consolidating statements of financial position as of June 30, 2016 and 2015, and the related consolidating statements of activities, and cash flows for the years then ended, and the related notes to the consolidating financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidating 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 consolidating 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 consolidating financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidating financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidating financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidating 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 consolidating financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidating financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3

5 Opinion In our opinion, the consolidating financial statements referred to above present fairly, in all material respects, the individual and consolidated financial positions of the Association of Governing Boards of Universities as of June 30, 2016 and 2015, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidating financial statements as a whole. The consolidating schedule of functional expenses on page 21 is presented for purposes of additional analysis and is not a required part of the consolidating financial statements. 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 consolidating financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidating financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidating financial statements or to the consolidating financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidating financial statements as a whole. October 13,

6 Consolidating Financial Statements

7 June 30, 2016 AGB AGBIS AGB Search Eliminations Total Assets Current assets Cash and cash equivalents $ 3,730,752 $ 941,167 $ 1,257,005 $ - $ 5,928,924 Accounts receivable, net of allowance of $5, , , ,472 (294,570) 1,199,713 Contributions receivable 52, ,000 Publication inventory, net of allowance of $14, , ,998 Prepaid expenses and other current assets 254,380 31,500 57, ,772 Advances to AGBIS 762, (762,667) - Deferred tax assets ,254-18,254 Total current assets 5,690,904 1,190,371 1,984,623 (1,057,237) 7,808,661 Noncurrent assets Property and equipment, net 756,226 2,888 13, ,467 Investments 9,735, ,735,524 Investment in AGB Search 50, (50,000) - Due from AGBIS 250, (250,000) - Cash surrender value of life insurance policies Deferred compensation investments 1,849, ,849,179 Other assets 52, ,339 Total noncurrent assets 12,693,268 2,888 13,353 (300,000) 12,409,509 Total assets $ 18,384,172 $ 1,193,259 $ 1,997,976 $ (1,357,237) $ 20,218,170 Liabilities and Net Assets Current liabilities Accounts payable and accrued expenses $ 143,243 $ 284,232 $ 63,352 $ (294,570) $ 196,257 Accrued annual leave 224,868 5,781 37, ,954 Deferred membership dues 3,154, ,154,188 Tax payable ,375-35,375 Deferred rent 87, ,650 Advances from AGB - 762,667 - (762,667) - Other deferred income 144, ,226 Total current liabilities 3,754,175 1,052, ,032 (1,057,237) 3,885,650 Noncurrent liabilities Deferred rent 1,086, ,086,014 Deferred compensation liability 1,849, ,849,179 Due to AGB - 250,000 - (250,000) - Total noncurrent liabilities 2,935, ,000 - (250,000) 2,935,193 Total liabilities 6,689,368 1,302, ,032 (1,307,237) 6,820,843 Commitments and contingencies Net assets Unrestricted General fund 1,040,377 (109,421) 1,861,944 (50,000) 2,742,900 Quasi-endowment fund 7,846, ,846,754 Property and equipment fund 305, ,315 Appropriated fund 1,158, ,158,521 Total unrestricted net assets 10,350,967 (109,421) 1,861,944 (50,000) 12,053,490 Temporarily restricted 1,343, ,343,837 Total net assets 11,694,804 (109,421) 1,861,944 (50,000) 13,397,327 Total liabilities and net assets $ 18,384,172 $ 1,193,259 $ 1,997,976 $ (1,357,237) $ 20,218,170

8 June 30, 2015 AGB AGBIS AGB Search Eliminations Total Assets Current assets Cash and cash equivalents $ 2,173,288 $ - $ 1,417,551 $ - $ 3,590,839 Accounts receivable, net of allowance of $5, , ,525 (32,805) 670,653 Contributions receivable 459, ,417 Publication inventory, net of allowance of $14, , ,199 Prepaid expenses and other current assets 279, ,253 Advances to AGBIS Deferred tax assets - - 5,070-5,070 Total current assets 3,407,090-1,892,146 (32,805) 5,266,431 Noncurrent assets Property and equipment, net 889,942-13, ,470 Investments 11,650, ,650,612 Investment in AGB Search 50, (50,000) - Due from AGBIS Cash surrender value of life insurance policies 245, ,126 Deferred compensation investments 1,677, ,677,016 Other assets 52, ,339 Total noncurrent assets 14,565,035-13,528 (50,000) 14,528,563 Total assets $ 17,972,125 $ - $ 1,905,674 $ (82,805) $ 19,794,994 Liabilities and Net Assets Current liabilities Accounts payable and accrued expenses $ 172,255 $ - $ 56,550 $ (32,805) $ 196,000 Accrued annual leave 213,684-58, ,576 Deferred membership dues 3,045, ,045,224 Tax payable , ,043 Deferred rent 65, ,720 Advances from AGB Other deferred income 118,240-15, ,240 Total current liabilities 3,615, ,485 (32,805) 3,894,803 Noncurrent liabilities Deferred rent 1,172, ,172,335 Deferred compensation liability 1,677, ,677,016 Due to AGB Total noncurrent liabilities 2,849, ,849,351 Total liabilities 6,464, ,485 (32,805) 6,744,154 Commitments and contingencies Association of Governing Boards of Universities Consolidating Statements of Financial Position Net assets Unrestricted General fund 605,938-1,593,189 (50,000) 2,149,127 Quasi-endowment fund 8,302, ,302,982 Property and equipment fund 369, ,592 Appropriated fund 1,257, ,257,958 Total unrestricted net assets 10,536,470-1,593,189 (50,000) 12,079,659 Temporarily restricted 971, ,181 Total net assets 11,507,651-1,593,189 (50,000) 13,050,840 Total liabilities and net assets $ 17,972,125 $ - $ 1,905,674 $ (82,805) $ 19,794,994 See accompanying notes to consolidating financial statements. 5

9 Consolidating Statements of Activities Year ended June 30, 2016 AGB Other General Unrestricted Total Temporarily AGB Fund Funds Unrestricted Restricted Total AGBIS Search Eliminations Total Revenue, Gains, and Other Support Membership $ 5,777,870 $ - $ 5,777,870 $ - $ 5,777,870 $ - $ - $ - $ 5,777,870 AGB Consulting 1,932,753-1,932,753-1,932, ,932,753 Contributions and gifts 835, ,920 1,080,000 1,915,920 3,750 - (61,250) 1,858,420 National conference 889, , , ,495 Seminars and workshops 854, , , ,875 Publication sales 359, , , ,272 Contributed services ,000 38, ,000 Other income 306, , , (128,720) 177,632 AGBIS consulting fees , ,177 AGB Search fees ,778,400 (30,000) 5,748,400 Net assets released from restrictions: Satisfaction of purpose restrictions 745, ,717 (745,717) Total revenue, gains, and other support 11,702,254-11,702, ,283 12,074, ,927 5,778,400 (219,970) 18,266,894 Expenses Program services Meetings and research 2,518, ,885 2,626,221-2,626, ,626,221 AGB Consulting 1,619,844 11,477 1,631,321-1,631, ,631,321 Center for public trusteeship and governance 1,357,171 58,262 1,415,433-1,415, ,415,433 Publications 1,005,261 61,016 1,066,277-1,066, ,066,277 Grant programs 745, , , ,717 Other unrestricted programs AGBIS expenses ,348 - (29,954) 713,394 AGB Search expenses ,232,090 (160,016) 5,072,074 Total program services 7,246, ,640 7,484,969-7,484, ,348 5,232,090 (189,970) 13,270,437 Supporting services Management and general 3,146,335 24,303 3,170,638-3,170, (33,750) 3,136,888 Member development 696,705 53, , , ,588 Marketing 353,863 4, , , ,914 Fundraising 312,636 2, , , ,336 Total supporting services 4,509,539 84,937 4,594,476-4,594, (33,750) 4,560,726 Total expenses 11,755, ,577 12,079,445-12,079, ,348 5,232,090 (223,720) 17,831,163 Change in net assets before non-operating revenues (53,614) (323,577) (377,191) 372,283 (4,908) (109,421) 546,310 3, ,731 Non-operating revenues Interest and dividends 29, , , , ,468 Interest income earned on advances 3,750-3,750-3, (3,750) - Dividends from AGB Search 277, , , (277,863) - Net realized and unrealized (loss) gain on investments 21,672 (523,384) (501,712) - (501,712) (501,712) Total non-operating revenues 332,916 (141,228) 191, , (281,613) (89,244) Change in net assets 279,302 (464,805) (185,503) 372, ,153 (109,421) 546,618 (277,863) 346,487 Transfers 155,137 (155,137) Dividends (277,863) 277,863 - Net assets, beginning of year 605,938 9,930,532 10,536, ,181 11,507,651-1,593,189 (50,000) 13,050,840 Net assets, end of year $ 1,040,377 $ 9,310,590 $ 10,350,967 $ 1,343,837 $ 11,694,804 $ (109,421) $ 1,861,944 $ (50,000) $ 13,397,327 See accompanying notes to consolidating financial statements. 6

10 Consolidating Statements of Activities Year ended June 30, 2015 AGB Other General Unrestricted Total Temporarily AGB Fund Funds Unrestricted Restricted Total AGBIS Search Eliminations Total Revenue, Gains, and Other Support Membership $ 5,588,142 $ - $ 5,588,142 $ - $ 5,588,142 $ - $ - $ - $ 5,588,142 AGB Consulting 1,828,009-1,828,009-1,828, ,828,009 Contributions and gifts 843, , ,000 1,643, (50,000) 1,593,849 National conference 857, , , ,313 Seminars and workshops 786, , , ,982 Publication sales 416, , , ,054 Contributed services 64,500-64,500-64, ,500 Other income 92,854-92,854-92, (89,985) 2,869 AGBIS consulting fees AGB Search fees ,296,359 (60,000) 5,236,359 Net assets released from restrictions: Satisfaction of purpose restrictions 542, ,007 (542,007) Total revenue, gains, and other support 11,019,710-11,019, ,993 11,277,703-5,296,359 (199,985) 16,374,077 Expenses Program services Meetings and research 2,844, ,819 2,964,207-2,964, ,964,207 AGB Consulting 1,789,646 30,601 1,820,247-1,820, ,820,247 Center for public trusteeship and governance 361,866 12, , , ,466 Publications 1,168,981 36,002 1,204,983-1,204, ,204,983 Grant programs 542, , , ,007 Other unrestricted programs - 133, , , ,823 AGBIS expenses AGB Search expenses ,740,729 (142,546) 4,598,183 Total program services 6,706, ,845 7,039,733-7,039,733-4,740,729 (142,546) 11,637,916 Supporting services Management and general 3,116,694 64,803 3,181,497-3,181, (60,000) 3,121,497 Member development 715,263 28, , , ,064 Marketing 306,923 14, , , ,323 Fundraising 342,404 14, , , ,804 Total supporting services 4,481, ,404 4,603,688-4,603, (60,000) 4,543,688 Total expenses 11,188, ,249 11,643,421-11,643,421-4,740,729 (202,546) 16,181,604 Change in net assets before non-operating revenues (168,462) (455,249) (623,711) 257,993 (365,718) - 555,630 2, ,473 Non-operating revenues Interest and dividends 20, , , , ,834 Interest income earned on advances 2,561-2,561-2, (2,561) - Dividends from AGB Search 200, , , (200,000) - Net realized and unrealized (loss) gain - on investments (632) 286, , , ,818 Total non-operating revenues 222, , , , (202,561) 424,652 Change in net assets 54,323 (50,933) 3, , , ,725 (200,000) 617,125 Transfers (193,000) 193, Dividends (200,000) 200,000 - Net assets, beginning of year 744,615 9,788,465 10,533, ,171 11,246,251-1,237,464 (50,000) 12,433,715 Net assets, end of year $ 605,938 $ 9,930,532 $ 10,536,470 $ 971,181 $ 11,507,651 $ - $ 1,593,189 $ (50,000) $ 13,050,840 See accompanying notes to consolidating financial statements. 7

11 Year ended June 30, 2016 AGB AGBIS AGB Search Eliminations Total Cash flows from operating activities Change in net assets $ 187,153 $ (109,421) $ 546,618 $ (277,863) $ 346,487 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 148,915-3, ,785 Bad debt expense Net realized and unrealized losses on investments 501, ,712 Donated stock (13,549) (13,549) Market value increase of deferred compensation investments (6,892) (6,892) Market value increase in cash surrender value of life - insurance policies Deferred taxes - - (13,184) - (13,184) (Increase) decrease in assets Accounts receivable (391,174) (217,704) (181,947) 261,765 (529,060) Contributions receivable 407, ,417 Publication inventory (4,799) (4,799) Prepaid expenses and other current assets 24,873 (31,500) - - (6,627) Advances to AGBIS (762,667) ,667 - Other assets Increase (decrease) in liabilities Accounts payable and accrued expenses (29,012) 284,232 6,802 (261,765) 257 Accrued annual leave 11,184 5,781 (21,587) - (4,622) Income tax payable - - (204,560) - (204,560) Deferred membership dues 108, ,964 Advances from AGB - 762,667 - (762,667) - Other deferred income 25,986 - (15,000) - 10,986 Deferred rent (64,391) (64,391) Deferred compensation liability 172, ,163 Net cash provided by operating activities 315, , ,012 (277,863) 853,087 Cash flows from investing activities Proceeds from sale of investments 4,687, ,687,143 Purchases of investments (3,260,218) (3,260,218) Purchases of deferred compensation investments (165,271) (165,271) Due from AGBIS (250,000) ,000 - Payments received on note receivable Purchases of property and equipment (15,199) (2,888) (3,695) - (21,782) Proceeds from cash surrender value of life insurance policies 245, ,126 Premiums paid for life insurance policies Net cash provided by (used in) investing activities 1,241,581 (2,888) (3,695) 250,000 1,484,998 Cash flows from financing activities Proceeds from AGB - 250,000 - (250,000) - Payments made on note payable Dividends paid - - (277,863) 277,863 - Net cash provided by (used in) financing activities - 250,000 (277,863) 27,863 - Increase (decrease) in cash and cash equivalents 1,557, ,167 (160,546) - 2,338,085 Cash and cash equivalents, beginning of year 2,173,288-1,417,551-3,590,839 Cash and cash equivalents, end of year $ 3,730,752 $ 941,167 $ 1,257,005 $ - $ 5,928,924

12 Consolidating Statements of Cash Flows Year ended June 30, 2015 AGB AGBIS AGB Search Eliminations Total Cash flows from operating activities Change in net assets $ 261,400 $ - $ 555,725 $ (200,000) $ 617,125 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 144,354-2, ,723 Bad debt expense 1, ,000 Net realized and unrealized losses on investments (285,818) (285,818) Donated stock (5,149) (5,149) Market value increase of deferred compensation investments (107,122) (107,122) Market value increase in cash surrender value of life insurance policies (16,600) - 22,775-6,175 Deferred taxes (Increase) decrease in assets Accounts receivable 218,960-61,323 (14,622) 265,661 Contributions receivable (437,667) (437,667) Publication inventory (5,634) (5,634) Prepaid expenses and other current assets (38,241) - 97,667-59,426 Advances to AGBIS Other assets 32, ,000 Increase (decrease) in liabilities Accounts payable and accrued expenses 30,221 - (2,104) 14,622 42,739 Accrued annual leave 16,815-8,005-24,820 Income tax payable , ,043 Deferred membership dues 166, ,418 Advances from AGB Other deferred income (27,542) - 15,000 - (12,542) Deferred rent (41,705) (41,705) Deferred compensation liability 244, ,939 Net cash provided by operating activities 150, ,803 (200,000) 893,432 Cash flows from investing activities Proceeds from sale of investments 312, ,009 Purchases of investments (137,906) (137,906) Purchases of deferred compensation investments (137,817) (137,817) Due from AGBIS Payments received on note receivable 128, (128,057) - Purchases of property and equipment (96,313) - (11,309) - (107,622) Proceeds from cash surrender value of life insurance policies Premiums paid for life insurance policies (7,200) (7,200) Net cash provided by (used in) investing activities 60,830 - (11,309) (128,057) (78,536) Cash flows from financing activities Proceeds from AGB Payments made on note payable - - (128,057) 128,057 - Dividends paid - - (200,000) 200,000 - Net cash used in financing activities - - (328,057) 328,057 - Increase in cash and cash equivalents 211, , ,896 Cash and cash equivalents, beginning of year 1,961, ,114-2,775,943 Cash and cash equivalents, end of year $ 2,173,288 $ - $ 1,417,551 $ - $ 3,590,839 See accompanying notes to consolidating financial statements. 8

13 Notes to Consolidating Financial Statements 1. Summary of Significant Accounting Policies General Information The Association of Governing Boards of Universities and Colleges ( AGB ) was founded in 1921 to serve public institutions. In 1964, AGB established an office in Washington, D.C. and became a national association when its membership was opened to assist both public and private college and university governing boards. AGB is dedicated to strengthening the performance of boards of public and private higher education. It advances the practice of citizen trusteeship that has distinguished American higher education for more than 350 years. By serving as a continuing education resource to trustees and boards and by contributing to effective working relationships between boards and chief executives, AGB seeks to strengthen the governance of higher educational institutions. AGB recognizes its leadership responsibilities to its members and to a diverse system of higher education. AGB strongly believes in citizen control of our colleges and universities, rather than direct governmental control, and works to ensure that higher education remains a strong and vital national asset. AGB membership consists of 1,317 boards serving public and private colleges and universities and public college and university foundations. Approximately 37,000 board members, presidents and other senior institutional officers are members. AGB Search, LLC ( AGB Search ), a District of Columbia limited liability company, was established by AGB, on December 4, 2009, for the purpose of advancing education by assisting universities and colleges in undertaking successful searches and transitions of their presidents and other senior leaders. AGB Strategies is a non-profit organization registered in the District of Columbia effective July 16, 2015 under the trade name AGB Institutional Strategies ( AGBIS ). AGBIS was established for the purposes of reviewing, improving and advancing the quality of public and independent higher education institutions by evaluating their financial sustainability and business model, their delivery of academic programs and effectiveness of their institution governance. AGBIS acts as a supporting organization under Section 509(a)(3) of the Code, thereby operating exclusively for the benefit of and to carry out the purposes of AGB. Consolidation Policy The accompanying consolidating financial statements include the accounts of AGB and its subsidiaries, AGB Search and AGBIS, which are under common control of AGB. Collectively they are referred to as the Association. All material inter-organization transactions and balances have been eliminated in consolidation. Basis of Accounting The consolidating financial statements of the Association have been prepared on the accrual basis of accounting. 9

14 Notes to Consolidating Financial Statements Cash and Cash Equivalents Cash and cash equivalents include operating cash accounts, petty cash and all liquid investments with original maturities of three months or less. Accounts Receivable Accounts receivable consists primarily of amounts due from the sale of publications, conference and seminar registrations, and consulting fees. The allowance method is used to determine the uncollectible amounts. The allowance is based upon prior years experience and management s analysis of subsequent collections. Accounts receivable are written off if reasonable collection efforts prove unsuccessful. Contributions Receivable Contributions, which include unconditional promises to give, are recognized as revenues in the period received. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of estimated future cash flows. The discounts on those amounts are computed using risk-free interest rates applicable to the years in which the promises are received. Amortization of any discount is included in contribution revenue. Contributions receivable as of June 30, 2016 and 2015 are all due in one year, therefore there is no discount. Management considers all promises to give to be fully collectible, therefore no allowance for doubtful accounts has been established. Conditional promises to give are not included as support until the conditions are substantially met. Publication Inventory Inventory consists of books, pamphlets, and various other publications. Inventory is stated at the lower of cost or market, and is valued using the average cost method of inventory valuation. Property and Equipment Property and equipment are recorded at cost. The Association capitalizes all expenditures for property and equipment over $1,000. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets of three to ten years or the lesser of the useful life of the asset or the term of the lease for leasehold improvements. When assets are sold or otherwise disposed of, the asset and related accumulated depreciation or amortization are removed from the accounts, and any remaining gain or loss is included in operations. Repairs and maintenance are charged to expense when incurred. Certain costs of internally developed software and website development are capitalized in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) , Accounting for the Cost of Computer Software Developed or Obtained for Internal Use and ASC , Accounting for Website Development Costs, respectively. These costs are being amortized over the estimated useful lives of the software and website. 10

15 Notes to Consolidating Financial Statements Investments Investments consist of monies invested in money market funds, equity securities, mutual funds, and bonds, and are recorded at readily determinable fair values. Unrealized and realized gains and losses are included in the consolidating statements of activities. All of the Association s investments have been identified as Level I in the fair value hierarchy as they have values based on quoted prices in active markets for identical assets based on the criteria included in ASC , Fair Value Measurements. Financial Instruments and Credit Risk Financial instruments which potentially subject the Association to concentrations of credit risk consist principally of investments held at creditworthy financial institutions. By policy, these investments are kept within limits designed to prevent risks caused by concentration. Credit risk with respect to trade and other receivables is limited because the Association deals with a large number of customers over a wide geographic area. Deferred Membership Dues Dues are calculated based on the full-time equivalent (FTE) enrollment at the members universities and colleges. The FTE is computed based on one-third of the part-time, plus all fulltime student enrollments for the most recent fall semester or quarter. Approximately 500 member university and college renewals have calendar year renewal anniversaries. Membership dues are recognized on a pro-rata basis over the annual membership period. Unrestricted Net Assets Unrestricted net assets are available for use in general operations. Unrestricted - board designated net assets have been designated by the Board for specific purposes and consist of the quasi-endowment fund, the property and equipment fund, and the appropriated fund. Temporarily Restricted Net Assets Temporarily restricted net assets consist of amounts that are subject to donor restrictions and income earned on temporarily restricted net assets. The Association is permitted to use up or expend the donated assets in accordance with the donor restriction. The Association reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidating statements of activities as net assets released from restrictions. 11

16 Notes to Consolidating Financial Statements Revenue Recognition Revenues are recognized during the period in which it is earned. Fees received in advance and not yet earned are deferred to the applicable period. Membership revenue is recognized over the period of membership or subscription. Consulting fees are recognized based on the milestone completed in a project. Contributions are recognized in the period when an unconditional promise to give is received. Contributions received are considered to be available for use unless specifically restricted by the donor. Amounts received that are designated for a future period, or are restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. Unconditional promises to give, which do not state a due date, are presumed to be time-restricted by the donor until received and are reported as temporarily restricted net assets. Fees for conferences, seminars and workshops thereof are recognized in the period the related events take place. Contributed Services The Association receives various contributed services from authors of certain articles and papers published by the Association as well as legal fees. The Association has recognized $38,000 and $64,500 in contributed services revenue and consultant expenses for the years ended June 30, 2016 and 2015, respectively. Expense Allocation The cost of providing various programs and supporting activities has been summarized on a function basis in the consolidating statement of activities. Direct expenses are charged to the respective programs and supporting services benefited based upon management s estimates of each program s share of the allocated costs. Use of Estimates The preparation of the consolidating financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidating financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (ASU) , Revenue from Contracts with Customers, which establishes a comprehensive revenue recognition standard for virtually all industries in GAAP, including those that previously followed industry-specific guidance. For nonpublic entities, the new standards are effective for annual periods beginning after December 15, In August 2015, the FASB issued an update in ASU , Revenue from Contracts with Customers: Deferral of the Effective Date, which delayed the effective date of the new revenue 12

17 Notes to Consolidating Financial Statements accounting standards to fiscal years beginning after December 15, The Association s management is currently evaluating the impact of this update on the Association s consolidating financial statements. In August 2014, the FASB Issued ASU , Presentation of Financial Statements Going Concern (Subtopic ): Disclosure of Uncertainties about an Entity s Ability to Continue as a Going Concern (ASU ). The amendments in ASU define when and how companies are required to disclose going concern uncertainties, which must be evaluated each period. Specifically, the ASU requires management to determine whether substantial doubt exists regarding the entity s going concern presumption. Substantial doubt about an entity s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the consolidating financial statement are issued (or available to be issued). If substantial doubt exists, certain disclosures are required; the extent of those disclosures depends on an evaluation of management s plans (if any) to mitigate the going concern uncertainty. The new standard applies prospectively to annual periods ending after December 15, The Association s management is currently evaluating the effect the provisions of ASU will have on the Association s consolidating financial statements. In July 2015, the FASB issued ASU , Simplifying the Measurement of Inventory, which requires an entity to measure inventory at the lower of cost and net realizable value. The amendments are effective prospectively for periods beginning after December 15, 2016 with early adoption permitted. The Association s management is currently evaluating the effect the provision of ASU will have on the Association s consolidating financial statements. In November 2015, the FASB issued ASU , Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires all deferred income tax assets and liabilities to be classified as noncurrent on the balance sheet. The new standard is effective for annual reporting period beginning after December 15, 2017 with an early adoption permitted. The Association s management is currently evaluating the effect the provision of ASU will have on the Association s consolidating financial statements. In February 2016, the FASB issued ASU , Leases (Topic 842), which requires that a lessee recognize on the consolidating statements of financial position for leases with lease terms of more than 12 months. Leases with terms of less than 12 months are exempt from the new standard. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by the lessee will depend on its classification as finance or operating lease. ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, Early adoption is permitted. The Association s management is currently evaluating the effect the provisions of ASU will have on the Association s consolidating financial statements. 2. Tax Status AGB has been granted exemption by the Internal Revenue Service (IRS) from Federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The IRS has also determined that AGB is not a private foundation. AGB is required to report unrelated business income to the Internal Revenue Service. AGB s source of unrelated business income consists of advertising income, and rental and administrative services for AGB Search and AGBIS. No provision for income taxes has been made at June 30, 2016 and

18 Notes to Consolidating Financial Statements AGBIS has filed for a tax exemption under Section 501(c)(3) of the Internal Revenue Code and a public charity under Section 509(a)(1) of the Code. AGB Search is taxed as a C Corp under the Internal Revenue Code. AGB Search is subject to federal and state income taxes on its net taxable income. AGB Search accounts for federal and state income taxes using the liability method, under which deferred tax assets or liabilities are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using the currently enacted tax rates. Differences between the effective tax rate and the federal statutory rate of 34% are primarily attributable to state income taxes. The deferred tax assets were $18,254 and $5,070 as of June 30, 2016 and 2015, respectively, and were primarily attributable to temporary differences such as accrued expenses, depreciation, and amortization. Income tax expense was $395,224 and $420,812, respectively, for the years ended June 30, 2016 and 2015 for AGB Search. The Association does not believe there are any material uncertain tax positions and accordingly, will not recognize any liability for unrecognized tax benefits. AGB and AGBIS have filed for income tax exemptions in the jurisdictions where it is required to do so. While AGB has received its tax exemption from the IRS; AGBIS is still awaiting a determination from the IRS. Additionally, AGB and AGBIS file Internal Revenue Form 990 tax returns as required and all applicable returns in those jurisdictions where it is required. AGB and AGB Search believe that they are no longer subject to U.S. federal, state and local, or non-u.s. income tax examinations by tax authorities for years before For the years ended June 30, 2016 and 2015, there were no interest or penalties recorded in the consolidating statements of activities. 3. Concentration of Credit Risk The Association maintains its cash balances at several financial institutions which, at times, may exceed federally insured limits. The Association has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash and cash equivalents. 4. Property and Equipment Property and equipment for AGB consists of the following at: June 30, Furniture and equipment $ 1,192,610 $ 1,179,655 Leasehold improvements 1,111,545 1,111,545 Computer software 69,650 67,406 Website 50,153 50,153 2,423,958 2,408,759 Less: accumulated depreciation and amortization 1,667,732 1,518,817 $ 756,226 $ 889,942 14

19 Notes to Consolidating Financial Statements Depreciation and amortization expense for the years ended June 30, 2016 and 2015 was $148,915 and $144,354, respectively. Property and equipment of the subsidiaries consist of the following at: June 30, Furniture and equipment $ 25,538 $ 18,955 Website 8,000 8,000 33,538 26,955 Less: accumulated depreciation and amortization 17,297 13,427 $ 16,241 $ 13,528 Depreciation and amortization expense for the years ended June 30, 2016 and 2015 was $3,870 and $2,369, respectively. 5. Investments Investments, at fair value, consist of the following at: June 30, Equity securities Domestic mutual funds $ 4,287,913 $ 5,054,222 Foreign mutual funds 1,561,335 1,198,590 Total equity securities 5,849,248 6,252,812 Money market funds - 1,501,358 Total money market funds - 1,501,358 Fixed-income securities Corporate mutual funds 1,997,505 2,050,169 Short-term bond index fund 1,888,771 1,846,273 Total fixed-income securities 3,886,276 3,896,442 Total investments $ 9,735,524 $ 11,650, Cash Surrender Value of Life Insurance Policies In April 2016, AGB s President surrendered the policy with John Hancock. Concurrently, AGB and the beneficiary entered into a Settlement and Payment agreement. The cash surrender value of the insurance policy was $0 and $245,126 as of June 30, 2016 and 2015, respectively. 15

20 Notes to Consolidating Financial Statements 7. Deferred Compensation During fiscal year 1999, the Association established a nonqualified deferred compensation plan (a rabbi trust ) for senior management. Subsequently, the Board authorized 457(b) contributions through TIAA-CREF. The Association holds assets totaling $1,849,179 and $1,677,016 as of June 30, 2016 and 2015, respectively, which are reported as deferred compensation investments and a deferred compensation liability in the accompanying consolidating statements of financial position. The assets are subject to the claims of general creditors. The investments of the trust are held in separate accounts for investment purposes, but are designated by the Board for use to satisfy this deferred compensation liability. Investments held for deferred compensation plans are carried at fair value and are classified as follows at: June 30, Domestic securities $ 1,558,942 $ 1,408,527 Real estate investment fund 290, ,489 Total $ 1,849,179 $ 1,677,016 The Association s deferred compensation investments have been identified as Level 1, 2 and 3 in the fair value hierarchy in accordance with ASC , Fair Value Measurements. As the total dollar amount of deferred compensation classified as Level 2 and 3 is overall immaterial to the consolidating financial statements, the ASC disclosure has not been included. Investment gains and losses from the deferred compensation investments are recorded directly to the asset account and the corresponding liability account. 8. Temporarily Restricted Net Assets Temporarily restricted net assets are restricted to the following funds at: June 30, Purpose Research projects $ 1,328,303 $ 821,021 Miscellaneous 15, ,160 $ 1,343,837 $ 971,181 16

21 Notes to Consolidating Financial Statements 9. Program and Supporting Services Descriptions The following program and supporting services are included in the accompanying consolidating financial statements. Meetings and Research The Association provides various workshops, seminars, and institutes for member presidents and trustees in addition to the annual National Conference on Trusteeship in major cities around the nation. Also, the Association offers a wide range of continuing education opportunities for the boards of member institutions at sites of their own choosing. AGB Consulting AGB Consulting provides individualized solutions for board members and campus leaders to respond to governance challenges and crises, and to successfully lead higher education systems, institutions, and affiliated foundations. The Richard T. Ingram Center for Public Trusteeship and Governance (the Center) The Center s mission is to strengthen relationships between state government and public higher education by enhancing the effectiveness of citizen governing and foundation boards and their trustee members. The Center offers workshops and institutes for public institutions. Also, it provides statewide and regional trustee education and board development programs. Publications In addition to a regular Trusteeship magazine, which is sent directly to its nearly 37,000 individual members, the Association publishes about 100 titles. Grant Programs The Association has a number of projects whose funding from outside sources is restricted to particular projects, focused on board responsibility for the oversight of institutional student aid, educational quality and improving board oversight of student learning and Governance for Student Success, and a study on board compliance with best practice on oversight of intercollegiate athletics. The Association was also awarded a grant for addressing HBCU Business Model Revitalization through Effective Institutional Leadership. Other Unrestricted Programs The Association has a number of projects whose funds have been appropriated from excess revenue over expenses from prior fiscal periods. 17

22 Notes to Consolidating Financial Statements AGBIS Expenses AGBIS expenses include consulting services to provide institutions of higher education with operational and mission-driven strategies that help achieve renewed institutional strength as well as operating and corporate expenses. AGB Search Expenses Expenses incurred by AGB Search in order to perform its consulting services including searches and transitions of presidents and other senior leaders for universities and colleges as well as management and general expenses and allocated expenses from AGB. Management and General Management and general includes the functions necessary to secure and maintain proper administrative function of the Board of Directors and two advisory groups of presidents and board chairs; maintain an adequate working environment; and manage the Association s financial and budgetary responsibilities. Member Development The Association regularly promotes membership for College and University boards and institution chief executives through regular communications. Marketing The Association has an annual schedule of marketing activities related to its programs, publications, services and membership. The marketing area coordinates concept and graphic design, production, and mailing of print and electronic promotional materials. Fundraising The Association seeks financial (both restricted and unrestricted) support from individuals, corporations, and foundations for special Association programs, publications, services, and projects. 10. Defined Contribution Pension Plan The Association maintains a noncontributory defined contribution pension plan (the Plan) for eligible employees. All employees at least 21 years of age are eligible for the Plan and are fully vested upon entering the Plan. The Association contributes 10% of each eligible employee s compensation within the Social Security earnings base; and 15% on any compensation above the Social Security earnings base. The Association incurred $367,535 and $326,963 in pension expense for the years ended June 30, 2016 and 2015, respectively. 18

23 Notes to Consolidating Financial Statements 11. Commitments and Contingencies Operating Leases The Association leases office space under a non-cancelable operating lease that expires on December 31, As of June 30, 2016, the Association s security deposit is $52,339. On May 6, 2013, an amendment to the office space lease agreement was executed between AGB and its landlord for additional office space. AGB began leasing the expansion space on September 1, 2013, the lease amendment will expire on December 31, Future minimum rental payments, by year and in the aggregate, under the operating leases are as follows: Years Ending June 30, 2017 $ 934, , ,015, ,041, ,067,970 Thereafter 1,490,848 $ 6,524,499 The amount paid under rental agreements was $907,899 and $885,495 for the years ended June 30, 2016 and 2015, respectively. Incentives received in the form of tenant improvements at the inception of the operating lease are accounted for as deferred rent in the accompanying consolidating statements of financial position and are amortized as necessary to recognize lease expense on a straight-line basis over the remaining life of the lease. 12. Related Parties During the year ended June 30, 2010, AGB contributed $50,000 in capital and loaned $357,500 to AGB Search to support its operations. As of June 30, 2015, AGB Search had repaid the loan in full. AGB Search also reimburses AGB for expenses paid on their behalf. At June 30, 2016 and 2015, AGB Search owed $44,570 and $32,805, respectively, for these expenses. In 2016 and 2015, AGB Search contributed cash to AGB amounting to $50,000 per year. Likewise, AGB Search distributed cash dividends amounting to $277,863 in 2016 and $200,000 in AGB received rental income from AGB Search amounting to $110,016 and $89,985 in 2016 and 2015, respectively. AGB Search also performed consulting services related to staffing of executive positions at AGB during the year ended June 30, 2016 and 2015, for those services, AGB made payments totaling $30,000 and $60,000, respectively. These are eliminated in the consolidating financial statements. 19

24 Notes to Consolidating Financial Statements Relative to the discussion of the formation of AGBIS in Note 1, in October 2015, AGB advanced AGBIS $250,000 to serve as its initial working capital. AGBIS reimburses AGB for expenses paid on its behalf. At June 30, 2016, AGBIS owed $250,000 for these expenses. In 2016, AGBIS contributed cash to AGB amounting to $7,500. AGB received rental income of $18,704 from AGBIS and contributed $3,750 to AGBIS in Further, AGB transferred certain advances to AGBIS to finance a joint research project. As of June 30, 2016, the outstanding advance to AGBIS is $762, Subsequent Events The Association evaluated subsequent events through October 13, 2016, which is the date the consolidating financial statements were available to be issued. There were no events noted that required adjustment to or disclosure in these consolidating financial statements. 20

25 Supplemental Material

26 Consolidating Schedule of Functional Expenses for the Year Ended June 30, 2016 (with comparative totals for the year ended June 30, 2015) Program Services Supporting Services Year Ended June 30, 2016 Center for Public Trusteeship Total Management Total Meetings and AGB and Grant Program and Member Supporting AGB AGB Research Consulting Governance Publications Programs Services General Development Marketing Fundraising Services Total AGBIS Search Eliminations Total Total Accounting and legal $ 50,476 $ 29,615 $ 17,351 $ 28,393 $ - $ 125,835 $ 4,659 $ 31,547 $ 9,464 $ 6,309 $ 51,979 $ 177,814 $ 8,227 $ 131,028 $ - $ 317,069 $ 213,668 Bad debt ,000 Computer system maintenance ,200 1,200 4, ,170 5, ,370 80,285 Conferences and seminars 800,270 2, ,968 7,727 7,877 1,167, ,619 2,863 3,180 8,208 1,175,544 9,655 96,198-1,281,397 1,124,928 Consultant fees 219, , , , ,131 1,806, ,492 48, ,426 1,989, ,193 2,940,522-5,231,979 4,751,114 Corporate sponsorships ,027 11,027 (11,027) (11,027) Depreciation and amortization 33,092 17,580 11,375 18,614 80,661 37,229 20,683 6,205 4,137 68, ,915 3, , ,723 Dues and subscriptions 42,056-5,642 2,779 5,111 55, ,348 3, , ,661 1,939 25, , ,697 Equipment lease and duplication , ,642 43, ,168 35,417 Insurance and bond 9,854 16,640 2,547 4,167-33,208 8,334 4,630 1, ,279 48,487 2, , ,704 41,593 Occupancy/rent 164,874 87,590 56, , , , ,439 31,057 20, , ,633 18, ,017 (128,720) 878, ,086 Office supplies, telephone, maintenance 19,180 8,936 6,291 6,832-41,239 65,982 4,098 6,195 1,400 77, , , , ,760 Other employee benefits 188, ,693 89,244 78, , , ,330 42,492 45, ,746 1,262,089 30, ,688-1,498,632 1,157,905 Other services 35,439-39,859-38, ,298 97, , ,659 5,004 - (65,000) 151, ,452 Postage 18,668 1,584 10,024 78,738 5, ,278 3,943 5,941 5,762 1,552 17, , , , ,676 Printing/design 47, , ,885 43, ,732 12,694 2,800 7,947 8,513 31, ,686 6, , ,044 Promotion 136,692 13,947 41,468 36, ,599-55,155 77, , ,232 84, ,649 (30,000) 529, ,775 Salaries 596, , , , ,853 1,725,545 1,376, , , ,272 2,025,725 3,751, , ,337-4,891,217 4,443,785 Special project/contingency 10,773 42,322 8,248 22, , , , , , , ,891 Taxes and licenses , , ,086 Temporary help/replacement 33, ,706 8,591 40,296-7,616 56,503 90,209 6,878 4, , ,330 Travel and entertainment 218,523 37, ,387 2,327 54, , ,218 1,737 12,954 42, , ,875 85,753 75, , ,022 Total expenses $ 2,626,221 $ 1,631,321 $ 1,415,433 $ 1,066,277 $ 745,717 $ 7,484,969 $ 3,170,638 $ 750,588 $ 357,914 $ 315,336 $ 4,594,476 $ 12,079,445 $ 743,348 $ 5,232,090 $ (223,720) $ 17,831,163 $ 16,181,604 See accompanying independent auditor's report and notes to the consolidating financial statements. 21