Benedictine College. Independent Auditor s Reports and Financial Statements (Including Reports Required Under O.M.B.

Transcription

1 Independent Auditor s Reports and Financial Statements (Including Reports Required Under O.M.B. Circular A-133) June 30, 2014 and 2013

2 June 30, 2014 and 2013 Contents Independent Auditor s Report... 1 Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 6 Notes to Financial Statements... 7 Supplementary Information Schedule of Expenditures of Federal Awards Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Independent Auditor s Report Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings... 33

3 Independent Auditor s Report Board of Directors Benedictine College Atchison, Kansas Report on the Financial Statements We have audited the accompanying financial statements of Benedictine College (the College), which comprise the statements of financial position as of, and the related statements of activities 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. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. 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 auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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. 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.

4 Board of Directors Benedictine College Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Benedictine College as of, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary information, including the schedule of expenditures of federal awards required by OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the 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 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 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 financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 22, 2014, on our consideration of the College s internal control over financial reporting and 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control over financial reporting and compliance. Kansas City, Missouri October 22, 2014

5 Statements of Financial Position June 30, 2014 and 2013 Assets Cash and cash equivalents $ 4,767,529 $ 3,115,835 Investments 24,141,725 19,899,693 Restricted escrow and unexpended bond proceeds 5,603,715 3,192,879 Accounts receivable, net of allowance; $216,000 and $221,000 in 2014 and 2013, respectively Students 126,053 83,150 Other 281, ,126 Contributions receivable, net of allowance; $700,000 and $1,000,025 in 2014 and 2013, respectively 6,478,142 4,131,079 Inventories 284, ,829 Cash values, life insurance policies 233, ,326 Loan origination costs, net of accumulated amortization 343, ,516 Perkins loans receivable 3,403,521 3,290,825 Other assets 2,006,906 1,836,381 47,670,306 36,639,639 Property, building and equipment Land 1,144,395 1,144,395 Buildings and improvements 99,276,368 97,983,936 Equipment 12,119,718 11,665,415 Library books 2,407,062 2,404,477 Construction in progress 14,516,759 1,278, ,464, ,476,385 Less accumulated depreciation (47,008,619) (41,633,986) 82,455,683 72,842,399 Total Assets $ 130,125,989 $ 109,482,038 See Notes to Financial Statements

6 Liabilities and Net Assets Liabilities Current maturities of long-term debt $ 1,613,686 $ 1,706,040 Accounts payable 227, ,936 Student and other deposits 325, ,774 Deferred tuition revenue 136, ,423 Deferred contract revenue 2,245, ,667 Accrued expenses 4,257,102 2,744,972 Annuity and trust obligations 66,524 68,727 Asset retirement obligation 387, ,732 Long-term debt 43,668,543 34,546,205 Refundable government loan programs 3,314,445 3,326,700 Total liabilities 56,242,077 43,833,176 Net Assets Unrestricted 40,542,647 40,619,123 Temporarily restricted 15,155,862 7,982,473 Permanently restricted 18,185,403 17,047,266 Total net assets 73,883,912 65,648,862 Total Liabilities and Net Assets $ 130,125,989 $ 109,482,038 3

7 Statement of Activities Year Ended June 30, Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Tuition and fees $ 41,996,062 $ 41,996,062 Less college-funded scholarships 20,770,983 20,770,983 Net tuition and fees 21,225,079 21,225,079 Investment return 262,419 $ 2,607,364 $ 22,446 2,892,229 Other income 891, ,089 1,353,976 Gifts 1,627,136 8,543,209 1,115,691 11,286,036 Auxiliary enterprises 12,103,002 12,103,002 36,109,523 11,612,662 1,138,137 48,860,322 Net assets released from restrictions 4,439,273 (4,439,273) - Total revenues, gains and other support 40,548,796 7,173,389 1,138,137 48,860,322 Expenditures Educational and general Instructional and departmental research 12,362,389 12,362,389 General administration 4,195,556 4,195,556 Academic support 2,531,821 2,531,821 Student services 4,523,555 4,523,555 General institutional support 3,257,231 3,257,231 Fundraising expenses 1,575,397 1,575,397 Total educational and general 28,445,949 28,445,949 Auxiliary enterprises 12,179,323 12,179,323 Total expenditures 40,625,272 40,625,272 Increase (Decrease) in Net Assets (76,476) 7,173,389 1,138,137 8,235,050 Net Assets, Beginning of Year 40,619,123 7,982,473 17,047,266 65,648,862 Net Assets, End of Year $ 40,542,647 $ 15,155,862 $ 18,185,403 $ 73,883,912 See Notes to Financial Statements 4

8 Statement of Activities Year Ended June 30, Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Tuition and fees $ 39,955,435 $ 39,955,435 Less college-funded scholarships 19,213,781 19,213,781 Net tuition and fees 20,741,654 20,741,654 Investment return 212,862 $ 1,624,044 $ 14,172 1,851,078 Other income 783, ,115 1,424,470 Gifts 1,456,739 2,218, ,675 4,092,705 Auxiliary enterprises 11,624,094 11,624,094 34,818,704 4,483, ,847 39,734,001 Net assets released from restrictions 5,399,639 (5,399,639) - Total revenues, gains and other support 40,218,343 (916,189) 431,847 39,734,001 Expenditures Educational and general Instructional and departmental research 11,495,290 11,495,290 General administration 3,835,817 3,835,817 Academic support 2,395,888 2,395,888 Student services 4,408,218 4,408,218 General institutional support 3,218,475 3,218,475 Fundraising expenses 1,557,050 1,557,050 Total educational and general 26,910,738 26,910,738 Auxiliary enterprises 11,806,270 11,806,270 Total expenditures 38,717,008 38,717,008 Increase (Decrease) in Net Assets 1,501,335 (916,189) 431,847 1,016,993 Net Assets, Beginning of Year 39,117,788 8,898,662 16,615,419 64,631,869 Net Assets, End of Year $ 40,619,123 $ 7,982,473 $ 17,047,266 $ 65,648,862 See Notes to Financial Statements 5

9 Statements of Cash Flows Years Ended June 30, 2014 and Operating Activities Change in net assets $ 8,235,050 $ 1,016,993 Items not requiring (providing) operating activities cash flows Net realized gain on investments (660,062) (53,439) Net unrealized gain on investments (1,723,565) (1,323,353) Depreciation and amortization 5,858,048 5,688,894 Loss on disposal of assets 48,766 2,848 Contributions restricted for long-term investment (6,682,935) (512,945) Change in contribution allowance (300,686) (500,000) Changes in Accounts receivable 10,928 74,093 Other assets (170,525) 44,217 Inventories (8,650) (16,821) Contributions receivable (203,046) (358,670) Accounts payable and accrued liabilities 1,290,938 69,819 Student and other deposits (2,049) 13,136 Net cash provided by operating activities 5,692,212 4,144,772 Investing Activities Purchase of property, equipment and building improvements (13,353,910) (7,914,396) Change in cash surrender value of life insurance (22,549) (25,993) Change in restricted escrow and unexpended bond proceeds (2,410,836) 3,994,822 Purchases of investments (4,507,874) (735,324) Proceeds from sale of investments 2,649, ,454 Net cash used in investing activities (17,645,700) (4,258,437) Financing Activities Proceeds from contributions and pledges restricted for long-term investment 4,839,604 2,947,113 Payments on long-term debt (3,609,894) (8,772,596) Net proceeds from issuance of long-term debt 12,607,650 4,855,500 Change in refundable government loan program (124,951) 15,061 Change in annuity and trust obligations (2,203) (18,873) Bond issuance costs (105,024) (91,016) Net cash provided by (used in) financing activities 13,605,182 (1,064,811) Net Increase (Decrease) in Cash and Cash Equivalents 1,651,694 (1,178,476) Cash and Cash Equivalents, Beginning of Year 3,115,835 4,294,311 Cash and Cash Equivalents, End of Year $ 4,767,529 $ 3,115,835 Additional Cash Flows Information Interest paid $ 1,515,215 $ 1,779,670 Property, building and equipment additions in accounts payable and accrued liabilities 2,086, ,180 See Notes to Financial Statements 6

10 Notes to Financial Statements June 30, 2014 and 2013 Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Benedictine College (the College ), a co-educational Catholic institution of liberal arts and sciences located in Atchison, Kansas, was formed in 1971 through the merger of St. Benedict s College and Mount St. Scholastica College. These two predecessor institutions had operated in Atchison since 1859 and 1924, respectively. The College is a not-for-profit corporation under the laws of the State of Kansas and is governed by a 23-member Board of Directors, of which three must be members of St. Benedict s Abbey and three must be members of Mount St. Scholastica Convent, both of Atchison, Kansas. The College extends unsecured credit to all its students attending the school. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. The most significant estimate included in the College s financial statements is the allowance for doubtful contributions receivable. Future changes to this estimate could have a material impact on the College s financial statements. Cash and Cash Equivalents The College considers all liquid investments with original maturities of three months or less to be cash equivalents. At June 30, 2014 and 2013, cash equivalents consisted primarily of money market accounts with brokers. At June 30, 2014, the College s cash accounts exceeded federally insured limits by approximately $4,739,000. Investments and Investment Return Investments in equity securities having a readily determinable fair value and in all debt securities are carried at fair value. Certificates of deposit are valued at amortized cost. All other investments are valued at the lower of cost (or fair value at time of donation, if acquired by contribution) or fair value. Investment return includes dividend, interest and other investment income; realized and unrealized gains and losses on investments carried at fair value; and realized gains and losses on other investments. Investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. Other investment return is reflected in the statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions. 7

11 Notes to Financial Statements June 30, 2014 and 2013 The College maintains pooled investment accounts for its endowments. Investment income and realized and unrealized gains and losses from securities in the pooled investment accounts are allocated monthly to the individual endowments based on the relationship of the fair value of the interest of each endowment to the total fair value of the pooled investments accounts, as adjusted for additions to or deductions from those accounts. Student Accounts Student accounts receivable are stated at the amounts billed to students less applied scholarships and loan proceeds. The College provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Tuition is generally due at the beginning of the semester, unless the student has signed a payment plan. Charges that are past due and have had no response to the due diligence process are assigned to third-party collection agencies. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the student. Perkins Loans Receivable Perkins loans receivable consist of amounts due under the Federal Perkins Loan Program and are stated at their outstanding principal amount, net of an allowance for doubtful notes. Loans are made to students based on demonstrated financial need and satisfaction of federal eligibility requirements for Perkins loans. Principal and interest payments on loans generally do not commence until after the borrower graduates or otherwise ceases enrollment. The College provides an allowance for doubtful notes, which is based upon a review of outstanding loans, historical collection information and existing conditions. Interest income is recorded as received, which is not materially different from the amount that would have been recognized on the accrual basis. Loans that are delinquent continue to accrue interest. Loans that are past due for at least one payment are considered delinquent. Delinquent loans are written off based on individual credit evaluation and specific circumstances of the student. Inventories Inventories include supplies of the bookstore, janitorial supplies, liquor, and recruitment brochures and are stated at the lower of first-in, first-out cost or market. Other Assets Other assets include miscellaneous assets and art pieces contributed by donors. The art was recorded at fair value at the time of donation. Based on the nature of the art pieces, the College has elected not to amortize the art. Loan Origination Costs Loan origination costs are amortized on a straight-line basis over the bond term. 8

12 Notes to Financial Statements June 30, 2014 and 2013 Property, Building and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset. Buildings and Improvements Equipment Fixed Asset Assigned Useful Life 5-25 years 3-15 years The College capitalizes interest costs as a component of construction in progress, based on interest costs of borrowing specifically for the project, net of interest earned on investments acquired with the proceeds of the borrowing. Total interest capitalized was: Total interest expense incurred on borrowings for project Interest income from investment of proceeds of borrowings for project Net interest costs capitalized Interest costs charged to expense Total interest incurred $ 257,616 $ 48,873 (12,631) (13,017) 244,985 35,856 1,501,905 1,705,301 $ 1,746,890 $ 1,741,157 Annuity and Trust Obligations The College has entered into irrevocable agreements with donors whereby, in exchange for the gift from the donors, the College is obligated to provide an annuity to the donors or other designated beneficiaries during their lifetimes. A liability is recognized for the estimated present value of the annuity obligations and the assets are recorded at their gross market value for the agreement where the College is trustee. The discount rate and actuarial assumptions used in calculating the annuity obligations are those provided in Internal Revenue Service guidelines and actuarial tables. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use by the College has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the College in perpetuity. 9

13 Notes to Financial Statements June 30, 2014 and 2013 Contributions Gifts of cash and other assets received without donor stipulations are reported as unrestricted revenue and net assets. Gifts received with a donor stipulation that limits their use are reported as temporarily or permanently restricted revenue and net assets. When a donor stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Gifts and investment income that are originally restricted by the donor and for which the restriction is met in the same time period are recorded as temporarily restricted, and then released from restriction. Gifts of land, buildings, equipment and other long-lived assets are reported as unrestricted revenue and net assets unless explicit donor stipulations specify how such assets must be used, in which case the gifts are reported as temporarily or permanently restricted revenue and net assets. Absent explicit donor stipulations for the time long-lived assets must be held, expirations of restrictions resulting in reclassification of temporarily restricted net assets as unrestricted net assets are reported when the long-lived assets are substantially completed and placed in service. Unconditional gifts expected to be collected within one year are reported at their net realizable value. Unconditional gifts expected to be collected in future years are reported at the discounted present value of estimated future cash flows technique. The resulting discount is amortized using the level-yield method and is reported as contribution revenue. Conditional gifts depend on the occurrence of a specified future and uncertain event to bind the potential donor and are recognized as assets and revenue when the conditions are substantially met and the gift becomes unconditional. Tuition Revenues The College records tuition revenue over the period of the academic term. The College defines deferred tuition as courses that are not yet completed at year end. Income Taxes The College is exempt from income taxes under Section 501 of the Internal Revenue Code and a similar provision of state law. However, the College is subject to federal income tax on any unrelated business taxable income. The College files tax returns in the U.S. federal jurisdiction. With a few exceptions, the College is no longer subject to U.S. federal examinations by tax authorities for years before Transfers Between Fair Value Hierarchy Levels Transfers in and out of Level 1 (quoted market prices), Level 2 (other significant observable inputs) and Level 3 (significant unobservable inputs) are recognized on the actual transfer date. 10

14 Notes to Financial Statements June 30, 2014 and 2013 Subsequent Events Subsequent events have been evaluated through the date of the Independent Auditor s Report, which is the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 financial statement presentation. These reclassifications had no effect on the change in net assets. Note 2: Perkins Loans Receivable The College makes uncollateralized loans to students through its participation in the Federal Perkins Loan (FPL) program. The availability of funds under the FPL program is dependent on reimbursement to the loan fund from repayments on outstanding loans. Cumulative funds advanced by the federal government to the FPL program totaled approximately $3,876,000 as of June 30, 2014 and These advances are ultimately refundable to the federal government and are classified as liabilities in the statement of financial position along with any gains or losses allocated to the cumulative federal capital contributions. Outstanding loans canceled under the program result in a reduction of funds available for future loans and a decrease in the College s liability to the federal government. These outstanding loan amounts represent approximately 3% of total assets as of June 30, 2014 and Allowances for doubtful accounts are established based on current economic factors and specific circumstances of the borrower which, in management s judgment, could influence the ability of the borrower to repay the amounts per the loan terms. For the FPL program, the federal government bears the risk of loss of uncollectible loans provided the College performs required collection due diligence procedures. Loans receivable under the Federal Perkins Loan program were $3,565,521 and $3,443,825 as of June 30, 2014 and 2013, respectively. The allowance for the doubtful loans was $162,000 and $153,000 at, respectively. The following represents the amounts due under the College s loan program as of June 30, 2014 and 2013: Not in repayment status - current $ 1,749,830 $ 1,604,342 On schedule in repayment status - current 744, ,730 In default less than 240 days 176, ,137 In default more than 240 days and less than two years 124, ,621 In default two to five years 157, ,306 In default more than five years 612, ,689 3,565,521 3,443,825 Less allowance for doubtful accounts 162, ,000 $ 3,403,521 $ 3,290,825 11

15 Notes to Financial Statements June 30, 2014 and 2013 Note 3: Investments Investments at June 30, 2014 and 2013 consisted of the following: Investments at Fair Value Money Market Sweep and Account Funds $ 6,352,145 $ 3,344,292 Mutual funds Fixed Income Funds 1,519,702 1,512,547 Other mutual funds 808, ,481 Exchange Traded Funds 2,614,212 2,489,136 Marketable Limited Partnerships 3,427,677 2,763,241 Equity securities 6,801,215 5,211,512 U.S. Government and agency bonds 1,437,930 1,452,715 Municipal bonds 1,239,966 1,046,696 Corporate bonds 5,525,873 4,545,452 Investments at Cost Certificates of deposit 18,266 16,500 $ 29,745,440 $ 23,092,572 The above investments are presented on the statements of financial position as follows: Investments $ 24,141,725 $ 19,899,693 Restricted escrow and unexpended bond proceeds 5,603,715 3,192,879 $ 29,745,440 $ 23,092,572 For the years ended June 30, 2014 and 2013, investment return consisted of the following: Interest and dividends, net of investment expenses; 2014 $125,247, 2013 $111,451 $ 508,602 $ 474,286 Net unrealized gains on investments 1,723,565 1,323,353 Net realized gains on investments 660,062 53,439 $ 2,892,229 $ 1,851,078 12

16 Notes to Financial Statements June 30, 2014 and 2013 Note 4: Notes and Bonds Payable Notes and bonds payable consisted of the following at June 30, 2014 and 2013: Newman Hall % dormitory bonds issued in September 1983; payable in semiannual installments of $11,568 through October 1, 2016; collateralized by a mortgage on Newman Hall and pledge of the dormitory net revenues $ 53,707 $ 74,758 Kremmeter, Wolf and Legacy Halls % to 5.00% 2007 serial education facilities revenue bonds (net of unamortized original issue discount of $53,100 and $55,859 at June 30, 2014 and 2013, respectively), interest payable semiannually with principal maturing annually through 2034 in varying amounts; collateralized by all receipts, unrestricted revenues, real property, tangible personal property, fixtures, contract rights, accounts and service contracts 4,296,900 4,404,141 Kremmeter, Wolf and Legacy Halls % to 5.00% 2008 serial educational facilities revenue bonds (net of unamortized original discount of $53,595 and $56,382 at June 30, 2014 and 2013, respectively), interest payable semiannually with principal maturing annually through 2034 in varying amounts; collateralized by all receipts, unrestricted revenues, real property, tangible personal property, fixtures, contract rights, accounts and service contracts 4,646,405 4,763,618 Mother Teresa Nursing Center, Cray Seaberg Hall, Row Houses and Ferrell Hall % to 5.50% 2010A and 2010B serial educational facilities revenue bonds (net of unamortized original discount of $103,799 and $110,945 at June 30, 2014 and 2013, respectively), interest payable semiannually with principal maturing annually through 2028 in varying amounts; collateralized by all unrestricted revenues 8,296,201 8,879,055 Men s Dorm % to 5.250% 2011 serial educational facilities bonds (net of unamortized original discount of $99,690 and $108,085 at June 30, 2014 and 2013, respectively), interest payable semiannually with principal maturing annually through 2027 in varying amounts; collateralized by all unrestricted revenues 9,245,310 9,561,915 (Continued) 13

17 Notes to Financial Statements June 30, 2014 and St. Scholastica Hall -.90% to 4.20% 2013 serial educational facilities revenue bonds (net of unamortizled original discount of $42,627 and $46,086 at June 30, 2014 and 2013, respectively) interest payable semiannually with principal maturing in 2027 in varying amounts; collateralized by all unrestricted revenue $ 4,622,328 $ 4,858,914 St. Scholastica Hall % to 2.92% 2012 serial educational facilities revenue bonds, interest payable semiannually with principal maturing in 2019; collateralized by all unrestricted revenue 1,506,000 1,670,000 Ferrell Hall % term loan issued in July 2011, monthly payment schedule; collateralized by all unrestricted revenue and multiple buildings on campus; maximum borrowing on this loan is $7,000,000. The loan was paid off during ,039,844 Café/Women s dorm/senior Apartments % to 5.20% 2013B series educational facilities revenue bonds (net of unamortized original issue discount of $44,755 at June 30, 2014), interest payable semiannually with principal maturing annually through 2031 in varying amounts; collateralized by all unrestricted revenues 4,690,245 - Café/Women s dorm/senior Apartments % to 4.90% 2014 series educational facilities revenue bonds (net of unamortized original issue discount of $75,317 at June 30, 2014), interest payable semiannually with principal maturing annually through 2030 in varying amounts; collateralized by all unrestricted revenues 7,925,133-45,282,229 36,252,245 Less current maturities 1,613,686 1,706,040 $ 43,668,543 $ 34,546,205 The College paid off the Ferrell Hall term loan during 2014 in advance of their maturity. Interest expense totaled $1,501,905 and $1,705,301 during the years ended June 30, 2014 and 2013, respectively. 14

18 Notes to Financial Statements Aggregate annual maturities, net of bond discount, of long-term debt at June 30, 2014 are as follows: Long-term Debt 2015 $ 1,613, ,661, ,705, ,757, ,823,000 Thereafter 36,721,522 $ 45,282,229 The College is required to maintain certain financial covenants related to the outstanding bonds. One of these financial covenants is to maintain a Debt Service Coverage Ratio of no less than 1.0 as measured at the end of each fiscal year. At June 30, 2014, management believes the College was in compliance with all covenants. Note 5: Contributions Receivable Contributions receivable consist of the following amounts at June 30, 2014 and 2013: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total In less than 1 year $ 35,275 $ 4,204,650 $ 48,228 $ 4,288,153 In 1 to 5 years 4,295 2,952,858 29,666 2,986,819 In excess of 5 years - 20,000-20,000 Less 39,570 7,177,508 77,894 7,294,972 Allowance for uncollectible contributions 39, , ,000 Unamortized discount on contributions - 115,597 1, ,830 $ - $ 6,401,481 $ 76,661 $ 6,478,142 15

19 Notes to Financial Statements 2013 Temporarily Permanently Unrestricted Restricted Restricted Total In less than 1 year $ 43,842 $ 2,555,523 $ 34,800 $ 2,634,165 In 1 to 5 years 4,335 2,602,157 29,775 2,636,267 In excess of 5 years - 30,000-30,000 48,177 5,187,680 64,575 5,300,432 Less Allowance for uncollectible contributions 48, ,848-1,000,025 Unamortized discount on contributions - 167,259 2, ,328 $ - $ 4,068,573 $ 62,506 $ 4,131,079 Approximately $3,059,000 and $829,000 of contributions receivable are due from the College s staff and current Board members at June 30, 2014 and 2013, respectively. Approximately 57% of the College s gross contributions receivable were due from three donors at June 30, Approximately 49% of the College s gross contributions receivable were due from two donors at June 30, The discount rate was 5% for both June 30, Note 6: Deferred Contract Revenues During 2014, the College extended their food services contract through June 30, As part of the re-negotiation of the food services contract, the College received a financial commitment from the service provider for facility renovations. The financial commitment received is deferred and recognized over the contract period in which the services are provided. The College recorded $2,245,000 and $346,667 of deferred contract revenue with this vendor at June 30, 2014 and 2013, respectively. 16

20 Notes to Financial Statements Note 7: Temporarily Restricted Net Assets Temporarily restricted net assets are available for the following purposes: Buildings and equipment $ 8,063,450 $ 4,622,242 Student aid 4,336,507 2,481,778 Nursing 1,749,862 - Administrative 122, ,343 Instructional 460, ,294 Student activities 151,753 81,155 Auxiliary 208, ,635 Other 63,218 54,026 $ 15,155,862 $ 7,982,473 Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by donors. These amounts released during the years ended June 30, 2014 and 2013 are as follows: Building projects completed $ 2,076,300 $ 3,076,627 Equipment acquired and placed in service 49,124 9,736 Scholarship 678, ,649 Other expenditures incurred 1,634,891 1,873,627 Total restrictions released $ 4,439,273 $ 5,399,639 Note 8: Permanently Restricted Net Assets Permanently restricted net assets are restricted to: Investment in perpetuity, the income from which is expendable to support Scholarships and Discovery College $ 11,175,040 $ 10,054,496 Cray Entrepreneurship Center 1,360,251 1,360,251 General endowment 4,850,112 4,832,519 Deferred maintenance 800, ,000 $ 18,185,403 $ 17,047,266 Investments of the permanently restricted net assets include a note receivable from the unrestricted net assets amounting to $1,402,713 at June 30, 2014 and Interest on this note is used to satisfy the requirements of the gift instruments. 17

21 Notes to Financial Statements Note 9: Endowment The College s endowment consists of approximately 150 individual funds established for a variety of purposes. The endowment includes donor-restricted endowment funds. As required by accounting principles generally accepted in the United States of America (GAAP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions. The College s governing body has interpreted the State of Kansas Prudent Management of Institutional Funds Act (SPMIFA) as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds are classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the College considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. Duration and preservation of the fund 2. Purposes of the College and the fund 3. General economic conditions 4. Possible effect of inflation and deflation 5. Expected total return from investment income and appreciation or depreciation of investments 6. Other resources of the College 7. Investment policies of the College The composition of net assets by type of endowment fund at June 30, 2014 and 2013 was: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (3,581) $ 4,155,547 $ 16,706,029 $ 20,857,995 Board-designated endowment funds 116, ,757 Total endowment funds $ 113,176 $ 4,155,547 $ 16,706,029 $ 20,974, Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds $ (81,575) $ 2,287,912 $ 15,582,047 $ 17,788,384 Board-designated endowment funds 106, ,282 Total endowment funds $ 24,707 $ 2,287,912 $ 15,582,047 $ 17,894,666 18

22 Notes to Financial Statements Changes in endowment net assets for the years ended June 30, 2014 and 2013, were: 2014 Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 24,707 $ 2,287,912 $ 15,582,047 $ 17,894,666 Investment return 93,371 2,569,461 22,446 2,685,278 Gifts and additions - - 1,101,536 1,101,536 Appropriation of endowment assets for expenditure (4,902) (701,826) - (706,728) Endowment net assets, end of year $ 113,176 $ 4,155,547 $ 16,706,029 $ 20,974, Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ (98,201) $ 1,339,756 $ 15,150,731 $ 16,392,286 Investment return 124,397 1,596,670 14,172 1,735,239 Gifts 2, , ,647 Appropriation of endowment assets for expenditure (3,992) (648,514) - (652,506) Endowment net assets, end of year $ 24,707 $ 2,287,912 $ 15,582,047 $ 17,894,666 Permanently restricted net assets on the statements of financial position at consisted of the following: Endowment net assets, subject to SPMIFA $ 16,706,029 $ 15,582,047 Note receivable (see Note 8 ) 1,402,713 1,402,713 Contributions receivable 76,661 62,506 Permanently restricted net assets $ 18,185,403 $ 17,047,266 19

23 Notes to Financial Statements From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level the College is required to retain as a fund of perpetual duration pursuant to donor stipulation or SPMIFA. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets and aggregated $(3,581) and $(81,575) at June 30, 2014 and 2013, respectively. These deficiencies resulted from unfavorable market fluctuations and continued appropriation for certain purposes that was deemed prudent by the governing body. The College has a spending policy that attempts to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds the College must hold in perpetuity or for donor-specified periods. Endowment assets are managed on a total return basis. The portfolio return will be compared to the weighted return of appropriate indices and the return of other balanced manager results. The portfolio s results are expected to exceed both of these standards on a long-term basis (normally three to five years). For certain endowment funds, the College has a reinvestment agreement in which 20% of net gains are reinvested into corpus, which increases the book value of the endowment fund. Note 10: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets or liabilities Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities 20

24 Notes to Financial Statements Recurring Measurements The following tables present the fair value measurements of assets and liabilities recognized in the accompanying statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2014 and 2013: Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) June 30, 2014 Money Market Funds $ 6,352,145 $ 6,352,145 $ - $ - Mutual Funds Fixed income funds 1,519,702 1,519, Other mutual funds 808, , Exchange traded funds 2,614,212 2,614, Marketable limited partnerships 3,427,677 3,427, Equity securities 6,801,215 6,801, U.S. Government and agency bonds 1,437,930-1,437,930 - Municipal bonds 1,239,966-1,239,966 - Corporate bonds 5,525,873-5,525,873 - $ 29,727,174 $ 21,523,405 $ 8,203,769 $ - Fair Value Measurements Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) June 30, 2013 Money Market Funds $ 3,344,292 $ 3,344,292 $ - $ - Mutual Funds Fixed income funds 1,512,547 1,512, Other mutual funds 710, , Exchange traded funds 2,489,136 2,489, Marketable limited partnerships 2,763,241 2,763, Equity securities 5,211,512 5,211, U.S. Government and agency bonds 1,452,715-1,452,715 - Municipal bonds 1,046,696-1,046,696 - Corporate bonds 4,545,452-4,545,452 - $ 23,076,072 $ 16,031,209 $ 7,044,863 $ - 21

25 Notes to Financial Statements Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the year ended June 30, 2014 and Investments and Restricted Escrow and Unexpended Bond Proceeds Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. The following methods were used to estimate the fair value of all other financial instruments not recognized in the accompanying financial statements. Contributions Receivable The carrying amount is a reasonable estimate of fair value. Notes Receivable A reasonable estimate of the fair value of the Federal Perkins loans due from students could not be made because the notes receivable are not salable and can only be assigned to the U.S. Government or its designees. Long-term Debt The fair value of the fixed rate bonds is determined using discounted cash flow analysis based on the borrowing rates currently available to the College for debt with similar terms and maturities. The fair market values of the College s fixed rate bonds at are: Carrying Fair Carrying Fair Amount Value Amount Value Bonds payable $ 45,282,229 $ 51,416,814 $ 36,252,245 $ 36,591,666 Annuity and Trust Obligations Fair values of the annuity obligations are based on an actuarial evaluation of the estimated annuity or other payments under such obligations. 22

26 Notes to Financial Statements Note 11: Retirement Plan The College has a 403(b) defined contribution (money purchase) retirement plan covering all employees. The College matches each employee s contribution up to 5% of eligible compensation. The participant is fully vested in amounts attributable to plan contributions when such plan contributions are made. The College s expense under the plan was $353,835 and $319,577 for the years ended June 30, 2014 and 2013, respectively. Note 12: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: Litigation The College is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position of the College. No accrual for any potential losses has been included in these financial statements. Investments The College invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying statements of financial position. Allowance for Uncollectible Contributions Receivables As described in Note 5, the allowance for uncollectible contributions receivable is based on a review of outstanding pledges, historical collections and existing conditions. Estimated Useful Lives As described in Note 1, all property and equipment is generally assigned an estimated useful life and depreciated on a straight-line method. 23

27 Notes to Financial Statements Refundable Government Student Loan Program As discussed in Note 2, allowances for doubtful accounts are established based on current economic factors and specific circumstances of the borrower which, in management s judgment, could influence the ability of the borrower to repay the amounts per the loan terms. For the FPL program, the federal government bears the risk of loss of uncollectible loans provided the College performs required collection due diligence procedures. Note 13: Commitments At June 30, 2014, the College had commitments outstanding for capital expenditures under construction contracts totaling approximately $2,858,000. These projects are being funded with long-term debt, capital campaign contributions and cash from the general operating fund. Note 14: Subsequent Events On November 25, 2013, Atchison County issued $2,465,000 of taxable educational facilities revenue bonds. The Series 2013C Bonds were privately placed with a financial institution at the time of issuance. These bonds were issued to fund Benedictine s capital projects. As needed Benedictine will request principal advances. Benedictine s has made principal advances of $1,500,000 through the date of the independent auditor s report. 24

28 Supplementary Information

29 Schedule of Expenditures of Federal Awards Year Ended June 30, 2014 Federal Agency/ Pass-Through CFDA Cluster/Program Entity Number Amount Student Financial Aid Cluster Federal Supplemental Educational Opportunity Grants U.S. Department of Education $ 277,843 Federal Direct Loans U.S. Department of Education ,035,284 Federal Work Study Program U.S. Department of Education ,312 Federal Perkins Loan Program U.S. Department of Education ,957,581 Federal Pell Grant Program U.S. Department of Education ,799,230 Total Student Financial Aid Cluster 17,363,250 Research and Development Federal Supplemental Educational (NSF CCLI Grant) National Science Foundation ,616 Cooperative Research Units Program (Amphibian Grant) Department of Interior U.S. Geological Survey ,521 Ecological Response to 2011 Missouri Flood (Cottonwood Grant) U.S. Army Engineer Research ,123 & Development Center Total Research and Development 98,260 Total Expenditures of Federal Funds $ 17,461,510 Notes to Schedule 1. This schedule includes the federal awards activity of Benedictine College and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 2. The College provided no federal awards to subrecipients. 25

30 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors Benedictine College Atchison, Kansas 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 basic financial statements of Benedictine College (the College ), which comprise the statement of financial position as of and for the year ended June 30, 2014, and the related statements of activities and cash flows for the year then ended, and the related notes to the basic financial statements, and have issued our report thereon dated October 22, Internal Control Over Financial Reporting Management of the College is responsible for establishing and maintaining effective internal control over financial reporting (internal control). In planning and performing our audit, we considered the College s internal control to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control. Accordingly, we do not express an opinion on the effectiveness of the College s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the College s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses as defined above. However, material weaknesses may exist that have not been identified. 26