CHAMPLAIN COLLEGE INCORPORATED

Transcription

1 Auditors Reports as Required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and Government Auditing Standards and Related Information Year ended

2 Table of Contents Independent Auditors Report 1 Consolidated Financial Statements: Page Consolidated Statement of Financial Position 3 Consolidated Statement of Activities 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6 Supplementary Schedule of Expenditures of Federal Awards 25 Notes to Supplementary Schedule of Expenditures of Federal Awards 26 Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 28 Independent Auditors Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 30 Schedule of Findings and Questioned Costs 32 Management's Response and Corrective Action Plan Appendix I

3 KPMG LLP Suite Mountain View Drive Colchester, VT Independent Auditors Report The Board of Trustees Champlain College Incorporated: Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Champlain College Incorporated, which comprise the consolidated statement of financial position as of and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Champlain College Incorporated as of, and the results of its operations and its cash flows for the year then ended in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

4 Report on Summarized Comparative Information We have previously audited the Champlain College Incorporated 2015 consolidated financial statements, and we expressed an unmodified opinion on those financial statements in our report dated September 28, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2015 is consistent, in all material respects, with the audited financial statements from which it has been derived. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures federal awards is presented for purposes of additional analysis, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards, 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects in relation to the consolidated financial statement as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 26, 2016 on our consideration of the College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. The 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. September 26, 2016, except for the Supplementary Schedule of Expenditures of Federal Awards which is as of March 15, 2017 Vt. Reg. No

5 Consolidated Statement of Financial Position (with comparative information as of June 30, 2015) Assets Cash and cash equivalents $ 12,463,062 6,328,733 Accounts receivable 1,400, ,677 Inventories, prepaid and other assets 2,158,631 2,947,966 Contributions receivable, net (note 3) 4,947,176 6,573,139 Deposits with bond trustees (note 6) 9,429,232 Investments, at fair value (note 4) 40,479,220 34,428,531 Loans receivable, net of allowance for doubtful loans of $156,153 in 2016 and ,695,138 2,711,899 Assets held in charitable remainder trusts (note 3) 1,617,893 1,614,067 Land, buildings, and equipment, net (note 5) 127,935, ,405,958 Total assets $ 193,697, ,152,202 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 5,080,498 5,918,333 Deferred income 7,754,926 6,313,227 Liabilities under trust and annuity agreements 942, ,881 Bonds, mortgages and notes payable (note 6) 46,980,982 50,354,243 Fair value of interest rate swaps (notes 4 and 6) 1,884,433 1,097,879 Refundable advances U.S. government grants 1,665,669 1,665,669 Total liabilities 64,309,053 66,323,232 Commitments and contingencies (notes 12 and 14) Net assets: Unrestricted 101,628,175 94,335,217 Temporarily restricted (note 7) 11,921,608 15,022,919 Permanently restricted (note 8) 15,838,984 15,470,834 Total net assets 129,388, ,828,970 Total liabilities and net assets $ 193,697, ,152,202 See accompanying notes to consolidated financial statements. 3

6 Consolidated Statement of Activities Year ended (with summarized information for the year ended June 30, 2015) Temporarily Permanently Unrestricted restricted restricted Total Total Operating revenues and other support: Student charges: Tuition and fees $ 99,380,464 99,380,464 84,627,753 Dormitory and dining 18,716,197 18,716,197 17,918,189 Financial aid (31,858,216) (31,858,216) (24,146,061) Net student charges 86,238,445 86,238,445 78,399,881 Government grants 605, , ,281 Gifts and private grants 942, ,067 1,736,299 1,929,180 Investment income on operating accounts (note 4) 84,225 84,225 (10,127) Long-term investment income used in operations (note 4) 593, , ,939 Interest on loans receivable 89,247 89,247 90,296 Other sources 1,868,540 1,868,540 1,832,916 Net assets released from restrictions (note 9) 1,192,932 (1,192,932) Total operating revenues and other support 91,614,555 (398,865) 91,215,690 83,412,366 Operating expenses: Instructional 27,048,977 27,048,977 25,386,483 Academic support 16,354,724 16,354,724 15,535,504 Student services 11,680,273 11,680,273 11,083,132 Institutional support 19,407,816 19,407,816 18,227,786 Auxiliary enterprises 11,638,634 11,638,634 11,363,023 Total operating expenses 86,130,424 86,130,424 81,595,928 Change in net assets from operations 5,484,131 (398,865) 5,085,266 1,816,438 Nonoperation activity: Gifts and contributions not used in operations 194, , , ,215 Long-term investment gains (note 4) 21,416 (11,718) 9, ,054 Investment income used in operations (note 4) (26,055) (567,813) (593,868) (560,939) Reclassification of underwater (note 10) (12,444) 12,444 Change in donor designation (25,000) 25,000 Net assets released from restrictions (note 9) 2,316,950 (2,316,950) Gain on sale of long term assets 315, ,690 Change in fair value of interest rate swaps (note 6) (786,554) (786,554) 35,791 Change in value of split-interest agreements (20,176) 11,874 (8,302) 88,455 Change in net assets from nonoperating activity 1,808,827 (2,702,446) 368,150 (525,469) 552,576 Change in net assets 7,292,958 (3,101,311) 368,150 4,559,797 2,369,014 Net assets at beginning of year 94,335,217 15,022,919 15,470, ,828, ,459,956 Net assets at end of year $ 101,628,175 11,921,608 15,838, ,388, ,828,970 See accompanying notes to consolidated financial statements. 4

7 Consolidated Statement of Cash Flows Year ended (with summarized information for the year ended June 30, 2015) Cash flows from operating activities: Change in net assets $ 4,559,797 2,369,014 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 5,179,729 4,586,441 Gain on disposal (315,690) 39,047 Change in fair value of interest rate swap 786,554 (35,791) Provision for losses on contributions receivable (214,543) (180,695) Net realized and unrealized losses (gains) on investments 1,233,415 1,155,466 Contributions received designated for long-term investment and investment in plant (1,763,923) (1,880,019) Change in accounts receivable (688,155) 440,170 Change in inventories, prepaid and other assets 789,335 (1,881,328) Change in assets held in charitable remainder trusts (3,826) 369,348 Change in contributions receivable 1,840,506 3,091,035 Change in accounts payable and accrued liabilities 498,577 (4,087,566) Change in deferred income 1,441,699 1,048,169 Change in liabilities under trust and annuity agreements (31,336) (218,088) Net cash provided by operating activities 13,312,139 4,815,203 Cash flows from investing activities: Purchases of land, buildings, and equipment (10,235,044) (17,794,517) Purchases of investments and maturities (11,070,021) (13,255,284) Proceeds from sales of maturities and investments 3,785,917 18,544,024 Change in deposits with bond trustees 9,429,232 (2,334,533) Disbursements of loans to students, net of repayments 16,761 28,391 Proceeds on the sale of assets 2,504,683 Net cash used in investing activities (5,568,472) (14,811,919) Cash flows from financing activities: Contributions received designated for long-term investment and investment in plant 1,763,923 1,880,019 Proceeds from issuance of long-term debt 12,500,000 Repayments on long-term debt (3,373,261) (5,546,477) Net cash (used in) provided by financing activities (1,609,338) 8,833,542 Net increase (decrease) in cash and cash equivalents 6,134,329 (1,163,174) Cash and cash equivalents at beginning of year 6,328,733 7,491,907 Cash and cash equivalents at end of year $ 12,463,062 6,328,733 Supplemental cash flow information: Cash paid during the year for: Interest $ 1,548,085 1,670,266 See accompanying notes to consolidated financial statements. 5

8 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (1) Background Founded in 1878, Champlain College is a private, baccalaureate institution. Education at Champlain College is a career-driven experience that endows students with three essential personal dimensions required for a gratifying career including professionally focused programs balanced by an interdisciplinary core curriculum and a required life-skills practicum. The College is a national leader in educating students to become skilled practitioners, effective professionals and global citizens. The College s revenue sources are primarily tuition, gifts, and grants, which are both private and governmental. Champlain students, undergraduate and continuing education, earn their bachelors and masters degrees at the campus in Burlington, Vermont and online. Additionally, the College offers study abroad opportunities to its students and students from other institutions through its foreign campuses in Montreal, Quebec and in Dublin, Ireland and through its third party study abroad program. (2) Summary of Significant Accounting Policies (a) Basis of Statement Presentation The accompanying consolidated financial statements are presented on the accrual basis of accounting in accordance with the accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements of the College include the accounts of its wholly owned subsidiaries. The wholly owned subsidiaries include Champlain College of Vermont, Montreal Campus and Champlain College Dublin Ltd. In preparing the financial statements, all intercompany balances have been eliminated in consolidation. The consolidated financial statements have been prepared to focus on the College as a whole and to present balances and transactions according to the existence or absence of donor imposed restrictions. Net assets and revenues, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Permanently restricted net assets Net assets subject to donor imposed stipulations that they be maintained permanently by the College. Generally the donors of these assets permit the College to use all or part of the income earned and capital gains, if any, on related investments for general or specific purposes. Temporarily restricted net assets Net assets subject to donor imposed stipulations that may or will be met by actions of the College and or the passage of time. Unrestricted net assets Net assets not subject to donor imposed stipulations. Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by donor imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or law. Expirations of temporary restrictions on net assets, that is, the donor-imposed stipulated purpose has been accomplished and or the stipulated time period has elapsed, are reported as reclassifications between the applicable classes of net assets. 6 (Continued)

9 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) Contributions, including unconditional promises to give, are recognized as revenues in the period received. Promises to give that are scheduled to be received after the balance sheet date are shown as increases in temporarily restricted net assets and are reclassified to unrestricted net assets when the purpose or time restrictions are met. Promises to give subject to donor-imposed stipulations that the corpus be maintained permanently are recognized as increases in permanently restricted net assets. Conditional promises to give are not recognized until they become unconditional, that is, when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value. Contributions to be received after one year are discounted at the appropriate rate commensurate with the risks involved. Amortization of the discount is recorded as additional contribution revenue in accordance with the donor imposed restrictions, if any, on the contributions. Contributions received with donor imposed restrictions that are met in the same year are recorded as temporarily restricted contributions first and then as amounts released from restrictions. The College reports contributions of land, buildings, or equipment as unrestricted nonoperating support unless the donor places restrictions on their use. Contributions of cash or other assets that must be used to acquire long-lived assets are reported as unrestricted nonoperating support provided the long lived assets are placed in service in the same reporting period; otherwise, the contributions are reported as temporarily restricted support until the assets are acquired and placed in service. Additionally, all contributions restricted for long-term use are reported as permanently restricted nonoperating support. Assets and liabilities have been sequenced according to their nearness to conversion to cash or repayment. (b) Operations The statement of activities reports the change in net assets from operating and nonoperating activities. Operating revenues consist of those items attributable to the College s instructional programs. Endowment, capital and other long-term gifts and pledges as well as long-term investment income and gains attributable to those assets are reported as nonoperating revenue. Amounts approved by the College s Board of Trustees to be used in operations are reclassified from nonoperating long-term investment income and gains to operating investment income. (c) Functional Expenses Expenses are reported in the statements of activities in categories recommended by the National Association of College and University Business Officers. The College s primary program service is instruction. Expenses reported as academic support, student services, institutional support, and auxiliary enterprises are incurred in support of this primary program service. Expenses associated with the operation and maintenance of College plant assets, including interest and depreciation expense, are allocated on the basis of the proportional share of each functional expense category to total functional expense. The College classifies fundraising expenses as institutional support. The amounts included in expense were $1,417,365 and $1,206,734 for the years ended and 2015, respectively. 7 (Continued)

10 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (d) Cash and Cash Equivalents The College considers all highly liquid investments purchased with an original maturity date of three months or less to be cash and cash equivalents. (e) Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value with realized and unrealized gains and losses included in the statement of activities. (f) Fair Value of Financial Instruments Fair value is the price that the College would receive upon selling a financial instrument in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. The College uses a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs, and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available. The three-tier hierarchy of inputs is summarized in the three broad levels listed below. Level 1 quoted prices in active markets for identical investments Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) Level 3 significant unobservable inputs (including the College s own assumptions in determining the fair value of investments) See note 4, for a summary of the inputs used as of and 2015 in determining the fair value of the College s investments. A portion of the College s investments use net asset value (NAV) or its equivalent reported by each underlying alternative investment fund as a practical expedient to estimate the fair value of the investment. These investments are redeemable at NAV under the original terms of the subscription agreements and operation of the underlying funds. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreements. Due to the nature of the investments held by these funds, changes in market conditions and the economic environment may significantly impact the NAV of the funds and, consequently, the fair value of the College s interests in the funds. Furthermore, changes to the liquidity provisions of the funds may significantly impact the fair value of the College s interest in the funds. Although such investments may be sold in a secondary market transaction, subject to meeting certain requirements of the governing documents of the funds, the secondary market is not active and individual transactions are not necessarily observable. It is therefore reasonably possible that if the College 8 (Continued)

11 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) were to sell a fund in the secondary market, the sale could occur at an amount different than the reported value, and the differences could be material. At and 2015, the carrying values of the College s cash and cash equivalents, receivables, accounts payable and accrued liabilities, debt and deferred revenues approximated their fair values. An approximate estimate of the fair values of student loan receivables administered by the College under federal government loan programs is not practical because the receivables can only be assigned to the U.S. government or its designees. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The carrying amounts for cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities approximate their fair values because of their short-term maturities. Effective in the year ended the University also retrospectively adopted the provision of the FASB Accounting Standards Update (ASU) No , Financial Instruments Overall (ASU ). ASU eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for nonpublic entities. Effective in the year ended June 30, 2015, the College retrospectively adopted the provisions of the FASB Accounting Standards Update (ASU) No , Fair Value Measurement Disclosures for Investments in Certain Entities that Calculate Net Asset Value (NAV) per Share (or its Equivalent) (ASU ). ASU removes the requirement to classify within the fair value hierarchy table in Levels 2 or 3 investments in certain funds measured at NAV as a practical expedient to estimate fair value. The adoption did not impact the College s statement of financial position, statement of activities, or statement of cash flow and resulted only in changes to the College s investment footnote disclosures. (g) Split-Interest Agreements The College s split-interest agreements with donors consist primarily of irrevocable charitable remainder trusts for which the College serves as trustee, charitable gift annuities, and charitable trusts for which the College is not the trustee. Assets held in these trusts are included in assets held in charitable remainder trusts, investments, and contributions receivable. Contribution revenues are recognized at the dates the trusts are established (and the College is notified of their existence). Annuity and other split-interest obligations are adjusted annually at the end of each fiscal year. (h) Land, Buildings, and Equipment Land, buildings, and equipment are stated at cost in the case of expenditures by the College, at fair market value at date of gift in the case of donations, and at appraised value for certain original components of the College complex. The College provides for depreciation on buildings and equipment using the straight line method over the estimated useful lives of the assets, which range from three to thirty five years. Leasehold improvements are amortized over the shorter of the assets useful life or the lease, which is five years. 9 (Continued)

12 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (i) Income Taxes The College is a not-for-profit corporation as described in Section 501(c)(3) of the Internal Revenue Code and is generally exempt from income taxes on related income pursuant to Section 501(a) of the Code. ASC 740, Income Taxes, provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest or penalties. ASC 740 permits an entity to recognize the benefit and requires accrual of an uncertain tax positions when the position is more likely than not to be sustained in the event of an examination by the tax authorities. The College has no examinations in progress and believes it has taken no significant uncertain tax positions. (j) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates in the College s consolidated financial statements include the valuation of accounts, loans and pledges receivable, and the valuation of certain investments and other financial instruments such as interest rate swaps. (k) Prior Year Financial Information The consolidated financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the College s consolidated financial statements for the year ended June 30, 2015, from which the summarized information was derived. (l) Reclassification Certain 2015 balances have been reclassified to conform to the 2016 presentation. 10 (Continued)

13 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (3) Contributions Receivable Contributions receivable consist of the following at June 30: Unconditional promises expected to be collected in: Less than one year $ 2,155,780 2,093,320 Two years to five years 2,509,761 4,397,853 Less allowance for uncollectible contributions (231,448) (316,242) Less discount to present value (36,578) (166,327) 4,397,515 6,008,604 Contributions receivable under charitable gift agreements 549, ,535 $ 4,947,176 6,573,139 The College uses discount rates ranging from 0.72% to 2.54% as established upon receipt of the contributions to determine the present value of the contribution receivable. The College is named the beneficiary of several irrevocable charitable remainder trusts and gift annuities. Under the terms of the trusts, the College will receive the assets remaining in the trusts upon the death of the primary beneficiary. The College has recorded the present value of the trust assets (fair value) when the trust was received at rates ranging from 1.4% to 10%. Each year the trust is revalued based on the life expectancy of the donor. 11 (Continued)

14 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (4) Investments and Fair Value Measurements The following tables summarize the College s assets and liabilities that are reported at fair value by major category in the fair value hierarchy as of and 2015: Redemption or liquidation Level 1 Level 2 Level 3 Total Assets: Investments measured at fair value: U.S. large cap equity Daily $ 8,842,453 8,842,453 U.S. mid cap equity Daily 1,951,350 1,951,350 U.S. small cap equity Daily 1,642,773 1,642,773 International developed equity Daily 6,010,830 6,010,830 International emerging markets equity Daily 2,400,809 2,400,809 U.S. fixed income Daily 13,906,428 13,906,428 International fixed income Daily 1,032,535 1,032,535 Real estate Daily 1,112,088 1,112,088 Cash and cash equivalents Daily 165, ,989 Cash surrender value of life insurance Daily 116, ,666 Other Daily 608, ,883 Subtotal 37,790,804 37,790,804 Investments measured at net asset value: Quarterly Hedge Funds Semi-Annual 2,688,416 Total investments $ 37,790,804 40,479,220 Other assets: Charitable remainder trusts Not applicable $ 1,617,893 1,617,893 Liabilities: Forward contracts Not applicable $ (5,058) (5,058) Interest rate swap agreement Not applicable (1,884,433) (1,884,433) The days notice that is required to be given to investment managers to redeem the specific asset classes above are: 1 day for all assets recorded at fair value and days for assets recorded at net asset value. 12 (Continued)

15 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) Redemption or June 30, 2015 liquidation Level 1 Level 2 Level 3 Total Assets: Investments valued at fair market value: U.S. large cap equity Daily $ 9,645,905 9,645,905 U.S. mid cap equity Daily 1,918,902 1,918,902 U.S. small cap equity Daily 1,727,497 1,727,497 International developed equity Daily 5,098,333 5,098,333 International emerging markets equity Daily 1,920,005 1,920,005 U.S. fixed income Daily 8,142,975 8,142,975 International fixed income Daily 1,427,291 1,427,291 Real estate Daily 949, ,150 Cash and cash equivalents Daily 20,760 20,760 Cash surrender value of life insurance Daily 119, ,013 Other Daily 531, ,184 Subtotal 31,501,015 31,501,015 Investments valued at net asset value: Quarterly Hedge Funds Semi-Annual 2,927,516 Total investments $ 31,501,015 34,428,531 Other assets: Charitable remainder trusts Not applicable $ 1,614,067 1,614,067 Liabilities: Forward contracts Not applicable $ (2,341) (2,341) Interest rate swap agreement Not applicable (1,097,879) (1,097,879) The days notice that is required to be given to investment managers to redeem the specific asset classes above are: 1 day for all assets recorded at fair value and days for assets recorded at net asset value. Included in the fair value hierarchy table above is the College s split-interest agreement related to an irrevocable charitable remainder trust for which the College serves as the trustee. The assets are reported as Level 3 investments due to restrictions surrounding the use of the funds and not due to the underlying investments of the trust itself. The College owns interests in funds of hedge funds that follow a variety of investment strategies. Since the College s investment is in the fund of funds rather than the underlying securities which may be readily marketable, the hedge funds are valued at net asset value. Accordingly, the inputs or methodology used for valuing or classifying investments for financial reporting purposes are not necessarily an indication of the risk associated with investing in those investments or a reflection on the liquidity of each fund s underlying assets and liabilities. 13 (Continued)

16 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) Investment income consists of the following for the years ended June 30: Investment income $ 1,324,992 1,859,146 Net realized and unrealized (losses) gains (1,231,069) (1,154,219) Total return on investments 93, ,927 Amount appropriated for operations (678,093) (550,812) Reinvested investment income and net (losses) gains $ (584,170) 154,115 Investment income is presented net of related fees. The amount of (losses)/earnings on operating accounts used in operations for the years ended and 2015 was $84,225 and ($10,127), respectively. The College released endowed investment earnings of $593,868 and $560,939 in 2016 and 2015, respectively, to support scholarships and general operations. (5) Land, Buildings, and Equipment The following is a summary of the College s land, buildings, and equipment at June 30: Estimated lives Land $ 4,006,650 4,006,650 Land improvements 10 years 492, ,739 Buildings 35 years 155,026, ,388,791 Equipment 5 10 years 12,178,067 9,872,789 Vehicles 3 5 years 512, ,811 Leasehold improvements 5 years 1,281,703 1,281,703 Construction in progress 1,881,625 19,631, ,379, ,234,259 Less accumulated depreciation and amortization 47,443,572 42,828,301 Net, land, buildings, and equipment $ 127,935, ,405,958 Depreciation and amortization expense for the years ended and 2015 was $5,179,729 and $4,586,441, respectively. 14 (Continued)

17 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (6) Long-Term Debt The following is a summary of the College s long-term debt at June 30: Mortgages payable: 5.5% mortgage payable U.S. Department of Education, secured by land, building, furniture, furnishings, and equipment, payable in semi-annual installments of principal and interest of $34,460 through $ 244, ,733 9% mortgages payable secured by land and buildings, payable in monthly installments of principal and interest of $3,150 through , ,149 Total mortgages payable 486, ,882 Bonds payable: 2009 Revenue bonds payable, variable rate, secured by buildings and equipment, payable in quarterly principal installments ranging from $6,500 to $36,507 plus interest, through The balloon payment is $4,540,483 for the year ending ,073,270 5,232, A Revenue bonds payable, variable rate, secured by buildings and equipment, payable in monthly principal installments ranging from $31,224 to $44,492 plus interest, through The balloon payment is $4,514,229 for the year ended June 30, ,713,845 7,161, B Revenue bonds payable, variable rate, secured by buildings and equipment, payable in monthly principal installments ranging from $8,183 to $11,482 plus interest, through The balloon payment is $2,841,527 for the year ended June 30, ,410,646 3,526, Revenue bonds payable, variable rate, secured by buildings and equipment, payable in monthly principal installments ranging from $33,318 to $53,743 plus interest, through December 1, ,786,282 6,236, Revenue bonds payable, variable rate, secured by buildings and equipment, payable in monthly principal installments of $100,000 plus interest, through June 1, ,400,000 15,600, A Revenue bonds payable, fixed rate of 2.66%, secured by buildings and equipment, payable in monthly principal installments ranging from $45,000 to $60,000 plus interest, through August ,216,058 5,791, (Continued)

18 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) B Revenue bonds payable, variable rate, secured by buildings and equipment, payable in monthly principal installments ranging from $55,000 to $64,000 plus interest, through August $ 5,894,541 6,250,000 Total bonds payable 46,494,642 49,799,361 Total long-term debt $ 46,980,982 50,354,243 Future maturities on long-term debt are as follows: Year ending June 30: 2017 $ 3,753, ,833, ,456, ,803, ,761,504 Thereafter 16,373,670 $ 46,980,982 Under the terms of the Department of Education mortgage, the College is required to deposit $17,230 a year in the debt service reserve until a balance of $68,920 is achieved. Required reserve amounts on associated debt are included in cash. As of and 2015, the College has met these requirements. On an annual basis the College is required to meet various covenants that include maintaining specified financial ratios. At, the College was in compliance with all of the financial covenants for TD Bank. At June 30, 2015, the College was not in compliance with the covenants for the Keybank and Merchant s Bank. By letter executed on August 24, 2015 and September 24, 2015, respectively, Keybank and Merchant s Bank have granted a waiver covering the financial covenants that existed at June 30, Total interest incurred for the years ended and 2015 was $1,546,501 and $1,671,939, respectively. Interest expense charged to operations was $1,520,503 and $1,462,042 for the years ended and 2015, respectively, and the remainder was capitalized. The College entered into interest rate swap agreements, for the 2009, 2010, 2011 and 2013 Series revenue bonds, converting the variable rates to fixed rates. 16 (Continued)

19 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) As of and 2015, the following interest-rate swap agreements were outstanding: Fair value asset 2016 Remaining (liability) at Debt Issue Expiration notional Sw ap fixed June 30, Counterparty issue date date amount rate 2016 T.D. Bank N.A Bonds 06/09/ /01/2019 $ 5,073, % $ (378,893) T.D. Bank N.A. 2010A Bonds 11/18/ /01/2020 6,713, (423,305) Keybank 2010B Bonds 11/18/ /14/2020 3,410, (228,286) T.D. Bank N.A Bond 11/17/ /1/2026 5,786, (311,875) Merchants 2013 Bond 5/29/2013 6/1/ ,400, (542,074) $ 35,384,043 $ (1,884,433) Fair value asset 2015 Remaining (liability) at Debt Issue Expiration notional Swap fixed June 30, Counterparty issue date date amount rate 2015 T.D. Bank N.A Bonds 06/09/ /01/2019 $ 5,232, % $ (411,172) T.D. Bank N.A. 2010A Bonds 11/18/ /01/2020 7,161, (350,621) Keybank 2010B Bonds 11/18/ /14/2020 3,526, (181,567) T.D. Bank N.A Bond 11/17/ /1/2026 6,236, (112,132) Merchants 2013 Bond 5/29/2013 6/1/ ,600, (42,387) $ 37,757,576 $ (1,097,879) The 2009 and 2010 variable rate-side of the swaps is based on 69% of one-month LIBOR plus a spread ranging from 0 basis points to basis points. The 2011 variable rate-side of the swaps is based on 75% of one-month LIBOR. The 2013 variable rate-side of the swaps is based on 65% of one-month LIBOR. The fair values of net swaps are recorded as either an asset or liability at the end of each fiscal year. The interest rate swap agreements were in a liability position at and 2015 of $1,884,433 and $1,097,879, respectively. The change in value of the swaps are reflected in nonoperating income on the statement of activities. In 2016 and 2015 the change in value was a gain of $786,554 and $35,791, respectively. If held to maturity, the change in the value of the swap will net to zero. 17 (Continued)

20 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (7) Temporarily Restricted Net Assets Temporarily restricted net assets consist of the following at June 30: Purpose restrictions student aid $ 1,636,545 1,676,403 Purpose restrictions other 1,316,704 1,305,200 Purpose restrictions capital 2,091,785 4,408,343 Time restrictions: Charitable trust agreements 845, ,795 Charitable trust agreements included in contributions receivable 549, ,535 Contributions receivable, net 1,008,160 1,209,347 Unspent gains on endowment 4,473,209 5,040,296 $ 11,921,608 15,022,919 (8) Permanently Restricted Net Assets Permanently restricted net assets consist of the following at June 30: Funds for which the income is restricted: Scholarship $ 4,648,545 4,512,696 Academic support 6,579,424 4,997,371 Other 1,221,660 1,161,510 Contributions receivable, net 3,389,355 4,799,257 $ 15,838,984 15,470,834 (9) Net Assets Released from Restrictions Net assets released from temporary donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of events specified by the donors are as follows at June 30: 18 (Continued)

21 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) Purpose restrictions accomplished: Student aid $ 1,318, ,510 Other 376, ,999 Capital 2,316,950 Total purpose restrictions 4,011,525 1,953,509 Time restrictions satisfied 66, ,897 Total net assets released from restrictions $ 4,077,695 2,191,406 (10) Endowment Champlain s endowment consists of approximately 57 individual funds established for a variety of purposes including both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. (a) Relevant Law Under Uniform Prudent Management of Institutional Funds Act (UPMIFA) the governing board has discretion to determine appropriate expenditures of a donor-restricted endowment fund in accordance with a robust set of guidelines about what constitutes prudent spending. UPMIFA permits the College to appropriate for expenditure or accumulate so much of an endowment fund as the College determines to be prudent for the uses, benefits, purposes and duration for which the endowment fund is established. Seven criteria are to be used to guide the College in its yearly expenditure decisions: 1) duration and preservation of the endowment fund; 2) the purposes of the College and the endowment fund; 3) general economic conditions; 4) effect of inflation or deflation; 5) the expected total return from income and the appreciation of investments; 6) other resources of the College; and, 7) the investment policy of the College. Although UPMIFA offers short-term spending flexibility, the explicit consideration of the preservation of funds among factors for prudent spending suggests that a donor-restricted endowment fund is still perpetual in nature. Under UPMIFA, the Board is permitted to determine and continue a prudent payout amount, even if the market value of the fund is below historic dollar value. There is an expectation that, over time, the permanently restricted amount will remain intact. This perspective is aligned with the accounting standards definition that permanently restricted funds are those that must be held in perpetuity even though the historic-dollar-value may be dipped into on a temporary basis. 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 the donor-restricted endowment fund that is not classified as permanently restricted net 19 (Continued)

22 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) assets, is classified as temporarily restricted net assets, until appropriated for spending by the Board of Trustees. Endowment net asset composition by type of fund consists of the following at : Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted endowment funds $ (12,444) 4,473,209 12,449,629 16,910,394 Board-designated endowment funds 504, ,095 Total endowed net assets $ 491,651 4,473,209 12,449,629 17,414,489 Changes in endowment net assets for the year ended are as follows (in thousands): Temporarily Permanently Unrestricted restricted restricted Total Net assets, June 30, 2015 $ 532,323 5,040,296 10,671,577 16,244,196 Investment return: Investment income 30, , ,758 Net appreciation (33,107) (178,542) (211,649) Total investment returns (2,173) (11,718) (13,891) Contributions 1,778,052 1,778,052 Reclassify underwater endowment (12,444) 12,444 Appropriated endowment earnings (26,055) (567,813) (593,868) Endowed net assets, $ 491,651 4,473,209 12,449,629 17,414, (Continued)

23 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) Endowment net asset composition by type of fund consists of the following at June 30, 2015: Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted endowment funds $ 5,040,296 10,671,577 15,711,873 Board-designated endowment funds 532, ,323 Total endowed net assets $ 532,323 5,040,296 10,671,577 16,244,196 Changes in endowment net assets for the year ended June 30, 2015 are as follows (in thousands): Temporarily Permanently Unrestricted restricted restricted Total Net assets, July 1, 2014 $ 547,520 5,274,002 8,791,558 14,613,080 Investment return: Investment income 27, , ,658 Net appreciation (17,830) (537,792) (555,622) Total investment returns 10, , ,036 Contributions 1,880,019 1,880,019 Appropriated endowment earnings (25,210) (535,729) (560,939) Endowed net assets, June 30, 2015 $ 532,323 5,040,296 10,671,577 16,244,196 (b) Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or the Act requires the corpus to retain as a fund of perpetual duration. Deficiencies of this nature that are reported in unrestricted net assets were $12,444 and $0 for the years ending and Deficiencies result from unfavorable market fluctuations. Subsequent gains that restore the fair value of the assets of an endowment fund to the required level will be classified as an increase in unrestricted net assets. 21 (Continued)

24 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (c) Return Objectives and Risk Parameter The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the College must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the total return results of a composite weighted index composed of various benchmarks including the following index : Standard and Poor s, Russell 2000, MS EAFE, MSCI Emerging Markets, Barclay s, JPM Non-U.S. government, HFRI Fund of Funds, and Dow Jones while assuming a moderate level of investment risk. The College expects its endowment funds, over three to five years, to provide an average annual real rate of return of approximately 5% plus inflation annually. Actual returns in any given year may vary from this amount. (d) Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the College relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The College targets a diversified asset allocation that places emphasis on investments in equities, bonds, and alternative investments in a % ratio to achieve its long-term return objectives within prudent risk constraints. The College s endowment funds are invested on a total return basis. Growth in principal, at least adequate to keep pace with inflation, is a key objective. Over the long term, these funds should be an expanding source of sustained support, growing as the College grows. The College s Board of Trustees approved a distribution of up to 5% of the value of the funds for spending in 2016 and The value of the funds is the average year end value of the fund for the previous three fiscal years. Distribution in excess of the annual designated amount may be made after a vote of 3/4 of the Board of Trustees if a financial emergency or circumstances of extreme need exist, unless specific language in an individual endowment policy states otherwise. This instance has never happened at the College to date. (11) Retirement Plan The College provides a defined contribution plan covering substantially all employees. Employees can contribute up to 5% and the College will match the employee contribution on a 2-for-1 basis up to a maximum of 10%. In addition to the 10%, the College provides a supplemental contribution to the defined contribution plan to create an equitable retirement plan for long-term employees who participated in the previous pension plan. The total expense under this plan was $2,821,889 and $2,708,493 for 2016 and 2015, respectively. 22 (Continued)

25 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (12) Leases The College is committed as of under various operating lease agreements for facilities, equipment, and vehicles. Future minimum payments on such leases are summarized below: Year ending June 30: 2017 $ 2,914, , , , ,382 $ 4,693,318 Lease expense for the years ended and 2015 was $2,868,362 and $2,809,507, respectively. (13) Operating Expenses by Natural Classification Expenses are reported in the consolidated statements of activities by functional classification. The table below depicts the natural classification of operating expenditures for the years ended and Academic Student Institutional Auxiliary Instructional support services support enterprises Total Total Salaries and benefits $ 19,974,686 10,366,182 6,463,813 9,345,246 1,590,815 47,740,742 43,503,130 Occupancy and board 651,408 1,137, , ,080 8,047,647 10,575,138 10,054,929 Technology 400, , ,076 2,070, ,399 3,016,283 2,896,173 Other 3,917,802 3,358,411 3,866,263 6,021, ,383 18,098,029 19,093,212 Interest 477, , , , ,463 1,520,503 1,462,042 Depreciation 1,626, , ,431 1,167, ,927 5,179,729 4,586,441 $ 27,048,977 16,354,724 11,680,273 19,407,816 11,638,634 86,130,424 81,595,927 (14) Commitment and Contingencies The College is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the College s consolidated financial statements. 23 (Continued)

26 Notes to Consolidated Financial Statements (with comparative information for June 30, 2015) (15) Subsequent Events The College considers events or transactions that occur after the balance sheet date, but before the consolidated financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. These consolidated financial statements were issued on September 26, 2016 and subsequent events have been evaluated through that date. 24

27 Supplementary Schedule of Expenditures of Federal Awards Year ended U.S. Department of Education: Direct awards Passed Amount through Program CFDA number expended subrecipients Student financial assistance cluster: Federal Work-Study Program $ 300,416 Federal Pell Grant Program ,258,106 Federal Supplemental Educational Opportunity Grant Program ,650 Federal Perkins Loan Program (note 2) ,354,124 Federal Direct Student Loans (note 2) ,399,905 Total student financial assistance cluster 41,617,201 U.S. Department of Transportation: Pass-through award State of Vermont Highway planning and construction cluster: Highway Planning and Construction ,114 Total highway planning and construction cluster 21,114 Total expenditures of federal awards $ 41,638,315 See accompanying notes to supplementary schedule of expenditures of federal awards. 25

28 Notes to Supplementary Schedule of Expenditures of Federal Awards Year ended (1) Summary of Significant Accounting Policies The accompanying supplementary schedule of expenditures of federal awards (the Schedule) includes the federal grant activity of Champlain College Incorporated and is presented on the accrual basis of accounting. Because the Schedule presents only a selected portion of the operations of the College, it is not intended to and does not present the financial position, changes in net assets or cash flows of the College. The information in the Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in the preparation of, the consolidated financial statements. (2) Loan Balances During the year ended, $486,072 in loans was advanced under the Federal Perkins Loan Program and the administrative cost allowance claimed was $0. The loan receivable balance from students under the Federal Perkins Loan Program was $2,851,291 at. Loan receivable balance at June 30, 2015 $ 2,868,052 Loans advanced 486,072 Federal expenditures $ 3,354,124 Current year loan reduction 502,833 Loan receivable balance at $ 2,851,291 During the year ended, $34,399,905 was advanced under the Federal Direct Student Loan Program. The College is responsible only for the performance of certain administrative duties and, accordingly, these loan balances are not included in the College s financial statements. It is not practical to determine the balances of loans outstanding from students of the College under this program at. The amount expended during 2016 was as follows: DL Subsidized $ 7,055,999 DL Unsubsidized 12,922,379 DL Plus 14,421,527 $ 34,399, (Continued)

29 Notes to Supplementary Schedule of Expenditures of Federal Awards Year ended (3) Mortgages Payable to the Federal Government Following is a list of outstanding indebtedness to the federal government at : 5.5% mortgage payable U.S. Department of Education, secured by land, building, furniture, furnishings and equipment, payable in semi-annual installments of principal and interest of $34,460 through 2020 $ 244,467 $ 244,467 (4) Indirect Cost Rate For federal awards, the College has obtained predetermined facilities, and administrative cost rates for fiscal year 2016, which have been reviewed and approved by the U.S. Department of Health and Human Services, the College's federal oversight agency. The on-campus rate was 39% and the off-campus rate was 21.70% for the fiscal year ending. Both rates use the Uniform Guidelines Simplified Method and Modified Total Direct Cost as a base. The current grants listed within the Schedule of Expenditures of Federal Awards do not include an indirect cost rate; however all future grants that allow for the use of an indirect cost rate would utilize the College's federally approved rates. 27

30 KPMG LLP Suite Mountain View Drive Colchester, VT Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Board of Trustees Champlain College Incorporated: 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 consolidated financial statements of Champlain College Incorporated (the College), which comprise the consolidated statement of financial position as of June 30, 2016 and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated September 26, Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the College s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing an opinion on the consolidated 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 over financial reporting 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the College s consolidated financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 28 KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

31 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing and not to provide an opinion on the effectiveness of the College s internal control over compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the College s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. September 26, 2016 Vt. Reg. No

32 KPMG LLP Suite Mountain View Drive Colchester, VT Independent Auditors Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance The Board of Trustees Champlain College Incorporated: Report on Compliance for Each Major Federal Program We have audited Champlain College Incorporated s (the College) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the College's major federal programs for the year ended. The College s major federal program is identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for the College s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the College s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the College s compliance. Opinion on Each Major Federal Program In our opinion, the College complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended. Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items , , and Our opinion on each major federal program is not modified with respect to these matters. 30 KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

33 The College s response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The College s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of the College is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the College s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the College s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items , , and that we consider to be significant deficiencies. The College s response to the internal control over compliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The College s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Burlington, Vermont March 15, 2017 Vt. Reg. No

34 Schedule of Findings and Questioned Costs (1) Summary of Auditors Results Financial Statements Type of auditors' report issued on whether the financial statements were prepared in accordance with generally accepted accounting principles: Unmodified Internal control over financial reporting: Material weakness(es) identified? yes X no Significant deficiency(ies) identified that are not considered to be material weaknesses? yes X none reported Noncompliance material to the financial statements noted? yes X no Federal Awards Internal control over major program: Material weakness(es) identified? yes X no Significant deficiency(ies) identified that are not considered to be material weaknesses? X yes none reported Type of auditors report issued on compliance for major program: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR (a)? X yes no Champlain College Incorporated s major program was: Name of federal program or cluster CFDA numbers Student Financial Assistance Cluster , , Dollar threshold used to distinguish between Type A and Type B programs: $750,000 Auditee qualified as low-risk auditee? X Yes No (2) Findings Relating to the Financial Statements Reported in Accordance with Government Auditing Standards None noted. 32 (Continued)

35 Schedule of Findings and Questioned Costs (3) Findings and Questioned Costs Relating to Federal Awards Program: Student Financial Assistance Cluster Federal Agency: U.S. Department of Education Program Year: July 1, 2015 CFDA Number: Federal Supplemental Educational Opportunity Grants Finding Number: Federal Work Study Program Federal Perkins Loan Federal Capital Contributions Federal Pell Grant Program Federal Direct Student Loans Criteria upon Which Finding is Based The determination of SFA award amounts is based on financial need. Financial need is generally defined as the student s cost of attendance (COA) minus financial resources reasonably available. Condition Found and Perspective During our testwork over cost of attendance (COA), we noted the following: For 1 out of 40 students selected for testwork, books and supplies were not included in the student s COA and we were unable to obtain documentation to support why these standard items were excluded from the calculation. As a result of the exclusion, the student s COA was understated by $630. While the COA was understated it did not result in an error in the amount of aid disbursed to the student. For 1 out of 40 students selected for testwork, books and tuition costs included within the COA were based on the student earning 18 credits hours, however the student was enrolled to take 19 credit hours. This resulted in the student s COA being understated by $683. While the COA was understated it did not result in an error in the amount of aid disbursed to the student. For 1 out of 40 students selected for testwork, the cost of attendance in DataTel, the College s student financial aid system, was revised to reflect that the student was enrolled as a trued student, and charged tuition based on trued. trued is a program offered by the College which allows students access to course content that is applicable to their careers in an online format that allows for schedule flexibility. This student was not a trued student but was enrolled as a traditional full time student. The student was charged the trued tuition, based off the incorrect COA, and the error resulted in the student receiving an under award in direct loan funding. Our sample was not, and was not intended to be statistically valid. The above condition found is not a repeat finding noted within the June 30, 2015 audit report. 33 (Continued)

36 Schedule of Findings and Questioned Costs Questioned Costs None the errors noted above resulted in an under award of federal aid. Cause The cause of the condition found is primarily due to insufficient review controls to ensure that the COA is complete and accurate and that changes in enrollment status are properly reflected in the student s COA. Effect The effect of the condition found is that the student s COA may be inaccurate resulting an incorrect awarding of federal aid. Recommendation We recommend the College review its process for calculating the COA and implement controls to ensure that the COA calculation is properly reviewed and approved prior to awarding financial aid. Views of Responsible Officials We agree with the above findings and recommendation and have developed an corrective action plan to address the condition found as outlined within Appendix I. 34 (Continued)

37 Schedule of Findings and Questioned Costs Program: Student Financial Assistance Cluster Federal Agency: U.S. Department of Education Program Year: July 1, 2015 CFDA Number: Federal Perkins Loan Federal Capital Contributions Finding Number: Federal Direct Student Loans Criteria upon Which Finding is Based A student s enrollment status determines eligibility for in school status, deferment, and grace periods, as well as for the payment of interest subsidies to FFEL Program loan holders by ED. Enrollment Reporting in a timely and accurate manner is critical for effective management of the programs. Enrollment information must be reported within 30 days whenever attendance changes for students, unless a roster will be submitted within 60 days. These changes include reductions or increases in attendance levels, withdrawals, graduations, or approved leaves-of-absence. As explained in the NSLDS Enrollment Reporting Guide, the Enrollment Reporting roster file is due within 15 days from the creation of the file that is placed in the institution s SAIG. (Pell, 34 CFR Section (b)(2), FFEL34 CFR Section ; Direct Loan, 34 CFR Section ). Condition Found During our testwork over enrollment reporting, we noted the following: For 3 out of 40 students selected for testwork, the students change in status was not transmitted to the NSLDS within the required 60 day timeframe. Submissions ranged from 10 to 55 days past the 60 day requirement. For 1 out of 40 students selected for testwork, the student s status of graduated was never transmitted to the NSLDS. For 1 out of 40 students selected for testwork, student was in a test out (a course where a test is taken in order to prove the student has sufficient knowledge to skip a required course) for spring The student required 3 credits from the test out to complete the program and graduate. However, when a student is in a test out, they are not enrolled in any credit bearing courses at the College. Per review of the Clearinghouse documentation, a withdrawn status was properly transmitted timely to the Clearinghouse in February 2016 to reflect the student s status change from December 18, When the student sufficiently completed the test-out in May of 2016, the student was granted the 3 credits, making the student eligible to be a May 2016 graduate. The status of graduated was transmitted to the Clearinghouse however, the NSLDS status still reflects withdrawn. Further, this issue was noted and followed up on only as a result of the audit selection. Our sample was not, and was not intended to be statistically valid. The above condition found is not a repeat finding noted within the June 30, 2015 audit report. 35 (Continued)

38 Schedule of Findings and Questioned Costs Questioned Costs None Cause The cause of the condition found is primarily due to insufficient review procedures within the Registrar s office to ensure timely and accurate transmission of student enrollment changes. The College does have procedures in place to transmit to the National Student Clearing house, who the College contracts with to transmit to the NSLDS, however the College does not have procedures to monitor that the NSC transmits timely to the NSLDS. Effect The effect of the condition found is that changes in student enrollment status are not transmitted or not timely transmitted to the NSLDS to ensure that the student enters repayment status timely. Recommendation We recommend the College review its process related to enrollment changes reporting and implement a system where a second person is reviewing the data transmitted to ensure it transmits and also a review to ensure the NSC transmits the data to the NSLDS. Views of Responsible Officials We agree with the above findings and recommendation and have developed an corrective action plan to address the condition found as outlined within Appendix I. 36 (Continued)

39 Schedule of Findings and Questioned Costs Program: Student Financial Assistance Cluster Federal Agency: U.S. Department of Education Program Year: July 1, 2015 CFDA Number: Federal Pell Grant Program Finding Number: Criteria upon Which Finding is Based Institutions must report student payment data within 15 calendar days after the school makes a payment, or becomes aware of the need to make an adjustment to previously reported student payment data or expected student payment data. Schools may do this by reporting once every 15 calendar days, bi-weekly or weekly, or may set up their own system to ensure that changes are reported in a timely manner. Condition Found and Perspective During our testwork over Pell Reporting, we noted that for 5 of 40 students selected for testwork, the required Pell student payment data was not reported to the Common Origination and Disbursement (COD) website within the 15 day timeframe as required by federal regulations. For these submissions, we noted that the submission dates ranged from 17 to 21 days. Our sample was not, and was not intended to be statistically valid. The above condition found is not a repeat finding noted within the June 30, 2015 audit report. Questioned Costs None Cause The cause of the condition found is primarily due to insufficient review controls to ensure that reports are made to COD within the required timeframe. Effect The effect of the condition found is that the College may not be reporting Pell disbursements to COD timely. Recommendation We recommend the College review its process for reporting Pell disbursements to COD to ensure reports are sent in a manner which allows for timely reporting. Views of Responsible Officials We agree with the above findings and recommendation and have developed an corrective action plan to address the condition found as outlined within Appendix I. 37

40 March 15, 2017 MANAGEMENT S RESPONSE AND CORRECTIVE ACTION PLAN Finding: Cost of Attendance Federal Agency: U.S. Department of Education CFDA Number: Federal Supplemental Educational Opportunity Grants Federal Work Study Program Federal Perkins Loan Federal Capital Contributions Federal Pell Grant Program Federal Direct Student Loans Management s response and corrective action plan: Management agrees with the finding as presented by KPMG. The students in the online population frequently change the number of credits in which they are enrolled. As a result, there are multiple Cost of Attendance (COA) adjustments. Reports are run and reviewed regularly to identify and correct these enrollment changes and update the COA. In these three findings, one student was missed on the report and two students were incorrectly adjusted. All three are attributable to human error versus insufficient review controls. Additionally, two of the instances noted did not impact the aid calculation. For the one student who was under awarded direct lending the institution made them whole with institutional funding. An additional staff member was hired in August 2016 specifically to work with the online student population. Additionally, in September of 2016, COA budget set-up and budget assignment rules for 2017/2018 were reviewed with a Colleague consultant to eliminate manual review, where possible. Currently, a financial aid mismatch report is run and reviewed on a regular basis to identify cost of attendance errors. Financial Aid will work with the Enrollment Report Writer to build additional exception reports that would identify enrollment and COA mismatches. Upon completion of these reports, Financial Aid will amend and implement procedural documentation to add regular review and resolution of the new reports and any exceptions identified. Scheduled Date of Completion: April 2017 Contact persons responsible: Kristi Jovell, Assistant Vice President of Financial Aid and Support Services

41 Finding: Student Status Reporting Federal Agency: U.S. Department of Education CFDA Number: Federal Perkins Loan Federal Capital Contributions Federal Direct Student Loans Management s response and corrective action plan: Management agrees with the finding as presented by KPMG. The College utilizes the services of the National Student Clearinghouse (NSC) to assist in the reporting of enrollment status changes to the National Student Loan Data System (NSLDS). The delay in reporting student status to the NSLDS resulted from a transition of personnel responsible for student enrollment reporting. The College is adhering to sending files to the NSC in accordance with the College s schedule of planned transmissions to NSC and will institute an additional process to check, upon each enrollment reporting period, a sample of students to ensure timely submission to the NSLDS. For each student selected, the Registrar s Office will look up the students on the NSC s website to confirm transmission from the NSC to NSLDS. This will occur roughly 7-10 business days after the enrollment report has been submitted to the NSC. The Registrar s Office will keep a detailed report of the students included in each sample, the date the sample was reviewed on the NSC s website, and any relevant screen shots from the NSC to show that the enrollment data was transmitted to NSLDS. Additionally, this process will also take place after the Registrar s Office reports degree files (currently, 3 times a year) after degrees have been conferred. The final two instances identified in the finding, related to students whose graduated status was not properly reflected with NSLDS, have been resolved. Scheduled Date of Completion: Immediately Contact person responsible: Becky Peterson, Director, Registration & Registrar

42 Finding: Pell Reporting Federal Agency: U.S. Department of Education CFDA Number: Federal Pell Grant Program Management s response and corrective action plan: Management agrees with the finding as presented by KPMG. The College utilizes the Common Origination and Disbursement (COD) export report, from Colleague, to send and receive records from COD. This ensures that all traditional undergraduates are reported within the 15 days required by regulation. The instances noted relate to the online population, which have summer disbursements and need to be processed differently through the COD export report. This was the factor in 4 of the 5 instances in the finding, with disbursement dates of 5/18/15 and reporting of 6/4/15 (17 days). The remaining instance stemmed from a Pell disbursement reject that resulted in the disbursement record being accepted 18 days after disbursement (4/18/16 disbursement and 5/6/16 accepted disbursement reporting date). This finding may reoccur in the 16/17 audit due to the timing of the discovery. For the summer population described above, the College will begin running the Colleague COD export for Pell earlier on the date of the first disbursement of the award year. Procedure documentation will be amended to reflect this. Also, the College will amend procedures for review and resolution on the Pell Reject report to clearly articulate the requirement for reporting a processed and accepted disbursement record within 15 days. Scheduled Date of Completion: May 2017 Contact person responsible: Kristi Jovell, Assistant Vice President of Financial Aid and Support Services