Suffolk County Community College (A Component Unit of the County of Suffolk, New York)

Transcription

1 (A Component Unit of the County of Suffolk, New York) Basic Financial Statements, Management s Discussion and Analysis and Schedules of Expenditures of Federal Awards August 31, 2012 (With Independent Auditors Reports Thereon)

2 TABLE OF CONTENTS Page Independent Auditors' Report 1 Management's Discussion and Analysis 3 Basic Financial Statements Statement of Net Assets 9 Statement of Revenues, Expenses and Changes in Net Assets 10 Statement of Cash Flows Notes to Financial Statements 13 Required Supplementary Information Other Post Employment Benefits Schedule of Funding Progress Last Three Fiscal Years 28 Supplementary Information Schedule of Revenues, Expenses and Other Changes by Fund and Reconciliation to Audited Basic Financial Statements 29 Reconciliation of Revenues, Expenses and Fund Balance as reflected in the Annual Report to the Audited Basic Financial Statements 31 Schedule of State Operating Aid 33 Schedule of State-Aidable FTE Tuition Reconciliation 34 Federal Programs: 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 Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Schedule of Expenditures of Federal Awards 39 Note to Schedule of Expenditures of Federal Awards 40 Schedule of Findings and Questioned Costs 41 Summary Schedule of Prior Audit Findings 43

3 Independent Auditor s Report To the Board of Trustees of We have audited the accompanying financial statements of the (the College ), a component unit of the County of Suffolk, New York, and its aggregate discretely presented component units as of and for the year ended August 31, 2012, which collectively comprise the College s financial statements as listed on the table of contents. These financial statements are the responsibility of the College's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Association and Foundation, Inc., component units of. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for, Inc., is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to Financial Audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The financial statements of the Component Units of the College were not audited in accordance with Government Auditing Standards. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the College s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provides a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the College and of its aggregate discretely presented component units as of August 31, 2012, and the respective changes in its financial position and cash flows thereof for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated May 2, 2013 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 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 and should be considered in assessing the results of our audit. O CONNOR DAVIES, LLP 500 Mamaroneck Avenue, Suite 301, Harrison, NY I Tel: I Fax: I O Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

4 Accounting principles generally accepted in the United States of America require that Management s Discussion and Analysis and the Schedule of Funding Progress Other Post Employment Benefits be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the College's basic financial statements as a whole. The accompanying supplementary information in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The accompanying supplementary information and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied by us and the other auditors 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, based on our audit and the report of other auditors the information is fairly stated in all material respects in relation to the financial statements taken as a whole. O'Connor Davies, LLP Harrison, New York May 2,

5 Management s Discussion and Analysis (A Component Unit of the County of Suffolk) For the Year Ended August 31, 2012 The following is a discussion and analysis of the financial performance of Suffolk County Community College (the College) for the year ended August 31, This section is a summary of the College s financial activities based on currently known facts, decisions, or conditions, as well as the College s financial statements. The summary is an introduction only and should be read in conjunction with the College s financial statements, which follow. Within this section, the results of the current year are discussed in comparison with the prior year, with an emphasis placed on the current year. The College s financial statements are prepared consistent with the guidelines of the Governmental Accounting Standards Board (GASB). Among the GASB requirements is that the annual financial statements include costs associated with post-employment benefits, which are actuarially calculated (GASB 45). Another requirement is that the College report the costs associated with the future payout of time accruals accrued by employees that must be paid out upon their leaving the College. These liabilities are recorded on the financial statements as accrued compensated absences. These future obligations result in the College showing a net asset deficit. However, exclusive of these costs the College revenues more than covered all other expenditures in fiscal year As reported to SUNY under its annual reporting requirements, the College actually ended the year with an increase in fund balance over the previous year. Overview of the Financial Statements This annual report consists of three parts: MD&A (this section), the basic financial statements, and required supplementary information. The basic financial statements include: Statement of Net Assets - providing information as of August 31, 2012 on the College s assets, liabilities, and net assets. Current assets consist primarily of cash and cash equivalents, investments and accounts receivable. Non-current assets include restricted investments and capital assets, net of depreciation. Current liabilities include accounts payable, accrued liabilities, deferred revenue, and funds held in trust. Non-current liabilities include other postemployment benefit obligations ( OPEB ), compensated absences, estimated liabilities for claims, and bonds payable. Statement of Revenues, Expenses and Changes in Fund Net Assets - providing information on operating revenues and expenses and also non-operating revenues, and the resulting changes in fund net assets. 3

6 Statement of Cash Flows providing information for the year ended August 31, 2012 on changes in the College s cash and cash equivalents. This statement reports how the College s cash balances were impacted by operating, capital and non-capital financing, and investing activities. The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of supplementary information that further explains and supports the financial statements with a Schedule of Revenues, Expenses and Other Changes by Fund, Schedule of State Operating Aid and a Reconciliation of Operating Revenues and Costs as Reflected in the State Annual Report for the year ended August 31, Financial Highlights As of August 31, 2012, the College s net assets, excluding its liability for post-employment benefits obligations (GASB 45), total $83,070,972. This is a significant improvement over August 31, 2011, when the College had net assets of $16,766,251, net of the GASB 45 liability. The improvement is due in large part to a change in accounting principle required by the State University of New York (SUNY) in reporting the State portion of capital debt consistently through the SUNY system. Enrollment at the College trended upward for the last six fiscal years. The College is experiencing a leveling off in enrollment in 2012 compared to the peak enrollment achieved in In total, operating revenue increased by $1.45 million, due to tuition and Federal grants. Net non-operating revenue increased by $4.5 million in 2012 primarily due to an increase in the State aid rate per Full Time Equivalent (FTE) of $150, Federal aid decreased by $5.4 million which is a reflection of the end of ARRA funding. Interest on capital asset related debt decreased by $3.6 million which is due to the decrease in assets associated with the change in accounting principle required by SUNY. Investment income remains modest due to low interest rates based on the current economic conditions. Operating expenses at August 31, 2012 increased by $8.7 million or 4% over the same period in fiscal year Most of that increase was in Plant Operation and Maintenance, Student Services and General Administration. These higher expenses were a result of increases in salaries and employee benefits - resulting from collective bargaining agreements - as well as supplies, equipment and other needs due to the increased student enrollment. The College s net assets are summarized on the following table. It is prepared from the full statement of net assets (page 10), which is presented on an accrual basis of accounting whereby assets are capitalized and depreciated. 4

7 Comparison of Net Assets for Fiscal Years 2011 and 2012 Increase Percent (Decrease) Change Current assets $72,987,183 $64,533,515 $8,453, % Non-current assets: Capital assets, net of depreciation 129,238, ,757,352 3,480, % Other assets 4,502,927 15,343,010 (10,840,083) % Total assets 206,728, ,633,877 1,094, % Current liabilities 56,998,283 59,839,912 (2,841,629) -4.75% Non-current liabilities 219,246, ,284,714 (32,037,789) % Total Liabilities 276,245, ,124,626 (34,879,418) % Net assets: Invested in capital assets, net of related debt 87,955,554 23,396,944 64,558, % Unrestricted (157,472,582) (128,887,693) (28,584,889) 22.18% Total Net Assets ($69,517,028) ($105,490,749) $35,973, % As shown, the College s total net asset deficit at August 31, 2012 decreased to $(69,517,028) from ($105.5) million in fiscal year This decrease in net assets is primarily as a result of a change in accounting principle required by the State University of New York (SUNY). In compliance with the SUNY directive, the College changed its method of revenue recognition for capital assets contributed by the State. Contributions of capital assets are now recognized when the assets are purchased, as opposed to when the State makes debt service payments on related borrowings. The change in revenue recognition for State appropriations is preferable and is consistent with accounting for capital grants. As the debt is a legal obligation of the State, the change will more accurately reflect the debt on the State financial statements and not be duplicated on the College s financial statements. The change in accounting policy resulted in an increase in net assets invested in capital assets, net of related debt by $60,776,092 at September 1, 2011 and an increase in the change in net assets invested in capital assets, net of related debt of $1,766,472 for the year ended August 31, As there is no duplication in reporting, the College has not adopted a similar change in revenue recognition for contributions of capital assets and debt service payments made by the County. The next table shows the College s Revenue Sources. 5 Increase

8 Operating revenue: Tuition and fees, net Federal grants and contracts State and local grant/contracts Private gifts, grants and contracts Commission income Rental income Other operating income Total Non-operating revenue: Government appropriations: Suffolk County State of New York Federal & State Student Financial Aid (net) Investment income Other (Bond interest expense) Total Total Revenue (Decrease) Change $75,281,493 $74,803,110 $478, % 3,712,260 2,740, , % 1,534,902 1,811,855 (276,953) % 655,088 1,192,559 (537,471) % 1,531,907 1,470,435 61, % 1,028, , , % 2,308,568 1,618, , % 86,052,587 84,557,295 1,495, % 44,329,577 45,248,444 (918,867) -2.03% 43,884,104 36,436,044 7,448, % 24,001,099 29,734,238 (5,733,139) % 191, ,167 67, % (1,685,720) (5,309,352) 3,623, % 110,720, ,233,541 4,487, % $196,773,487 $190,790,836 $5,982, % As required by GASB 35, state and local appropriations are considered non -operating revenues even though these revenues are at the core of operations for the College and other community colleges in the SUNY system. The greatest increase in operating revenue was from federal grants and contracts. The college did not raise student tuition this fiscal year. Changes in Non-Operating funds resulted from a portion of State of New York appropriation received as Federal ARRA pass-through funds in 2011 that were recorded in Federal and State Financial Aid. In addition, due to the change in revenue recognition of State capital contributions as explained above, the college no longer reports DASNY bond interest as an offset to non-operating revenue. The following is a graphic presentation of Revenue Sources Other Operating Revenue 1.2% State and local grants and contracts.8% Federal grants and contracts 1.9% Private grants and contracts.3% State Appropriations (net of bond int exp) 22.3% Student Financial Aid (net) 12.2% Revenue Support $196,773,487 Rental Income.5% Investment Income.1% County Appropriations (net of bond int exp) 21.6% Commission Income Tuition and Fees (net) 38.3% 6

9 The next table shows the College s operating expenses. Operating Expenses for the Years Ended August 31, 2012 and 2011 Increase Percent (Decrease) Change Operating expenses: Instruction $ 111,139,582 $ 110,479,960 $ 659, % Academic support (inc. Library) 22,381,890 22,109, , Student services 22,861,068 20,644,699 2,216, Plant maintenance 33,190,018 29,403,086 3,786, General administration 14,001,382 13,206, , Institutional support 16,136,081 15,165, , Other 456, ,046 (16,529) (3.49) Depreciation 6,928,979 6,839,399 89, Total $ 227,095,517 $ 218,321,554 $ 8,773, % Operating expenses for fiscal year 2012 increased $8.7 million, or 4% over fiscal year Contributing to the expenditure increases in all areas were the effects of the contractual salary increases and required increases in employee benefits and retirement contributions. Student services and plant maintenance comprised most of the $8.7 million dollar increase. OPEB (Other Post Retirement Benefits) and Compensated Absences, which are allocated across all of the functional areas, also increase operating expenses. The College continues t o maintain one of the lowest General Administrative costs per full time equivalent student in the SUNY community college system. The following is a graphic illustration of operating expenses: Institutional Support 7.1% General Administration 6.2% Operating Expenses $227,095,517 Other.2% Depreciation 3.0% Plant Maintenance 14.6% Instruction 48.9% Student Services 10.1% Academic support (inc. Library) 9.9% 7

10 Analysis of Net Assets Capital Assets, Net, August 31, 2012 Increase Percent (Decrease) Change Capital assets: Land and improvements $4,948,118 $4,948,118 $0 0.00% Construction-in-progress 2,814, ,100 1,865, % Buildings and improvements 183,014, ,554,924 5,459, % Furniture and equipment 22,777,465 21,100,139 1,677, % Infrastructure 7,663,364 6,412,773 1,250, % Total 221,217, ,965,054 10,252, % Less accumulated depreciation 91,979,921 85,207,702 6,772, % Net capital assets $ 129,238,070 $ 125,757,352 $ 3,480, % The College continues to be dedicated to maintaining and improving buildings and infrastructure. This year the College s capital projects included a full year operation of the Montauket Learning Resources Center on the East Campus and planning and design of the Science Building on the Ammerman Campus. Additional information on the College s capital assets can be found in the Notes of the financial statements. The College had no direct long-term debt in either fiscal year. All long-term debt relating to capital assets recorded in the College s financial statements is the responsibility of the Dormitory Authority of the State of New York and Suffolk County. 8

11 ASSETS Statement of Net Assets August 31, 2012 Component Units Total Primary Reporting Institution Association Foundation Entity Cash and cash equivalents $ 64,818,216 $ 1,227,200 $ 562,094 $ 66,607,510 Investments ,605,260 12,605,260 Accounts receivable, net 5,021,509 32,241 76,222 5,129,972 Grants receivable 1,305, ,305,628 Other receivables 1,841, ,841,830 Other assets - 91,701-91,701 Total Current Assets 72,987,183 1,351,142 13,243,576 87,581,901 Deposits with bond trustees 4,470, ,470,439 Other noncurrent assets 32, ,488 Capital assets: Not being depreciated 7,762, ,762,569 Being depreciated, net 121,475, ,583 5, ,800,868 Total Noncurrent Assets 133,740, ,583 5, ,066,364 Total Assets $ 206,728,180 $ 1,670,725 $ 13,249,360 $ 221,648,265 LIABILITIES Accounts payable and accrued liabilities $ 21,853,497 $ 291,416 $ 19,615 $ 22,164,528 Due to other governments 1,928, ,928,985 Deferred revenue 25,745, ,745,558 Other current liabilities 786, ,559 Bonds payable - current portion 4,024, ,024,684 Compensated absences - current portion 2,659,000 49,299-2,708,299 Total Current Liabilities 56,998, ,715 19,615 57,358,613 Bonds payable, net of current portion 40,797, ,797,703 Compensated absences, net of current portion 25,861, ,861,222 Other post employment benefit obligations payable 152,588, ,588,000 Total Noncurrent Liabilities 219,246, ,246,925 Total Liabilities 276,245, ,715 19, ,605,538 NET ASSETS (DEFICITS) Invested in capital assets, net of related debt 87,955, ,955,554 Restricted for capital projects and grants - 474,301 11,794,747 12,269,048 Unrestricted (deficit) (157,472,582) 855,709 1,434,998 (155,181,875) Total Net Assets (Deficits) (69,517,028) 1,330,010 13,229,745 (54,957,273) Total Liabilities and Net Assets (Deficits) $ 206,728,180 $ 1,670,725 $ 13,249,360 $ 221,648,265 See notes to financial statements 9

12 Statement of Revenues, Expenses and Changes in Net Assets Year Ended August 31, 2012 Component Units Total Primary Reporting Institution Association Foundation Entity REVENUE Operating revenue Student tuition and fees (net of scholarship allowances of $24,515,111) $ 75,281,493 $ 4,698,540 $ - $ 79,980,033 Federal grants and contracts 3,712, ,398-3,881,658 State and local grant and contracts 1,534, ,007-1,759,909 Private grants and contracts 655, ,088 Commission income 1,531, ,531,907 Rental income 1,028, ,028,369 Other operating revenue 2,308, ,971 1,047,005 4,282,544 Total Operating Revenue 86,052,587 6,019,916 1,047,005 93,119,508 EXPENSES Operating expenses Instruction 111,139, ,139,582 Academic support 22,381, ,381,890 Student services 22,861, ,861,068 General administration 14,001, , ,035 14,609,323 General institutional 16,136, ,136,081 Operation and maintenance of plant 33,190, ,190,018 Other 456,517 5,318,083 1,114,248 6,888,848 Depreciation 6,928, ,533 1,050 7,072,562 Total Operating Expenses 227,095,517 5,895,522 1,288, ,279,372 Operating Income (Loss) (141,042,930) 124,394 (241,328) (141,159,864) NONOPERATING REVENUE (EXPENSES) State appropriations 43,884, ,884,104 County appropriations 44,329, ,329,577 Federal and State student financial aid 43,158, ,158,307 Student aid and grants (net of scholarship allowances of $24,515,111) (19,157,208) - - (19,157,208) Investment income 191,840 2,683 1,575,700 1,770,223 Interest on capital asset-related debt (1,685,720) - - (1,685,720) Net Nonoperating Revenue 110,720,900 2,683 1,575, ,299,283 Income (Loss) Before Other Revenue, Expenses, Gains or Losses (30,322,030) 127,077 1,334,372 (28,860,581) Capital appropriations 5,519, ,519,659 Increase (Decrease) in Net Assets (24,802,371) 127,077 1,334,372 (23,340,922) NET ASSETS (DEFICITS) Beginning of year, as previously reported (105,490,749) 1,202,933 11,895,373 (92,392,443) Change in application of accounting principle 60,776, ,776,092 Beginning of year, as restated (44,714,657) 1,202,933 11,895,373 (31,616,351) End of year $ (69,517,028) $ 1,330,010 $ 13,229,745 $ (54,957,273) See notes to financial statements 10

13 Statement of Cash Flows Year Ended August 31, 2012 Component Units Total Primary Reporting Institution Association Foundation Entity CASH FLOWS FROM OPERATING ACTIVITIES Tuition and fees $ 101,389,338 $ 4,721,498 $ - $ 106,110,836 Grants and contracts 11,563, ,398-11,732,506 Personal service payments (104,240,728) - - (104,240,728) Other than personal service payments (38,133,301) - - (38,133,301) Payments for fringe benefits (47,305,749) - - (47,305,749) Payments for programs - (5,682,835) (1,291,624) (6,974,459) Other receipts 4,868,844 1,145, ,269 7,008,968 Net Cash from Operating Activities (71,858,488) 353,916 (297,355) (71,801,927) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 43,884, ,884,104 County appropriation 44,329, ,329,577 Payments for scholarships and fellowships (43,541,656) - - (43,541,656) Federal and State student financial aid 43,158, ,158,307 Direct student loans 19,896, ,896,173 Direct student loans (19,896,173) - - (19,896,173) Net Cash from Noncapital Financing Activities 87,830, ,830,332 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Capital contribution 5,519, ,519,659 Other payments (4,089,943) - - (4,089,943) Purchases of capital assets (10,409,697) (43,942) - (10,453,639) Proceeds from capital debt 14,121, ,121,944 Payment of principal on capital debt (9,673,976) - - (9,673,976) Payment of interest on capital debt (1,685,720) - - (1,685,720) Net Cash from Capital and Related Financing Activities (6,217,733) (43,942) - (6,261,675) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments - - (5,660,378) (5,660,378) Proceeds from sales and maturities of investments - - 4,912,996 4,912,996 Investment income 191,840 2, ,264 1,126,787 Net Cash from Investing Activities 191,840 2, , ,405 Change in Cash and Cash Equivalents 9,945, ,657 (112,473) 10,146,135 CASH AND CASH EQUIVALENTS Beginning of year 54,872, , ,567 56,461,375 End of year $ 64,818,216 $ 1,227,200 $ 562,094 $ 66,607,510 (Continued) 11

14 Statement of Cash Flows (Continued) Year Ended August 31, 2012 Reconciliation of Operating Income (Loss) from Operating Activities Operating income (loss) (141,042,930) Component Units Total Primary Reporting Institution Association Foundation Entity $ $ 124,394 $ (241,328) $ (141,159,864) Adjustments to reconcile change in net assets to net cash from operating activities Depreciation expense 6,928, ,533 1,050 7,072,562 Scholarship allowance 24,515, ,515,111 Change in assets and liabilites Accounts receivable (167,986) 22,958 9,825 (135,203) Grants receivable 5,530, ,530,195 Other receivables 820, ,895 Other assets - 3,073 (19,740) (16,667) Accounts payable and accrued liabilities 8,114,233 61,730 (21,862) 8,154,101 Due to other governments (8,019,170) - - (8,019,170) Deferred revenue 939,825 (6,123) (25,300) 908,402 Other current liabilities (152,893) - - (152,893) Compensated absences 344,253 5, ,604 Other post employment benefit obligations payable 30,331, ,331,000 Net Cash from Operating Activities $ (71,858,488) $ 353,916 $ (297,355) $ (71,801,927) (71,858,488) 353,916 (297,355) 12

15 Notes to Financial Statements August 31, Organization Financial Reporting Entity (the College ) was formed in 1959 by the State University of New York and is a component unit of the County of Suffolk (the County ) in the County s financial statements. The College s resources are used to provide for the general educational activities of the College at its three campuses. GASB Statement No. 14, The Financial Reporting Entity, defines the primary government and potential component units and establishes the criteria for which potential component units are included in the reporting entity. The financial statements of the College include the College (primary government) and its component units which are defined as legally separate organizations that are financially accountable to the College. GASB Statement No. 14 defines financial accountability to the College as being determined on the basis of fiscal dependency, appointment of a voting majority of a governing board, ability to impose the College s will or potential for the component unit to provide specific financial benefits to, or to impose specific financial burdens on, the College. Based on the criteria set forth in GASB Statement No. 14, Suffolk Community College Association, Inc. (the Association) and Suffolk Community College Foundation, Inc. (the Foundation) are discretely presented component units and are included in the financial reporting entity under the heading Component Units. Component Units Suffolk Community College Association, Inc. The Association is a tax-exempt, nonprofit College operating in Suffolk County, New York and is a component unit of the College. The Association was organized to provide services to students enrolled in the College. The Association is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code. Suffolk Community College Foundation, Inc. The Foundation is a tax-exempt, nonprofit College operating in Suffolk County, New York and is a component unit of the College. The Foundation was established on September 22, 1989 by a resolution of the Board of Trustees. At that time, funds were transferred from the Association to the Foundation to comply with the purpose recognized by the Internal Revenue Service. The Foundation was organized to provide scholarships and emergency student loans to students attending the College as well as to promote the College through various activities. The Foundation is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code. Separately issued financial statements for the Association and Foundation may be obtained from their offices at 533 College Road, Selden, New York. 13

16 Notes to Financial Statements (Continued) August 31, Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed in the preparation of the College s financial statements. The policies conform to accounting principles generally accepted in the United States. Basis of Presentation, Measurement Focus and Basis of Accounting In its accounting and financial reporting, the College follows the pronouncements of the Governmental Accounting Standards Board (GASB). In addition, the College follows the pronouncements of applicable Financial Accounting Standards Board (FASB) Statements and Interpretations, issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements. The Operations of the College are reported as a special purpose government entity engaged in business-type activities, as defined by GASB Statement No. 35. Business-type activities are those that are financed in whole or in part by fees charged to external parties for goods or services. Accordingly, the College's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. The financial statements of the College consist of a statement of net assets; a statement of revenues, expenses and changes in net assets that distinguishes between operating and nonoperating revenues and expenses; and a statement of cash flows, using the direct method of presenting cash flows from operations. The College's policy for defining operating activities in the statement of revenues, expenses, and changes in net assets are those that generally result from exchange transactions such as the payments received for services and payments made for the purchase of goods and services. Certain other transactions are reported as nonoperating activities in accordance with GASB Statement No. 35. These nonoperating activities include the College's operating and capital appropriations from the State, Suffolk County's subsidy, nonexchange receipts, net investment income and interest expense. The Association and Foundation are private nonprofit organizations that report under Financial Accounting Standards Board (FASB) standards, including FASB Accounting Standards Codification 958, Accounting for Not-for-Profit Entities. Net Assets GASB Statement No. 34 requires that resources be classified for accounting and financial reporting purposes into the following three net asset categories: Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction, repair or improvement of those assets. 14

17 Notes to Financial Statements (Continued) August 31, Summary of Significant Accounting Policies (Continued) Restricted: Net assets whose use is subject to externally imposed conditions that can be fulfilled by the actions of the College or by the passage of time. Unrestricted: This component of net assets consists of net assets that do not meet the definition of "restricted" or "invested in capital assets, net of related debt". Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements and revenues and expenses recognized during the reporting period. Actual results could differ from those estimates. The College s estimates include the allowance for uncollectible student receivables, compensated absences and self-insurance reserves. Cash and Cash Equivalents Cash and cash equivalents consist of funds deposited in demand deposit accounts, time deposit accounts and certificates of deposit with maturities of less than three months at the time of purchase. The College s investment policies are governed by State statutes. The College has adopted its own written investment policy which provides for the deposit of funds in FDIC insured commercial banks or trust companies located within the State. The College is authorized to use demand deposit accounts, time deposit accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury, U.S. Agencies and obligations of New York State or its municipalities. Collateral is required for demand deposits, time deposits and certificates of deposit at 100% of all deposits not covered by Federal deposit insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the State and its municipal and school district subdivisions. Custodial credit risk is the risk that in the event of a bank failure, the College s deposits may not be returned to it. GASB Statement No. 40 directs that deposits be disclosed as exposed to custodial credit risk if they are not covered by depository insurance and the deposits are either uncollateralized, collateralized by securities held by the pledging financial institution or collateralized by securities held by the pledging financial institution s trust department but not in the College s name. The College s aggregate bank balances that were not covered by depository insurance were not exposed to custodial credit risk at August 31, Investments The Association investments consist of government securities and Treasury bills and notes valued at cost which approximates fair market value. The Foundation investments consist of corporate equities, United States Government and Agency obligations and mutual funds and other investments recorded at fair market value. 15

18 Notes to Financial Statements (Continued) August 31, Summary of Significant Accounting Policies (Continued) The College was invested only in the above mentioned obligations and, accordingly, was not exposed to any interest rate risk. Capital Assets The primary cost of campus facilities is shared equally by the County of Suffolk and the State of New York. Pursuant to New York State Education Law relative to community colleges, title to real property rests in and is held by the local sponsor (County of Suffolk) in trust for the use and purpose of the College. The College has a stewardship responsibility and, as such, all plant asset activity is recorded by the College as capital assets. Capital assets, which also include land, buildings and improvements, equipment and infrastructure assets, are recorded at historical cost or estimated historical cost of purchase as constructed. Donated capital assets are recorded at estimated fair value at the date of the donation. Capital assets are defined by the College as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Construction in progress projects includes various major building construction, repair and rehabilitation projects. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Years Buildings and improvements Furniture and equipment 5-8 Infrastructure 30 Operating Revenues and Expenses Operating revenues and expenses result from providing educational services. The College s principal sources of operating revenues are student tuition and federal, state and local grants. The College receives commission income from the campus bookstores, cafeterias and vending machines from college and student related activities. Additionally, there is rental income from fees charged for the community use of various College buildings and facilities. Student financial assistance funded by federal and state agencies for programs such as Pell, FSEOG, Federal Work Study and TAP is reported as an offset to tuition revenue. Operating expenses include administrative and educational costs, as well as interest expenses and depreciation on capital assets. All revenues and expenses not meeting this definition including formula-based state aid and county appropriations are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the College s policy to use restricted resources first, then unrestricted resources as they are needed. 16

19 Notes to Financial Statements (Continued) August 31, Summary of Significant Accounting Policies (Continued) Revenue Recognition Students are billed prior to the start of each semester. The related revenue is recognized as the educational services are rendered. Deferred Student Revenue Student revenue, which is received prior to August 31 and is applicable to the subsequent fall semester, is deferred and recognized as revenue in the following year concurrent with the commencement of the fall semester. Amounts receivable from students at August 31, 2012 relate to unpaid tuition and fees for previous semesters. State and County Aid Operating revenues received from the State University of New York are regulated by a financing formula contained in the State University regulations. Under the formula, the amount of basic state aid is limited to the lower of 40 percent of the College s net allowable expenses or an established rate per full-time equivalent student (FTE) ($2,122 for the year ended August 31, 2012) added to approximately 50% of the College s rental costs for physical space. The County is responsible for financing the portion of the operating budget of the College that is in excess of State aid and student revenues. Pension Benefits All eligible College employees participate in pension plans administered by New York State or other agencies. The County measures, recognizes and displays pension expense and related assets, liabilities, note disclosures and supplementary information in accordance with standards established by GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employees. Pension cost is measured and disclosed using the accrual basis of accounting. Annual pension cost is equal to the annual required contributions to the pension plan, calculated in accordance with certain parameters. Income Taxes The College is a political subdivision and as such is exempt from income taxes. Subsequent Events Evaluation by Management Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date that the financial statements were available to be issued, which date is May 2,

20 Notes to Financial Statements (Continued) August 31, Budgetary Data The College s budget, as with the County s other operating budgets, is legally enacted through the passage of a legislative resolution or by provisions in the Suffolk County Charter. Subsequent to the adoption of the budget by the Suffolk County Legislature (the Legislature), total expenditures within the College may not legally exceed the total budgeted amounts unless approved by the Legislature. 4. Change in Application of Accounting Principle In fiscal 2012, the College changed its method of revenue recognition for capital assets contributed by the State. Contributions of capital assets are now recognized when the assets are purchased, as opposed to when the State makes debt service payments on related borrowings. The change in revenue recognition for State appropriations is preferable and is consistent with accounting for capital grants. As the debt is a legal obligation of the State the change will more accurately reflect the debt on the State financial statements and not on the College s financial statements. The College believes that this is a preferable method of revenue recognition and that it more accurately reflects the nature of the transaction. The change in accounting policy resulted in an increase in net assets invested in capital assets, net of related debt by $60,776,092 at September 1, 2011 and an increase in the change in net assets invested in capital assets, net of related debt of $4,151,425 for the year ended August 31, The College has not adopted a similar change in revenue recognition for contributions of capital assets and debt service payments made by the County. 5. Deposits with Bond Trustees - Suffolk County The College has entered into financing agreements to finance construction projects and has deposited funds with Suffolk County for such projects. Bond proceeds not yet expended for new construction and used to establish debt service funds and related accumulated investment income are held on deposit with the County Treasurer s Office. Bond proceeds, including interest income in excess of construction costs, are restricted for future projects or debt service. Deposits with bond trustees consist of $ 4,470,439 in cash and cash equivalents. The College s investment policy states that securities underlying repurchase agreements must have a market value at least equal to the cost of the investment. All investments are either insured or registered and held by the College or its agent in the College s name. Interest Rate Risk The College does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. 18

21 Notes to Financial Statements (Continued) August 31, Deposits with Bond Trustees - Suffolk County (Continued) Credit Risk It is the College s policy to limit its investments in debt securities to those rated in the highest rating category by at least two nationally recognized bond rating agencies. As of August 31, 2012, the College s investments were for the most part invested in U.S. Treasury Obligations and, accordingly, not subject to credit risk. Concentration of Credit Risk The College places no limit on the amount it may invest in any one issuer. 6. Receivables 7. Capital Assets Grants receivable consisted of the following components as of August 31, 2012: Federal aid receivable $ 852,408 Due from New York State 441,216 Other 12,004 Total $ 1,305, : The following is a summary of changes in capital assets for the year ended August 31, Balance Balance September 1, Retirements/ August 31, 2011 Additions Capitalization 2012 Capital Assets, not being depreciated: Land and improvements $ 4,948,118 $ - $ - $ 4,948,118 Construction in progress 949,100 1,865,351-2,814,451 Total Capital Assets, not being depreciated $ 5,897,218 $ 1,865,351 $ - $ 7,762,569 Capital Assets, being depreciated: Buildings and improvements $ 177,554,924 $ 5,459,669 $ - $ 183,014,593 Furniture and equipment 21,100,139 1,834, ,760 22,777,465 Infrastructure 6,412,773 1,250,591-7,663,364 Total Capital Assets, being depreciated 205,067,836 8,544, , ,455,422 19

22 7. Capital Assets (Continued) Notes to Financial Statements (Continued) August 31, 2012 Balance Balance September 1, Retirements/ August 31, 2011 Additions Capitalization 2012 Accumulated depreciation: Buildings and improvements $ 71,632,199 $ 4,251,837 $ - $ 75,884,036 Furniture and equipment 11,772,558 2,361, ,760 13,977,051 Infrastructure 1,802, ,889-2,118,834 Total Accumulated Depreciation 85,207,702 6,928, ,760 91,979,921 Total Capital Assets, being depreciated, net $ 119,860,134 $ 1,615,367 $ - $ 121,475,501 Total Capital Assets, net $ 125,757,352 $ 3,480,718 $ - $ 129,238, Pension Plans The College participates in the New York State and Local Employees' Retirement System ( ERS ), the New York State Teachers' Retirement System ( TRS ) ("Systems") and the Teachers Insurance and Annuity Association College Retirement Equities Fund ( TIAA-CREF ). The TRS and ERS Systems are cost sharing multiple-employer defined benefit pension plans and the TIAA-CREF is a cost sharing multiple-employer defined contribution pension plan. The Systems provide retirement, disability and death benefits to plan members. Obligations of employers and employees to contribute and benefits to employees are governed by the New York State Retirement and Social Security Law. The Systems and TIAA-CREF issue publicly available financial reports that include financial statements and required supplementary information. These reports may be obtained by writing to the New York State and Local Retirement System, 110 State Street, Albany, New York 12224, the New York State Teachers Retirement System, 10 Corporate Woods Drive, Albany, New York and the Teacher's Insurance and Annuity Association - College Retirement Equities Fund, 730 Third Avenue, New York, New York Funding Policy Funding Policy - The Systems are non-contributory except for employees in tiers 3 and 4 that have less than ten years of service, who contribute 3% of their salary and employees in tier 5 who contribute 3% of their salary for ERS and 3.5% for TRS without regard to their years of service. Contributions to ERS are certified by the State Comptroller and expressed as a percentage of members salary. Contribution rates are actuarially determined and based upon membership tier and plan. Contributions to ERS consist of a life insurance portion and regular pension contributions. Pursuant to Article 11 of Education Law, contribution rates are established annually for TRS by the New York State Teachers Retirement Board. Contribution rates for the plans years' ending in 2012 are as follows: 20

23 8. Pension Plans (Continued) Notes to Financial Statements (Continued) August 31, 2012 ERS TRS Tier/Plan Rate Tiers Regular % % % 3 A % 4 A % 5 A % TIAA-CREF is a privately operated contribution retirement plan which provides benefits to certain employees of the College. Under the plan, the College is required to make contributions based on gross salaries of the participants. Certain participants are also required to make a participating contribution. The College s contributions made to the systems were equal to 100% of the contributions required for each year. The College is required to contribute at an actuarially determined rate. The required contributions for the current year and two preceding years were: 9. Long-Term Liabilities Plan ERS TRS TIAA-CREF (In Thousands) 2012 $4,623 $3,142 $5, ,776 2,129 5, ,857 1,377 4,698 The following table summarizes changes in the College s long-term liabilities for the year ended August 31, 2012: Balance September 1, Maturities Balance Due September 1, 2011, as New Issues/ and/or August 31, Within 2011 Reclassifications restated Additions Payments 2012 One-Year Bonds Payable - DASNY $ 68,292,048 $ (68,292,048) $ - $ - $ - $ - $ - Bonds Payable - Sponsor 40,288,540-40,288,540 14,121,944 9,656,897 44,753,587 4,024,684 Subtotal 108,580,588 (68,292,048) 40,288,540 14,121,944 9,656,897 44,753,587 4,024,684 Less: Deferred loss (1,949,770) 1,599,359 (350,411) - (25,030) (325,381) - Plus: Unamortized premium 3,828,399 (3,392,109) 436,290-42, ,181 - Total Bonds Payable 110,459,217 (70,084,798) 40,374,419 14,121,944 9,673,976 44,822,387 4,024,684 Other Non-current Liabilities: Compensated Absences 28,175,969-28,175,969 3,162,253 2,818,000 28,520,222 2,659,000 Other Post Employment Benefit Obligations Payable 122,257, ,257,000 40,395,000 10,064, ,588,000 - Total Long-Term Liabilities $ 260,892,186 $ (70,084,798) $ 190,807,388 $ 57,679,197 $ 22,555,976 # $ 225,930,609 $ 6,683,684 21

24 9. Long-Term Liabilities (Continued) Bonds Payable Notes to Financial Statements (Continued) August 31, 2012 County of Suffolk The County of Suffolk has issued general obligation serial bonds in the name of the County for various College construction projects. Total serial bonds outstanding at August 31, 2012 amounted $44,753,857 and are scheduled to mature from 2013 to This debt is the obligation of the County. No revenues or assets of the College have been pledged or will be available to pay the principal and interest. During 2012, the County issued bonds with a face value of $14,121,944 on behalf of the College. The annual requirements to amortize all outstanding bonded debt as of August 31, 2012 including interest payments of $11,638,246 are as follows: Suffolk Suffolk County County Principal Interest Total 2013 $ 4,024,684 $ 1,787,330 $ 5,812, ,933,292 1,618,573 5,551, ,968,033 1,448,878 5,416, ,019,982 1,280,005 5,299, ,060,524 1,110,426 5,170, ,187,008 3,339,466 18,526, ,185, ,796 9,174, ,374,242 64,772 1,439,014 $ 44,753,587 $ 11,638,246 $ 56,391,833 Interest rates on the County bond obligations range from 2.00% to 5.25%. Employee Benefits Accounting for Compensated Absences The College provides vacation leave, sick leave and other related benefits to substantially all full-time employees. Under the terms of union contracts, College employees are granted vacation and sick leave in varying amounts. In the event of termination, employees who belong to the Suffolk County Association of Municipal Employees (SCAME) are reimbursed for accumulated vacation time up to the equivalent of 90 working days. Employees who belong to the Faculty Association of (FASCC) are not entitled to vacation time. Members of both SCAME and FASCC are paid for the unused sick leave upon retirement or to their designated beneficiary upon death at the rate of one day to be paid for every two days accumulated, up to a maximum of 175 days paid for 350 days accumulated for FASCC and up to a maximum of 180 days paid for 360 days accumulated for SCAME. 22

25 9. Long-Term Liabilities (Continued) Notes to Financial Statements (Continued) August 31, 2012 Other Post Employment Benefit Obligations Payable In addition to providing pension benefits, the County, on behalf of the College, provides health insurance benefits for eligible retired College employees, their spouses, and some eligible dependents as part of the Suffolk County Employees Medical Health Insurance Plan. The plan offers comprehensive benefits through various plan providers consisting of hospital, medical, health, substance abuse and prescription drug programs. The County administers the plan and has the authority to establish and amend the benefit provisions offered. The County s plan is considered a single-employer defined benefit plan for financial reporting purposes. The plan is not a separate entity or trust and does not issue stand alone financial statements. The College, as a participant in the plan, recognizes the cost of providing benefits by recording its share of insurance as billed monthly by the County. The College has recognized revenues and expenditures of $422,766 for Medicare Part D payments made directly to its health insurance carrier on behalf of its retirees. Funding Policy There are no employee contribution rates for the Suffolk County Employees Medical Health Insurance Plan. Retired employees who are eligible for Medicare are also reimbursed for their portion of Medicare insurance premiums on a pay-as-you-go basis. The College s annual other postemployment benefit ( OPEB ) cost (expense) is calculated based on the annual required contribution, ( ARC ), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. GASB Statement No. 45 establishes standards for the measurement, recognition and display of the expenses and liabilities for retirees medical insurance. As a result, reporting of expenses and liabilities will no longer be accounted for under the pay-as-you-go approach. Instead of expensing the current year premiums paid, a per capita claims cost will be determined, which will be used to determine a normal cost, an actuarial accrued liability, and ultimately the ARC. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. Actuarial valuations for OPEB plans involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. These amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. Calculations are based on the OPEB benefits provided under the terms of the substantive plan in effect at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. In addition, the assumptions and projections utilized do not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. The actuarial calculations of the OPEB plan reflect a long-term perspective. 23

26 9. Long-Term Liabilities (Continued) Notes to Financial Statements (Continued) August 31, 2012 The College is required to accrue on the statement of revenues, expenses and changes in net assets the amounts necessary to finance the plan as actuarially determined, which is equal to the balance not paid by plan members. Funding for the Plan has been established on a payas-you-go basis. The assumed rate of increase in postretirement benefits is presented below: Fiscal Medical and Drug Year Base Sensitivity % 9.00% % 8.50% % 8.00% % 7.50% % 7.10% % 7.00% % 6.90% % 6.80% % 6.70% % 6.30% % 6.00% % 5.70% Ultimate 4.20% 5.20% The amortization basis is the level dollar of payroll method with an open amortization approach with 24 years remaining in the amortization period. The actuarial assumptions included a 4.0% discount rate and 3% payroll growth rate. The unit credit method was used to determine the actuarial value of the assets of the OPEB plan, however, the College currently has no assets set aside for the purpose of paying postemployment benefits and has no plan for budgeting this cost in the future. The number of participants as of September 1, 2011 was as follows: Active Employees 1,007 Retired Employees and beneficiaries 635 Total 1,642 24

27 9. Long-Term Liabilities (Continued) Notes to Financial Statements (Continued) August 31, 2012 The College s annual OPEB cost for the current year and the related information for the plan are as follows (dollar amounts in thousands): Amortization Component: Actuarial Accrued Liability as of September 1, 2011 $ 404,680 Assets at Market Value - Unfunded Actuarial Accrued Liability ("UAAL") $ 404,680 Funded Ratio 0.00% Covered Payroll (Active plan members) $ 86,128 UAAL as a Percentage of Covered Payroll % Annual Required Contribution $ 42,427 Interest on Net OPEB Obligation 4,890 Adjustment to Annual Required Contribution (6,922) Annual OPEB Cost 40,395 Contributions Made (10,064) Increase in Net OPEB Obligation 30,331 Net OPEB Obligation - Beginning of Year 122,257 Net OPEB Obligation - End of Year $ 152,588 The College s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal year 2012 and the two preceding years were as follows (dollar amounts in thousands): Fiscal Year Ended August 31, Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation $ 40, % $ 152,588 38, ,257 28, ,159 25

28 10. Commitments and Contingencies Lease Notes to Financial Statements (Continued) August 31, 2012 The College is obligated under numerous operating lease commitments for various equipment and facilities. Future minimum lease payments are as follows (in thousands): Litigation Year Ending August, $ 1,896, ,783, ,802, ,450, ,473,036 Total $ 8,406,006 Rent expense for the year ended August 31, 2012 was $1,964,855. The College is a defendant in a lawsuit where the plaintiff alleged discrimination on the basis of race and gender and amended the claim to include a complaint of wrongful termination by the College. The College is defending this matter and damages cannot be estimated at this time. Discovery was completed for the first claim and is ongoing for the amended claim. The College is a defendant in several other lawsuits, the outcome of which is not presently determinable. In the opinion of management, based on discussions with counsel, any significant adverse outcome of these cases should have no material adverse effect on the College s financial position. State and Federal Grant Programs and State Aid The College participates in various State and Federal grant programs. These programs are subject to program compliance audits by the grantors or their representative. The audits of these programs are an on-going process and many have not yet been conducted or completed. Accordingly, the College's compliance with applicable grant requirements will be established at a future date. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although the College anticipates such amounts, if any, will not be material. The College s Federal compliance audit under OMB Circular A-133 is performed in conjunction with the audit of the Sponsor and is included in the Sponsor's report. The College is subject to audits of State aid by New York State. The amount of aid previously paid to the College which may be disallowed cannot be determined at this time, although the College anticipates such amounts, if any, to be immaterial. 26

29 Notes to Financial Statements (Concluded) August 31, Commitments and Contingencies (Continued) Rate Adjustment Operating Chargebacks The College is authorized by the New York State Education Law to charge and collect from each county within the State for each nonresident student an allocable portion of the operating costs of the College. The College calculates this change on a yearly basis and bills the respective counties at this rate. This rate is adjusted by the State on a two year lag period. Risk Management The College, through the County, is insured for property damage and bodily injury arising from the maintenance or use of the College owned property, general liability matters, workers compensation and for medical malpractice liability. In addition, effective January 1, 1992, the College, through the County, became insured for hospitalization, major medical and prescription drugs for all College active employees and retirees. The County established a risk management program in 1975 to account for and finance insured risks of loss. All funds of the County, including the College, participate in the risk management program. Additionally, the College operates a dedicated risk mitigation office to manage liability exposures and maintain appropriate levels of insurance coverage. Current risk retention per incident for liability is $3,000,000 and insurance coverage per incident is limited to $25,000,000. Current risk retention per incident for property and casualty loss is $1,000,000 and $3,000,000 and insurance coverage per incident is limited to $400,000,000 and $60,000,000, respectively. The College s current year claims settlements, insurance department cost premiums to insurance companies, and medical and hospital claims are funded by the County on a cost reimbursement basis. The County allocates a portion of its self-insurance cost to the College based upon historical trends and other actuarial data. The College s allocation for its insurance plan for general liability and workers compensation for the year ended August 31, 2012 was $1,660,984 and are recorded on the statement revenues, expenses and changes in fund net assets. 11. Distribution of Net Allowable Expenses The College qualifies as a full opportunity college with the State University of New York. The cost of operations is principally funded by the State of New York, the County and the College s students. The percentage of allowable expenses reimbursed by the State of New York is a maximum of forty percent (40%) based upon the current State of New York formula. In the event actual student tuition income exceeds one-third of certain net operating expenses, any excess revenues generated from the students in that year must be used to fund the students one-third share in subsequent years, if the sponsoring County does not meet maintenance of effort requirements by contributing an amount equal to that of the prior year. 27

30 Required Supplementary Information

31 Required Supplementary Information - Other Post Employment Benefits Schedule of Funding Progress Last Three Fiscal Years (In Thousands) Valuation Date Actuarial Value of Assets Accrued Liability Unfunded Actuarial Accrued Liability Funded Ratio Covered Payroll Unfunded Liability as a Percentage of Covered Payroll September 1, 2011 $ - $ 404,680 $ 404,680 - % $ 86, % September 1, , ,217-86, September 1, , ,569-82,

32 Supplementary Information

33 Schedule of Revenues, Expenses, and other Changes by Fund Year Ended August 31, 2012 Unrestricted Restricted Plant Fund Total REVENUES AND OTHER ADDITIONS Tuition $ 86,725,978 $ - $ - $ 86,725,978 Fees 13,070, ,070,626 Governmental appropriations: County of Suffolk 39,276,839 5,052,738-44,329,577 State of New York 43,884, ,884,104 Federal grants and contracts 322,542 33,607,354-33,929,896 State and local grants and contracts 98,623 14,376, ,452 14,645,025 Private gifts, grants and contracts 597,766 57, ,088 Investment income 191, ,840 Commission income 1,531, ,531,907 Rental income 1,028, ,028,369 Other 2,308,568-7,033,951 9,342,519 Total Revenues 189,037,162 53,094,364 7,203, ,334,929 EXPENSES Instructions 107,718,502 3,719, ,438,285 Academic support 22,370,124 18,391-22,388,515 Student services 22,520, ,551-23,086,251 Plant maintenance and operations 33,190, ,190,018 General administration 14,758, ,758,040 Institutional support 16,532, ,532,656 Scholarships and fellowships - 43,672,319-43,672,319 Interest on indebtedness - - 1,685,720 1,685,720 Other expenditures , ,517 Depreciation - - 6,928,979 6,928,979 Total Expenditures and other deductions 217,090,040 47,976,044 9,071, ,137,300 Mandatory transfers for - Debt service principal and interest (5,650,331) - 5,650,331 - Net (Decrease) Increase for the Year $ (33,703,209) $ 5,118,320 $ 3,782,518 $ (24,802,371) See Independent Auditors' Report 29

34 Schedule of Revenues, Expenses, and other Changes by Fund (Continued) Year Ended August 31, 2012 Reconciliation of revenues Total revenue per schedule (all funds) $ 249,334,929 Expended for plant (1,683,744) Scholarship allowances (24,515,111) Total adjusted revenues $ 223,136,074 Revenue per audited financial statements Operating revenues $ 86,052,587 Nonoperating revenues 131,563,828 Other revenues 5,519,659 Total revenue per financial statements $ 223,136,074 Reconciliation of expenses Total expenses per schedule (all funds) $ 274,137,300 Expended for plant (1,683,744) Scholarship allowances (24,515,111) Total adjusted expenses $ 247,938,445 Expenses per audited financial statements Operating expenses $ 227,095,517 Student aid and grants 19,157,208 Nonoperating expense - interest 1,685,720 Total expenses per financial statements $ 247,938,445 See Independent Auditors' Report 30

35 Reconciliation of Revenues, Expenses and Fund Balance as Reflected in the Annual Report To the Audited Financial Statements Year Ended August 31, 2012 Revenues Expenses Totals by fund: Unrestricted current funds (per annual report) $ 188,481,020 $ 186,457,606 Restricted current funds (per annual report) 48,017,533 48,017,533 Plant funds 12,853,734 9,071,216 Totals (all funds) 249,352, ,546,355 Adjustments to reconcile to financial statements: Scholarship allowances (24,515,111) (24,515,111) Expended for plant (1,683,744) (1,683,744) Scholarships - (41,489) GASB 45 OPEB costs - 30,331,000 Compensated absences - 344,253 Salaries - (46,056) Other (17,358) 3,237 Adjusted Totals $ 223,136,074 $ 247,938,445 Per audited financial statements: Operating revenue / expenses 86,052, ,095,517 Nonoperating revenue / expenses 131,563,828 20,842,928 Other revenue / expenses 5,519,659 - Totals per financial statements $ 223,136,074 $ 247,938,445 SUNY Annual Report Unrestricted Current Reconciled (Unrestricted) Fund Difference Total unrestricted expenses $ 186,457,606 $ 217,090,040 $ (30,632,434) Total revenues - offset to expense plus costs not allowable for state-aid. 15,645,007 15,645, Net operating costs $ 170,812,599 $ 201,445,033 $ (30,632,434) Gross Operating Costs Reconciling Items College adjustments after filing the annual report: Other post employment benefit obligations $ (30,331,000) Compensated absences (344,253) Salaries 46,056 Other expenses (3,237) $ (30,632,434) See Independent Auditors' Report 31

36 Reconciliation of Revenues, Expenses and Fund Balance as Reflected in the Annual Report (Continued) To the Audited Financial Statements Year Ended August 31, 2012 Net Asset / Fund Balance Reconciliation Current Unrestricted Fund Balance $ 22,333,666 College adjustments after annual report submission: GASB 45 Liability (per financial statements) (152,588,000) Accrued compensated absences (28,520,222) Salaries 46,056 Lag Payroll 563,169 Scholarships 41,489 Prior year audit adjustment to retirement 386,047 Other 265,213 Unrestricted Net Assets (per financial statements) $ (157,472,582) See Independent Auditors' Report 32

37 Schedule of State Operating Aid Year Ended August 31, 2012 Total Operating Costs - Unrestricted $ 186,457,606 Total Revenues - Offset to expense 15,645,007 Costs not allowable for state aid - Net Operating Costs $ 40% = $ 68,325,040 (a) Rental Costs - Physical Space $ 841,316 High Needs Funding 116,001 Funded FTE Students - Basic Aid Net FTE Allowable Actual 18,102.7 x.20 = 3, Actual 19,667.4 x.30 = 5, Calculated FTE 20,229.4 x.50 = 10, Calculated FTE ( % Rule) 19, Funded FTE (Greater of % Rule or Prior Year Actual) 20,229.4 (c) Funded FTE Students - Basic Aid 20,229.4 $2,122 = 42,926,787 Funded FTE and Rental Costs $ 43,884,104 (b) Basic Aid - Lesser of (a) or (b) $ 43,884,104 See Independent Auditors' Report 33

38 Schedule of State-Aidable FTE Tuition Reconciliation Year Ended August 31, 2012 Calculated tuition based on State-aidable FTE per Annual Report: Headcount Credit Hours Equated Full-time Student Headcount and FTE Rate Tuition Fall 2011 full-time students per End of Term SDF 15,064 1,995 $ 30,052,680 Spring 2012 full-time students per SDF 13,349 1,995 26,631,255 Summer 2012 full-time students per SDF 120 1, ,799 Total full-time headcount 28,533 56,923,734 Total credit hours of full-time students 400,852 Part-time Student Credit Hours Fall 2011 part-time students per End of Term SDF 74, ,364,430 Winter 2011 part-time credits per SDF 4, ,841 Spring 2012 part-time credits per SDF 66, ,149,004 Summer 2012 part-time credits per SDF 24, ,072,713 Fall 2011 per Form 24 11, ,861,283 Winter 2011 per Form ,555 Spring 2012 per Form 24 10, ,798,947 Summer 2012 per Form 24 1, ,435 Total part-time credit hours 192,241 32,104,207 Total credit hours 593,093 Total state-aidable FTE 19,769.8 Total calculated tuition based headcount and credit hours $ 89,027,941 Reconciliation to Annual Report and Audited Financial Statements: Less: Bad debt allowance charged to tuition (1,671,227) Difference in tuition for discounted classes (690,938) Calculated State-aidable non-credit remedial tuition (476,229) Learning centers - credits generated - no tuition charged (1,195,219) Add: Other - miscellaneous 46,951 Tuition revenue reported on annual report (lines ) 85,041,279 Add: Charges to non-resident students 492,740 Out-of-state resident tuition 646,589 Service fees 9,600,497 Student revenue fees (technology fee) 3,431,698 Student revenue - non state-aidable courses 583,806 Less: Scholarship allowances (24,515,111) Other - miscellaneous (5) Tuition and fee revenue per audited financial statements $ 75,281,493 See Independent Auditors' Report 34

39 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Trustees of We have audited the financial statements of the business type activities of the Suffolk County Community College (the College ), a component unit of the County of Suffolk, New York as of and for the year ended August 31, 2012, and have issued our report thereon dated May 2, 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. Internal Control Over Financial Reporting The College is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the College s internal control over financial reporting as a basis for designing our auditing procedures 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 over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the College s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. O CONNOR DAVIES, LLP 500 Mamaroneck Avenue, Suite 301, Harrison, NY I Tel: I Fax: I O Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

40 Compliance and Other Matters As part of obtaining reasonable assurance about whether the College s 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. We noted certain matters that we reported to management of the College in a separate letter dated May 2, This report is intended solely for the information and use of the Board of Trustees, management and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited. O Connor Davies, LLP Harrison, New York May 2,

41 REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 To the Board of Trustees Compliance Independent Auditors Report We have audited the compliance of the s (the "College"), a component unit of the County of Suffolk, New York with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of the College s major federal programs for the year ended August 31, The College's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the College's management. Our responsibility is to express an opinion on the College's compliance based on our audit. 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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. Our audit does not provide a legal determination of the College's compliance with those requirements. In our opinion, the College complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended August 31, O CONNOR DAVIES, LLP 500 Mamaroneck Avenue, Suite 301, Harrison, NY I Tel: I Fax: I O Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.