NORTH CENTRAL MICHIGAN COLLEGE

Transcription

1 AUDITED FINANCIAL STATEMENTS AND ADDITIONAL REPORTS REQUIRED BY OMB CIRCULAR A-133 for the years ended June 30, 2013 and 2012

2 EXECUTIVE OFFICERS Cameron Brunet-Koch President BOARD OF TRUSTEES Philip Millard David Kring Chairperson Vice Chairperson E. Jean Beckley Secretary John Fought Marion Kuebler Irma Noël James Shirilla Treasurer Trustee Trustee Trustee

3 C O N T E N T S PAGE INDEPENDENT AUDITORS REPORT 1-3 MANAGEMENT S DISCUSSION AND ANALYSIS 4-11 BASIC FINANCIAL STATEMENTS: STATEMENTS OF NET POSITION 12 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION 13 STATEMENTS OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT ON SUPPLEMENTAL INFORMATION 32 SUPPLEMENTAL INFORMATION: COMBINING STATEMENT OF NET POSITION COMBINING STATEMENT OF REVENUES, EXPENSES, TRANSFERS AND CHANGES IN NET POSITION REPORTS REQUIRED BY OMB CIRCULAR A-133: 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 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 41 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 42 SCHEDULE OF FINDINGS AND QUESTIONED COSTS SCHEDULE OF PRIOR AUDIT FINDINGS 45

4

5 Board of Trustees North Central Michigan College Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Central Michigan College as of June 30, 2013 and 2012, and the changes in its financial position and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note A to the financial statements effective July 1, 2012, the College adopted new accounting guidance under GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. These statements introduce and define those elements as a consumption of net position by the College that is applicable to a future reporting period, and an acquisition of net position by the College that is applicable to a future reporting period, respectively. The standards also incorporate deferred outflows of resources and deferred inflows of resources, as defined by GASB Concepts Statement No. 4, into the definitions of the required components of the residual measure of net position, formerly net assets. Our opinion is not modified in respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of American require that the management s discussion and analysis on pages 4 through 11 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 and the other auditors have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise North Central Michigan College s basic 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 not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements taken as a whole. -2-

6 Board of Trustees North Central Michigan College Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 8, 2013 on our consideration of North Central Michigan College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering North Central Michigan College s internal control over financial reporting and compliance. Rasmussen, Teller, O Neil & Christman, P.C. -3-

7 MANAGEMENT S DISCUSSION AND ANALYSIS - UNAUDITED Introduction The North Central Michigan College (the College ) financial report consists of three basic financial statements: the Statement of Net Position which presents the assets, liabilities and net position of the institution as of the end of the fiscal year; the Statement of Revenues, Expenses and Changes in Net Position, which reflects revenues and expenses recognized during the fiscal year; and the Statement of Cash Flows, which provides information on all of the cash inflows and outflows for the institution by major category during the fiscal year. These financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) pronouncements. In compliance with GASB Statement No. 61 The Financial Reporting Entity: Omnibus, the North Central Michigan College Foundation (the Foundation ) is reported as a component unit of the College. Separately issued financial statements for the Foundation are also available by contacting the Foundation office. The following discussion and analysis provides an overview of the financial position and activities of North Central Michigan College for the year ended June 30, Management has prepared this discussion along with the financial statements and related footnote disclosures. Following the basic financial statements and footnotes are two supplementary statements, the Combining Statement of Net Position and the Combining Statement of Revenues, Expenses, Transfers and Changes in Net Position. Though GASB does not require this information be present for a fair and complete presentation, the statements do provide additional information regarding the various funds and activities of the College that is not disclosed in the basic statements. Financial Highlights The College s financial position remained strong at June 30, 2013, with assets of $49.6 million and liabilities of $8.5 million. Of the liabilities, $2.0 million are due within one year and $6.5 million are due beyond one year. Net position, which represents the residual interest in the College s assets after liabilities are deducted, increased $4.8 million. The College continues to face challenges posed by uncertainty of state appropriations, declining property tax revenues, decreasing student enrollments, which stretched capacity of already strained campus resources, and rising health care costs. Internal budget reductions and reallocations as well as unfilled open full-time positions focused resources on College priorities in the past year. These financial statements reflect College-wide departmental savings in an effort to balance the budget with the anticipation of further budget reductions. The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position These two statements will help the reader answer the question, Is North Central Michigan College as a whole, better or worse off as a result of the year s activities? The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position report information on the College as a whole and on its activities in a way that helps answer this question. When revenues and other support exceed expenses, the result is an increase in net position. When the reverse occurs, the result is a decrease in net position. The relationship between revenues and expenses may be thought of as North Central Michigan College s operating results. These two statements report the College s net position and net position changes. One can think of net position the difference between assets and liabilities as one way to measure the College s financial health, or financial position. Over time, increases or decreases in the net position are one indicator of whether the College s financial health is improving or deteriorating. Many other non-financial factors, such as the trend in student applications, student retention, condition of the buildings, and strength of the faculty also need to be considered to assess the overall health of the College. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector institutions. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. 4

8 Net Position Total net position increased by $4.8 million to $41.2 million. Total unrestricted net position is $8.8 million. Of this total, $1.8 million is designated for maintenance and replacement of facilities, $3.7 million for replacement of equipment, sabbaticals and other programs, and $.3 million for auxiliary activities. The remaining $3.0 million is undesignated, of which $1.4 million is from the Foundation and $1.6 million is in the General Fund. Following is a comparison of the major components of the net position of the College and operating results for years ended June 30, 2013 and 2012: Net Position as of June 30 (in millions) Increase Percent (Decrease) Change Current assets $ 12.4 $ 10.7 $ 1.7 Non-current assets: Capital assets, net of depreciation Other (2.2) Total Assets $ 49.6 $ 46.6 $ % Current liabilities $ 1.9 $ 3.1 $ (1.2) Long-term liabilities (0.6) Net position: Invested in capital assets Restricted-Expendable Restricted-Nonexpendable Unrestricted (1.2) Total net position % Total liabilities and net position $ 49.6 $ 46.6 $ % 5

9 Operating Results for the Year Ended June 30 (in millions) Increase Percent (Decrease) Change Operating Revenues Tuition and fees, net $ 3.6 $ 3.6 $ -- Federal grants and contracts State and local grants & contracts Nongovernmental grants (0.1) Auxiliary activities Other Total Operating Revenues % Total Operating Expenses (0.9) (4.4%) Net Operating Loss $ (12.6) $ (13.7) $ 1.1 (8.0%) Nonoperating Revenues (Expenses) State Appropriations Property tax levy (0.1) Pell Grants (0.5) Investment Income Interest on Capital Related Debt (0.2) (0.1) 0.1 Donations & Special Events (0.2) Net Nonoperating Revenues (0.7) (4.8%) Income before Other Revenues and Expenses % Other Revenues State capital appropriations Capital contributions Additions to permanent endowments Total Other Revenues % Increase in Net Position % Net Position-Beginning of Year Net Position-End of Year $ 41.2 $ 36.4 Operating Revenues Operating revenues include charges for all exchange transactions such as tuition and fees, the sale of books and supplies, rental revenue of the residence halls and revenue from the cafeteria & conference center. In addition, certain federal, state, and private grants are considered operating, if they are not for capital purposes, and are considered a contract for services. 6

10 The following is a graphic illustration of operating revenues by source for June 30, 2013: State and Local Grants and Contracts, 1% Other, 6% Non governmental Grants, 5% Federal Grants and Contracts, 13% Auxiliary, 24% Tuition and Fees, 51% Operating revenue changes were the result of the following factors: Tuition and fees totaled $3,609,166, an $18,372 increase in revenues from last year primarily due to a slight increase in tuition rates. Federal grants and contracts increased by $99,849. Major factors contributing to this increase were an increase in federal grants of approximately $290,000 for the storm water retention pond project completed during the year. The termination of a grant passed through the Northeast Michigan Consortium (NEMC) accounted for an approximate $120,000 decrease. NEMC was granted a waiver from the State of Michigan Workforce Development Agency to begin operating certain programs directly, effective January 1, Therefore, the College no longer operates these programs. The College receives substantial non-operating support from state appropriations, property tax revenue and Pell grants; thus operating expenses normally exceed operating revenues resulting in an operating loss. Nonoperating revenues and expenses are an integral component in determining the increase or decrease in net position. Operating Expenses Operating expenses are all the costs necessary to provide services and conduct the programs of the College. The following is a graphic illustration of operating expenses by function for the year ended June 30, 2013: Operation and Maintenance of Plant, 8% Institutional Administration, 11% Public Service, 2% Instructional Support, 10% Depreciation and Amortization, 6% Instruction, 31% Student Services, 32% Instruction Student Services Instructional Support Institutional Administration Operation and Maintenance of Plant Public Service Depreciation and Amortization 7

11 Operating expenses decreased by $969,491 from last year primarily due to salary and related benefits savings associated with unfilled employee positions and coordinating part-time instructors through a third party administrator. Salaries and fringes totaled approximately $10.7 million this fiscal year, representing approximately 54.7% of total operating expenses. Net Non-operating Revenues Net non-operating revenues represent all revenue sources that are primarily non-exchange in nature. They consist primarily of state appropriations, property tax revenue, Pell grants and investment income (including realized and unrealized gains and losses). The following is a graphic illustration of net non-operating revenues by source for June 30, 2013: Other, 2% Pell Grants, 30% State Appropriations, 23% Property Tax Levy, 45% State Appropriations Property Tax Levy Pell Grants Other Net non-operating revenue changes were the result of the following factors: State appropriations increased by $249,355 as compared to the prior year because of a slight increase in amount allocated from the State and an amount received for Michigan Public School Employees Retirement System (MPSERS) unfunded actuarial accrued liability rate stabilization payments. This MPSERS related amount was used to offset MPSERS retirement expenses. Pell grants decreased by $467,191 due mainly to declines in enrollment from last year. The Other category in the above chart includes interest on capital related debt which increased by $175,146 from the year before. This is because more interest was required to be capitalized as construction period interest in the prior year for the Health Education and Science Center construction project. The Other category also includes donations which decreased by $216,530 from the year before. The decrease in donations as compared to last year is due primarily to the receipt of significant donations in the previous year for the College Foundation s A Healthy Investment campaign to obtain funds for a new Health Education and Science Center. The Center opened in January,

12 Other Revenues Other revenues consist of items that are typically nonrecurring, extraordinary, or unusual to the College. Other revenues resulted from the following: State capital appropriations consisted of $2,732,129 which is part of the amount due to the College from the State of Michigan for reimbursement of qualifying capital outlay expenditures for the Health Education and Science Center construction project. This, combined with the State capital outlay recorded during the prior year of $2,376,010, represents the $5.2 million matching grant from the State for the project. This $5.2 million was received from the State in early September, Capital contributions consisted of $85,000 which was the fair value of sculptures donated through the Foundation to the College. Increases of $706,416 to permanent endowments for the promotion of the College s educational and cultural activities. This is an increase from the prior year of $291,214 primarily due to the receipt of sizable contributions from certain donors in the current year. Statement of Cash Flows The primary purpose of this statement is to provide relevant information about the cash receipts and cash payments of an entity during a period. The Statement of Cash Flows also may help users assess: An entity s ability to generate future net cash flows Its ability to meet its obligations as they come due Its needs for external financing Cash Flows for the Year Ended June 30 (in millions) Increase (Decrease) Cash Provided by (used for): Operating activities $ (12.5) $ (13.0) $ 0.5 Noncapital financing activities Capital and related financing activities (4.7) (6.8) 2.1 Investing activities (3.3) Net Increase (Decrease) in Cash (0.4) -- (0.4) Cash-Beginning of Year Cash-End of Year $ 7.5 $ 7.9 $ (0.4) Net cash used for operating activities totaled $12.5 million for the fiscal year ending June 30, This was financed by $14.0 million of net cash flows from non-capital financing activities such as property taxes and state appropriations. Net cash used by capital and related financing activities totaled $4.7 million. This includes $4.6 million of expenditures primarily for construction of the College s new Jack and Dorothy Harris Health Education and Science Center and $0.8 million of debt principal and interest payments net of $0.7 million in capital property tax revenue. Net cash provided by investing activities totaled $2.8 million. This includes interest received of $0.1 million, the sale and maturities of investments totaling $3.4 million, and the purchase of investments of $0.7 million. The net result of all cash flows produced a decrease in the College s cash of $0.4 million from the fiscal year ending June 30,

13 Capital Assets At June 30, 2013, the College had approximately $28.3 million invested in capital assets, net of accumulated depreciation of $15.5 million. Depreciation charges totaled approximately $1.2 million for the current fiscal year. Capital assets consist of the following: Land $ 13,306 $ 13,306 Construction in progress 20,400 7,946,005 Sculptures 522, ,609 Capital assets not being depreciated or amortized 556,315 8,396,920 Buildings and improvements 34,202,117 22,920,454 Infrastructure 2,957,104 2,599,848 Furniture, fixtures, and equipment 3,962,682 3,233,028 Library Materials 1,355,281 1,293,454 Software 745, ,607 Capital assets being depreciated or amortized Total capital assets 43,222,791 43,779,106 30,792,391 39,189,311 Less accumulated depreciation and amortization 15,521,363 14,374,378 Total capital assets, net $ 28,257,743 $ 24,814,933 Major capital additions this year, including approximate costs, consist of the following: Jack and Dorothy Harris Health Education and Science Center construction $ 3,370,000 Jack and Dorothy Harris Health Education and Science Center furnishings and equipment $ 720,000 Storm water retention pond project completed in current year $ 340,000 More detailed information about the College s capital assets is presented in the footnotes to the financial statement. Debt The College had $6.9 million in bond debt outstanding at June 30, Debt principal repayments of $575,000 were made on this debt during the year. More detailed information about the College s long-term liabilities is presented in the footnotes to the financial statement. Commitments/Subsequent Events As of June 30, 2013, the College Board of Trustees (Board) had entered into a contract for a roofing project in an amount not to exceed $141,600. Subsequent to year end, the Board approved the purchase of two pieces of manufacturing equipment for $96,435 that will be housed in a mobile digital fabrication lab. Economic Factors That Will Affect The Future The economic position of the College is somewhat impacted by the State of Michigan. Over the years, the College has been able to sharply lower the reliance on State funding to maintain effective operations. Currently, it approximates 21% of the total general fund revenue for the College. This percentage has continually decreased over the past 10 years. The current State Appropriations Bill increases the annual funding to the College by 2.4% which will restore the annual funding close to the level experienced in While the additional funds are greatly appreciated by the College in these difficult economic times, it is important to 10

14 note that the College is serving 200 more students than in while funding has remained essentially the same. The costs of operating the College have certainly increased since while our State appropriation has remained at the same level. Though the College works diligently to control expenses, the end result of flat funding from the State shifts more of the burden of supporting the College operations to the taxpayers and students we serve. The decline in real property values in Emmet County over recent fiscal years has negatively impacted the College s property tax revenues. It appears that the decline in property values is nearing a bottom given that the aggregate property values for fiscal year held constant from fiscal year As property tax revenue represents approximately 37% of the total general fund revenue for the College, this is a welcome sign. During the fiscal year, the College contracted with a third party administrator to coordinate its part-time instructional staff. This resulted in savings of approximately $180,000 in fiscal year and similar results are expected in future years. The use of the third party administrator will be expanded to part-time support staff in addition to the part-time instructional staff in to further enhance savings. Additionally, the College and its employees again worked together for fiscal year to make changes to the administrative and support staff employee benefit plans which result in the medical insurance portion of the benefit plan being below the allowable cost established by the State of Michigan. The Board of Trustees approved an increase in the tuition rates beginning with the summer term of The increase in tuition rates will assist the College in maintaining a balanced budget for the coming fiscal year and provide the flexibility to restore some of the full-time positions that were held open during fiscal year as a cost savings measure. While the Board of Trustees has the ability to increase tuition rates to help offset rising costs, the Board of Trustees is ever mindful of the impact that tuition increases have on our students and strives to keep the increases at manageable levels. The Governmental Accounting Standards Board issued GASB No. 68, Accounting and Financial Reporting for Pensions, which requires the College to record its share of the unfunded MPSERS obligation/liability for employees. The total pension liability will be computed on a different basis than the current actuarial accrued liability and the method of allocating this liability to each participating employer has not yet been determined, so the precise impact is not known; however, if we approximate the liability based on the actuarial accrued liability and allocated based on covered payroll, this computes to a liability of approximately $11 million. The provisions of this statement are effective for financial statements for the year ending June 30, Contacting the College s Financial Management The financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the College s finances and to demonstrate the College s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the business office, North Central Michigan College, 1515 Howard Street, Petoskey, Michigan

15 STATEMENTS OF NET POSITION June 30, 2013 and 2012 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,243,469 $ 6,402,112 Receivables, net 351, ,658 State capital appropriations receivable 5,108,139 2,376,010 Federal and state grants receivable 942, ,643 Pledges receivable 609, ,903 Inventories 94,584 93,092 Prepaid expenses 55, ,722 Total current assets 12,404,737 10,708,140 NONCURRENT ASSETS: Restricted cash 2,295,340 1,460,602 Investments 6,658,121 8,903,715 Pledges receivable 24, ,538 Capital assets not being depreciated or amortized 556,315 8,396,920 Capital assets being depreciated or amortized, net 27,701,428 16,418,013 Total noncurrent assets 37,235,504 35,928,788 TOTAL ASSETS $ 49,640,241 $ 46,636,928 LIABILITIES AND NET POSITION CURRENT LIABILITIES: Accounts payable $ 633,058 $ 1,741,306 Accrued payroll and other compensation 374, ,004 Unearned tuition and fees 209, ,563 Unearned revenue 35,326 91,656 Tuition paid in advance by students 46,086 72,208 Due to depositors 37,737 28,613 Interest payable 42,892 44,808 Current portion of accrued compensated absences 10,000 20,000 Current portion of bonds payable 590, ,000 Total current liabilities 1,979,358 3,155,158 NONCURRENT LIABILITIES: Accrued compensated absences, net of current portion 209, ,111 Bonds payable, net of current portion 6,290,000 6,880,000 Total long-term liabilities 6,499,907 7,094,111 Total liabilities 8,479,265 10,249,269 NET POSITION: Invested in capital assets, net of related debt 21,377,743 17,359,934 Restricted for: Nonexpendable endowments 3,194,676 2,619,227 Expendable scholarships and grants 638, ,582 Expendable construction and debt service 7,139,671 2,403,924 Expendable capital projects - 3,386,606 Unrestricted 8,810,442 10,011,386 Total net position 41,160,976 36,387,659 TOTAL LIABILITIES AND NET POSITION $ 49,640,241 $ 46,636,928 The accompanying notes are an integral part of these financial statements. -12-

16 STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION for the years ended June 30, 2013 and OPERATING REVENUES: Tuition and fees (net of scholarship allowance of $2,863,913 and $3,092,319 in 2013 and 2012, respectively) $ 3,609,166 $ 3,590,794 Federal grants and contracts 896, ,908 State and local grants and contracts 50,473 42,191 Nongovernmental grants 340, ,135 Auxiliary activities 1,719,412 1,726,229 Other sources 403, ,762 Total operating revenues 7,019,969 6,804,019 OPERATING EXPENSES: Instruction 6,059,260 6,721,086 Public service 294, ,367 Instructional support 1,930,118 2,088,847 Student services 6,319,385 6,597,416 Institutional administration 2,103,287 2,273,663 Operation and maintenance of plant 1,651,314 1,641,250 Depreciation and amortization 1,196, ,456 Total operating expenses 19,554,594 20,524,085 Operating loss (12,534,625) (13,720,066) NONOPERATING REVENUES (EXPENSES): State appropriations 3,135,855 2,886,500 Property tax levy 6,198,638 6,258,127 Pell grants 4,208,424 4,675,615 Investment income (net of investment expense of $36,680 and $44,418 in 2013 and 2012, respectively) 104, ,885 Net realized and unrealized loss on investments (25,681) (53,076) Net gain (loss) on disposal of fixed assets 5,048 (6,748) Interest on capital asset-related debt (230,859) (55,713) Donations 348, ,411 Special events 39,726 41,693 Net nonoperating revenues 13,784,397 14,502,694 Increase in net position before other revenues 1,249, ,628 OTHER REVENUES: State capital appropriations 2,732,129 2,376,010 Capital contributions 85, ,500 Additions to permanent endowments 706, ,202 Total other revenues 3,523,545 2,916,712 CHANGE IN NET POSITION 4,773,317 3,699,340 NET POSITION, BEGINNING OF YEAR 36,387,659 32,688,319 NET POSITION, END OF YEAR $ 41,160,976 $ 36,387,659 The accompanying notes are an integral part of these financial statements. -13-

17 STATEMENTS OF CASH FLOWS for the years ended June 30, 2013 and CASH FLOWS FROM OPERATING ACTIVITIES: Tuition and fees $ 3,542,577 $ 3,429,292 Grants and contracts 1,119,208 1,059,002 Payments to suppliers (12,060,312) (10,904,547) Payments to employees (7,128,032) (8,586,740) Auxiliary enterprise charges 1,649,688 1,737,496 Other 403, ,762 Net cash used for operating activities (12,472,977) (13,007,735) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Local property taxes 5,500,737 5,554,237 Pell grants 4,208,424 4,669,291 Federal direct loan receipts 2,856,321 3,276,131 Federal direct loan disbursements (2,856,321) (3,276,131) Additions (reductions) to permanent endowments 276,127 (18,178) Donations and special events 932, ,284 State appropriations 3,135,855 2,886,500 Net cash provided by noncapital financing activities 14,053,378 13,729,134 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase of capital assets (4,548,999) (6,902,360) Principal paid on capital debt (575,000) (565,000) Capital property taxes 697, ,890 Interest paid on capital debt (232,775) (59,297) Net cash used for capital and related financing activities (4,658,873) (6,822,767) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales and maturities of investments 3,407,343 7,530,461 Interest on investments 104, ,760 Purchase of investments (757,141) (1,697,332) Net cash provided by investing activities 2,754,567 6,085,889 CHANGE IN CASH AND CASH EQUIVALENTS (323,905) (15,479) CASH AND CASH EQUIVALENTS - Beginning of Year 7,862,714 7,878,193 CASH AND CASH EQUIVALENTS - End of Year $ 7,538,809 $ 7,862,714 The accompanying notes are an integral part of these financial statements. -14-

18 STATEMENTS OF CASH FLOWS (CONTINUED) for the years ended June 30, 2013 and BALANCE SHEET CLASSIFICATIONS OF CASH AND CASH EQUIVALENTS: Cash and cash equivalents $ 5,243,469 $ 6,402,112 Restricted cash 2,295,340 1,460,602 TOTAL CASH AND CASH EQUIVALENTS $ 7,538,809 $ 7,862,714 RECONCILIATION OF OPERATING LOSS TO NET CASH USED FOR OPERATING ACTIVITIES: Operating loss $ (12,534,625) $ (13,720,066) Adjustment to reconcile operating loss to net cash used for operating activities: Depreciation and amortization 1,196, ,456 Provision for uncollectible accounts 131, ,760 (Increase) decrease in assets: Accounts receivable, net (122,577) (111,824) Federal and state grants receivable (110,580) (164,070) Inventories (1,492) 3,292 Prepaid expenses 161,422 (134,818) Increase (decrease) in liabilities: Accounts payable (1,108,248) (60,099) Accrued payroll and other compensation (22,519) 123,143 Tuition paid in advance by students (26,122) (11,378) Due to depositors 9,124 (4,936) Unearned tuition and fees (45,323) (33,195) NET CASH USED FOR OPERATING ACTIVITIES $ (12,472,977) $ (13,007,735) SUPPLEMENTAL DISCLOSURE OF NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: Capital assets financed with accounts payable $ - $ 1,112,354 Capital assets donated $ 85,000 $ 125,500 The accompanying notes are an integral part of these financial statements. -15-

19 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reporting Entity and Basis of Presentation North Central Michigan College (the College) is a community college offering courses at its Petoskey, Michigan campus and other locations in northwest lower Michigan. The College is governed by a seven member Board of Trustees elected at large by Emmet County voters. The financial statements have been prepared in accordance with generally accepted accounting principles as applicable to public colleges and universities outlined in Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis of Public Colleges and Universities and the Manual for Uniform Financial Reporting - Michigan Public Community Colleges. The College reports as a business-type activity, 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. Reporting for business-type activities is based on all applicable GASB pronouncements, as well as certain applicable Financial Accounting Standards Board pronouncements, unless those pronouncements conflict with GASB pronouncements. The accompanying financial statements have been prepared in accordance with criteria established by GASB for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational or financial relationships with the College. The assets and all activities of the North Central Michigan College Foundation (the Foundation) are included in the College s reporting entity as a blended component unit, because the Foundation provides services entirely to the College or exclusively for the benefit of the College. In addition, the College Board of Trustees approves the addition of all new board members of the Foundation. The North Central Michigan College Foundation is a non-profit 501(c)(3) corporation formed for the purpose of receiving funds for the sole benefit of the College. At June 30, 2013 and 2012, the stated value of the net position of the Foundation totaled $4,964,646 and $9,157,341, respectively. Separately issued financial statements for the Foundation are available by contacting the Foundation at 1515 Howard Street, Petoskey, Michigan The Foundation is included in the attached Combining Statement of Net Position and Combining Statement of Revenues, Expenses, Transfers, and Changes in Net Position. A Condensed Statement of Cash Flows for the Foundation is presented below for the years ended June 30: Net cash provided by (used for) Operating activities $(4,051,619) $ 290,771 Net cash provided by investing activities 1,764, ,208 Change in cash and cash equivalents (2,287,577) 889,979 Cash and cash equivalents - beginning of year 3,161,218 2,271,239 Cash and cash equivalents - end of year $ 873,641 $ 3,161,

20 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Reporting Entity and Basis of Presentation (Continued) The College provides partial financial support to the Foundation in the form of payment of various expenses, including salaries, benefits and various administrative expenses. The total of such expenses was approximately $104,000 and $108,000 for the years ended June 30, 2013 and 2012, respectively. The College also has an endowed scholarship account at the Foundation. The Foundation invests and manages the account and makes an annual transfer to the College equal to the greater of five percent of the account s value at the beginning of the fiscal year, or eighty percent of the earnings on the account. The remaining amount, if any, is added to the principal balance of the account. The total amount transferred from the Foundation for the years ended June 30, 2013 and 2012 was approximately $131,000 and $116,000, respectively. Adoption of New Accounting Principles Effective with the fiscal year ended June 30, 2013, as required, the College adopted GASB Statement No. 63, The Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. In addition, the College elected to early adopt GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. These statements introduce and define those elements as a consumption of net assets by the College that is applicable to a future reporting period and an acquisition of net assets by the College that is applicable to a future reporting period, respectively. The Standards also incorporate deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. In accordance with the standards, the College has modified the presentation of the Statement of Net Position. Significant Accounting Policies Accrual Basis The financial statements have been prepared on the accrual basis of accounting, whereby revenue is recognized when earned and expenditures are recognized when the related liabilities are incurred and certain measurement and matching criteria are met. Cash and Cash Equivalents Cash and cash equivalents include amounts in demand deposits, cash on hand, money market accounts, and all highly liquid investments with an initial maturity of three months or less. Allowance for Uncollectible Accounts An allowance for uncollectible accounts is estimated and recorded based on the College s historical bad debt experience and on management s judgment. The allowance for uncollectible accounts at June 30, 2013 and 2012 was $91,766 and $69,323, respectively. -17-

21 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Significant Accounting Policies (Continued) Investments Investments are recorded at fair value, based on quoted market prices. Gifts and Pledges Non-cash gifts are recorded at estimated fair value when received and pledges due after one year are recorded at their net present value when it is determined that the collection of the gift is probable. Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Inventories consist of bookstore textbooks, materials, and food service supplies. Capital Assets Capital assets are recorded at cost or, if acquired by gift, at the fair value as of the date of acquisition. Depreciation is provided for capital assets on a straight-line basis over the estimated useful life of the assets. The College s capitalization policy is to capitalize individual amounts of $5,000 or more. The following estimated useful lives are used to compute depreciation and amortization: Buildings and improvements Infrastructure Furniture, fixtures and equipment Library materials Software 40 years years 3-20 years 10 years 10 years Accrued Compensated Absences This represents the accumulated liability to be paid under the College s current sick and personal day policy. Under the College s policy, employees earn sick and personal time based on years of service with the College. Revenue Recognition Revenue from state appropriations are recognized in accordance with the accounting method described in the Manual for Uniform Financial Reporting - Michigan Public Community Colleges, 2001, which provides that state appropriations are recorded as revenue in the period for which such amounts are appropriated. Student tuition and related revenues and expenses of an academic semester are allocated to the fiscal year in which the program is conducted. Property taxes are recorded as revenue when levied. -18-

22 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): Significant Accounting Policies (Continued) Revenue Recognition (Continued) Operating revenues of the College consist of tuition and fees, certain grants and contracts, and sales and services of educational activities. Transactions related to capital and financing activities, noncapital financing activities, investing activities, state appropriations, property taxes, and Federal Pell grants are components of nonoperating and other revenues. For financial reporting purposes, restricted resources are deemed to be utilized first when both restricted and unrestricted resources are available to satisfy an expense. Revenue received prior to year-end that relates to the next fiscal period is recorded as unearned revenue. Unearned revenue at June 30, 2013 consists of $209,570 of unearned tuition and fee revenue for the 2013 summer semester, which began on May 13, 2013 and ended on August 16, 2013, $19,209 related primarily to auxiliary activities, and $16,117 related to scholarships. Unearned revenue at June 30, 2012 consists of $198,563 of unearned tuition and fee revenue for the 2012 summer semester, which began on May 14, 2012 and ended on August 17, 2012, $17,830 related primarily to auxiliary activities, and $73,826 related to scholarships. Expenses Operating expenses include the cost of services, administrative expenses, and depreciation on capital assets. All expenses not meeting this definition are reported as nonoperating expenses. Unemployment Insurance The College reimburses the State of Michigan Unemployment Agency (the Agency) for the actual amount of unemployment benefits disbursed by the Agency on behalf of the College. Billings received for amounts paid by the Agency through June 30 are accrued. Internal Activity Elimination In the process of aggregating data for the Balance Sheets and Statements of Revenues, Expenses and Changes in Net Position, some amounts reported as internal activity and balances have been eliminated on the Statements of Revenues, Expenses and Changes in Net Position. Both revenue and expenses related to internal service activities have been eliminated. Use of Estimates The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. -19-

23 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE B - PROPERTY TAXES: Property taxes levied by the College are collected by various municipalities and periodically remitted to the College. The taxes are levied as of December 1 based on taxable values as of the preceding December 31. They are due when the bill is received by the taxpayer. After February 14, unpaid bills are designated delinquent. Penalties and interest are assessed and retained by the collection entity. Property tax revenues are recognized when levied. For the years ended June 30, 2013 and 2012, the College levied the following amounts per $1,000 of assessed valuation: Description Operating Mills Mills Additional voted operating (expires 2016).9981 Mills.9981 Mills Special voted operating (expires 2016, for construction and debt service).2679 Mills.2679 Mills NOTE C - DEPOSITS AND INVESTMENTS: Bank Deposits and Investments The College s policy for reducing risk is to invest surplus funds in accordance with the provisions set forth in Michigan Public Act 153 of This act allows the College to invest in bonds; bills or notes of the United States or its agencies; obligations of the State of Michigan; corporate commercial paper rated prime by at least one of the standard rating services; bankers acceptances issued by and certificates of deposit of financial institutions which are members of the Federal Deposit Insurance Corporation; mutual funds and investment pools that are composed of authorized investment instruments; and certain repurchase agreements. The College does not have a formal investment policy further limiting its investment options. The investment policy of the North Central Michigan College Foundation as established by the Foundation s Board of Directors authorizes investments in a diversified portfolio of equities, fixed income securities and short-term fixed income instruments (i.e. securities with maturities under three years). The overall investment objective is to maximize growth while generating sufficient income and maintaining adequate cash reserves to meet stated distribution requirements as established from time to time by the Foundation Board. Mutually agreed upon allocation parameters among these types of investments are established at least annually with the Foundation s investment advisor. Short sales; put and call option strategies; margin purchases; commodities (futures); securities of the Investment Manager s corporation or parent corporation; direct investments in tangible assets such as real estate, oil and gas, precious metals, in excess of 5 percent of the total portfolio; and derivatives as a yield enhancement not as a hedge are prohibited unless specific written permission is received from the Foundation Board. -20-

24 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE C - DEPOSITS AND INVESTMENTS (Continued): Interest Rate Risk As of June 30, 2013, the College and Foundation had the following investments and maturities (money market funds and external investment pools are classified as cash and cash equivalents on the Statement of Net Position): Fair Market Less Than More Than Value One Year 1-3 Years 3 Years U.S. agencies $ 3,270,061 $ 611,178 $1,306,149 $1,352,734 U.S. Treasuries 82,108-82,108 - Mutual bond funds 1,313,526-63,565 1,249,961 Total debt-related investments 4,665,695 $ 611,178 $1,451,822 $2,602,695 Cash and non-debt-related investments 9,531,235 Total investments and cash $14,196,930 Per Statement of Net Position: Cash and cash equivalents $ 5,243,469 Restricted cash 2,295,340 Investments 6,658,121 $14,196,930 As of June 30, 2012, the College and Foundation had the following investments and maturities (money market funds are classified as cash and cash equivalents on the Statement of Net Position): Fair Market Less Than More Than Value One Year 1-3 Years 3 Years U.S. agencies $ 4,172,651 $1,058,035 $1,818,896 $1,295,720 U.S. Treasuries 135,608-50,600 85,008 Mutual bond funds 2,055, ,206 1,848,482 Total debt-related investments 6,363,947 $1,058,035 $2,076,702 $3,229,210 Cash and non-debt-related investments 10,402,482 Total investments and cash $16,766,429 Per Statement of Net Position: Cash and cash equivalents $ 6,402,112 Restricted cash 1,460,602 Investments 8,903,715 $16,766,

25 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE C - DEPOSITS AND INVESTMENTS (Continued): The College does not have specific investment policies that limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The Foundation investment policy states that the average weighted value of the portfolio should not exceed ten years. As of June 30, 2013 and 2012, the average weighted value of the portfolio in fixed income securities does not exceed ten years. The Foundation invests in common stock and mutual equity funds with a long-term objective to preserve principal and provide appreciation. Therefore the interest rate risk is not considered in its decisions. The maturities of money market funds, external investment pools and certain mutual bond funds are based on the average weighted maturity method. Certain other mutual bond funds have no weighted average maturity statistics because they are heavily invested in preferred stocks. These mutual bond funds are therefore classified as having a maturity of more than three years. Credit Risk The College and Foundation are exposed to credit risk for investments in certain money market funds, debt securities and mutual bond funds. Credit quality ratings are established by nationally recognized statistical rating organizations (NRSROs). Where more than one rating exists, and those ratings are conflicting, the rating with the greatest degree of risk is disclosed. Average credit quality ratings, as available, were obtained for money market funds and mutual bond funds. -22-

26 NOTES TO FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE C - DEPOSITS AND INVESTMENTS (Continued): Credit Risk (Continued) As of June 30, 2013, the credit quality ratings for these types of investments and credit risk exposure as a percent of total investments are as follows: Credit Quality Rating Percent Money market funds AAA 10 Money market funds Not Rated 4 U.S. agencies Aaa 60 U.S. agencies AA 2 Mutual bond funds Not Rated 24 As of June 30, 2012, the credit quality ratings for these types of investments and credit risk exposure as a percent of total investments are as follows: Credit Quality Rating Percent Money market funds AAA 6 Money market funds Not Rated 6 U.S. agencies Aaa 58 U.S. agencies AA 1 Mutual bond funds Not Rated 29 Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event of a bank failure, the College s deposits may not be returned to it. The College does not have a deposit policy for custodial credit risk. At June 30, 2013, the bank balance was $6,934,577 of which $6,079,096 was uninsured and uncollateralized. At June 30, 2012 the bank balance was $7,217,947 of which $4,479,345 was uninsured and uncollateralized. Custodial Credit Risk - Investments Custodial credit risk for an investment is the risk that the College or Foundation will not be able to recover the value of their investments that are in the possession of an outside party, should a failure of the other party occur. State law does not require, nor do the College and Foundation investment policies address custodial credit risk. However, all of the investments are in the name of the College or Foundation, as applicable, and the investments are held in trust accounts with each financial institution from which they were purchased. -23-