ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Financial Statements and Independent Auditor's Report June 30, 2010
CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 3 FINANCIAL STATEMENTS Balance Sheet Statement of Activities and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements 4 5 6 7-11 OTHER FINANCIAL INFORMATION Independent Auditor's Report on Other Financial Information Schedule of Functional Expenses 13 14
CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT STOKES & COMPANY, P.C, 1201 15TH STREET, NW SUITE 340 WASHINGTON, D.C. 20005 2842 (202) 293-9000 FAX (202) 293-9666 WWW. STOKESPC.COM LARRY F. STOKES. C.P.A. MATTHEW F. PENNIMAN, C. P.A. MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION GOVERNMENTAL AUDIT QUALITY CENTER EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER Board of Directors Accrediting Council for Independent Colleges and Schools We have audited the accompanying balance sheet of the Accrediting Council for Independent Colleges and Schools (ACICS) as of June 30, 2010, and the related statements of activities and changes in net assets and cash flows for the year then ended. These fmancial statements are the responsibility of ACICS' management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative balance sheet has been derived from ACICS' 2009 balance sheet and, in our report dated December 1,2009, we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit also includes 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 provides a reasonable basis for our opinion. In our opinion, the June 30, 2010 financial statements referred to above present fairly, in all material respects, the financial position of the Accrediting Council for Independent Colleges and Schools as of June 30, 2010, and the change in its net assets and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. ~~ / (! 1/'r J~, (;(J. STOKES & COMPANY, P.C. Washington, D.C. (j I November 9,2010
Balance Sheet June 30, 20 I 0 With comparative totals for June 30,2009 ASSETS 2010 2009 CURRENT ASSETS Cash and cash equivalents $ 879,602 $ 61,972 Accounts receivable, net 921,834 1,351,179 Prepaid expenses 117,216 120,728 Total current assets 1,918,652 1,533,879 INVESTMENTS 9,171,169 7,981,136 PROPERTY AND EQUIPMENT, net 2,534,471 2,850,812 OTHER ASSETS Deposits 11,273 11,273 Total assets $ 13,635,565 $ 12,377,100 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 735,496 $ 868,490 Accrued expenses Salaries 129,288 113,144 Vacation 135,042 104,763 Pension 235,783 186,333 Other accrued expenses 13,500 11,628 Deferred revenue 82,573 Note payable, current portion 235,685 309,013 Total current liabilities 1,567,367 1,593,371 LONG TERM LIABILITIES Note payable, non-current portion 292,858 Accrued rent, non-current portion 175,589 145,376 Total long tenn liabilities 175,589 438,234 Total liabilities 1,742,956 2,031,605 NET ASSETS Unrestricted 11,892,609 10,345,495 Total liabilities and net assets $ 13,635,565 $ 12,377,100 The accompanying notes are an integral part of this financial statement. 4
Statement of Activities and Changes in Net Assets Year Ended June 30, 2010 SUPPORT AND REVENUE Sustaining fees Accreditation visits User fees Workshop registration fees Investment income Other revenue $ 3,889,698 2,899,446 2,999,093 358,500 744,398 39,736 Total support and revenue 10,930,871 EXPENSES Program services Accreditation expense Education Supporting services Management and general 6,689,979 170,162 2,523,616 Total expenses 9,383,757 Change in net assets 1,547,114 NET ASSETS at beginning of year NET ASSETS at end of year $ 10,345,495 11,892,609 The accompanying notes are an integral part of this fmancial statement. 5
Statement of Cash Flows Year Ended June 30,2010 CASH FLOWS FROM OPERATING ACTIVITIES Fees received Other revenue received Investment income received Payments to vendors and suppliers NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment Proceeds from sale of property and equipment Purchases of investments Proceeds from sale of investments NET CASH USED BY INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Payments on note payable NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS at beginning of year CASH AND CASH EQUIVALENTS at end of year $ 10,658,655 39,736 318,681 (8,646,230) 2,370,842 (422,710) (5,779,941) 5,015,625 (1,187,026) (366,186) 817,630 61,972 $ 879,602 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Change in net assets Adjustments Net unrealized and realized gains/losses Depreciation (Increase) decrease in assets Accounts receivable Prepaid expenses Increase (decrease) in liabilities Accounts payable Accrued expenses Salaries Vacation Pension Other accrued expenses Deferred revenue Accrued rent NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,547,114 (425,717) 739,051 429,345 3,512 (132,994) 16,144 30,279 49,450 1,872 82,573 30,213 $ 2,370,842 The accompanying notes are an integral part of this financial statement. 6
Notes to Financial Statements June 30, 2010 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation Financial statement presentation follows accounting principles generally accepted in the United States of America in relation to net asset classification. The organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. There are no temporarily or permanently restricted net assets at June 30, 2010. Cash and cash equivalents ACICS considers all short-term, highly liquid investments with initial maturities of three months or less to be cash equivalents. Since all such cash equivalents are contained in its investment portfolio and are not used in current operations, they are reported as investments. Investments ACICS invests in a professionally managed portfolio. All investments are carried at fair value. Such investments are exposed to various risks such as market and credit. Due to the level of risk associated with such investments, and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risk in the near term could materially affect investment balances and the amounts reported in the financial statements. Realized and unrealized gains and losses are reported as investment income in the statement of activities and changes in net assets. Propertv and equipment Property and equipment are recorded at cost. All acquisitions in excess of $1,000 are capitalized. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Artwork is not considered a collection and is a non-depreciable asset. Property and equipment are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The cost of property and equipment retired or disposed of is removed from the accounts along with the related accumulated depreciation, and any gain or loss is reflected in income. Revenue recognition Sustaining fees are recognized in the year to which they apply. Sustaining fees received in advance are recorded as deferred revenue and are recognized in subsequent periods when they are earned. User fees are charged to cover the administrative costs of processing forms and are recognized when the forms have been processed. Accreditation visit deposits received prior to the on-site visits are recorded as a current liability until the on-site visit has been completed. ACICS utilizes fixed fee and geographical discount schedules to determine visit billings. 7
ACCREDrTlNG COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Notes to Financial Statements (continued) June 30, 2010 SUMMARY OF SIGNIFICANT ACCOUNTING POLIClES (continued) Revenue recognition (continued) Accounts receivable includes program related revenue that has not been received as of June 30, 2010. No interest is accrued on receivables. Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts. At June 30, 2010, the allowance for doubtful accounts amounted to $58,789. ACrCS provides for losses on accounts receivable using the allowance method. The allowance is based on experience. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is ACrCS' policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Substantially all receivables are derived from institutions that Acrcs accredits. All receivables to these institutions are made on an unsecured basis. Historically, ACrCS has not incurred significant credit related losses. Functional allocation of expenses The costs of providing programs and other activities have been summarized on a functional basis in the statement of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fmancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value measurement Accounting principles generally accepted in the United States of America provide a common definition of fair value, establish a framework for measure of fair value and expand disclosures about fair value measurements, but do not require any new fair value measurements. All assets and liabilities required to be measured at fair value by these accounting principles have been assessed with the following three-tier hierarchy of inputs: Level I - quoted prices in active markets for identical instruments Level 2 - other significant observable inputs Level 3 - significant unobservable inputs All assets and liabilities are considered Levell. Financial information as of June 30, 2009 The financial information as of June 30, 2009 is presented for balance sheet comparative purposes only and is not intended to represent complete financial statement presentation. Certain accounts in the prior fmancial statements have reclassified for comparative purposes to conform to the presentation in the current period. Advertising costs Acrcs expenses advertising costs as they are incurred. 8
Notes to Financial Statements (continued) June 30, 2010 ORGANIZATION AND TAX STATUS The Accrediting Council for Independent Colleges and Schools (ACICS) was founded in 1912 to establish and advance the quality of education of independent, non-public career schools, career institutions, and colleges. ACICS accomplishes these objectives by performing the accreditation function for its members. Acrcs is exempt from federal income taxes under Section 501(c)(3) ofthe Internal Revenue Code as an organization that is not a private foundation. ACICS is, however, subject to income tax on any net profits generated by unrelated business activities as defined under the tax laws. To date, ACICS has not engaged in such activities. Accounting principles generally accepted in the United States of America require that uncertain tax positions be evaluated and the potential impact of unfavorable outcome of a tax authority's assessment of such uncertain tax position be reflected in the fmancial statements. From time to time, management must assess the need to accrue or disclose a possible loss contingency for proposed adjustments from various federal and state tax authorities who may audit the organization in the normal course of business. Acrcs has evaluated its tax reporting and has not reflected any contingent liability for any such potential assessment. CONCENTRATION OF CREDIT RISK ACICS maintains its cash balances at one financial institution in the Washington, D.C. area. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At June 30, 2010, the uninsured balance for all cash accounts was $629,202. The Association has never experienced a loss on its cash deposits. ACICS maintains its investments at one fmancial institution in the Washington, D.C. area. The cash equivalents and certificates of deposit held at this institution are insured by the FDIC up to $250,000. At June 30, 2010, there was no uninsured balance for these cash equivalents and certificates of deposit. All other investments held in this institution are insured by the Securities Investor Protection Corporation (SIPC) for up to $500,000. At June 30, 2010, the uninsured balance for these investments was $8,603,348. PROPERTY AND EQUIPMENT Property and equipment as of June 30, 2010 consists of the following: Furniture and fixtures Leasehold improvements Artwork Less accumulated depreciation and amortization $ 3,603,657 679,088 4,006 4,286,751 (1,752.280) Depreciation and amortization expense was $739,051 for the year ended June 30, 2010. $ 2,534.471 9
Notes to Financial Statements (continued) June 30, 2010 INVESTMENTS The fair value of investments as of June 30, 2010 is presented below, along with a summary of investment income earned on investments and cash and cash equivalents for the year then ended. Common stock Cash equivalents Corporate bond funds Mutual funds Commodities $2,354,837 67,821 4,960,898 1,688,250 99,363 $9,171.169 Investment income: Interest and dividends Realized gains/(losses) Unrealized gains/(losses) $ 318,681 (234,0]6) 659,733 $ 744.398 COMMITMENTS AND CONTINGENCIES Operating leases ACICS leases office space in Washington, D.C., which has a term that expires September 30,2017. Minimum monthly rent is currently $53,200. The total of all rental payments due under the lease are being recognized on a straight-line basis in the statement of activities and changes in net assets. Accordingly, there is a liability recorded for accrued rent equal to the difference between the rent expense and the actual cash payments required by the lease. ACICS also leases equipment under operating leases. The copiers have leases that expire August 15, 2010. The monthly lease payments are $2,974 and $1,899. The postage machine lease expires November 21, 2011. This lease is paid in quarterly payments of$3,864. The following is a schedule of future minimum lease payments as of June 30, 2010: 2011 2012 2013 2014 2015 and later $ 668,287 668,674 674,133 687,599 2,329,843 $ 5,028,536 The total expense incurred under all operating leases during the year ended June 30, 2010 was $746,167. 10
Notes to Financial Statements (continued) June 30, 2010 COMMITMENTS AND CONTINGENCIES (continued) Contractual ACICS has contracted various consultants and insurance providers. ACICS is obligated to pay fees for these relationships. ACICS has an employment contract with its executive director. Should the executive director be dismissed, ACICS may be subject to severance payments. Note Payable ACICS has a 4.9% interest note with its investment firm. The note is payable in monthly installments of $29,958, and is secured by ACICS' investments. All future debt maturities are considered short-term. PENSION PLAN ACICS has a defined contribution pension plan, as regulated by the Internal Revenue Service Code 403(b). Employees become eligible after one year of service, and become 25% vested for every year of employment. Contributions to the plan are discretionary and ACICS contributed 10% of eligible employees' salaries. $235,783 was contributed for the year ended June 30, 2010. ACCREDITATION AUTHORITY The Secretary of the United States Department of Education has extended the recognition of ACICS as an accrediting body through December 2011. ACICS must reaffirm this authority every five years. Management believes it is highly probably that ACICS will continue to be recognized as an accrediting body for an indefinite period. SUBSEQUENT EVENTS Subsequent events have been evaluated through November 9, 2010. 11
OTHER FINANCIAL INFORMATION
CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT ON OTHER FINANCIAL INFORMATION STOKES 6< COMPANY. P.C. 1201 15TH STREET. NW SUITE 340 WASHINGTON. D.C. 20005-2842 (202) 293-9000 FAX (202) 293-9666 WWW.STOKESPC.COM LARRY F. STOKES. C.P.A. MATTHEW F. PENNIMAN. C.P.A. MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION GOVERNMENTAL AUDIT QUALITY CENTER EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER Board of Directors Accrediting Council for Independent Colleges and Schools Our report on our audit of the basic fmancial statements of the Accrediting Council for Independent Colleges and Schools for year ended June 30, 2010 appears on page 3. We conducted our audit for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of functional expenses on page 14 is presented for purposes of additional analysis and is not a required part of the basic fmancial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects to the basic fmancial statements taken as a whole. ~LvoJ / Cvn.p~,p.~. STOKES & COMPANY, P.C. Washington, D.C. November 9,2010
Schedule of Functional Expenses Year Ended June 30, 2010 Program Services Accreditation Expense Education SUPEortinll Services Management and General Total Salaries and benefits $ 1,957,762 $ 81,587 Travel and meals 2,657,953 2,134 Advertising 1,658 69 Computers 41,707 1,738 Depreciation 448,678 18,698 Dues and subscriptions 2,998 125 Equipment rentals and maintenance 36,444 1,519 Insurance 21,859 911 Interest and fees 92,854 3,870 Legal and accounting 47,115 1,963 Meetings 226,674 9,446 Miscellaneous 30,924 1,289 Occupancy 424,394 17,686 Office supplies 21,534 897 Payroll taxes 112,922 4,706 Printing and postage 11,236 468 Professional fees 408,961 17,043 Training 23,882 995 Utilities 66,548 2,773 Workshops 53,876 2,245 $ 6,689,979 $ 170, 162 $ 1,185,427 $ 3,224,776 82,215 2,742,302 1,004 2,731 25,253 68,698 271,675 739,051 1,816 4,939 22,067 60,030 13,236 36,006 56,222 152,946 28,529 77,607 137,252 373,372 18,725 50,938 256,971 699,051 13,039 35,470 68,374 186,002 6,804 18,508 247,627 673,631 14,461 39,338 40,296 109,617 32,623 88,744 $ 2,523,616 $ 9,383,757 The accompanying auditor's report on other fmancial infonnation should be read with this statement. 14