EIN NUMBER: XX-XXX5244 OPE ID NUMBER: 03076300 DUNS NUMBER: 072470958 ECCLESIA, INC. AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED MAY 31, 2016 AND 2015 R. Michael LaBounty & Associates, P.C. Certified Public Accountants 2750 Buford Highway, Suite 247 Atlanta, Georgia 30324
TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT...1 STATEMENTS OF FINANCIAL POSITION...3 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS...5 STATEMENTS OF CASH FLOWS...6 NOTES TO THE FINANCIAL STATEMENTS...7 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS...12 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...13 REPORT ON COMPLIANCE WITH SPECIFIED REQUIREMENTS APPLICABLE TO THE FEDERAL STUDENT FINANCIAL ASSISTANCE PROGRAMS AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE...15 SCHEDULE OF FINDINGS AND QUESTIONED COSTS...18 AUDITORS COMMENTS ON RESOLUTION OF MATTERS RELATING TO THE FEDERAL STUDENT FINANCIAL ASSISTANCE PROGRAMS... 22 CORRECTIVE ACTION PLAN Page
INDEPENDENT AUDITORS REPORT Mr. Oren Paris Ecclesia Inc. d/b/a Ecclesia College 9653 Nations Drive Springdale, AR 72762 Report on the Financial Statements We have audited the accompanying financial statements of Ecclesia College (a nonprofit organization), which comprise the statement of financial position as of May 31, 2016 and 2015, and the related statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the presentation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. -1-
Ecclesia Inc. d/b/a Ecclesia College Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ecclesia College as of May 31, 2016 and 2015, the changes in its net assets and its cash flows for the year ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying Schedule of Expenditures of Federal Awards, as required by Title 2 U. S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying Footnote B on related party transactions and Footnote D on the calculation of the composite score are required by the U.S. Department of Education and are presented for purposes of additional analysis, but are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report on our consideration of Ecclesia College s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Ecclesia College s internal control over financial reporting and compliance. Atlanta, Georgia January 30, 2017-2-
ECCLESIA, INC. STATEMENT OF FINANCIAL POSITION AS OF MAY 31, 2016 AND 2015 ASSETS 2016 2015 CURRENT ASSETS: Cash $ 600,518 $ 53,006 Student receivables (net of allowance for uncollectable accounts of $76,038 & $41,038, respectively) 141,339 35,795 Accounts receivable from Department of Education 358,920 - Other - 342 Total current assets 1,100,777 89,143 PROPERTY & EQUIPMENT: Land 1,418,425 1,374,945 Buildings & improvements 5,000,419 5,000,419 Furniture, equipment & fixtures 344,379 344,379 Vehicles 55,473 55,473 Total property & equipment 6,818,696 6,775,216 Accumulated depreciation (1,579,204) (1,474,681) Total property & equipment - net 5,239,492 5,300,535 Total assets $ 6,340,269 $ 5,389,678 SEE INDEPENDENT AUDITORS REPORT AND ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS -3-
ECCLESIA, INC. STATEMENT OF FINANCIAL POSITION (CONTINUED) AS OF MAY 31, 2016 AND 2015 LIABILITIES AND NET ASSETS 2016 2015 CURRENT LIABILITIES: Accounts payable $ 22,772 $ 21,725 Accrued expenses 78,594 67,033 Line of credit 1,000,000 75,000 Notes payable - current 100,632 43,230 Total current liabilities 1,201,998 206,988 LONG-TERM LIABILITIES: Notes payable 1,111,155 1,210,792 Total liabilities 2,313,153 1,417,780 NET ASSETS: Unrestricted 3,984,563 3,922,641 Temporarily restricted 42,553 49,257 Total net assets 4,027,116 3,971,898 Total liabilities and net assets $ 6,340,269 $ 5,389,678 SEE INDEPENDENT AUDITORS REPORT AND ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS -4-
ECCLESIA, INC. STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS FOR THE YEARS ENDED M AY 31, 2016 AND 2015 2016 2015 CHANGES IN UNRESTRICTED NET ASSETS: REVENUES: Tuition & fees $ 2,606,992 $ 2,276,326 Contributions 178,984 467,818 Other income 92,917 94,058 Interest income 99 255 Released restrictions 10,800 43,646 Total revenue and support 2,889,792 2,882,103 PROGRAM EXPENSES: Academic instruction & support 1,107,467 1,154,571 Operations & maintenance 630,693 728,786 Student services 271,456 295,071 Room & board 187,309 144,048 Christian services 53,702 42,787 Total program expenses 2,250,627 2,365,263 FUNDRAISING EXPENSES: Contract services 99,651 116,718 Personnel 39,463 46,221 Office expenses 9,949 11,653 Total fundraising expenses 149,063 174,592 GENERAL AND ADMINISTRATIVE EXPENSES: Management and general 256,580 255,739 Depreciation 104,523 88,980 Interest 67,077 75,463 Total general and administrative expenses 428,180 420,182 Total expenses 2,827,870 2,960,037 INCREASE (DECREASE) IN UNRESTRICTED NET ASSETS 61,922 (77,934) CHANGES IN TEMPORARILY RESTRICTED NET ASSETS: Contributions for specific purposes 4,096 56,989 Release of restrictions (10,800) (43,646) (DECREASE) INCREASE IN TEMPORARILY RESTRICTED NET ASSETS (6,704) 13,343 INCREASE (DECREASE) IN NET ASSETS 55,218 (64,591) NET ASSETS AT BEGINNING OF YEAR 3,971,898 4,036,489 NET ASSETS AT END OF YEAR $ 4,027,116 $ 3,971,898 SEE INDEPENDENT AUDITORS REPORT AND ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS -5-
ECCLESIA, INC. STATEMENT OF CASH FLOWS FOR THE YEARS ENDED MAY 31, 2016 AND 2015 2016 2015 CASH FLOWS (USED BY) PROVIDED BY OPERATING ACTIVITIES: Increase (Decrease) in net assets $ 55,218 $ (64,591) Adjustments to reconcile increase (decrease) in net assets to net cash (used by) provided by operating activities: Depreciation & amortization 104,523 109,950 Decrease (increase) in student receivables (105,544) 4,102 (Increase) in DOE receivable (358,920) - Decrease in other assets 342 1,808 Increase in accounts payable 1,048 13,333 (Decrease) in accrued expenses 11,561 1,516 Net cash (used by) provided by operating activities (291,772) 66,117 CASH FLOWS (USED BY) INVESTING ACTIVITIES: Land and building improvements (43,480) (126,836) Net cash (used by) investing activities (43,480) (126,836) CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES: Proceeds (repayment) from line of credit- net 925,000 (25,000) Repayment installment debt (42,235) (40,451) Net cash provided by (used by) financing activities 882,765 (65,451) NET INCREASE (DECREASE) IN CASH 547,513 (126,170) CASH, BEGINNING OF YEAR 53,006 179,176 CASH, END OF YEAR $ 600,518 $ 53,006 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 67,077 $ 75,463 Income taxes $ - $ - SEE INDEPENDENT AUDITORS REPORT AND ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS -6-
ECCLESIA, INC. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED MAY 31, 2016 AND 2015 Ecclesia, Inc. d/b/a Ecclesia College (the Institution) is a four year Christian work college formed in 1975 in Springdale, Arkansas. It is accredited through the Association for Biblical Higher Education and currently offers 7 bachelor degree programs and 2 associate degree programs. Note A - Summary of Significant Accounting Policies The Institution s Summary of Significant Accounting Policies is presented to assist in understanding its financial statements. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the statements preparation. The financial statements and notes are representations of the Institution s management, who are responsible for their integrity and objectivity. Basis of Accounting and Presentation - The Institution uses the accrual basis of accounting for its revenues and expenses. The financial statements are prepared in accordance with generally accepted accounting principles. The classification of the Institution s net assets, revenues, expenses and gains or losses are based upon the existence or absence of donor-imposed restrictions. Revenues are reported as increases in unrestricted net assets, unless use of the related assets is limited by donor restrictions. Expenses are reported as decreases in unrestricted net assets. Expirations of temporarily restricted assets (i.e. by fulfillment of the donor-stipulated purpose and/or the stipulated time period has elapsed) are reported as reclassification between the applicable classes of net assets. There were no permanently restricted net assets as of May 31, 2016 and 2015. Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid investments purchased with an original maturity of three months or less. Accounts Receivable and Revenue Recognition The Institution records in accounts receivable the total charges for tuition and other fees at the time of a student s enrollment. Tuition revenue is then recognized on a straight-line basis over the enrollment period. The primary payment sources for these receivables are student financial assistance programs through the U.S. Department of Education (DOE). Tuition and other fees received in advance of course commencement and amounts received by the DOE to be passed through to students are recorded as unearned tuition received. The DOE funds usually do not cover the entire charges for tuition and other fees; therefore, the Institution has a payment plan whereby students can make periodic payments on any balances due. The Institution does not require collateral from its students to secure their receivables, but does perform ongoing student credit evaluations. The Institution has recorded $76,038 and $41,038 as allowance for doubtful accounts as of May 31, 2016 and 2015, respectively based upon an evaluation of its historical experience, industry averages and current credit conditions. Accounts are written off against the allowance when collection efforts have proven unsuccessful. Property and Equipment Property and equipment are recorded at cost when purchased and at fair market value when contributed. Expenditures of $5,000 or more which prolong an asset s useful life beyond 2 years are capitalized. The cost of assets retired or sold and their associated accumulated depreciation are removed from the accounts upon disposition, with any related gain or loss included in income. Depreciation and amortization is computed under the straight line method over each asset s estimated useful life. Depreciation and amortization expense for the years ended May 31, 2016 and 2015 was $104,523 and $88,980, respectively. -7-
ECCLESIA, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED MAY 31, 2016 AND 2015 Note A - Summary of Significant Accounting Policies (Continued) Donated Assets Donated marketable securities and other non-cash donations are recorded as contributions at their estimated fair values at the date of donation. There were no donated assets recognized during the years ended May 31, 2016 and 2015. Donated Services Donated services are recognized as contributions, if the services (a) create or enhance nonfinancial assets or (b) require specialized skills, are performed by people with those skills, and would otherwise be purchased by the Institution. Volunteers also provided various services throughout the year that are not recognized as contributions in the financial statements since the recognition criteria were not met. There were no donated services recognized during the years ended May 31, 2016 and 2015. Advertising Expense Advertising expense, except for costs associated with direct-response advertising, is charged to operations when incurred. Advertising expense for the years ended May 31, 2016 and 2015 was $6,910 and $1,710, respectively. The costs of direct-response advertising are capitalized and amortized over the period during which future benefits are expected to be received. For both years ended May 30, 2016 and 2015, the Institution had no capitalized direct-response advertising costs. Functional Allocation of Expenses The costs of providing the various programs and other activities are summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the various programs and supporting services benefited. Tax Exempt Status The Institution is exempt from federal income tax under provisions of Section 501(c)(3) of the Internal Revenue Service Code, and classified by the Internal Revenue Service as an organization other than a private foundation. In the opinion of management, the Institution continues to operate as a tax-exempt organization and, accordingly, no provisions for federal and state income taxes have been recorded in the financial statements. The Financial Accounting Standards Board has issued an Interpretation clarifying when an uncertainty in income taxes should be recognized or disclosed in the Institution s financial statements. The Institution has reviewed its tax positions and has determined that there are no tax uncertainties requiring recognition or disclosure for the years open to potential IRS examination (2013-2016). Fair Value of Financial Instruments - The Institution s financial instruments include cash, accounts receivable, accounts payable, accrued liabilities and long-term debt. The carrying value of these instruments, except longterm debt, approximates fair value due to their relatively short-term nature. The long-term debt also approximates current markets as a result of its varying interest rate based on an index to reflect market conditions, as described in Note E. 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 affecting the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. Note B Related Party Transactions The Institution participates in Student Financial Aid (SFA) programs under the Title IV programs administered by the U.S. Department of Education pursuant to the Higher Education Act (HEA) of 1965, as amended. The Institution must comply with regulations promulgated under the HEA which require that all related party transactions be disclosed regardless of their materiality to the financial statements. There were no related party transactions for both years ended May 31, 2016 and 2015. -8-
ECCLESIA, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED MAY 31, 2016 AND 2015 Note C Temporarily Restricted Net Assets As described within Note A, temporarily restricted net assets are comprised of contributions received subject to donor-imposed restrictions. For both years ended May 31, 2016 and 2015, restricted net assets are comprised of the following: 2016 2015 Campus Master Plan $ 21,000 $ 21,000 Bibles for Nations (800) 9,200 Children s Ministry 1,168 1,968 Scholarship Fund 11,886 11,107 Other 9,299 5,982 Total $ 42,553 $ 49,257 Net assets totaling $10,800 and $43,646 were released from donor restrictions during both years ended May 31, 2016 and 2015, respectively. Note D - Regulatory Matters The Institution is subject to extensive and complex regulations related to all government grant and loan programs. As such, the Institution undergoes periodic audits addressing operational, licensing, financial aid and other matters for compliance with certain regulations. Any regulatory violation could be the basis for the initiation of a suspension, limitation or termination proceeding against the Institution. In addition, the Institution could be required to reimburse any funds received while a campus was not in compliance with such regulations. Such actions could have an adverse effect on the Institution s financial position and results of operations. U.S. Department of Education (DOE) regulations require an institution participating in certain federally-supported student financial assistance programs to meet certain standards of financial responsibility. As of May 31, 2014 and 2015, management believes the Institution was in compliance with these standards. One standard for proprietary institutions is the composite score standard, which measures an institution s overall financial health. The Institution has calculated its composite score to be 1.7 and 1.2 for the years ended May 31, 2016 and 2015, respectively. Note E Concentrations of Credit Risk The Institution maintains cash balances at several financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC-insured limit is $250,000 per account per financial institution. The Institution s account balances did and did not exceed this insured limit for the years ended May 31, 2016 and 2015, respectively. In addition, the Institution derives a significant portion of its cash receipts, primarily tuition, from Student Financial Aid (SFA) received by its students under the Title IV programs administered by the U.S. Department of Education pursuant to the Higher Education Act (HEA) of 1965, as amended. To continue participating in the SFA programs, the Institution must comply with regulations promulgated under the HEA. Note F Line of Credit The Institution has a revolving line of credit with a commercial bank, allowing it to borrow up to $1,000,000 at an interest rate of 4.65%. The loan is collateralized by the Institution s land, buildings and personal property. For the years ended May 31, 2016 and 2015, the outstanding balances were $1,000,000 and $75,000, respectively. -9-
Note G Long-Term Debt ECCLESIA, INC. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEARS ENDED MAY 31, 2016 AND 2015 The Institution has an interest-indexed loan from a national financial institution, payable in monthly installments of $8,386 over a 5-year period with a balloon payment of $993,751 in March 2019.The loan is collateralized by the Institution s land, buildings and personal property. The loan s interest rate is 4.65%. Interest expense was $67,077 and $75,463 for the years ended May 31, 2016 and 2015, respectively. Current maturities for the next five years and in the aggregate are as follows: Year ended May 31, 2016 Note H Other Legal and Regulatory Matters 2017 $ 100,632 2018 100,632 2019 1,010,523 $ 1,211,787 The Institution s President has been informed through a targeting letter that he is the subject of inquiries by the Federal Bureau of Investigation and the Internal Revenue Service related to alleged illegal political activity. The Institution and its President maintain that these allegations are false and are without merit. Legal counsel has been retained to represent both the Institution and its President in this matter. As a result, the US Department of Education (DOE) has placed the Institution on the HCM2 Reimbursement Method (HCM2) for receiving Title IV funds beginning in September 2016. This is a highly restrictive method of receiving Title IV funds. Before funds can be received, the Institution is required to submit extensive eligibility documentation for each student for review and approval by DOE. This process can lengthen the time for the disbursement of Title IV funds from several weeks to many months. The Institution received its first disbursement of Title IV funds since being placed on HCM2 in January 2017. Note J Subsequent Events Management has evaluated events and transactions which occurred through January 30, 2017, which was the date the financial statements were available to be issued. As a result of this evaluation, management has determined that no events or transactions are required to be disclosed. -10-
REPORTS AND OTHER SCHEDULES AND INFORMATION AS REQUIRED BY THE UNIFORM GUIDANCE FOR THE YEAR ENDED MAY 31, 2016-11-
ECCLESIA, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED MAY 31, 2016 CFDA Federal Grantor/Pass-Through Grantor or Cluster Title Number Expenditures UNITED STATES DEPARTMENT OF EDUCATION Federal Supplemental Education Opportunity Grant Program 84.007 $ 9,816 Federal Work Study Program 84.033 452,633 Federal Pell Grant Program 84.063 584,182 Federal Direct Loan Program 84.268 870,777 Total expenditures of federal awards $ 1,917,408 Note A Significant Accounting Policies This Schedule of Expenditures of Federal Awards includes the federal grant activity of Ecclesia College and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the presentation of the financial statements. Note B Loan Balances The Institution does not have any outstanding loans with any federal government agency. Note C Indirect Cost Rate The Institution does not have an indirect cost rate and has elected not to use the 10 percent de minimis rate allowed under Uniform Guidance. -12-
REPORT ON INTERNAL CONTROLOVER 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 Mr. Oren Paris Ecclesia Inc. d/b/a Ecclesia College 9653 Nations Drive Springdale, AR 72762 We have audited the financial statements of Ecclesia College as of and for the year ended May 31, 2016 and have issued our report thereon dated January 30, 2017. 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 In planning and performing our audit, we considered Ecclesia 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 Ecclesia College s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Ecclesia 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 combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, material weaknesses or significant deficiencies may exist that were not identified. We consider the deficiency described in Finding 2016-001 in the accompanying Schedule of Findings and Questioned Costs to be a material weakness. The Institution s response to the findings identified in our audit are described in the accompanying Corrective Action Plan. We did not audit the Institution s responses and, accordingly, we express no opinion on the responses. -13-
Ecclesia Inc. d/b/a Ecclesia College Compliance and Other Matters As part of obtaining reasonable assurance about whether Ecclesia 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. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Atlanta, Georgia January 30, 2017-14-
REPORT ON COMPLIANCE WITH SPECIFIED REQUIREMENTS APPLICABLE TO THE FEDERAL STUDENT FINANCIAL ASSISTANCE PROGRAMS AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Mr. Oren Paris Ecclesia Inc. d/b/a Ecclesia College 9653 Nations Drive Springdale, AR 72762 INDEPENDENT AUDITOR S REPORT Report on Compliance for Each Major Federal Program We have audited Ecclesia College s (the Institution s) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Institution s Federal Student Financial Assistance Programs for the year ended May 31, 2016. The Institution s Federal Student Financial Assistance Programs are identified in the summary of auditor s results section of the accompanying Schedule of Findings and Questioned Costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Ecclesia College s Federal Student Financial Assistance Programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on Federal Student Financial Assistance Programs occurred. An audit includes examining, on a test basis, evidence about Ecclesia College s compliance with those requirements such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each Federal Student Financial Assistance Programs. However, our audit does not provide a legal determination of Ecclesia College s compliance. -15-
Ecclesia Inc. d/b/a Ecclesia College Opinion on Each Major Federal Program In our opinion, Ecclesia College complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended May 31, 2016. Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items 2016-003 and 2016-004. Our opinion on each major federal program is not modified with respect to these matters. The Institution s response to the noncompliance findings identified in our audit are described in the accompanying Corrective Action Plan. The Institution s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of Ecclesia College is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Ecclesia College s internal control over compliance with the types of requirements that could have a direct and material effect on each Federal Student Financial Assistance Program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each Federal Student Financial Assistance Program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Ecclesia College internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of the Federal Student Financial Assistance Programs on a timely basis. A material weakness in internal control over compliance is a deficiency or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of the Federal Student Financial Assistance Programs will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal Student Financial Assistance Program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as items 2016-003, and 2016-004 that we consider to be material weaknesses. The Institution s response to the noncompliance findings identified in our audit are described in the accompanying Corrective Action Plan. The Institution s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. -16-
Ecclesia, Inc. d/b/a Ecclesia College The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Atlanta, Georgia January 30, 2017-17-
ECCLESIA, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED MAY 31, 2016 SECTION 1 - SUMMARY OF THE INDEPENDENT AUDITORS RESULTS: Financial Statements 1. Type of report the auditor issued on whether the financial statements audited were prepared in accordance with GAAP: 2. Internal control over financial reporting: a. Material weaknesses identified? b. Significant deficiencies identified? 3. Noncompliance material to the financial statements noted? Unmodified Yes No No Federal Awards 1. Internal control over major programs: a. Material weaknesses identified? b. Significant deficiencies identified? 2. Type of auditor s report issued on compliance for major programs: 3. Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? 4. Identification of major programs: CFDA Number Cluster Program* 5. Dollar threshold used to distinguish between Type A and Type B programs: 6. Auditee qualified as a low-risk auditee? Yes No Unmodified Yes Name of Federal Program or Cluster Student Financial Assistance Cluster $750,000 Yes * See Schedule of Expenditures of Federal Awards for a complete listing of the student financial assistance cluster programs and their related CFDA numbers. -18-
ECCLESSIA, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED MAY 31, 2016 SECTION II FINDINGS RELATED TO THE FINANCIAL STATEMENTS: FINDING 2016-001 Lack of Financial Expertise CONDITION: The accounting records required substantial adjustments in order to properly prepare accrual-based financial statements. CRITERIA: 34 CFR 668.16 CONTEXT: The Business Office Manager, hired in the Spring of 2015, lacked the skills necessary to properly perform her job. Upon resigning in the Spring of 2016, the Institution engaged a local CPA firm to perform the functions of the Business Office Manager. It has taken several months to reorganize the Business Office so that it is now functioning properly. CAUSE: Lack of rigorous oversight by management and an ineffective internal audit function. EFFECT: The Institution was not in compliance with DOE rules and regulations, with various accounting functions not being performed in a timely and accurate manner. RECOMMENDATION: Improve communications and expand the role of the local CPA to provide the expertise require to maintain the Institution s accounting records on the accrual basis and in compliance with DOE rules and regulations. VIEW OF RESPONSIBLE OFFICIALS: The Institution agrees with the auditors finding and will implement their recommendation. SECTION III FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS: FINDING 2016-002 Late Returns of Over Award of Title IV Funds CONDITION: The return of Title IV funds, as a result of over awarding of title IV funds, was not made within the required 45 days. CRITERIA: 34 CFR 668.22 CONTEXT: Out of fifty-two (52) student files tested, two (2) students had late refunds posted to the ledger. CAUSE: The Institution s staff did not follow the Institutional policies and procedures. EFFECT: The Institution had access to $14,017 of Title IV funds to which it was not entitled. RECOMMENDATION: The Institution has since returned $4,726 of the Pell funds, the remaining $2,859 of Pell and $6,432 of loans have been returned as part of the HCM2 reimbursement process. Consider implementing a more rigorous and structured internal audit function for the review of activity and documentation in the student files. -19-
ECCLESIA, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR THE YEAR ENDED MAY 31, 2016 SECTION III FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS (CONTINUED): VIEW OF RESPONSIBLE OFFICIALS: The Institution agrees with the auditors finding and will implement their recommendation. FINDING 2016-003 Incomplete or Incorrect Verification CONDITION: The verification procedures were not properly performed or not completed. CRITERIA: 34 CFR 668.57 CONTEXT: Out of fourteen (14) student files tested that were selected for verification, verification procedures for five (5) students were not properly performed. CAUSE: The new Financial Aid Director was not familiar with Department of Education rules and regulations related to verification. EFFECT: The errors could result in a change to the student s EFC and the amount of Title IV that should be disbursed. The Institution was not in compliance with the requirement of performing accurate verifications. RECOMMENDATION: Consider implementing a more rigorous and structured internal audit function for the review of activity and documentation in the student files. In addition, the Financial Aid Director should attend training courses to better understand DOE rules and regulations. VIEW OF RESPONSIBLE OFFICIALS: The Institution agrees with the auditors finding and will implement their recommendation. The Financial Aid Director has enrolled in a Regional DOE workshop in May 2017. FINDING 2016-004 Failure to Notify Students of Loan Disbursements CONDITION: Students were not notified each time direct loans were disbursed. CRITERIA: 34 CFR 668.165 CONTEXT: The Institution did not obtain a signed notification from students acknowledging and accepting loan disbursements. CAUSE: The new Financial Aid Director was not familiar with Department of Education rules and regulations related to disbursement notifications. EFFECT: The students may not be aware of their rights and responsibilities. RECOMMENDATION: Consider implementing a more rigorous and structured internal audit function for the review of activity and documentation in the student files. In addition, the Financial Aid Director should attend training courses to better understand DOE rules and regulations VIEW OF RESPONSIBLE OFFICIALS: The Institution agrees with the auditors finding and will implement their recommendation. The Financial Aid Director has enrolled in a Regional DOE workshop in May 2017. -20-
ECCLESIA, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) FOR THE YEAR ENDED MAY 31, 2016 SECTION III FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDS (CONTINUED): FINDING 2016-005 Lack of Documentation of Ability-to-Benefit CONDITION: Eligibility documentation was not obtained. CRITERIA: 34 CFR 668.32 CONTEXT: Out of fifty-two (52) student files tested, for one (1) student, the Institution did not obtain either a high school diploma or a GED certificate. CAUSE: Staff of the Institution did not follow the policies and procedures. EFFECT: The Institution may have admitted students who did not have the ability-to-benefit. RECOMMENDATION: Consider implementing a more rigorous and structured internal audit function for the review of activity and documentation in the student files. VIEW OF RESPONSIBLE OFFICIALS: The Institution agrees with the auditor s finding and will implement their recommendation. -21-
ECCLESIA, INC. AUDITORS COMMENTS ON RESOLUTION OF MATTERS RELATING TO THE FEDERAL STUDENT FINANCIAL ASSISTANCE PROGRAMS FOR THE YEAR ENDED MAY 31, 2016 STATUS OF PRIOR YEAR S FINDINGS: FINDING 2015-001 Lack of documentation of Loan Counseling CONDITION: For five (5) students selected for testing, three (3) students files contained no evidence that loan exit counseling was ever performed and two (2) students files contained no evidence that loan entrance counseling was ever performed. CRITERIA: 34 CFR 685.304 EFFECT: The students may not be aware of their rights and responsibilities when an outstanding Title IV loan balance exists and may increase loan delinquencies. RECOMMENDATION: Consider refining the internal audit process to insure all items in each student file are examined on a more frequent basis. STATUS: This finding was not repeated in the current year s compliance audit. The revised policies and procedures implemented by the Institution appear to be working FINDING 2015-002 Inaccurate Reporting to the Common Origination Disbursement System CONDITION: The Institution reported inaccurate disbursement dates for direct loan funds to the Common Origination Disbursement system (COD). For every student tested, no dates in the COD system agreed with the date the direct loan disbursements were posted to the student ledger cards. CRITERIA: 34 CFR 668.164 (A) and 34 CFR 690.83 (B) (1) EFFECT: The Institution may have had access to Title IV funds to which it was not entitled resulting in excess interest charges to the student and DOE. RECOMMENDATION: The Institution should adjust the disbursement dates in the COD system for the most recent award year to properly reflect the actual disbursement dates. STATUS: This finding was not repeated in the current year s compliance audit. The revised policies and procedures implemented by the Institution appear to be working -22-