University of Arkansas Community College at Hope Hope, Arkansas Annual Financial Report Independent Auditor s Report and Other Reports June 30, 2003 LEGISLATIVE JOINT AUDITING COMMITTEE
TABLE OF CONTENTS JUNE 30, 2003 Independent Auditor's Report Combined Report(s) on Compliance, Internal Controls and Other Matters Management s Discussion and Analysis FINANCIAL STATEMENTS Exhibit Comparative Statement of Net Assets Comparative Statement of Revenues, Expenses and Changes in Net Assets Comparative Statement of Cash Flows Notes to Financial Statements A B C
INDEPENDENT AUDITOR'S REPORT University of Arkansas Community College at Hope Legislative Joint Auditing Committee We have audited the accompanying statement of net assets of the University of Arkansas Community College at Hope (Institution), an Institution of Higher Education of the State of Arkansas, as of June 30, 2003 and the related statement of revenues, expenditures and changes in net assets and statement of cash flows for the year then ended as listed in the table of contents. These financial statements are the responsibility of the Institution s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial 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 financial statements referred to above present fairly, in all material respects, the financial position of the University of Arkansas Community College at Hope as of June 30, 2003 and changes in its net assets and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Management s discussion and analysis is not a required part of the basic financial statements, but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consist principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated October 1, 2003 on our consideration of the Institution's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas October 1, 2003 EDHE16703 Charles L. Robinson, CPA, CFE Legislative Auditor
COMBINED REPORT(S) ON COMPLIANCE, INTERNAL CONTROLS AND OTHER MATTERS University of Arkansas Community College at Hope Legislative Joint Auditing Committee The underlying purpose of this letter is to convey certain observations and recommendations regarding state and federal compliance and internal control in conjunction with our audit of the University of Arkansas Community College at Hope (Institution). This letter reflects various requirements and pronouncements of the American Institute of Certified Public Accountants (AICPA), the United States General Accounting Office (GAO), and the United States Office of Management and Budget (OMB). We have audited the financial statements of the University of Arkansas Community College at Hope, an Institution of Higher Education of the State of Arkansas, as of and for the year ended June 30, 2003, and have issued our report thereon dated October 1, 2003. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the Institution s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of the state constitution, state and federal laws and regulations, and federal contracts and grants, 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 that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Institution s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. Other matters involving compliance and/or internal control were reported to the Institution management in a separate letter.
GENERAL COMMENTS RELATED ORGANIZATION - There is in existence a nonprofit entity with significant financial resources which is related to the Institution, but whose accounts are appropriately not recorded in the accounting system of the Institution. This related nonprofit entity was established, ostensibly, for the benefit of the Institution. One entity such as that described above, of which we have knowledge, is the University of Arkansas Community College at Hope Foundation, Inc. Activities surrounding such organizations as those described above, including but not limited to the following, have not been evaluated by the appropriate bodies outside of the Institution. The following activities surrounding such organization as that described above should be evaluated to clarify: A. Fund raising activities on behalf of the related nonprofit entity by employees of the Institution. B. The holding of Officer, Director, and quasi-employee positions of the related nonprofit entity by employees and/or directors of the Institution. STUDENT ENROLLMENT DATA - In accordance with Ark. Code Ann. 6-60-209, we performed tests of the student enrollment data for the year ended June 30, 2003, as reported to the State Department of Higher Education, to provide reasonable assurance that the data was properly reported. Our testing was limited to the fall and spring terms of the year. The enrollment data reported was as follows: Fall Term Spring Term Student Headcount 1,063 1,108 Student Semester Credit Hours 11,647 11,550 During our review, nothing came to our attention that would cause us to believe that the student enrollment data was not substantially correct. These reports are intended for the information and use of the Legislative Joint Auditing Committee, state executive and oversight management and Institution management, and are not intended to be and should not be used by anyone other than these specific parties. However, this report is a matter of public record and its distribution is not limited. DIVISION OF LEGISLATIVE AUDIT William R. Baum, CPA, CFE Deputy Legislative Auditor Little Rock, Arkansas October 1, 2003-3 -
Management s Discussion and Analysis Overview of the Financial Statements and Financial Analysis The University of Arkansas Community College at Hope is pleased to present its financial statements for the fiscal year ended June 30, 2003. The financial statements were prepared according to the new requirements set out in GASB No. 34 and No. 35 (as amended by GASB Statements No. 37 and No. 38). This Management Discussion and Analysis (MD&A) provides a comparative analysis of the Statement of Net Assets, Statement of Revenues, Expenses and Changes in Net Assets and the Statement of Cash Flows. Statement of Net Assets The Statement of Net Assets is presented as of June 30, 2003, and presents the assets, liabilities and net assets of the College. The purpose of the statement is to present to the readers of the financial statements a fiscal snapshot of the University of Arkansas Community College at Hope as of the end of the fiscal year. Current assets and liabilities are distinguished from non-current assets and liabilities. The statement provides a picture of net assets (assets minus liabilities) and their availability for expenditure by the College. Net assets are divided into three major categories: Invested in capital assets, net of related debt: This category represents the College s equity in property, plant and equipment. Restricted net assets non-expendable & expendable: Non-expendable restricted resources are only available for investment purposes. At year-end the College has no restricted nonexpendable assets. Expendable restricted assets include resources in which the College administration is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. Unrestricted net assets: These resources are used for transactions relating to the general operations of the College Administration, and may be used at the discretion of the governing board to meet current expenses for any purpose. A Statement of Net Assets at June 30, 2003 compared to June 30, 2002 follows: FY02 FY03 CHANGE ASSETS: Current Assets $ 2,257,650 $ 2,132,824 $( 124,826) Non-Current Assets 10,203,065 10,106,311 ( 96,754) Total Assets $ 12,460,715 $12,239,135 $( 221,580) LIABILITIES: Current Liabilities $ 740,155 $ 814,503 $ 73,348 Non-current Liabilities 7,268,685 7,014,453 ( 254,232) Total Liabilities $ 8,008,840 $7,828,956 $( 179,884) NET ASSETS: Invested in Capital assets, net of debt $ 2,416,650 $2,549,611 $ 132,961 Restricted Expendable 347,000 347,000-0- Unrestricted 1,688,225 1,513,568 ( 174,657) Total Net Assets $ 4,451,875 $4,410,179 $ ( 41,696) - 4 -
NET ASSETS 3,000,000 2,000,000 1,000,000 0 Invested in Capital Assets Restricted Unrestricted FY 02 FY03 Net assets of the institution decreased by 1% in FY03. The investment in capital assets increased by 5.5% while the unrestricted assets decreased by 10.3%. The college did not accrue interest payable in FY02 and the interest payable accrued in FY03 was $108,703. The recording of accrued interest resulted in the decrease of net assets at June 30, 2003. Statement of Revenues, Expenses and Changes in Net Assets The purpose of this statement is to present revenues received and expenses paid by the College, both operating and non-operating, and any other revenues, expenses, gains and losses. Operating revenues include activities that have the characteristics of exchange transactions, such as student fees, organized activities related to the departments, sales and services and most federal and state grants. Non-operating revenues include activities that have the characteristics of non-exchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating by GASB No. 34, such as state appropriations, local sales tax, Pell Grant revenues and investment income. A comparative summarized Statement of Revenues, Expenses and Changes in Net Assets at June 30, 2003 is as follows: FYO2 FYO3 CHANGE Operating Revenues $ 4,407,855 $ 2,505,995 (1,901,860) Operating Expenses 8,972,387 8,904,685 67,702 Operating Income (Loss) ($ 4,564,532) $(6,398,690) $(1,834,158) Non-operating Revenues & Expenses $ 4,741,919 $ 6,211,942 $ 1,470,023 Income Before Other Revenues & Expenses (177,387) (186,748) (364,135) Other Revenues & Expenses (1,666,264) 145,052 (1,521,212) Increase (Decrease) in Net Assets $ (1,843,651) $ ( 41,696) $(1,885,347) Net Assets Originally Reported $ 9,142,717 N/A N/A Cumulative Effects of Changes in Acct Principle (3,201,965) N/A N/A Net Assets Beginning of Year Restated $ 5,940,752 Net Assets End of Year $ 4,451,875 $ 4,410,179 $ ( 41,696) - 5 -
OPERATING REVENUE Other 5% State Grants 10% Federal Grants 46% Student Fees 39% Operating revenue changes were a result of the following factors: Student Fees increased 25% as a result of tuition increases approved by the Board of Trustees in April of 2002 and an increase in enrollment in the spring semester. Federal Grants decreased approximately 55% due to reclassifying Pell Grant revenues in FY03 as non-operating revenue. State Grants decreased by 48% due to a reduction in the Academic Challenge Scholarship program and reductions in other state funded programs. Other income decreased by 77% due primarily to outsourcing the bookstore and not using an local sales tax revenue for current operations. OPERATING EXPENSES 6,000,000 4,000,000 2,000,000 0 Personal Services Supplies Scholarships Depreciation FY03 FY02 Operating expenses decreased by 1% in FY03 due to the following factors: The college gave the 2.6% state approved raise to all employees. However the cost of compensation to employees decreased by 3.7% due to a reduction in staff and elimination of unproductive programs. Expenditures for supplies and services increased in FY03. Departmental budgets had been reduced the past four years in this area prior to 2003. The increase in scholarships is a combination of an increase in Pell Grants and a reduction in the State Academic Challenge funding. Depreciation expenses remained at approximately the same level as FY2002. Net Non-Operating Revenues shows an increase of 31% as a result of reclassifying Pell Grant revenues as non-operating. State appropriations decreased by 5.9% and local sales tax revenues increased by 5.9%. Net Assets of the institution reduced by $41,696 due to recognizing accrued interest payable in FY03 without the corresponding recognition in FY02. - 6 -
Statement of Cash Flows The final statement presented is the Statement of Cash Flows which provides additional information by reporting the major sources and uses of cash. The primary purpose of this statement is to provide relevant information about the cash receipts and cash payments of the college during the year ended June 30, 2003 and about the college s ability to generate future net cash flows, meet its obligations as they come due and its needs for external funding. A comparative Statement of Cash Flows at June 30, 2003 is as follows: Cash Provided (Used) by: FY02 FY03 CHANGE Operating Activities $( 4,202,530) $(5,788,418) $1,585,888 Non-capital Financing Activities 5,140,086 6,668,697 (1,528,611) Capital & Related Financing Activities (2,706,406) ( 941,093) (1,765,313) Investing Activities 19,304 (333,124) 5,729 Net Change in Cash $( 1,749,546) $ (393,938) $( 1,355,608) Cash - Beginning of Year $ 3,260,435 $1,510,889 $(1,749,546) Cash End of Year $ 1,510,889 $1,116,951 $( 393,938) While the college s net cash flow for the year is still negative, the liquidity improved drastically over the previous year. The improvement is a result of a 65% decrease in the negative cash flow from capital related activities, a 37.7% increase in cash used from operating activities as a result of reclassifying Pell Grant Income to Non-operating revenue, and a 29.7% increase in cash provided by non-capital financing activities. Economic Outlook The University of Arkansas Community College at Hope is not aware of any currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position or results of operations during FY04 beyond those unknown variations having a global effect on virtually all types of business operations. There are several unanswered questions concerning the funding for public schools in Arkansas that could have a impact on funding for higher education in the future. The College s overall financial position is stable. Reductions in state appropriations received the past four years were offset with reductions in the workforce, fringe benefits and supplies and services. The FY04 budget was prepared with another anticipated reduction in state funding. The College will continue to monitor resources in order to maintain the ability to react to unknown issues. - 7 -
COMPARATIVE STATEMENT OF NET ASSETS JUNE 30, 2003 Exhibit A June 30, 2003 2002 ASSETS Current assets: Cash and cash equivalents $ 785,752 $ 876,884 Cash equivalents held in trust by others 331,199 312,590 Accounts receivable (less allowances of $195,819) 842,366 910,080 Other receivables 87,955 130,467 Inventories 18,848 27,629 Prepaid expenses 66,704 Total current assets 2,132,824 2,257,650 Noncurrent assets: Cash equivalents held in trust by others 321,415 Investments held in trust by others 346,700 Capital assets (net of accumulated depreciation of $4,153,260) 9,759,611 9,881,650 Total noncurrent assets 10,106,311 10,203,065 TOTAL ASSETS 12,239,135 12,460,715 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 115,334 7,222 Bonds, notes, and leases payable 327,590 312,590 Compensated absences 18,006 15,710 Deferred revenue 284,697 320,593 Funds held in trust for others 68,876 84,040 Total current liabilities 814,503 740,155 Noncurrent liabilities: Bonds, notes, and leases payable 6,882,410 7,152,410 Compensated absences 132,043 116,275 Total noncurrent liabilities 7,014,453 7,268,685 TOTAL LIABILITIES 7,828,956 8,008,840 NET ASSETS Invested in capital assets, net of related debt 2,549,611 2,416,650 Restricted for: Expendable: Debt service 347,000 347,000 Unrestricted 1,513,568 1,688,225 TOTAL NET ASSETS $ 4,410,179 $ 4,451,875 The accompanying notes are an integral part of these financial statements. - 8 -
COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2003 Exhibit B Year Ended June 30, 2003 2002 OPERATING REVENUES Student tuition and fees (net of scholarship allowances of $595,196) $ 962,693 $ 770,380 Federal grants and contracts 1,156,486 2,574,017 State and local grants and contracts 243,561 465,552 Sales and services of educational departments 4,237 5,789 Auxiliary enterprises: Bookstore 31,591 438,036 Other operating revenues 107,427 154,081 TOTAL OPERATING REVENUES 2,505,995 4,407,855 OPERATING EXPENSES Personal services 4,967,880 5,156,592 Scholarships and fellowships 1,695,690 1,549,081 Supplies and services 1,758,629 1,757,941 Depreciation 482,486 508,773 TOTAL OPERATING EXPENSES 8,904,685 8,972,387 OPERATING INCOME (LOSS) (6,398,690) (4,564,532) NON-OPERATING REVENUES (EXPENSES) State appropriations 4,317,496 4,586,219 County sales tax 571,800 539,866 Pell grant income 1,833,932 Direct loan income 107,744 72,779 Investment income 13,575 19,304 Interest on capital asset - related debt (484,897) (399,970) Disposal of capital assets net of depreciation (39,964) (3,500) Direct loans to students (107,744) (72,779) NET NON-OPERATING REVENUES (EXPENSES) 6,211,942 4,741,919 INCOME BEFORE OTHER REVENUES, EXPENSES, GAINS OR LOSSES (186,748) 177,387 Write-off of assets due to changes in capitalization level (1,610,704) Capital appropriations 101,370 Adjustments to prior year revenues and expenses (5,150) (55,560) Other capital funding 48,832 INCREASE (DECREASE) IN NET ASSETS (41,696) (1,488,877) NET ASSETS - BEGINNING OF YEAR - AS ORIGINALLY REPORTED 4,451,875 9,142,717 Cumulative effects of changes in accounting principles (3,201,965) NET ASSETS - BEGINNING OF YEAR - RESTATED 4,451,875 5,940,752 NET ASSETS - END OF YEAR $ 4,410,179 $ 4,451,875 The accompanying notes are an integral part of these financial statements. - 9 -
COMPARATIVE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2003 Exhibit C Year Ended June 30, 2003 2002 CASH FLOW FROM OPERATING ACTIVITIES Student tuition and fees $ 958,615 $ 716,094 Grants and contracts 1,400,047 3,026,905 Auxiliary enterprises revenues: Bookstore 31,591 438,036 Other receipts 274,228 121,431 Payments to employees (3,615,159) (3,838,894) Payments for employee benefits (1,352,721) (1,345,148) Payments to suppliers (1,789,329) (1,772,305) Scholarships and fellowships (1,695,690) (1,548,649) Net cash provided by operating activities (5,788,418) (4,202,530) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 4,317,496 4,586,219 Grants and contracts 1,833,932 Direct loan and plus loan receipts 107,744 72,779 Direct loan and plus loan payments (107,744) (72,779) County sales tax 571,800 539,866 Other agency funds - net (15,164) 14,001 Other (39,367) Net cash provided by noncapital financing activities 6,668,697 5,140,086 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from capital debt 300,000 Capital appropriations 101,370 Capital gift and grants 48,832 Proceeds from sale of capital assets 14,282 628 Purchases of capital assets (360,447) (2,362,064) Principal paid on capital debt and leases (255,000) (245,000) Interest paid on capital debt and leases (490,130) (399,970) Net cash provided by capital and related financing activities (941,093) (2,706,406) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments (net of fees) 13,576 19,304 Purchase of investments (346,700) Net cash provided by investing activities (333,124) 19,304 Net increase (decrease) in cash and cash equivalents (393,938) (1,749,546) Cash and cash equivalents - beginning of year 1,510,889 3,260,435 Cash and cash equivalents - end of year $ 1,116,951 $ 1,510,889-10 -
COMPARATIVE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2003 Exhibit C Year Ended June 30, 2003 2002 Reconciliation of net operating revenues (expenses) to net cash provided (used) by operating activities: Operating income (loss) $ (6,398,690) $ (4,564,532) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation expense 482,486 508,773 Change in assets and liabilities: Receivables, net 110,226 186,762 Inventories 8,781 (98,955) Other assets (66,337) (332,544) Accounts payable (591) 1,069 Deferred revenue (35,896) 59,342 Accrued Interest Payable 108,703 Compensated absences 18,064 (3,444) Other liabilities (15,164) 40,999 Net cash provided (used) by operating activities $ (5,788,418) $ (4,202,530) The accompanying notes are an integral part of these financial statements. - 11 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 1: Reporting Entity The State Board for Vocational Education was created under the provisions of Act 328 of 1957 for the purpose of establishing in various sections of Arkansas, secondary level schools specializing in vocational technical training. Efforts of the agencies were to be directed toward specialized training of students of high school age and as a service to the community in the area of adult education. Red River Vocational Technical School began operations in August of 1965. Effective July 1, 1991, the Agency's name was changed to Red River Technical College under the provisions of Ark. Code Ann. 6-53-301. Effective July 1, 1996, the Agency merged with the University of Arkansas System and is now the University of Arkansas Community College at Hope. The Agency is now under the jurisdiction of the Arkansas State Board of Higher Education. The governing body is the University of Arkansas Board of Trustees, a ten-member group. NOTE 2: Summary of Significant Accounting Policies The financial statements of the University of Arkansas Community College at Hope have been prepared in accordance with generally accepted accounting principles contained in College and University Business Administration published by the National Association of College and University Business Officers (NACUBO) and as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying notes to financial statements are an integral part of the financial statements. Financial Statement Presentation In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments. This was followed in November 1999 by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. As a component unit of the University of Arkansas System and of the State of Arkansas, the College is required to adopt GASB No. 34 and No. 35 (as amended by GASB Statements No. 37 and No. 38) effective for the fiscal year ended June 30, 2002. The financial statement presentation provides a comprehensive, entity-wide perspective of the University of Arkansas Community College at Hope s assets, liabilities, net assets, revenues, expenses, changes in net assets, and cash flows, and replaces the fund-group perspective previously required. In March 2003, GASB issued Statement No. 40, Deposit and Investment Risk Disclosures, which amends GASB No. 3. This Statement, effective FY05, addresses common deposit and investment risks related to credit risk, concentration credit risk, interest rate risk, and foreign currency risk. Management has not yet determined the effect of the implementation of this statement on the University s financial statements. In addition, GASB has issued the following exposure drafts: (1) Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries with a proposed implementation date of FY05; (2) Financial Reporting for Post-employment Benefit Plans Other Than Pension Plans with a proposed implementation date of FY06; and (3) Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions with a proposed implementation date of FY07. Management has not yet determined the effect of the implementation of these proposed statements on the University s financial statements. - 12 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 2: Summary of Significant Accounting Policies (Continued) Basis of Accounting For financial reporting purposes, the University of Arkansas Community College at Hope is considered a special-purpose government engaged in business-type activities. Accordingly, the College s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the period in which they are incurred, if measurable, including depreciation. The University of Arkansas Community College at Hope has elected not to apply Financial Accounting Standards Board (FASB) statements and interpretations issued since November 30, 1989, unless they are adopted by the Governmental Accounting Standards Board (GASB). Cash and Cash Equivalents The statement of Net Assets classification of Cash and Cash Equivalents includes all readily available sources of cash such as petty cash, demand deposits, cash on deposit with the State Treasury, and highly liquid short-term investments. Investments Investments are stated at fair value. Changes in unrealized gain (loss) on the carrying value are reported as a component of investment income on the Statement of Revenues, Expenses and Changes in Net Assets. Accounts Receivable Accounts receivable as reported on the Statement of Net Assets includes receivables from student accounts, cafeteria plan receivables and receivables from other sources. Inventories Inventories are valued at cost with cost being generally determined on a first-in first-out basis. Investment in Plant Plant assets consisting of land, buildings, library holdings, equipment, improvements and construction in progress are stated at cost or, if contributed, at fair market value at date of gift. The Arkansas Department of Finance and Administration changed their capitalization policy effective July 1, 2001, to increase the threshold for equipment from $500 to $2,500. Adoption of this policy by the University of Arkansas Community College at Hope facilitated a write-off in FY02 of equipment costing less than $2,500. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The College uses 15-30 years on buildings and improvements and 5 years for equipment. - 13 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 2: Summary of Significant Accounting Policies (Continued) Encumbrances Encumbrances are defined as commitments related to unperformed contracts for goods or services. The University of Arkansas Community College at Hope does not record encumbrances in its accounting system and none are recorded in the accompanying financial statements. Compensated Absences Payable Employees accrue and accumulate annual leave in accordance with policies established by the Board of Trustees. Full time, non-classified, University employees accrue leave at the rate of fifteen hours per month, classified employees at a variable rate (from 8 to 15 hours per month) depending upon the number of years employed in state government. Under the University s policy, an employee may carry accrued leave forward from one fiscal year to another, up to a maximum of 240 hours (30 working days). Employees who terminate their employment are entitled to payment for all accumulated annual leave, up to the maximum allowed. Since an employee may accumulate more than 240 hours during the year prior to December 31, the Compensated Absences Payable liability is calculated on the total leave time accrued at June 30, 2003. The University accrues the dollar value of leave benefits which are payable upon retirement, termination, or death of its employees. This liability has been projected to be $150,049 at June 30, 2003. The current portion of this liability is calculated based on a fiveyear average of the annual amounts paid to terminated employees for accrued vacation and amounts to $18,006 (12%). It is the policy of the University of Arkansas Community College at Hope to recognize the cost of sick leave when paid. Employees who leave college employment are not entitled to be paid for accrued sick leave; therefore, no liability is shown in the financial statements for accrued sick leave. Net Assets The College s net assets are classified as follows: Invested in capital assets, net of debt: This represents the College s total investment in capital assets, net of outstanding debt obligations related to those capital assets. Restricted net assets non-expendable: This consist of endowment and similar type of funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to principal. The College has no restricted net assets non-expendable at June 30, 2003. Restricted net assets expendable: This includes resources in which the College is legally or contractually obligated to spend resources in accordance with restrictions imposed by external third parties. - 14 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 2: Summary of Significant Accounting Policies (Continued) Net Assets (Continued) Unrestricted net assets: This represents resources derived from the general operations of the College and may include student fees, investment income, state appropriations or other miscellaneous resources. These resources are used for transactions relating to the general operations of the College, and may be used at the discretion of the governing board to meet current expenses for any purpose. Classification of Revenues The College has classified its revenues as either operating or non-operating revenues according to the following criteria: Operating Revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as student fees, gifts and grants, sales and services of educational departments and auxiliary enterprises sales. Non-operating Revenues: Non-operating revenues include activities that have the characteristics of non-exchange transactions, such as local sales taxes and other revenue sources that are defines as non-operating revenues by GASB No. 34, such as state appropriations and investment income. Scholarship Discounts and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship discounts and allowances in the statement of revenues, expenses and changes in net assets. Scholarship discounts and allowances are the differences between the stated charge for goods and services provided by the College, and the amount that is paid by students and/or third parties making payments on the students behalf. Accounting Changes Since the adoption of GASB Statement No. 34, the College has made no accounting changes. Pell Grant Income has been moved from Current Operations to Non-Current Operations. NOTE 3: Public Fund Deposits and Investments Cash deposits are carried at cost. The Institution s cash deposits at year-end are shown below: Carrying Amount Bank Balance Insured (FDIC) $ 102,360 $ 126,665 Uninsured, Collateralized 443,279 801,850 Total Deposits $ 545,639 $ 928,515-15 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 3: Public Fund Deposits and Investments (Continued) The above deposits do not include cash on deposit in the state treasury, or cash on hand maintained by the University of Arkansas Community College at Hope and funds held in trust by the bond trustee in the amounts of $239,513, $600 and $331,199 for the year ended June 30, 2003, respectively. Investments are reported at fair value. Fair value for reporting purposes is market value if a market price or quote is readily available. Investments that do not have readily available market prices or quotes are reported at estimated fair value. The Institution s investments at year-end are shown below by category to give an indication of the level of risk assumed. Category 1 includes investments that are insured or registered or for which the securities are held by the University of Arkansas Community College at Hope or its agent in the Institution's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent in the Institution s name. Category 3 includes uninsured and unregistered investments for which the securities are held by the broker or dealer, or by its trust department or agent but not in the Institution's name. NOTE 4: Income Taxes The Institution is tax exempt under Internal Revenue Service code. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements. NOTE 5: Capital Assets Following are the changes in capital assets for the year ended June 30, 2003: Balance Balance July 1, 2002 Additions Retirements June 30, 2003 Capital assets not being depreciated Land and improvements $ 179,098 $ 179,098 Construction-in-progress 2,727,628 $ 290,051 3,017,679 Total capital assets not being depreciated $ 2,906,726 $ 290,051 $ 3,196,777 Other capital assets Improvements and infrastructure $ 214,815 $ 214,815 Buildings 8,519,148 $ (25,021) 8,494,127 Equipment 1,951,699 $ 70,396 (14,943) 2,007,152 Total other capital assets 10,685,662 70,396 (39,964) 10,716,094 Less accumulated depreciation for Improvements and infrastructure (105,557) (5,536) (111,093) Buildings (1,994,817) (250,506) 25,021 (2,220,302) Equipment (1,610,364) (226,444) 14,943 (1,821,865) Total accumulated depreciation (3,710,738) (482,486) 39,964 (4,153,260) Other capital assets, net $ 6,974,924 $ (412,090) $ 0 $ 6,562,834-16 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 5: Capital Assets (Continued) Balance Balance July 1, 2002 Additions Retirements June 30, 2003 Capital Asset Summary: Capital assets not being depreciated $ 2,906,726 $ 290,051 $ 3,196,777 Other capital assets, at cost 10,685,662 70,396 $ (39,964) 10,716,094 Total cost of capital assets 13,592,388 360,447 (39,964) 13,912,871 Less accumulated depreciation (3,710,738) (482,486) 39,964 (4,153,260) Capital Assets, net $ 9,881,650 $ (122,039) $ 0 $ 9,759,611 NOTE 6: Long-Term Liabilities Debt payments on bonds amounted to $739,897 for the fiscal year ended June 30, 2003. The retirement of some bond issues is secured by a specific pledge of certain gross revenues, surplus revenues and specific fees. Debt service accounts are funded at various times during the year by transfers from applicable funds. A summary of long-term liabilities is as follows: Amount Debt Maturities Date of Final Rate of Authorized Outstanding To Date of Issue Maturity Interest and Issued June 30, 2003 June 30, 2003 1996 2018 3.9-6% $ 4,255,000 $ 3,520,000 $ 735,000 1998 2021 3.8-5.125% 3,985,000 3,390,000 595,000 2002 2008 2.05% 300,000 300,000 Totals $ 8,540,000 $ 7,210,000 $ 1,330,000 The changes in long-term liabilities are as follows: Amounts Balance Balance Due Within July 1, 2002 Additions Reductions June 30, 2003 One Year Bonds payable $ 7,165,000 $ 255,000 $ 6,910,000 $ 270,000 College savings bond loan 300,000 300,000 57,590 Compensated absences payable 131,985 $ 110,815 92,751 150,049 18,006 Totals $ 7,596,985 $ 110,815 $ 347,751 $ 7,360,049 $ 345,596-17 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 6: Long-Term Liabilities (Continued) Total long-term debt principal and interest payments are as follows: Year Ended June 30, Principal Interest Total 2004 $ 327,590 $ 370,311 $ 697,901 2005 338,770 356,243 695,013 2006 354,975 341,268 696,243 2007 366,205 325,431 691,636 2008 382,460 308,665 691,125 2009-2013 1,875,000 1,263,766 3,138,766 2014-2018 2,450,000 684,679 3,134,679 2019-2023 1,115,000 92,006 1,207,006 Totals $ 7,210,000 $ 3,742,369 $ 10,952,369 NOTE 7: Commitments The Institution was contractually obligated for the following at June 30, 2003: Construction Contracts Estimated Project Name Completion Date Contract Balance Distance Learning Center December 31, 2003 $ 557,709 NOTE 8: Retirement Plans The University of Arkansas Community College at Hope offers employees the option of participating in either the Optional Retirement Plan (ORP) which includes Teachers Insurance Annuity Association - College Retirement Equities Fund (TIAA-CREF) or Variable Annuity Life Insurance Company/American General Financial Group (VALIC/AGFG) or the Arkansas Public Employees Retirement System (APERS) or the Arkansas Teacher Retirement System (ATRS). The ORP is a defined contribution plan. The plan is a 403(b) program as defined by the Internal Revenue Service Code of 1986 as amended, and is administered by the President of the University or his delegate. Contributions to TIAA-CREF can be allocated to the TIAA fixed annuity account or to the various CREF variable annuity accounts, or both. Arkansas Code Annotated authorizes participation in the plan. The University contributes 10% to 12% of earnings as long as the employee contributes 6%. Contributions are allocated between TIAA and CREF according to the employee's choice. All benefits attributable to plan contributions made by both the University and the participant are vested in the participant. The University's and participants' TIAA/CREF contributions for the year ending June 30, 2003 were $37,041 and $21,581, respectively. - 18 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 8: Retirement Plans (Continued) VALIC/AGFG is a 403(b) program as defined by Internal Revenue Service Code of 1986 as amended, and is administered by the President of the University or his delegate. The University contributes 10% to 12% of earnings as long as the employee contributes 6%. Contributions are allocated between fixed and variable accounts according to the employee's choice. All benefits attributable to plan contributions made by both the University and the participant are vested in the participant. The University's and participants' VALIC/AGFG contributions for the year ending June 30, 2003 were $175,274 and $101,810, respectively. APERS is a cost sharing multiple employer defined benefit plan administered by the State of Arkansas. The University contributes 10% of applicable wages to the plan. Under certain conditions covered employees may voluntarily contribute 6% of his/her salary. The University's and participants' contributions for the year ended June 30, 2003 were $39,216 and $0, respectively. ATRS is a cost sharing multiple employer defined benefit pension plan. The University contributes 12% of all covered employee's salaries. Under certain conditions, covered employees may voluntarily contribute 6% of his/her salary. The University's and participant's contributions for the year ending June 30, 2003 were $96,466 and $36,268, respectively. NOTE 9: Natural Classifications With Functional Classifications The Institution s operating expenses by functional classifications were as follows: Scholarships Supplies Personal and and Services Fellowships Services Depreciation Total Instruction $ 2,295,492 $ 431,037 $ 2,726,529 Public service 98,172 27,827 125,999 Academic support 385,392 176,716 562,108 Student services 967,132 313,318 1,280,450 Institutional support 720,859 374,547 1,095,406 Scholarships and fellowships $ 1,695,690 1,695,690 Operations and maintenance of plant 500,833 434,963 935,796 Auxiliary enterprises 221 221 Depreciation $ 482,486 482,486 Total $ 4,967,880 $ 1,695,690 $ 1,758,629 $ 482,486 $ 8,904,685-19 -
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 NOTE 10: Related Organizations The Institution is one of 11 campuses of the University of Arkansas System. The financial statements do not include assets, liabilities, fund balances, and changes in fund balances, relating to the University of Arkansas Community College at Hope Foundation, Inc. The Institution operates as a nonprofit benevolent corporation for charitable educational purposes. A summary of the Foundation's financial condition as of June 30, 2003, follows: ASSETS Cash and investments $ 214,673 Physical properties 85,000 Other 583 TOTAL ASSETS $ 300,256 FUND BALANCES $ 300,256 Major components of the changes in fund balances during 2003 consisted of: Donations $ 116,989 Other revenue and additions 11,058 Total 128,047 Expenditures 25,744 Other Deductions 158,583 Total 184,327 Net Increase/(Decrease) in Fund Balance $ (56,280) NOTE 11: Disaggregation of Receivable and Payable Balances Accounts receivable from students were $1,038,185 at June 30, 2003. This amount was reduced by an allowance for doubtful accounts of $195,819. Other receivables of $89,955 at June 30, 2003 consisted of reimbursements of $46,681 from federal and state agencies for grants and $41,276 for miscellaneous charges. The accounts payable and accrued liabilities of $115,334 at June 30, 2003 consisted of $6,631 due to vendors and accrued bond interest of $108,703. - 20 -