FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. FORT VALLEY, GEORGIA CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2017 AND 2016 AND INDEPENDENT AUDITOR S REPORT
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONTENTS Independent Auditor s Report... 1 Consolidated Financial Statements Consolidated Statements of Financial Position... 3 Consolidated Statements of Activities... 4 Consolidated Statements of Cash Flows... 5 Notes to Consolidated Financial Statements... 6 Other Financial Information Schedule of Expenditures of Federal Awards... 24 Notes to Schedule of Expenditures of Federal Awards... 25 Independent Auditor s 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... 26 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance... 28 Schedule of Prior Audit Findings... 30 Schedule of Findings and Questioned Costs... 31
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC CERTIFIED PUBLIC ACCOUNTANTS 388 Mulberry Street Post Office Box One Macon, GA 31202 Telephone (478) 746-6277 Facsimile (478) 741-1129 mmmcpa.com October 25, 2017 INDEPENDENT AUDITOR S REPORT Board of Directors Fort Valley State University Foundation, Inc. Report on the Financial Statements We have audited the accompanying consolidated financial statements of Fort Valley State University Foundation, Inc. and Subsidiaries (the Foundation) (a nonprofit organization), which comprise the consolidated statements of financial position as of June 30, 2017 and 2016, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 preparation and fair presentation of consolidated 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 consolidated financial statements based on our audits. We conducted our audits 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Foundation s preparation and fair presentation of the consolidated 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 Foundation 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. - 1 -
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Fort Valley State University Foundation, Inc. and Subsidiaries as of June 30, 2017 and 2016, and the changes in its net assets and cash flows for the years then 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 consolidated 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 (Uniform Guidance), is presented for purposes of additional analysis and is not a required part of the consolidated 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 consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated 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 consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 25, 2017 on our consideration of the Foundation s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is soley 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 effectiveness of the Foundation s 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 the Foundation s internal control over financial reporting and compliance. McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC - 2 -
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30 2017 2016 Assets Cash and Cash Equivalents $ 2,473,349 $ 2,285,819 Mortgage Loans 378 6,369 Contributions Receivable 18,202 36,404 Loans Receivable 10,000 4,500 Investments 7,795,585 6,934,490 Assets Limited as to Use 3,338,470 7,022,670 Leases Receivable 19,077,378 56,740,105 Investments in Real and Other Property 1,333,059 1,120,788 Bond Issuance Costs - 917,577 Total Assets $ 34,046,421 $ 75,068,722 Liabilities Due to Fort Valley State University $ 763,674 $ 1,283,451 Accounts Payable - Repairs - 827,000 Accrued Interest 185,489 347,450 Notes Payable 489,402 544,978 Revenue Bonds Payable 19,077,378 60,930,940 Total Liabilities 20,515,943 63,933,819 Net Assets Unrestricted 3,500,007 2,137,775 Temporarily Restricted 5,981,606 5,039,904 Permanently Restricted 4,048,865 3,957,224 Total Net Assets 13,530,478 11,134,903 Total Liabilities and Net Assets $ 34,046,421 $ 75,068,722 See accompanying notes which are an integral part of these financial statements. - 3 -
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED JUNE 30 2017 2016 Temporarily Permanently Temporarily Permanently Unrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Contributions $ 384,023 $ 903,865 $ 91,641 $ 1,379,529 $ 83,490 $ 1,003,238 $ 39,438 $ 1,126,166 Lease Revenue 1,204,121 - - 1,204,121 3,418,528 - - 3,418,528 Investment Income, Net 1,378,943 645,167-2,024,110 119,278 (118,355) - 923 Net Assets Released from Restrictions 607,330 (607,330) - - 976,310 (976,310) - - 3,574,417 941,702 91,641 4,607,760 4,597,606 (91,427) 39,438 4,545,617 Expenses Program Services Program Grants 366,816 - - 366,816 679,997 - - 679,997 Student Housing 1,430,640 - - 1,430,640 3,645,544 - - 3,645,544 Supporting Services Management and General 414,729 - - 414,729 518,787 - - 518,787 2,212,185 - - 2,212,185 4,844,328 - - 4,844,328 Change in Net Assets 1,362,232 941,702 91,641 2,395,575 (246,722) (91,427) 39,438 (298,711) Net Assets, Beginning 2,137,775 5,039,904 3,957,224 11,134,903 2,384,497 5,131,331 3,917,786 11,433,614 Net Assets, Ending $ 3,500,007 $ 5,981,606 $ 4,048,865 $ 13,530,478 $ 2,137,775 $ 5,039,904 $ 3,957,224 $ 11,134,903 See accompanying notes which are an integral part of these financial statements. - 4 -
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30 2017 2016 Cash Flows From Operating Activities Change in Net Assets $ 2,395,575 $ (298,711) Adjustments to Reconcile Change in Net Assets to Net Cash Provided (Used) by Operating Activities Depreciation and Amortization 25,005 116,019 Amortization of Unearned Income 367,723 80,598 Provision for Bad Debts (8,914) (8,505) Net Realized and Unrealized Gains on Investments (626,005) (28,449) Loss on Sale of Property - 13,810 Gain on Termination of Lease (1,235,577) - Forgiveness of Debt - Fort Valley State University (486,007) - Noncash Contribution (116,512) Contributions Restricted for Long-Term Investments (91,641) (39,438) Change in Operating Assets and Liabilities Contributions Receivable 18,202 130,000 Other Assets 14,905 397,246 Accounts Payable and Other Liabilities (1,022,731) 862,377 (765,977) 1,224,947 Cash Flows From Investing Activities Net Change in Investments (235,090) 410,297 Disbursement of Loans (22,407) (19,402) Repayment of Loans 16,907 33,158 Lease Termination 39,942,320 - Property Purchases (143,489) - Sale of Property - 294,667 Change in Assets Limited as to Use 3,684,201 (437,986) 43,242,442 280,734 Cash Flows From Financing Activities Contributions Restricted for Long-Term Investments 91,641 39,438 Repayment of Principal on Notes Payable (55,576) (310,255) Payment of Bond Principal (42,325,000) (770,000) (42,288,935) (1,040,817) Net Increase in Cash and Cash Equivalents 187,530 464,864 Cash and Cash Equivalents, Beginning 2,285,819 1,820,955 Cash and Cash Equivalents, Ending $ 2,473,349 $ 2,285,819 See accompanying notes which are an integral part of these financial statements. - 5 -
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Nature of Organization and Significant Accounting Policies Organization Fort Valley State University Foundation, Inc. (the Foundation) was organized in 1972, in the state of Georgia, as a not-for-profit corporation to encourage, solicit, receive and administer gifts and bequests of property and funds for scientific, educational and charitable purposes for the advancement of Fort Valley State University (the University). The Fort Valley State University Foundation Property, LLC (Student Housing), a wholly-owned subsidiary of the Foundation, was formed as a single member limited liability company in 2006 to serve as the holder of certain buildings and personal property of the Student Housing project, which are leased to the University System of Georgia Board of Regents (Board of Regents). Student Housing is included in the consolidated financial statements of the Foundation and all material intercompany accounts and transactions have been eliminated. In October 2016, Student Housing sold certain buildings and personal property to USG Real Estate Foundation IV, LLC. This transaction effectively terminated the lease agreement with the Board of Regents (see Note 11). The FVSU Wildcat Commons III, LLC (Wildcat Commons), a wholly-owned subsidiary of the Foundation, was formed as a single member limited liability company in 2008 to serve as the holder of certain buildings and personal property of the Wildcat Commons project, which are leased to the Board of Regents. Wildcat Commons is included in the consolidated financial statements of the Foundation and all material intercompany accounts and transactions have been eliminated. Basis of Accounting The consolidated financial statements of the Foundation have been prepared on the accrual basis of accounting where support is recognized when earned, and costs and expenses are recognized when incurred. Financial statements of private, not-for-profit organizations measure aggregate net assets based on the absence or existence of donor-imposed restrictions. Three categories of net assets serve as the foundation of the accompanying consolidated financial statements. These classes are labeled unrestricted, temporarily restricted and permanently restricted net assets. The following are brief definitions of the three net asset classes: Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Foundation and/or the passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. - 6 -
(1) Nature of Organization and Significant Accounting Policies (Continued) Basis of Accounting (Continued) Permanently Restricted Net Assets Net assets subject to donor-imposed stipulations that they be maintained permanently by the Foundation. Generally, the donors of these assets permit the Foundation to use all or part of the income earned on any related investments for general or specific purposes. Use of Estimates The Foundation prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in conformity with U.S. GAAP 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of cash held in checking and money market accounts excluding assets limited as to use. At year-end and throughout the year, the Foundation s cash balances were deposited in several banks and investment companies. Management believes the Foundation is not exposed to any significant credit risk on cash and cash equivalents. Substantially all cash and cash equivalents are temporarily or permanently restricted. Excluded are amounts for specific purposes (assets limited as to use) or amounts which are included in the Foundation s long-term investment strategies. Investments Investments in equity securities with readily determinable fair values and all investments in debt securities, including assets limited as to use, are measured at fair value in the consolidated statements of financial position. Short-term, highly liquid investments are treated as investments rather than cash equivalents. The net realized and unrealized appreciation (depreciation) in market value of investments is included in the consolidated statements of activities. Investment securities are exposed to various risks, such as interest rate risk, market risk and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect the amounts reported in the accompanying consolidated financial statements. - 7 -
(1) Nature of Organization and Significant Accounting Policies (Continued) Investments in Real and Other Property Investments in real property include land, buildings, furniture, fixtures and equipment. These investments are recorded at net realizable value at date of donation or amortized cost. Depreciation is computed on a straight-line basis over the estimated useful lives of buildings and systems (10-30 years) and equipment and furniture (3-7 years). Mortgage Loans and Loans Receivable Mortgage loans and loans receivable are stated at the amount of unpaid principal, adjusted for unearned discounts and fees and origination costs, less an allowance for loan losses. The allowance for loan losses is increased through a provision for loan losses charged to income, and decreased by charge-offs, net of recoveries, when management determines that collectibility of all amounts when due is unlikely. The allowance is based on management s estimate of the amount necessary to absorb losses on existing loans. Management s estimate is based on a review of specific loans and, for smaller balance homogeneous loans, on the Foundation s past loan loss experience, known and inherent risks in the entire loan portfolio, overall portfolio quality, estimated fair value of any underlying collateral, and current economic conditions that may affect the borrower s ability to repay. For those loans that are separately evaluated for collectibility, when management determines that it is probable that principal and interest on those loans will not be collected according to their contractual terms, the impairment of those loans is recognized in the allowance account based on the present value of expected future cash flows discounted at the loans effective rate, except for those loans where foreclosure is probable, on which impairment is based on the fair value of the collateral. Cash collections on loans that are impaired are credited to the loans receivable balance, and no interest income is recognized on those loans until the principal balance has been collected. Assets Limited as to Use Assets limited as to use primarily include assets held by trustees under indenture agreements. Contributions Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support depending on the existence and/or nature of any donor restrictions. Contributions, including unconditional promises to give, are recorded as made. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are reported at the present value of their realizable value. Amortization of the discounts is included in contribution revenue. An allowance for uncollectible contributions receivable is provided based upon management s judgment, including such factors as prior collection history, type of contribution and nature of fund-raising activity. Advertising Costs Costs of advertising are expensed as incurred. - 8 -
(1) Nature of Organization and Significant Accounting Policies (Continued) Functional Expenses The costs of providing various programs and activities have been summarized on a functional basis in the consolidated statements of activities. Costs are charged directly to program or management expense based on specific identification. Income Taxes The Foundation qualifies as a tax-exempt organization as described in Internal Revenue Code Section 501(c)(3) and has been classified by the Internal Revenue Service as a publicly supported organization and not as a private foundation. However, income from certain activities not directly related to the Foundation s tax-exempt purpose is subject to taxation as unrelated business income. In the opinion of management, the Foundation had no significant unrelated business taxable income during fiscal years 2017 or 2016. Additionally, in the opinion of management, the activities of the subsidiaries are not subject to unrelated business taxable income. The Foundation does not have any material unrecognized tax positions that should be recognized in the consolidated financial statements. Accordingly, no provision or benefit for federal and state income taxes has been recorded in the accompanying consolidated financial statements. The Foundation is subject to routine audits by taxing jurisdictions; however, there are no audits for any periods in progress. The Foundation believes it is no longer subject to income tax examinations for years prior to 2014. Student Housing and Wildcat Commons, the subsidiaries, are treated as disregarded entities for federal and state income tax purposes and are included in the Foundation s annual filing. Net Assets Released from Restrictions Reclassification of net assets is based upon the satisfaction of the purpose for which the net assets were restricted or the completion of a time stipulation. Restricted contributions and net investment income earned are reported as temporarily restricted support and reclassified to unrestricted when any donorimposed restrictions are satisfied. Restricted net assets associated with physical capital assets are released from their temporary restrictions and reclassified as unrestricted support when spent. All expenses are recorded as a reduction of unrestricted net assets. Recently Issued Accounting Pronouncements Not Yet Adopted In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2015-07 removes the requirement to include all investments in the fair value hierarchy for which the fair value is measured at net asset value (NAV) per share using the practical expedient, under Fair Value Measurements and Disclosures (Topic 820). ASU 2015-07 is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Foundation is currently evaluating the impact the adoption of this guidance will have on its financial statements. In August 2016, FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The objective of this statement is to improve the current net asset classification requirements and information presented in financial statements and notes about an entity s liquidity, financial performance and cash flows. The statement is effective for fiscal years beginning after December 15, 2017. - 9 -
(2) Mortgage Loans 2017 2016 Mortgage Loans Receivable, with Interest from 2.75% to 9.25%; Due in Monthly Installments to 2020; Secured by Property, Inventories, Equipment and Assignment of Life Insurance. $ 219,389 $ 234,294 Allowance for Loan Losses (219,011) (227,925) $ 378 $ 6,369 If scheduled payments were made the loans would have maturities as follows: $36,291 in 2018, $33,751 in 2019 and $149,347 in 2020. (3) Contributions Receivable Contributions as of June 30 are expected to be realized in the following periods: 2017 2016 In One Year or Less $ 6,250 $ 12,500 Between One Year and Five Years 13,048 25,000 Over Five Years - - 19,298 37,500 Discount to Present Value (6%) (1,096) (1,096) $ 18,202 $ 36,404 Contributions receivable are intended for the following purposes: 2017 2016 Scholarships $ 18,202 $ 36,404 Operating Programs - - $ 18,202 $ 36,404-10 -
(4) Investments Investments are composed of the following as of June 30: 2017 2016 Money Market Accounts $ 586,265 $ 491,902 Certificates of Deposit 924,728 923,947 U.S. Government Obligations 343,141 308,308 Bonds 136,928 142,455 Mutual, Exchange Traded and Index Funds 4,800,248 4,152,990 Stocks 963,586 872,624 Cash Surrender Value of Life Insurance 40,689 42,264 Total Fair Value $ 7,795,585 $ 6,934,490 Net investment income (loss) including assets limited as to use consist of the following for the years ended June 30: 2017 2016 Dividends and Interest $ 105,440 $ 128,540 Amortization of Unearned Income (367,723) (80,598) Rental Income, Net 24,305 26,786 Net Realized and Unrealized Gains 626,005 28,449 Loss on Sale of Property - (13,810) Gain on Lease Termination 1,235,577 - Gain on Debt Forgiveness 486,007 - Investment Expense (85,501) (88,444) $ 2,024,110 $ 923-11 -
(5) Assets Limited as to Use The composition of assets limited as to use as of June 30 follows: Student Housing (Series 2006) 2017 2016 Repairs and Replacement Fund Government Money Market $ 336,231 $ 1,076,273 Debt Service Reserve Fund FNMA - 3,800,909 Government Money Market 1,679,223 410,364 Administrative Fee Fund Government Money Market 104,394 184,192 Nonconstruction Fund Cash 6,252 6,246 Bond Fund Government Money Market 7 246,385 Wildcat Commons (Series 2013) 2,126,107 5,724,369 Debt Service Reserve Fund Government Money Market 641,938 641,938 Bond Fund Government Money Market 182,262 182,262 Administrative Fee (Cost) Account Government Money Market 157,689 141,183 Repairs and Replacement Government Money Market 230,474 332,918 1,212,363 1,298,301 $ 3,338,470 $ 7,022,670-12 -
(6) Endowment The Foundation s endowment includes both donor-restricted funds and funds designated by the board of directors to function as endowments. As required by U.S. GAAP, net assets associated with endowment funds, including funds designated by the board of directors to function as endowments, are classified and reported based upon the existence or absence of donor-imposed restrictions. In approving endowment spending and related policies, as part of the prudent and diligent discharge of its duties, the board of directors of the Foundation, as authorized by Georgia state law, has relied upon the actions, reports, information, advice and counsel taken or provided by its duly constituted committees and the duly appointed officers of the Foundation, and in doing so has elected to value donor-restricted endowment funds based on historic value, absent explicit direction to the contrary. As a result of this interpretation, for accounting and financial statement purposes, the Foundation classifies as permanently restricted net assets the historic dollar value of assets held as donor-restricted endowment, including any subsequent gifts and any accumulations to donor-restricted endowments made in accordance with the direction of the applicable gift instrument. The portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified for accounting and financial statement purposes in accordance with requirements of the FASB and the law. Endowment net asset composition by type of fund as of June 30 follows: 2017 Unrestricted Temporarily Restricted Permanently Restricted Total Donor-Restricted Endowment $ (117,896) $ 3,337,430 $ 4,048,865 $ 7,268,399 Funds Functioning as Endowment - - - - 2016 Donor-Restricted Endowment $ (163,140) $ 2,634,408 $ 3,957,224 $ 6,428,492 Funds Functioning as Endowment - - - - - 13 -
(6) Endowment (Continued) Changes in endowment net assets for the fiscal years ended June 30 follows: 2017 Unrestricted Temporarily Restricted Permanently Restricted Total Endowment Net Assets, Beginning $ (163,140) $ 2,634,408 $ 3,957,224 $ 6,428,492 Investment Return Investment Income - 21,979-21,979 Net Gain (Realized and Unrealized) 45,244 580,761-626,005 Contributions - 100,282 91,641 191,923 Appropriation of Endowment Assets for Expenditure - - - - Endowment Net Assets, Ending $ (117,896) $ 3,337,430 $ 4,048,865 $ 7,268,399 2016 Endowment Net Assets, Beginning $ (1,784) $ 2,881,716 $ 3,917,786 $ 6,797,718 Investment Return Investment Income - 39,957-39,957 Net Gain (Realized and Unrealized) - (158,557) - (158,557) Contributions - - 39,438 39,438 Appropriation of Endowment Assets for Expenditure (161,356) (128,708) - (290,064) Endowment Net Assets, Ending $ (163,140) $ 2,634,408 $ 3,957,224 $ 6,428,492 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level of historic value. In accordance with U.S. GAAP, deficiencies of this nature that are reported in unrestricted net assets were $117,896 and $163,140 as of June 30, 2017 and 2016, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred after the original investment and continued appropriation for certain programs that was deemed prudent by the board of directors. The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period as well as board-designated funds. Endowment assets are invested to achieve a long-term rate of return in excess of the spending policy rate, plus the rate of inflation, and after deducting for fees and other investment costs. Results are measured against performance benchmarks of similarly managed funds. - 14 -
(6) Endowment (Continued) To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). (7) Fair Value Measurements FASB issued a statement that defines fair value and establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Level 2 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; and Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset s and liability s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following are descriptions of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at June 30, 2017 and 2016. Money Market and Certificates of Deposit - The carrying amounts reported on the consolidated statements of financial position approximate fair value because of the short maturities of those instruments. U.S. Government and Agencies Obligations and Corporate Bonds - Valued using quoted market prices of recent transactions or are benchmarked to transactions of similar securities. Common Stocks - Valued at the closing price reported on the active market on which the individual securities are traded. Mutual, Exchange Traded and Index Funds - Valued at the net asset value of shares held at year-end. Cash Surrender Value - Valued at policies cash value. - 15 -
(7) Fair Value Measurements (Continued) The methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth by level, within the fair value hierarchy, the Foundation s financial instruments as of June 30: 2017 Level 1 Level 2 Level 3 Total Money Market and Certificates of Deposit $ 1,510,993 $ - $ - $ 1,510,993 U.S. Government and Agencies Obligations 3,338,470 343,141-3,681,611 Corporate Bonds - 136,928-136,928 Common Stocks 963,586 - - 963,586 Mutual, Exchange Traded and Index Funds Fixed Income 1,022,080 - - 1,022,080 Large Cap Growth/Blend/Value 2,558,022 - - 2,558,022 Mid Cap Growth/Blend/Value 430,964 - - 430,964 Small Cap Growth/Blend/Value 160,131 - - 160,131 International Equity 617,495 - - 617,495 Commodities 8,231 - - 8,231 Real Estate 3,325 - - 3,325 Cash Surrender Value - 40,689-40,689 $ 10,613,297 $ 520,758 $ - $ 11,134,055-16 -
(7) Fair Value Measurements (Continued) 2016 Level 1 Level 2 Level 3 Total Money Market and Certificates of Deposit $ 1,415,849 $ - $ - $ 1,415,849 U.S. Government and Agencies Obligations 7,022,670 308,308-7,330,978 Corporate Bonds - 142,455-142,455 Common Stocks 872,624 - - 872,624 Mutual, Exchange Traded and Index Funds Fixed Income 991,861 - - 991,861 Large Cap Growth/Blend/Value 2,088,985 - - 2,088,985 Mid Cap Growth/Blend/Value 327,007 - - 327,007 Small Cap Growth/Blend/Value 185,039 - - 185,039 International Equity 548,894 - - 548,894 Commodities 7,460 - - 7,460 Real Estate 3,744 - - 3,744 Cash Surrender Value - 42,264-42,264 $ 13,464,133 $ 493,027 $ - $ 13,957,160 The Foundation recognizes transfers of assets into and out of fair value hierarchy levels as of the date an event or change in circumstances causes the transfer. There were no transfers among levels in the years ended June 30, 2017 and 2016. (8) Leases Receivable Wildcat Commons In support of the University, the Foundation borrowed funds and constructed and placed into service Wildcat Commons (see Note 11) in 2010. It then leased the facility to the Board of Regents under an annual lease that expires on June 30 of each year, but is renewable on a year-by-year basis at the option of the Board of Regents until 2038. Under the terms of the lease, payments are used to retire the debt incurred by the Foundation and provide for a capital replacement reserve. The Board of Regents failure to exercise its options through 2038 has been determined to be remote and thus, a lease receivable has been recorded totaling $19,077,378 and $19,445,100 as of June 30, 2017 and 2016, respectively. The debt outstanding on the Series 2013 Bonds totaled $19,215,000 and $19,560,000 as of June 30, 2017 and 2016, respectively. The annual lease payments, including payments to the repairs and replacement fund totaled $1,204,121 and $1,174,980 for the fiscal years 2017 and 2016, respectively. - 17 -
(8) Leases Receivable (Continued) Wildcat Commons (Continued) The Foundation leases from the Board of Regents the land on which Wildcat Commons is located under a 30-year lease, expiring 2038. Upon full payment of the debt incurred by the Foundation to construct Wildcat Commons, the ground lease terminates and Wildcat Commons will be transferred to the Board of Regents by the Foundation. The following represents anticipated future lease payments to be received on the capital lease for the subsequent five years: Fiscal Year Amount 2018 $ 1,153,521 2019 1,184,260 2020 1,223,233 2021 1,240,041 2022 1,275,686 (9) Investments in Real and Other Property The classification of these assets as of June 30 follows: 2017 2016 Land $ 300,267 $ 300,267 Buildings and Improvements 1,603,547 1,343,547 Rehabilitation Projects 40,000 40,000 Furniture and Fixtures 70,906 70,906 2,014,720 1,754,720 Accumulated Depreciation (681,661) (633,932) $ 1,333,059 $ 1,120,788 Depreciation expense for the years ended June 30, 2017 and 2016 was $47,728, respectively. - 18 -
(10) Notes Payable 2017 2016 Note Payable to Bank, Interest at 4.5%, Due April 2017 Unsecured. $ - $ 21,450 Note Payable to the Department of Agriculture, Rural Business- Cooperative Services of $1,000,000, Due in Annual Installments of $22,933, with Interest at 1%, Through December 2027, Collateralized by Real and Personal Property Including Mortgage Loans. Note Payable to the Department of Agriculture, Rural Business- Cooperative Services of $394,787, Due in Annual Installments of $19,434, with Interest at 1%, Through August 2031, Collateralized by Real and Personal Property Including Mortgage Loans. 236,740 254,125 252,662 269,403 $ 489,402 $ 544,978 The aggregate maturities of notes payable are as follows: Fiscal Year Amount 2018 $ 253,635 2019 17,065 2020 17,237 2021 17,410 2022 17,585 Thereafter 166,470 $ 489,402 All interest incurred on the above debt during the years ended June 30, 2017 and 2016 was charged to operations. Interest payments for 2017 and 2016 were $4,344 and $19,208, respectively. In December 2015, the Foundation failed to make its annual payment on the note payable to the Department of Agriculture. The Department of Agriculture notified the Foundation of a preemptive default due to nonpayment on the $1,000,000 note payable. - 19 -
(11) Revenue Bonds Payable Revenue bonds payable as of June 30 consist of the following: Maturity Original Outstanding as of June 30 Interest Rate (Serially) Issue 2017 2016 Student Housing Bonds Series 2006 4.0% - 5.0% 2037 $ 44,060,000 $ - $ 41,980,000 Wildcat Commons Bonds Series 2013 2.0% - 5.0% 2038 20,490,000 19,215,000 19,560,000 Total Revenue Bonds Payable, Gross 19,215,000 61,540,000 Unamortized Premium 124,594 165,828 Unamortized Discount (262,216) (774,888) Total Revenue Bonds Payable, Net $ 19,077,378 $ 60,930,940 Student Housing Bonds On June 1, 2006, Student Housing entered into a loan agreement with the Development Authority of Peach County (the Authority) whereby the Authority would issue certain bonds (June 29, 2006) totaling $44,060,000 and loan the entire proceeds to Student Housing. As part of the loan agreement, Student Housing agreed to use the bond proceeds to: (1) finance the construction, equipping and installation of certain buildings and personal property to be used as student housing facilities, related parking, a student amenities building, relocation of an existing softball field and infrastructure improvements located on the Fort Valley State University campus; (2) establish a debt service reserve fund for the Series 2006 Bonds; (3) fund capitalized interest for the Series 2006 Bonds; and (4) pay cost of issuance of the Series 2006 Bonds, including the insurance policy premium. The principal and interest are payable solely from and secured by a lien upon certain interest in real property and certain assignments of rental income originating from a rental agreement between Student Housing and the Board of Regents of the University System. The rental agreement is for an initial one-year term (annual renewals for 30 years). The bonds are subject to certain optional and extraordinary mandatory redemption provisions. Additionally, the trust indenture requires the maintenance of certain deposits with a trustee, which are included in assets limited as to use. Interest paid in 2017 and 2016 totaled $777,546 and $1,923,000, respectively. Interest expense for 2017 and 2016 totaled $618,863 and $1,921,000, respectively, and was allocated to program services, student housing. In October 2016, Student Housing sold certain buildings and personal property to USG Real Estate Foundation IV, LLC. This transaction effectively terminated the lease agreement with the Board of Regents, which resulted in a gain on the termination of lease of $1,235,577. The related bond issuance costs were expensed. - 20 -
(11) Revenue Bonds Payable (Continued) Wildcat Commons Bonds During June 2008, the Series 2008 Bonds were issued to provide funds to finance the costs of construction of student housing and parking facilities on the University campus. During December 2010, the Series 2008 Bonds were reissued with an amended swap agreement. Based upon the amended swap agreement, Wildcat Commons will pay a fixed rate of 4.075 percent to the swap provider in exchange for the swap provider s payment of a floating rate. In addition, during May 2013, the Series 2013 Bonds were issued to (a) refund all of the outstanding Series 2008 Bonds, (b) pay a termination payment for an interest rate hedge related to the Series 2008 Bonds, (c) fund a debt service reserve fund for the Series 2013 Bonds and (d) pay the costs of issuing the Series 2013 Bonds (see Note 8). The Series 2013 Bonds were issued with a bond premium of $321,469 and a bond discount of $337,803. The bond premium and discount are being amortized and had a balance of $124,594 and $262,216, respectively, as of June 30, 2016. Interest paid in 2017 and 2016 totaled $737,300 and $747,000, respectively. Interest expense for 2017 and 2016 totaled $737,300 and $744,000, respectively, and was allocated to program services, student housing. The following represents the mandatory principal redemptions on revenue bonds payable until maturity: Wildcat Commons Bonds Fiscal Year Series 2013 2018 $ 385,000 2019 430,000 2020 485,000 2021 520,000 2022 570,000 Thereafter 16,825,000 $ 19,215,000 (12) Endowment Challenge Grant The Foundation was awarded various endowment challenge grants from 1985 to 2001 from the U.S. Department of Education. Pursuant to the grants, the Foundation matched funds (50 percent to 100 percent). During the grant periods (10 to 20 years), the Foundation cannot spend or withdraw any part of the endowment corpus, neither the federal nor Foundation matching amount. At the end of the grant periods, the Foundation may use the endowment for any educational purpose. As of June 30, 2008, the U.S. Department of Education released the 1985 and 1986 Endowment Challenge Grants. The Foundation may withdraw and spend up to 50 percent of the total aggregate endowment income earned prior to the date of expenditure. The Foundation withdrew $0 in 2017 and 2016. - 21 -
(13) Program Grants All program grants were to the University for scholarships and educational purposes. (14) Concentrations of Credit Risk Financial instruments which potentially subject the Foundation to concentrations of credit risk include marketable debt securities. The Foundation places its temporary cash investments with creditworthy, high quality financial institutions. The Foundation holds notes issued by the United States government. By policy, these investments are kept within limits designed to prevent risks caused by concentration. (15) Restrictions on Net Assets Temporarily restricted net assets as of June 30 are available in the subsequent years for educational purposes. Permanently restricted net assets are to provide a permanent endowment with investment income expendable to support the University and Foundation. Net assets were released from donor restrictions by incurring expenses satisfying the purposes specified by the donors. (16) Related Parties Principally all activities (program grants) of the Foundation are for the benefit of the University. See also Notes 8 and 11. One member of the Authority is also a board member of the Foundation. (17) Contingencies Litigation The Foundation is subject to claims and suits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such legal proceedings will not have a material adverse effect on the Foundation s financial position or results of operations. Federal Programs Federal programs are subject to audit. Such audits could result in claims against the resources of the Foundation. No provision has been made for any liabilities which may arise from such audits since the amounts, if any, cannot be determined at this date. - 22 -
(18) Subsequent Events In preparing the consolidated financial statements, the Foundation has evaluated events and transactions for potential recognition or disclosure through October 25, 2017, the date the consolidated financial statements were available to be issued. - 23 -
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Federal Expenditures Major Programs Department of Education Endowment Challenge Grants 84.031G $ 500,000 Endowment Challenge Grant for Strengthening HBCU 84.031B 309,159 U.S. Department of Agriculture Intermediary Relending Program Rural Development Loan Fund 10.767 523,529 Total Federal Awards $ 1,298,561 See accompanying notes to schedule of expenditures of federal awards. - 24 -
FORT VALLEY STATE UNIVERSITY FOUNDATION, INC. NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2017 (1) Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Foundation for the year ended June 30, 2017. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the schedule presents only a selected portion of the operations of the Foundation, it is not intended to and does not present the consolidated financial position, changes in net assets or cash flows of Fort Valley State University Foundation, Inc. and Subsidiaries. (2) Summary of Significant Accounting Policies Expenditures reported on the schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, where certain types of expenditures are not allowable or are limited as to reimbursement. The Foundation has elected to use the 10 percent de minims indirect cost as allowed under the Uniform Guidance. (3) Endowment Challenge Grant Program The Foundation was awarded various endowment challenge grants from 1985 to 2001 from the U.S. Department of Education. Pursuant to the grants, the Foundation matched funds (50 percent to 100 percent). During the grant periods (10 to 20 years), the Foundation cannot spend or withdraw any part of the endowment corpus, neither the federal nor Foundation matching amount. At the end of the grant periods, the Foundation may use the endowment for any educational purpose. The U.S. Department of Education has released the 1985 and 1986 Endowment Challenge grants. The Foundation may use up to 50 percent of the total aggregate endowment income earned, less prior withdrawals. The Foundation made no withdrawals during the year ended June 30, 2017. (4) Intermediary Relending Program Rural Development Loan Fund The Foundation was approved for a $1,000,000 and a $394,787 loan from the U.S. Department of Agriculture, Rural Business-Cooperative Services. Loans are to be used solely for activities set forth in the Intermediary Relending Program. As of June 30, 2017, the Foundation owed $489,402 to the Program. - 25 -
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC CERTIFIED PUBLIC ACCOUNTANTS 389 Mulberry Street Post Office Box One Macon, GA 31202 Telephone (478) 746-6277 Facsimile (478) 741-1129 mmmcpa.com October 25, 2017 INDEPENDENT AUDITOR S 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 Board of Directors Fort Valley State University Foundation, Inc. We have audited, in accordance with the 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, the consolidated financial statements of Fort Valley State University Foundation, Inc. and Subsidiaries (the Foundation) (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2017, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated October 25, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the Foundation s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control. Accordingly, we do not express an opinion on the effectiveness of the Foundation s internal control. 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 Foundation s consolidated financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a 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 that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. - 26 -