Annual Report 2011
Purpose of the Fund The (TCAF) helps ensure that students who are enrolled in approved programs and are impacted by the premature closing of a participating private career college (PCC) have the ability to either complete their training at no additional cost to them or receive a refund for their tuition fees if no training completion option is available. Registered PCCs are required to post a financial security in the amount of 25% of the highest monthly prepaid unearned revenue account balance collected by a PCC in a given fiscal year. The minimum financial security required is $10,000. There are two exceptions to the above requirement. PCCs with annual revenues of $25 million or greater must provide financial security in the amount of $3 million. Registered charities are exempt from the financial security requirement. The fund is administered by the government and supported by mandatory premiums paid by private career colleges. It is authorized by the Private Career Colleges Act, 2005, legislation that protects students and strengthens the quality of education at private career colleges. Students affected by a sudden closure make claims to the Training Completion Assurance Fund and receive financial support to complete their training at another institution or a partial or full refund of the fees they paid. 2
TCAF Advisory Board Mandate The Board s mandate is to provide advice to the Superintendent of Private Career Colleges (PCCs) on the administration of the TCAF, including: The financial administration of the fund (e.g., setting premium and levy amounts); The retention of experts (e.g., actuaries, auditors); The criteria to be used in assessing a PCC s financial viability; General guidelines for responding to PCC closures. Composition of the Board Appointed members include diverse representation from the PCC sector, current and/or former PCC students, those without an affiliation to a PCC and an actuary. Board members are expected to be committed to ensuring a high-quality experience for PCC students, including protection in the event that an institution closes. The majority of Board members are drawn from the PCC sector. The Minister identifies one member as Board Chair and another member as Board Vice- Chair. Meetings The Board has an annual meeting and a minimum of three other quarterly meetings. The Board also meets, in person or via teleconference, to develop responses to PCC closures as they occur. Quorum A majority of members, excluding the Superintendent, constitutes a quorum. Reimbursement of expenses Board members positions are voluntary. Board members are eligible for reimbursement out of the Fund for reasonable expenses. 3
Board Member Bios Hartley Nichol, Chair (until September 2011), is the Chair of the Governing Board of Yorkville University and RCC Institute of Technology. Mr. Nichol has been a leader in the Private Career Colleges Sector for over 35 years. He was the founding president of the Private Career Education Council (PCEC renamed OACC - Ontario Association of Private Career Colleges). With both OACC and the National Association of Career Colleges (NACC) he has held executive positions and chaired many committees - most recently the National Advisory Group on Student Financial Assistance Committee and the PCC Sectoral Analysis Committee. Kim Rudd, Vice-Chair, (until September 2011) is Owner and President of Willis College, Cobourg and past Executive Director of the Association of Private Colleges. She is also the past Executive Director of the Association of Private Colleges. In 2005 2007, Kim was the President of Northumberland Central Chamber of Commerce, and prior to this served as the Chair of its Business Relations Committee. Kim served as the OACC Vice President, OACC Board member, Chair of a Human Resources Social Development Canada Committee, a member of the MTCU Key Performance Indicators Working Group. Stephen Bartolini has been working in the private education sector for over 25 years. He was a school Director for the Berlitz Schools of Languages for five years, working in both Calgary and Vancouver. In 1984 he joined the International Academy of Merchandising and Design, a large private career college where he held a number of positions and in 1988 he was promoted to Executive Director. In 1998 the Academy was acquired by Career Education Corporation (CEC). Mr. Bartolini became President and shortly after was made a Managing Director for one of CEC's divisions with a responsibility for four campuses. During his tenure he continued in this role overseeing the growth and expansion of the Academy up until it closed in 2008. At the time it had approximately 2,000 students in 14 programs making it one of the largest private colleges in the country. In 2009 Mr Bartolini acquired Kingston Learning Centre which had been operating since 1983. Under the new name of KLC College: Healthcare, Business, Education it now has campuses in Kingston, Smith Falls, Richmond Hill and Whitby. Mr. Bartolini has also served on the OACC Board for 4 years. In 2011 he was appointed as a Director of the 1000 Islands Region Workforce Development Board for a three year term. Frank Gerencser is a seasoned entrepreneur with a 30-year history of co-founding and building companies, including a corporate systems integrator, a national computer distributor, internet services provider, a computer support and consulting firm, a corporate IT trainer and now his largest enterprise, trios College Business Technology Healthcare with eight campuses across Ontario. In 1998, together with his partner Stuart Bentley, Frank started trios by buying the assets of a closed PCC with the responsibility to train out 300 students and assume 50 staff over five campuses. Frank is on the OACC Board of Directors. 4
Eric R. Keen, FCIA 1, FCAS 2, is a Director in the Audit and Assurance Group for PricewaterhouseCoopers Canada. He is a Fellow of the Canadian Institute of Actuaries, the Casualty Actuarial Society. Previously, Eric was the chief actuary at two reinsurance companies, one in Toronto and one in Bermuda. At the Bermuda Company, he also held the title of Vice President of Underwriting. He was also employed as an insurance specialist at another major accounting firm in Bermuda. Ian Lebane has been a member of the Ontario Bar since 1990. He was in private practice with a focus on Estate Planning and Taxation until 1994; a Masters of Law (Taxation) was conferred upon him in that year. From 1994 to 2006 he held various positions with the Law Society of Upper Canada related to lawyer training and accreditation including: Faculty Member in the Department of Education; Director, Bar Admissions; Manager, Professional Development; Counsel, Professional Development & Competence; and Manager, Professional Development. In 2007, Ian joined TD Waterhouse, Private Trust, as a Will and Estate Planner. Michael McAllister obtained his doctorate from the University of Ottawa in 1999. He also graduated from a private college in 1998. His experience with both public and private education in Ontario has guided his career path. He taught for several years at the University of Ottawa and became the Academic Dean of Herzing College in 2000. He is currently the President of Herzing College in Ottawa. Herzing College is a private college, with campuses in Ottawa, Montreal, Toronto and Winnipeg. Michael is also the President of the National Association of Career Colleges, and is a member of the Ontario Association of Career Colleges and Ottawa Executive Association. Amy Tepperman is a Digital Character Animator in Toronto and has worked on several film and television projects since 2003. She has also been working as an Animation Instructor in Centennial College's Digital Animation Program since 2007. Amy graduated from the International Academy of Design and Technology's (IADT) Animation program in 2003 after participating in a training completion arrangement when the Private Career College in which she was initially enrolled declared bankruptcy, and arranged for students to obtain training at IADT. 1 Fellow of Canadian Institute of Actuaries. 2 Fellow, Casualty Actuarial Society. 5
(Unaudited) Statement of Financial Position AS AT (000 s) 2011 2010 Assets Cash $ 10,586 $ 6,064 Premiums Receivable (Note 2) 719 568 Total Assets 11,305 6,632 Total Liabilities - - Net Assets $ 11,305 $ 6,632 6
(Unaudited) Statement of Operations FOR THE YEAR ENDED (000 s) 2011 2010 Revenues Premiums invoiced (Note 3) $ 4,912 $ 4,483 Forfeited Security (Note 4) 271 71 Investment Income (Note 5) 77 57 Interest and Penalties (Note 6) 21 8 Total Revenue 5,281 4,619 Expenses Training Completions (Note 7) 375 269 Student Refunds (Note 7) 141 62 Administration (Note 8) 93 4 Board Expenses 10 4 Total Expenses 619 339 Net Contributions $ 4,662 $ 4,280 7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Participation in the (TCAF) is mandatory for all registered Private Career Colleges (PCCs) with the exception of PCCs with gross annual vocational revenue that equals or exceeds $25 million. TCAF launched on January 1, 2009 to provide protection to students affected by a closure of a registered PCC. 2011 was the third year in which training completion and student refund costs were expensed out of the fund. In 2011 PCCs that contributed 24 months of a founding or initial premium (0.875% of gross vocational revenue), were billed an annual premium for their current registration period. Once a PCC completes contribution of 24 months of founding premiums, the PCC will move to a risk-adjusted approach in calculating annual premiums using the following formula: Risk Level Premium % Low 0.75% Medium 1.00% High 1.25% X Highest Monthly Prepaid Unearned Revenue In addition, once PCCs transition from paying the founding premium to paying the annual premium, they are also required to pay a surcharge on the annual portion of their premium. This surcharge may be levied on the annual premiums until TCAF reaches its fund target of 3% of total sector gross vocational revenue. The surcharge is stipulated in Ontario Regulation 414/06 as a multiple of the annual premium. The surcharge will decline as the fund balance approaches its target. % Total Sector Gross Vocational Revenue (GVR) Multiple A percentage that is at least 2.25 per cent but less than 3 3 per cent A percentage that is at least 1.5 per cent but less than 2.25 4 per cent A percentage that is at least 0.75 per cent but less than 1.5 5 per cent A percentage that is at least 0.75 per cent 6 Ex.: When the Fund s balance is 2% of GVR, Surcharge = 4 x PCC s Annual Premium 8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As of January 1, 2011, gross vocational revenue for the sector was $260,031,537. Therefore, the target Fund balance would be 3% of this figure, $7,800,946. The Fund balance as of January 1, 2011 was $6,632,148 or 2.6% of gross vocational revenue for the sector. Therefore, the surcharge on the annual premium that was in effect in 2011 was 3 x a PCC s Annual Premium. Segregated Risk Category PCCs with revenue from vocational programs that equals or exceeds $25 million are placed in a segregated risk category. These PCCs are not required to pay TCAF premiums; instead they are required to provide financial security of $3 million. In the event a PCC in the segregated risk category ceases to operate, its students will only be compensated out of the $3 million financial security provided by the PCC. TCAF monies will not be used to provide additional compensation to these students. Should the vocational revenues of a segregated risk PCC fall below $20 million, the PCC must leave the segregated risk category. The PCC will be required to pay TCAF premiums and provide financial security as determined by the Superintendent. In 2011, there were only three private career colleges placed in the Segregated Risk Category. Financial Security Requirements Effective January 1, 2009, PCCs were required to post financial security in the amount of 25% of the highest monthly prepaid unearned revenue collected in a given fiscal year. New PCCs are required to post financial security in the amount of 10% of projected gross vocational revenue at initial registration. In both cases, this amount is a minimum of $10,000. Financial security acts as a protection measure for TCAF in the event a PCC closes and does not fulfill its obligation to train out existing students. The closed PCC s financial security is used first to train out or provide refunds to students before TCAF is accessed. 9
Financial Security Requirements Revenue Recognition SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES There are three types of financial security that can be posted: 1) A surety bond guaranteed by a surety company or another guarantor; 2) A letter of credit issued by a bank or financial institution that is supervised or examined by the central bank of Canada or another governmental authority in Canada; or 3) A personal bond accompanied by collateral security issued by Canada or by any province of Canada TCAF premium contributions are recognized when they are billed. When a PCC closes and TCAF is triggered, the financial security is forfeited to TCAF. Interest and penalties are imposed when a PCC fails to pay a premium within the 30 day deadline period as established by the Superintendent. Expenses Expenses are recognized when they are reimbursed. 10
NOTES TO THE FINANCIAL STATEMENTS 1. CASH ACCOUNTING (TCAF) is a Special Purpose Account (SPA), authorized by the Ministry of Finance within the Consolidated Revenue Fund (CRF) and represents money received or collected by Ontario for a special purpose. The financial statements of TCAF are the representations of the Superintendent of Private Career Colleges. These financial statements have been prepared by management to reflect the relevant cash based transactions and recorded amounts captured within the Province of Ontario s Integrated Financial Information System (IFIS). 2. FUND ADMINISTRATION AND THIRD PARTY TRANSACTIONS TCAF is administered by the Superintendent of Private Career Colleges. The accounts receivable (AR) function is managed by Ontario Shared Services (OSS). On behalf of TCAF, OSS provides AR invoicing, collections, aging accounts and interest calculations. 3. RELIANCE ON PRIVATE CAREER COLLEGE DATA & CREDIT RISK INFORMATION Premiums are prescribed by Ontario Regulation 414/06, as made under the Private Career Colleges Act, 2005. Financial information is entered into the Registration Information for Career Colleges (RICC) system by private career colleges (PCCs). Financial information is cross-referenced to the audited financial statements submitted to the Ministry by the PCC. TCAF premiums are calculated by the Ministry based on the information submitted. For the purposes of determining a PCC s annual premium, the Ministry obtains credit ratings directly from Equifax. The Cumulative Delinquency Score (CDS) of all Ontario businesses rated by Equifax have been divided into 3 categories for high, medium and low risk. As per O. Reg. 414/06, if no credit rating is available, the PCC will automatically be placed in the high risk category. PCCs are advised to contact Equifax on an annual basis and ensure their Cumulative Delinquency Score (CDS) is available and up-to-date. 11
NOTES TO THE FINANCIAL STATEMENTS 4. FORFEITED SECURITY The Superintendent may declare the security provided by a PCC under section Private Career Colleges Act, 2005 S.32 to be forfeited if either of the following events occurs; (1) A PCC has ceased to operate or discontinued all vocational programs before some of the students enrolled in the programs had completed their training (2) The Superintendent has issued a proposal to suspend, revoke or refuse to renew a private career college s registration If the Superintendent decides to declare a security to be forfeited, he or she shall do so within 12 months of having knowledge of the occurrence of the event that gave rise to the decision. In the event that there is a residual amount of financial security after a 12 month period has elapsed without additional student claims, the remaining funds will be released to the closed PCC. Closed PCC Year of Closure Forfeited Security Granton Institute of Technology Limited 2010 $10,000 National Institute of Broadcasting 2011 10,000 Canada New-Times College of Technology 2011 40,200 Stafford College of Health Care, Business and Technology 2011 80,000 Robar Training Specialists 2011 63,700 Academy for Allied Dental and Health Care Studies 2011 67,500 Total $271,400 12
NOTES TO THE FINANCIAL STATEMENTS 5. INVESTMENT INCOME Investment Income has been earned and accumulated since the establishment of TCAF in 2007. The Ontario Financing Authority invests the cash balance to generate investment income based on Canada s Treasury bill rates. For the years 2010 and 2011, the daily rates ranged from 0.17% to 0.998%. The investment income reported pertains to the following periods; 2010 (January to December) $ 22,340.49 2011 (January to September) 54,262.42 Total 602.91 6. LATE PREMIUM PENALTIES Simple interest is applied on outstanding accounts receivable at the rate specified by the Ministry of Finance. 13
7. PAYMENTS FROM THE FUND NOTES TO THE FINANCIAL STATEMENTS In 2011 there were 4 new private career college closures. TCAF issued payments for the purposes of student refunds/train outs in the amount of $140,798 and $374,937 respectively. Payments reflected in this report pertain to previous and current year closures. Closed PCC Year of Closure Student Refund Payment Training Completion Payment London College of Healthcare 2009 $16,629 $112,993 Ontario College of Oral Healthcare 2009 1,715 41,209 Mountains Institute 2009 20,415 National College 2009 33,963 Niagara on the Lake Culinary School Inc. 2010 3,049 36,703 Granton Institute of Technology Limited 2010 2,675 Robar Training Specialists 2011 1,298 4,310 Stafford College 2011 161,022 National Institute of Broadcasting 2011 46,673 Canada New-Times College 2011 34,796 Adjustments * (1,715) Total $140,799 $374,937 * Adjustments for amounts reflected in the student refunds for On tario College of Oral Healthcare Professionals 14
NOTES TO THE FINANCIAL STATEMENTS 8. ADMINISTRATION TCAF covers the expenses incurred by the Superintendent for purposes of the administration and management of the Fund. In 2011, TCAF funded administration expenses totalling $92,840. Below are the expenses pertaining to the 2011 period, of which Marsh Canada Limited was prepaid in 2010 and some payments are still outstanding; Account 2010 2011 Outstanding Total Annual Payment Marsh Canada Limited (Directors and Officers Liability Insurance) $1,728 - - $1,728 Equifax Canada Inc. - 9,921 2,599 12,520 Ernst & Young LLP (Actuarial Review) - 82,919 7,759 90,678 Ontario Shared Services - - 30,500 30,500 Total $1,728 $92,840 $40,858 $135,427 9. FUND VALUE TCAF considers its fund value to be its net assets. The Superintendent s objective in administering the fund is to safeguard its solvency so that it can continue to finance training completions or refunds in the event of a private career college closure. 10. TAXES The fund is a non-profit entity and is not subject to income taxes, in accordance with section 149(1) of the Income Tax Act. 15