STATE OF TENNESSEE COMPTROLLER OF THE TREASURY

Transcription

1 STATE OF TENNESSEE COMPTROLLER OF THE TREASURY TENNESSEE BOARD OF REGENTS CLEVELAND STATE COMMUNITY COLLEGE Financial and Compliance Audit Report For the Years Ended June 30, 2014, and June 30, 2013 Justin P. Wilson, Comptroller Division of State Audit Financial and Compliance Section

2 Deborah V. Loveless, CPA, CGFM, CGMA Director FINANCIAL AND COMPLIANCE Edward Burr, CPA, CGFM Assistant Director Robert D. Hunter, Jr., CPA, CGFM Audit Manager Jennifer Pedersen In-Charge Auditor Jessica Byrd, CPA Angela Courtney Tiffany Tanner, CFE Staff Auditors INFORMATION SYSTEMS Daniel V. Willis, CPA, CISA, CGFM Assistant Director Brent Rumbley, CPA, CISA, CFE Audit Manager Timothy Hollar Chase Tramel Staff Auditors Gerry Boaz, CPA, CGFM, CGMA Technical Manager Amy Brack Editor Amanda Adams Assistant Editor Comptroller of the Treasury, Division of State Audit Suite 1500, James K. Polk State Office Building 505 Deaderick Street Nashville, TN (615) Reports are available at Mission Statement The mission of the Comptroller s Office is to improve the quality of life for all Tennesseans by making government work better. Comptroller Website

3 STATE OF TENNESSEE COMPTROLLER OF THE TREASURY DEPARTMENT OF AUDIT DIVISION OF STATE AUDIT SUITE 1500, JAMES K. POLK STATE OFFICE BUILDING 505 DEADERICK STREET NASHVILLE, TENNESSEE PHONE (615) FAX (615) August 4, 2015 The Honorable Bill Haslam, Governor Members of the General Assembly The Honorable John G. Morgan, Chancellor Dr. William A. Seymour, President Ladies and Gentlemen: Transmitted herewith is the financial and compliance audit of the Tennessee Board of Regents, Cleveland State Community College, for the years ended June 30, 2014, and June 30, You will note from the independent auditor s report that unmodified opinions were given on the fairness of the presentation of the financial statements. Consideration of the internal control over financial reporting and tests of compliance disclosed certain deficiencies, which are detailed in the Findings and Recommendations section of this report. The college s management has responded to the audit findings; the responses are included following each finding. The Division of State Audit will follow up the audit to examine the application of the procedures instituted because of the audit findings. Sincerely, 15/048 Deborah V. Loveless, CPA Director

4 Audit Report Tennessee Board of Regents Cleveland State Community College For the Years Ended June 30, 2014, and June 30, 2013 TABLE OF CONTENTS Audit Highlights 1 Financial Section Independent Auditor s Report 2 Management s Discussion and Analysis 5 Basic Financial Statements Statements of Net Position 15 Statements of Revenues, Expenses, and Changes in Net Position 16 Statements of Cash Flows 17 Notes to the Financial Statements 19 Required Supplementary Information OPEB Schedule of Funding Progress 41 Supplementary Information Schedules of Cash Flows Component Unit 42 Internal Control, Compliance, and Other Matters 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 43 Page

5 TABLE OF CONTENTS (Continued) Findings and Recommendations Finding 1 - Management needs to improve procedures for preparing and reviewing financial statements to prevent errors 46 Finding 2 - Bank reconciliations should be prepared promptly and correctly 48 Finding 3 - Cleveland State Community College did not provide adequate internal controls in four specific areas 50 Finding 4 - Cleveland State Community College, the Tennessee Board of Regents, and the Tennessee Department of Finance and Administration did not provide adequate internal controls in one specific area 51 Page Observations and Comments College of Applied Technology 52

6 State of Tennessee A u d i t H i g h l i g h t s Comptroller of the Treasury Division of State Audit Financial and Compliance Audit Tennessee Board of Regents Cleveland State Community College For the Years Ended June 30, 2014, and June 30, 2013 Opinions on the Financial Statements The opinions on the financial statements are unmodified. Audit Findings Management Needs to Improve Procedures for Preparing and Reviewing Financial Statements to Prevent Errors Cleveland State Community College s procedures for preparation of its financial statements should be improved to ensure the accuracy and proper classification of the information presented in its financial statements. This deficiency resulted in several significant reporting errors (page 46). Bank Reconciliations Should Be Prepared Promptly and Correctly The college s accounting staff is not preparing complete and accurate bank account reconciliations on a timely basis (page 48). Cleveland State Community College Did Not Provide Adequate Internal Controls in Four Specific Areas The college did not design and monitor internal controls in four specific areas (page 50). Cleveland State Community College, the Tennessee Board of Regents, and the Tennessee Department of Finance and Administration Did Not Provide Adequate Internal Controls in One Specific Area The college, the Tennessee Board of Regents, and the Tennessee Department of Finance and Administration did not design and monitor internal controls in one specific area (page 51). 1

7 STATE OF TENNESSEE COMPTROLLER OF THE TREASURY DEPARTMENT OF AUDIT DIVISION OF STATE AUDIT SUITE 1500, JAMES K. POLK STATE OFFICE BUILDING 505 DEADERICK STREET NASHVILLE, TENNESSEE PHONE (615) FAX (615) Independent Auditor s Report The Honorable Bill Haslam, Governor Members of the General Assembly The Honorable John G. Morgan, Chancellor Dr. William A. Seymour, President Report on the Financial Statements We have audited the accompanying financial statements of Cleveland State Community College, an institution of the Tennessee Board of Regents, which is a component unit of the State of Tennessee, and its discretely presented component unit as of and for the years ended June 30, 2014, and June 30, 2013, and the related notes to the financial statements, which collectively comprise the basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements, based on our audit. We did not audit the financial statements of the Cleveland State Community College Foundation, a discretely presented component unit. Those statements were audited by other auditors, whose report has been furnished to us. Our opinion, insofar as it relates to the amounts included for the foundation, is based solely on the report of the other auditors. 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor 2

8 considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of Cleveland State Community College, and its discretely presented component unit as of June 30, 2014, and June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matters As discussed in Note 1, the financial statements of Cleveland State Community College, an institution of the Tennessee Board of Regents, are intended to present the financial position, the changes in financial position, and the cash flows of only Cleveland State Community College. They do not purport to, and do not, present fairly the financial position of the Tennessee Board of Regents, as of June 30, 2014, and June 30, 2013, and the changes in financial position and cash flows thereof for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. As discussed in Note 1, the college implemented GASB Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, during the year ended June 30, Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 5 through 14 and the schedule of funding progress on page 41 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the 3

9 basic financial statements. Although our opinion on the basic financial statements is not affected, the following material departure from prescribed guidelines exists. In its management s discussion and analysis, management has omitted condensed financial information comparing the 2013 and 2012 fiscal years. We do not express an opinion or provide any assurance on the information. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the college s basic financial statements. The schedules of cash flows component unit on page 42 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedules of cash flows component unit are the responsibility of the college s management and were derived from, and relate directly to, the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America by us and other auditors. In our opinion, based on our audit and the procedures performed as described above, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 9, 2015, on our consideration of the college 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 to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the college s internal control over financial reporting and compliance. Deborah V. Loveless, CPA Director June 9,

10 Tennessee Board of Regents CLEVELAND STATE COMMUNITY COLLEGE Management s Discussion and Analysis Introduction This section of Cleveland State Community College s financial report presents a discussion and analysis of the financial performance of the college during the fiscal year ended June 30, 2014, with comparative information presented for the fiscal year ended June 30, This discussion has been prepared by management along with the financial statements and related note disclosures and should be read in conjunction with the independent auditor s report, the financial statements, and the notes to the financial statements. The college has one discretely presented component unit, the Cleveland State Community College Foundation. More detailed information about the foundation is presented in Note 15 to the financial statements. This discussion and analysis focuses on the college and does not include the foundation. Overview of the Financial Statements The financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), which establishes standards for external financial reporting for public colleges and universities. The financial statements are presented on a consolidated basis to focus on the college as a whole. The full scope of the college s activities is considered to be a single business-type activity and, accordingly, is reported within a single column in the basic financial statements. The college s financial report includes the statement of net position; the statement of revenues, expenses, and changes in net position; and the statement of cash flows. Notes to the financial statements are also presented to provide additional information that is essential to a full understanding of the financial statements. The Statement of Net Position The statement of net position is a point-in-time financial statement. The statement of net position presents the financial position of the college at the end of the fiscal year. To aid the reader in determining the college s ability to meet immediate and future obligations, the statement includes all assets, liabilities, and net position of the college and segregates the assets and liabilities into current and noncurrent components. Current assets are those that are available to satisfy current liabilities, inclusive of assets that will be converted to cash within one year. Current liabilities are those that will be paid within one year. The statement of net position is prepared under the accrual basis of accounting; assets and liabilities are recognized when goods or services are provided or received, despite when cash is actually exchanged. 5

11 From the data presented, readers of the statement are able to determine the assets available to continue the operations of the college. They are also able to determine how much the college owes vendors, lenders, and others. Net position represents the difference between the college s assets and liabilities and is one indicator of the college s current financial condition. The statement of net position also indicates the availability of net position for expenditure by the college. Net position is divided into three major categories. The first category, net investment in capital assets, represents the college s total investment in property, plant, and equipment, net of outstanding debt obligations related to these capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included. The next category is restricted net position, which is subdivided into two categories, nonexpendable and expendable. Nonexpendable restricted net position includes endowment and similar resources whose use is limited by donors or other outside sources and as a condition of the gift, the principal is to be maintained in perpetuity. Expendable restricted net position is available for expenditure by the college but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use of the resources. The final category is unrestricted net position. Unrestricted net position is available to the college for any lawful purpose of the college. The following table summarizes the college s assets, liabilities, and net position at June 30, 2014, and June 30, Summary of Net Position (in thousands of dollars) Assets: Current assets $5,909 $7,115 Capital assets, net 9,110 7,894 Other assets 3,136 3,198 Total assets 18,155 18,207 Liabilities: Current liabilities 3,186 3,147 Noncurrent liabilities 2,201 2,214 Total liabilities 5,387 5,361 Net position: Net investment in capital assets 9,110 7,894 Restricted expendable Unrestricted 3,491 4,825 Total net position $ 12,768 $ 12,846 6

12 Comparison of Fiscal Year 2014 to Fiscal Year 2013 Current assets decreased in fiscal year 2014 by $1,205,308. This decrease was a result of the following: Current cash decreased $372,075. This was due to the use of carryover funds from 2013 and a decrease in enrollment. Accounts and grants receivable decreased $861,711 due to a change in presentation of the receivables in fiscal year Due from primary government increased $14,500 due to the timing in receipt of funds. Noncurrent assets increased $1,153,109. Noncurrent cash decreased $62,263 due to the expenditure of plant funds for several campus renovation projects. Capital assets increased $1,215,372. This was due to the purchase of equipment, installation of a fire alarm system, and several HVAC projects. Current liabilities increased in fiscal year 2014 by $39,166. Accounts payable decreased $198,858 due to a decrease in year-end expenditures. Accrued liabilities increased $151,443 due to the timing of payroll benefit payments to vendors. Unearned revenue decreased $5,709 due to a decrease in summer enrollment. Compensated absences increased $15,410 due to the yearly accrual of leave. Deposits held in custody for others increased $102,941 due to an increase in the LGIP investment account for the College of Applied Technology at Athens. Noncurrent liabilities decreased $13,244 in fiscal year An increase occurred with the recording of other postemployment benefits (OPEB) obligations for 2014 in the amount of $88,748. Compensated absences decreased $72,574 as a result of several retirements. Long-term liabilities decreased $29,418 as a result of the annual TSSBA payments. The net position of the college decreased overall $78,122 in fiscal year Net investment in capital assets increased $1,215,372 due to the replacement of several HVAC systems, the installation of a fire alarm system, and the purchase of equipment. Unrestricted net position decreased $1,334,030 due to funds spent on the fire alarm system and other campus improvements. 7

13 The Statement of Revenues, Expenses, and Changes in Net Position The statement of revenues, expenses, and changes in net position presents the results of operations for the fiscal year. Revenues and expenses are recognized when earned or incurred, regardless of when cash is received. The statement indicates whether the college s financial condition has improved or deteriorated during the fiscal year. The statement presents the revenues received by the college, both operating and nonoperating; the expenses paid by the college, operating and nonoperating; and any other revenues, expenses, gains, or losses received or spent by the college. Generally speaking, operating revenues are received for providing goods and services to the various customers and constituencies of the college. Operating expenses are those expenses paid to acquire or produce the goods and services provided in return for the operating revenues, and to carry out the mission of the college. Nonoperating revenues are revenues received for which goods and services are not provided directly to the payer. Although Cleveland State Community College is dependent upon state appropriations and gifts to fund educational and general operations, under GASB standards these funding sources are reported as nonoperating revenues, as is investment income. As a result, the college has historically reported an excess of operating expenses over operating revenues, resulting in an operating loss. Therefore, the increase (decrease) in net position is more indicative of overall financial results for the year. A summary of the college s revenues, expenses, and changes in net position for the year ended June 30, 2014, and the previous year follows. Summary of Revenues, Expenses, and Changes in Net Position (in thousands of dollars) Operating revenues $ 7,232 $ 7,602 Operating expenses 27,624 28,448 Operating loss (20,392) (20,846) Nonoperating revenues and expenses 19,198 18,829 Income (loss) before other revenues, expenses, gains, or losses (1,194) (2,017) Other revenues, expenses, gains, or losses 1,116 1,795 Increase (decrease) in net position (78) (222) Net position at beginning of year 12,846 13,068 Net position at end of year $12,768 $12,846 8

14 Operating Revenues The following summarizes the operating revenues by source that were used to fund operating activities for the last two fiscal years: Operating Revenues (in thousands of dollars) Net tuition and fees $5,685 $6,117 Grants and contracts $1,235 $1,063 Sales and services Auxiliary $88 $164 $210 $ Other $13 $15 Comparison of Fiscal Year 2014 to Fiscal Year 2013 Operating revenues decreased $370,550 overall in Tuition and fees increased $431,713 due to an increase in maintenance fees but was offset by an increase in scholarship allowance of $268,130. Governmental grants and contracts increased $83,939. A federal Title III restricted grant and an RX Tennessee grant were the primary reason for the increase. Nongovernment grants and contracts increased $87,576 due to new workforce training contracts with local industries. Sales and services of other activities decreased $68,744 due to a decrease in rental income to the campus, a reduction in revenue provided by GED testing fees, and a decrease in the revenue from the sale of surplus property. 9

15 Operating Expenses Operating expenses may be reported by nature or function. The college has chosen to report the expenses in their natural classification on the statement of revenues, expenses, and changes in net position and has displayed the functional classification in the notes to the financial statements. The following summarizes the operating expenses by natural classifications for the last two fiscal years: Operating Expenses by Natural Classification (in thousands of dollars) Salaries and benefits $15,776 $15,385 Utilities, supplies, and other services Scholarships and fellowships $5,709 $6,623 $5,182 $5, Depreciation expense $957 $830 Comparison of Fiscal Year 2014 to Fiscal Year 2013 Operating expenses decreased in fiscal year Salaries increased $235,336. This was due to a 2.5% raise and the payout salary on several retiring employees. Benefits increased $154,988 due to the benefits on the raise and an increase in insurance premiums. Utilities, supplies, and other services decreased $913,721 in fiscal year 2014 due to onetime renovations of student services areas, equipment purchases, and the completion of the addition to the Technology Building in Scholarships and fellowships decreased $427,187. Scholarships decreased due to an enrollment decrease in summer school. The increase in scholarship allowance of $268,130 caused the additional decrease. 10

16 Depreciation increased $126,384 due to the recording of 2014 depreciation on assets and the first time depreciation on new building improvements. Nonoperating Revenues and Expenses Certain revenue sources that the college relies on to provide funding for operations, including state noncapital appropriations, certain gifts and grants, and investment income, are defined by the GASB as nonoperating. Nonoperating expenses include financing costs on noncapital debt. The following summarizes the college s nonoperating revenues for the last two fiscal years: Nonoperating Revenues (in thousands of dollars) State appropriations $9,183 $8,982 Gifts $672 $229 Grants and contracts $9,371 $9, Investment income $8 $13 Comparison of Fiscal Year 2014 to Fiscal Year 2013 State appropriations increased due to the effects of the new Tennessee Higher Education Commission formula outcomes and state funding of the 2.5% raise and the employee health insurance increase. Gifts increased $442,653 due to an increase in gifts to the college from the Cleveland State Community College Foundation for workforce development and scholarships. Grants and contracts decreased $251,674 due to a decrease in federal and state financial aid awards. Other Revenues This category is composed of state appropriations for capital purposes. This amount was as follows for the last two fiscal years: 11

17 Other Revenues (in thousands of dollars) $1,116 Capital appropriations $1, Comparison of Fiscal Year 2014 to Fiscal Year 2013 Capital appropriations decreased $678,970 due to the state funding of an addition to the Technology Building in Capital Assets and Debt Administration Capital Assets Cleveland State Community College had $9,109,488 invested in capital assets, net of accumulated depreciation of $14,763,051 at June 30, 2014; and $7,894,116 invested in capital assets, net of accumulated depreciation of $13,934,054 at June 30, Depreciation charges totaled $956,803 and $830,419 for the years ended June 30, 2014, and June 30, 2013, respectively. Summary of Capital Assets, Net of Depreciation (in thousands of dollars) Land $ 268 $ 268 Land improvements & infrastructure Buildings 5,784 5,242 Equipment 1,475 1,434 Library holdings Intangible assets

18 Projects in progress 1, Total $9,110 $7,894 Comparison of Fiscal Year 2014 to Fiscal Year 2013 Significant additions to capital assets occurred in fiscal year These increases were due to the addition of new HVAC systems in buildings, installation of a fire alarm and communication system, and the purchase of equipment. Intangible assets decreased $136,000 due to the recording of depreciation for fiscal year Projects in progress increased due to the unfinished HVAC replacement project in the student center and the incomplete fire alarm system. Both of these projects were still in progress as of June 30, At June 30, 2014, outstanding commitments under construction contracts totaled $331,498 for various renovations and repairs of buildings and infrastructure. Future state capital outlay appropriations will fund $265,762 of these costs. More detailed information about the college s capital assets is presented in Note 5 to the financial statements. Debt The college had $278,174 and $306,405 in debt outstanding at June 30, 2014, and June 30, 2013, respectively. The table below summarizes these amounts by type of debt instrument. Outstanding Debt Schedule Bonds payable $ 278,174 $ 306,405 The Tennessee State School Board Authority (TSSBA) issued bonds with interest rates ranging from 3.5% to 5.0% due serially to 2023, on behalf of Cleveland State Community College. The college is responsible for the debt service of these bonds. The current portion of the $278,174 outstanding at June 30, 2014, is $29,418. The ratings on debt issued by the Tennessee State School Bond Authority at June 30, 2014, were as follows: 13

19 Fitch Moody s Investor Service Standard & Poor s AA+ Aa1 AA More information about the college s long-term liabilities is presented in Note 7 to the financial statements. Economic Factors That Will Affect the Future The Tennessee Board of Regents has approved an increase of 5.8% in tuition for the upcoming academic year. The economic position of Cleveland State Community College is closely tied to that of the State of Tennessee. State appropriations are a large source of funding for the college. Shortfalls in state revenues may have a significant impact on the college s revenue. We are not aware of any other factors, decisions, or conditions that are expected to have a significant impact on the financial position or results of operations during future fiscal years. 14

20 Tennessee Board of Regents CLEVELAND STATE COMMUNITY COLLEGE Statements of Net Position June 30, 2014, and June 30, 2013 Cleveland State Community College Component Unit - Cleveland State Community College Foundation June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Assets Current assets: Cash and cash equivalents (Notes 2, 3, and 15) $ 5,028, $ 5,401, $ 79, $ 215, Accounts and grants receivable (net) (Note 4) 831, ,693, Due from component unit 2, , Pledges receivable (net) (Note 15) , , Due from primary government 14, Prepaid expenses 31, , Accrued interest receivable - - 6, , Total current assets 5,909, ,114, , , Noncurrent assets: Cash and cash equivalents (Notes 2, 3, and 15) 3,135, ,198, , , Investments (Note 15) - - 7,896, ,902, Pledges receivable (net) (Note 15) - - 7, , Capital assets (net) (Note 5) 9,109, ,894, Total noncurrent assets 12,245, ,092, ,042, ,195, Total assets 18,154, ,206, ,230, ,521, Liabilities Current liabilities: Accounts payable (Note 6) 444, , Accrued liabilities 487, , Unearned revenue 444, , Due to grantors 1, , Due to college - - 2, , Compensated absences (Note 7) 176, , Long-term liabilities, current portion (Note 7) 29, , Deposits held in custody for others 1,601, ,498, Total current liabilities 3,185, ,146, , , Noncurrent liabilities: Net OPEB obligation (Note 10) 1,479, ,390, Compensated absences (Note 7) 472, , Long-term liabilities (Note 7) 248, , Total noncurrent liabilities 2,200, ,214, Total liabilities 5,386, ,360, , , Net position Net investment in capital assets 9,109, ,894, Restricted for: Nonexpendable: Scholarships and fellowships - - 4,974, ,933, Instructional department uses , , Other , , Expendable: Scholarships and fellowships 16, , ,481, ,515, Instructional department uses 81, , , , Capital projects , Other 69, , , , Unrestricted 3,490, ,824, , , Total net position $ 12,768, $ 12,846, $ 8,227, $ 7,518, The notes to the financial statements are an integral part of this statement. 15

21 Tennessee Board of Regents CLEVELAND STATE COMMUNITY COLLEGE Statements of Revenues, Expenses, and Changes in Net Position For the Years Ended June 30, 2014, and June 30, 2013 Cleveland State Community College Component Unit - Cleveland State Community College Foundation Year Ended Year Ended Year Ended Year Ended June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013 Revenues Operating revenues: Student tuition and fees (net of scholarship allowances of $5,414, for the year ended June 30, 2014, and $5,145, for the year ended June 30, 2013) $ 5,685, $ 6,117, $ - $ - Gifts and contributions , , Endowment income (per spending plan) , , Governmental grants and contracts 1,134, ,050, Nongovernmental grants and contracts (including $3, from component unit for the year ended June 30, 2014, and $3, for the year ended June 30, 2013) 100, , Sales and services of educational activities 9, , Sales and services of other activities 78, , Auxiliary enterprises: Bookstore 206, , Food service 1, , Other auxiliaries 2, , Other operating revenues 13, , Total operating revenues 7,231, ,602, , , Expenses Operating expenses (Note 13): Salaries and wages 11,367, ,132, , , Benefits 4,407, ,252, , , Utilities, supplies, and other services 5,709, ,622, , , Scholarships and fellowships 5,182, ,609, , , Depreciation expense 956, , Payments to or on behalf of Cleveland State Community College (Note 15) , , Total operating expenses 27,623, ,448, ,034, , Operating income (loss) (20,391,955.82) (20,845,606.00) (440,830.00) 48, Nonoperating revenues (expenses) State appropriations 9,182, ,982, Gifts (including $622, from component unit for the year ended June 30, 2014, and $180, for the year ended June 30, 2013) 671, , Grants and contracts 9,371, ,622, Investment income (net of investment expense of $47, for the component unit for the year ended June 30, 2014, and $39, for the year ended June 30, 2013) 7, , , , Interest on noncapital debt (16,405.34) (17,734.73) - - College support (Note 15) , , Other nonoperating revenues (18,708.00) Net nonoperating revenues (expenses) 19,197, ,828, ,096, , Income (loss) before other revenues, expenses, gains, or losses (1,194,247.50) (2,016,748.78) 655, , Capital appropriations 1,116, ,795, Additions to permanent endowments , , Total other revenues 1,116, ,795, , , Increase (decrease) in net position (78,121.62) (221,652.39) 709, , Net position - beginning of year 12,846, ,067, ,518, ,673, Net position - end of year $ 12,768, $ 12,846, $ 8,227, $ 7,518, The notes to the financial statements are an integral part of this statement. 16

22 Tennessee Board of Regents CLEVELAND STATE COMMUNITY COLLEGE Statements of Cash Flows For the Years Ended June 30, 2014, and June 30, 2013 Year Ended Year Ended June 30, 2014 June 30, 2013 Cash flows from operating activities Tuition and fees $ 5,638, $ 5,798, Grants and contracts 2,084, , Sales and services of educational activities 9, , Sales and services of other activities 78, , Payments to suppliers and vendors (5,937,160.26) (6,565,260.37) Payments to employees (11,405,056.95) (11,132,517.03) Payments for benefits (4,104,255.83) (4,139,101.17) Payments for scholarships and fellowships (5,178,209.28) (5,612,270.49) Auxiliary enterprise charges: Bookstore 225, , Food services 1, , Other auxiliaries 2, , Other receipts 13, , Net cash used by operating activities (18,572,165.30) (20,921,181.48) Cash flows from noncapital financing activities State appropriations 9,146, ,972, Gifts and grants received for other than capital or endowment purposes 9,990, ,810, Federal student loan receipts 6,405, ,717, Federal student loan disbursements (6,405,529.00) (7,729,468.00) Changes in deposits held for others 102, (189,709.25) Principal paid on noncapital debt (28,231.35) (26,835.18) Interest paid on noncapital debt (16,734.42) (18,350.86) Net cash provided by noncapital financing activities 19,194, ,536, Cash flows from capital and related financing activities Capital appropriations 1,116, ,795, Purchase of capital assets and construction (2,180,386.08) (2,127,194.85) Net cash used by capital and related financing activities (1,064,260.20) (332,098.46) Cash flows from investing activities Income on investments 7, , Net cash provided by investing activities 7, , Net decrease in cash (434,337.62) (2,704,401.06) Cash - beginning of year 8,599, ,303, Cash - end of year $ 8,164, $ 8,599,

23 Tennessee Board of Regents CLEVELAND STATE COMMUNITY COLLEGE Statements of Cash Flows (Continued) For the Years Ended June 30, 2014, and June 30, 2013 Year Ended Year Ended June 30, 2014 June 30, 2013 Reconciliation of operating loss to net cash used by operating activities: Operating loss $ (20,391,955.82) $ (20,845,606.00) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation expense 956, , Gifts in-kind 44, , Other adjustments 22, , Change in assets and liabilities: Receivables, net 859, (882,623.90) Prepaid expenses (13,976.11) 2, Accounts payable (200,016.92) (70,699.26) Accrued liabilities 88, , Net OPEB obligation 152, , Unearned revenue (5,708.59) (199,284.91) Compensated absences (57,163.98) (2,985.03) Due to grantors (27,247.79) 29, Net cash used by operating activities $ (18,572,165.30) $ (20,921,181.48) The notes to the financial statements are an integral part of this statement. 18

24 Tennessee Board of Regents CLEVELAND STATE COMMUNITY COLLEGE Notes to the Financial Statements June 30, 2014, and June 30, 2013 Note 1. Summary of Significant Accounting Policies Reporting Entity The college is a part of the State University and Community College System of Tennessee (Tennessee Board of Regents). This system is a component unit of the State of Tennessee because the state appoints a majority of the system s governing body and provides significant financial support; the system is discretely presented in the Tennessee Comprehensive Annual Financial Report. The financial statements present only that portion of the Tennessee Board of Regents activities that is attributable to the transactions of Cleveland State Community College. The Cleveland State Community College Foundation is considered a component unit of the college. Although the college does not control the timing or amount of receipts from the foundation, the majority of resources, or income thereon, that the foundation holds and invests are restricted to the activities of the college by its donors. Because these restricted resources held by the foundation can only be used by, or for the benefit of, the college, the foundation is considered a component unit of the college and is discretely presented in the college s financial statements. See Note 15 for more detailed information about the component unit and how to obtain the report. Basis of Presentation The college s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to governmental colleges and universities engaged in business-type activities as prescribed by the Governmental Accounting Standards Board (GASB). Basis of Accounting For financial statement purposes, the college is considered a special-purpose government engaged only in business-type activities. Accordingly, the financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all of the provider s eligibility requirements have been met. All significant interfund transactions have been eliminated. The college has classified its revenues and expenses as either operating or nonoperating according to the following criteria: Operating revenues and expenses are those that have the characteristics of exchange transactions. Operating revenues include (1) tuition and fees, net of 19

25 Notes to the Financial Statements (Continued) scholarship discounts and allowances; (2) certain federal, state, local, and private grants and contracts; (3) sales and services of auxiliary enterprises; and (4) other sources of revenue. Operating expenses include (1) salaries and wages; (2) employee benefits; (3) utilities, supplies, and other services; (4) scholarships and fellowships; and (5) depreciation. Nonoperating revenues and expenses include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other activities that are defined as nonoperating by GASB Statement 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities that Use Proprietary Fund Accounting, and GASB Statement 34, such as state appropriations and investment income. When both restricted and unrestricted resources are available for use, it is the college s policy to determine which to use first, depending upon existing facts and circumstances. Compensated Absences The college s employees accrue annual and sick leave at varying rates, depending on length of service or classification. Some employees also earn compensatory time. The amount of the liabilities for annual leave and compensatory time and their related benefits are reported in the statement of net position. There is no liability for unpaid accumulated sick leave since the college s policy is to pay this only if the employee dies or is absent because of illness, injury, or related family death. Capital Assets Capital assets, which include property, plant, equipment, library holdings, and intangible assets, are reported in the statement of net position at historical cost or at fair value at date of donation, less accumulated depreciation/amortization. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset s useful life are not capitalized. A capitalization threshold of $100,000 is used for buildings, and $50,000 is used for infrastructure. Equipment is capitalized when the unit acquisition cost is $5,000 or greater. The capitalization threshold for additions and improvements to buildings and land is set at $50,000. The capitalization threshold for intangible assets is set at $100,000. These assets, with the exception of land, are depreciated/amortized using the straight-line method over the estimated useful lives, which range from 5 to 40 years. 20

26 Notes to the Financial Statements (Continued) Net Position The college s net position is classified as follows: Net investment in capital assets This represents the college s total investment in capital assets, net of accumulated depreciation and net of outstanding debt obligations. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets. Nonexpendable restricted net position Nonexpendable restricted net position consists of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may be expendable or added to principal. Expendable restricted net position Expendable restricted net position includes resources that the college is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. Unrestricted net position Unrestricted net position represents resources derived from student tuition and fees; state appropriations; sales and services of educational departments and other activities; and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the college and may be used at the college s discretion to meet current expenses for any purpose. The auxiliary enterprises are substantially self-supporting activities that provide services for students, faculty, and staff. Scholarship Discounts and Allowances Student tuition and fee revenues, as well as certain other revenues from students, are reported net of scholarship discounts and allowances in the statement of revenues, expenses, and changes in net position. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the college and the amount that is paid by the student and/or third parties making payments on the student s behalf. Certain governmental grants, such as Pell grants and other federal, state, or nongovernmental programs, are recorded as either operating or nonoperating revenues in the college s financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the college has recorded a scholarship discount and allowance. Accounting Change The college implemented GASB Statement 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, during the year ended June 30, The effect on the college was the renaming of the residual of all other elements in the statement of financial position as net position, rather than net assets. 21

27 Notes to the Financial Statements (Continued) Early Implementation of Accounting Pronouncement In March 2012, GASB issued Statement No. 65, Items Previously Reported as Assets and Liabilities. This statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities; it also recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. The provisions of this statement are effective for financial statements for periods beginning after December 15, However, the college has elected to early implement the provisions of this statement for fiscal year Note 2. Cash This classification includes demand deposits and petty cash on hand. At June 30, 2014, cash consisted of $470, in bank accounts, $1, of petty cash on hand, $7,490, in the Local Government Investment Pool (LGIP) administered by the State Treasurer, and $202, in LGIP deposits for capital projects. At June 30, 2013, cash consisted of $303, in bank accounts, $1,340 of petty cash on hand, $7,326, in the LGIP, and $967, in LGIP deposits for capital projects. The LGIP is part of the State Pooled Investment Fund. The fund s required risk disclosures are presented in the State of Tennessee Treasurer s Report. That report is available on the state s website at LGIP deposits for capital projects Payments related to the college s capital projects are made by the State of Tennessee s Department of Finance and Administration. The college s estimated local share of the cost of each project is held in a separate LGIP account. As expenses are incurred, the Tennessee Board of Regents withdraws funds from the LGIP account and transfers them to the Department of Finance and Administration. The funds in the account are not available to the college for any other purpose until the project is completed and the Tennessee Board of Regents releases any remaining funds. Note 3. Investments Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The college is authorized by statute to invest funds in accordance with Tennessee Board of Regents policies. Under the current policy, funds other than endowments may be invested only in obligations of the United States or its agencies which are backed by the full faith and credit of the United States; repurchase agreements for United States securities; certificates of deposit in banks and savings and loan associations; bankers acceptances; commercial paper; money market mutual funds; and the State of Tennessee Local Government Investment Pool. 22