FINANCIAL STATEMENTS JUNE 30, 2012 (With Summarized Financial Information For the Year Ended June 30, 2011)
TABLE OF CONTENTS Financial Page Independent Auditor's Report... 1 Financial Statements: Statement of Financial Position... 3 Statement of Activities... 5 Statement of Functional Expense... 6 Statement of Cash Flows... 7 Notes to Financial Statements... 8 Schedule of Expenditures of Federal Awards... 18 Notes to Schedule of Expenditures of Federal Awards... 19 Compliance and Internal Controls Section 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... 20 Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133... 22 Schedule of Findings and Questioned Costs... 24
October 25, 2012 To the Board of Trustees Ohio Christian University Circleville, Ohio Independent Auditor's Report We have audited the accompanying statement of financial position of Ohio Christian University (a nonprofit Ohio corporation) as of June 30, 2012, and the related statements of activities, functional expenses, and cash flows for the year then ended. These financial statements are the responsibility of the University's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the University s 2011 financial statements and, in our report dated October 7, 2011 we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ohio Christian University as of June 30, 2012, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 25, 2012 on our consideration of Ohio Christian University'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 and should be considered in assessing the results of our audit. -1-
Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for the purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as whole. Respectfully submitted, WHITED SEIGNEUR SAMS & RAHE CPAs, LLP -2-
STATEMENT OF FINANCIAL POSITION June 30, 2012 (With Summarized Financial Information for the Year Ended June 30, 2011) ASSETS CURRENT ASSETS 2012 2011 Cash and Cash Equivalents $ 1,184,839 $ 3,418,976 Accounts Receivable, net 5,282,851 3,296,230 Pledges Receivable, net 37,754 182,821 Prepaid Expenses 247,179 248,731 Bookstore Inventory 289,886 198,492 TOTAL CURRENT ASSETS 7,042,509 7,345,250 PROPERTY, PLANT AND EQUIPMENT Land 1,305,705 511,629 Land Improvements 1,326,678 1,184,742 Buildings 17,268,240 14,358,330 Equipment and Books 2,516,152 2,493,669 Vehicles 560,402 560,402 Construction in Progress 3,395,930 431,589 TOTAL PROPERTY, PLANT AND EQUIPMENT 26,373,107 19,540,361 Less: Accumulated Depreciation (6,011,972) (5,392,352) NET PROPERTY, PLANT AND EQUIPMENT 20,361,135 14,148,009 OTHER ASSETS Long-term Investments 2,195,642 1,859,106 Restricted Cash 1,168,757 668,120 Other Assets 3,000 3,000 Notes Receivable - 4,093 TOTAL OTHER ASSETS 3,367,399 2,534,319 TOTAL ASSETS $ 30,771,043 $ 24,027,578 SEE THE ACCOMPANYING NOTES AND AUDITOR S REPORT -3-
STATEMENT OF FINANCIAL POSITION June 30, 2012 (With Summarized Financial Information for the Year Ended June 30, 2011) LIABILITIES AND NET ASSETS CURRENT LIABILITIES 2012 2011 Accounts Payable and Other Accrued Liabilities $ 1,007,229 $ 930,912 Annuity Payment Liability 160,416 137,287 Deferred Revenue 3,195,733 1,780,549 Deposits 1,676,043 1,407,929 Funds Held for Others 26,953 23,318 Line of Credit 446,699 - Current Portion of Notes Payable 101,822 81,239 Current Portion of Leases Payable 49,400 39,400 TOTAL CURRENT LIABILITIES 6,664,295 4,400,634 LONG TERM LIABILITIES Note Payable, net of current portion 858,682 471,858 Lease Payable, net of current portion 8,060,600 8,110,000 TOTAL LIABILITIES 15,583,577 12,982,492 NET ASSETS Unrestricted Net Assets: Board designated quasi-endowment 520,575 482,089 Undesignated 12,830,342 9,168,672 Total Unrestricted Net Assets 13,350,917 9,650,761 Temporarily Restricted Net Assets 217,795 97,599 Permanently Restricted Net Assets 1,618,754 1,296,726 TOTAL NET ASSETS 15,187,466 11,045,086 TOTAL LIABILITIES AND NET ASSETS $ 30,771,043 $ 24,027,578 SEE THE ACCOMPANYING NOTES AND AUDITOR S REPORT -4-
Temporarily Permanently Institutional Institutional REVENUES, GAINS, LOSSES, AND Unrestricted Restricted Restricted Total - 2012 Total - 2011 RECLASSIFICATIONS Gross Tuition and Fees $ 21,179,030 $ - $ - $ 21,179,030 $ 16,251,294 Less: Scholarships 4,189,937 - - 4,189,937 2,558,222 Net tuition and fees 16,989,093 - - 16,989,093 13,693,072 Contributor Gifts 3,138,858 44,448 269,701 3,453,007 1,012,743 Grants 99,303 60,000-159,303 236,159 Other Sources 475,898 - - 475,898 285,103 Auxillary Income 3,949,751 - - 3,949,751 3,084,477 Change in beneficial interest - - 825 825 2,021 Investment Income 57,755 17,227 46,966 121,948 115,749 Net realized and unrealized gains (losses) on investments (4,205) 325 5,216 1,336 101,998 TOTAL SUPPORT AND REVENUE 24,706,453 122,000 322,708 25,151,161 18,531,323 NET ASSETS RELEASED FROM RESTRICTIONS OHIO CHRISTIAN UNIVERSITY STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2012 (With Summarized Financial Information for the Year Ended June 30, 2011) Satisfied Program Service Restrictions 4,093 - (4,093) - - Satisfied Time Restrictions (1,609) (1,804) 3,413 - - TOTAL REVENUE AFTER RELEASES 24,708,937 120,196 322,028 25,151,161 18,531,323 EXPENSES Program Services: Education 17,350,391 - - 17,350,391 13,588,958 Supporting Activities: General and Administrative 2,643,336 - - 2,643,336 1,405,704 Development 1,015,054 - - 1,015,054 659,198 TOTAL EXPENSES 21,008,781 - - 21,008,781 15,653,860 CHANGE IN NET ASSETS 3,700,156 120,196 322,028 4,142,380 2,877,463 NET ASSETS, BEGINNING OF YEAR 9,650,761 97,599 1,296,726 11,045,086 8,167,623 NET ASSETS, END OF YEAR $ 13,350,917 $ 217,795 $ 1,618,754 $ 15,187,466 $ 11,045,086 SEE THE ACCOMPANYING NOTES AND AUDITOR S REPORT -5-
STATEMENT OF FUNCTIONAL EXPENSE YEAR ENDED JUNE 30, 2012 (With Summarized Financial Information for the Year Ended June 30, 2011) Education General & Administrative Development Institutional Total - 2012 Institutional Total - 2011 Personnel $ 7,528,121 $ 689,452 $ 337,750 $ 8,555,323 $ 6,393,590 Benefits and personnel related 1,398,842 296,493 66,784 1,762,119 1,330,710 Total personnel costs 8,926,963 985,945 404,534 10,317,442 7,724,300 Contract 59,739 80,929 64,294 204,962 233,134 Other expense 673,273 154,062 126,108 953,443 599,720 Advertising & promotion 2,359,265 21,677 39,370 2,420,312 1,413,109 Auxilliary 712,750 - - 712,750 454,968 Bookstore 1,086,761 271,690-1,358,451 1,038,691 Bad debt 813,883 119,853 8,925 942,661 429,865 Repairs and maintenance 528,305 106,939-635,244 467,291 Expendable FFE 322,781 28,068 27,238 378,087 517,568 Events and Fundraising 43,671 39,771 269,376 352,818 309,674 Supplies 125,063 13,041 3,129 141,233 126,749 Utilities and communication 409,669 81,252 2,748 493,669 419,652 Insurance 65,634 13,487-79,121 56,919 Rentals & leases 280,985 23,590 2,271 306,846 290,431 Student activities 180,901-30,025 210,926 224,934 Travel 249,221 71,980 37,036 358,237 309,098 Interest expense 522,959 - - 522,959 508,070 Depreciation 495,696 123,924-619,620 529,687 Total Expense $ 17,857,519 $ 2,136,208 $ 1,015,054 $ 21,008,781 $ 15,653,860 SEE THE ACCOMPANYING NOTES AND AUDITOR S REPORT -6-
STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2012 (With Summarized Financial Information for the Year Ended June 30, 2011) 2012 2011 Cash Flows From Operating Activities Change in Net Assets $ 4,142,380 $ 2,877,463 Adjustments to Reconcile Change in Net Assts to Net Cash Provided by Operating Activities: Depreciation 619,620 529,687 Amortization of Discount 5,600 5,600 Provision for Bad Debt 938,643 429,865 Donated Real Property (2,550,000) (53,101) Net Gain on Beneficial Interest (825) (2,021) Net Unrealized (Gains) Losses on Investments (1,336) (101,998) (Increase) Decrease in Operating Assets: Change in Restricted Cash (500,637) 2,748 Change in Accounts and Other Receivables (2,776,278) (1,845,574) Change in Prepaid Expenses 1,552 26,884 Change in Inventory (91,394) (21,364) Increase (Decrease) in Operating Liabilities: Change in Accounts Payable & Other Liabilities 76,315 194,901 Change in Annuity Liability 23,129 20,724 Change in Deferred Revenue 1,415,184 757,489 Change in Deposits 268,112 755,360 Change in Funds Held for Others 3,634 (2,074) Net Cash Provided by Operating Activities 1,573,699 3,574,589 Cash Flows From Investing Activities Purchase of Investments (1,065,685) (283,902) Proceeds from Sale and Maturity of Investments 731,488 193,639 Purchase of Property, Plant, and Equipment (4,282,746) (2,850,644) Net Cash Provided (Used) by Investing Activities (4,616,943) (2,940,907) Cash Flows From Financing Activities Net Proceeds from Line of Credit 446,699 - Proceeds from Issuance of Note Payable 500,000 255,000 Principal Payments on Notes Payable (92,592) (76,815) Principal Payments on Capital Leases (45,000) (40,000) Net Cash Provided by Financing Activities 809,107 138,185 Net Increase in Cash and Cash Equivalents (2,234,137) 771,867 Cash and Cash Equivalents at Beginning of Year 3,418,976 2,647,109 Cash and Cash Equivalents at End of Year $ 1,184,839 $ 3,418,976 Supplemental Disclosures Interest expense on lease payable $ 471,338 $ 473,288 Interest expense on notes payable 51,622 34,782 Total cash paid for interest $ 522,960 $ 508,070 SEE THE ACCOMPANYING NOTES AND AUDITOR S REPORT -7-
NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF ACTIVITIES Ohio Christian University is located in Circleville, Ohio. The University is accredited as a baccalaureate and masters program institution by the Association for Biblical Higher Education and the Higher Learning Commission, North Central Association. The University is a private institution with a commitment to Christian values, academic excellence, and the purposeful integration of faith, learning, and life and is supported primarily by tuition, contributions from alumni and affiliated organizations, and earnings on endowments. Basis of Accounting The financial statements have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. Basis of Presentation Financial statement presentation follows the recommendations of the Financial Accounting Standards Board s Accounting Standards Codification 958-205, Not-for-Profit Entities- Presentation of Financial Statements. Under those provisions, net assets and revenues, gains, and losses are classified based on the absence or existence and nature of donor-imposed restrictions as follows: Unrestricted net assets are net assets that are not subject to donor-imposed restrictions and are currently available for use in the University s operations. Temporarily restricted net assets are net assets subject to donor-imposed restrictions that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time. Included in this class are lifetime annuity gift agreements. Permanently restricted net assets are net assets subject to donor-imposed restrictions that they be maintained permanently by the University. Generally, the donors of such assets permit the University to use all or part of the income earned on the assets. Included in this class are permanent endowments and scholarships. All contributions are considered available for unrestricted use, unless specifically restricted by the donor or subject to other legal restrictions. Summarized Comparative Information The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the University s financial statements for the year ended June 30, 2011, from which the summarized information was derived. -8-
NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Estimates The preparation of financial statements in conformity with generally accepted accounting principles includes the use of estimates that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Reclassifications Certain amounts in the prior-year financial statements have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements. Cash and Cash Equivalents For purposes of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less, except for investments purchased with endowment, scholarship, or annuity assets, which are classified as long-term investments. The University maintains a separate bank account to segregate federal student financial aid, as required by the U.S. Department of Education. Investments Investments are carried at fair value. Investment Income and Gains Investment income and gains restricted by donors are reported as increases in unrestricted net assets if the restrictions are met (either a stipulated time period ends or a purpose restriction is accomplished) in the reporting period in which the income and gains are recognized. Inventories Inventories are stated at the lower of cost or market determined by the first-in, first-out method. Accounts Receivable Accounts receivable include student accounts receivable, bookstore sales receivable, and other receivables. Student accounts receivable represent amounts due for tuition, fees, and room and board from currently enrolled and former students. Bookstore sales receivable represent largely amounts that will be paid once student financial aid is available to post to students accounts. The University extends unsecured credit to students and parents of dependent students in connection with their studies. Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. -9-
NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Pledges Receivable The University has outstanding pledge balances for a pledge drive to fund an endowment honoring long-serving faculty member Dr. David Case. These pledges receivable have not been discounted as they are anticipated to either be fully collected or written off as bad debt in the fiscal year ending June 30, 2013. Property and Equipment Property and equipment and land values for assets in existence as of August 1, 1976 are recorded at an appraisal value of $1,121,135 as of that date since no historical costs were available under the prior cash receipts and disbursements method of accounting. Additions and acquisitions during subsequent fiscal years are recorded at cost at the date of acquisition. Donated property and equipment are carried at the approximate fair value at the date of donation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets (5 to 40 years). Expenditures for property and equipment and major renewals and replacements costing over $2,500 are capitalized. Interest costs incurred during construction are also capitalized. Public Support, Revenue and Expense Contribution income is recorded when cash is received or when ownership of donated assets is transferred. Unconditional pledges are recorded when the University is notified of the pledge, and allowances are provided for amounts estimated as uncollectible. Pledges that will be collected over periods greater than one year are reviewed for collectability and the need for discounting. Bequests are recorded as income at the time the University has an established right to the bequest and the proceeds are measurable. Expenses are recorded when incurred in accordance with the accrual basis of accounting. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donorrestricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported as net assets released from restrictions. Certain staff members have voluntarily reduced their annual compensation for the furtherance of the University s programs and mission. The savings on these salaries was $33,711 for the year ended June 30, 2012. The value of these voluntary reductions has been recorded as an expense with an offsetting amount in contributions in the year the reduction occurred. Allocation of Expense The costs of providing the various programs and supporting activities of the University have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the program and supporting activities. -10-
NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising The University expenses advertising costs as they are incurred. Annuities Payable The University administers various charitable remainder annuity agreements. A charitable remainder annuity provides for the payment of distributions to the grantor or other designated beneficiaries over the annuity s term (usually the designated beneficiary s lifetime). At the end of the annuity s term, the remaining assets (residuum) are available for the University s use or payment of residuum in accordance with the annuity agreement terms. The portion of the annuity attributable to the present value of the future benefits to be received by the University is recorded in the Statement of Activities as a temporarily restricted contribution in the period the annuity is established. Assets held in the charitable remainder annuities are reported at fair market value in the University s Statement of Financial Position. On an annual basis, the University revalues the liability to make distributions to the designated beneficiaries based upon actuarial assumptions. The present value of the estimated future payments is calculated using applicable mortality tables and the contract rate for each individual annuity. Line of Credit The University has a $1,000,000 revolving line of credit with Citizens Bank of Ashville with an interest rate of prime plus 1% paid monthly. At June 30, 2012 and 2011 the interest rate was 4.25% and the outstanding balances were $446,699 and $0, respectively. Income Tax Status The University is exempt from income tax under Section 501(c)(3) of the U.S. Internal Revenue Code and comparable state law, and contributions to it are tax deductible within the limitations prescribed by the Code. The University has been classified as a publicly supported organization, which is not a private foundation under Section 509(a) of the Code. All required filings have been made and are generally subject to review for three years. Endowment Funds Board-designated Endowment. The Board of Trustees had designated unrestricted net assets as a general endowment fund to support the mission of the University. Since that amount resulted from an internal designation and not donor-restricted, it is classified and reported as unrestricted net assets. Donor-designated Endowments. The University s endowment includes numerous funds contributed for scholarships and general endowment of the University. The endowment fund includes both donor-restricted funds and funds designated by the Board of Trustees to function as endowments. As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. -11-
NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Endowment Funds (Continued) The Board of Trustees of the University has interpreted the State Prudent Management of Institutional Funds Act (SPMIFA) as requiring the preservation of the fair value of the original gift as of the date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) the duration and preservation of the various funds, (2) the purposes of the donor-restricted endowment funds, (3) general economic conditions, (4) the possible effect of inflation and deflation, (5) the expected total return from income and the appreciation of investments, (6) other resources of the University, and (7) the University s investment policies. Investment Return Objectives, Risk Parameters and Strategies. The investment objectives of the University are to grow the investment principal and to maximize the total rate of return on the investments, all within prudent parameters of risk, as follows: A. Scholarship: focus on maximizing the total rate of return in order to fund scholarships according to donor wishes. B. Endowment: focus on growing the investment principal in order to increase the endowment and secure the financial future of the University. C. Annuity: focus on maximizing the total rate of return in order to create income to offset the annuity. 2. ACCOUNTS RECEIVABLE Accounts receivable consist of the following as of June 30, 2012: Aging Total 30 Days 30-60 60-90 >90 days Accounts Receivable: Student Accounts $ 6,687,556 $ 1,969,100 $ 1,273,023 $ 599,539 $ 2,845,894 Bookstore 96,652 96,652 - - - Advancement 62,525 31,000 - - 31,525 Gross Accounts Receivable 6,846,733 $ 2,096,752 $ 1,273,023 $ 599,539 $ 2,877,419 Less: Allowance for Doubtful Accounts (1,563,882) Net Accounts Receivable $ 5,282,851. -12-
NOTES TO FINANCIAL STATEMENTS -13-
NOTES TO FINANCIAL STATEMENTS 3. PLEDGES RECEIVABLE During the year ended June 30, 2009, the University held a campaign drive to raise funds for the David Case Chair Endowment. Gross pledges receivable at June 30, 2012 were $48,928 with an allowance for doubtful accounts of $11,174. Fiscal year ending June 30, 2013 will be the last year of collection on these receivables. Any uncollected balance will be written off to bad debt expense. 4. FAIR VALUE MEASUREMENTS Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, provides the 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 University has only Level 1 assets. Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in an active market. This level includes common stocks, corporate bonds or mutual funds based on the closing price reported in the active market where the securities are traded. Fair value measurements for assets reported at fair value on a recurring basis were determined based on: Quoted Prices in Active Markets for Identical Assets Description Fair Value (Level 1) Long-term investments Cash, cash equivalents, and money market $ 197,303 $ 197,303 Mutual funds 811,151 811,151 Bonds 293,737 293,737 Exchange Traded and Closed End Funds 802,717 802,717 Annuities 25,432 25,432 Other 44,586 44,586 5. ENDOWMENT FUNDS The performance objectives of the University are (1) the preservation of capital, growth, and income and (2) to achieve a minimum annual return of three percentage points in excess of the rate of inflation as measured by changes in the Consumer Price Index, or a more acceptable index when available. The measurement time period is 3 to 5 years of a market cycle. -14-
5. ENDOWMENT FUNDS (Continued) OHIO CHRISTIAN UNIVERSITY NOTES TO FINANCIAL STATEMENTS The University operates in compliance with all applicable laws and regulations, particularly the prudent person rule. The prudent person rule of investment means that in investing and reinvesting monies and in acquiring, retaining, managing, and disposing of investment, there shall be exercised the judgment and care under the circumstances then prevailing, which persons of prudence, discretion, and intelligence exercise in management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital. The University had the following endowment-related activities during 2012: Board- Donor Restricted Designated, Temporarily Permanently Total Net Unrestricted Restricted Restricted Endowment Net Assets Net Assets Net Assets Assets Endowment net assets, beginning of year $ 482,089 $ 97,599 $ 1,296,726 $ 1,876,414 Gift income 26,990 104,448 269,701 401,139 Investment income 15,701 12,360 47,791 75,852 Release of donor restriction - (1,804) (680) (2,484) Net appreciation (depreciation) (4,205) 5,192 5,216 6,203 Endowment net assets, end of year $ 520,575 $ 217,795 $ 1,618,754 $ 2,357,124 6. OPERATING LEASES The University has entered into several non-cancelable operating leases, primarily for various forms of equipment, which expire at various dates through June 30, 2017. Those leases generally contain renewal options for periods ranging from three to five years and require the University to pay all executory costs such as taxes, maintenance, and insurance. Lease expenses, including volume copier print charges, for leases was $126,064 for the year ended June 30, 2012. Future minimum lease payments under operating leases that have remaining terms in excess of one year as of June 30, 2012 are: Years Ending June 30: 2013 $ 141,879 2014 108,259 2015 97,653 2016 29,921 2017 7,953 Thereafter - $ 385,665-15-
NOTES TO FINANCIAL STATEMENTS 7. LEASE AGREEMENT WITH THE OHIO HIGHER EDUCATIONAL FACILITY COMMISSION During the fiscal year ending June 30, 2008, the University entered into a lease agreement with the Ohio Higher Educational Facility Commission. The Commission issued revenue bonds of $8,400,000, the proceeds of which were used to provide funds for the Project costs for (a) a new residence hall, (b) construction of the Campus Leadership Center, (c) acquiring property for campus growth, (d) renovation of Johnson Hall, Moore Hall, and The Conley Ministry Center, and (e) refinancing existing loans. The Commission will lease the Project from the University and, in turn, will lease the Project back to the University, with the debt service being payable solely from the revenues derived from the Commission s lease of the Project to the University. The University has pledged and assigned a lien on a security interest in its revenues, excluding certain types of revenues such as federal student aid or restricted federal or state grants. As part of the lease agreement, the University was required to establish a bond fund and a bond reserve fund, to be used solely for the payment of the debt service on the bonds. These funds are classified as noncurrent assets on the statement of financial position. As part of the lease agreement, upon default, the trustee, U.S. Bank, may declare all payments payable under the lease immediately due and payable and may take possession of the Project without terminating the lease or it may sublease the Project or any part thereof. Future payments, net of the discount are as follows for the years ending June 30 th : 8. DEPOSITS Principal Discount Total 6/30/2013 $ 55,000 $ (5,600) $ 49,400 6/30/2014 160,000 (5,600) 154,400 6/30/2015 165,000 (5,600) 159,400 6/30/2016 175,000 (5,600) 169,400 6/30/2017 185,000 (5,600) 179,400 Thereafter 7,510,000 (112,000) 7,398,000 $ 8,250,000 $ (140,000) $ 8,110,000 Deposits of the University consisted of the following as of June 30, 2012: 9. PENSION PLAN Housing Deposits $ 5,842 Room Deposits 22,900 Student Deposits 1,647,301 Total $ 1,676,043 The University participates in a defined contribution pension plan adopted by the sponsoring church organization covering substantially all full-time employees. Total pension expense for the year ended June 30, 2012 was $310,798. Contributions to the plan are based on a percentage of total compensation. -16-
NOTES TO FINANCIAL STATEMENTS 10. NOTES PAYABLE Notes payable consisted of the following at June 30, 2012: Mortage note to an individual, interest at 6%, secured by real property, payable in monthly payments of $3,219.59 through May 2019. $ 218,586 Mortage note to a corporation, interest at 5%, secured by real property, payable in monthly payments of $2,704.67 through August 2020. 215,447 Mortgage note to WesBanco, interest at 4.8%, secured by real property, payable in monthly payments of $3,263.92 through August 2016. 488,703 Promissory note to The Citizens Bank of Ashville, interest at 6.5%, secured by phone equipment, payable in monthly payments of $3,260.92 through June 2013. 37,768 Total long-term debt $ 960,504 Scheduled long-term maturities are as follows for years ending June 30: 2013 $ 101,822 2014 67,585 2015 71,313 2016 75,189 2017 78,585 Thereafter $ 566,010 960,504 11. RELATED PARTY TRANSACTIONS CHURCHES OF CHRIST IN CHRISTIAN UNION The University is a part of the Churches of Christ in Christian Union; however, the University does have its own management team and Board of Trustees. The University receives certain revenues on a regular basis through the denominational headquarters, consisting largely of the monthly contributions of church districts. These contributions totaled $144,061 during the year ended June 30, 2012. All ordained ministers of the Churches of Christ in Christian Union are required to pay one half of their tithe to the University. These contributions totaled $153,958 in the year ended June 30, 2012. 12. COMMITMENTS On June 24, 2011, the University signed an agreement in the amount of $3,954,330 for the construction of a 36,813 square foot addition to the Leadership Center for a Student Services wing which will contain a café/coffee shop, offices, student spaces and include larger locations for the dining hall and bookstore. Site work on the addition began in July, 2011. At June 30, 2012, $654,680 of the agreement was yet to be earned and paid to the construction company. -17-
NOTES TO FINANCIAL STATEMENTS 13. CONCENTRATIONS Concentrations of Credit Risk Due to Temporary Cash Investments Financial instruments that potentially subject the University to concentrations of credit risk consist principally of temporary cash investments. The University places its temporary cash investments with financial institutions and limits the amount of credit exposure to any one financial institution. Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured Limits The University maintains cash balances at several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. At June 30, 2012, the University had $1,804,246 in deposits that were not insured. 14. CONTINGENCIES- GRANTS Grants received by the University may be subject to special audit or review. Such audits or reviews could result in claims against the resources of the University. No provision has been made for any liabilities that may arise from such audits since the amounts, if any, cannot be determined at this date. 15. SUBSEQUENT EVENTS The University has evaluated subsequent events through October 25, 2012, the date which the financial statements were available to be issued. -18-
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2012 Federal Grantor/ Federal Pass Passed Through CFDA Through Grantor/Program Title Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Title IV Student Financial Assistance Cluster: Federal Supplemental Educational Opportunity Grants 84.007 N/A $ 95,885 Federal Work-Study Program 84.033 N/A 78,053 Federal Pell Grant Program 84.063 N/A 6,904,177 Federal Direct Student Loans 84.268 N/A 19,102,388 Teacher Education Assistance for College And Higher Education (TEACH) Grants 84.379 N/A 20,000 Total Title IV Student Financial Assistance Cluster 26,200,503 TOTAL DEPARTMENT OF EDUCATION 26,200,503 Total Federal Award Expenditures $ 26,200,503 SEE THE ACCOMPANYING NOTES AND AUDITOR S REPORT -19-
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2012 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of Ohio Christian University and is presented on the same basis of accounting as the basic financial statements. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 2. FEDERAL DIRECT STUDENT LOANS The University participates in the Federal Direct Student Loan Program. The dollar amount listed in the schedule of expenditures of federal awards represents new loans advanced during the fiscal year ended June 30, 2012. The University is a direct lender for these loan funds; however they are not responsible for collecting these loans in future periods. -20-
October 25, 2012 Board of Trustees Ohio Christian University 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 We have audited the financial statements of Ohio Christian University (the University)(a nonprofit corporation) as of and for the year ended June 30, 2012, and have issued our report thereon dated October 25, 2012. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the University is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the University's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the University s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the University s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in the internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. -21-
Compliance and Other Matters As part of obtaining reasonable assurance about whether the University's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the University in a separate letter dated October 25, 2012. This report is intended solely for the information and use of the Board of Trustees, management and others within the organization, and federal awarding agencies and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, WHITED SEIGNEUR SAMS & RAHE CPAs, LLP -22-
October 25, 2012 Board of Trustees Ohio Christian University Compliance Independent Auditor s Report On Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133 We have audited the compliance of Ohio Christian University (the University)(a nonprofit corporation) with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the University's major federal programs for the year ended June 30, 2012. The University's major federal program is identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal program is the responsibility of Ohio Christian University's management. Our responsibility is to express an opinion on the University's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the University's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the University's compliance with those requirements. In our opinion, the University complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2012. -23-
Internal Control Over Compliance The management of the University is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the University's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Board of Trustees, management and others within the organization and federal awarding agencies and is not intended to be and should not be used by anyone other than these specified parties. Respectfully submitted, WHITED SEIGNEUR SAMS & RAHE CPAs, LLP -24-
Section I - Summary of Auditor's Results 1. Opinion issued: OHIO CHRISTIAN UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2012 Financial Statements: Major Programs: Unqualified Unqualified 2. Major Programs: Federal Agency: Program Name: CFDA# Department of Education Title IV Cluster 84.007 84.033 84.063 84.268 84.379 3. Dollar threshold for determining Type A and B Programs: $300,000 4. The auditee qualified as a low risk auditee: X Yes No 5. Findings: Financial Statements Major Programs Reportable Conditions in Internal Control: Significant Deficiency No No Material Weaknesses No No Material Instances of Noncompliance No No Section II - Financial Statement Audit Findings None. Section III - Major Federal Award Program Audit Findings None. -25-