HUDSON COUNTY COMMUNITY COLLEGE AUDITED FINANCIAL STATEMENTS AND SCHEDULES OF EXPENDITURES OF FEDERAL AND STATE OF NEW JERSEY AWARDS JUNE 30, 2008

HUDSON COUNTY COMMUNITY COLLEGE AUDITED FINANCIAL STATEMENTS AND SCHEDULES OF EXPENDITURES OF FEDERAL AND STATE OF NEW JERSEY AWARDS JUNE 30, 2008

HUDSON COUNTY COMMUNITY COLLEGE JUNE 30, 2008 TABLE OF CONTENTS Page Management s Discussion and Analysis... I-XII Independent Auditor s Report... 1-2 Basic financial statements: Statements of Net Assets as of June 30, 2008 and 2007... 3 Statements of Revenues, Expenses and Changes in Net Assets For the Years Ended June 30, 2008 and 2007... 4 Statements of Cash Flows For the Years Ended June 30, 2008 and 2007... 5-6 Component Unit: Statement of Financial Position as of June 30, 2008 and 2007... 7 Statement of Activities and Changes in Net Assets For the Years Ended June 30, 2008 and 2007... 8 Statements of Cash Flows For the Years Ended June 30, 2008 and 2007... 9 Notes to Financial Statements... 10-21 Other Supplemental Information... 23-24 Schedules of Expenditures of Federal and State of New Jersey Awards Schedule of Expenditures Federal Awards... 26 Schedule of Expenditures State of New Jersey Awards... 27 Notes to Schedules of Expenditures of Federal and State of New Jersey Awards... 28 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... 29-30 Independent Auditor s Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in accordance with Federal OMB Circular A-133 and State of New Jersey OMB Circular 04-04... 31-32 Schedule of Findings and Questioned Costs Section I Summary of Auditor s Results... 34-35 Section II Schedule of Financial Statement Findings... 36 Section III Schedule of Federal and State Award Findings and Questioned Costs... 37 Section IV Summary Schedule of Prior Year Audit Findings... 38

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) Introduction The following discussion and analysis provides an overview of the financial position and activities of the Hudson County Community College (College) for the audited year ended June 30, 2008 with selected comparative information for the years ended June 30, 2007 and 2006. This discussion has been prepared by management and should be read in conjunction with the financial statements including the notes thereto, which follow this section. Using the Financial Statements The College s financial report includes three basic financial statements: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets and the Statement of Cash Flows. These statements are prepared in accordance with accounting principles generally accepted in the United States of America and Government Accounting Standards Board (GASB) pronouncements. During 2002, the College implemented GASB Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments as amended by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, and applied the statement effective July 1, 2001. The statements establish standards for external financial reporting for public colleges and universities and require that financial statements be presented on a consolidated basis to focus better on the College as a whole. Resources are classified into three net asset categories unrestricted, restricted and invested in capital assets, net of accumulated depreciation and related debt. Previously, financial statements focused on the accountability of individual fund groups rather than the College as a whole. Also, the College financial report includes three financial statements on the College Foundation: the statement of Financial Position, the statement of Activities and changes in Net Assets, and the Statement of Cash Flows. These statements are prepared in accordance with GASB statement No. 39 and amended statement No. 14 which provides guidance and criteria for reporting related component organizations. Statement of Net Assets (Refer to Page 3) The statement of net assets presents the financial position of the College at the end of the fiscal year and includes all assets and liabilities of the College. The difference between total assets and total liabilities (net assets) is one indicator of the financial condition of the College, while the change in net assets is an indicator of whether the financial condition has improved or declined during the year. The statement states two asset and liability classifications a) current assets and liabilities that are less than one year and b) non-current assets and liabilities that are more than one year. There are three net assets classifications a) investment in capital assets, net of related debt b) restricted assets (expendable and non-expendable) and c) unrestricted assets. On the old statements the net assets used to be stated as fund balances. I

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) A summary of the College s assets, liabilities and net assets at June 30, 2008, 2007 and 2006 follows: 2008 vs 2007 2007 vs 2006 Dollar Percent Dollar Percent 2008 2007 2006 Change Change Change Change Assets: Current assets $ 15,726,210 $ 18,184,524 $ 21,337,455 $ (2,458,314) -15.63% $ (3,152,931) -17.34% Non-current Assets 70,672,767 67,924,743 61,700,456 2,748,024 3.89% 6,224,287 9.16% Total assets 86,398,977 86,109,267 83,037,911 289,710 0.34% 3,071,356 3.57% Liabilities: Current liabilities 4,875,891 5,406,438 4,510,612 (530,547) -10.88% 895,826 16.57% Non-current liabilities 1,895,259 2,040,724 1,793,622 (145,465) -7.68% 247,102 12.11% Total liabilities 6,771,150 7,447,162 6,304,234 (676,012) -9.98% 1,142,928 15.35% Net assets: Invested in capital, net of debt 70,584,308 67,835,034 61,610,747 2,749,274 3.90% 6,224,287 9.18% Restricted 698,113 235,751 193,700 462,362 66.23% 42,051 17.84% Unrestricted 8,345,406 10,591,320 14,929,230 (2,245,914) -26.91% (4,337,910) -40.96% Total net assets $ 79,627,827 $ 78,662,105 $ 76,733,677 $ 965,722 1.21% 1,928,428 2.45% The College s statement of net assets FY 08 states $79.6 million in total net assets. This represents an increase of $1.0 million over the prior year. The reason for these changes follows: Investments in capital assets, net of accumulated depreciation increased $2.7 million adding to the investment in the plant for buildings and improvements, equipment and land acquisitions. Unrestricted net assets totaled $ 8.3 million, as of June 30, 2008; and will be used to supplement the facilities master plan projects, to cover plant and renewal plan projects and to secure a minimum amount for reserves or emergencies. This amount was $2.2 million lower than prior year and the net amount was spent on capital projects during FY 08. Restricted expendable net asset balance represents higher restricted contracts and scholarships of $462,362 over prior year. For FY 2008 the Freeholder Scholarships were $100,528 and the College Foundation Scholarships were $141,521. Total assets for FY 2008 increased $289,710 based on higher capital additions offsetting lower cash and receivables. Accounts Receivables, net were lower at $3.7 million in FY 2008 compared to $5.9 million in FY 2007, due primarily to lower State and County receivables for reimbursement of Chapter 12 capital projects and lower grant and contract receivables due to reorganization of the Business & Industry Program under Community Education. Student net accounts receivables were $1.4 million in FY 2008 versus $1.3 million in FY 2007. II

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) Total liabilities were $6.8 million in 2008 and were $676,012 lower than prior year due to lower student deposits. Accounts payable and accrued expenses were less due to lower construction payables at yearend. Overall working capital (current assets less current liabilities) decreased $1.9 million compared to prior year. Statement of Revenues, Expenses and Changes in Net Assets (Refer to Page 4) The statement of revenues, expenses and changes in net assets presents the results of operation for the College as a whole. Revenues, expenses and other changes in net assets are reported as either operating or nonoperating. Significant recurring sources of College revenue, state and county appropriations and investment earnings, are defined by GASB Statement No. 35 as nonoperating. Also, student tuition and fees revenues are stated net of scholarship allowances. A summary of the College s revenues, expenses and changes in net assets for the year ended June 30, 2008, 2007 and 2006 follows: 2008 vs 2007 2007 vs 2006 Dollar Percent Dollar Percent 2008 2007 2006 Change Change Change Change Operating revenues 28,873,004 27,663,019 24,672,557 1,209,985 4.19% 2,990,462 10.81% Operating expenses 47,379,067 44,265,142 42,734,270 3,113,925 6.57% 1,530,872 3.46% Operating loss (18,506,063) (16,602,123) (18,061,713) (1,903,940) 10.29% 1,459,590-8.79% Net non-operating revenues 19,471,785 18,530,551 20,930,994 941,234 4.83% (2,400,443) -12.95% Decrease in net assets 965,722 1,928,428 2,869,281 (962,706) -99.69% (940,853) -48.79% Net assets at beginning of year 78,662,105 76,733,677 73,864,396 1,928,428 2.45% 2,869,281 3.74% Net assets at end of year 79,627,827 78,662,105 76,733,677 965,722 1.21% 1,928,428 2.45% The Statement of Revenues, Expenses and Changes in Net Assets reflect an overall increase in net assets for 2008 of 1.2% or $1.0 million higher than 2007. Major contributing factors are discussed below: REVENUES: Operating and Non-operating Revenues increased by $2.2 million or 4.8% from $46.2 million in FY 2007 to $48.4 million in FY 2008 based on higher operating revenues from higher student tuition and fees and higher government grants for student aid. Non-operating revenues increased from higher capital appropriations. Student enrollment and tuition rate increases provided for gross student tuition and fee revenues of $21.4 million in FY 2008 as compared to $19.7 million in FY 2007. Student credit hour enrollments increased 6.4 % from the prior year (161,843 credit hours in FY 2008 versus 152,108 credit hours in FY 2007). For fiscal year 2008, tuition rates increased 4.9% to $86.00 a credit based on the estimated inflationary impact on the costs and growth of providing higher education and in light of other funding sources available. For 2008, $9.4 million or 44% of total tuition and fees of $21.4 million represent non-student aid payments. III

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) Revenues from government grants and programs for sponsored education related programs increased 2.1% from $19.2 million in 2007 to $19.6 million in 2008. The government grants increased primarily due to higher student aid from Pell and TAG grants. Also, other existing programs consist of the Perkins Grant, Education Opportunity Fund Grant and the Title V Grant for the Center for Academic Success and the Center for Innovation. Also, local and private sponsored programs reported $0.5M in 2008 versus $1.8M in 2007. The decrease was based on lower training contracts and activities from the Business and Industry Center Programs when the Continuing Education department closed. Revenues from the state and county appropriations increased $1.3 million from $17.8 million in 2007 to $19.1 million in 2008 due to higher revenues from capital appropriations for Chapter 12 funds used for renovation and construction activities and higher state appropriations. A comparison of major operating and non-operating revenues by source for 2008 and 2007 follows: 40 35 30 25 20 15 10 5 (000 s) ($) 19.1 17.8 19.6 19.2 0 State And County Appropriations Grants/Contracts 21.4 19.7 Gross Tuition & Fees FY 2008 FY 2007 Other operating revenues totaled $609,672 in 2008 and included $341,859 from Bookstore revenues and $187,288 from rental of parking lot at Enos/Jones Streets in Jersey City, New Jersey. FY 2007 sum was $507,127. Total interest income was $407,216 in 2008 and was $354,934 lower than FY 2007 sum of $762,150 based on lower interest rates and lower investment balances during the year. IV

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) EXPENSES: Operating Expenses increased $3.1 million or 7.0% from $44.3 million in 2007 to $47.4 million in 2008. Salaries and benefits represent 52% of total operating expenses. In 2008 additional payroll costs were realized for increase in salaries, benefits and faculty overload rates in union contracts. Additional costs were noted for additional personnel and adjuncts to meet increased student enrollments and college programs. The New Jersey State Medical Plan had changed plans in April FY 08 which reduced the College medical costs for a year by approximately $200,000. However, future years should realize above inflation increases. The cost of employee pensions (PERS) paid by the State in the past, continues to be charged to the College. The amount for FY 2008 increased 51% was $421,185 versus FY 2007 amount of $205,777. Non-Personnel costs for contractual services reflected inflationary increases or contract renewals for outsource technology, cleaning and security contracts and various maintenance and technology software agreements. Instruction expenses of $15.3 million are the highest functional area at 32% of total expenses. Institutional support cost of $12.4 million represents 26% of total expenses. Student Aid represents 13% of the total expenses and compared to prior year, financial aid amounts are higher based on higher enrollments and an increase in the dollar amount of the awards. For FY 2008, $5.9 million or 33% of the total financial aid of $17.8 million represented primarily checks payable to students beyond tuition and fees for living expenses, books, etc. Depreciation Expenses increased from $1,262,903 in 2007 to $1,899,881 in 2008 stating higher depreciation of assets. Also, non-capitalized plant expenses were $1,555,764 in 2008 compared to $333,095 in 2007. In addition, allowance for student bad debts was $741,394 in FY 2008 versus $755,728 in FY 2007. V

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) FUND TRANSFERS: (See Page 25) The College records its day to day activities by funds. The performance of the unrestricted current fund activities is mirrored to the College operating budget. FY08 the College had the following non-mandatory transfers between funds: Cancellation of receivables - $590,719. The College cancelled unfunded restricted student receivables for (a) OK2 Scholarship Program for $308,448 (b) Freeholder Scholarships for $210,854 and (c) Bayonne Hospital Nursing Program for $74, 417 and transferred the amounts to be funded from the unrestricted current funds. Net program expenses - $419,436. The College transferred $219,436 net actual expenses over revenues for the Conference Center FY08 and in addition made a $400,000 accrual for estimated FY09 net expenses. In addition, the College transferred $200,000 net revenues over expenses for the Business and Industry Center from prior years. All transfers were funded by the unrestricted current funds. Also, the College had transferred $750,000 from unrestricted funds to plant funds for plant renewals and replacement projects, technology projects and to maintain reserves for emergencies. VI

MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited - see accompanying auditor's report) A comparison of operating expenses by functional and natural classification for the year ended June 30, 2008 follows: Fiscal Year 2008 Functional Classification Instruction - 32% 32% Academic Support - 5% 5% Student Services - 8% 8% Institutional Support - 26% 26% Operations & Maintenance - 9% 9% Non-Capitalized Plant Expense - 3% 3% Student Aid - 13% 13% Depreciation - 4% 4% 100% Fiscal Year 2008 Natural Classification Compensation & Benefits - 52% 52% Contractual Services - 10% 10% Supplies & Materials - 3% 3% Other - 19% 19% Student Aid - 12% 12% Depreciation - 4% 4% VII

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) Statement of Financial Position, Statement of Activities and Changes in Net Assets and Statement of Cash Flows for Hudson County Community College Foundation (Refer to pages 7,8 and 9) The statement of Financial Position FY 2008 shows total net assets of $1,334,641 of which $861,137 is unrestricted. The statement of activities and changes in Net Assets shows that the College Foundation increased net assets in 2008 by $288,209 over 2007 to $1,334,641. Total support was $684,157 and total expenses were $395,948. Complete financial statement for the Foundation can be obtained from the Administrative Offices at 70 Sip Avenue, Jersey City, NJ 07306. Statement of College Cash Flows (Refer to Pages 5 and 6) The Statement of Cash Flows provides additional information about the College s financial results, by reporting the major sources and uses of cash. The Statement helps users understand or assess: How operations and plant and equipment were financed. The ability to meet future obligations as they become due. The relationship between the change in net assets and the change in cash. The Statement of Cash Flows for the year ended June 30, 2008 states a net decrease in cash and cash equivalents of $0.2 million dollars. The total cash position as of June 30, 2008 is $11.9 million. The reconciliation statement shows the net cash used from operating activities indicates that net cash from non-operating activities are needed in order to offset or realize a breakeven operating position. In 2007 the decrease in cash and cash equivalents was $2.6 million with a total cash position of $12.2 million. VIII

Capital and Debt Activities Debt MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) The College has no outstanding long-term debt (refer to page 3 of Statement of Net Assets & Liabilities). Capital In FY 2008, Hudson County Community College continued to implement the College s facilities Master Plan through building acquisitions, renovations of acquired facilities and construction of new facilities. The purpose of the expansion is to meet student enrollment growth, implement new academic programs, expand current programs, develop the remaining portion of the college campus and continue to move from lease facilities to college owned facilities. Capital additions totaled $4.6 million in 2008 as compared with $7.5 million in 2007. The capital additions primarily comprised construction in progress, building and improvements, investment in equipment and acquisitions of land in Jersey City for future development. In February 2008, Phase II construction in process for a new building at 161 Newkirk Street to house a conference center, culinary arts program, classrooms and fine dining and banquet hall was substantially completed. Approximately $1.2 million dollars was expensed on this project during the fiscal year. As of June 30, 2008, the total actual project costs to-date was $24.6 million dollars versus a project budget cost of $25.0 million dollars (Chapter 12/Plant Funding Project). In July/August 2007, the College renovated 119 Newkirk Street for educational use as classrooms and faculty offices at an actual cost of $463,000 versus a project budget of $472,000 (Plant Fund Project). In FY 2008, the College placed holds on the exterior masonry repairs for 25 Pathside (design stage) including the demolition of the canopy and archway connected to the building (bid stage) and the renovations of a one floor store front building at 65-79 Sip Avenue (design stage) for a new Library, pending review of the College s redevelopment plan for Journal Square (Chapter 12 Funding Projects). In April 2008, the College purchased a parking lot at 141 Sip Avenue adjacent to the new Culinary building at a purchase price of $1,500,000. The lot will be developed into a park. $650,000.00 of the purchase price will be paid by an Open Space Grant from the County of Hudson (Chapter 12/County Grants Funding Project). In FY 2008, the College was in the design stage for the development of the new North Hudson Building in Union City, New Jersey. $964,000 primarily for Architectural design services was expensed in FY 2008 on this project (Chapter 12 Funding Project). IX

Capital and Debt Activities (continued) MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) In FY 2008 the College, under the Technology Plan, developed smart classrooms in all academic buildings and wireless access in all buildings. The College became in compliance with the New Jersey Department of Education requirement that all College buildings meet ADA requirements. This included renovating the bathrooms at 70 Sip Avenue. The College in-house staff converted the student lounge at 81 Sip Avenue into an area for Institutional Research & Grants. Other Economic and Financial Conditions The following is a description of currently known facts, decisions, or conditions that are expected to have a significant effect on the financial position (net assets) or results of operation (revenues, expenses, and other changes in net assets) of the College. The College unrestricted capital plant fund balance as of June 30, 2008 was $4.8 million dollars. Since June 30, 2008, $2.5 million of the $4.8 million has been reserved to purchase and implement a new College administrative software system leaving a working balance of $2.3 million primarily for reserves or needed operational items. Since 2005, the unrestricted plant fund balance has decreased by $14.2 million dollars. Capital funds were used to cover plant and renewal and technology projects, supplemented Chapter 12 projects and acquisition of properties (see page 24 ). Balances by year-end are as follows: YEAR June 30, 2008 June 30, 2007 June 30, 2006 June 30, 2005 PLANT FUND BALANCES $ 4.8 MM $ 7.1 MM $12.0 MM $19.0 MM Large expenditure items for plant funds during the 2005-2008 period included $5.4 MM for new Culinary building, $2.2 MM for purchase and renovation of 119 Newkirk Street and $3.0 MM for the purchase of 65-79 Sip Avenue to house a new Library. In 2008, the College had a facilities review conducted for the redevelopment of the Journal Square Campus which estimated that the total costs of redevelopment would be approximately $122MM. The College is hopeful that some College buildings could be sold and the funding applied against this redevelopment. The alternate would be to build a three story building at 65-79 Sip Avenue for approximately $17MM and continue to renovate 25 Pathside. Currently, the College has $55MM in Chapter 12 Funding. An additional amount of up to $2.5MM will be available FY 2010. X

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) Other Economic and Financial Conditions (continued) The College, under the five (5) year technology plan, will have to replace the College s Administrative Software System. The current system will not be supported beyond 2011. The cost for the purchase, implementation and maintenance of the new system is estimated to cost the College $2.5 MM from the Plant Fund over two years beginning in 2009. Also, the current College Telecommunications System is aging and will need to be upgraded. The estimated cost is $100,000 to be funded from the Plant Fund. The College, under the Safety & Security Plan, has developed, implemented and trained staff for a Homeland Security Plan which is in compliance with New Jersey State Guidelines. The cost of expansion is a challenge to the College. New facilities can add significant operating expenses that exceed revenues or new revenues. The operating cost is anticipated to be millions of dollars in which additional revenues need to be identified to cover the additional expenses in facilities development, which is a major challenge to the financial health of the College. The College student credit enrollments continue to increase over the years and it is the goal of the College to continue to increase enrollments 5% a year over future years. The Fall 2008 student headcount enrollments were 7,526 which was an increase of 7.2% over prior year. Student credit hours for the same period was 79,992 and up 6.3% for the same period. Revenues for State Appropriations in 2009 will decrease 10% or ($617,000) to $6,709,424 or 18% of total revenue. Revenues for County Appropriations in 2009 will increase $200,000 to $8,787,633 or 24% of total revenues. The College will increase tuition rates in FY 2009. There was an increase of $7.00 per credit or 8.1% for fiscal year 2008 to $93.00 a credit. The College tuition rate is in the middle range of the 19 New Jersey Community Colleges ($91.40) and the lowest of the surrounding local sector. There is no increase in fees. The tuition and fees amount is at 55% of total revenues. In FY 09, additional payroll costs of 4.25% is anticipated for increase in salaries, benefits, faculty overload rates and adjunct rates anticipated in union contracts. The College is in the fourth year of a (5) five year contract with three (3) unions (FY 06 FY 10). The total remaining incremental salary liability is estimated at $750,000. In addition the adjunct union agreement started in 2006 and will expire June 30, 2009. Since FY 2004, the cost of employee pensions (PERS) paid in the past by the State is now charged to the College. The incremental amount was 2,208 in FY 2004 and $500,000 is projected for FY 2009. The incremental percentage increase over five (5) years is 225%. In FY 2009, the College estimates that medical benefit costs will increase above inflation. The estimated percentage increase in FY 2009 is 11%. Because the College is growing and adding new staff over the preceding years, the cost for medical benefits has also increased because of volume. Therefore, volume and preservation of benefits is a costly double edge sword. XI

MANAGEMENT S DISCUSSION AND ANALYSIS (Unaudited see accompanying auditor s report) Other Economic and Financial Conditions (continued) The three (3) year College security outsource contract expires June 30, 2009 and the bid process will begin around March, 2009. College programs have an effect on the financial position of the College. With the hiring of an assessment analyst the College s academic credit programs will be assessed on an ongoing basis. Also, with the establishment of Community Education in FY 2008, the Business & Industry Programs have been revamped and the College has financially seeded both the start up of the Conference Center and the non-credit programs beginning in FY 2008. It is important these programs become financially selfreliant in the future. In FY 2009 and the immediate future years, the College may see no significant growth in County funding and reduced or level funding from the State. With 84% of the total College operating budget being personnel or labor driven, it is important that most programs and their services cover their costs. XII

CARR, DALEY, SULLIVAN & WEIR, PC CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS 220 South Orange Avenue Livingston, NJ 07039 TEL (973) 740-9100 FAX (973) 740-9102 INDEPENDENT AUDITOR S REPORT The Board of Trustees Hudson County Community College Jersey City, New Jersey We have audited the accompanying financial statements of the Hudson County Community College (College), State of New Jersey, a component Unit of the County of Hudson, State of New Jersey as of and for the years ended June 30, 2008 and 2007. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Hudson County Community College Foundation (Foundation) which is a discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Foundation, is based 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 Government Auditing Standards issued by Comptroller General of the United States; and in compliance with audit requirements as prescribed by the Department of Treasury, State of New Jersey. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The financial statements of the Foundation were not audited in accordance with Government Auditing Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinions. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Hudson County Community College and the discretely presented component unit as of June 30, 2008 and 2007, and the respective changes in financial position and cash flows where applicable, thereof for the years 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 January 15, 2009 on our consideration of the College s internal control over financial reporting and 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. The Management s Discussion and Analysis, on Pages I through XII is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplemental information. However, we did not audit the information and express no opinion on it. -1-

Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Hudson County Community College taken as a whole. The accompanying other supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying schedules of expenditures of Federal and State of New Jersey awards are presented for 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 State of New Jersey Office of Management and Budget Circular 04-04, Single Audit Policy for Recipients of Federal Grants, State Grants and State Aid, and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. January 15, 2009-2-

HUDSON COUNTY COMMUNITY COLLEGE STATEMENTS OF NET ASSETS June 30, 2008 and 2007 ASSETS: 2008 2007 Current Assets: Cash and cash equivalents $ 11,940,845 $ 12,150,116 Accounts receivable - Students, net 1,390,250 1,301,158 Grants and contracts receivable 1,459,686 2,834,109 State and county receivable 858,238 1,727,225 Prepaid expenses 77,191 171,916 Total Current Assets 15,726,210 18,184,524 Noncurrent Assets: Prepaid expenses 88,459 89,709 Capital assets, net 70,584,308 67,835,034 Total Noncurrent Assets 70,672,767 67,924,743 Total Assets $ 86,398,977 $ 86,109,267 LIABILITIES: Current Liabilities: Accounts payable and accrued expenses $ 4,015,119 $ 4,722,049 Deferred revenue 860,772 684,389 Total Current Liabilities 4,875,891 5,406,438 Noncurrent Liabilities: Student deposits 865,241 1,082,100 Accounts payable and accrued liabilities 1,030,018 958,624 Total Noncurrent Liabilities 1,895,259 2,040,724 Total Liabilities $ 6,771,150 $ 7,447,162 NET ASSETS: Invested in capital assets, net of related debt $ 70,584,308 $ 67,835,034 Restricted for: Expendable - Scholarships, contracts and fellowships 698,113 235,751 Unrestricted 8,345,406 10,591,320 Total Net Assets $ 79,627,827 $ 78,662,105 See Accompanying Notes to Financial Statements. -3-

HUDSON COUNTY COMMUNITY COLLEGE STATEMENTS OF REVENUES AND CHANGES IN NET ASSETS For the Years Ended June 30, 2008 and 2007 2008 2007 OPERATING REVENUES: Student tuition and fees (net of scholarship allowances of $12,022,889 in 2008 and $11,016,259 in 2007) $ 8,670,529 $ 7,940,769 Governmental grants 19,054,910 17,385,120 Local and private sponsored programs 537,893 1,830,003 Other operating revenues 609,672 507,127 Total Operating Revenues 28,873,004 27,663,019 OPERATING EXPENSES: Instruction 15,286,251 16,011,407 Academic support 2,105,544 2,117,525 Student services 3,948,468 3,815,993 Institutional support 12,444,477 11,369,742 Operation and maintenance of plant 4,010,003 3,662,826 Non capitalized plant expense 1,555,764 333,095 Conference Center 224,138 - Depreciation 1,899,881 1,262,903 Student aid 5,904,541 5,691,651 Total Operating Expenses 47,379,067 44,265,142 Operating Income (Loss) (18,506,063) (16,602,123) NON-OPERATING REVENUES (EXPENSES): State appropriations 7,313,378 6,928,648 County appropriations 8,587,633 8,587,633 Interest income 407,216 762,150 Interest expense on capital lease - (3,112) Net Operating Revenues Before Capital Appropriations 16,308,227 16,275,319 Capital appropriations 3,163,558 2,255,232 Net Non-operating revenues 19,471,785 18,530,551 Increase in Net Assets 965,722 1,928,428 Net Assets - Beginning of Year 78,662,105 76,733,677 Net Assets - End of Year $ 79,627,827 $ 78,662,105 See Accompanying Notes to Financial Statements. -4-

HUDSON COUNTY COMMUNITY COLLEGE STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2008 and 2007 2008 2007 Cash Flows from Operating Activities: Student tuition and fees $ 8,757,820 $ 7,349,872 Governmental grants 20,140,065 15,615,992 Nongovernmental grants and contracts 822,460 1,625,626 Other operating receipts 614,374 507,127 Payments to employees for salaries and benefits (24,632,060) (23,970,569) Payments to suppliers (15,482,149) (12,507,012) Payments to students for financial aid (5,904,541) (5,691,651) Net cash provided by (used in) operating activities (15,684,031) (17,070,615) Cash Flows from Noncapital Financing Activities: State appropriations 7,313,378 6,928,648 County appropriations 8,587,634 8,587,633 Student organizations agency transactions (216,859) 256,510 Net cash provided by (used in) noncapital financing activities 15,684,153 15,772,791 Cash Flows from Capital and Related Financing Activities: Capital appropriations 4,032,546 5,517,149 Purchase of capital assets (4,649,155) (7,487,190) Principal paid on capital lease - (59,591) Interest paid on capital lease - (3,112) Net cash provided by (used in) investing activities (616,609) (2,032,744) Cash Flows from Investing Activities- Interest received on investments 407,216 762,150 Net increase (decrease) in cash and cash equivalents (209,271) (2,568,418) Cash and cash equivalents, beginning of the year 12,150,116 14,718,534 Cash and cash equivalents, end of year $ 11,940,845 $ 12,150,116 See Accompanying Notes to Financial Statements. -5-

HUDSON COUNTY COMMUNITY COLLEGE STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2008 and 2007 Reconciliation of Operating Loss to Net Cash Used by Operating Activities: 2008 2007 Operating loss $ (18,506,063) $ (16,602,123) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation expense 1,899,881 1,262,903 Changes in assets and liabilities: Accounts receivable 1,285,331 (2,551,316) Prepaid expenses 95,975 (26,088) Accounts payable and accrued expenses (635,537) 859,092 Deferred revenue 176,383 (13,083) Net cash used by operating activities $ (15,684,030) $ (17,070,615) See Accompanying Notes to Financial Statements. -6-

HUDSON COUNTY COMMUNITY COLLEGE FOUNDATION (A Discretely Presented Component Unit) STATEMENTS OF FINANCIAL POSITION June 30, 2008 and 2007 2008 2007 Assets: Cash and cash equivalents $ 499,249 $ 248,085 Investments 709,609 679,181 Accounts receivable 500 1,200 Unconditional promises to give 38,317 43,317 Accrued interest receivable - - Prepaid expenses 3,456 3,683 Deposits - - Other Assets 8,330 8,847 Library and art collection 87,580 74,419 Total Assets $ 1,347,041 $ 1,058,732 Liabilities - Deferred revenue $ 12,400 $ 12,300 Net Assets: Unrestricted 861,137 724,036 Temporarily restricted 150,288 161,981 Permanently restricted 323,216 160,415 Total Net Assets 1,334,641 1,046,432 Total Liabilities and Net Assets $ 1,347,041 $ 1,058,732 See Accompanying Notes to Financial Statements. -7-

HUDSON COUNTY COMMUNITY COLLEGE FOUNDATION (A Discretely Presently Component Unit) STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS For the Years Ended June 30, 2008 and 2007 June 30, 2008 June 30, 2007 Temporarily Temporarily Unrestricted Restricted Permanently 2008 Unrestricted Restricted Permanently 2007 Net Assets Net Assets Restricted Total Net Assets Net Assets Restricted Total Change in Net Assets: Support: Support 15,923 $ 45,500 $ 162,801 $ 224,224 $ 650 $ 62,877 $ 24,800 $ 88,327 Special events 198,369 82,590-280,959 201,220 70,848-272,068 Interest 37,461 1,450-38,911 29,692 1,528-31,220 Contributions in kind 140,063 - - 140,063 125,143 - - 125,143 Collection Assets Received 0 - - - 8,524 - - 8,524 Total Support 391,816 129,540 162,801 684,157 365,229 135,253 24,800 525,282 Net Assets Released from Restrictions - Restrictions satisfied by payments 141,233 (141,233) - - 120,315 (120,315) - - Total Support and Reclassifications 533,049 (11,693) 162,801 684,157 485,544 14,938 24,800 525,282 Expenses: Program services 165,732 - - 165,732 145,904 - - 145,904 Supporting services: Management and general 147,022 - - 147,022 129,054 - - 129,054 Fund raising 83,194 - - 83,194 93,768 - - 93,768 Total Expenses 395,948 - - 395,948 368,726 - - 368,726 Changes in Net Assets 137,101 (11,693) 162,801 288,209 116,818 14,938 24,800 156,556 Net Assets - Beginning of Years 724,036 161,981 160,415 1,046,432 607,218 147,043 135,615 889,876 Net Assets - End of Years 861,137 $ 150,288 $ 323,216 $ 1,334,641 $ 724,036 $ 161,981 $ 160,415 $ 1,046,432 See Accompanying Notes to Financial Statements. -8-

HUDSON COUNTY COMMUNITY COLLEGE FOUNDATION (A Discretely Presented Component Unit) STATEMENTS OF CASH FLOWS June 30, 2008 and 2007 2008 2007 Operating Activities: Changes in net assets $ 288,209 $ 156,556 Adjustments to reconcile changes in net assets to net cash provided by operating activities: Collection accession received - (8,524) Depreciation 2,640 Changes in Assets and Liabilities: (Increase) decrease in: Prepaid expenses 227 10,486 Accounts receivable 700 (1,200) Unconditional promises to give 5,000 56,683 Deposits - 2,500 Accrued interest receivable - - Increase (decrease in - Deferred revenue 100 (32,368) Net Cash Provided by Operating Activities 296,876 184,133 Investing Activities: Purchases of investments (670,478) (359,499) Maturities of investments 640,050 66,692 Purchases of other assets (2,123) - Art purchases (13,161) (2,900) Net Cash Used in Investing Activities (45,712) (295,707) Net (Decrease) Increase in Cash and Cash Equivalents 251,164 (111,574) Cash and Cash Equivalents - Beginning 248,085 359,659 Cash and Cash Equivalents - Ending $ 499,249 $ 248,085 Supplementary Information: Cash paid for: Interest $ - $ - Taxes $ - $ - See Accompanying Notes to Financial Statements. -9-

HUDSON COUNTY COMMUNITY COLLEGE Notes to Financial Statements June 30, 2008 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Hudson County Community College (the College) is a community college located in the County of Hudson, State of New Jersey. As a community college the College functions through a Board of Trustees, but also requires approval of the County of Hudson for matters such as approval of capital projects. Also, debt is issued by the County of Hudson, rather than the College, to fund capital project appropriations. The board is comprised of eleven members appointed to four-year terms. Board members may also be put on holdover where they remain on the Board while awaiting official reappointment. The purpose of the College is to offer high quality programs and services which are affordable, accessible, and community centered. All programs and services are designed to meet the educational needs of a diverse community and to promote the economic, technological, cultural, social and civic development of Hudson County and its service areas. Reporting Entity The primary criterion for including activities within the College s reporting entity, as set forth in Section 2100 of the GASB Codification of Governmental Accounting and Financial Reporting Standards, as amended by GASB 39, is whether: the organization is legally separate (can sue or be sued in their own name) the College holds the corporate powers of the organization the College appoints a voting majority of the organization s board the College is able to impose its will on the organization the organization has the potential to impose a financial benefit/burden on the College there is a fiscal dependency by the organization on the College the economic resources substantially benefit the College Based on the aforementioned criteria for the year ended June 30, 2008, the Hudson County Community College Foundation (the Foundation) is a discretely presented component unit of the College. The College would be shown as a discrete unit of the County of Hudson s reporting entity. However, the County of Hudson is required by the New Jersey Division of Local Government Services not to include discrete units on their financial statements, and therefore the College is not included in the County of Hudson s financial statements. Financial Statement Presentation The College s financial statements are presented in accordance with the requirements of GASB No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and GASB 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities. Under GASB No. 34 and No. 35, the College is required to present a statement of net assets classified between current and noncurrent assets and liabilities, a statement of revenues, expenses and changes in net assets, with separate presentation for operating and nonoperating revenues and expenses, and a statement of cash flows using the direct method. -10-

HUDSON COUNTY COMMUNITY COLLEGE Notes to Financial Statements June 30, 2008 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Basis of Accounting The college prepares its financial statements as a business-type activity in conformity with applicable pronouncements of the Governmental Accounting Standards Board (GASB). Accordingly, the College s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant interfund transactions have been eliminated. Pursuant to GASB Statement No. 20, the college has the option to apply the provisions of all relevant pronouncements of the Financial Accounting Standards Board (FASB) that were issued after November 30, 1989, and do not conflict with or contradict GASB pronouncements. The College has elected not to apply FASB pronouncements after the applicable date. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents and Investments Cash and cash equivalents consist primarily of cash on deposit with banks and certificates of deposit with an initial maturity date of less than three months. Capital Assets Capital assets are recorded at cost at the date of acquisition. Equipment with a unit value of less than $5,000 is expensed. Depreciation is computed on a straight-line basis with the useful lives of buildings and improvements at 40 years and machinery and equipment at 7 years. -11-

HUDSON COUNTY COMMUNITY COLLEGE Notes to Financial Statements June 30, 2008 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Net Assets The accompanying financial statements have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board ( GASB ). The GASB establishes standards for external financial reporting for public colleges and universities and requires that financial statements be presented on a consolidated basis to focus on the college as a whole, with resources classified for accounting and reporting purposes into four net asset categories according to externally imposed restrictions. The four required net asset categories are as follows: Invested in capital assets, net of related debt Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition of those assets. Restricted, nonexpendable Net assets subject to externally imposed stipulations that they be maintained permanently by the college. Restricted, expendable Net assets whose use is subject to externally imposed stipulations that can be fulfilled by actions of the college pursuant to those stipulations or that expire by the passage of time. Unrestricted Net assets that are not subject to externally imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Classification of Activities The College has classified its revenues and expenses as either operating or nonoperating according to the following criteria: Operating revenues and expenses include activities that have the characteristics of exchange transactions, such as payments for providing services and payments made for services and goods received. Nonoperating revenues and expenses include activities that have the characteristics of nonexchange transactions, such as gifts and contributions, and other revenue sources that are defined as nonoperating revenues and expenses by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Government Entities That Use Proprietary Fund Accounting and GASB Statement No. 34, such as state and county appropriations and investment income. -12-

HUDSON COUNTY COMMUNITY COLLEGE Notes to Financial Statements June 30, 2008 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Scholarship Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarship allowances in the statement of revenues, expenses and changes in net assets. Scholarship allowances are the difference between the stated charge for tuition and fees provided by the College, and the amount that is paid by students and/or third parties making payments on the students behalf. Certain governmental grants, such as Pell grants, and other federal, state or nongovernmental programs, are recorded as operating 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 allowance. The scholarship allowance on tuition and fees for the year ended June 30, 2008 and 2007 was $12,022,889 and $11,016,259, respectively. Chargeback Chargeback represents charges by the College against other counties of residence of those students who are enrolled in a community college in their respective counties but are taking courses at the College because their community college does not offer a specific course or program, in order to help defray the College s operating expenditures, as provided for in the laws and by the criteria and procedures specified by the State of New Jersey, Department of Treasury, Office of Management and Budget. Accounts Receivable Accounts receivable consist of tuition and fee charges to students and chargebacks due from counties. Accounts receivable are recorded net of estimated uncollectible amounts. Grants Receivable Grants receivable of the current restricted funds represent amounts expended under grants awarded to the College and have been recorded as current restricted funds revenues as expended. Deferred Revenue Tuition and fee revenues collected during the fiscal year which relate to the period after the fiscal year end, have been recognized as deferred revenues. Compensated Absences Compensated absences are those absences for which employees will be paid, such as vacation and sick leave. A liability for compensated absences that are attributable to services already rendered, and that are not contingent on a specific event outside the control of the College and its employees, is accrued as employees earn the rights to the benefits. -13-