Financial statement review report of Carteret Community College, Morehead City, North Carolina.

              STATE OF

NORTH CAROLINA

FINANCIAL STATEMENT REVIEW REPORT OF

CARTERET COMMUNITY COLLEGE

MOREHEAD CITY, NORTH CAROLINA

FOR THE YEAR ENDED JUNE 30, 2004

OFFICE OF THE STATE AUDITOR

LESLIE W. MERRITT, JR., CPA, CFP

STATE AUDITOR

FINANCIAL STATEMENT REVIEW REPORT OF

CARTERET COMMUNITY COLLEGE

MOREHEAD CITY, NORTH CAROLINA

FOR THE YEAR ENDED JUNE 30, 2004

STATE BOARD OF COMMUNITY COLLEGES

THE NORTH CAROLINA COMMUNITY COLLEGE SYSTEM

H. MARTIN LANCASTER, PRESIDENT

BOARD OF TRUSTEES

WILLIAM J. HENDERSON, CHAIRMAN

DIANE L. FOWLER, VICE CHAIRMAN

MARY T. BOYD ROSE R. MALAY

THOMAS L. DAVIS GERRY T. SMITH

WILLIAM H. FAIRCLOTH SALLY B. SMITH

GRADY W. FULCHER, JR. HUGH C. TALTON, JR.

E. AUSTIN GUTHRIE ANN H. WHITFORD

ADMINISTRATIVE OFFICERS

DR. JOSEPH T. BARWICK, PRESIDENT

JANET N. SPRIGGS, VICE PRESIDENT FOR ADMINISTRATIVE SERVICES

Leslie W. Merritt, Jr., CPA, CFP

State Auditor

STATE OF NORTH CAROLINA

Office of the State Auditor

2 S. Salisbury Street

20601 Mail Service Center

Raleigh, NC 27699- 0601

Telephone: ( 919) 807- 7500

Fax: ( 919) 807- 7647

Internet

http:// www. ncauditor. net

1

REVIEWER’S TRANSMITTAL

The Honorable Michael F. Easley, Governor

The General Assembly of North Carolina

Board of Trustees, Carteret Community College

This report presents the results of our financial statement review of Carteret Community

College, a component unit of the State of North Carolina, for the year ended June 30, 2004.

Our review was made by authority of Article 5A of Chapter 147 of the North Carolina

General Statutes and was conducted in accordance with Statements on Standards for

Accounting and Review Services issued by the American Institute of Certified Public

Accountants. The objective of a review is to achieve limited assurance that there are no

material modifications that should be made to the financial statements in order for the

statements to be in conformity with accounting principles generally accepted in the United

States of America.

The accounts and operations of the College are an integral part of the State’s reporting entity

represented in the State’s Comprehensive Annual Financial Report ( CAFR) and the State’s

Single Audit Report. In those reports, the State Auditor expresses an opinion on the State’s

financial statements. In the Single Audit Report, the State Auditor also presents the audit

results on the State’s internal controls and on the State’s compliance with laws, regulations,

contracts, and grants applicable to the State’s financial statements and to its federal financial

assistance programs.

As part of the work necessary for the CAFR and the Single Audit Report, the accounts and

operations of the College were subjected to review procedures, as we considered necessary.

In addition, we performed review procedures that we considered necessary for us to report on

the accompanying financial statements that relate solely to Carteret Community College. As

a result of our review, we are not aware of any material modifications necessary for the

accompanying financial statements to be in conformity with accounting principles generally

accepted in the United States of America. These matters are more fully described in the

Independent Accountant’s Review Report on the financial statements.

North Carolina General Statutes require the State Auditor to make reports available to the

public. Copies of review reports issued by the Office of the State Auditor may be obtained

through one of the options listed in the back of this report.

Leslie W. Merritt, Jr., CPA, CFP

State Auditor

TABLE OF CONTENTS

PAGE

INDEPENDENT ACCOUNTANT’S REVIEW REPORT ...................................................................... 1

MANAGEMENT’S DISCUSSION AND ANALYSIS........................................................................... 3

FINANCIAL STATEMENTS

Exhibits

A- 1 Statement of Net Assets............................................................................................... 8

A- 2 Statement of Revenues, Expenses, and Changes in Net Assets ............................................ 9

A- 3 Statement of Cash Flows ........................................................................................... 10

B- 1 Statement of Financial Position…............................................................................... 12

B- 2 Statement of Activities and Changes in Net Assets ......................................................... 13

Notes to the Financial Statements .......................................................................................... 15

SUPPLEMENTARY INFORMATION

Schedule

1 Schedule of General Obligation Bond Project Authorizations, Budgets, and Expenditures...... 29

DISTRIBUTION OF REVIEW REPORT ......................................................................................... 31

Leslie W. Merritt, Jr., CPA, CFP

State Auditor

STATE OF NORTH CAROLINA

Office of the State Auditor

2 S. Salisbury Street

20601 Mail Service Center

Raleigh, NC 27699- 0601

Telephone: ( 919) 807- 7500

Fax: ( 919) 807- 7647

Internet

http:// www. ncauditor. net

1

INDEPENDENT ACCOUNTANT’S REVIEW REPORT

Board of Trustees

Carteret Community College

Morehead City, North Carolina

We have reviewed the accompanying financial statements of Carteret Community College, a

component unit of the State of North Carolina, and its discretely presented component unit, as

of and for the year ended June 30, 2004, which collectively comprise Carteret Community

College’s basic financial statements, as listed in the table of contents. These financial

statements are the responsibility of the College’s management. We did not review the

financial statements of Carteret Community College Foundation, Inc., which represents 100%

of the College’s discretely presented component unit. Those financial statements were

audited by other accountants whose report thereon has been furnished to us, and our report,

insofar as it relates to the amounts included for those entities, is based on the report of the

other accountants.

A review consists principally of inquiries of College personnel and analytical procedures

applied to financial data. It is substantially less in scope than an audit in accordance with

auditing standards generally accepted in the United States of America, the objective of which

is the expression of an opinion regarding the financial statements in order for them to be in

conformity with accounting principles generally accepted in the United States of America.

Based on our review, we are not aware of any material modifications that should be made to

the accompanying financial statements in order for them to be in conformity with accounting

principles generally accepted in the United States of America.

The Management’s Discussion and Analysis, as listed in the table of contents, 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. Such information

has been subjected to the inquiry and analytical procedures applied in the review of the basic

financial statements, and we are not aware of any material modifications that should be made

thereto.

Our review was conducted for the purpose of expressing limited assurance that there are no

material modifications that should be made to the basic financial statements in order for them

to be in conformity with generally accepted accounting principles. Schedule 1 is presented

for purposes of additional analysis and is not a required part of the basic financial statements.

INDEPENDENT ACCOUNTANT’S REVIEW REPORT ( CONCLUDED)

Such information has been subjected to the inquiry and analytical procedures applied in the

review of the basic financial statements, and we are not aware of any material modifications

that should be made thereto.

Leslie W. Merritt, Jr.

State Auditor

April 29, 2005

2

MANAGEMENT’S DISCUSSION AND ANALYSIS

This section of Carteret Community College’s Financial Statement Review Report presents

Management’s Discussion and Analysis of the College’s financial activity during the fiscal

years ended June 30, 2004, and June 30, 2003. Since Management’s Discussion and Analysis

is designed to focus on current activities, resulting change and currently known facts, please

read it in conjunction with the College’s basic financial statements and notes. Responsibility

for the completeness and fairness of this information rests with the College.

Using This Annual Report

This annual report consists of financial statements, prepared in accordance with

Governmental Accounting Standards Board ( 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 College and Universities. The College’s basic financial

statements are designed to emulate corporate presentation models whereby all College

activities are consolidated into one total. They are prepared under the accrual basis of

accounting, whereby revenues and assets are recognized when the service is provided and

expenses and liabilities are recognized when others provide the service, regardless of when

cash is exchanged. In summary, the reporting format is intended to condense and simplify the

user’s analysis of costs of various College services to students and the public. The three

statements are featured below with brief descriptions of each financial focus.

The Statement of Net Assets is designed to be similar to bottom- line results for the College.

This Statement combines and consolidates current financial resources ( short- term consumable

resources) with capital assets. The Statement of Net Assets includes all assets and liabilities.

Over time, increases or decreases in net assets ( the difference between assets and liabilities)

are one indicator of the improvement or erosion of the College’s financial health when

considered with nonfinancial facts such as enrollment levels and the condition of facilities.

The Statement of Revenues, Expenses, and Changes in Net Assets focuses on both the gross

costs and the net costs of College activities, which are supported mainly by State, local,

federal, and other revenues. This Statement presents the revenues earned and expenses

incurred during the year. Activities are reported as either operating or nonoperating. A

community college’s dependency on State aid and gifts could result in operating deficits

because the financial reporting model classifies State appropriations and gifts as nonoperating

revenues. The utilization of capital assets is reflected in the financial statements as

depreciation, which amortizes the cost of an asset over its expected useful life.

The Statement of Cash Flows presents information related to cash inflows and outflows

summarized by operating, noncapital financing, capital financing, and related investing

activities, and helps measure the ability to meet financial obligations as they mature. The

direct method is used to present the Cash Flow Statement.

3

MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONTINUED)

Financial Highlights

Overall there is a $ 9,580,605.98 increase in net assets for fiscal year 2004. This is largely due

to a $ 9,059,607.80 increase in construction in progress and land. The College is currently

involved in several construction projects including the construction of two new buildings and

the renovation of a third building. Both the State of North Carolina and Carteret County are

funding these projects through bond funds of $ 5,645,724 and $ 7,500,000 respectively. There

is also a federal grant in the amount of $ 1,500,000. These projects have a scheduled

completion date of late 2006. Another notable fact is the required budget reversions for 2004

and 2003. The College reverted 3% of its original annual budget to the North Carolina

Community College System in 2004, and 2.18% in 2003.

Financial Analysis

Analysis of Current Assets and Net Assets

As of June 30, 2004, the College’s net assets have increased due to a large increase in

investment in capital assets. Current assets have increased because of the receivables due at

year end from State and local agencies stemming from current construction projects. At the

same time, current liabilities have increased due to the $ 917,105.70 of construction accounts

payable at year end. The increase in capital assets is due to a $ 9,059,607.80 increase in

construction in progress from the current new construction projects and land. Noncurrent

liabilities consist of noncurrent compensated absences. This amount has increased in 2004

due to the additional 80 hours of leave that was awarded by the State of North Carolina during

Fall 2003 to each full- time permanent employee. Other than the increase in restricted assets

expendable for capital projects from the construction projects, the other restricted assets have

increased due to an increase in grant revenues.

Percentage

Change

Assets

Current Assets $ 2,714.83 $ 2,055.21 $ 659.62 32.10%

Noncurrent Assets

Capital Assets, Net of Depreciation 21,085.34 12,190.04 8,895.30 72.97%

Other 736.94 355.17 381.77 107.49%

Total Assets 24,537.11 14,600.42 9,936.69

Liabilities

Current Liabilities 1,260.14 1,131.88 128.26 11.33%

Noncurrent Liabilities 536.45 308.63 227.82 73.82%

Total Liabilities 1,796.59 1,440.51 356.08

Net Assets

Investment in Capital Assets 21,085.34 12,190.04 8,895.30 72.97%

Restricted 1,140.00 518.00 622.00 120.08%

Unrestricted 515.18 451.87 63.31 14.01%

Total Net Assets $ 22,740.52 $ 13,159.91 $ 9,580.61

Increase

2004 2003 ( Decrease)

( in thousands)

4

MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONTINUED)

Analysis of Net Capital Assets

The categories of the College’s capital assets are shown in this schedule. It is prepared on an

accrual basis of accounting whereby assets are capitalized and depreciated. The increase in

capital assets is due to a $ 9,059,607.80 increase in construction in progress from the current

new construction projects and land. Both fiscal year 2003 and 2004 are presented according

to GASB Statement No. 34, thus including accumulated depreciation.

Percentage

Change

Capital Assets

Land $ 2,693.66 $ 2,693.66 $ 0.00 0.00%

Buildings 8,564.32 8,564.32

Construction in Progress 12,373.71 3,314.10 9,059.61 273.37%

Machinery and Equipment 2,324.95 2,149.70 175.25 8.15%

General Infrastructure 739.72 739.72

Total Capital Assets 26,696.36 17,461.50 9,234.86

Less: Accumulated Depreciation 5,611.02 5,271.46 339.56 6.44%

Net Capital Assets $ 21,085.34 $ 12,190.04 $ 8,895.30

( in thousands)

Increase

2004 2003 ( Decrease)

Analysis of Liabilities

Current liabilities have increased due to the $ 917,105.70 of construction accounts payable at

year end. As of June 30, 2004, the College had noncurrent long- term liabilities of

$ 536,454.73. This debt consists solely of accrued vacation and increased due to an additional

80 hours of leave awarded to each full- time permanent employee in Fall 2003 by the State of

North Carolina. In addition to the extra leave awarded, the current and long- term portions of

the leave have been calculated using the last- in, first- out method as provided by the Office of

the State Controller to better estimate the portion of the liability that is current. Prior to 2004,

this estimate was based on past experience, not a mathematical formula.

Current Liabilities

Accounts Payable $ 1,250.54 $ 1,006.88 $ 243.66 24.20 %

Long- Term Liabilities - Current Portion 9.60 125.00 ( 115.40) ( 92.32) %

Total Current Liabilities 1,260.14 1,131.88 128.26

Noncurrent Liabilities

Long- Term Liabilities 536.45 308.63 227.82 73.82 %

Total Liabilities $ 1,796.59 $ 1,440.51 $ 356.08

Percentage

Change

Increase

2004 2003 ( Decrease)

( in thousands)

5

MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONTINUED)

Analysis of Revenues

Despite an 11% increase for in- State tuition from $ 34.25 in 2003 to $ 38.00 per credit hour

in 2004, operating revenues decreased by 10.16%. The decrease in student tuition and fees is

mostly attributed to a sharp decrease in occupational revenues from $ 230,648 in 2003, to

$ 80,035 in 2004. The federal grants and contracts decreased by .65% from the prior year due

to the receipt of $ 37,493.48 in federal funding for the construction projects in 2003 as

compared to $ 0.00 in 2004. State contracts also decreased by $ 258,091.95. This decline was

caused by several State grant contracts expiring during 2004. Noncapital grants remained

relatively constant at $ 214,932.98. Noncapital gifts increased by 34.92% due to an increase

in the support provided by the Carteret Community College Foundation. Sharp declines in

the stock market and interest rates lead to the decrease of 32.83% in investment income. The

overall increase in net assets in the amount of $ 9,580,605.98, a 274.11% increase from 2003,

is due to the significant increase in State and county capital aid for capitalized construction

projects.

Operating Revenues

Student Tuition and Fees $ 1,050.33 $ 1,272.70 $ ( 222.37) ( 17.47) %

Federal Grants and Contracts 2,307.67 2,322.74 ( 15.07) ( 0.65) %

State and Local Grants and Contracts 344.26 602.35 ( 258.09) ( 42.85) %

Sales and Services 799.38 806.45 ( 7.07) ( 0.88) %

Other Operating Revenues 24.10 33.14 ( 9.04) ( 27.28) %

Total Operating Revenues 4,525.74 5,037.38 ( 511.64) ( 10.16) %

Less Operating Expenses 13,096.27 13,173.23 ( 76.96) ( 0.58) %

Operating Loss ( 8,570.53) ( 8,135.85) ( 434.68)

Nonoperating Revenues

State Aid 6,218.50 5,815.02 403.48 6.94 %

County Appropriations 1,220.00 1,220.00

Other Nonoperating Revenues 364.52 330.23 34.29 10.38 %

Total Nonoperating Revenues 7,803.02 7,365.25 437.77

Capital Revenues

State Capital Aid 4,376.87 1,524.27 2,852.60 187.15 %

County Capital Appropriations & Grants 5,971.25 1,489.80 4,481.45 300.81 %

Other Capital Revenues 317.43 ( 317.43) ( 100.00) %

Total Capital Revenues 10,348.12 3,331.50 7,016.62

Increase in Net Assets $ 9,580.61 $ 2,560.90 $ 7,019.71

Change

Increase Percentage

( in thousands)

2004 2003 ( Decrease)

Analysis of Expenditures

The College’s decrease in expenses from fiscal year 2003 to 2004 can be tied directly to the

10.16% decrease in revenues. Salaries and benefits increased due to the addition of new

faculty and staff as well as the 2.5% pay increase awarded to all permanent employees

6

MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONCLUDED)

July 1, 2003. A one- time bonus in the amount of $ 550.00 was awarded to all permanent

employees by the State of North Carolina during 2004 as well. Supplies and services

decreased during the fiscal year due to budget constraints associated with the decrease in

revenues and budget reversion required. An immaterial decrease in depreciation expense

from $ 478,802.70 in 2003, to $ 407,416.70 in 2004 despite an increase in capitalized assets

was caused by the re- evaluation of asset’s useful lives when accumulated depreciation was

calculated using the new Colleague financial system.

Operating Expenses

Salaries and Benefits $ 8,280.67 $ 7,800.72 $ 479.95 6.15 %

Supplies and Materials 1,447.31 1,537.98 ( 90.67) ( 5.90) %

Services 952.46 1,116.31 ( 163.85) ( 14.68) %

Scholarships and Fellowships 1,718.48 1,905.45 ( 186.97) ( 9.81) %

Utilities 289.93 333.97 ( 44.04) ( 13.19) %

Depreciation 407.42 478.80 ( 71.38) ( 14.91) %

Total Operating Expenses $ 13,096.27 $ 13,173.23 $ ( 76.96)

Change

Increase Percentage

2004 2003 ( Decrease)

( in thousands)

In summary, this annual report is designed to provide our community, students, donors and

creditors with a general overview of the College’s finances and to demonstrate the College’s

accountability for the funding it receives through grants, donations and tuition revenues.

7

Exhibit A- 1

Current Assets:

Cash and Cash Equivalents $ 267,089.18

Restricted Cash and Cash Equivalents 132,292.46

Short- Term Investments 499,778.74

Restricted Short- Term Investments 31,329.82

Receivables ( Note 3) 1,377,970.80

Due from State of North Carolina Component Units 250,000.00

Inventories 121,457.49

Prepaid Items 30,035.25

Notes Receivable, Net ( Note 3) 4,874.03

Total Current Assets 2,714,827.77

Noncurrent Assets:

Restricted Cash and Cash Equivalents 2,016.11

Restricted Due from Primary Government 734,936.86

Capital Assets - Nondepreciable ( Note 4) 15,067,368.48

Capital Assets - Depreciable, Net ( Note 4) 6,017,964.67

Total Noncurrent Assets 21,822,286.12

Total Assets 24,537,113.89

Current Liabilities:

Accounts Payable and Accrued Liabilities ( Note 5) 1,200,142.24

Deferred Revenue 49,694.07

Funds Held for Others 707.40

Long- Term Liabilities - Current Portion ( Note 6) 9,599.59

Total Current Liabilities 1,260,143.30

Noncurrent Liabilities:

Long- Term Liabilities ( Note 6) 536,454.73

Total Liabilities 1,796,598.03

Invested in Capital Assets 21,085,333.15

Restricted for:

Expendable:

Scholarships and Fellowships 6,637.09

Loans 140,373.89

Capital Projects 755,490.10

Other 237,504.04

Unrestricted 515,177.59

Total Net Assets $ 22,740,515.86

The accompanying notes to the financial statements are an integral part of this statement.

NET ASSETS

LIABILITIES

Carteret Community College

Statement of Net Assets

June 30, 2004

ASSETS

8

Carteret Community College

Statement of Revenues, Expenses, and

Changes in Net Assets

For the Fiscal Year Ended June 30, 2004 Exhibit A- 2

REVENUES

Student Tuition and Fees, Net ( Note 8) $ 1,050,334.51

Federal Grants and Contracts 2,307,669.97

State and Local Grants and Contracts 344,255.59

Sales and Services 799,380.31

Other Operating Revenues 24,095.51

Total Operating Revenues 4,525,735.89

EXPENSES

Salaries and Benefits 8,280,671.27

Supplies and Materials 1,447,306.26

Services 952,462.86

Scholarships and Fellowships 1,718,476.92

Utilities 289,932.48

Depreciation 407,416.70

Total Operating Expenses 13,096,266.49

Operating Loss ( 8,570,530.60)

NONOPERATING REVENUES

State Aid 6,218,500.66

County Appropriations 1,220,000.04

Noncapital Grants 214,932.98

Noncapital Gifts 140,147.73

Investment Income 4,912.90

Other Nonoperating Revenues 4,525.66

Net Nonoperating Revenues 7,803,019.97

Loss Before Other Revenues ( 767,510.63)

State Capital Aid 4,376,874.96

County Capital Appropriations 200,515.28

Capital Grants 5,770,726.37

Increase in Net Assets 9,580,605.98

NET ASSETS

Net Assets, July 1, 2003 13,159,909.88

Net Assets, June 30, 2004 $ 22,740,515.86

The accompanying notes to the financial statements are an integral part of this statement.

Operating Revenues:

Operating Expenses:

9

Carteret Community College

Statement of Cash Flows

For the Fiscal Year Ended June 30, 2004 Exhibit A- 3

CASH FLOWS FROM OPERATING ACTIVITIES

Received from Customers $ 4,668,925.68

Payments to Employees and Fringe Benefits ( 8,198,450.88)

Payments to Vendors and Suppliers ( 2,778,116.42)

Payments for Scholarships and Fellowships ( 1,718,084.96)

Loans Issued to Students ( 14,955.42)

Collection of Loans to Students 2,052.17

Other Payments ( 30,415.46)

Net Cash Used by Operating Activities ( 8,069,045.29)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

State Aid Received 6,218,500.66

County Appropriations 1,220,000.04

Noncapital Grants Received 204,536.31

Noncapital Gifts 140,147.73

Cash Provided by Noncapital Financing Activities 7,783,184.74

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

State Capital Aid Received 3,991,837.47

County Capital Appropriations 200,515.28

Capital Grants Received 4,795,326.79

Principal Paid on Capital Debt and Leases ( 8,647,346.17)

Net Cash Provided by Capital and Related Financing Activities 340,333.37

CASH FLOWS FROM INVESTING ACTIVITIES

Investment Income 4,912.90

Purchase of Investments and Related Fees ( 4,701.46)

Net Cash Provided by Investing Activities 211.44

Net Increase in Cash and Cash Equivalents 54,684.26

Cash and Cash Equivalents, July 1, 2003 346,713.49

Cash and Cash Equivalents, June 30, 2004 $ 401,397.75

10

Carteret Community College

Statement of Cash Flows Exhibit A- 3

For the Fiscal Year Ended June 30, 2004 Page 2

RECONCILIATION OF OPERATING LOSS

TO NET CASH USED BY OPERATING ACTIVITIES

Operating Loss $ ( 8,570,530.60)

Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities:

Depreciation Expense 407,416.70

Provision for Uncollectible Loans and Write- Offs 8,108.37

Miscellaneous Nonoperating Income 4,525.66

Changes in Assets and Liabilities:

Receivables 100,149.32

Inventories ( 24,199.56)

Prepaid Items ( 30,035.25)

Notes Receivable, Net ( 12,903.25)

Accounts Payable and Accrued Liabilities ( 65,143.27)

Dut to State of North Carolina Component Units ( 7,352.53)

Deferred Revenue 15,562.11

Funds Held for Others ( 7,070.80)

Compensated Absences 112,427.81

Net Cash Used by Operating Activities $ ( 8,069,045.29)

RECONCILIATION OF CASH AND CASH EQUIVALENTS

Current Assets:

Cash and Cash Equivalents $ 267,089.18

Restricted Cash and Cash Equivalents 132,292.46

Noncurrent Assets:

Restricted Cash and Cash Equivalents 2,016.11

Total Cash and Cash Equivalents - June 30, 2004 $ 401,397.75

NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES

Assets Acquired through Assumption of a Liability $ 655,362.70

Increase in Receivables Related to Nonoperating Income 1,360,437.07

The accompanying notes to the financial statements are an integral part of this statement.

11

Carteret Community College Foundation, Inc.

Statement of Financial Position

June 30, 2004 Exhibit B- 1

ASSETS

Cash and Cash Equivalents $ 242,270

Investments 569,095

Unconditional Promises to Give 3,591

Donated Boat Inventory 77,182

Other Assets 6,998

Property and Equipment, Net 1,154,742

Total Assets 2,053,878

LIABILITIES

Accounts Payable 2,515

Notes Payable 632,915

Total Liabilities 635,430

NET ASSETS

Unrestricted 951,549

Temporarily Restricted 300,036

Permanently Restricted 166,863

Total Net Assets $ 1,418,448

See Note 1 in the Notes to the Financial Statements

12

Carteret Community College Foundation, Inc.

Statement of Activities and Changes in Net Assets

For the Fiscal Year Ended June 30, 2004 Exhibit B- 2

CHANGES IN UNRESTRICTED NET ASSETS

Support:

Community and Internal Fund Drives $ 12,614

Noncash Donations 17,945

Boat Contributions, Net of Gains or Losses 90,577

Special Program Revenues 23,332

Total Support 144,468

Other Revenues:

Real Estate Rental Income 56,600

Investment Income 32,605

Miscellaeous Income 1,609

Total Other Revenues 90,814

Net Assets Released from Restrictions:

Satisfaction of Program Restrictions 92,805

Total Support and Other Revenues 328,087

Expenses and Losses:

Scholarships and Student Aid 173,418

Property Management 50,436

Foundation Administration 13,819

Boat Program Expense 70,185

Fund Raising Expense 15,612

Total Expenses 323,470

Increase in Unrestricted Net Assets 4,617

CHANGES IN TEMPORARILY RESTRICTED NET ASSETS

Community and Internal Fund Drives 130,754

Scholarship Donations 92,254

Investment Income 13,740

Net Assets Released from Restrictions:

Satisfaction of Program Restrictions ( 92,806)

Increase in Temporarily Restricted Net Assets 143,942

CHANGES IN PERMANENTLY RESTRICTED NET ASSETS

Endowment Fund Contributions 17,260

Increase in Permanently Restricted Net Assets 17,260

Increase in Net Assets 165,819

Net Assets at Beginning of Year 1,252,629

Net Assets at End of Year $ 1,418,448

See Note 1 in the Notes to the Financial Statements

13

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14

CARTERET COMMUNITY COLLEGE

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2004

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

A. Financial Reporting Entity - The concept underlying the definition of

the financial reporting entity is that elected officials are accountable to

their constituents for their actions. As required by accounting principles

generally accepted in the United States of America, the financial reporting

entity includes both the primary government and all of its component

units. An organization other than a primary government serves as a

nucleus for a reporting entity when it issues separate financial statements.

Carteret Community College is a component unit of the State of North

Carolina and an integral part of the State’s Comprehensive Annual

Financial Report.

The accompanying financial statements present all funds of the College

and the component unit for which the College’s Board of Trustees is

financially accountable. The College’s component unit is discretely

presented in the financial statements. Discretely presented component

unit’s financial data is reported in separate financial statements because of

its use of a different GAAP reporting model and to emphasize it’s legal

separateness.

Discretely Presented Component Unit - Carteret Community College

Foundation, Inc., is a legally separate not- for- profit corporation and is

reported as a discretely presented component unit based on the nature and

significance of its relationship to the College.

The Carteret Community College Foundation, Inc., is a legally separate,

tax- exempt component unit of the College. The Foundation acts primarily

as a fund- raising organization to supplement the resources that are

available to the College in support of its programs. The Foundation board

consists of 21 directors. Although the College does not control the timing

or amount of receipts from the Foundation, the majority of resources, or

income thereon, that the Foundation holds and invests are restricted to the

activities of the College by the donors. Because these restricted resources

held by the Foundation can only be used by, or for the benefit of the

College, the Foundation is considered a component unit of the College

and is reported in separate financial statements because of the difference

in its reporting model, as described below.

The Carteret Community College Foundation, Inc. is a private not- for-profit

organization that reports its financial results under Financial

15

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

Accounting Standards Board ( FASB) Statements. As such, certain

revenue recognition criteria and presentation features are different from

GASB revenue recognition criteria and presentation features. No

modifications have been made to the Foundation’s financial information

in the College’s financial reporting entity for these differences.

During the year ended June 30, 2004, the Foundation distributed

$ 173,418.00 to the College for both restricted and unrestricted purposes.

Complete financial statements for the Foundation can be obtained from

Kelly Ard, Controller, 3505 Arendell Street, Morehead City, North

Carolina or by calling 252- 222- 6158.

B. Basis of Presentation - The accompanying financial statements are

presented in accordance with accounting principles generally accepted in

the United States of America as prescribed by the Governmental

Accounting Standards Board ( GASB).

Pursuant to the provisions of 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, the full scope of the College’s activities

is considered to be a single business- type activity ( BTA) and accordingly,

is reported within a single column in the basic financial statements.

In accordance with GASB Statement No. 20, Accounting and Financial

Reporting for Proprietary Funds and Other Governmental Entities That

Use Proprietary Fund Accounting, the College does not apply Financial

Accounting Standards Board ( FASB) pronouncements issued after

November 30, 1989, for proprietary activities, unless the GASB amends

its pronouncements to specifically adopt FASB pronouncements issued

after that date.

C. Basis of Accounting - The financial statements of the College have been

prepared using the economic resource 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. Grants and similar items are recognized as revenue as soon as

all eligibility requirements imposed by the provider have been met.

D. Cash and Cash Equivalents - This classification includes undeposited

receipts, petty cash, and cash on deposit with private bank accounts.

E. Investments - This classification includes money market mutual funds

held by the College. Money market mutual funds are accounted for at fair

value, as determined by quoted market prices, or an amount determined

16

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

by management if quoted market prices are not available. The net

increase ( decrease) in the fair value of investments is recognized as a

component of investment income.

F. Receivables - Receivables consist of tuition and fees charges to students

and charges for auxiliary enterprises’ sales and services. Receivables also

include amounts due from the federal government, State and local

governments, and private sources in connection with reimbursement of

allowable expenditures made pursuant to contracts and grants that are

verifiable, measurable, and expected to be collected and available for

expenditures for which the resource provider’s conditions have been

satisfied. Receivables are shown at book value with no provisions for

doubtful accounts considered necessary. Notes receivables are recorded

net of estimated uncollectible amounts.

G. Inventories - Inventories, consisting of expendable supplies and

merchandise for resale, are valued at the lower of cost or market value

using the last invoice method.

H. Capital Assets - Capital assets are stated at cost at date of acquisition or

fair value at date of donation in the case of gifts. The College capitalizes

assets that have a value or cost in excess of $ 5,000 at the date of

acquisition and an expected useful life of more than one year. Library

books are generally not considered to have a useful life of more than one

year unless part of a collection and are expensed in the year of

acquisition.

Depreciation is computed using the straight- line and/ or units of output

method over the estimated useful lives of the assets, generally 15 to

20 years for general infrastructure, 10 to 40 years for buildings, and three

to 15 years for equipment.

I. Restricted Assets - Unexpended capital contributions are classified as

restricted assets because their use is limited by donor/ grantor agreements.

Certain other assets are classified as restricted because their use is limited

by external parties or statute.

J. Noncurrent Long- Term Liabilities - Noncurrent long- term liabilities

include compensated absences that will not be paid within the next fiscal

year.

K. Compensated Absences - The College’s policy is to record the cost of

vacation leave when earned. The policy provides for a maximum

accumulation of unused vacation leave of 30 days which can be carried

forward each January 1st or for which an employee can be paid upon

17

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

termination of employment. Also, any accumulated vacation leave in

excess of 30 days at year end is converted to sick leave. Under this

policy, the accumulated vacation leave for each employee at June 30th

equals the leave carried forward at the previous December 31st plus the

leave earned, less the leave taken between January 1st and June 30th.

In addition to the vacation leave described above, compensated absences

includes the accumulated unused portion of the special annual leave

bonuses awarded by the College to all full- time permanent employees as

of September 30, 2002 and as of July 1, 2003. The unused portion of this

leave remains available until used, notwithstanding the limitation on

annual leave carried forward described above.

When classifying compensated absences into current and noncurrent,

leave is considered taken using a last- in, first- out method.

L. Net Assets - The College’s net assets are classified as follows:

Invested in Capital Assets - This represents the College’s total

investment in capital assets.

Restricted Net Assets - Expendable - Expendable restricted net assets

include resources for which the College is legally or contractually

obligated to spend in accordance with restrictions imposed by external

parties.

Unrestricted Net Assets - Unrestricted net assets include resources

derived from student tuition and fees, sales and services, unrestricted

gifts, and interest income.

Restricted and unrestricted resources are tracked using a fund accounting

system and are spent in accordance with established fund authorities.

Fund authorities provide rules for the fund activity and are separately

established for restricted and unrestricted activities. When both restricted

and unrestricted funds are available for expenditure, the decision for

funding is transactional based within the departmental management

system in place at the College.

M. Scholarship Discounts - Student tuition and fees revenues and certain

other revenues from College charges are reported net of scholarship

discounts in the accompanying Statement of Revenues, Expenses, and

Changes in Net Assets. The scholarship discount is the difference

between the actual charge for goods and services provided by the College

and the amount that is paid by students or by third parties on the students’

behalf. Student financial assistance grants, such as Pell grants, and other

federal, State, or nongovernmental programs, are recorded as either

18

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

operating or nonoperating revenues in the accompanying Statement of

Revenues, Expenses, and Changes in Net Assets. To the extent that

revenues from these programs are used to satisfy tuition, fees, and other

charges, the College has recorded a scholarship discount.

N. Revenue and Expense Recognition - The College classifies its revenues

and expenses as operating or nonoperating in the accompanying

Statement of Revenues, Expenses, and Changes in Net Assets. Operating

revenues and expenses generally result from providing services and

producing and delivering goods in connection with the College’s principal

ongoing operations. Operating revenues include activities that have

characteristics of exchange transactions, such as ( 1) student tuition and

fees, ( 2) sales and services of auxiliary enterprises, and ( 3) certain federal,

State and local grants and contracts. Operating expenses are all expense

transactions incurred other than those related to capital and noncapital

financing or investing activities as defined by GASB Statement No. 9,

Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds

and Governmental Entities That Use Proprietary Fund Accounting.

Nonoperating revenues include activities that have the characteristics of

nonexchange transactions. Revenues from nonexchange transactions and

State aid that represent subsidies or gifts to the College, as well as

investment income, are considered nonoperating since these are either

investing, capital or noncapital financing activities. Capital contributions

are presented separately after nonoperating revenues and expenses.

O. County Appropriations - County appropriations are provided to the

College primarily to fund its plant operation and maintenance function

and to fund construction projects, motor vehicle purchases, and

maintenance of equipment. Unexpended county current appropriation and

county capital appropriation do not revert and are available for future use

as approved by the county commissioners.

NOTE 2 - DEPOSITS AND INVESTMENTS

A. Deposits - All funds of the College are deposited in board- designated

official depositories and are required to be collateralized in accordance

with General Statute 115D- 58.7. Official depositories may be established

with any bank or savings and loan association whose principal office is

located in North Carolina or with the State Treasurer’s Investment Pool.

Also, the College may establish time deposit accounts, money market

accounts, and certificates of deposit. At year end, cash on hand was

$ 2,355.00. The carrying amount of cash on deposit was $ 399,042.75 and

19

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

the bank balance was $ 721,731.20. All of the cash was on deposit with

private financial institutions.

The North Carolina Administrative Code ( 20 NCAC 7) requires all

depositories to collateralize public deposits in excess of federal depository

insurance coverage by using one of two methods, dedicated or pooled.

Under the dedicated method, a separate escrow account is established by

each depository in the name of each local governmental unit and the

responsibility of monitoring collateralization rests with the local unit.

Under the pooling method, each depository establishes an escrow account

in the name of the State Treasurer to secure all of its public deposits. This

method shifts the monitoring responsibility from the local unit to the State

Treasurer.

Of the cash on deposit with private financial institutions at June 30, 2004,

$ 260,141.53 of the bank balance was covered by federal depository

insurance, and $ 461,589.67 was covered by collateral held by an

authorized escrow agent in the name of the State Treasurer ( pooling

method).

B. Investments – The College is authorized to invest idle funds as provided

by General Statute 115D- 58.6. In accordance with this statute, the

College and the Board of Trustees manage investments to ensure they can

be converted into cash when needed.

Generally, funds belonging to the College may be invested in the form of

investments pursuant to General Statute 159- 30( c), as follows:

obligations of or fully guaranteed by the United States; obligations of the

State of North Carolina; bonds and notes of any North Carolina local

government or public authority; obligations of certain nonguaranteed

federal agencies; prime quality commercial paper bearing specified

ratings and banker’s acceptances; The North Carolina Capital

Management Trust, an SEC registered mutual fund; repurchase

agreements; and evidences of ownership of, or fractional undivided

interests in, future interest and principal payments on either direct

obligations of or fully guaranteed by the United States government, which

are held by a specified bank or trust company or any state in the capacity.

The College’s investments are categorized to give an indication of the

level of risk assumed by the College. The credit risk categories are

concerned with custodial credit risk, which is the risk that a government

will not be able to recover the value of investment or collateral securities

that are in possession of an outside party if the counterparty to the

investment transaction fails. Category 1 includes investments that are

insured or registered or for which the securities are held by the College or

20

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

agent in the College’s name. Category 2 includes uninsured and

unregistered investments for which the securities are held by a

counterparty’s trust department or agent in the College’s name.

Category 3 includes uninsured and unregistered investments for which the

securities are held by the broker or dealer, or by a counterparty’s trust

department or agent, but not in the College’s name.

At June 30, 2004, the College was a participant in the North Carolina

Capital Management Trust ( the Trust). The Trust is exempt from risk

categorization because the College does not own any identifiable

securities, but is a shareholder of a percentage of funds. The fair value of

its investment in the Trust at June 30, 2004, was $ 531,108.56.

NOTE 3 - RECEIVABLES

Receivables at June 30, 2004, were as follows:

Less

Allowance

Gross for Doubtful Net

Receivables Accounts Receivables

Current Receivables:

Students $ 77,410.50 $ 0.00 $ 77,410.50

Accounts 41,650.64 41,650.64

Intergovernmental 1,253,632.77 1,253,632.77

Other 5,276.89 5,276.89

Total Current Receivables $ 1,377,970.80 $ 0.00 $ 1,377,970.80

Notes Receivable - Current:

Institutional Student Loan Programs $ 83,937.36 $ 79,063.33 $ 4,874.03

21

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

NOTE 4 - CAPITAL ASSETS

A summary of changes in the capital assets for the year ended June 30, 2004, is

presented as follows:

Balance Balance

July 1, 2003 Adjustments Increases Decreases June 30, 2004

Capital Assets, Nondepreciable:

Land $ 2,693,661.61 $ 0.00 $ 310,929.30 $ 0.00 $ 3,004,590.91

Construction in Progress 3,314,099.07 8,748,678.50 12,062,777.57

Total Capital Assets, Nondepreciable 6,007,760.68 9,059,607.80 15,067,368.48

Capital Assets, Depreciable:

Buildings 8,564,320.31 8,564,320.31

Machinery and Equipment 2,149,700.67 243,101.07 67,848.62 2,324,953.12

General Infrastructure 739,716.41 739,716.41

Total Capital Assets, Depreciable 11,453,737.39 243,101.07 67,848.62 11,628,989.84

Less Accumulated Depreciation:

Buildings 3,469,975.06 ( 143,833.90) 337,816.85 3,663,958.01

Machinery and Equipment 1,706,962.61 94,519.42 20,285.37 67,848.62 1,753,918.78

General Infrastructure 94,519.42 49,314.48 49,314.48 193,148.38

Total Accumulated Depreciation 5,271,457.09 407,416.70 67,848.62 5,611,025.17

Total Capital Assets, Depreciable, Net 6,182,280.30 ( 164,315.63) 6,017,964.67

Capital Assets, Net $ 12,190,040.98 $ 0.00 $ 8,895,292.17 $ 0.00 $ 21,085,333.15

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at June 30, 2004, were as follows:

Amount

Accounts Payable $ 111,118.18

Accrued Payroll 15,471.03

Contract Retainage 899,500.04

Intergovernmental Payables 168,562.31

Other 5,490.68

Total Accounts Payable and Accrued Liabilities $ 1,200,142.24

NOTE 6 - LONG- TERM LIABILITIES

A summary of changes in the long- term liabilities is presented as follows:

Balance Balance Current

July 1, 2003 Additions Reductions June 30, 2004 Portion

Compensated Absences $ 433,626.51 $ 388,185.55 $ 275,757.74 $ 546,054.32 $ 9,599.59

22

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

NOTE 7 - OPERATING LEASE OBLIGATIONS

Future minimum lease payments under noncancelable operating leases consist

of the following at June 30, 2004:

Fiscal Year Amount

2005 $ 135,440.32

2006 90,640.32

2007 91,640.32

2008 91,640.32

Total Minimum Lease Payments $ 409,361.28

Rental expense for all operating leases during the year was $ 136,059.03.

NOTE 8 - REVENUES

A summary of eliminations and allowances by revenue classification is

presented as follows:

Less

Gross Scholarship Net

Revenues Discounts Revenues

Operating Revenues:

Student Tuition and Fees $ 1,491,070.69 $ 440,736.18 $ 1,050,334.51

NOTE 9 - OPERATING EXPENSES BY FUNCTION

The College’s operating expenses by functional classification are presented as

follows:

Salaries Supplies Scholarships

and and and

Benefits Materials Services Fellowships Utilities Depreciation Total

Instruction $ 4,492,034.51 $ 364,922.85 $ 211,775.12 $ 0.00 $ 0.00 $ 0.00 $ 5,068,732.48

Research 24,396.35 12,552.12 222.60 37,171.07

Academic Support 954,243.61 90,399.23 46,584.82 1,091,227.66

Student Services 657,737.77 20,555.46 114,396.99 72,296.55 1,003.93 865,990.70

Institutional Support 1,508,068.53 85,015.87 174,879.04 1,767,963.44

Operations and Maintenance of Plant 507,954.57 234,219.27 380,097.56 288,928.55 1,411,199.95

Student Financial Aid 47,229.07 2,290.33 1,645,900.13 1,695,419.53

Auxiliary Enterprises 136,235.93 592,412.39 22,216.40 280.24 751,144.96

Depreciation 407,416.70 407,416.70

Total Operating Expenses $ 8,280,671.27 $ 1,447,306.26 $ 952,462.86 $ 1,718,476.92 $ 289,932.48 $ 407,416.70 $ 13,096,266.49

23

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

NOTE 10 - PENSION PLANS

A. Retirement Plans - Each permanent full- time employee, as a condition of

employment, is a member of the Teachers’ and State Employees’

Retirement System. The Teachers’ and State Employees’ Retirement

System ( System) is a cost sharing multiple- employer defined benefit

pension plan administered by the North Carolina State Treasurer.

Benefit and contribution provisions for the Teachers’ and State

Employees’ Retirement System are established by North Carolina

General Statutes 135- 5 and 135- 8 and may be amended only by the North

Carolina General Assembly. Employer and member contribution rates are

set each year by the North Carolina General Assembly based on annual

actuarial valuations. For the year ended June 30, 2004, these rates were

set at .22% of covered payroll for employers and 6% of covered payroll

for members.

For the year ended June 30, 2004, the College had a total payroll of

$ 7,093,679.46, of which $ 5,641,606.34 was covered under the Teachers’

and State Employees’ Retirement System. Total employee and employer

contributions for pension benefits for the year were $ 338,496.40 and

$ 12,411.52, respectively. The College made one hundred percent of its

annual required contributions for the years ended June 30, 2004, 2003,

and 2002, which were $ 12,411.52, $ 0.00, and $ 104,085.27, respectively.

The Teachers’ and State Employees’ Retirement System’s financial

information is included in the State of North Carolina’s Comprehensive

Annual Financial Report. An electronic version of this report is available

by accessing the North Carolina Office of the State Controller’s Internet

home page http:// www. osc. state. nc. us/ and clicking on “ Financial

Reports”, or by calling the State Controller’s Financial Reporting Section

at ( 919) 981- 5454.

B. Supplemental Retirement Income Plans - IRC Section 401( k) Plan - All

members of the Teachers’ and State Employees’ Retirement System are

eligible to enroll in the Supplemental Retirement Income Plan, a defined

contribution plan, created under Internal Revenue Code Section 401( k).

All costs of administering the Plan are the responsibility of the Plan

participants. No costs are incurred by the College. The voluntary

contributions by employees amounted to $ 33,555.00 for the year ended

June 30, 2004.

IRC Section 403( b) and 403( b)( 7) Plans - Eligible College employees can

participate in tax sheltered annuity plans created under Internal Revenue

Code Sections 403( b) and 403( b)( 7). The employee’s eligible

24

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

contributions, made through salary reduction agreements, are exempt

from federal and State income taxes until the annuity is received or the

contributions are withdrawn. These plans are exclusively for employees

of colleges and certain charitable and other nonprofit institutions. All

costs of administering and funding these plans are the responsibility of the

Plan participants. No costs are incurred by the College. The voluntary

contributions by employees amounted to $ 45,010.00 for the year ended

June 30, 2004.

NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS

A. Health Care for Long- Term Disability Beneficiaries and Retirees -

The College participates in State- administered programs, which provide

postemployment health insurance to eligible former employees. Eligible

former employees include long- term disability beneficiaries of the

Disability Income Plan of North Carolina and retirees of the Teachers’

and State Employees’ Retirement System. These benefits were

established by Chapter 135, Article 3, Part 3, of the General Statutes and

may be amended only by the North Carolina General Assembly. Funding

for the health care benefit for long- term disability beneficiaries and

retirees is financed on a pay- as- you- go basis. The College contributed

3.2% of the covered payroll under the Teachers’ and State Employees’

Retirement System for these health care benefits. For the fiscal year

ended June 30, 2004, the College’s total contribution to the Plan was

$ 180,531.40. The College assumes no liability for retiree health care

benefits provided by the programs other than its required contribution.

Additional detailed information about these programs can be located in

the State of North Carolina’s Comprehensive Annual Financial Report.

B. Long- Term Disability - The College participates in the Disability

Income Plan of North Carolina ( DIPNC). Established by Chapter 135,

Article 6, of the General Statutes, DIPNC provides short- term and long-term

disability benefits to eligible members of the Teachers’ and State

Employees’ Retirement System. Long- term disability income benefits are

advance funded on an actuarially determined basis using the one year

term cost method. Employer contributions are established in the

Appropriations Bill by the General Assembly. The College was not

required to contribute to the DIPNC for the fiscal year ended

June 30, 2004. The College assumes no liability for long- term disability

benefits under the Plan other than its contribution. Additional detailed

information about the DIPNC is disclosed in the State of North Carolina’s

Comprehensive Annual Financial Report.

25

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

NOTE 12 - RISK MANAGEMENT

The College is exposed to various risks of loss related to torts; theft of, damage

to and destruction of assets; errors and omissions; injuries to employees; and

natural disasters. These exposures to loss are handled via a combination of

methods, including participation in State- administered insurance programs,

purchase of commercial insurance, and self- retention of certain risks. Except

for a reduction in the public officers’ and employees’ liability insurance from

$ 11,000,000 to $ 5,000,000, there have been no significant reductions in

insurance coverage from the previous year and settled claims have not

exceeded coverage in any of the past three fiscal years.

Tort claims of up to $ 500,000 are self- insured under the authority of the State

Tort Claims Act. In addition, the State provides excess public officers’ and

employees’ liability insurance up to $ 5,000,000 via contract with a private

insurance company. The premium, based on a composite rate, is paid by the

North Carolina Community College System Office directly to the private

insurer.

Fire and other property losses are covered by the Public School Insurance

Fund, a State- administered public entity risk pool. This fund is financed by

premiums and interest and incurs a $ 10 million self- insured deductible per

occurrence. Reinsurance is purchased by the fund to cover catastrophic events

in excess of the $ 10 million deductible. There have been no significant

reductions in insurance coverage from the previous year and settled claims

have not exceeded coverage in any of the past three fiscal years.

State- owned vehicles used for instructional purposes are covered by liability

insurance handled by the State Department of Insurance. Liability insurance

for other College- owned vehicles is covered by contracts with private

insurance companies.

The College is protected for losses from employee dishonesty and computer

fraud for employees paid in whole or in part from State funds. The blanket

honesty bond is with a private insurance company and is handled by the North

Carolina Department of Insurance with coverage of $ 5,000,000 per occurrence

and a $ 50,000 deductible. Losses from county and institutional fund

employees are insured with private insurance companies.

Employees and retirees are provided health care coverage by the

Comprehensive Major Medical Plan ( Plan), a component unit of the State. The

Plan is funded by employer and employee contributions and is administered by

a third- party contractor.

The State Board of Community Colleges makes the necessary arrangements to

carry out the provisions of the Workers’ Compensation Act which are

26

NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)

applicable to employees whose wages are paid in whole or in part from State

funds. The College purchases workers’ compensation insurance for employees

whose salaries or wages are paid by the Board entirely from county or

institutional funds.

Term life insurance of $ 25,000 to $ 50,000 is provided to eligible workers.

This self- insured death benefit program is administered by the State Treasurer

and funded via employer contributions. There were no employer contributions

required for the current fiscal year.

Additional details on the State- administered risk management programs are

disclosed in the State’s Comprehensive Annual Financial Report, issued by the

Office of the State Controller.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

A. Commitments - The College has established an encumbrance system to

track its outstanding commitments on construction projects and other

purchases. Outstanding commitments on construction contracts were

$ 972,650.23 and on other purchases were $ 375.22 at June 30, 2004.

B. Community College General Obligation Bonds – The 1999- 2000

Session of the General Assembly of North Carolina authorized the

issuance of $ 600 million of general obligation bonds of the State, as

subsequently approved by a vote of qualified voters of the State, to

provide funds for capital improvements for the North Carolina

Community College System. The funds authorized are to be used solely

to construct new buildings and to renovate and modernize existing

buildings on the North Carolina Community College System campuses.

The bond legislation specifies the amount of bond funding for each

College campus as well as the intended amount for new construction and

repair and replacement. The legislation further provides that the State

Board of Community Colleges shall be responsible for the approval of

projects in accordance with provisions of the legislation. The bonds were

authorized for issuance over a six- year period beginning in 2001 at a level

not to exceed amounts provided in the legislation. Using a cash flow

financing approach, The Community College System’s Office ( CCSO)

establishes annual amounts not to exceed for each approved project. The

amounts not to exceed are subject to change due to actual cash availability

and needs during the year. Subsequent to the bond sales and the

availability of bond proceeds, CCSO notifies the Office of State Budget

and Management ( OSBM) of the amount not to exceed for the total of the

approved projects. Within this amount, based on an official request of

cash needs from the State Board of Community Colleges, OSBM

27

NOTES TO THE FINANCIAL STATEMENTS ( CONCLUDED)

authorizes allotments. These allotments are then recorded to specific

community college allotment accounts by the CCSO. The College

records the allotments as revenue on the accompanying financial

statements. The College’s remaining authorization of $ 1,164,051.00 is

contingent on future bond sales and CCSO allotment approval. Because

of uncertainty and time restrictions the remaining authorization is not

recorded as an asset or revenue on the accompanying financial statements.

NOTE 14 - CHANGE IN FINANCIAL ACCOUNTING AND REPORTING

For the fiscal year ended June 30, 2004, the College implemented

Governmental Accounting Standards Board Statement No. 39, Determining

Whether Certain Organizations are Component Units. This Statement amends

GASB Statement No. 14, The Financial Reporting Entity, to provide additional

guidance to determine whether certain organizations for which the College is

not financially accountable should be reported as component units based on the

nature and significance of their relationship to the College.

28

$

$

Carteret Community College

Schedule of General Obligation Bond Project Authorizations,

Budgets, and Expenditures

For Project- to- Date as of June 30, 2004 Schedule 1

Original Revised/

Original Revised/ General Total Expected Actual

Projected Actual Obligation Bonds Other Project Amount Percent Completion Completion

Capital Improvement Projects Start Date Start Date Authorized Sources Budget Expended Completed Date Date

Projects Approved by the State Board

Land Acquisition - Railroad Easement Mar 2001 Mar 2001 17,500.00 $ 0.00 $ 17,500.00 $ 17,500.00 100.00% Oct 2001 Oct 2001

Classroom Building Replacement - Wayne West Feb 2001 Jan 2002 3,883,474.56 5,175,000.00 9,058,474.56 8,772,857.51 96.85% Aug 2004 Aug 2004

Marine Education Training Center - MARTEC Feb 2001 Jan 2002 1,407,056.20 3,300,000.00 4,707,056.20 3,532,065.14 75.04% Jan 2005 Jan 2005

Howard Building Renovation Feb 2001 Jan 2002 337,693.44 525,000.00 862,693.44 769,101.84 89.15% Jan 2005 Jan 2005

Projects Pending Approval by the State Board

Parking Lot Renovation Oct 2003 Nov 2004 150,000.00 150,000.00 Jun 2005 Oct 2005

McGee Building Renovation - Joslyn Hall Mar 2005 Apr 2005 464,051.00 464,051.00 Nov 2006 Dec 2005

McGee Building Renovation - Classrooms Mar 2005 Apr 2005 550,000.00 550,000.00 Nov 2006 Dec 2005

Total All Projects 6,809,775.20 $ 9,000,000.00 $ 15,809,775.20 $ 13,091,524.49

Note: The 1999- 2000 Session of the General Assembly of North Carolina authorized the issuance of $ 600 million of general obligation bonds of the State,

as subsequently approved by a vote of qualified voters of the State, to provide funds for capital improvements for the North Carolina Community College System.

The projects listed on this schedule are those funded or to be funded by bond proceeds from the general obligation bonds authorized by Senate Bill 912.

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DISTRIBUTION OF REVIEW REPORT

In accordance with General Statutes 147- 64.5 and 147- 64.6( c)( 14), copies of this report have

been distributed to the public officials listed below. Additional copies are provided to other

legislators, state officials, the press, and the general public upon request.

EXECUTIVE BRANCH

The Honorable Michael F. Easley

The Honorable Beverly M. Perdue

The Honorable Richard H. Moore

The Honorable Roy A. Cooper, III

Mr. David T. McCoy

Mr. Robert L. Powell

Mr. H. Martin Lancaster

Dr. Joseph T. Barwick

Ms. Janet N. Spriggs

Mr. William J. Henderson

Governor of North Carolina

Lieutenant Governor of North Carolina

State Treasurer

Attorney General

State Budget Officer

State Controller

President, North Carolina Community College System

President, Carteret Community College

Vice President for Administrative Services,

Carteret Community College

Chairman, Board of Trustees

Carteret Community College

LEGISLATIVE BRANCH

Appointees to the Joint Legislative Commission on Governmental Operations

President Pro Tempore

Senator Marc Basnight, Co- Chair

Senator Charles W. Albertson

Senator Thomas M. Apodaca

Senator Daniel G. Clodfelter

Senator Walter H. Dalton

Senator Charlie S. Dannelly

Senator James Forrester

Senator Linda Garrou

Senator Kay R. Hagan

Senator Fletcher L. Hartsell, Jr.

Senator David W. Hoyle

Senator John H. Kerr, III

Senator Ellie Kinnaird

Senator Jeanne H. Lucas

Senator Anthony E. Rand

Senator R. C. Soles, Jr.

Senator Richard Y. Stevens

Senator A. B. Swindell, IV

Senator Scott Thomas

Speaker of the House

Representative James B. Black, Co- Chair

Representative Alma S. Adams

Representative Martha B. Alexander

Representative Harold J. Brubaker

Representative Lorene T. Coates

Representative E. Nelson Cole

Representative James W. Crawford, Jr.

Representative William T. Culpepper, III

Representative W. Pete Cunningham

Representative Beverly M. Earle

Representative Pryor A. Gibson, III

Representative Joe Hackney

Representative R. Phillip Haire

Representative Dewey L. Hill

Representative Lindsey H. Holliman

Representative Julia C. Howard

Representative Howard J. Hunter, Jr.

Representative Margaret M. Jeffus

Representative Daniel F. McComas

Representative Charles L. McLawhorn

Representative Henry M. Michaux, Jr.

Representative Richard T. Morgan

Representative Edd Nye

Representative William C. Owens, Jr.

Representative Deborah K. Ross

Representative Drew P. Saunders

Representative Wilma M. Sherrill

Representative Joe P. Tolson

Representative Edith D. Warren

Representative Thomas E. Wright

Representative Douglas Y. Yongue

Other Legislative Officials

Mr. James D. Johnson Director, Fiscal Research Division

June 20, 2005

ORDERING INFORMATION

Copies of this report may be obtained by contacting the:

Office of the State Auditor

State of North Carolina

2 South Salisbury Street

20601 Mail Service Center

Raleigh, North Carolina 27699- 0601

Internet: http:// www. ncauditor. net

Telephone: 919/ 807- 7500

Facsimile: 919/ 807- 7647