Financial statement audit report of South Piedmont Community College, Polkton, North Carolina.

              STATE OF
NORTH CAROLINA
SOUTH PIEDMONT COMMUNITY COLLEGE
POLKTON, NORTH CAROLINA
FINANCIAL STATEMENT AUDIT REPORT
FOR THE YEAR ENDED JUNE 30, 2011
OFFICE OF THE STATE AUDITOR
BETH A.WOOD, CPA
STATE AUDITOR
A Component Unit of the State of North Carolina
SOUTH PIEDMONT COMMUNITY COLLEGE
POLKTON, NORTH CAROLINA
FINANCIAL STATEMENT AUDIT REPORT
FOR THE YEAR ENDED JUNE 30, 2011
STATE BOARD OF COMMUNITY COLLEGES
THE NORTH CAROLINA COMMUNITY COLLEGE SYSTEM
DR. R. SCOTT RALLS, PRESIDENT
BOARD OF TRUSTEES
HARVEY H. LEAVITT, III, CHAIRMAN
ADMINISTRATIVE OFFICERS
DR. JOHN MCKAY, PRESIDENT
JOHN DE VITTO, VICE PRESIDENT FOR FINANCE AND ADMINISTRATIVE SERVICES
Beth A. Wood, CPA
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
AUDITOR’S TRANSMITTAL
The Honorable Beverly E. Perdue, Governor
The General Assembly of North Carolina
Board of Trustees, South Piedmont Community College
We have completed a financial statement audit of South Piedmont Community College for the
year ended June 30, 2011, and our audit results are included in this report. You will note from
the independent auditor’s report that we determined that the financial statements are presented
fairly in all material respects.
Our consideration of internal control over financial reporting and compliance and other
matters based on an audit of the financial statements disclosed certain deficiencies and/or
instances of noncompliance that are detailed in the Audit Findings and Responses section of
this report. The College’s response is included following each finding.
North Carolina General Statutes require the State Auditor to make audit reports available to
the public. Copies of audit reports issued by the Office of the State Auditor may be obtained
through one of the options listed in the back of this report.
Beth A. Wood, CPA
State Auditor
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR’S REPORT .............................................................................................................1
MANAGEMENT’S DISCUSSION AND ANALYSIS.........................................................................................3
BASIC FINANCIAL STATEMENTS
College 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
Component Unit Exhibits
B-1 Statement of Financial Position .................................................................................................. 12
B-2 Statement of Activities................................................................................................................ 13
Notes to the Financial Statements ................................................................................................................ 15
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
AUDIT FINDINGS AND RESPONSES............................................................................................................ 31
ORDERING INFORMATION ........................................................................................................................... 37
Beth A. Wood, CPA
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 AUDITOR’S REPORT
Board of Trustees
South Piedmont Community College
Polkton, North Carolina
We have audited the accompanying financial statements of South Piedmont 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, 2011, which collectively comprise the
College’s basic financial statements as listed in the table of contents. These financial
statements are the responsibility of the College’s management. Our responsibility is to
express opinions on these financial statements based on our audit. We did not audit the
financial statements of the College’s discretely presented component unit. Those financial
statements were audited by other auditors whose report thereon has been furnished to us, and
our opinions, insofar as they relate to the amounts included for the Foundation, are 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 the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. The financial
statements of South Piedmont Community College Foundation, Inc. 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 financial statements. An audit
also includes assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe
that our audit and the report of 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
South Piedmont Community College and its discretely presented component unit as of
June 30, 2011, and the respective changes in financial position and cash flows, where
applicable, thereof for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
INDEPENDENT AUDITOR’S REPORT (CONCLUDED)
In accordance with Government Auditing Standards, we have also issued our report dated
February 23, 2012 on our consideration of the College’s internal control over financial
reporting and on our tests of its compliance with certain provisions of laws, regulations,
contracts, 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, 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. We have applied
certain limited procedures, which consisted principally of inquiries of management regarding
the methods of measurement and presentation of the required supplementary information.
However, we did not audit the information and express no opinion on it.
Beth A. Wood, CPA
State Auditor
February 23, 2012
2
SOUTH PIEDMONT COMMUNITY COLLEGE
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Management of South Piedmont Community College provides this Management’s
Discussion and Analysis for readers of the college’s financial statements. This narrative
overview and analysis of the financial activities of South Piedmont Community College is for
the fiscal year ended June 30, 2011. We encourage readers to consider this information in
conjunction with the additional information that is furnished in the College’s financial
statements.
Overview of the Financial Statements
The College’s financial statements include three components: 1) Statement of Net Assets;
2) Statement of Revenues, Expenses, and Changes in Net Assets; and 3) Statement of Cash
Flows.
Comparative Data
A comparative analysis of key elements of the financial statements relative to the previous
fiscal year is presented in this analysis.
Financial Highlights
The College’s FTE increased 13.06% in 2010-2011 when compared to 2009-2010 (2,735 FTE
in 2010-2011 compared to 2,419 FTE in 2009-2010). FTE is expected to remain fairly flat as
the area’s unemployment rate decreases.
As compared to the final 2009-2010 state budget, the final 2010-2011 state budget increased
by 12.16%, or $1,789,555. During 2010-2011, the College was allocated and spent an
additional 10% ($582,277) on college support services, 9.5% on instruction ($801,107), and
almost 58% ($406,171) on equipment.
Both county budgets, Anson and Union, remained stable from 2009-2010 to 2010-2011.
Cash flow was positive and management concluded that the financial position of the College
remained stable.
Analysis of Assets
For the year, ended June 30, 2011, the College’s Total Assets increased slightly, .58%.
Current Assets
Current assets increased by $359,484.66. Cash and Cash Equivalents went up by $529,065.14
and Inventories had a slight increase. Cash and Cash Equivalents increased primarily due to
increases in student fees, self-supporting curriculum and continuing education, and bookstore
commission. Receivables, Net and Due from State of North Carolina Component Units
3
MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)
decreased. Due from State of North Carolina Component Units decreased by $127,929.20
because of funds were received from two Golden LEAF grants during 2010-2011, thus
reducing the receivable.
Noncurrent Assets
Noncurrent Assets decreased slightly, 1.01%.
2009-2010
2010-2011 (as restated) Difference % Change
Current Assets $ 2,914,756.70 $ 2,555,272.04 $ 359,484.66 14.07%
Noncurrent Assets:
Restricted Cash
and Cash Equivalents 18,762.36 18,762.36 100.00%
Capital Assets 21,443,702.46 21,680,693.93 (236,991.47) -1.09%
Total Noncurrent Assets 21,462,464.82 21,680,693.93 (218,229.11) -1.01%
Total Assets $ 24,377,221.52 $ 24,235,965.97 $ 141,255.55 0.58%
Analysis of Liabilities
Compared with the year ended June 30, 2010, the current fiscal year showed a 4.17%
decrease in total liabilities.
Current Liabilities
Current Liabilities decreased by $36,438.16. The largest decrease in this category was in
Accounts Payable primarily because the Multi-Purpose building at the Old Charlotte Highway
planning had been delayed due to a lack of county funding.
Noncurrent Liabilities
Noncurrent liabilities decreased by $25,479.48 primarily due to payments totaling $35,465.56
towards the principal balance owed on the Energy Conservation Improvement Project and an
increase of $13,060.34 in long-term liabilities related to compensated absences.
2010-2011 2009-2010 Difference % Change
Current Liabilities $ 648,673.11 $ 685,111.27 $ (36,438.16) -5.32%
Noncurrent Liabilities 774,802.66 800,282.14 (25,479.48) -3.18%
Total Liabilities $ 1,423,475.77 $ 1,485,393.41 $ (61,917.64) -4.17%
4
MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)
Analysis of Net Assets
There were no significant changes in Invested in Capital Assets, Net of Related Debt,
Scholarships and Fellowships, Loans, or Restricted for Specific Programs. Total Net Assets
increased .53% compared with the year ended June 30, 2010. Unrestricted Net Assets
increased by 43.34%, or $402,605.94, due to continued improvement of cash flow.
2009-2010
2010-2011 (as restated) Difference % Change
Net Assets
Invested in Capital Assets,
Net of Related Debt $ 21,274,558.58 $ 21,557,857.20 $ (283,298.62) -1.31%
Restricted for:
Expendable
Scholarships & Fellowships 128,691.52 29,752.55 98,938.97 332.54%
Loans 12,151.69 14,211.95 (2,060.26) -14.50%
Restricted for Specific Programs 206,786.54 301,572.09 (94,785.55) -31.43%
Unrestricted 1,331,557.42 928,951.48 402,605.94 43.34%
Total Net Assets $ 22,953,745.75 $ 22,832,345.27 $ 121,400.48 0.53%
Analysis of Revenues
Compared with the year ended June 30, 2010, the current fiscal year showed a 1.72% increase
in total revenues.
Operating
Total Operating Revenues decreased 33.8% ($1,231,474.51) when compared to the year
ending June 30, 2010. Sales and Services decreased $430,954.64 primarily because the
College Bookstore was leased out in April 2010. The bookstore inventory that was purchased
during 2009-2010 inflated Sales and Services, Net for that fiscal year. State and Local Grants
& Contracts decreased $687,487.22 mainly because the College had a significant grant with
the Golden LEAF during 2009-2010, which was reduced for 2010-2011 due to payments from
the Golden LEAF for that grant during 2009-2010.
Nonoperating
Nonoperating revenues increased by 8.3%, or $1,633,415.95. State Aid (current and capital)
increased by $1,530,237.16, while Noncapital Grants (student financial aid) increased by
$1,109,564.15 due to the increase in the amount awarded to students. County Capital
Appropriations decreased by $658,011.15 because there was no funding for the planning of
the Multi-Purpose building at the Old Charlotte Highway campus as there was during
2009-2010.
5
MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)
2010-2011 2009-2010 Difference % Change
Operating Revenues:
Student Tuition & Fees, Net $ 1,779,732.55 $ 1,903,412.56 $ (123,680.01) -6.50%
Federal Grants & Contracts 16,993.06 11,554.90 5,438.16 47.06%
State & Local Grants & Contracts 403,488.07 1,090,975.29 (687,487.22) -63.02%
Sales & Services, Net 205,059.46 636,014.10 (430,954.64) -67.76%
Other Revenues 6,626.02 1,416.82 5,209.20 367.67%
Total Operating Revenues 2,411,899.16 3,643,373.67 (1,231,474.51) -33.80%
Nonoperating Revenues:
State Aid 12,107,919.39 11,060,375.43 1,047,543.96 9.47%
County Appropriations 1,640,800.83 1,722,034.00 (81,233.17) -4.72%
Noncapital Grants 6,002,639.12 4,893,074.97 1,109,564.15 22.68%
Noncapital Gifts 178,946.74 300,680.05 (121,733.31) -40.49%
Investment Income 2,212.63 1,420.11 792.52 55.81%
State Capital Aid 1,167,248.95 684,555.75 482,693.20 70.51%
County Capital Aid 184,296.01 842,307.16 (658,011.15) -78.12%
Capital Grants 6,182.10 15,253.93 (9,071.83) -59.47%
Capital Gifts 133,669.85 (133,669.85) -100.00%
Interest and Fees on Debt (8,544.57) (8,544.57) 100.00%
Other Nonoperating Revenues 33,059.00 27,973.00 5,086.00 18.18%
Total Nonoperating Revenues 21,314,760.20 19,681,344.25 1,633,415.95 8.30%
Total Revenues $ 23,726,659.36 $ 23,324,717.92 $ 401,941.44 1.72%
Analysis of Expenses
Total Operating Expenses increased by 7.74% when compared to 2009-2010. The increase is
primarily the result of an increase in financial aid awards (Scholarships and Fellowships) and
salaries and benefits.
2010-2011 2009-2010 Difference % Change
Salaries & Benefits $ 14,472,237.62 $ 13,205,749.53 $ 1,266,488.09 9.59%
Supplies & Materials 1,706,715.94 2,643,641.13 (936,925.19) -35.44%
Services 2,321,224.03 1,997,942.98 323,281.05 16.18%
Scholarships & Fellowships 3,899,183.82 2,859,757.39 1,039,426.43 36.35%
Utilities 425,961.81 435,358.74 (9,396.93) -2.16%
Depreciation 779,935.66 767,723.07 12,212.59 1.59%
Total Operating Expenses $ 23,605,258.88 $ 21,910,172.84 $ 1,695,086.04 7.74%
6
MANAGEMENT’S DISCUSSION AND ANALYSIS (CONCLUDED)
Capital Asset Activity
South Piedmont Community College’s capital assets as of June 30, 2011 totaled
$29,878,711.63 with accumulated depreciation of $8,435,009.17, which is a 1.09% decrease
in Capital Assets, Net compared to June 30, 2010.
2009-2010
2010-2011 (as restated) Difference % Change
Capital Assets:
Land $ 2,413,160.17 $ 2,413,160.17 $ 0.00 0.00%
Buildings 22,961,068.36 22,961,068.36 0.00%
Machinery & Equipment 2,947,555.72 2,495,481.53 452,074.19 18.12%
General Infrastructure 464,181.00 464,181.00 0.00%
Construction in Progress 1,092,746.38 1,001,876.38 90,870.00 9.07%
Total 29,878,711.63 29,335,767.44 542,944.19 1.85%
Less:
Accumulated Depreciation 8,435,009.17 7,655,073.51 779,935.66 10.19%
Capital Assets, Net $ 21,443,702.46 $ 21,680,693.93 $ (236,991.47) -1.09%
Economic Factors and Next Year’s Budget
The economy of the State of North Carolina is expected to remain flat; therefore, the state
may have difficulty in maintaining current funding for the College. With the 2011-2012
budget, the College expects another Management Flexibility Reduction and the possibility of
a reversion of up to 2%.
County funding will remain stable in both counties of the service area. The population
growth is expected to continue at 5%-10% for Union County and remain static in Anson
County.
7
Exhibit A-1
Current Assets:
Cash and Cash Equivalents $ 2,033,418.56
Restricted Cash and Cash Equivalents 74,208.95
Receivables, Net (Note 3) 484,572.39
Restricted Due from State of North Carolina Component Units 221,480.68
Inventories 101,076.12
Total Current Assets 2,914,756.70
Noncurrent Assets:
Restricted Cash and Cash Equivalents 18,762.36
Capital Assets - Nondepreciable (Note 4) 3,505,906.55
Capital Assets - Depreciable, Net (Note 4) 17,937,795.91
Total Noncurrent Assets 21,462,464.82
Total Assets 24,377,221.52
Current Liabilities:
Accounts Payable and Accrued Liabilities (Note 5) 481,185.74
Due to Primary Government 1,735.22
Unearned Revenue 11,270.79
Funds Held for Others 24,230.26
Long-Term Liabilities - Current Portion (Note 6) 130,251.10
Total Current Liabilities 648,673.11
Noncurrent Liabilities:
Long-Term Liabilities (Note 6) 774,802.66
Total Liabilities 1,423,475.77
Invested in Capital Assets, Net of Related Debt 21,274,558.58
Restricted for:
Expendable:
Scholarships and Fellowships 128,691.52
Loans 12,151.69
Restricted for Specific Programs 206,786.54
Unrestricted 1,331,557.42
Total Net Assets $ 22,953,745.75
The accompanying notes to the financial statements are an integral part of this statement.
LIABILITIES
NET ASSETS
ASSETS
South Piedmont Community College
Statement of Net Assets
June 30, 2011
8
South Piedmont Community College
Statement of Revenues, Expenses, and
Changes in Net Assets
For the Fiscal Year Ended June 30, 2011 Exhibit A-2
REVENUES
Student Tuition and Fees, Net (Note 8) $ 1,779,732.55
Federal Grants and Contracts 16,993.06
State and Local Grants and Contracts 403,488.07
Sales and Services, Net (Note 8) 205,059.46
Other Operating Revenues 6,626.02
Total Operating Revenues 2,411,899.16
EXPENSES
Salaries and Benefits 14,472,237.62
Supplies and Materials 1,706,715.94
Services 2,321,224.03
Scholarships and Fellowships 3,899,183.82
Utilities 425,961.81
Depreciation 779,935.66
Total Operating Expenses 23,605,258.88
Operating Loss (21,193,359.72)
NONOPERATING REVENUES (EXPENSES)
State Aid 12,107,919.39
County Appropriations 1,640,800.83
Noncapital Grants - Student Financial Aid 6,002,639.12
Noncapital Gifts 178,946.74
Investment Income 2,212.63
Interest and Fees on Debt (8,544.57)
Other Nonoperating Revenues 33,059.00
Net Nonoperating Revenues 19,957,033.14
Loss Before Other Revenues (1,236,326.58)
State Capital Aid 1,167,248.95
County Capital Aid 184,296.01
Capital Grants 6,182.10
Increase in Net Assets 121,400.48
NET ASSETS
Net Assets, July 1, 2010 as Restated (Note 13) 22,832,345.27
Net Assets, June 30, 2011 $ 22,953,745.75
The accompanying notes to the financial statements are an integral part of this statement.
Operating Expenses:
Operating Revenues:
9
South Piedmont Community College
Statement of Cash Flows Exhibit A-3
For the Fiscal Year Ended June 30, 2011 Page 1 of 2
Received from Customers $ 2,477,457.23
Payments to Employees and Fringe Benefits (14,364,961.07)
Payments to Vendors and Suppliers (4,612,597.28)
Payments for Scholarships and Fellowships (3,901,985.18)
Other Receipts 118,500.42
Net Cash Used by Operating Activities (20,283,585.88)
State Aid Received 12,107,919.39
County Appropriations 1,640,800.83
Noncapital Grants - Student Financial Aid 6,002,639.12
Noncapital Grants Received 129,195.83
Noncapital Gifts Received 178,946.74
Cash Provided by Noncapital Financing Activities 20,059,501.91
FINANCING ACTIVITIES
State Capital Aid Received 1,167,248.95
County Capital Aid 184,296.01
Capital Grants Received 6,182.10
Acquisition and Construction of Capital Assets (542,944.19)
Principal Paid on Capital Debt and Leases (35,465.56)
Interest Paid on Capital Debt and Leases (8,544.57)
Net Cash Provided by Capital and Related Financing Activities 770,772.74
Investment Income 2,212.63
Net Increase in Cash and Cash Equivalents 548,901.40
Cash and Cash Equivalents, July 1, 2010 1,577,488.47
Cash and Cash Equivalents, June 30, 2011 $ 2,126,389.87
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
CASH FLOWS FROM CAPITAL AND RELATED
CASH FLOWS FROM INVESTING ACTIVITIES
10
South Piedmont Community College
Statement of Cash Flows Exhibit A-3
For the Fiscal Year Ended June 30, 2011 Page 2 of 2
RECONCILIATION OF OPERATING LOSS
TO NET CASH USED BY OPERATING ACTIVITIES
Operating Loss $ (21,193,359.72)
Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities:
Depreciation Expense 779,935.66
Miscellaneous Nonoperating Income 114,831.74
Changes in Assets and Liabilities:
Receivables, Net 62,805.72
Inventories (20,080.54)
Accounts Payable and Accrued Liabilities (45,526.90)
Due to Primary Government 1,050.07
Unearned Revenue 29.07
Funds Held for Others 3,668.68
Compensated Absences 13,060.34
Net Cash Used by Operating Activities $ (20,283,585.88)
RECONCILIATION OF CASH AND CASH EQUIVALENTS
Current Assets:
Cash and Cash Equivalents $ 2,033,418.56
Restricted Cash and Cash Equivalents 74,208.95
Noncurrent Assets:
Restricted Cash and Cash Equivalents 18,762.36
Total Cash and Cash Equivalents - June 30, 2011 $ 2,126,389.87
The accompanying notes to the financial statements are an integral part of this statement.
11
South Piedmont Community College Foundation, Inc.
June 30, 2011 Exhibit B-1
ASSETS
Current Assets:
Cash and Cash Equivalents $ 752,580
Investments 372,248
Total Current Assets 1,124,828
Endowment Investments:
Cash and Cash Equivalents 971,444
Total Endowment Investments 971,444
Fixed Assets
Land 9,700
Total Assets $ 2,105,972
NET ASSETS
Unrestricted $ 320,921
Temporarily Restricted 764,530
Permanently Restricted 1,020,521
Total Net Assets $ 2,105,972
The accompanying notes to the financial statements are an integral part of this statement.
Statement of Financial Position
12
June 30, 2011 Exhibit B-2
UNRESTRICTED
TEMPORARILY
RESTRICTED
PERMANENTLY
RESTRICTED TOTAL
REVENUES, GAINS, AND OTHER SUPPORT
Contributions and Other Income $ 42,109 $ 86,365 $ 213,314 $ 341,788
Investment Earnings 11,958 85,519 10,379 107,856
Net Assets Released from Restrictions: 72,472 (62,697) (9,775)
Total Revenue, Gains, and Other Support 126,539 109,187 213,918 449,644
EXPENSES
Supporting Services
Bank Charges 2 2
Dues 1,515 1,515
Insurance 1,070 1,070
Management Fees 6,157 6,157
Meals and Entertainment 1,966 1,966
Presidential Recruitment 8,058 8,058
Presidential Supplement 23,148 23,148
Professional Fees 2,740 2,740
Total Supporting Services 44,656 44,656
Scholarship Awards 29,151 29,151
Support for South Piedmont Community College
Expenses and Programs 49,124 49,124
Total Expenses 122,931 122,931
Change in Net Assets 3,608 109,187 213,918 326,713
NET ASSETS
Net Assets, Beginning of Year 307,613 655,343 806,603 1,769,559
Prior Period Adjustment: Land 9,700 9,700
Net Assets, End of Year $ 320,921 $ 764,530 $ 1,020,521 $ 2,105,972
South Piedmont Community College Foundation, Inc.
Statement of Activities
13
[ This Page Left Blank Intentionally ]
14
SOUTH PIEDMONT COMMUNITY COLLEGE
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2011
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 (GAAP), 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. South Piedmont 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 its component unit for which the College’s Board of Trustees is
financially accountable. The College’s component unit is discretely
presented in the College’s financial statements. Discretely presented
component unit financial data is reported in separate financial statements
because of its use of different GAAP reporting models and to emphasize
its legal separateness.
Discretely Presented Component Unit - South Piedmont Community
College Foundation, Inc. (Foundation) 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 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 twenty-two members.
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 Foundation is a private not-for-profit organization that reports its
financial results under Financial Accounting Standards Board (FASB)
Statements. As such, certain revenue recognition criteria and
15
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
presentation features are different from the Governmental Accounting
Standards Board (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, 2011, the Foundation distributed $101,423
to the College for both restricted and unrestricted purposes. Complete
financial statements for the Foundation can be obtained from Hayne
White, Executive Director, South Piedmont Community College
Foundation, Inc., PO Box 126, Polkton North Carolina 28135,
704 272-7220.
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 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, 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, regardless of the timing of the cash flows.
Nonexchange transactions, in which the College receives (or gives) value
without directly giving (or receiving) equal value in exchange includes
State appropriations, certain grants, and donations. Revenues are
recognized, net of estimated uncollectible amounts, as soon as all
eligibility requirements imposed by the provider have been met, if
probable of collection.
16
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
D. Cash and Cash Equivalents - This classification includes undeposited
receipts, petty cash, and cash on deposit with private bank accounts.
E. Receivables - Receivables consist of tuition and fees charged 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.
Receivables are recorded net of estimated uncollectible amounts.
F. Inventories - Inventories, consisting of expendable supplies, are valued at
cost using the last invoice cost method.
G. 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 value of assets
constructed includes all material direct and indirect construction costs.
Interest costs incurred are capitalized during the period of construction.
The College capitalizes assets that have a value or cost of $5,000 or
greater at the date of acquisition and an estimated 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 method over the
estimated useful lives of the assets, generally 14 to 22 years for general
infrastructure, 23 to 50 years for buildings, and 5 to 40 years for
equipment.
H. Restricted Assets - Certain resources are reported as restricted assets
because restrictions on asset use change the nature or normal
understanding of the availability of the asset. Resources that are not
available for current operations and are reported as restricted include
resources restricted for the acquisition or construction of capital assets
and resources whose use is limited by external parties or statute.
I. Noncurrent Long-Term Liabilities - Noncurrent long-term liabilities
include notes payable and compensated absences that will not be paid
within the next fiscal year.
J. 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 July 1 or for which an employee can be paid upon
termination of employment. When classifying compensated absences into
current and noncurrent, leave is considered taken using a last-in, first-out
17
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(LIFO) method. Also, any accumulated vacation leave in excess of
30 days at fiscal year-end is converted to sick leave.
In addition to the vacation leave described above, compensated absences
include the accumulated unused portion of the special annual leave
bonuses awarded by the North Carolina General Assembly. The bonus
leave balance on June 30 is retained by employees and transferred into the
next calendar year. It is not subject to the limitation on annual leave
carried forward described above and is not subject to conversion to sick
leave.
There is no liability for unpaid accumulated sick leave because the
College has no obligation to pay sick leave upon termination or
retirement. However, additional service credit for retirement pension
benefits is given for accumulated sick leave upon retirement.
K. Net Assets - The College’s net assets are classified as follows:
Invested in Capital Assets, Net of Related Debt - This represents the
College’s total investment in capital assets, net of outstanding debt
obligations related to those 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.
L. 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.
M. 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.
N. 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
by the College.
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 North Carolina 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. Also, the College may
establish time deposit accounts, money market accounts, and certificates
of deposit. Cash on hand at June 30, 2011 was $1,510.10. The carrying
amount of the College’s deposits not with the State Treasurer was
$2,124,879.77 and the bank balance was $2,188,136.29.
19
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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.
Custodial credit risk is the risk that in the event of a bank failure, the
College’s deposits may not be returned to it. As of June 30, 2011, the
College’s bank balance in excess of federal depository insurance coverage
was covered under the pooling method.
B. Investments - Component Unit - Investments of the College’s discretely
presented component unit, the South Piedmont Community College
Foundation, Inc., are subject to and restricted by G.S. 36E “Uniform
Prudent Management of Institutional Funds Act” (UPMIFA) and any
requirements placed on them by contract or donor agreements. Because
the Foundation reports under the FASB reporting model, disclosures of
the various investment risks are not required. The Foundation has
$372,248 in equity securities.
NOTE 3 - RECEIVABLES
Receivables at June 30, 2011, were as follows:
Le ss
Allowance
Gr oss f or D oubtful Ne t
Rece ivables Acc ounts Rece ivable s
Curr ent R eceivab les:
Students $ 409,746.53 $ 117,296.67 $ 292,449.86
Student Sponsors 61,706.52 61,706.52
Inte rgovernmental 64,822.41 64,822.41
Other 65,593.60 65,593.60
Total Curren t Rec eivables $ 601,869.06 $ 117,296.67 $ 484,572.39
20
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - CAPITAL ASSETS
A summary of changes in the capital assets for the year ended June 30, 2011, is
presented as follows:
Balance
July 1, 2010 Balance
(as restated) Increases Decreases June 30, 2011
Capital Assets, Nondepreciable:
Land $ 2,413,160.17 $ 0.00 $ 0.00 $ 2,413,160.17
Construction in Progress 1,001,876.38 90,870.00 1,092,746.38
Total Capital Assets, Nondepreciable 3,415,036.55 90,870.00 3,505,906.55
Capital Assets, Depreciable:
Buildings 22,961,068.36 22,961,068.36
Machinery and Equipment 2,495,481.53 452,074.19 2,947,555.72
General Infrastructure 464,181.00 464,181.00
Total Capital Assets, Depreciable 25,920,730.89 452,074.19 26,372,805.08
Less Accumulated Depreciation/Amortization for:
Buildings 6,630,890.70 566,629.92 7,197,520.62
Machinery and Equipment 829,983.38 186,237.58 1,016,220.96
General Infrastructure 194,199.43 27,068.16 221,267.59
Total Accumulated Depreciation 7,655,073.51 779,935.66 8,435,009.17
Total Capital Assets, Depreciable, Net 18,265,657.38 (327,861.47) 17,937,795.91
Capital Assets, Net $ 21,680,693.93 $ (236,991.47) $ 0.00 $ 21,443,702.46
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2011, were as follows:
Amount
Accounts Payable $ 91,072.48
Accrued Payroll 388,846.63
Intergovernmental Payables 1,266.63
Total Accounts Payable and Accrued Liabilities $ 481,185.74
NOTE 6 - LONG-TERM LIABILITIES
A. Changes in Long-Term Liabilities - A summary of changes in the long-term
liabilities for the year ended June 30, 2011, is presented as follows:
Balance Balance Current
July 1, 2010 Additions Reductions June 30, 2011 Portion
Notes Payable $ 204,609.44 $ 0.00 $ 35,465.56 $ 169,143.88 $ 30,009.32
Compensated Absences 722,849.54 609,601.00 596,540.66 735,909.88 100,241.78
Total Long-Term Liabilities $ 927,458.98 $ 609,601.00 $ 632,006.22 $ 905,053.76 $ 130,251.10
21
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
B. Notes Payable - The College was indebted for notes payable for the
purposes shown in the following table:
Final Original Principal Principal
Financial Interest Maturity Amount Paid Through Outstanding
Purpose Institution Rate Date of Issue June 30, 2011 June 30, 2011
Energy Conservation Improvement BB&T 4.19% 09/15/2016 $ 376,481.00 $ 207,337.12 $ 169,143.88
The annual requirements to pay principal and interest on notes payable at
June 30, 2011, are as follows:
Fiscal Yea r Principa l Interest
2012 $ 30,009.32 $ 5,972.62
2013 32,737.44 5,201.04
2014 32,737.44 3,829.34
2015 32,737.44 2,457.65
2016 32,737.44 1,085.95
2017-2021 8,184.80 56.72
Total Requirements $ 169,143.88 $ 18,603.32
Notes Payable
Annual Requirements
NOTE 7 - LEASE OBLIGATIONS
Operating Lease Obligations - The College entered into operating leases for
copiers. Future minimum lease payments under noncancelable operating
leases consist of the following at June 30, 2011:
Fiscal Year Amount
2012 $ 24,437.75
2013 22,216.32
2014 22,216.32
2015 22,216.32
2016 5,554.08
Total Minimum Lease Payments $ 96,640.79
Rental expense for all operating leases during the year was $257,527.17.
22
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - REVENUES
A summary of eliminations and allowances by revenue classification is
presented as follows:
Less Cha nge in
Gross Scholar ship Allowance for Net
Re venues Discounts Uncollectibles Revenues
Operating Reven ues:
S tude nt T uit ion and Fee s $ 3,410,452.43 $ 1,630,581.99 $ 137.89 $ 1,779,732.55
Sales and Services:
Sales and Ser vices of Auxiliary Enter prises:
Bookstore C ommission 129,880.62 129,880.62
Vending 17,175.05 17,175.05
Rent 46,863.39 46,863.39
Other 16,218.41 5,078.01 11,140.40
Total Sales and Services $ 210,137.47 $ 0.00 $ 5,078.01 $ 205,059.46
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 $ 8,399,067.30 $ 1,113,672.49 $ 432,089.51 $ 0.00 $ 3,539.26 $ 0.00 $ 9,948,368.56
Academic Support 1,651,921.11 87,342.46 19,259.34 1,758,522.91
Student Services 1,236,913.96 72,976.52 65,526.66 193.49 1,375,610.63
Institutional Support 2,875,477.82 256,043.25 931,700.18 4,063,221.25
Operations and Maintenance of Plant 308,857.43 176,681.22 807,371.89 422,229.06 1,715,139.60
Student Financial Aid 4,065.50 3,899,183.82 3,903,249.32
Auxiliary Enterprises 61,210.95 61,210.95
Depreciation 779,935.66 779,935.66
Total Operating Expenses $ 14,472,237.62 $ 1,706,715.94 $ 2,321,224.03 $ 3,899,183.82 $ 425,961.81 $ 779,935.66 $ 23,605,258.88
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 is a cost-sharing multiple-employer defined benefit pension plan
established by the State to provide pension benefits for employees of the
State, its component units and local boards of education. The plan is
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
23
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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, 2011, these rates were
set at 4.93% of covered payroll for employers and 6% of covered payroll
for members.
For the current fiscal year, the College had a total payroll of
$11,527,081.05, of which $9,771,043.63 was covered under the Teachers’
and State Employees’ Retirement System. Total employer and employee
contributions for pension benefits for the year were $481,712.45 and
$586,262.62, respectively.
Required employer contribution rates for the years ended June 30, 2010,
and 2009, were 3.57% and 3.36%, respectively, while employee
contributions were 6% each year. The College made 100% of its annual
required contributions for the years ended June 30, 2011, 2010, and 2009,
which were $481,712.45, $328,270.05, and $309,624.97, 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.nc.gov/ and clicking on “Reports,” or
by calling the State Controller’s Financial Reporting Section
at (919) 981-5454.
B. Deferred Compensation and Supplemental Retirement Income
Plans - IRC Section 457 Plan - The State of North Carolina offers its
permanent employees a deferred compensation plan created in accordance
with Internal Revenue Code Section 457 through the North Carolina
Public Employee Deferred Compensation Plan (the Plan). The Plan
permits each participating employee to defer a portion of his or her salary
until future years. The deferred compensation is available to employees
upon separation from service, death, disability, retirement, or financial
hardships if approved by the Board of Trustees of the Plan. The Board, a
part of the North Carolina Department of Administration, maintains a
separate fund for the exclusive benefit of the participating employees and
their beneficiaries, the North Carolina Public Employee Deferred
Compensation Trust Fund. The Board also contracts with an external
third party to perform certain administrative requirements and to manage
the trust fund’s assets. All costs of administering and funding the Plan are
the responsibility of the Plan participants. No costs are incurred by the
College. The voluntary contributions by employees amounted to
$24,166.96 for the year ended June 30, 2011.
24
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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
$151,146.00 for the year ended June 30, 2011.
NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS
A. Health Benefits - The College participates in the Comprehensive Major
Medical Plan (the Plan), a cost-sharing, multiple-employer defined benefit
health care plan that provides 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.
Coverage eligibility varies depending on years of contributory
membership service in their retirement system prior to disability or
retirement.
The Plan’s benefit and contribution provisions are established by North
Carolina General Statute 135-7 and Chapter 135, Article 3A, of the
General Statutes and may be amended only by the North Carolina General
Assembly. The Plan does not provide for automatic post-retirement
benefit increases.
By General Statute, a Retiree Health Benefit Fund (the Fund) has been
established as a fund in which accumulated contributions from employers
and any earnings on those contributions shall be used to provide health
benefits to retired and disabled employees and applicable beneficiaries.
By statute, the Fund is administered by the Board of Trustees of the
Teachers’ and State Employees’ Retirement System and contributions to
the fund are irrevocable. Also by law, Fund assets are dedicated to
providing benefits to retired and disabled employees and applicable
beneficiaries and are not subject to the claims of creditors of the
employers making contributions to the Fund. Contribution rates to the
Fund, which are intended to finance benefits and administrative expenses
on a pay-as-you-go basis, are determined by the General Assembly.
For the current fiscal year the College contributed 4.9% of the covered
payroll under the Teachers’ and State Employees’ Retirement System to
the Fund. Required contribution rates for the years ended June 30, 2010,
and 2009, were 4.5% and 4.1%, respectively. The College made 100% of
its annual required contributions to the Plan for the years ended
June 30, 2011, 2010, and 2009, which were $478,781.14, $413,785.77,
25
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
and $377,816.19, respectively. 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.
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.nc.gov/ and clicking on “Reports,” or by calling the State
Controller’s Financial Reporting Section at (919) 981-5454.
B. Disability Income - The College participates in the Disability Income
Plan of North Carolina (DIPNC), a cost-sharing, multiple-employer
defined benefit plan, to provide short-term and long-term disability
benefits to eligible members of the Teachers’ and State Employees’
Retirement System. Benefit and contribution provisions are established
by Chapter 135, Article 6, of the General Statutes, and may be amended
only by the North Carolina General Assembly. The plan does not provide
for automatic post-retirement benefit increases.
Disability income benefits are funded by actuarially determined employer
contributions that are established by the General Assembly. For the fiscal
year ended June 30, 2011, the College made a statutory contribution of
.52% of covered payroll under the Teachers’ and State Employees’
Retirement System to the DIPNC. The required contribution rate for the
years ended June 30, 2010, and 2009, was .52% for both years. The
College made 100% of its annual required contributions to the DIPNC for
the years ended June 30, 2011, 2010, and 2009, which were $50,809.43,
$47,815.24, and $47,918.15, respectively. 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.
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. 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.
26
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27
The risk of tort claims of up to $1,000,000 per claimant is retained under the
authority of the State Tort Claims Act. In addition, the State provides excess
public officers’ and employees’ liability insurance up to $10,000,000 via
contract with a private insurance company. The North Carolina Community
College System Office pays the premium, based on a composite rate, 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 retains the risk for the $10 million deductible per
occurrence. Reinsurance is purchased by the fund to cover catastrophic events
in excess of the $10 million deductible. Property is covered under an all risk
coverage contract. Building and contents are valued under a replacement cost
basis. No coinsurance penalties apply. 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 are covered by liability insurance through a private
insurance company and handled by the North Carolina Department of
Insurance. The liability limits for losses are $1,000,000 per claim and
$10,000,000 per occurrence. The community college pays premiums to the
North Carolina Department of Insurance for the coverage. 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. This coverage
is with a private insurance company and is handled by the North Carolina
Department of Insurance. North Carolina Community College System Office
is charged a premium by the private insurance company. Coverage limit is
$5,000,000 per occurrence. The private insurance company pays 90% of each
loss less a $75,000 deductible.
College employees and retirees are provided comprehensive major medical
care benefits. Coverage is funded by contributions to the State Health Plan
(Plan), a discretely presented component unit of the State of North Carolina.
The Plan is funded by employer and employee contributions. The Plan has
contracted with third parties to process claims.
The State Board of Community Colleges makes the necessary arrangements to
carry out the provisions of the Workers’ Compensation Act which are
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.
NOTES TO THE FINANCIAL STATEMENTS (CONCLUDED)
Term life insurance (death benefits) of $25,000 to $50,000 is provided to
eligible workers. This Death Benefit Plan is administered by the State
Treasurer and funded via employer contributions. The employer contribution
rate was .16% 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 - NET ASSET RESTATEMENT
As of July 1, 2010, net assets as previously reported was restated as follows:
Amount
July 1, 2010 Net Assets as Previously Reported $ 22,497,072.29
Corrections from Prior Audits that Were Not Recorded
Properly and Other Various Recording Errors (12,699.51)
Error in Establishing Useful Lives of Capital Assets 347,972.49
July 1, 2010 Net Assets as Restated $ 22,832,345.27
28
Beth A. Wood, CPA
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
29
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
Board of Trustees
South Piedmont Community College
Polkton, North Carolina
We have audited the financial statements of South Piedmont 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, 2011, which collectively comprise the College’s basic
financial statements and have issued our report thereon dated February 23, 2012. Our report
was modified to include a reference to other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Other auditors audited the financial statements of the discretely presented component unit, as
described in our report on the College’s financial statements. The financial statements of the
discretely presented component unit were not audited in accordance with Government
Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the College’s internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of
expressing our opinion on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the College’s internal control over financial reporting.
Accordingly, we do not express an opinion on the effectiveness of the College’s internal
control over financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose
described in the preceding paragraph and was not designed to identify all deficiencies in
internal control over financial reporting that might be significant deficiencies or material
weaknesses and therefore, there can be no assurance that all deficiencies, significant
deficiencies, or material weaknesses have been identified. However, as discussed below, we
identified certain deficiencies in internal control over financial reporting that we consider to
be material weaknesses.
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 (CONCLUDED)
A deficiency in internal control exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned functions,
to prevent, or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the College’s financial statements will not be
prevented, or detected and corrected on a timely basis. We consider all deficiencies described
in the Audit Findings and Responses section of this report to be material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the College’s financial statements
are free of material misstatement, we performed tests of its compliance with certain
provisions of laws, regulations, contracts, and grant agreements, noncompliance with which
could have a direct and material effect on the determination of financial statement amounts.
However, providing an opinion on compliance with those provisions was not an objective of
our audit, and accordingly, we do not express such an opinion.
The College’s responses to the findings identified in our audit are described in the Audit
Findings and Responses section of this report. We did not audit the College’s response and,
accordingly, we express no opinion on it.
This report is intended solely for the information and use of management of the College, the
College Board of Trustees, others within the entity, the State Board of Community Colleges,
the Governor, the General Assembly, and the State Controller, and is not intended to be and
should not be used by anyone other than these specified parties.
Beth A. Wood, CPA
State Auditor
February 23, 2012
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AUDIT FINDINGS AND RESPONSES
Matters Related to Financial Reporting
The following audit findings were identified during the current audit and describe conditions
that represent deficiencies in internal control or noncompliance with laws, regulations,
contracts, grant agreements, or other matters. Finding numbers 1 and 2 were also reported in
the prior year.
1. LACK OF SEGREGATION OF DUTIES
The College did not properly segregate duties in the recording and maintaining of student
accounts receivable funds. Also, the College did not assign employee access rights to
ensure adequate segregation of duties. As a result, there is an increased risk that errors or
fraud could occur and not be detected in a timely manner.
The accounts receivable technicians update the rate tables, receipt funds, bill third party
sponsors, run processes to post financial aid and refunds, and adjust student accounts.
The director and assistant director of financial services have access to perform most
functions within the business office from initiation to completion. Six additional
employees of the business office have access rights inappropriate for their job duties. All
human resource and payroll employees have the ability to perform all human resource
and payroll functions from adding an employee to printing paychecks.
Duties should be segregated such that employees, in the normal course of performing
their assigned functions, can prevent or detect errors or fraud on a timely basis.
A similar finding was reported in the prior audit.
Recommendation: The College should evaluate and reassign job duties and access rights
necessary to better segregate duties and enhance internal control.
College’s Response: A thorough examination of all access to Datatel mnemonics that
potentially affect financial transactions was completed by the Director of Financial
Services in January 2012. Results and recommendations were emailed from the Director
of Financial Services to the Vice President of Finance and Administrative Services, the
Vice President of Information Systems, the System Administrator, and the backup
System Administrator on January 3, 2012. This review is done semi-annually and the
next review is scheduled for late May 2012. A review of privileged users occurs
quarterly and the next review is scheduled for late February 2012.
The lead Accounts Receivable Technician is responsible for updating rate tables. Access
to rate table mnemonics will be removed from everyone except the lead Accounts
Receivable Technician and the Director of Financial Services. South Piedmont
Community College is a multi-campus college with Business Offices located on the OCH
campus and the LLP campus. All three Accounts Receivable Technicians must be able to
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AUDIT FINDINGS AND RESPONSES (CONTINUED)
receipt funds and adjust student accounts. Due to cross-training and limited employees,
all Accounts Receivable Technicians must be able to bill third party sponsors and run
processes to post financial aid and refunds.
The access of the Director and Assistant Director of Financial Services will be reviewed
and changed so that they cannot perform business office functions from initiation to
completion.
Internal control risks are mitigated by the annual internal control review for the EAGLE
program.
The six additional employees of the business office who have access rights inappropriate
for their job duties will be identified and their access will be restricted to mnemonics that
help them fulfill their job duties.
Based on the recommendations from the last audit, duties were changed and separated
between the Payroll and Human Resources Technicians. User rights were discussed with
Information Services and decisions were made to have these rights corrected. At that
point, it was understood that the rights had been corrected. Due to this year’s auditing
recommendations, more rights have been changed and more job duties separated within
Human Resources and Payroll. To ensure changes remain in effect, the Director of
Human Resources and Payroll will conduct an internal audit with Information Services
twice a year (July and December).
2. DEFICIENCIES IN FINANCIAL REPORTING
The financial statements prepared by the College contained misstatements that were
corrected as a result of our audit. These misstatements indicate that the College’s internal
control over financial reporting was not effective, and without these corrections, the
financial statements would have been misleading to users. Misstatements noted in our
audit included the following:
a. The College did not evaluate its useful lives appropriately, which resulted in
understated depreciable capital assets; understated invested in capital assets, net of
related debt; and a restated net assets balance in the amount of $347,942.
b. The College did not properly record federal and state student financial aid, which
resulted in an overstatement of $23,025 in federal grants and contracts, $146,610
in state and local grants and contracts, and $133,813 in noncapital gifts, as well as
an understatement in noncapital grants - student financial aid in the amount of
$303,448.
c. The College did not ensure that amounts in its capital asset system agreed to
amounts reported in the general ledger. As a result, the College overstated
depreciable capital assets and overstated invested in capital assets, net of related
debt in the amount of $229,518. There were additional capital asset related audit
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AUDIT FINDINGS AND RESPONSES (CONTINUED)
adjustments from prior years that were not recorded properly and resulted in a net
restatement of $12,700.
d. The expendable net assets balance restricted for scholarships and fellowships was
understated by $126,909. The expendable net assets balance restricted for specific
programs was overstated by $37,581 and the unrestricted balance was overstated
by $89,328 due to the classification errors.
e. The College inappropriately recognized a receivable and liability in the amount of
$50,671 related to the federal student financial aid awards. In addition, the
College had not recognized the receivables due from students for the Federal
Return to Title IV program in the amount of $64,151 and insurance held for
employees of $753, which resulted in an understatement of receivables and an
overstatement of accounts payable. The College also failed to reconcile the
accounts receivable subsidiary ledger to the general ledger, clearing items from
eight years prior.
f. The College failed to properly capitalize expenses in the amount of $33,177,
which resulted in an understatement of nondepreciable capital assets and an
overstatement of supplies and materials expense.
g. Noncurrent restricted cash was understated by $19,836 and current restricted cash
was overstated by the same amount due to classification errors.
Significant aspects of this finding were also reported in the prior audit.
Recommendation: The College should place greater emphasis on the year-end financial
reporting process and strengthen internal control to ensure the accuracy and completeness
of the financial statements. The College should appropriately dispose of reconciling
items from prior years and ensure that subsidiary ledgers are reconciled to the general
ledger.
College’s Response: A greater emphasis will be placed on the year-end financial
reporting process. A Certified Public Accountant has been hired as the Assistant Director
of Financial Services and will assist in the year-end financial reporting process. In
addition, training opportunities from the System Office and NACUBO will be utilized.
The College responded to each individual aspect of the finding as follows:
a. The Director of Financial Services uses procedures documented by the system
office. The Director of Financial Services will request clarification from the
system office on why this function is not properly updating the fixed assets
subsidiary ledger and the general ledger. The Director of Financial Services has
requested from the auditors a list of the assets that were not properly evaluated.
When that list is received, those assets will be corrected in the fixed assets
subsidiary ledger.
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AUDIT FINDINGS AND RESPONSES (CONTINUED)
34
b. The grouping sheets (a report generated out of Datatel) used by the college to help
prepare financial statements has been updated to correctly identify and record
federal and state student financial aid.
c. A greater emphasis will be placed on reconciling the general ledger and the fixed
assets subsidiary ledger.
d. The Director of Financial Services has requested from the auditors a breakdown of
the accounts that were classified incorrectly. When that breakdown is received,
the grouping sheets will be updated to correctly classify those accounts.
e. The grouping sheets have been updated to ignore the receivable and associated
liability related to federal student financial aid awards. The grouping sheets have
also been updated to correctly classify the receivables due from students for the
Federal Return to Title IV program and insurance held for employees. The
accounts receivable subsidiary ledger has been reconciled with the general ledger.
The issue is that there are journal entries totaling approximately $22,000 from
fiscal year 2003 through fiscal year 2009 that are part of the reconciliation. The
college will work with the system office to properly reconcile the accounts
receivable subsidiary ledger with the general ledger.
f. This understatement of nondepreciable capital assets and overstatement of supplies
and materials expense is the result of two checks that were coded to Union county
expense instead of construction expense. Therefore, they were not identified as a
Construction in Progress item. Greater attention to detail will be given to coding
of construction expenses.
g. Agency funds were recognized in Restricted Cash and Cash Equivalents Current
instead of Restricted Cash and Cash Equivalents Noncurrent. The grouping sheets
have been updated to correctly identify agency funds as Restricted Cash and Cash
Equivalents Noncurrent.
3. JOURNAL ENTRIES NOT ADEQUATELY REVIEWED AND APPROVED OR SUPPORTED
Journal entries are not appropriately reviewed and approved and are not supported by
adequate documentation. As a result, there is an increased risk that errors or fraud could
occur and not be detected in a timely manner.
We examined 259 journal entries during our audit and noted no review and approval or
adequate supporting documentation for 41 of those journal entries.
Recommendation: The College should establish adequate internal controls to ensure that
transactions are properly recorded, reviewed and approved, adequately supported, and
presented in the financial statements.
College’s Response: A process has been put in place to ensure that journal entries are
appropriately reviewed and approved and are supported by adequate documentation. The
Director of Financial Services and the Assistant Director of Financial Services have
started using a standardized journal entry form. Each journal entry is recorded on that
AUDIT FINDINGS AND RESPONSES (CONCLUDED)
form and supporting documentation is attached to the form. The Vice President of
Finance and Administrative Services signs his approval on each journal entry entered by
the Director of Financial Services. The Director of Financial Services signs her approval
on each journal entry entered by the Assistant Director of Financial Services. Weekly,
the Director of Financial Services prints a report of all budget journal entries and all
general journal entries entered during the previous week. The Director of Financial
Services verifies that the beginning journal entry number on the report immediately
follows the ending journal entry number on the previous report and that all journal entry
numbers are accounted for. Budget journal entries and general journal entries are
compiled and put in order by journal entry number. Each journal entry is reviewed for a
signature of approval and attached to the budget journal entry report or the general
journal entry report. The weekly reports with journal entries attached are filed in a
central location in the Business Office.
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ORDERING INFORMATION
Audit reports issued by the Office of the State Auditor can be obtained from the web site at
www.ncauditor.net. Also, parties may register on the web site to receive automatic email
notification whenever reports of interest are issued. Otherwise, copies of audit reports 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
Telephone: 919/807-7500
Facsimile: 919/807-7647
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