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

              STATE OF
NORTH CAROLINA
FINANCIAL STATEMENT AUDIT REPORT OF
SOUTH PIEDMONT COMMUNITY COLLEGE
POLKTON, NORTH CAROLINA
FOR THE YEAR ENDED JUNE 30, 2004
OFFICE OF THE STATE AUDITOR
LESLIE W. MERRITT, JR., CPA, CFP
STATE AUDITOR
FINANCIAL STATEMENT AUDIT REPORT OF
SOUTH PIEDMONT COMMUNITY COLLEGE
POLKTON, 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
E. LYNN RAYE, CHAIRMAN
HENRY H. MORTON, VICE CHAIRMAN
FRANK CARPENTER W. CLIFF MARTIN
KENNETH E. COLLINS GEORGE LEE MILLER
ANNE M. COVINGTON DR. CHARLES F. PALMER
THOMAS L. CROOKE, SR. RICHARD STONE
KENNETH W. HORNE, JR. JARVIS T. WOODBURN
HOY S. LANNING, JR.
ADMINISTRATIVE OFFICERS
DR. JOHN R. MCKAY, PRESIDENT
JOHN C. DE VITTO, VICE PRESIDENT OF FINANCE AND 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
AUDITOR’S TRANSMITTAL
The Honorable Michael F. Easley, Governor
The General Assembly of North Carolina
Board of Trustees, South Piedmont Community College
This report presents the results of our financial statement audit of South Piedmont
Community College, a component unit of the State of North Carolina, for the year ended
June 30, 2004. Our audit was made by authority of Article 5A of Chapter 147 of the North
Carolina General Statutes.
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 audit work necessary for the CAFR and the Single Audit Report, the accounts
and operations of the College were subjected to audit procedures as we considered necessary.
In addition, we performed auditing procedures that we considered necessary for us to report
on the accompanying financial statements that relate solely to South Piedmont Community
College. The audit procedures were conducted in accordance with auditing standards
generally accepted in the United States of America and Government Auditing Standards
issued by the Comptroller General of the United States.
The purpose of this report is to present the results of our audit on the accompanying financial
statements that relate solely to South Piedmont Community College. A summary of our
reporting objectives and audit results is:
1. Objective – To express an opinion on the accompanying financial statements that relate
solely to South Piedmont Community College.
Results - The accompanying financial statements present fairly, in all material respects,
the amounts and disclosures made in accordance with accounting principles generally
accepted in the United States of America. These matters are more fully described in the
Independent Auditor’s Report on the Financial Statements.
AUDITOR’S TRANSMITTAL ( CONCLUDED)
2. Objective – To present significant deficiencies, if any, in internal control over financial
reporting which could adversely affect the College’s ability to record, process,
summarize, and report financial data in the financial statements and present instances of
noncompliance, if any, with laws, regulations, contracts, or grants.
Results - The following significant deficiency in internal control over financial reporting
and instances of noncompliance was noted as a result of our audit:
Finding
Financial Reporting Process Needs Improvement
This matter is described in the Independent Auditor’s Report on Internal Control over
Financial Reporting and on Compliance and Other Matters and the Audit Findings and
Recommendations section of this report.
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.
Leslie W. Merritt, Jr., CPA, CFP
State Auditor
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR’S REPORT............................................................................................ 1
MANAGEMENT’S DISCUSSION AND ANALYSIS........................................................................... 3
FINANCIAL STATEMENTS
Exhibits
A- 1 Statement of Net Assets................................................................................................................. 7
A- 2 Statement of Revenues, Expenses, and Changes in Net Assets..................................................... 8
A- 3 Statement of Cash Flows ............................................................................................................... 9
B- 1 Statement of Financial Position .................................................................................................. 11
B- 2 Statement of Activities................................................................................................................ 12
Notes to the Financial Statements ................................................................................................................ 13
SUPPLEMENTARY INFORMATION
Schedule
1 Schedule of General Obligation Bond Project Authorizations, Budgets, and Expenditures ...... 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 .............................................................................................................. 31
AUDIT FINDINGS AND RECOMMENDATIONS............................................................................. 33
DISTRIBUTION OF AUDIT REPORT............................................................................................ 35
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 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, 2004, which collectively comprise
South Piedmont Community 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 South Piedmont Community College Foundation, Inc.,
which represent 100% of the College’s discretely presented component unit. The financial
statements were audited by other auditors whose report thereon has been furnished to us, and
our opinion, insofar as it relates to the amounts included for the entity, is based on the report
of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and 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 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 component unit, as of June 30, 2004, and the
respective changes in its financial position and its cash flows, where applicable, thereof for
the year then ended in conformity with accounting principles generally accepted in the United
States of America.
2
INDEPENDENT AUDITOR’S REPORT ( CONCLUDED)
As discussed in Note 14 to the financial statements, the College implemented Governmental
Accounting Standards Board Statement No. 39, Determining Whether Certain Organizations
Are Component Units, during the year ended June 30, 2004.
In accordance with Government Auditing Standards, we have also issued our report dated
June 16, 2005, on our consideration of the College’s internal control over financial reporting
and on our tests of its compliance with certain provisions of laws, regulations, contracts, and
grant agreements and other matters. The purpose of this 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 supplementary information. However,
we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule 1 is presented for purposes of additional analysis and
is not a required part of the basic financial statements. Such information has been subjected
to the auditing procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic financial statements
taken as a whole.
Leslie Merritt, Jr., CPA, CFP
State Auditor
June 16, 2005
3
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, 2004. 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.
For the fiscal year ended June 30, 2004, the College implemented Governmental Accounting
Standards Board ( GASB) 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.
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 capital construction project completed this fiscal year was the Learning Resources
Center, on the Old Charlotte Highway ( OCH) Campus in Monroe. This project was
completed in August 2003, and had a budget of $ 5.5 million. The building was occupied and
opened for classes but the contract was not closed out due to litigation by the General
Contractor. Also at OCH, the 82,000 square foot classroom/ office building will undergo a $ 3
million renovation to its roofing and HVAC Systems as well as some interior room
modifications.
Analysis of Financial Position
Analysis of Current Assets and Net Assets
For the year ended June 30, 2004, the College had an increase in total net assets in the amount
of $ 1,949,790.62, or 12%. This was primarily due to the $ 1,248,000.00 capital gift of land
from Union County that consolidated the Monroe Campus at the Old Charlotte Highway
location. Also impacting the College was the completion and opening of the Library
Resources Center and classroom building at Old Charlotte Highway location. Net assets
restricted for capital projects decreased due to funds being expended. Unrestricted net assets
decreased primarily for the $ 136,854.56 compensated absences liability.
MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONTINUED)
4
Condensed Statement of Net Assets
FYE 2004 FYE 2003 Change
Assets:
Current Assets $ 862,361.51 $ 456,622.78 $ 405,738.73 89 %
Noncurrent Assets
Capital Assets, Net of Depreciation 19,033,421.27 16,362,393.96 2,671,027.31 16 %
Other 416,760.48 1,144,723.38 ( 727,962.90) ( 64) %
Total Assets 20,312,543.26 17,963,740.12 2,348,803.14 13 %
Liabilities:
Current Liabilities 1,091,939.52 816,879.19 275,060.33 34 %
Noncurrent Liabilities 359,812.43 235,860.24 123,952.19 53 %
Total Liabilities 1,451,751.95 1,052,739.43 399,012.52 38 %
Net Assets:
Investment in Capital Assets 19,033,421.27 16,362,393.96 2,671,027.31 16 %
Restricted for :
Nonexpendable - Other 64,293.07 51,557.98 12,735.09 25 %
Expendable:
Scholarships and Fellowships 11,973.55 1,360.67 10,612.88 780 %
Loans 9,906.05 13,435.81 ( 3,529.76) ( 26) %
Capital Projects 89,918.27 597,048.82 ( 507,130.55) ( 85) %
Other 6,955.32 23,435.43 ( 16,480.11) ( 70) %
Unrestricted ( 355,676.22) ( 138,231.98) ( 217,444.24) ( 157) %
Total Net Assets $ 18,860,791.31 $ 16,911,000.69 $ 1,949,790.62 12 %
% Change
Analysis of Liabilities
Long- term debt includes the value of accrued vacation leave of $ 393,237.63 of which
$ 33,425.20 is shown as current. Total liabilities increased by $ 399,012.52, largely due to an
increase in construction contract and retainage payable at June 30.
FYE 2004 FYE 2003 Change % Change
Current Liabilities $ 1,058,514.32 $ 796,356.36 $ 262,157.96 33%
Long- Term Liabilities - Current Portion 33,425.20 20,522.83 12,902.37 63%
Total Current Liabilities 1,091,939.52 816,879.19 275,060.33 34%
Noncurrent, Long- Term Liabilities 359,812.43 235,860.24 123,952.19 53%
Total Liabilities $ 1,451,751.95 $ 1,052,739.43 $ 399,012.52 38%
MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONTINUED)
5
Analysis of Revenues
Total operating revenues, nonoperating revenues, and capital contributions combined for an
increase in total revenues of $ 2,255,192.26, or 55% from the previous year. This increase
was largely due to the $ 1,248,000.00 capital gift of land from Union County. There were
increases in student tuition, federal grants and contracts, and county capital appropriations.
There was also a change in classification for State capital aid funds recorded in the prior year
as capital grants.
FYE 2004 FYE 2003 Change
Operating Revenues:
Student Tuition and Fees, Net $ 1,121,860.25 $ 708,069.21 $ 413,791.04 58 %
Federal Grant and Contracts 2,287,261.80 2,003,392.77 283,869.03 14 %
State and Local Grants and Contracts 369,354.74 336,494.85 32,859.89 10 %
Sales and Services, Net 356,828.61 325,623.53 31,205.08 10 %
Other Revenues 34,456.19 6,072.38 28,383.81 467 %
Total Operating Revenues 4,169,761.59 3,379,652.74 790,108.85 23 %
Nonoperating Revenues:
State Aid 7,426,276.87 7,179,334.60 246,942.27 3 %
County Appropriations 1,092,116.23 953,681.27 138,434.96 15 %
Noncapital Grants, Gifts, and Other 893,499.66 896,928.78 ( 3,429.12)
9,411,892.76 9,029,944.65 381,948.11 4 %
Capital Contributions 3,066,904.29 1,983,768.99 1,083,135.30 ( 55) %
Total Revenues $ 16,648,558.64 $ 14,393,366.38 $ 2,255,192.26 16 %
% Change
Analysis of Expenses
Total expenses increased by $ 1,148,862.15, or 8% more spent than in the previous year. This
was due to an increase in salaries and benefits of $ 921,799.42 and the purchase of equipment
and furnishings in the amount of $ 572,095.81 for the recently completed and opened Library
Resources Center and classroom building.
FYE 2004 FYE 2003 Change
Salaries and Benefits $ 8,779,537.97 $ 7,857,738.55 $ 921,799.42 12 %
Supplies and Benefits 2,322,941.19 1,750,845.38 572,095.81 33 %
Services 1,574,978.03 1,222,576.76 352,401.27 29 %
Scholarships and Fellowships 1,237,143.37 1,298,941.39 ( 61,798.02) ( 5) %
Utilities 297,891.91 327,363.61 ( 29,471.70) ( 9) %
Depreciation 486,275.55 1,092,440.18 ( 606,164.63) ( 55) %
$ 14,698,768.02 $ 13,549,905.87 $ 1,148,862.15 8 %
% Change
MANAGEMENT’S DISCUSSION AND ANALYSIS ( CONCLUDED)
6
Management concludes that the College’s financial position has remained stable and
consistent during the past fiscal year.
Capital Asset Activity
South Piedmont Community College’s capital assets increased $ 2,671,027.31 for the fiscal
year ended June 30, 2004. Capital assets were $ 19,033,421.27, with net accumulated
depreciation of $ 3,885,195.65. The College received a $ 1,248,000.00 capital gift of land
from Union County Public Schools during the year and there was also an increase in
construction in progress in the amount of $ 1,713,067.50.
FYE 2004 FYE 2003 Change % Change
Capital Assets:
Land $ 2,413,160.17 $ 1,165,160.17 $ 1,248,000.00 107%
Buildings 14,071,921.81 14,071,921.81
Machinery and Equipment 1,149,544.41 953,309.05 196,235.36 21%
General Infrastructure 87,700.00 87,700.00
Construction in Progress 5,196,290.53 3,483,223.03 1,713,067.50 49%
Total 22,918,616.92 19,761,314.06 3,157,302.86 16%
Less: Accumulated Depreciation 3,885,195.65 3,398,920.10 486,275.55 14%
Net Capital Assets $ 19,033,421.27 $ 16,362,393.96 $ 2,671,027.31 16%
Economic Factors and Next Year’s Budget
The State of North Carolina has experienced a revenue shortfall during the past three years
and this may have a significant impact on future budgets. A continued revenue shortfall will
continue to directly affect the potential funding of the counties that support South Piedmont
Community College. There is a tuition surcharge required by the State for the North Carolina
Community College System, which will remain in effect and equates to a 1% reversion for the
College. The funding formula for colleges is based on the prior year’s performance and lags a
year behind current needs. All of these items present budget challenges for the College.
Exhibit A- 1
Current Assets:
Cash and Cash Equivalents $ 18,385.51
Restricted Cash and Cash Equivalents 70,714.05
Receivables, Net ( Note 4) 648,063.56
Inventories 125,198.39
Total Current Assets 862,361.51
Noncurrent Assets:
Restricted Cash and Cash Equivalents 43,278.99
Restricted Due from Primary Government 369,784.49
Endowment Investments 3,697.00
Capital Assets - Nondepreciable ( Note 5) 7,609,450.70
Capital Assets - Depreciable, Net ( Note 5) 11,423,970.57
Total Noncurrent Assets 19,450,181.75
Total Assets 20,312,543.26
Current Liabilities:
Accounts Payable and Accrued Liabilities ( Note 6) 1,046,426.49
Funds Held for Others 12,087.83
Long- Term Liabilities - Current Portion ( Note 7) 33,425.20
Total Current Liabilities 1,091,939.52
Noncurrent Liabilities:
Long- Term Liabilities ( Note 7) 359,812.43
Total Liabilities 1,451,751.95
Invested in Capital Assets 19,033,421.27
Restricted for:
Nonexpendable:
Other 64,293.07
Expendable:
Scholarships and Fellowships 11,973.55
Loans 9,906.05
Capital Projects 89,918.27
Other 6,955.32
Unrestricted ( 355,676.22)
Total Net Assets $ 18,860,791.31
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, 2004
7
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) $ 1,121,860.25
Federal Grants and Contracts 2,287,261.80
State and Local Grants and Contracts 369,354.74
Sales and Services, Net ( Note 8) 356,828.61
Other Operating Revenues 34,456.19
Total Operating Revenues 4,169,761.59
EXPENSES
Salaries and Benefits 8,779,537.97
Supplies and Materials 2,322,941.19
Services 1,574,978.03
Scholarships and Fellowships 1,237,143.37
Utilities 297,891.91
Depreciation 486,275.55
Total Operating Expenses 14,698,768.02
Operating Loss ( 10,529,006.43)
NONOPERATING REVENUES
State Aid 7,426,276.87
County Appropriations 1,092,116.23
Noncapital Grants 341,475.00
Noncapital Gifts 526,478.92
Investment Income, Net 3,263.74
Other Nonoperating Revenues 22,282.00
Net Nonoperating Revenues 9,411,892.76
Income Before Other Revenues ( 1,117,113.67)
State Capital Aid 362,106.49
County Capital Appropriations 1,340,809.77
Capital Grants 113,385.11
Capital Gifts 1,250,602.92
Increase in Net Assets 1,949,790.62
NET ASSETS
Net Assets, July 1, 2003 16,911,000.69
Net Assets, June 30, 2004 $ 18,860,791.31
The accompanying notes to the financial statements are an integral part of this statement.
Operating Expenses:
Operating Revenues:
South Piedmont Community College
8
Statement of Cash Flows
For the Fiscal Year Ended June 30, 2004 Exhibit A- 3
Received from Customers $ 3,715,350.40
Payments to Employees and Fringe Benefits ( 8,576,486.62)
Payments to Vendors and Suppliers ( 4,061,170.68)
Payments for Scholarships and Fellowships ( 1,237,143.37)
Other Receipts 21,137.28
Net Cash Used by Operating Activities ( 10,138,312.99)
State Aid Received 7,426,276.87
County Appropriations 1,092,116.23
Noncapital Grants Received 337,193.39
Noncapital Gifts and Endowments Received 526,478.92
Net Cash Provided by Noncapital Financing Activities 9,382,065.41
State Capital Aid Received 1,113,402.00
County Capital Appropriations 1,340,809.77
Capital Grants Received 113,385.11
Capital Gifts Received 2,602.92
Acquisition and Construction of Capital Assets ( 1,909,302.86)
Net Cash Provided by Capital and Related Financing Activities 660,896.94
Investment Income 3,263.74
Purchase of Investments and Related Fees 19,946.38
Net Cash Provided by Investing Activities 23,210.12
Net Decrease in Cash and Cash Equivalents ( 72,140.52)
Cash and Cash Equivalents, July 1, 2003 204,519.07
Cash and Cash Equivalents, June 30, 2004 $ 132,378.55
RECONCILIATION OF OPERATING LOSS
TO NET CASH USED BY OPERATING ACTIVITIES
Operating Loss $ ( 10,529,006.43)
Adjustments to Reconcile Operating Loss to Net Cash Used by Operating Activities:
Depreciation Expense 486,275.55
Miscellaneous Nonoperating Income 22,282.00
Changes in Assets and Liabilities:
Receivables, Net ( 494,405.82)
Inventories ( 22,470.81)
Accounts Payable and Accrued Liabilities 263,302.68
Funds Held for Others ( 1,144.72)
Compensated Absences 136,854.56
Net Cash Used by Operating Activities $ ( 10,138,312.99)
South Piedmont Community College
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
9
Statement of Cash Flows Exhibit A- 3
For the Fiscal Year Ended June 30, 2004 Page 2
RECONCILIATION OF CASH AND CASH EQUIVALENTS
Current Assets:
Cash and Cash Equivalents $ 18,385.51
Restricted Cash and Cash Equivalents 70,714.05
Noncurrent Assets:
Restricted Cash and Cash Equivalents 43,278.99
Total Cash and Cash Equivalents - June 30, 2004 $ 132,378.55
NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES
Assets Acquired through a Gift $ 1,248,000.00
Increase in Receivables Related to Nonoperating Income 4,281.61
The accompanying notes to the financial statements are an integral part of this statement.
South Piedmont Community College
10
South Piedmont Community College Foundation, Inc.
June 30, 2004 Exhibit B- 1
ASSETS
Cash and Cash Equivalents $ 29,761.00
Investments 181,162.00
Assets Held in Charitable Trusts and Annuities 91,086.00
Total Assets 302,009.00
LIABILITIES
Notes Payable 93,969.00
NET ASSETS
Unrestricted ( 77,599.00)
Temporarily Restricted 194,553.00
Permanently Restricted 91,086.00
Total Net Assets $ 208,040.00
See Note 1 in the Notes to the Financial Statements
Statement of Financial Position
11
South Piedmont Community College Foundation, Inc.
Statement of Activities
For the Fiscal Year Ended June 30, 2004 Exhibit B- 2
CHANGES IN UNRESTRICTED NET ASSETS
Revenues and Gains:
Contributions $ 58,455.00
Income on Long- Term Investments 497.00
Total Unrestricted Revenues and Gains 58,952.00
Net Assets Released from Restrictions:
Satisfaction of Program Restrictions 27,389.00
Total Unrestricted Revenues, Gains, and Other Support 86,341.00
Expenses and Losses:
Management and General 87,053.00
Fund Raising 47,250.00
Total Expenses 134,303.00
Decrease in Unrestricted Net Assets ( 47,962.00)
CHANGES IN TEMPORARILY RESTRICTED NET ASSETS
Contributions 103,935.00
Income on Long- Term Investments 1,851.00
Net Assets Released from Restrictions:
Satisfaction of Program Restrictions ( 26,113.00)
Increase in Temporarily Restricted Net Assets 79,673.00
CHANGES IN PERMANENTLY RESTRICTED NET ASSETS
Contributions 57,025.00
Income on Long- Term Investments 1,886.00
Net Unrealized and Realized Loss on Long- Term Investments ( 1,276.00)
Increase in Permanently Restricted Net Assets 57,635.00
Increase in Net Assets 89,346.00
Net Assets at Beginning of Year 118,694.00
Net Assets at End of Year $ 208,040.00
See Note 1 in the Notes to the Financial Statements
12
13
SOUTH PIEDMONT 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.
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 component units for which the College’s Board of Trustees is
financially accountable. The College’s component unit is discretely
presented in the financial statements. The discretely presented component
unit’s 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., 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 South Piedmont 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 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.
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
14
The South Piedmont Community College Foundation, Inc., 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 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
$ 60,876.31 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, NC 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 ( 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 petty cash,
cash on deposit with private bank accounts, and deposits held by the State
Treasurer in the short- term investment portfolio. The short- term
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
15
investment portfolio maintained by the State Treasurer has the general
characteristics of a demand deposit account in that participants may
deposit and withdraw cash at any time without prior notice or penalty.
E. Investments - This classification includes equity investments.
Investments are accounted for at fair value, as determined by quoted
market prices, or an amount determined 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 private sources in connection with
reimbursement of allowable expenditures made pursuant to contracts and
grants, and pledges 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 recorded net of estimated
uncollectible amounts.
G. Inventories – Inventories, consisting of expendable supplies, are valued
at cost using the first- in, first- out 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 75
years for general infrastructure, 10 to 50 years for buildings, and 3 to 25
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
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
16
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
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 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 – Nonexpendable – Nonexpendable restricted net
assets include endowments and similar type assets whose use is limited by
donors or other outside sources, and, as a condition of the gift, the
principal is to be maintained in perpetuity.
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.
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
17
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
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
by the College.
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
18
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
$ 1,250.00. The carrying amount of cash on deposit was $ 131,128.55 and
the bank balance was $ 215,117.31.
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.
Cash on deposit at year end consisted of the following:
Book Bank
Balance Balance
Cash on Deposit with State Treasurer $ 109,903.24 $ 109,903.24
Cash on Deposit with Private
Financial Institutions 21,225.31 105,214.07
$ 131,128.55 $ 215,117.31
The cash on deposit with the State Treasurer is pooled with State agencies
and similar institutions in short- term investments with the State
Treasurer’s Investment Pool. These moneys are invested in accordance
with General Statutes 147- 69.1( c) and 147- 69.2, and as required by law
are “ readily convertible into cash.” All investments of the fund are held
either by the Department of State Treasurer or agent in the State’s name.
The fund’s uninvested cash is either covered by federal depository
insurance or, pursuant to 20 NCAC 7, is collateralized under either the
dedicated or pooling method.
The financial statements and disclosures for the State Treasurer’s
Investment Pool are included in the State of North Carolina’s
Comprehensive Annual Financial Report. An electronic version of this
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
19
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.
Of the cash on deposit with private financial institutions at June 30, 2004,
$ 100,000.00 of the bank balance was covered by federal depository
insurance, and $ 5,214.07 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.
Except as specified by the donor, endowment funds belonging to the
College may be invested pursuant to General Statute 147- 69.2. This
statute authorizes investments for special funds held by the State
Treasurer and includes the following investments: obligations of or fully
guaranteed by the United States; obligations of certain federal agencies;
repurchase agreements; obligations of the State of North Carolina;
certificates of deposit of specified institutions; prime quality commercial
paper; specified bills of exchange; asset- backed securities, corporate
bonds and notes with specified ratings; general obligations of other states;
general obligations of North Carolina local governments; certain venture
capital limited partnerships; and the obligations or securities of the North
Carolina Enterprise Corporation.
Investments of the College’s component unit, the South Piedmont
Community College Foundation are subject to and restricted by General
Statute 36B “ Uniform Management of Institutional Funds Act” ( UMIFA)
and any requirements placed on them by contract or donor agreements.
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
20
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
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.
A summary of the College’s investments at June 30, 2004, is presented
below:
Total
Categorized Investments:
Corporate Common Stock $ 3,697.00
Fair Value
NOTE 3 - DONOR RESTRICTED ENDOWMENTS
The College’s endowment assets are pooled with State agencies and similar
institutions in short- term investments with the State Treasurer’s Cash and
Investment Pool and are reported as restricted cash and cash equivalents,
noncurrent on the accompanying financial statements. If a donor has not
provided specific instructions, State law permits the Board of Trustees to
authorize for expenditure the net appreciation, realized and unrealized, of the
assets of the endowment funds. Annual payouts from the College’s
endowment funds are based on an adopted spending policy, which limits
spending to 100% of the interest earnings unless the donor has stipulated
otherwise. At June 30, 2004, net appreciation of $ 2,280.74 was available to be
spent, of which $ 2,280.74 was restricted to specific purposes.
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
21
NOTE 4 - RECEIVABLES
Receivables at June 30, 2004, were as follows:
Less
Allowance
Gross for Doubtful Net
Receivables Accounts Receivables
Current Receivables:
Students $ 601,949.80 $ 132,428.95 $ 469,520.85
Accounts 131,877.91 131,877.91
Miscellaneous Advances 39,994.63 39,994.63
Returned Checks 4,160.71 4,160.71
Other 2,509.46 2,509.46
Total Current Receivables $ 780,492.51 $ 132,428.95 $ 648,063.56
NOTE 5 - 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 Increases June 30, 2004
Capital Assets, Nondepreciable:
Land $ 1,165,160.17 $ 1,248,000.00 $ 2,413,160.17
Construction in Progress 3,483,223.03 1,713,067.50 5,196,290.53
Total Capital Assets, Nondepreciable 4,648,383.20 2,961,067.50 7,609,450.70
Capital Assets, Depreciable:
Buildings 14,071,921.81 14,071,921.81
Machinery and Equipment 953,309.05 196,235.36 1,149,544.41
General Infrastructure 87,700.00 87,700.00
Total Capital Assets, Depreciable 15,112,930.86 196,235.36 15,309,166.22
Less Accumulated Depreciation:
Buildings 2,736,209.56 388,606.80 3,124,816.36
Machinery and Equipment 636,831.85 96,448.71 733,280.56
General Infrastructure 25,878.69 1,220.04 27,098.73
Total Accumulated Depreciation 3,398,920.10 486,275.55 3,885,195.65
Total Capital Assets, Depreciable, Net 11,714,010.76 ( 290,040.19) 11,423,970.57
Capital Assets, Net $ 16,362,393.96 $ 2,671,027.31 $ 19,033,421.27
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
22
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2004, were as follows:
Amount
Accounts Payable $ 620,791.05
Accrued Payroll 243,490.34
Contract Retainage 163,358.90
Other 18,786.20
Total Accounts Payable and Accrued Liabilities $ 1,046,426.49
NOTE 7 - LONG- TERM LIABILITIES
A summary of changes in the long- term liabilities is presented as follows:
Balance Balance Current
July 1, 2003 Additions June 30, 2004 Portion
Compensated Absences $ 256,383.07 $ 136,854.56 $ 393,237.63 $ 33,425.20
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 $ 2,814,777.50 $ 1,692,917.25 $ 1,121,860.25
Sales and Services:
Sales and Services of Auxiliary Enterprises:
Bookstore $ 615,560.24 $ 258,731.63 $ 356,828.61
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
23
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 $ 5,500,630.02 $ 564,717.05 $ 1,129,776.12 $ 0.00 $ 0.00 $ 0.00 $ 7,195,123.19
Academic Support 996,379.08 93,308.38 1,089,687.46
Student Services 685,646.95 89,817.25 775,464.20
Institutional Support 1,372,887.38 781,704.44 360.00 2,154,951.82
Operations and Maintenance of Plant 174,702.79 287,091.78 444,841.91 297,891.91 1,204,528.39
Student Financial Aid 1,237,143.37 1,237,143.37
Auxiliary Enterprises 49,291.75 506,302.29 555,594.04
Depreciation 486,275.55 486,275.55
Total Operating Expenses $ 8,779,537.97 $ 2,322,941.19 $ 1,574,978.03 $ 1,237,143.37 $ 297,891.91 $ 486,275.55 $ 14,698,768.02
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
$ 7,278,411.78, of which $ 6,013,571.72 was covered under the and
employer contributions for pension benefits for the year were
$ 360,814.35 and $ 13,229.86, respectively. The College made one
hundred percent of its annual required contributions for the years ended
June 30, 2004, 2003, and 2002, which were $ 205,664.59, $ 0.00 and
$ 111,829.17, 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
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
24
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. 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
$ 1,502.88 for the year ended June 30, 2004.
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 except for a 5% employer contribution for the College’s
law enforcement officers, which is mandated under General
Statute 143- 166.30( e). Total employer contributions on behalf of College
law enforcement officers for the year ended June 30, 2004 were $ 0.00
The voluntary contributions by employees amounted to $ 83,420 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
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
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
25
contributions by employees amounted to $ 32,020.00 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
$ 192,434.73. 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.
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,
NOTES TO THE FINANCIAL STATEMENTS ( CONTINUED)
26
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.
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
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 ( CONTINUED)
27
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
$ 528,779.53 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
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
NOTES TO THE FINANCIAL STATEMENTS ( CONCLUDED)
28
statements. The College’s remaining authorization of $ 252,241.00 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.
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
Renovations to Con Ed Center Union/ OCH Campus # 1166 Mar 2004 Mar 2004 $ 300,000.00 $ 2,756,430.00 $ 3,056,430.00 $ 1,337,501.76 43.76% Sep 2005 Sep 2005
Union/ OCH/ Renovations Jan 2002 Jan 2002 79,723.00 79,723.00 34,298.00 43.02% Sep 2005 Sep 2005
Total All Projects $ 379,723.00 $ 2,756,430.00 $ 3,136,153.00 $ 1,371,799.76
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.
South Piedmont Community College
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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
31
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, 2004, which collectively comprise the South Piedmont
Community College’s basic financial statements, and have issued our report thereon dated
June 16, 2005. We did not audit the financial statements of South Piedmont Community
College Foundation, Inc., which represents 100% of the College’s discretely presented
component unit. The financial statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included
for the College, is based on the report of the other auditors.
As discussed in Note 14 to the financial statements, the College implemented Governmental
Accounting Standards Board Statement No. 39, Determining Whether Certain Organizations
Are Component Units, during the year ended June 30, 2004.
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. The
financial statements of the discretely presented component units was not audited in
accordance with Government Auditing Standards, and accordingly, this report does not extend
to College nor the component units.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the College’s internal control over
financial reporting in order to determine our auditing procedures for the purpose of expressing
our opinion on the financial statements and not to provide an opinion on the internal control
over financial reporting. However, we noted certain matters involving the internal control
over financial reporting and its operation that we consider to be reportable conditions.
Reportable conditions involve matters coming to our attention relating to significant
32
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)
deficiencies in the design or operation of the internal control over financial reporting that, in
our judgment, could adversely affect the College’s ability to record, process, summarize, and
report financial data consistent with the assertions of management in the financial statements.
The reportable conditions noted as a result of our audit are described in the Audit Findings
and Recommendations section of this report.
Finding
Financial Reporting Process Needs Improvement
A material weakness is a reportable condition in which the design or operation of one or more
of the internal control components does not reduce to a relatively low level the risk that
misstatements caused by error or fraud in amounts that would be material in relation to the
financial statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. Our consideration of
the internal control over financial reporting would not necessarily disclose all matters in the
internal control that might be reportable conditions and, accordingly, would not necessarily
disclose all reportable conditions that are also considered to be material weaknesses.
However, we consider the reportable conditions described above to be a material weakness.
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 results of our tests
disclosed no instances of noncompliance or other matters that are required to be reported
under Government Auditing Standards.
This report is intended solely for the information and use of the Board of Trustees and the
State Board of Community Colleges, management and staff of the College, the Governor, the
State Controller, the General Assembly, and federal awarding agencies and pass- through
entities and is not intended to be, and should not be, used by anyone other than these specified
parties.
Leslie W. Merritt, Jr., CPA, CFP
State Auditor
June 16, 2005
33
AUDIT FINDINGS AND RECOMMENDATIONS
Matters Related to Financial Reporting
The following finding and recommendation was identified during the current audit and
describes a condition that represents a significant deficiency in internal control.
1. FINANCIAL REPORTING PROCESS NEEDS IMPROVEMENT
The condition of the June 30, 2004, financial statements and related notes indicated a
weakness in the College’s financial reporting process. The financial statements
contained material misstatements of capital assets, receivables, supplies and materials,
and the related net assets accounts.
Management is responsible for the fair presentation of its financial position and results of
operations in accordance with accounting principles generally accepted in the United
States of America and the policies of the Office of the State Controller. Management is
also responsible for establishing and maintaining internal controls over financial
reporting to detect and correct material errors and misstatements in a timely manner by
employees performing their normal assigned duties.
Recommendation: We recommend that the College implement controls to ensure that the
year- end financial statements are adequately prepared and reviewed to ensure material
misstatements and presentation errors are detected and corrected prior to submission to
the Office of the State Controller and the Office of the State Auditor. Guidance
promulgated by the Office of the State Controller and the North Carolina Community
College System Office should be followed when preparing financial information.
College’s Response: South Piedmont Community College has examined the draft
findings and concurs that there were weaknesses associated with the reporting of some
items in our financial statements.
These mistakes were a result of personnel turnover resulting in the loss of institutional
memory regarding our past real estate transactions and lack of training. This, coupled
with incomplete files and the lack of coordinated detailed and accurate information from
the recently installed financial reporting system, had a dramatic effect on our year- end
reports. This was further exacerbated by the lack of an in- depth understanding regarding
the interface of this system with other administrative management systems.
South Piedmont, through its conversations with the audit team and before issuance of this
finding, recognized the need to systematically and thoroughly evaluate and modify our
internal financial controls. The College has begun an intense training program with a
financial consultant to examine our procedures, the interface of our DATATEL
AUDIT FINDINGS AND RECOMMENDATIONS ( CONCLUDED)
34
information system, and our other fixed asset management systems to establish where
and to what end our financial information systems need to be adjusted. This will ensure
proper coding and accountability of assets.
South Piedmont Community College, as part of this review process, will develop a
detailed end- of- year standard operating procedure and guide in order to ensure an
efficient and comprehensive step- by- step process for our financial reporting. In addition,
South Piedmont Community College will perform quarterly reconciliations of assets over
$ 5,000 to ensure correct recording of these assets. Internal controls will be assessed
annually to determine whether any changes are required for the process. South Piedmont
has already redesigned its filing system and documentation handling in order to better
maintain its records and have them readily available when needed.
South Piedmont Community College appreciates the understanding and the support of the
entire audit team throughout this process. Their professionalism is of the highest order.
35
DISTRIBUTION OF AUDIT 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. John R. McKay
Mr. John C. De Vitto
Mr. E. Lynn Raye
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, South Piedmont Community College
Vice President for Finance and Administrative Services
South Piedmont Community College
Chairman, Board of Trustees
South Piedmont 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
August 11, 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