Lynn University Financial and Compliance Report 06.30.2010
Contents Independent Auditor’s Report
1
Financial Statements Statements of financial position Statements of activities Statements of cash flows Notes to financial statements
2 3–4 5 6 – 23
Internal Control and Compliance Matters Schedule of Expenditures of Federal Awards and State Financial Assistance
24
Notes to the Schedule of Expenditures of Federal Awards and State Financial Assistance
25
Reports Required by Governmental Auditing Standards, OMB Circular A-133, and Chapter 10.650, Rules of the Auditor General of the State of Florida: 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 Governmental Auditing Standards Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program / Project and Internal Control Over Compliance in Accordance With OMB Circular A-133 and and Chapter 10.650, Rules of the Auditor General of the State of Florida Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings
26 – 27
28 – 29 30– 32 33
Independent Auditor’s Report To the Board of Trustees Lynn University We have audited the accompanying statement of financial position of Lynn University (the University) as of June 30, 2010 and 2009, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the University’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the University’s internal control over financial reporting. Accordingly, we express no such opinion. 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 provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2010 and 2009, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 13, 2010, on our consideration of the University’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying schedule of expenditures of federal awards and state financial assistance is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of State, Local Governments and Not-for-Profit Organizations, and Chapter 10.650, Rules of the Auditor General of the State of Florida, and is not a required part of the basic financial statements of the University. Such information has been subjected to the auditing procedures applied in our 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.
Fort Lauderdale, Florida October 13, 2010 McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’ business needs. The two firms operating as separate legal entities in an alternative practice structure.
1
Member of RSM International network, a network of Independent accounting, tax and consulting firms
Lynn University
Statements of Financial Position June 30, 2010 and 2009
Assets
2010
Cash and cash equivalents Short-term investments Student accounts receivable, less allowance for doubtful accounts of $52,879 and $87,158, respectively Other receivables Contributions receivable, net Inventory Prepaid and other assets Student notes receivable, less allowance for doubtful notes of $995,360 and $858,564, respectively. Property, plant and equipment, net Long-term investments Total assets
$
$
7,342,017 11,400,331
2009 $
11,049,143 12,051,185
412,548 113,789 2,577,032 515,731 1,405,364
648,957 183,645 9,889,116 682,687 2,180,307
2,347,072 69,280,001 17,399,557 112,793,442
2,167,747 61,355,991 15,137,167 115,345,945
$
Liabilities Accounts payable Accrued salaries and wages and other benefits Deferred credits, unearned tuition and fees Deferred compensation payable Bonds payable Financial derivative Other liabilities Total liabilities
$
Net Assets Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets
$
See Notes to Financial Statements.
2
1,122,188 3,024,032 5,511,589 1,950,930 24,671,577 2,227,410 124,325 38,632,051
51,593,627 3,635,229 18,932,535 74,161,391 112,793,442
$
$
2,654,837 2,862,702 6,151,715 2,376,727 26,523,116 1,984,551 137,073 42,690,721
42,647,616 12,339,789 17,667,819 72,655,224 115,345,945
Lynn University Statements of Activities Years Ended June 30, 2010 and 2009
Unrestricted Revenues, gains, and other support: Student tuition and related fees Residence-hall room and board fees Total tuition, fees, room and board Less student aid Net tuition, fees, room and board Private contributions Federal and state Investment income (loss) Bookstore sales Camps and conference income Miscellaneous income Net assets released from restrictions Total revenue, gains, and other support Expenses: Programs: Instruction Student services Residence halls Food services Bookstore Camps Institutional support Fund raising and institutional advancement Total expenses Change in net assets before other changes Other changes: Loss on derivative Pension-related changes other than net periodic pension costs Reclassifications Change in net assets Net assets at beginning of year Net assets at end of year
$ 56,043,961 8,748,289 64,792,250 14,217,503 50,574,747 209,289 514,746 1,846,002 1,102,609 2,188,601 1,274,605 57,710,599 12,613,178
Temporarily Restricted $
70,323,777
-
8,471,022
(8,704,560)
(242,859)
-
717,848 8,946,011
See Notes to Financial Statements.
3
$
(8,704,560)
22,118,640 14,433,115 6,467,497 2,307,812 1,209,211 1,475,611 8,431,814 5,409,055 61,852,755
42,647,616 $ 51,593,627
3,685,920 222,698 3,908,618 (12,613,178)
Permanently Restricted
$
.
Total
1,264,716 1,264,716 -
$ 56,043,961 8,748,289 64,792,250 14,217,503 50,574,747 5,159,925 514,746 2,068,700 1,102,609 2,188,601 1,274,605 62,883,933 -
1,264,716
62,883,933
1,264,716 -
22,118,640 14,433,115 6,467,497 2,307,812 1,209,211 1,475,611 8,431,814 5,409,055 61,852,755 1,031,178 (242,859)
(8,704,560)
1,264,716
717,848 1,506,167
12,339,789 3,635,229
17,667,819 $ 18,932,535
72,655,224 $ 74,161,391
Temporarily Restricted
Unrestricted $
59,351,740 9,224,799 68,576,539 13,528,642 55,047,897 352,922 640,213 (1,974,962) 1,333,430 2,555,608 722,160 58,677,268 1,545,212
$
60,222,480
23,689,104 14,983,065 6,902,090 2,274,058 1,238,173 1,814,768 8,712,367 5,656,550 65,270,175
3,562,908 (663,916) 2,898,992 (1,545,212) 1,353,780
972,502
10,163,602 12,339,789
23,689,104 14,983,065 6,902,090 2,274,058 1,238,173 1,814,768 8,712,367 5,656,550 65,270,175 (2,721,413)
-
(683,145)
(822,407) 150,095 $
59,351,740 9,224,799 68,576,539 13,528,642 55,047,897 4,888,332 640,213 (2,638,878) 1,333,430 2,555,608 722,160 62,548,762 62,548,762
972,502
822,407 2,176,187 $
$
-
-
166,147 (5,564,693)
Total
972,502 972,502 -
1,353,780
(683,145)
48,212,309 42,647,616
$
-
(5,047,695)
$
-
Permanently Restricted
17,517,724 17,667,819
4
166,147 (3,238,411) $
75,893,635 72,655,224
Lynn University Statements of Cash Flows Years Ended June 30, 2010 and 2009 2010 Cash Flows From Operating Activities Change in net assets Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization Contributions restricted for long-term investment Contributions restricted for purchases of property and equipment Change in value of interest rate swap Net realized and unrealized investment (gains) and losses (Gain) loss on disposal of property and equipment Contribution of depreciable assets Contribution of art and other non-depreciable assets Contributed investments Changes in assets and liabilities: Student accounts and notes receivable Contributions receivable Other receivables Inventory, prepaid and other assets Accounts payable and accrued expenses Deferred compensation payable Unearned tuition and fees Other liabilities Net cash provided by (used in) operating activities Cash Flows From Investing Activities Proceeds from sale of equipment Purchase of property and equipment Purchase of Investments Sales of Investments Net cash used in investing activities Cash Flows From Financing Activities Contributions restricted for long-term investment Contributions restricted for purchases of property and equipment Proceeds from bond financing Repayments of bond financing Net cash provided by financing activities
$
Net decrease in cash and cash equivalents Cash and cash equivalents: Beginning Ending
$
See Notes to Financial Statements. 5
1,506,167
2009 $
(3,238,411)
5,232,644 (1,264,716) (2,963,196) 242,859 (1,226,682) 10,311 (12,000) (2,400) (170,701)
5,678,562 (972,502) (2,900,219) 683,145 3,502,159 (1,661) (9,651) (603,354)
57,084 (585,330) 69,856 941,899 (462,282) (425,797) (640,126) (12,748) 294,842
(399,702) 90,671 223,180 (39,187) (99,665) 164,530 (2,185,847) (5,867) (113,819)
(14,061,602) (16,673,607) 16,459,454 (14,275,755)
11,000 (6,017,888) (17,129,987) 16,163,039 (6,973,836)
1,864,716 10,260,610 (1,851,539) 10,273,787
1,372,502 1,361,129 5,488,116 (6,318,750) 1,902,997
(3,707,126)
(5,184,658)
11,049,143 7,342,017
$
16,233,801 11,049,143
Lynn University Notes to Financial Statements Note 1.
Nature of Organization and Significant Accounting Policies
Nature of organization: Founded in 1963, Lynn University (the “University”) is an accredited, independent, coeducational institution located in Boca Raton, Florida, offering a variety of undergraduate, graduate and postgraduate degrees. The University also owns and operates Pine Tree Camps, a summer camp offering educational and recreational services to individuals between the ages of three and fifteen years. A summary of the University’s significant accounting policies follows: Basis of presentation: The accompanying financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The University’s resources are classified for accounting and reporting purposes into three net asset categories based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the University and changes therein are classified and reported as follows: Unrestricted net assets: Net assets that are not subject to donor-imposed conditions. Temporarily restricted net assets: Net assets subject to donor-imposed stipulations that may or will be met either by actions of the University and/or the passage of time. Permanently restricted net assets: Net assets subject to donor-imposed stipulations that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on related investments for general or specific purposes. Use of estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue recognition: Tuition revenue: Tuition and fee revenue is recognized in the period when educational services are provided. Scholarships and fellowships awarded to students for tuition, fees and room and board are based upon need and merit and are netted against the related revenue. Contribution revenue: Contributions are recognized at fair value in the period received in the form of cash, unconditional promises to give, other assets or reductions in liabilities. Conditional promises to give are not recognized as revenue until the conditions are substantially met. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions that are designated for future periods, receivables to be collected in future periods or restricted by the donor for specific purposes are reported as temporarily or permanently restricted revenue that increases those net asset classes. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported as released from restriction.
6
Lynn University Notes to Financial Statements Note 1.
Nature of Organization and Significant Accounting Policies (Continued) Investment income: Realized gains and losses are recognized at date of disposition based on the difference between the net proceeds received and the purchased value of the investment sold, using the specific identification method. Unrealized gains and losses are recognized for the change in fair value between reporting periods. Interest and dividend income is recognized when earned. Investment income is included in the change in unrestricted net assets, unless its use is temporarily or permanently restricted by donor stipulations or law. When a donor restriction is met the amount is reclassified and reported as released from restriction.
Cash and cash equivalents: Short-term debt investments with an original maturity of three months or less are classified as cash equivalents. At times, the University maintains deposits with financial institutions in amounts that are in excess of federally insured limits. Student accounts and notes receivable: Accounts receivable are uncollateralized student obligations due under normal trade terms requiring payment within 30 days or on receipt, depending upon the invoice date. It is not a common practice of the University to charge interest on delinquent accounts. Accounts receivable are stated at the amounts billed to the student. Payments of accounts receivable are allocated to the specific billings identified on the student’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. Notes receivable are stated at the principal amount loaned to students plus accrued interest. Interest is charged at a fixed rate (5% as of June 30, 2010) commensurate with the federal Perkins student loan program. Interest begins accruing at the beginning of the repayment period until the balance is paid in-full. The repayment period begins nine months after the date the student ceases to be at least a half-time student at an institution of higher education or a comparable school outside the United States approved by the United States Secretary of Education and ending ten years later. An allowance for loss on accounts and notes receivable is provided based on a review of the accounts along with an analysis of historical losses and recoveries. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recognized when received. Contributions receivable: Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on contributions receivable received before June 30, 2008 are computed using a risk-free interest rate applicable to the year in which the promise was received. The discounts on contributions receivable received on or after July 1, 2008 are computed using a market rate commensurate with the risk of the contributions receivable in accordance with accounting standards. Amortization of the discount is included in contribution revenue. Inventories: Inventories, consisting primarily of books, supplies and camp uniforms, are valued at the lower of cost (first-in, first-out method) or market. Investments: Investments are reported at fair value based upon quoted prices in active markets. Investments received by gift are recorded initially at fair value at the date of donation. 7
Lynn University Notes to Financial Statements Note 1.
Nature of Organization and Significant Accounting Policies (Continued)
The University invests primarily in a combination of equity securities, fixed income securities, and money market funds. Investment securities are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect the University’s investment balance reported in the consolidated statements of financial position. The majority of short-term investments represent unrestricted investment assets that can be used at the University’s discretion. Long-term investments represent the majority of investment assets held for long-term purposes and consist predominately of endowment investments. Endowment funds are subject to the restrictions of donor agreements which require that the principal be maintained in perpetuity. Property and equipment: Property and equipment are recorded at historical cost at the date of purchase or fair market value at the date of donation. Assets donated with explicit restrictions regarding their use and contributions of cash that must be used to acquire property and equipment are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the University reports the expiration of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. Depreciation is computed on a straight-line basis over their estimated useful lives, ranging from three to twenty years for furniture and equipment, and fifteen to thirty years for buildings and improvements. Nondepreciable items represent works of art or antiques and are valued similar to property and equipment. Upon sale or retirement, the costs and related accumulated depreciation are eliminated from the respective accounts and resulting gains or losses are included in the consolidated statements of activities. The University evaluates, on an on-going basis, the carrying value of property and equipment based on estimated future undiscounted cash flows. In the event discounted cash flows are not expected to be sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values. Deferred financing costs: Costs incurred with bond issuance (see Note 7) are carried at cost less accumulated amortization. The bond issuance costs are being amortized over the life of the bonds on a method that approximates the effective interest method. Deferred credits: Deferred credits represent tuition and fees collected for academic instruction not yet rendered and amounts collected for room and board prior to the start of the semester. These credits will be recognized as revenue in the periods in which they are earned. Derivatives: Under current accounting standards, the University is required to record all derivative instruments at their respective fair values in the statement of financial position. All changes in fair value are reflected in the statement of activities.
8
Lynn University Notes to Financial Statements Note 1.
Nature of Organization and Significant Accounting Policies (Continued)
Income tax: Lynn University is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code. The University accounts for its income tax related matters under FASB ASC 740 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109). ASC 740 clarifies the accounting and financial statement reporting for uncertainty in income taxes recognized in an entity’s financial statements. ASC 740 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Functional expenses: Direct expenses are allocated to the applicable functional expense category. Indirect expenses are allocated to program and supporting activities based on management’s estimate of benefit received by each activity. The University’s primary program service is instruction. Expenses reported as student services, residence halls, food services, bookstore, institutional support and fundraising and institutional development are incurred in support of this primary program service. Advertising costs: Advertising costs are expensed as incurred and amounted to $521,792 and $671,257, in fiscal 2010 and 2009, respectively. Reclassifications: In certain instances, amounts previously reported in 2009 financial statements have been reclassified to conform to the 2010 presentation. Such reclassifications had no effect on net assets or change in net assets as previously reported. Subsequent events: The University has evaluated its subsequent events (events occurring after June 30, 2010) through October 13, 2010 which represents the date the financial statements were issued. Recent accounting pronouncements: In July 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (ASC) as the single source of authoritative non-governmental GAAP. The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards were superseded as described in ASC 10-5 (formerly Statement of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Codification and the Hierarchy of Generally Accepted Accounting Principles). All other accounting literature not included in the Codification is non-authoritative. The University adopted FASB Codification for the fiscal year ended June 30, 2010. In April 2009, the FASB issued ASC 820 (formerly Staff Position 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Decreased and Identifying Transactions That Are Not Orderly). The standard expands disclosures and requires that for major categories of debt and equity securities, the fair value hierarchy table be determined on the basis of the nature and risks of the investments. The University adopted this standard for the fiscal year ended June 30, 2010. In May 2009, the FASB issued ASC 855-10 (formerly SFAS No. 165, Subsequent Events), further updated in February 2010 through Update No. 2010-09 – Subsequent Events – Amendments to Certain Recognition and Disclosure Requirements. The standard as amended establishes accounting recognition and disclosure requirements of events that occur after the statement of financial position date but prior to the issuance of financial statements. The University has evaluated subsequent events through October 13, 2010 noting no impact on the University’s financial statements. 9
Lynn University Notes to Financial Statements Note 2.
Contributions Receivable
2010 Contributions receivable restricted to: Investment in buildings and equipment Academic programs and scholarships Endowment Time restricted Total contributions receivable
$
$
656,079 233,059 177,298 1,510,596 2,577,032
2009 $
$
8,833,424 346,502 709,190 9,889,116
Anticipated collections of contributions receivable are summarized as follows at June 30, 2010 and 2009:
2010 Amounts expected to be collected in: Less than one year One year to five years Subtotal Less: Discount Total contributions receivable
$
$
1,100,000 1,798,143 2,898,143 (321,111) 2,577,032
2009 $
$
8,453,493 2,448,143 10,901,636 (1,012,520) 9,889,116
Approximately 70% of contributions receivable at June 30, 2009 were related to pledges by one donor. During the current year, this donor paid all pledges in full, thus there were no significant amounts due from any single donor at June 30, 2010.
10
Lynn University Notes to Financial Statements Note 3.
Investments
Investments consisted of the following at June 30, 2010 and 2009:
2010 Short-term: Debt securities Equity securities
$ $
Long-term: Money funds Debt securities Equity securities
$
$
6,700,086 4,700,245 11,400,331
766,032 10,149,422 6,484,103 17,399,557
2009 $ $
$
$
8,622,514 3,428,671 12,051,185
722,540 9,152,373 5,262,254 15,137,167
See Note 11 for disaggregated information regarding investments. The following schedule summarizes total investment income (loss) for the years ended June 30, 2010 and 2009:
Interest and dividends Investment fees Net realized and unrealized gains (losses)
$
$
Note 4.
2010 1,067,502 (225,484) 1,226,682 2,068,700
$
$
2009 1,067,624 (204,343) (3,502,159) (2,638,878)
Endowments
The University’s endowment consists of approximately 45 individual funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds classified by the Board of Trustees to function as endowments. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of Trustees of the University have interpreted the current law, Uniform Management of Institutional Funds Act (“UMIFA”), as requiring the preservation of the fair value of the original gift as of the gift date of the donorrestricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations of the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulations is added to the fund. Endowment balances classified as temporarily restricted net assets consist 11
Lynn University Notes to Financial Statements Note 4.
Endowments (Continued)
solely of accumulated investment return that has yet to be expended in accordance with the terms of the donor agreement. Endowment balances classified as unrestricted net assets consist of accumulated investment return in which the donor has not restricted the University’s use of such return or endowments where the Board, rather than the donor, decides to retain and invest the principal with only income to be expended. Endowment net asset composition by type of fund as of June 30, 2010:
Donor-restricted endowment funds Board-designated endowment funds
Unrestricted (67,912) 250,000 $ 182,088
$
Temporarily Restricted $ 70,733 $ 70,733
Permanently Restricted $ 18,932,535 $ 18,932,535
Total $ 18,935,356 250,000 $ 19,185,356
Changes in endowment net assets for the fiscal year ended June 30, 2010 is as follows:
Unrestricted Endowment net assets, as of July 1, 2009 Investment Return: Net realized and unrealized gains Interest and dividend income Total investment return Contributions Appropriation of endowment assets for expenditure Endowment net assets, as of June 30, 2010
$
(746,365)
$
617,650 310,803 928,453
Temporarily Restricted
Permanently Restricted
Total
70,733
$ 17,667,819
$ 16,992,187
148,149 74,549 222,698 -
$
(222,698)
182,088
$
70,733
1,264,716 $ 18,932,535
765,799 385,352 1,151,151 1,264,716 (222,698) $ 19,185,356
Endowment net asset composition by type of fund as of June 30, 2009:
Donor-restricted endowment funds Board-designated endowment funds
Unrestricted $ (975,115) 228,750 $ (746,365)
12
Temporarily Restricted $ 70,733 $ 70,733
Permanently Restricted $ 17,667,819 $ 17,667,819
Total $ 16,763,437 228,750 $ 16,992,187
Lynn University Notes to Financial Statements Note 4.
Endowments (Continued)
Changes in endowment net assets for the fiscal year ended June 30, 2009 is as follows:
Temporarily Restricted
Unrestricted Endowment net assets, as of July 1, 2008 Reclassification Investment Return: Net realized and unrealized losses Interest and dividend income Total investment return Contributions Endowment net assets, as of June 30, 2009
$
250,000 -
$
(1,001,183) 4,818 (996,365)
(1,312,859) 561,185 (751,674) -
$
(746,365)
822,407
$
70,733
Permanently Restricted
Total
$ 17,517,724 (822,407)
$ 17,767,724 -
-
(2,314,042) 566,003 (1,748,039)
972,502
972,502
$ 17,667,819
$ 16,992,187
Endowment Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UMIFA requires the University to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature are reported in unrestricted net assets. The deficiencies in the donor-restricted endowment funds at June 30, 2010 and 2009 were $975,115 and $67,912. The deficiencies in the donor-restricted endowment funds at June 30, 2010 and 2009 resulted from unusually unfavorable market fluctuations caused by the downturn in the economy as a whole. Return Objectives and Risk Parameters The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the University must hold in perpetuity or for a donor-specified period(s) as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner outlined in the investment policy adopted by the Board of Trustees. This investment policy’s purpose it to provide guidance to the Investment Managers regarding the University’s objectives and goals with regard to the endowment investing. Specifically it outlines the risk tolerance areas of the University as well as defining the limitations in the portfolio of investments. The University expects its endowment funds, over time to provide an average rate of return that permits a predictable and sustainable spending rate of the average market value of endowment assets by achieving annual growth in value at a rate equal to the sum of the annual spending rate and the annual rate of inflation.
13
Lynn University Notes to Financial Statements Note 4.
Endowments (Continued)
Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The University targets a diversified asset allocation to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The University has a policy of appropriating for distribution each year the lesser of actual earnings or 5% of the ending market value of its endowment fund for the previous fiscal year. In establishing this policy, the University considered the long-term expected return on its endowment. Accordingly, over the long term, the University expects the current spending policy to allow its endowment to grow at an inflationary rate. This is consistent with the University’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return. Note 5.
Supplemental Cash Flow Information
Cash paid for interest during the years ended June 30, 2010 and 2009 totaled $1,169,693 and $1,357,018, respectively. Change in contributions receivable restricted for the purchase of property and equipment received during the years ended June 30, 2010 and 2009 was a decrease of $7,312,084 and an increase of $1,048,417, respectively. Noncash investing activities for the years ended June 30, 2010 and 2009 included the receipt of $170,701 and $603,354, respectively, of marketable securities donated to the University. Noncash investing activities for the years ended June 30, 2010 and 2009 also included the receipt of $14,400 and $9,651 of artwork and other non-depreciable assets and depreciable assets donated to the University. Noncash investing activities for the year ended June 30, 2010 and 2009 included $313,171 and $1,222,208 of increases in property, plant and equipment associated with a corresponding amount in accounts payable.
14
Lynn University Notes to Financial Statements Note 6.
Property, Plant and Equipment
Property, plant and equipment are summarized as follows at June 30, 2010 and 2009:
Land Land improvements Land held for investment Buildings and improvements Construction in progress Equipment Library books Artworks and other non-depreciable items Less accumulated depreciation
2010 $ 1,145,045 6,166,773 110,000 87,903,339 2,048,799 25,493,378 3,062,163 2,076,230 128,005,727 (58,725,726) $ 69,280,001
2009 $ 1,145,045 6,087,476 110,000 71,735,592 6,175,300 31,381,831 4,487,924 2,073,830 123,196,998 (61,841,007) $ 61,355,991
Estimated Useful Lives in Years 25 25 to 40 5 to 10 5 to 10 -
Depreciation expense included in the statements of activities amounted to $5,232,644 and $5,678,562 for the years ended June 30, 2010 and 2009, respectively. Note 7.
Bonds Payable
Palm Beach County Educational Facilities Revenue Bond, Series 2001 During fiscal 2001, the University issued $32,235,000 in tax-exempt variable rate demand educational facilities revenue serial bonds to pay a portion of the cost of the acquisition, construction, installation and equipping of certain educational facilities located at the University’s campus in Boca Raton, Florida and to refinance certain existing debt of the University. The bonds were issued through Palm Beach Educational Facilities Authority (the Issuer), under the terms of a Trust Agreement dated April 1, 2001, between the issuer and Bank of America, N.A. in its capacity as Bond Trustee, and the loan of the Bond proceeds to the University was made pursuant to a Loan Agreement dated April 1, 2001. Pursuant to the Trust Agreement, the University was issued a Letter of Credit from Bank of America, N.A. The balance of this Letter of Credit at June 30, 2010 is $19,677,047. The Letter of Credit expires January 5, 2011. Management of the University intends to renew the letter of credit prior to its maturity date of January 5, 2011. The letter of credit is secured by a $15,000,000 mortgage, assignment of rents and security agreement dated April 1, 2001, collateralized by land, buildings and equipment. The bonds, which mature on November 1, 2021, bear interest at the weekly rate (rate of interest certified to the Trustee by the Remarketing Agent on and as of each Wednesday). The interest rate was approximately 0.3% at June 30, 2010. Interest is payable monthly with principal payments of $1,600,000 payable annually in November. Principal payments began in 2002. 15
Lynn University Notes to Financial Statements Note 7.
Bonds Payable (Continued)
The holders of any weekly rate bonds may elect to tender at their option, subject to certain conditions, any such bond for purchase at a price equal to a principal amount plus accrued and unpaid interest. In the event of optional tenders of such bonds, Bank of America, N.A. will use its best efforts to remarket such bonds in accordance with its agreement with the University. Palm Beach County Educational Facilities Revenue Bond, Series 2009 In June 2009 the University issued a $5,500,000 Series 2009 Educational Facilities Revenue Bond to finance the purchase of a property for use as the President’s Residence, and to refinance the existing Palm Beach County Educational Facilities Revenue Bond, Series 2005. The Series 2009 bond was issued through Palm Beach Educational Facilities Authority (the Issuer) and Bank of America was assigned as the bond holder. The collateral per this bond consists of: (a) the President’s Residence, (b) the University’s land and any improvements, (c) the assignment of leases and rents, and (d) a security interest in all of the fixtures, leases, rents and personal property held by the University. The bonds bear interest at 64% of the thirty (30) day LIBOR plus 180 basis points. Principal payments of $22,867 are due on a monthly basis. The bonds mature on July 5, 2014 and every five years thereafter, unless the bank notifies the University in writing. Under this scenario, any remaining principal and accrued interest shall become due July 5, 2029. Under the terms the various bond agreements, the University is subject to several restrictive covenants, including financial covenants. As of June 30, 2010, the University was in violation of one of the financial covenants. This covenant violation has been waived by Bank of America. In the event that the University is unable to renew the letter of credit and the maturity date of the Series 2009 bonds is not extended by the bank, principle maturities of the bonds would be as follows: 2011 – $19,709,404, 2012 – $274,404, 2013 – $274,404, 2014 – $274,404 and 2015 – $4,138,961. Principal maturities anticipated by the University assuming any tendered bonds are remarketed, the letter of credit is renewed over the original term of the bonds and the maturity date of the Series 2009 bonds is extended by the bank are as follows:
Year Ending June 30, 2011 2012 2013 2014 2015 Thereafter
$
$
1,874,404 1,874,404 1,874,404 1,874,404 1,874,404 15,299,557 24,671,577
Interest costs for all outstanding long-term debt totaled $1,172,569 and $1,341,871 for the years ended June 30, 2010 and 2009, respectively. 16
Lynn University Notes to Financial Statements Note 8.
Derivatives
The University uses interest rate swap agreements (financial derivatives) to reduce the potential impact of increases in interest rates on floating-rate long-term debt. These two agreements require payments to counterparties based upon notional principal amounts in the aggregate $19,435,000 ($9,717,500 individually) of the bond face value, 50% at an effective interest rate of 4.69% and 50% at an effective interest rate of 3.60%. On the first 50%, the counterparties in turn remit back to the University the greater of 59% of the 1 Month LIBOR rate plus 35 basis points, or 69% of the 1 Month LIBOR rate. On the second 50%, the counterparties in turn remit back to the University an amount equal to 70% of the 1 Month LIBOR rate. The interest rate swap agreements expire on May 1, 2016 and November 1, 2016. Due to changes in the value of these interest rate swaps, the University incurred losses of $242,859 and $683,145 in 2010 and 2009, respectively. Note 9.
Temporarily Restricted Net Assets and Net Assets Released from Restrictions
Changes in temporarily restricted net assets are summarized as follows for the year ended June 30, 2010 and 2009:
Restriction Instruction Scholarships Student services Time restricted
Beginning Balance $ 444,763 82,798 256,902 784,463
Buildings and equipment $
Instruction Scholarships Student services
11,555,326 12,339,789
Beginning Balance $ 559,180 434,721 491,173 1,485,074
Buildings and equipment $
8,678,528 10,163,602
$
$
$
$
2010 Reclassifications and Investment Satisfaction of Restrictions Loss, net $ $ (345,066) (525,883) (255,382) 1,510,596 1,510,596 (1,126,331)
Additions 236,763 595,313 113,346 945,422 2,963,196 3,908,618
$
(1,510,596) -
2009 Reclassifications and Investment Loss, net $ 54,668 103,823 158,491
Additions 223,055 283,116 156,518 662,689 2,900,219 3,562,908
$
17
158,491
$
(11,486,847) (12,613,178)
Satisfaction of Restrictions $ (392,140) (738,862) (390,789) (1,521,791)
$
(23,421) (1,545,212)
$
$
$
$
Ending Balance 336,460 152,228 114,866 1,510,596 2,114,150 1,521,079 3,635,229
Ending Balance 444,763 82,798 256,902 784,463 11,555,326 12,339,789
Lynn University Notes to Financial Statements Note 10.
Permanently Restricted Net Assets
Income from the following principal balances of permanently restricted net assets is available to support the University’s programs:
$
Instruction Scholarships Buildings and equipment
$
Note 11.
2010 9,803,362 8,498,274 630,899 18,932,535
$
$
2009 9,735,254 7,932,565 17,667,819
Fair Value Disclosures
Effective July 1, 2008, the University adopted FASB ASC 820, which provides a framework for measuring fair value under generally accepted accounting principles. FASB ASC 820 applies to all financial instruments that are being measured and reported on a fair value basis. The adoption of FASB ASC 820 did not impact the amounts presented in the University’s financial statements. As defined in FASB ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the University uses various methods including market, income and cost approaches. Based on these approaches, the University often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The University utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the University is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury and federal agency securities and federal agency mortgagebacked securities, which are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or similar assets or liabilities. Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
18
Lynn University Notes to Financial Statements Note 11.
Fair Value Disclosures (Continued)
In determining the appropriate levels, the University performs an analysis of the financial assets and liabilities that are reported at fair value on a recurring basis, which are reflected in the following tables:
June 30, 2010 Financial assets: Cash Money market funds Debt securities: Corporate bonds and notes Government securities Other debt securities Equity securities: Large cap Mid cap Small cap International Mutual funds and other Total financial assets Financial liabilities: Financial derivatives June 30, 2009 Financial assets: Cash Money market funds Debt securities: Corporate bonds and notes Government securities Other debt securities Equity securities: Large cap Mid cap Small cap International Mutual funds and other Total financial assets Financial liabilities: Financial derivatives
Total $
528,542 237,490
(Level 1) $
(Level 2)
528,542 237,490
$
-
8,497,671 7,618,908 732,929
8,497,671 7,618,908 732,929
-
$
5,297,192 900,739 309,668 4,252,614 424,135 28,799,888
5,297,192 900,739 309,668 4,252,614 424,135 28,799,888
-
$
2,227,410
$
-
Total $
342,397 380,143
$ $
(Level 1) $
2,227,410 (Level 2)
342,397 380,143
$
-
9,974,077 7,166,402 634,407
9,974,077 7,166,402 634,407
-
$
4,378,827 860,330 372,060 2,642,381 437,328 27,188,352
$
4,378,827 860,330 372,060 2,642,381 437,328 27,188,352
-
$
1,984,551
$
19
-
$ $
1,984,551
Lynn University Notes to Financial Statements Note 11.
Fair Value Disclosures (Continued)
For the fiscal year ended June 30, 2010, the application of valuation techniques applied to similar assets and liabilities has been consistent. The following is a description of the valuation methodologies used for financial instruments: The carrying value of the University’s cash and cash equivalents, accounts receivable and accounts payable approximate the fair value of these financial instruments at June 30, 2010 and 2009, due to the short maturity of these instruments. The fair value of investment securities is the market value based on quoted market prices, when available, or market prices provided by recognized broker dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use unobservable inputs due to the limited market activity of the instrument. The fair value of the derivative instruments was provided by valuation experts. The University’s interest rate swaps (derivative instruments) are primarily pay-fixed and receive-variable interest rate swaps based on LIBOR. As the LIBOR rate is observable at commonly quoted intervals for the full term of the swap and therefore the swap is considered a Level 2 item. The carrying amount of bonds payable reported in the statement of financial position approximates fair value due to the variable rates associated with these instruments. Note 12.
Retirement Plans
The University offers participation in its Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA – CREF) defined contribution retirement plan to all full-time employees (other than adjunct faculty and student employees) who have completed one year of service and attained age 21. This plan permits each eligible employee to contribute, tax-deferred, up to 5% of his/her annual salary and the University to contribute up to 5% of each participant’s annual salary as well. For the years ended June 30, 2010 and 2009, the employer’s contribution totaled $959,878 and $937,307, respectively. The University also offers participation in its TIAA – CREF tax-deferred annuity plan to these same employees. This plan allows each eligible employee to make tax-deferred contributions in addition to any contributions made under the retirement plan referred to in the preceding paragraph. Each participant’s calendar year contributions to the above plans are subject to a combined annual dollar limitation as defined in the Internal Revenue Code. On January 3, 1996 the University entered into a deferred compensation agreement with a former employee. The agreement required monthly payments of $2,920 commencing December 13, 1997 and continuing over the employee’s lifetime. The original liability of $370,000 was recorded at the actuarially determined present value based on an expected future lifetime of approximately 13 years, a 1.5% cost of living adjustment, and 6.0% interest rate.
20
Lynn University Notes to Financial Statements Note 12.
Retirement Plans (Continued)
During the year ended June 30, 2007, the University’s Board of Trustees approved a Supplemental Deferred Compensation Plan for the current President, Dr. Kevin M. Ross, to supplement the benefits and retirement program currently maintained by the University, and to promote the retention of the President’s services for a substantial period of time. Each year of service rendered by the President, beginning July 1, 2006, shall be credited with an annual award equal to 10% of the base salary of the President for the year preceding each grant date. The plan is unfunded and vests on July 1, 2016, or earlier upon death or disability of the President, change in control of the University or early termination of the Plan. During the year ended June 30, 2005, the University’s Board of Trustees approved an additional Supplemental Executive Retirement Plan (the “Executive Plan”) to recognize the vital and substantial services rendered by the University’s Senior Executives who contribute to the success of Lynn University, and to provide appropriate benefits rewarding the Senior Executives in recognition of long service and to supplement other broad-based retirement arrangements of the University. The financial statements for the years ended June 30, 2010 and 2009 include $302,441 and $344,711, respectively, of expense associated with the Executive Plan. The Executive Plan is unfunded and constitutes a promise by the University to make benefit payments in the future. The benefits payable are based on the average of the highest base salary of each Executive during three of the last five years of service with the University and the number of completed years of service with the University. The Executives will be 100% vested in the Executive Plan only upon the attainment of the retirement age of 65, as specified in the Executive Plan. The Executives’ services to the University are required on a continuous basis to meet this vesting requirement. Benefit payments will commence at the end of the calendar month following attainment of retirement age. Vested benefits will be paid in the form of a lump sum distribution which will be calculated based on the actuarial equivalent of the initial benefit payable calculated under the method described above. The University’s Board of Trustees will have the discretion to evaluate the financial position of the University to determine, on a periodic basis, whether the University is financially able to meet all or any portion of any benefit payment. No benefits were paid under the Executive Plan for the year ended June 30, 2010 or 2009. In the event of a change in control of the University or termination of the Executive Plan, the Executives will immediately receive a lump sum payment equal to the actuarially determined value of the plan benefit. The following projected benefit obligations for the three plans offered by the University as described above have been recognized in deferred compensation payable on the statement of financial position as follows:
Benefit obligation
$
2010 1,950,930
$
2009 2,376,727
No benefits are expected to be paid within the next five years and no contributions are expected to be paid to the plan during the next fiscal year.
21
Lynn University Notes to Financial Statements Note 12.
Retirement Plans (Continued)
The following have been recognized as changes in unrestricted net assets separate from expenses but not yet included in net periodic benefit costs for the years ended June 30, 2010 and 2009:
Prior year service cost Actuarial gain
$ $
2010 83,904 83,904
$ $
2009 166,147 166,147
The following amounts previously recognized as changes in unrestricted net assets but not included in net periodic costs when they arose were reclassified to net period benefit costs during the years ended June 30, 2010 and 2009:
Amortization of prior year service costs Amortization of actuarial (gain)
$ $
2010 83,904 83,904
$ $
2009 205,041 (38,894) 166,147
The following amounts have not been recognized as components of net periodic benefit costs as of June 30, 2010 and 2009:
Prior service cost Net (loss)
$ $
2010 597,212 597,212
$ $
2009 1,595,217 (619,873) 975,344
The University expects to recognize the following components of net periodic benefit costs over the next fiscal year:
Prior service cost Actuarial (gain)
$ $
22
2010 83,904 83,904
$ $
2009 205,041 (37,192) 167,849
Lynn University Notes to Financial Statements Note 12.
Retirement Plans (Continued)
The following assumptions were used in accounting for the plan:
2010
2009
Discount rate used to value end of year accumulated postretirement benefit obligations
6%
6%
Discount rate used to value net periodic postretirement benefit cost
6%
6%
1.5%
1.5%
Annual salary increase
Note 13.
Related Party Transactions
The University received monetary contributions from certain trustees of approximately $700,000 and $550,000 for the years ended June 30, 2010 and 2009, respectively.
23
Lynn University
Schedule of Expenditures of Federal Awards and State Financial Assistance Year Ended June 30, 2010
Federal/State Agency, Pass-through Entity Federal Program or Cluster Title/State Project U.S. Department of Education: Student Financial Aid – Cluster: Federal Supplemental Educational Opportunity Grant Federal Family Education Loan Federal Work-Study Federal Work-Study – Administrative Federal Perkins Loan Federal Pell Grant Federal Direct Student Loans Academic Competitiveness Grant SMART Grant TEACH Grant Total Student Financial Aid – Cluster
CFDA CSFA Number
84.007 84.032 84.033 84.033 84.038 84.063 84.268 84.375 84.376 84.379
Total Expenditures of Federal Awards
Expenditures
$
Total Expenditures
Match
160,045 9,332,664 179,216 16,555 6,000 1,467,410 504,532 51,225 16,000 11,500 11,745,147
$
53,348 54,445 107,793
$
$ 11,745,147
$
107,793
$ 11,852,940
$
$
213,393 9,332,664 233,661 16,555 6,000 1,467,410 504,532 51,225 16,000 11,500 11,852,940
State Projects Florida Department of Education Florida Resident Access Grant Florida Work Experience Program Florida Private Student Assistance Grant Florida Bright Futures Scholarship Project Total Expenditures of State Financial Assistance
48.064 47.053
824,911 4,176
-
$
824,911 4,176
48.054
96,761
-
96,761
48.059
189,741
-
189,741
$
1,115,589
See Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance.
24
$
-
$
1,115,589
Lynn University Notes to Schedule of Expenditure of Federal Awards and State Financial Assistance Year Ended June 30, 2010 Note 1 Basis of Presentation The accompanying schedule of expenditures of federal awards and state financial assistance includes the federal and state grant activity of Lynn University (“the University”) and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133 and Ch. 10.650, Rules of Auditor General. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Note 2 Program Clusters The University had the following loan balances outstanding at June 30, 2010. Loans made during the year are included in the federal expenditures presented in the schedule:
Cluster / Program Title Student Financial Aid: Federal Perkins Loan Program
Federal CFDA Number 84.038
25
Amount Outstanding $
239,513
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 Governmental Auditing Standards To the Board of Trustees Lynn University We have audited the financial statements of the Lynn University (“the University”) as of and for the year ended June 30, 2010, and have issued our report thereon dated October 13, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit, we considered the University's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the University's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected in a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’ business needs. The two firms operating as separate legal entities in an alternative practice structure.
26
Member of RSM International network, a network of Independent accounting, tax and consulting firms
This report is intended solely for the information and use of the Board of Trustees, management, federal, state, and, local awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than those specified parties.
Fort Lauderdale, Florida October 13, 2010
27
Independent Auditor’s Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Federal Program and State Projects and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and Chapter 10.650, Rules of the Auditor General of the State of Florida To the Board of Trustees Lynn University Compliance We have audited the compliance of Lynn University (“the University”) with the types of compliance requirements described in the U. S. Office of Management and Budget (“OMB”) Circular A-133, Compliance Supplement, and the requirements described in the Executive Office of the Governor’s State Projects Compliance Supplement, that could have a direct and material effect on its major federal program and state project for the year ended June 30, 2010. The University’s major federal program and state project are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal program and state project is the responsibility of the University’s management. Our responsibility is to express an opinion on the University's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and NonProfit Organizations, and Chapter 10.650, Rules of the Auditor General of the State of Florida. Those standards, OMB Circular A-133, and Chapter 10.650, Rules of the Auditor General require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program and state projects occurred. An audit includes examining, on a test basis, evidence about the University’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the University's compliance with those requirements. In our opinion, the University complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs and state projects for the year ended June 30, 2010.
McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’ business needs. The two firms operating as separate legal entities in an alternative practice structure.
28
Member of RSM International network, a network of Independent accounting, tax and consulting firms
Internal Control Over Compliance The management of the University is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs and state projects. In planning and performing our audit, we considered the University's internal control over compliance with requirements that could have a direct and material effect on a major federal program or state project to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133 and Chapter 10.650 Rules of the Auditor General of the State of Florida, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the University's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program or state project on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over noncompliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program or state project will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Board of Trustees, management, federal, state, and local awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than those specified parties.
Fort Lauderdale, Florida October 13, 2010
29
Lynn University Schedule of Findings and Questioned Costs Year Ended June 30, 2010 I - Summary of Independent Auditor's Results Financial Statements Unqualified
Type of auditor's report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)? Noncompliance material to financial statements noted?
Yes
X
No
Yes Yes
X X
None Reported No
Yes
X
No
Yes
X
None Reported
Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)? Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133?
Unqualified
Yes
X
No
The program tested as major included the following: Name of Federal Program or Cluster Student Financial Aid Cluster
CFDA Number(s) various Dollar threshold used to distinguish between type A and type B programs:
$
Auditee qualified as low-risk auditee?
X (Continued)
30
Yes
352,354 No
Lynn University Schedule of Findings and Questioned Costs (Continued) Year Ended June 30, 2010 State Financial Assistance Internal control over major projects: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)?
Yes
Type of auditor's report issued on compliance for major projects:
X
No
X
None Reported
Unqualified
Any audit findings disclosed that are required to be reported in accordance with Chapter 10.650, Rules of the Auditor General?
Yes
X
No
The project tested as major included the following: Name of State Financial Assistance Project Florida Resident Access Grant
CSFA Number(s) 48.064 Dollar threshold used to distinguish between type A and type B projects:
$
31
300,000
Lynn University Schedule of Findings and Questioned Costs (Continued) Year Ended June 30, 2010 II – Financial Statements Findings None reported III –Federal Awards Findings and Questioned None reported IV – State Financial Assistance Findings and Questioned Costs None reported V – Management Letter No items reported that relate to Federal Awards or State Financial Assistance Projects
32
Lynn University Summary Schedule of Prior Year Audit Findings Year Ended June 30, 2010 2009-1 Special Tests & Provisions – Return of Title IV Funds Audit Findings: Federal Family Education Loan (“FFEL”) funds were received by the University and applied to a student’s account in the Fall of 2006. The student ceased attending the University, however, the FFEL funds were not refunded to the student as it created a credit balance on the account. Corrective Action Taken: Corrective action was taken.
33
Lynn University Florida Student Financial Assistance Programs Financial and Compliance Reports Year ended June 30, 2010
Contents Independent Auditor’s Report
1
Schedule of Florida Student Financial Assistance Programs
2
Independent Auditor’s Report on Compliance with Requirements Applicable to Florida Student Financial Assistance Programs and on Internal Control Over Compliance in Accordance with the Audit Program Guidance of the Florida Department of Education, Bureau of Auditing Services
3–4
Schedule of Findings and Questioned Costs
5–7
Independent Auditor’s Report The Board of Trustees Lynn University We have audited the accompanying Schedule of Florida Student Financial Assistance Programs (the Schedule) of the Lynn University (the University) for the year ended June 30, 2010. This Schedule of Florida Student Financial Assistance Programs is the responsibility of the University’s management. Our responsibility is to express an opinion on this schedule based on our audit. 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 Schedule is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Schedule presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the Schedule of Florida Student Financial Assistance Programs referred to above presents fairly, in all material respects, the awards issued for the year ended June 30, 2010 under the University’s Florida Student Financial Assistance programs in conformity with accounting principles generally accepted in the United States of America.
Fort Lauderdale, Florida October 13, 2010
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1
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Lynn University
Schedule of Florida Student Financial Assistance Programs Year ended June 30, 2010
Amount of Awards Florida Resident Access Grant
$
824,911
Florida Student Assistance Grant
96,761
Florida Medallion Scholars Grant
158,745
Florida Work Experience Program
4,176
Florida Academic Scholars Award
30,996
Note to above schedule: The amounts above are presented on the accrual basis of accounting and are in accordance with the requirements of Florida Student Financial Assistance programs.
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Independent Auditor’s Report on Compliance with Requirements Applicable to Florida Student Financial Assistance Programs and on Internal Control Over Compliance in Accordance with the Audit Program Guidance of the Florida Department of Education, Bureau of Auditing Services The Board of Trustees Lynn University Compliance We have audited the compliance of the Lynn University (the University) with the program requirements described in the State Board of Education Administrative Rules and the audit program guidance provided by the Florida Department of Education, Bureau of Auditing Services that are applicable to the University’s Florida Student Financial Assistance Programs for the year ended June 30, 2010. Compliance with the requirements of the Florida Student Financial Assistance Programs is the responsibility of the University’s management. Our responsibility is to express an opinion on the University’s compliance based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit program guidance provided by the Florida Department of Education, Bureau of Auditing Services. Those standards and program guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material affect on the state student financial assistance programs occurred. An audit includes examining, on a test basis, evidence about the University’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the University’s compliance with those requirements. In our opinion, the University complied, in all material respects, with the requirements referred to above that are applicable to its Florida Student Financial Assistance Programs for the year ended June 30, 2010. Internal Control Over Compliance The management of the University is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to the Florida Student Financial Assistance Programs. In planning and performing our audit, we considered the University’s internal control over compliance with requirements that could have a direct and material effect on its state student financial assistance programs, in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on the internal control over compliance in accordance with the audit program guidance provided by the Florida Department of Education, Bureau of Auditing Services but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the University’s internal control over compliance.
McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’ business needs. The two firms operating as separate legal entities in an alternative practice structure.
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Member of RSM International network, a network of Independent accounting, tax and consulting firms
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purposes described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be, deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Board of Trustees, the Audit and Compliance Committee and management of the University, and the Florida Department of Education and is not intended to be and should not be used by anyone other than these specified parties.
Fort Lauderdale, Florida October 13, 2010
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Lynn University Schedule of Findings and Questioned Costs Year Ended June 30, 2010
I - Summary of Auditor's Results Schedule of Florida Student Financial Assistance Programs Unqualified Opinion
Type of auditor's report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)? Noncompliance material to financial statements noted?
Yes
X
No
Yes
X
None Reported
Yes
X
No
Yes
X
No
Yes
X
None Reported
Compliance – Florida Student Financial Assistance Programs Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness(es)? Type of auditor's report issued on compliance for the program:
Unqualified Opinion
Any audit findings disclosed that are required to be reported in accordance with the audit program guidance provided by the Florida Department of Education, Bureau of Auditing Services?
Yes
(Continued)
5
X
No
Lynn University
Schedule of Findings and Questioned Costs (Continued) Summary of Population and Test Results as Required By Florida Department of Education Bureau of Auditing Services Year Ended June 30, 2010
Florida Resident Access Grant
Florida Student Assistance Grant
Florida Medallion Scholars Grant
Florida Work Experience Program
Florida Academic Scholars Award
Description of
Number of
Percent of
Number of
Percent of
Amount of
Percent of
Category
Students
Population
Awards
Population
Awards
Population
384
100.00%
657
100.00%
Tested
Population
50
13.02%
89
13.55%
$
824,911
100.00%
111,806
Findings
-
0.00%
-
0.00%
-
13.55% 0.00%
Refunds
-
0.00%
-
0.00%
-
0.00%
Population
57
100.00%
98
100.00%
96,761
100.00%
Tested
15
26.32%
26
26.53%
25,420
26.27%
Findings
-
0.00%
-
0.00%
-
0.00%
Refunds
-
0.00%
-
0.00%
-
0.00%
Population
58
100.00%
109
100.00%
158,745
100.00%
Tested
15
25.86%
28
25.69%
41,800
26.33%
Findings
-
0.00%
-
0.00%
-
0.00%
Refunds
-
0.00%
-
0.00%
-
0.00%
Population
2
100.00%
4
100.00%
4,176
100.00%
Tested
2
100.00%
4
100.00%
4,176
100.00%
Findings
-
0.00%
-
0.00%
-
0.00%
Refunds
-
0.00%
-
0.00%
-
0.00%
Population
8
100.00%
15
100.00%
30,996
100.00%
Tested
8
100.00%
15
100.00%
30,996
100.00%
Findings
-
0.00%
-
0.00%
-
0.00%
Refunds
-
0.00%
-
0.00%
-
0.00%
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Lynn University Schedule of Findings and Questioned Costs (Continued) Year Ended June 30, 2010 II –
Schedule of Florida Student Financial Assistance Programs Findings A.
Internal Controls None
B.
Compliance None
III – Findings and Questioned Costs for Florida Student Financial Assistance Programs A.
Internal Controls None
B.
Compliance None
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