WARNER UNIVERSITY, INC.
FINANCIAL STATEMENTS
AND SUPPLEMENTAL INFORMATION
YEARS ENDED JUNE 30, 2014 AND 2013 WARNER UNIVERSITY, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
YEARS ENDED JUNE 30, 2014 AND 2013
TABLE OF CONTENTS
Page
Independent Auditor's Report 1-2
Financial Statements:
Statements of Financial Position 3
Statements of Activities 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-17
Supplemental Information:
Supplemental Schedules of Change in Net Assets 18
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 19-20
Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by OMB Circular A-133 21-22
Schedule of Expenditures of Federal Awards and Florida Financial Assistance Programs 23
Notes to Schedule of Expenditures of Federal Awards and Florida Financial Assistance Programs 24-26
Schedule of Findings and Questioned Costs 27-28
Summary of Population, Items Tested, and Findings for Florida Financial Assistance Programs 29
Schedule of Prior Audit Findings and Questioned Costs: Federal Awards Programs 30 Florida Financial Assistance Programs 31 Bunting, Tripp & Ingley, LLP CER TIFIED PUBLIC ACCOUNT ANTS 230 EAST TILLMAN AVENUE A Tradition of Excellence for Over Eighty Years P. o. Box 990 LAKE WALES, FLORIDA 33859- 0990 ~ 863/676-7981 FAX 863/676- 8899 Independent Auditor's Report e-mail: [email protected] www.bticpa.com
The Board of Trustees ALso Willi OFFICES IN Warner University, Inc. TAMPA, FLORIDA Lake Wales, Florida
Report on the Financial Statements
We have audited the accompanying fmancial statements of Warner University, Inc. (a nonprofit organization), which comprise the statements of fmancial position as of June 30, 2014 and 2013, and the related statements of activities and cash flows for the years then ended, and the related notes to the fmancial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of fmancial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fmancial statements. The procedures selected depend on the auditor's .iudgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the fmancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
1
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS In our opinion, the financial statements 1I""'f"'1I"1~.,.t1 to above present fairly, in aU material respects, the fwancial position of Warner as of June 30, 2014 and 2013, and the in its net assets and cash flows for the years then accordance with accounting generally the United States of
Report on Supplemental Information
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. accompanying Supplemental Schedules of Change in Net Assets and the Schedule of of Federal Awards and Florida Financial Assistance Programs as required by Office of Management and Budget Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis and are not a part of the financial statements. Such information is responsibility of management and was from and ..""Iot't • ., i"I.""',I't'lu to the underlying other records used to prepare statements. information has been to auditing procedures applied fwancial statements and certain additional including comparing such information directly to the underlying accounting and other records used to financial statements or to the fwandal statements and other additional procedures in accordance auditing standards generally accepted States of America. our opinion, the information is stated, in all relation to the fwandal statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our 1I"t>.,n.'r August 2014, on our consideration of Warner Inc.'s internal control over u ...... , ...... and on our tests of its compliance with certain provisions of laws, contracts, and grant and other matters. The purpose of the report is to describe the scope of our testing of internal control over fwancial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over fwancial reporting or on compliance. report is an integral part of an audit performed in accordance Government Auditing Standards considering Warner University, Inc.'s internal control over fmandal reporting and compliance.
Lake Wales, August 29, 2014
2 WARNER UNIVERSITY, INC.
STATEMENTS OF FINANCIAL POSITION
JUNE 30, 2014 AND 2013
2014 2013
ASSETS
Cash and cash equivalents $ 228,701 $ 154,714 Accounts receivable from students, net 3,660,943 3,328,124 Contributions receivable, net 531,552 53,442 Investments 2,795,670 1,069,597 Inventory 239,477 238,970 Prepaids and other 92,330 128,691 Loans receivable from students 337,266 315,902 Net property and equipment 25,505,870 20,191,002
Total assets $ 33,391,809 $25,480,442
LIABILITIES AND NET ASSETS
Liabilities Accounts payable $ 299,860 $ 122,600 Accrued expenses 424,808 546,924 Deferred revenue 595,294 577,290 Student deposits 606,397 576,630 Deposits and other current liabilities 29,850 20,450 Annuities payable 201,471 314,027 Refundable Federal funds - student loans 305,442 300,587 Line of credit 3,054,600 1,600,000 Capitalized lease obligations 107,691 169,814 Notes payable 10,562,142 4,175,402
Total liabilities 16,187,555 8,403,724
Net Assets Unresticted: Undesignated 2,285,462 73,004 Investment in property and equipment, net of related liabilities 13,349,037 14,358,786 15,634,499 14,431,790 Temporarily restricted 1,242,210 2,317,383 Permanently restricted 327,545 327,545
Total net assets 17,204,254 17,076,718
Total liabilities and net assets $ 33,391,809 $25,480,442
The accompanying notes to financial statements should be read in con- junction with this statement. 3 WARNER UNIVERSITY, INC.
STATEMENTS OF ACTIVITIES
YEARS ENDED JUNE 30, 2014 AND 2013
Temporarily Unrestricted Restricted Operating Activities
Revenues, Gains, and Other Support Gross tuition and fees $ 15,489,973 $ Less: financial aid (5,007,122) Net student tuition and fees 10,482,851 Auxiliary enterprises 3,062,770 Contributions received 1,117,613 320,787 Other support 429,061 Investment income 104,072 Net realized and unrealized gain on investments 40,771 235,885 Net assets released from restriction for scholarships 118,424 (118,424)
Total revenues, gains, and other support 15,355,562 438,248
Expenses Student services 5,005,133 Institutional support 3,637,973 Instruction 3,327,507 Auxiliary enterprises 2,174,960 Academic support 1,545,664
Total expenses 15,691,237
Change in net assets from operating activities (335,675) 438,248
Nonoperating Activities
Investment income in excess of amounts used for operations 10,894 14,069 Net assets released from restriction for capital improvements 1,527,490 (1,527,490)
Change in net assets from nonoperating activities 1,538,384 (1,513,421)
Change in net assets 1,202,709 (1,075,173)
Net assets at beginning of year 14,431,790 2,317,383
Net assets at end of year $ 15,634,499 $ 1,242,210
The accompanying notes to financial statements should be read in con- junction with this statement. 2014 2013 Permanently Temporarily Permanently Restricted Total Unrestricted Restricted Restricted Total
$ $ 15,489,973 $ 14,817,370 $ $ $ 14,817,370 (5,007,122) (4,795,614) (4,795,614) 10,482,851 10,021,756 10,021,756 3,062,770 2,941,172 2,941,172 1,438,400 1,432,197 471,377 1,903,574 429,061 389,930 389,930 104,072 123,716 123,716 276,656 9,420 6,494 15,914 99,035 (99,035)
15,793,810 15,017,226 378,836 15,396,062
5,005,133 4,370,190 4,370,190 3,637,973 3,861,881 3,861,881 3,327,507 3,276,436 3,276,436 2,174,960 2,084,202 2,084,202 1,545,664 1,608,465 1,608,465
15,691,237 15,201,174 15,201,174
102,573 (183,948) 378,836 194,888
24,963 32 33,124 33,156 1,356,322 (1,356,322)
24,963 1,356,354 (1,323,198) 33,156
127,536 1,172,406 (944,362) 228,044
327,545 17,076,718 13,259,384 3,261,745 327,545 16,848,674
$ 327,545 $17,204,254 $14,431,790 $ 2,317,383 $ 327,545 $17,076,718
4 WARNER UNIVERSITY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
Operating Activities Change in net assets $ 127,536 $ 228,044
Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Net realized and unrealized (gain) loss on investments (276,656) (15,913) Depreciation 646,980 632,892 Noncash contribution of securities (9,204) Reinvested investment income (24,963) (33,156) Bad debt provision 74,713 103,087 (Increase) decrease in: Student receivables (421,744) (411,801) Contributions receivable (478,110) 861,326 Inventory (507) 102,201 Prepaids and other 29,209 12,601 Increase (decrease) in: Accounts payable and accrued expenses 55,144 123,155 Deferred revenue and annuities (94,552) (105,424) Deposits 44,022 20,979
Total adjustments (446,464) 1,280,743
Net cash provided (used) by operating activities (318,928) 1,508,787
Investing Activities Purchases of property and equipment (5,961,848) (1,777,056) Proceeds from sales of securities 24,293 33,356 Purchases of investments (1,448,747) (50,000)
Net cash used by investing activities (7,386,302) (1,793,700)
5 WARNER UNIVERSITY, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
Financing Activities Payments on notes payable and capital leases $ (405,483) $ (3,070,237) Net proceeds - line of credit 1,454,600 100,000 Proceeds from notes payable 6,730,100 3,233,600
Net cash provided by financing activities 7,779,217 263,363
Net increase (decrease) in cash and cash equivalents 73,987 (21,550)
Cash and cash equivalents at beginning of year 154,714 176,264
Cash and cash equivalents at end of year $ 228,701 $ 154,714
Supplemental Disclosure of Cash Flow Information Interest paid during the year $ 387,447 $ 469,933
Noncash Investing and Financing Activities Purchase of computer system via capital lease $ $ 121,582
The accompanying notes to financial statements should be read in con- junction with this statement.
6 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2014 AND 2013
General
Warner University, Inc. (the University) is a Christian coeducational liberal arts university, founded in 1968, and located in Lake Wales, Florida. It is affiliated with the General Assembly of the Church of God based in Anderson, Indiana and offers two and four year degrees in a variety of fields and three masters degree programs in business administration, management, and education. Its total enrollment is 1,168 students, of which 342 are residential students and approximately 481 are enrolled in online programs.
Note A - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are prepared on the accrual basis of accounting. Net assets, revenues, gains, and losses are classified based on the absence or existence and nature of donor-imposed restrictions as follows:
Unrestricted Net Assets - Net assets that are not subject to donor-imposed restrictions.
Temporarily Restricted Net Assets - Net assets subject to donor-imposed restrictions that will be met either by actions of the University or the passage of time.
Permanently Restricted Net Assets - Net assets subject to donor-imposed restrictions that they be maintained permanently by the University. Generally, the donors of such assets permit the University to use all or part of the income earned on these assets.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Accounts Receivable - Students
Accounts receivable from students represent amounts due for tuition, fees, room, and board from currently enrolled and former students. The University extends credit to students and parents of dependent students in connection with their enrollment. Accounts receivable are stated at their estimated net realizable value. Management provides an allowance for doubtful accounts, equal to the estimated uncollectible amount, based on historical collection experience and a review of the current status of individual accounts. At June 30, 2014 and 2013, the allowance for doubtful accounts is approximately $985,000 and $910,000, respectively. The University assesses interest on unpaid amounts at 1% per month when an unpaid account reaches 90 days past due. Balances outstanding after the University has used reasonable collection efforts are written off through a charge to the valuation allowance. It is reasonably possible that the estimate of the allowance for doubtful accounts will change. 7 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note A - Summary of Significant Accounting Policies - Continued
Contributions Receivable
Unconditional promises to give are recorded at estimated net realizable value. Contributions to be received after one year are discounted to the present value of estimated future cash flows.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the University considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Investments
Investments are stated at estimated fair value. See Note I for fair value measurements.
Remainder Interest in Charitable Trusts
Remainder interest in charitable trusts represents assets held in trust by others for which the University is irrevocably designated as remainder. These investments are valued at market, discounted at 5%. Management believes the net amount approximates the present value of estimated future cash flows.
Inventory
Inventory consists of bookstore merchandise held for sale and consumable printing supplies. Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis.
Loans Receivable from Students
Loans receivable from students represents amounts owed on student loans made under the Federal Perkins Loan Program.
Property and Equipment
Property and equipment are recorded at cost if purchased, or estimated fair value at the date of donation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Lives generally range from five to ten years for equipment, ten to twenty years for property improvements, and forty to sixty years for buildings.
Expenditures for repairs necessary to maintain property and equipment in efficient operating condition are charged to operations. Expenditures which increase the useful lives of assets are capitalized.
8 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note A - Summary of Significant Accounting Policies - Continued
Impairment of Long-Lived Assets and Property Held for Sale
Long-lived assets and property held for sale are reviewed for impairment whenever events or changes in circumstances indicate that the amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amounts of an asset to future net cash flows expected to be generated by the asset. If an asset is considered impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.
Revenue Recognition
Tuition, room, board, and participation fees are recognized over the term of the respective semester. Other fee and auxiliary enterprise revenues are recognized as products are sold or services are provided.
Contributions, including unconditional promises to give, are recognized as revenues in the period received. Donated marketable securities and other noncash donations are recorded as contributions at their fair value at the date of the donation. The University reports contributions of cash and other assets as restricted support if the donor stipulates a limited use of the donated assets. 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 in the Statements of Activities as Net Assets Released from Restriction . Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional.
The University reports contributions of land, buildings, and equipment as unrestricted support unless explicit donor restrictions specify how donated assets must be used. Contributions of long- lived assets with explicit restrictions that specify how the assets are to be used and contributions of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor restrictions about how long these long-lived assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service as instructed by the donor. The University reclassifies temporarily restricted net assets to unrestricted net assets at that time.
Functional Allocation of Expenses
The costs of providing the University's various programs and activities have been summarized on a functional basis in the Statements of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited.
9 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note A - Summary of Significant Accounting Policies - Continued
Tax Status and Positions
The University is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code and is not subject to federal and state income taxes on exempt income. In addition, the University qualifies for the charitable contribution deduction under Section 170(b)(1)(A) and has been classified as an organization that is not a private foundation under Section 509(a)(2).
Although organizations exempt under Section 501(c)(3) pay no tax on their exempt function income, they can be liable for business tax on income they earn from activities not related to their exempt purpose. For the years ended June 30, 2014 and 2013, management believes the University engaged in no activities that are not related to its exempt purpose.
In accordance with Accounting Standards Codification (ASC) 740-10, any interest and penalties recognized associated with a tax position are classified as current in the University's financial statements.
Management has evaluated its tax positions taken for all open years. Currently, the 2010 - 2013 tax years are open and subject to examination by the Internal Revenue Service. The University is not currently under audit, nor has it been contacted by the Internal Revenue Service. Based on the evaluation of the University's tax positions, management believes all positions taken would be upheld under an examination.
Reclassifications
Certain amounts in the 2013 financial statements have been reclassified to conform to the 2014 presentation. No change in net assets as previously reported for 2013 results from these reclassifications.
Date of Management Review
Subsequent events were evaluated through August 29, 2014, which is the date the financial statements were available to be issued.
10 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note B - Contributions Receivable
Contributions receivable at June 30, 2014 and 2013, consist of the following unconditional promises to give to the University:
2014 2013 Within one year $ 223,770 $ 56,150 One to five years 257,377 4,500 Six to ten years 117,138 80,860 Total 598,285 141,510 Less: present value discount at 4% (17,033) (24,425) Less: allowance for uncollectible pledges (50,000) (63,643)
Net pledges receivable $ 531,252 $ 53,442
The allowance for uncollectible contributions is based on management's judgment and analysis of contributions receivable, past collection experience, and other relevant factors that bear on the ultimate collectibility of outstanding amounts.
Note C - Investments
At June 30, 2014 and 2013, investments consist of: 2014 2013 Corporate stock $ 148,905 $ 38,542 Corporate bonds and notes 530,324 Mutual funds 1,407,490 527,893 Remainder interest in charitable trusts 708,951 503,162
Total investments $ 2,795,670 $ 1,069,597
Investment activity during the years ended June 30, 2014 and 2013, is as follows:
2014 2013 Investments, beginning of year $ 1,069,597 $ 994,679 Investments donated and purchased 1,448,747 50,000 Investment returns/gains: Reinvested dividends and interest 24,963 33,156 Net realized and unrealized gains 276,656 15,913 Investment expenses (8,071) (7,769) Scholarships (16,222) (16,382)
Investments, end of year $ 2,795,670 $ 1,069,597
11 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note D - Property and Equipment
Property and equipment at June 30, 2014 and 2013, consists of the following:
2014 2013 Buildings $ 25,851,770 $17,824,073 Land and improvements 2,881,914 2,835,504 Equipment, furniture, and vehicles 2,323,623 2,254,645 Books and collections 756,532 745,500 Property held for investment 823,873 823,873 Construction in progress 59,804 2,286,306
Total 32,697,516 26,769,901 Less: accumulated depreciation 7,191,646 6,578,899
Net property and equipment $ 25,505,870 $20,191,002
At June 30, 2014, construction in progress consists of the following:
2014 Estimated Balance Total Cost Agriculture building $ 30,223 $ 2,000,000 Physical plant building and barn 21,181 50,000 Athletic facilities 8,400 10,000
Total construction in progress $ 59,804 $ 2,060,000
Depreciation expense for June 30, 2014 and 2013, was $646,980 and $632,892, respectively.
Note E - Annuities Payable
At June 30, 2014 and 2013, the University has annuity agreements with eight individuals. Pursuant to terms of agreements with these donors, the University pays a fixed amount to them over their remaining lives. At June 30, 2014 and 2013, a liability of $201,471 and $314,027 is recorded based on their life expectancies using a discount rate of 7%.
Note F - Line of Credit
The University has a $3,200,000 line of credit agreement with Citizens Bank & Trust of Polk County. At June 30, 2014 and June 30, 2013 , outstanding borrowings total $3,054,600 and $1,600,000, respectively. Interest on borrowings is payable monthly at 5%. The line is due in full on September 15, 2014, unless demand is made earlier. The line of credit is collateralized by a mortgage on the improved portion of the west campus.
12 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note G - Capitalized Lease Obligations
The University periodically enters into capitalized lease obligations for equipment. These leases are classified as capital leases since they provide for bargain purchase options at the expiration of the lease terms. At June 30, 2014 and June 30, 2013, the University has included in net property and equipment leased assets with a net book value of $134,405 and $179,467, respectively. Amortization of assets held under capital leases is included with depreciation expense.
The following is a schedule of future minimum lease payments under the capital leases at June 30, 2014 (imputed interest not material):
Year Ending June 30, 2015 $ 61,272 2016 43,810 2017 2,609
Total $ 107,691
Note H - Notes Payable
As of June 30, 2014 and 2013, notes payable consist of:
2014 2013 Six notes payable to one individual. Proceeds used for capital purchases. Interest payable monthly at 4.5%. Maturity dates from May 6, 2015, to December 11, 2015. Uncollateralized. $ 2,250,000 $ 2,250,000
Notes payable to churches and related entities. Interest rates ranging from 4.25% to 4.5%. Notes are due on demand. Uncollateralized. 113,000 113,000
Note payable to Citizens Bank & Trust of Polk County. Collateralized by a mortgage on the improved portion of the west campus. Interest only is payable monthly at 5.5% through June 30, 2014. Beginning July 1, 2014, monthly payments of $34,623 include principal and interest at 5.5%. Balloon payment of $4,465,372 due February 7, 2018. 5,000,000
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note H - Notes Payable - Continued
2014 2013 Note payable to Citizens Bank & Trust of Polk County. Collateralized by a mortgage on the improved portion of the west campus. Monthly payments of $11,912 include principal and interest at 4.99%. Balloon payment of $1,292,281 due April 25, 2017. $ 1,488,838 $
Note payable to Citizens Bank & Trust of Polk County. Collateralized by a mortgage on the improved portion of the west campus. Monthly payments of $6,875 plus interest at 6% on the outstanding balance, through September 2016. Balloon payment of $1,074,229 due October 1, 2016. 1,254,510 1,337,010
Note payable to Citizens Bank & Trust of Polk County. Collateralized by a mortgage on the improved portion of the west campus. Monthly payments of $4,000 through April 2015, include interest at 6%. Balloon payment of $440,754 due in May 2015. 455,794 475,392
Total notes payable $ 10,562,142 $ 4,175,402
Maturity of notes payable is as follows. Amounts due on demand are classified as payable during the year ending June 30, 2015.
Year Ending Amount Due June 30, or Callable 2015 $ 913,506 2016 2,491,861 2017 2,591,903 2018 4,551,872 2019 Thereafter 13,000
Total $ 10,562,142
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note I - Fair Value Measurements
The University's financial assets and liabilities are stated at fair value based on the following hierarchy of fair value measurement inputs:
Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market.
Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not actively traded.
Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's own assumptions about the assumptions a market participant would use in pricing the asset or liability.
At June 30, 2014, the University's financial assets and liabilities are categorized as follows:
Fair Value Level 1 Level 3 Assets Corporate stock $ 148,905 $ 148,905 $ Corporate bonds and notes 530,324 530,324 Mutual funds 1,407,490 1,407,490 Remainder interest in charitable trusts 708,951 708,951
Total $ 2,795,670 $ 2,086,719 $ 708,951
Liabilities Annuities payable $ 201,471 $ $ 201,471 Notes payable 10,562,142 10,562,142
Total $ 10,763,613 $ $10,763,613
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note I - Fair Value Measurements - Continued
At June 30, 2013, the University's financial assets and liabilities are categorized as follows:
Fair Value Level 1 Level 3 Assets Corporate stock $ 38,542 $ 38,542 $ Mutual funds 527,893 527,893 Remainder interest in charitable trusts 503,162 503,162
Total $ 1,069,597 $ 566,435 $ 503,162
Liabilities Annuities payable $ 314,027 $ $ 314,027 Notes payable 4,175,402 4,175,402
Total $ 4,489,429 $ $ 4,489,429
Financial assets and liabilities valued using Level 3 inputs had the following activity:
2014 2013 Remainder interest in charitable trusts, beginning of year $ 503,162 $ 496,843 Unrealized gains or losses in fair value 205,789 6,319
Split-interest agreements, end of year $ 708,951 $ 503,162
Annuities payable, beginning of year $ 314,027 $ 440,463 Annuity payments (95,785) (95,785) Unrealized gains or losses in fair value (16,771) (30,651)
Annuities payable, end of year $ 201,471 $ 314,027
Notes and loans payable, beginning of year $ 4,175,402 $ 3,973,832 Loans originated 6,730,100 3,233,600 Principal repaid (343,360) (3,032,030) Unrealized gains or losses in fair value
Notes and loans payable, end of year $ 10,562,142 $ 4,175,402
16 WARNER UNIVERSITY, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEARS ENDED JUNE 30, 2014 AND 2013
Note J - Restricted Net Assets
Temporarily restricted net assets at June 30, 2014 and 2013, are available for the following purposes:
2014 2013 Scholarships $ 149,984 $ 122,040 Agriculture program 383,275 225,111 Construction of academic building 1,467,070 Unrestricted (time restriction) 708,951 503,162
Total temporarily restricted net assets $ 1,242,210 $ 2,317,383
Permanently restricted net assets are invested in perpetuity, the income from which is restricted for providing scholarships to qualified students. At June 30, 2014 and 2013, the University's permanently restricted net assets consist of the Blackford Scholarship Fund.
Note K - Significant Concentrations of Credit Risk
Financial instruments that potentially subject the University to concentrations of credit risk consist principally of temporary cash investments and student receivables. The University maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits. At June 30, 2014 and 2013, all cash balances are fully insured. Concentrations of credit risk with respect to student receivables are limited due to the large number of students and their dispersion across different geographic areas.
Note L - Employee Benefit Plans
The University sponsors a 403(b) retirement plan for all full-time faculty and staff members who have completed one year of service. Under the plan, participants may contribute up to 15% of their salary through salary reductions. The University contributes to the Plan 5% of each eligible employee's salary. The University contributed $240,161 and $225,634 to the plan for the years ended June 30, 2014 and 2013, respectively.
In 2011, the University established a non-qualified deferred compensation plan for the benefit of the president of the University. The University entered into a "Rabbi Trust" agreement with an independent trustee for the purpose of funding this plan. The trust was terminated effective June 30, 2014. The president renounced any interest he had in the "Rabbi Trust". The assets that were previously held by the plan remain in the investments of the University; however, the liability of the deferred compensation plan was eliminated with dissolution of the trust.
17 WARNER UNIVERSITY, INC.
SUPPLEMENTAL SCHEDULES OF CHANGE IN NET ASSETS
YEARS ENDED JUNE 30, 2014 AND 2013
2014 2013
Revenues, Gains, and Other Support Gross tuition and fees $ 15,489,973 $ 14,817,370 Less: financial aid (5,007,122) (4,795,614)
Net student tuition and fees 10,482,851 10,021,756 Auxiliary enterprises 3,062,770 2,941,172 Contributions received 1,438,400 1,903,574 Other support 429,061 389,930 Investment income 129,036 156,872 Net realized and unrealized gain (loss) on investments 276,656 15,914
Total revenues, gains, and other support 15,818,774 15,429,218
Expenses Student services 4,756,567 4,117,107 Institutional support 2,422,874 2,593,635 Instruction 3,162,256 3,086,694 Auxiliary enterprises 2,066,946 1,963,504 Academic support 1,468,902 1,515,317 Operation and maintenance of plant 779,266 880,317
Total expenses before interest and depreciation 14,656,811 14,156,574
Excess of revenues, gains, and other support over expenses before interest and depreciation 1,161,963 1,272,644
Interest expense 387,447 411,708 Depreciation 646,980 632,892
Change in net assets $ 127,536 $ 228,044
18 Bunting, Tripp & Ingley, LLP CERTIFIED PUBLIC ACCOUNTANTS 230 EAST TILLMAN AVENUE A Tradition of Excellence for Over Eighty Years P. O. Box 990 LAKE WALES, FLORlDA 33859- 0990 ~ 863/676-7981 FAX 863/676- 8899 e-mail: [email protected] www.bticpa.com
ALSO WITH OFFICES II·' Independent Auditor's Report on Internal Control Over Financial T AMPA, FLORlDA Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards
The Board of Trustees Warner University, Inc. Lake Wales, Florida
We have audited, 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 ofthe United States, the fmancial statements of Warner University, Inc. (a nonprofit organization), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities, and cash flows for the year then ended, and the related notes to the fmancial statements, and have issued our report thereon dated August 29, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the fmancial statements, we considered Warner University, Inc.'s internal control over fmancial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the University's internal control.
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 on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
19
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS part of obtaining reasonable assurance about whether Warner Inc.'s statements are from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and 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 of noncompliance or other matters that are required to be reported Government Auditing Standards.
The purpose of report is solely to describe the scope of our testing of internal control and compliance and the results of that and not to provide an opinion on the effectiveness of the University's internal control or on compliance. This report is an integral part of an audit performed in accordance Government Auditing Standards considering the University's internal control and compliance. Accordingly, communication is not suitable for any other purpose.
Lake Wales, o'da August 2014
20 Bunting, Tripp & Ingley, LLP CERTIFIED PUBLIC ACCOUNTANTS 230 EAST TILLMAN AVENUE A Tradition of Excellence for Over Eighty Years P. O. Box 990 LAKE WALES, FLORIDA 33859- 0990 ~ 863/ 676-7981 FAX 863/ 676- 8899 e-mail: [email protected] www.bticpa.com Independent Auditor's Report on Compliance for Each Major Program and on Internal Control ALso WITH OFFICES IN Over Compliance Required by OMB Circular A-133 TAMPA, FLORIDA
The Board of Trustees Warner University, Inc. Lake Wales, Florida
Report on Compliance for Each Major Federal and State Program
We have audited Warner University, Inc.'s compliance with the types of compliance requirements described in the OMB Circular A-I33 Compliance Supplement, and the requirements described in the Department of Financial Services State Projects Compliance Supplement, that could have a direct and material effect on each of the University's major federal programs and state rmancial assistance programs for the year ended June 30,2014. The University's major federal programs and state financial assistance programs are identified in the Summary ofAuditor's Results section of the accompanying Schedule of Findings and Questioned Costs.
Management's Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs and state financial assistance programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance for each of the University's major federal programs and state financial assistance programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to rmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and OMB Circular A-133, Audits ofStates, Local Governments, and Non-Profit Organizations and Chapter 10.650, Rules of the Florida Auditor GeneraL Those standards, OMB Circular A-133, and Chapter 10.650, Rules of the Florida 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 or state program 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 on compliance for each major federal program and state rmancial assistance program. However, our audit does not provide a legal determination of the University's compliance.
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MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • FLORIDA L"ISTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS our opinion, Warner University, Inc. complied, in all material respects, with the types of compliance requirements to above that could have a direct and material on each of its major programs state rmancial assistance for the ended June 30,2014.
Management of Warner University, Inc. is responsible for establisbing and maintaining "". A deficiency in internal control over compliance exists when design or of a control over compliance not allow management or employees, in normal course performing assigned functions, to or detect and correct, noncompliance with a type of compliance requirement of a federal or state 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 tbere is a reasonable possibility that material noncompliance witb a type of compliance requirement of a federal or state program wilt not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of U"""""'''''''''' in internal control over with a of compliance requirement of a or state that is severe tban a internal control over compliance, yet important enough to merit attention by those Our consideration of internal control over compliance was for the limited purpose described in tbe first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance tbat migbt be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist tbat not been identified. of this on internal over compliance is solely to tbe scope of our of internal control over compliance the results tbat testing on the of OMB Circular Accordingly, report is not suitable any other purpose. ~ ~~ ~~ , August 29, 2014 WARNER UNIVERSITY, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND FLORIDA FINANCIAL ASSISTANCE PROGRAMS YEAR ENDED JUNE 30, 2014 Federal Federal CFDA No. Expenditures Federal Grantor - U. S. Department of Education : Student Financial Aid Cluster: Federal Supplemental Educational Opportunity Grants 84.007 $ 39,709 Federal Work-Study Program 84.033 77,690 Federal Perkins Loan Program (Note B) 84.038 45,003 Federal Pell Grant Program 84.063 3,136,969 Federal Direct Student Loan Program 84.268 7,666,390 Teacher Education Assistance for College and Higher Education Grants 84.379 28,104 Total expenditures of Federal awards $ 10,993,865 Florida Florida CSFA No. Expenditures Florida Grantor - Florida Department of Education : Florida Work Experience Program 48.053 $ 35,425 Florida Student Assistance Grant Program 48.054 193,738 Scholarships for Children and Spouses of Deceased or Disabled Veterans and Service Members 48.055 4,984 Florida Bright Futures Scholarship Program 48.059 232,721 Florida Resident Access Grant Program 48.064 1,906,134 Subtotal 2,373,002 Florida Grantor - Florida Department of Highway Safety and Motor Vehicles : Warner Southern College License Plate Project 76.062 3,110 Total expenditures of Florida financial assistance programs $ 2,376,112 The accompanying notes to schedule of expenditures of Federal awards and Florida financial assistance programs should be read in conjunction with this schedule. 23 WARNER UNIVERSITY, INC. NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND FLORIDA FINANCIAL ASSISTANCE PROGRAMS YEAR ENDED JUNE 30, 2014 Note A - Basis Of Presentation The accompanying Schedule of Expenditures of Federal Awards and Florida Financial Assistance Programs includes the Federal and Florida grant activity of Warner University, Inc. The schedule is prepared on the cash basis of accounting. Expenditures are recognized when paid. The amounts presented include required matching amounts, where applicable. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the Florida Single Audit Act. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. Because the schedule presents only a selected portion of the activities of the University, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the University in accordance with accounting principles generally accepted in the United States of America. Note B - Loans Outstanding At June 30, 2014, Warner University, Inc., had loans outstanding under the Federal Perkins Loan Program (CFDA No. 84.038) of $305,442. Loans made during the year are included in the Federal expenditures presented in the schedule. Note C - Florida Student Financial Assistance Programs The administration of each State program is the responsibility of the Florida Department of Education's Office of Student Financial Assistance and management of Warner University, Inc. The following is a brief description of each Florida student financial assistance program administered by the Student Financial Aid Office of Warner University, Inc.: 1. Florida Work Experience Program The Florida Work Experience Program (FWEP) is a need-based program providing eligible Florida students work experiences to complement and reinforce their educational and career goals. FWEP is a decentralized program , which means each participating institution determines application procedures, deadlines, student eligibility, and award amounts. 24 WARNER UNIVERSITY, INC. NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND FLORIDA FINANCIAL ASSISTANCE PROGRAMS - CONTINUED YEAR ENDED JUNE 30, 2014 Note C - Florida Student Financial Assistance Programs - Continued 2. Florida Student Assistance Grant Program The Florida Student Assistance Grant (FSAG) Program is a need-based program consisting of four separately funded student financial aid programs available to degree-seeking, resident, undergraduate students who demonstrate substantial financial need and are enrolled in participating postsecondary institutions. FSAG is a decentralized program, as defined above. ● The Florida Public Student Assistance Grant is available to students who attend state universities and public community colleges. ● The Florida Private Student Assistance Grant is available to students who attend eligible private, non-profit, four-year colleges and universities. ● The Florida Postsecondary Student Assistance Grant is available to students who attend eligible degree-granting private colleges and universities not eligible under the Florida Private Student Assistance Grant. ● The Florida Public Postsecondary Career Education Student Assistance Grant is available to students who attend participating public community colleges or career centers operated by district school boards. 3. Scholarships for Children and Spouses of Deceased or Disabled Veterans and Service Members The Scholarships for Children and Spouses of Deceased or Disabled Veterans and Service Members (CSDDV) provides scholarships for dependent children or unremarried spouses of Florida veterans or service members who died as a result of service-connected injuries, diseases, or disabilities sustained while on active duty or who have been verified by the Florida Department of Veterans' Affairs as having service-connected 100% permanent and total disabilities. CSDDV also provides funds for dependent children whose parent is classified as a prisoner of war or missing in action by the Armed Forces of the United States or as civilian personnel captured while serving with the consent or authorization of the United States government during wartime service. CSDDV provides funding for tuition and registration fees at an eligible public postsecondary institution or the equivalent at an eligible private postsecondary institution in Florida. 25 WARNER UNIVERSITY, INC. NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND FLORIDA FINANCIAL ASSISTANCE PROGRAMS - CONTINUED YEAR ENDED JUNE 30, 2014 Note C - Florida Student Financial Assistance Programs - Continued 4. Florida Bright Futures Scholarship Program The Florida Bright Futures Scholarship Program provides scholarships to Florida high school graduates with high academic achievement. These scholarships are lottery-funded. The program provides qualified, first-time-in-college, full-time, undergraduate students with assistance in paying for costs of education. Scholarships are available only to Florida residents attending eligible colleges and universities located in the state of Florida. The Florida Bright Futures Scholarship Program is comprised of the following awards: ● Florida Academic Scholars Award (FAS) ● Florida Medallion Scholars Award (FMS) ● Florida Gold Seal Vocational Scholars Award (GSV) 5. Florida Resident Access Grant Program The William L. Boyd, IV, Florida Resident Access Grant (FRAG) Program provides tuition assistance to Florida undergraduate students attending an eligible private, non-profit Florida college or university. FRAG is a decentralized program, as defined above. Note D - Other Florida Financial Assistance Programs The Warner University License Plate Project is a state program that issues specialty license plates that depict the University's logo. The funds that the University receives are based solely on license plate sales. 26 WARNER UNIVERSITY, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2014 Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unqualified opinion Internal control over financial reporting: ● Material weakness identified? Yes X No ● Significant deficiency identified? Yes X None reported Noncompliance material to financial statements noted? Yes X No Federal and Florida Awards Internal control over major programs: ● Material weakness identified? Yes X No ● Significant deficiency identified? Yes X None reported Type of auditor's report issued on compliance for major programs: Unqualified opinion Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A-133? Yes X No Identification of major programs: The Federal programs listed below are part of a cluster; therefore, they are treated and tested as a major program. Student Financial Aid Cluster: Federal Supplemental Educational Opportunity Grants CFDA No. 84.007 Federal Work-Study Program CFDA No. 84.033 Federal Perkins Loan Program CFDA No. 84.038 Federal Pell Grant Program CFDA No. 84.063 Federal Direct Student Loan Program CFDA No. 84.268 Teacher Education Assistance for College and Higher Education Grants CFDA No. 84.379 27 WARNER UNIVERSITY, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS - CONTINUED YEAR ENDED JUNE 30, 2014 Summary of Auditor's Results - Continued Identification of major programs - continued: The Florida Student Financial Assistance Programs are also treated as a cluster and are tested as a major program: Florida Work Experience Program CSFA No. 48.053 Florida Student Assistance Grant Program CSFA No. 48.054 Scholarships for Children and Spouses of Deceased or Disabled Veterans and Service Members CSFA No. 48.055 Florida Bright Futures Scholarship Program CSFA No. 48.059 Florida Resident Access Grant Program CSFA No. 48.064 Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Warner University, Inc., qualified as low-risk auditee? X Yes No “Schedule of Prior Audit Findings and Questioned Costs - Federal Awards Program” attached? X Yes No “Schedule of Prior Audit Findings and Questioned Costs - Florida Financial Assistance Programs” attached? X Yes No “Corrective Action Plan” attached? Yes X No (No findings required to be reported under the Federal or Florida Single Audit Acts.) Financial Statement Findings No matters were reported. Federal Award Findings and Questioned Costs No matters were reported. Florida Award Findings and Questioned Costs No matters were reported. 28 WARNER UNIVERSITY, INC. SUMMARY OF POPULATION, ITEMS TESTED, AND FINDINGS FOR FLORIDA FINANCIAL ASSISTANCE PROGRAMS YEAR ENDED JUNE 30, 2014 Description Number Percent Amount Percent of of of of of Category Students Population Awards Population FWEP: Population 29 100% $ 35,425 100% Tested 13 44.8% $ 15,538 43.9% Findings 0 0% $ 0 0% FSAG: Population 126 100% $ 193,738 100% Tested 39 30.9% $ 59,989 31% Findings 0 0% $ 0 0% CSDDV: Population 1 100% $ 4,984 100% Tested 1 100% $ 4,984 100% Findings 0 0% $ 0 0% FAS: Population 7 100% $ 16,274 100% Tested 7 100% $ 16,274 100% Findings 0 0% $ 0 0% FMS: Population 103 100% $ 214,753 100% Tested 31 30.1% $ 64,064 29.8% Findings 0 0% $ 0 0% GSV: Population 1 100% $ 1,694 100% Tested 1 100% $ 1,694 100% Findings 0 0% $ 0 0% FRAG: Population 867 100% $ 1,906,134 100% Tested 82 9.5% $ 178,750 9.4% Findings 0 0% $ 0 0% 29 WARNER UNIVERSITY, INC. SCHEDULE OF PRIOR AUDIT FINDINGS AND QUESTIONED COSTS - FEDERAL AWARDS PROGRAMS YEAR ENDED JUNE 30, 2014 No matters were reported. 30 WARNER UNIVERSITY, INC. SCHEDULE OF PRIOR AUDIT FINDINGS AND QUESTIONED COSTS - FLORIDA FINANCIAL ASSISTANCE PROGRAMS YEAR ENDED JUNE 30, 2014 No matters were reported. 31 Bunting, Tripp & Ingley, LLP CERTIFIED PUBLIC ACCOUNTANTS 230 EAST TILLMAN AVENUE A TraditionofExcellencefor OverEightyYears P. 0, Box990 — LAKE WALES, FLORIDA 33859-0990 863/676-7981 FAX 863/676-8899 e- mail: info@bticpa. corn www.bticpa. corn Aiso WITH OFFICESIN TAMPA, FLORIDA To the Board of Trustees Warner University, Inc. Lake Wales. Florida In planning and performing our audit of the financial statements of Warner University. Inc. as of and for the year ended June 30, 2014, in accordance with auditing standards generally accepted in the United States of America, we considered the University’s internal control over financial reporting (internal control) as a basis for designing auditing procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the University’s internal control. A dejIciency 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 University’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit we did not identify any deficiencies in internal control that i’e consider to be material weaknesses. However, material weaknesses may exist that have not been identified. In connection with our audit, we have the following observations or recommendations for you to consider regarding the University: MEMBERS AitmcANINsllnJm Of CERTIFIED PUBLIC ACCOUNTANTS • FLORIDA INsTrrum Of CERTIFIED PUBLIC ACCOUNTANTS Warner University, Inc. Page Two Summary of Financial Condition of the University For the year ended June 30, 2014, the University had an increase in net assets of $127,536. Revenues from operations increased approximately $400,000 from $l5,396062 in 2013 to $15,793,810 in 2014, while expenses increased by approximately $500,000 from $15,201,174 in 2013 to $15,691,237 in 2014. The current year increase in net assets of $127,536 includes an operational surplus of $774,516, less $646,980 of depreciation expense. The prior year increase in net assets of $228,044 included an operational surplus of $860,936, less $632,892 of depreciation expense. The University experienced an increase in student accounts receivable, net of deposits of approximately $365,000. The balance on the line of credit increased by $1,454,600, and long- term debt collateralized by the campus real estate increased approximately $6,390,000. As a result of these borrowings, the University completed the new academic building and increased investments by approximately $1,500,000. The University had an increase in enrollment of approximately 60 students. The University’s net asset balance remains stable at $17,204,254. Emphasize Compliance in All Areas of Student Financial Aid In the current year, the firni of Maiming & Associates CPAs, LLC, who performed compliance work on the University’s student financial aid processes, identified four findings related to Federal funds. The first finding involved disbursement of Federal Direct Loan funds prior to the student being enrolled the required 30 days. The second finding was related to the incorrect allocation of a student’s subsidized and unsubsidized Federal Direct Loans. The third finding involved two refunds not being made within required time limits. The fourth finding disclosed one instance of Federal Direct Loan funds being disbursed after a student’s last date of attendance at the University. In the prior year, there were three findings. Two of the findings were the result of over and under-awarding of federal Pell Grant funds. The third finding was related to not completing the exit interview process for one student From an institutional stand-point, we considered these findings immaterial matters of noncompliance and thus have not reported them in the University’s Single Audit Report. We do concur with the Director of Financial Aid’s Institutional Response to these findings. Warner University, Inc. Page Three Status of Prior Year Recommendations Student Accounts Receivable As we stated in the prior year, there have been several policies and procedures implemented in an effort to increase the collection of the student account balances. Management has increased the allowance for uncollectible accounts to $H.000 per month with a charge to bad debt expense. Due to the increase in enrollment and the current state of the economy, we recommend that the University consider increasing this monthly amount. We commend the efforts that have been made to reduce the student accounts receivable ba1ance however, this balance continues to be one of the largest assets on the statement of financial position and remains disproportionate to enrollment and tuition when compared to other similar institutions. ‘‘‘V.,’ This communication is intended solely for the use of the Board of Trustees, management, federal and State awarding agencies, pass-through entities, and accreditation agencies and is not intended to be and should not be used by anyone other than these specified parties. We appreciate the opportunity to serve as your independent auditors. We are available to you and the University administration throughout the year to answer any questions you may have or to assist you in any way. Lake Wales, Florida August 29, 2014