United Lutheran Seminary and Subsidiaries
Consolidated Financial Statements and Supplementary Information
June 30, 2019
United Lutheran Seminary and Subsidiaries Table of Contents June 30, 2019
Page
Independent Auditor s' Report 1
Consolidated Financial Statements
Consolidated Statement of Financial Position 3
Consolidated Statement of Activities 4
Consolidated Statement of Functional Expenses 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7
Supplementary Information
Consolidating Schedule of Financial Position 24
Consolidating Schedule of Activities 25
Schedule of Expenditures of Federal Awards 26
Notes to Schedule of Expenditures of Federal Awards 27
Independent Auditors' 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 28
Independent Auditors' Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 30
Schedule of Findings and Questioned Costs 33
Independent Auditors' Report
To the Board of Trustees of United Lutheran Seminary and Subsidiaries
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of United Lutheran Seminary and Subsidiaries (the Seminary), which comprise the consolidated statement of financial position as of June 30, 2019, and the related consolidated statements of activities, functional expenses and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements 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 consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated financial 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Seminary as of June 30, 2019, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP 1
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, on July 1, 2018, the Seminary adopted new accounting guidance related to the Financial Accounting Standards Board Accounting Standards Update 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The adoption of this standard resulted in additional note disclosures and a reclassification of net assets with donor restrictions to net assets without donor restrictions of $6,732,680 at July 1, 2018. Our opinion is not modified with respect to this matter.
Report on Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying consolidating information is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, and changes in net assets of the individual entities, and is not a required part of the consolidated financial statements. The accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the consolidated financial statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated June 18, 2020, on our consideration of the Seminary'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 solely 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 effectiveness of the Seminary's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Seminary's internal control over financial reporting and compliance.
Pittsburgh, Pennsylvania June 18, 2020
2 United Lutheran Seminary and Subsidiaries Consolidated Statement of Financial Position June 30, 2019
Assets
Cash and cash equivalents $ 390,711 Accounts receivable, net 258,440 Unconditional promise to give, net 15,950 Other assets 174,837 Beneficial interests in trusts held by others 17,648,371 Investments 59,459,643 Charitable remainder trusts 1,129,635 Note receivable 1,500,000 Property and equipment, net 34,569,612
Total assets $ 115,147,199
Liabilities and Net Assets
Liabilities Lines of credit $ 3,750,000 Accounts payable 225,718 Other liabilities 215,738 Long-term debt 11,997,905
Total liabilities 16,189,361
Net Assets Without donor restrictions: Undesignated (11,517,298) Designated by Board for long-term investment 3,739,952 Property and equipment, net of related debt 22,590,936
Subtotal 14,813,590
With donor restrictions 84,144,248
Total net assets 98,957,838
Total liabilities and net assets $ 115,147,199
See notes to consolidated financial statements 3 United Lutheran Seminary and Subsidiaries Consolidated Statement of Activities Year Ended June 30, 2019
Without With Donor Donor Restrictions Restrictions Total
Revenue, Gains and Other Support Gross tuition and fees $ 2,872,605 $ - $ 2,872,605 Less scholarships (2,032,804) - (2,032,804)
Net tuition and fees 839,801 - 839,801
Church appropriations: Eastern Cluster of Lutheran Seminaries 480,896 - 480,896 Synods 876,469 - 876,469 Grants 7,940 - 7,940 Contributions 2,377,641 25,992,440 28,370,081 Endowment investment return designated for current operations 325,000 1,600,000 1,925,000 Auxiliary enterprises 565,260 - 565,260 Rental income 515,277 - 515,277 Other income 433,539 - 433,539
Total revenue and gains 6,421,823 27,592,440 34,014,263
Net Assets Released From Restrictions 3,573,416 (3,573,416) -
Total revenue, gains and other support 9,995,239 24,019,024 34,014,263
Expenses Instruction 4,142,500 - 4,142,500 Academic support 2,241,788 - 2,241,788 Student services 655,608 - 655,608 Institutional support 3,482,975 - 3,482,975 Advancement 995,510 - 995,510 Community activities 260,813 - 260,813 Auxiliary enterprises 1,795,145 - 1,795,145 Museum operations 1,048,806 - 1,048,806
Total expenses 14,623,145 - 14,623,145
Change in net assets from operations (4,627,906) 24,019,024 19,391,118
Nonoperating Income (Expenses) Gain on forgiveness of debt 3,511,350 - 3,511,350 Endowment investment return net of amounts designated for current operations (388,195) (155,947) (544,142) Other investment losses (134,794) - (134,794) Net gain on beneficial interests in trusts held by others and charitable remainder trusts 302,737 347,331 650,068 Gain on sale of property 3,377,428 - 3,377,428
Change in net assets from nonoperating activities 6,668,526 191,384 6,859,910
Change in net assets 2,040,620 24,210,408 26,251,028
Net Assets, Beginning 12,772,970 59,933,840 72,706,810
Net Assets, Ending $ 14,813,590 $ 84,144,248 $ 98,957,838
See notes to consolidated financial statements 4 United Lutheran Seminary and Subsidiaries Consolidated Statement of Functional Expenses Year Ended June 30, 2019
Academic Student Institutional Community Auxiliary Museum Instruction Support Services Support Advancement Physical Plant Activities Enterprises Operations Total
Personnel Expenses Salaries $ 1,398,130 $ 679,779 $ 246,320 $ 797,372 $ 485,063 $ 640,772 $ - $ - $ 352,264 $ 4,599,700 Contract labor 39,065 38,323 48,693 - 4,575 60,667 - - - 191,323 Visiting instructors 144,974 - - 266,002 - - - - - 410,976 Payroll taxes 29,792 38,677 11,281 58,660 19,343 48,606 - - 48,594 254,953 Health insurance 314,952 114,586 48,693 159,006 84,510 138,702 - - 92,314 952,763 Pension 127,985 63,708 22,042 67,690 69,958 51,917 - - - 403,300
Subtotal personnel expenses 2,054,898 935,073 377,029 1,348,730 663,449 940,664 - - 493,172 6,813,015
Other Expenses Travel and hospitality 211,565 8,666 25,129 159,143 74,189 511 - - 16,224 495,427 Public service costs and fees 352 - 69,271 - 2,779 - 113,760 - 33,987 220,149 Printing and supplies 2,161 42,492 2,688 89,919 623 521,529 - - 6,536 665,948 Other program costs 162,933 17,776 9,779 7,277 - - 4,899 - 68,675 271,339 Professional fees - 11,926 - 315,533 93,195 103,065 - - 79,529 603,248 Insurance - - - 93,217 - 59,446 - - 22,000 174,663 Utilities, equipment and technology - 423,637 - 8,762 - 649,963 - - 75,156 1,157,518 Maintenance - - - - - 524,703 - - 29,317 554,020 Facility ------250 250 Allocation of physical plant 1,693,869 754,324 171,712 756,772 147,830 (5,461,806) 142,154 1,795,145 - - Depreciation and amortization - - - - - 2,370,227 - - 30,880 2,401,107 Interest - - - 236,550 - 283,094 - - 132,046 651,690 Other 16,722 47,894 - 467,072 13,445 8,604 - - 61,034 614,771
Total expenses $ 4,142,500 $ 2,241,788 $ 655,608 $ 3,482,975 $ 995,510 $ - $ 260,813 $ 1,795,145 $ 1,048,806 $ 14,623,145
See notes to consolidated financial statements 5 United Lutheran Seminary and Subsidiaries Consolidated Statement of Cash Flows Year Ended June 30, 2019
Cash Flows From Operating Activities Change in net assets $ 26,251,028 Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization 2,401,107 Change in allowance for unconditional promises to give (8,000) Gain on sale of property (3,377,428) Gain on forgiveness of debt (3,511,350) Realized and unrealized gain on investments, net (139,350) Increase in beneficial interests in trusts held in trust by others and charitable remainder trusts (650,068) Contributions restricted for long-term investment (25,992,440) Net change in assets and liabilities: Accounts receivable, net (66,774) Unconditional promise to give, net 338,800 Other assets (30,561) Accounts payable (167,980) Other liabilities 71,175
Net cash used in operating activities (4,881,841)
Cash Flows From Investing Activities Purchases of investments (26,614,286) Proceeds from sale of investments 3,414,118 Proceeds from sale of property 2,056,795 Purchases of property and equipment (337,108)
Net cash used in investing activities (21,480,481)
Cash Flows From Financing Activities Net borrowing on lines of credit 170,000 Contributions restricted for long-term investment 25,992,440 Payments on notes payable (383,408)
Net cash provided by financing activities 25,779,032
Net change in cash and cash equivalents (583,290)
Cash and Cash Equivalents, Beginning 974,001
Cash and Cash Equivalents, Ending $ 390,711
Supplementary Cash Flows Information Cash paid during the year for interest $ 651,690
Supplementary Disclosure of Noncash Investing and Financing Activities Note received for sale of property $ 1,500,000
See notes to consolidated financial statements 6 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
1. Summary of Significant Accounting Policies
Nature of Operations
United Lutheran Seminary (the Seminary or ULS) is a Pennsylvania not-for-profit educational institution, dedicated to preparing people for ordained and lay ministries. The Seminary has enrollment of approximately 320 students from throughout the world with a concentration of students from the Mid-Atlantic region. The Seminary is primarily supported by tuition and fees, earnings on permanent funds and other long-term investments, and contributions from the Evangelical Lutheran Church in America (ELCA) through the Eastern Cluster of Lutheran Seminaries (ECLS), ELCA synods, alumni and other supporters. The Seminary is governed by a twenty-three member Board of Trustees.
The Lutheran Theological Seminary at Philadelphia (LTSP) is a Pennsylvania not-for-profit organization. Together with ULS, LTSP supports the facilities and investments of the Seminary's Philadelphia location.
United Lutheran Seminary Endowment Foundation (the Foundation) is a Pennsylvania not-for-profit foundation. The Foundation is organized to hold title to and manage property that is donated to the endowment fund of the Seminary and the earnings thereon as an endowment fund for the Seminary. The Seminary serves as the sole member of the Foundation and elects the Foundation's Board of Directors.
The Luther Institute (the Institute), a District of Columbia not-for-profit organization, which has ceased operations, promoted the exercise of faith in the public sector by sponsoring educational opportunities for civil discourse, theological reflection and attentive listening by laity and clergy. The Board of the Seminary assumed control of the Institute in July 2006 resulting in the inclusion of the Institute in the consolidated financial statements.
Seminary Ridge Historic Preservation Foundation (the SRHPF) is a Pennsylvania not-for-profit organization, incorporated by the Seminary to steward the historic sites on the Gettysburg campus including the Seminary Ridge Museum (the Museum).
Basis of Consolidation
The consolidated financial statements include the accounts of the Seminary, LTSP, the Foundation, the Institute and the SRHPF (collectively, the Organization). Significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The consolidated financial statements of the Organization have been prepared on the accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America including accounting regulations as they relate to financial statements of not-for-profit organizations. The Financial Accounting Standards Board (FASB) guidance requires the reporting of total assets, liabilities and net assets in a statement of financial position; reporting the change in net assets in a statement of activities; reporting expenses by both natural and functional classification; and reporting the sources and uses of cash and cash equivalents in a statement of cash flows.
Net assets and revenues, gains, expenses and losses are classified as without donor restrictions or with donor restrictions based on the existence or absence of donor-imposed restrictions as follows:
Net Assets Without Donor Restrictions - Net assets that are not subject to donor-imposed stipulations. Net assets without donor restrictions may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties.
7 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
Net Assets With Donor Restrictions - Net assets whose use by the Organization is subject to donor-imposed stipulations that can be fulfilled by actions of the Organization pursuant to those stipulations or that expire by the passage of time are reported as net assets with donor restrictions. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, these net assets with donor restrictions are reclassified to net assets without restrictions and reported in the statement of activities as net assets released from restriction. Additionally, funds received as gifts and bequests which have been accepted with the donor stipulation that the principal be maintained intact in perpetuity are reported as net assets with donor restrictions.
Revenues are reported as increases in net assets without donor restrictions unless use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in net assets without donor restrictions. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in net assets without donor restrictions unless their use is restricted by explicit donor stipulation or by law. Donor restricted contributions whose restrictions are met within the same reporting period as received are reported as contributions without donor restrictions in the accompanying consolidated financial statements.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments purchased with original maturities of three months or less. Cash held for long-term investment has been excluded from cash and cash equivalents and is reported as a component of investments. Under these circumstances, cash is being held until suitable investment opportunities are identified.
Accounts Receivable
Accounts receivable are stated at outstanding balances, less an allowance for doubtful accounts. The allowance is based upon management's analysis of the student receivables. Factors such as the aging (based on stated terms) and recent payments are considered when determining the allowance. Accounts receivable amounts are considered past due after the drop/add period for the applicable term. Uncollectible accounts receivable are written off when management determines that they will not be collectible.
Investments
Investments, exclusive of property and equipment, are recorded at fair value. See Note 4 for a discussion of fair value measurements. Realized gains or losses on the sale of securities are calculated as of the trade date. Unrealized gains and losses are included in the change in net assets in the accompanying consolidated statement of activities. Average cost is generally used to determine gains or losses on securities sold. Investment income on the consolidated statement of activities is comprised of interest, dividends and capital gain distributions from the investments.
Investments consist of cash, securities or other assets to provide income for the maintenance of the Organization. The use of the assets may be with or without donor restriction. Endowments generally are established by donor-restricted gifts and bequests to provide a donor restricted endowment, which is to provide a permanent source of income, or a term endowment, which is to provide income for a specified period. The Organization's Board may earmark a portion of its net assets without donor restrictions as a board-designated endowment to be invested to provide income for a long but unspecified period. The board-designated endowment is not donor-restricted and is classified as net assets without donor restrictions.
8 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
The Organization maintains master investment accounts for its donor restricted and Board designated endowment funds. Realized and unrealized gains and losses from securities in the master investment accounts are allocated monthly to the individual endowments based on the relationship of the market value of each donor restricted or Board designated endowment fund to the total market value of the master investment accounts, as adjusted for additions to or deductions from these accounts.
The Organization's investments are comprised of a variety of financial instruments. The fair values in the statement of financial position are exposed to various risks, including changes in the equity markets, the interest rate environment and general economic conditions. Due to the level of risk associated with certain investment securities and the level of uncertainty related to the changes in the fair value of investment securities, it is reasonably possible that the amounts reported in the consolidated financial statements could change materially in the near-term.
Fair Value Measurements
The Organization measures its assets at fair value on a recurring basis in accordance with accounting principles generally accepted in the United States of America. Fair value is defined as 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. The framework that the authoritative guidance established for measuring fair value includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:
Level 1 - Fair value is based on unadjusted quoted prices in active markets that are accessible to the Organization for identical assets or liabilities.
Level 2 - Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the same term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets, and other observable inputs.
Level 3 - Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques.
Property and Equipment
Property and equipment are stated at cost or fair value at date of donation in the case of gifts, except library volumes acquired prior to June 30, 1978, and other property and equipment acquired prior to June 9, 1945, which are valued at the appraised value determined upon the adoption of the requirement to depreciate property and equipment. Depreciation on property and equipment is recorded on a straight-line basis using the following estimated useful lives:
Years
Buildings 50 Land improvements 20 Equipment 5 - 15 Library volumes 20
The Organization capitalizes costs for assets which are expected to benefit more than one period on a case by case basis with $5,000 as an approximate minimum expenditure, except for library books, all of which are capitalized.
9 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
Note Receivable
Note receivable represents amounts receivable from the American Battlefield Trust pursuant to an agreement to sell a parcel of property for $3,500,000. A noninterest bearing note was executed on February 25, 2019 for $1,500,000 and is payable in equal installments over a three-year period ending February 25, 2022. No allowance for uncollectible notes receivable is recorded as management believes the amount is fully collectible.
Contributions
Contributions received, including unconditional promises to give, are recognized as revenue when the donor's commitment is received. The Organization records unconditional promises to give in excess of $5,000 at the estimated present value of the future cash flows, net of allowances for uncollectible amounts. An allowance for uncollectible amounts is recorded when considered necessary based on management's estimate of uncollectibility considering such factors as prior collection history and the anticipated receipt date. Promises made that are designated for future periods or restricted by the donor for specific purposes are reported as donor restricted support. Conditional promises are recorded when donor stipulations are substantially met. When a restriction expires (that is, when a stipulated time restriction ends or when a purpose restriction is accomplished), net assets with donor restrictions are reclassified to net assets without donor restrictions and reported on the consolidated statement of activities as net assets released from restrictions.
The Organization reports gifts of land, buildings and equipment as support without donor restrictions unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as support with donor restrictions. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. At that time, the assets are transferred from net assets with donor restrictions to net assets without donor restrictions.
The Organization records bequests as unconditional promises to give upon settlement of the related estate, at their estimated value. Any differences in actual amounts received are reflected on the consolidated statement of activities when received.
In-Kind Contributions
In-kind contributions of tangible materials, facilities and publicity are recorded at fair value and recognized as revenue in the accounting period when they are received.
Contributed professional services are recognized if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Contributed time of volunteers that does not meet the professional services criteria is not recorded in the consolidated financial statements. 10 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
Fundraising Costs
The advancement office provides support for fundraising as well as other activities of the Seminary. The fundraising costs incurred by the Organization, which are expensed as incurred, were $995,510 for the year ended June 30, 2019.
Operating Activities
The consolidated statement of activities includes a performance measure of operations labeled as change in net assets from operations. This measure includes revenues and expenses generated from the Organization's operations, including contributions for current use, and net assets released from restrictions. Excluded from this measure are endowment investment returns in excess of the Organization’s spending policy, changes in value of charitable remainder trusts and beneficial interest in trusts held by others, and other gains (losses) not considered operating in nature.
Allocation of Expenses
Most expenses are directly related to, and can be assigned to, a single program or service. Expenses that can be assigned by direct identification are charged directly to their related function. Depreciation expense is directly assigned, if possible, to the function that the related asset supports. Depreciation expense on certain assets that support multiple functions is allocated based upon estimated use of each asset by each function. Building depreciation is allocated based on the square footage used by each function. The expenses for operations and maintenance of the physical property are allocated to programs based on the square footage used by each function. Operations and maintenance of auxiliary facilities such as dormitories, apartments, faculty houses and refectory are directly charged to those programs.
Income Taxes
The Seminary, LTSP, the Foundation, the Institute, and the SRHPF are exempt from federal and state income taxes as not-for-profit organizations under Section 501(c)(3) of the Internal Revenue Code (IRC) and applicable state regulations. Accordingly, no provision for federal or state income taxes has been recorded in the consolidated financial statements for these entities.
Adjustments, if any, for uncertain tax positions would be recorded as a liability. The Organization would also recognize accruals for interest and penalties related to uncertain tax positions in its interest expense. Management has determined there were no tax uncertainties that met the recognition threshold in 2019.
The Foundation, the Institute and SRHPF file federal and various state tax returns. The Seminary, as a religious organization, and LTSP, as a controlled Type I supporting organization of the Seminary, are not required to file income tax returns.
Use of Estimates
The preparation of consolidated 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. Significant estimates included in these consolidated financial statements include allowance for uncollectible receivables, fair value of investments, and depreciation of property and equipment. Actual results could differ from those estimates.
11 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
New Accounting Standard Adopted in Current Year
In 2019, the Organization adopted the FASB Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. ASU No. 2016-14 addresses the complexity and understandability of net asset classification, deficiencies in information provided about expenses and investment return.
The new standard changes the following aspects of the consolidated financial statements:
The unrestricted net asset class has been renamed Net Assets without Donor Restrictions;
The temporarily and permanently restricted net asset classes have been combined into a single net asset class called Net Assets with Donor Restrictions;
The consolidated financial statements include a disclosure about liquidity and availability of resources (Note 17);
Investment expenses are included in net investment income;
Additional disclosures related to underwater endowments (Note 12).
As a result of the adoption of ASU No. 2016-14, the following adjustment was made to net assets of the Organization as of July 1, 2018:
Unrestricted net assets as originally reported $ 6,040,290 Reclassification of underwater endowments 6,732,680
Net assets without donor restrictions $ 12,772,970
Temporarily restricted net assets as originally reported $ 19,524,234 Permanently restricted net assets as originally reported 47,142,286 Reclassification of underwater endowments (6,732,680)
Net assets with donor restrictions $ 59,933,840
New Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. During August 2015, the FASB issued ASU No. 2015-14, which defers the effective date of ASU No. 2014-09. During June 2020, the FASB issued ASU No. 2020-05, which further defers the effective date of ASU No. 2014-09 for certain entities. ASU No. 2014-09 is effective for fiscal years beginning after December 15, 2019. The Organization may elect to apply the guidance earlier, but no earlier than fiscal years beginning after December 15, 2016. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Organization is currently assessing the effect that these standards will have on its consolidated financial statements.
12 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU No. 2016-02 is intended to improve financial reporting about leasing transactions by requiring organizations that lease assets - referred to as "lessees" - recognize on the statement of financial position the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. The amendments will require disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. During June 2020, the FASB issued ASU No. 2020-05, which further defers the effective date of ASU No. 2016-02 for certain entities. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2021. The Organization is currently assessing the impact this standard will have on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU No. 2016-18 is effective for nonpublic entities for fiscal years beginning after December 15, 2018, with early adoption permitted. ASU No. 2016-18 is to be applied retroactively with transition provisions. The Organization is currently assessing the impact that ASU No. 2016-18 will have on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The new guidance is intended to clarify and improve accounting guidance for contributions received and contributions made. The amendments in this ASU should assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) or as exchange (reciprocal) transactions subject to other guidance and (2) determining whether a contribution is conditional. ASU No. 2018-08 is effective for fiscal years beginning after December 15, 2018. The Organization is currently assessing the impact that ASU No. 2018-08 will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance will mandate various changes to the existing fair value disclosures. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019. The Organization is currently assessing the impact that ASU No. 2018-13 will have on its consolidated financial statements.
Subsequent Events
Management has evaluated subsequent events through June 18, 2020, the date the consolidated financial statements were available to be issued. See Note 16.
2. New Markets Tax Credit Transaction
In February 2012, the Seminary entered into a financing arrangement including a New Markets Tax Credit (NMTC) transaction (the Museum Transaction). The net proceeds of the Museum Transaction were used for the rehabilitation, development and construction of the historic Schmucker Hall and equipping it as the Seminary Ridge Museum. The Museum Transaction was facilitated through the creation of special- purpose entities, LTSP Landlord, LP (Landlord), LTSP Tenant LP (Tenant) and LTSP GP, LLC (GP), wholly-controlled subsidiaries of the Seminary. Significant components of the Museum Transaction financing are as follows:
13 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
Landlord obtained two loans totaling $14,161,000 from Commonwealth Cornerstone Group Ltd., XVI (CCG). CCG is the certified community development entity that facilitated the NMTC transaction. The loans were comprised of aggregate loan proceeds totaling $10,649,650 (Note A) and $3,511,350 from their investment in New Markets Tax Credits (Note B). Both Note A and Note B were guaranteed by the SRHPF and the Seminary and were collateralized by a mortgage, assignment of leases and rents, and a security agreement and fixture filing related to Landlord's interest in the Museum Project.
The SRHPF advanced proceeds totaling $10,649,650 from the proceeds of Note A to ULS through the Schmucker Hall Investment Fund, LLC (the Senior Loan). The note receivable bore interest at the rate of 1.00 percent with interest payments due quarterly through March 19, 2019.
On February 28, 2019, the Organization entered into certain transactions that resulted in the unwinding of the financing structure resulting from the Museum Transaction, including liquidation of Landlord, Tenant and GP. As a result of the acquisition by the Seminary of the general partner interests in these entities and the exercise of certain put options, the $10,649,650 Senior Loan, the $10,649,650 Note A and the $3,511,350 Note B were cancelled when the Seminary and its related party SRHPF acquired all of the lender and borrower interests in those loans. At that time, all related leases of Schmucker Hall from the Seminary to Landlord, Landlord to Tenant and Tenant to SRHPF were cancelled.
A summary of the assets and liabilities acquired by ULS as of June 30, 2019 is as follows:
Book Value Fair Value
Loan receivable from Landlord (Loan A) $ 10,649,650 $ 10,649,650 Loan receivable from Landlord (Loan B) 3,511,350 -
Total assets 14,161,000 10,649,650
Note payable to SRHPF 10,649,650 10,649,650
Total $ 3,511,350 $ -
The transaction resulted in a gain on cancellation of indebtedness in the amount of $3,511,350 (Loan B), as this was forgiven by the debt holder. Upon liquidation, Landlord, Tenant and GP’s assets, liabilities and equity were transferred to the Seminary. The transfer has been accounted for as a change in legal organization as prescribed by FASB Accounting Standards Codification 805.
3. Receivables
Receivables are comprised of the following at June 30, 2019:
Rent $ 211,043 Employee 3,269 Interest 12,072 Other 32,056
Total $ 258,440
14 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
4. Investments and Fair Value
The Organization's assets measured at fair value on a recurring basis for each fair value hierarchy level are as follows at June 30, 2019:
Total Level 1 Level 2 Level 3
Investments: Cash and cash equivalents $ 26,240,093 $ 26,240,093 $ - $ - Mutual funds, equities 11,849,071 11,849,071 - - Mutual funds, fixed income 838,313 838,313 - - Equity securities 5,558,738 5,558,738 - - Bonds 372,953 363,455 9,498 - Diversifying equity funds 6,419,887 - - 6,419,887 Pooled investment fund 797,946 - - 797,946 ELCA Mission Investment Fund 328,092 - 328,092 - ELCA Endowment Pooled Trust 851,169 - 851,169 - Real estate comingled fund 4,908,381 - - 4,908,381 Real estate 1,295,000 - - 1,295,000
Total investments $ 59,459,643 $ 44,849,670 $ 1,188,759 $ 13,421,214
Beneficial interest in trusts held by others $ 17,648,371 $ - $ - $ 17,648,371
Charitable remainder trusts $ 1,129,635 $ - $ - $ 1,129,635
The following is a description of the valuation methodologies used for assets measured at fair value.
Cash and cash equivalents: The carrying value approximates fair value due to the short-term nature.
Mutual funds: Valued at fair value using prices for identical assets on the active markets on which the funds are traded.
Equity securities: Valued at closing price reported on the active market on which the individual securities are traded.
Bonds: Valued at the current unit values applied to the quantity held at the measurement date as reported in the active and inactive markets on which the securities are traded.
Real estate: Valued based on recent real estate appraisals.
15 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
The valuation techniques used for Level 3 investments include the market approach to evaluate the fair value of Level 3 investments based on transactions with other investors who are eligible to redeem funds, estimates of net realizable value by management of the funds, and appraisals for real estate funds.
Redemption Frequency (if Currently Redemption Fair Value Eligible) Notice Period
Multi-strategy hedge fund of funds (a) $ 5,922,547 Quarterly 70 days Calendar quarter Real estate commingled fund (b) 4,908,381 valuation dates 3 months Pooled private debt investment fund (c) 797,946 Quarterly 70 days Portfolio Advisors Secondary Fund III (d) 497,340 Quarterly 70 days Real estate (e) 1,295,000 n/a n/a
Total $ 13,421,214
(a) This class includes investments in a globally diversified, multi-strategy, multi-manager portfolio that allocates its assets to hedge fund managers who specialize in a wide range of alternative investment strategies. The fair values of the investments in this class have been estimated using the net asset value per share of the investments.
(b) This class is an open-ended commingled fund comprised of direct equity ownership of over 250 real estate properties across the United States. The fund is diversified both by property type (office, industrial, apartments, retail, hotel and storage) and by geography. Redemptions are on calendar quarter valuation dates with three month's prior written notice. The fair value of each of the underlying properties is determined by appraisals which are conducted on a quarterly basis by independent third-party appraisers in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). Property level debt is also accounted for at fair value based on the amount at which the impact of the liability could be measured in a current transaction exclusive of direct transaction costs.
(c) This class is a private debt limited partnership fund comprised of privately-originated, performing senior secured debt primarily in North America-based, middle-market companies. The fund's investments are carried at amounts that equal or approximate their fair values. The Organization has committed total capital of $1,000,000, with unfunded commitments totaling $201,568 as of June 30, 2019.
(d) This class is a private equity secondary limited partnership fund comprised of interests in mature private equity limited partnerships that have been purchased on the secondary markets. The fund's investments are carried at amounts that equal or approximate their fair values. The Organization has committed total capital of $1,000,000, with unfunded commitments totaling $500,476 as of June 30, 2019.
(e) This class includes directly owned real estate valued based on recent real estate appraisals. These real estate appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property) and the cost approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available, if applicable. Although the fair value of the property normally will be based on an appraisal, the valuation should be consistent with the price that a market participant will pay to purchase the property at the measurement date. Circumstances may exist that indicate that the appraised value is not an accurate measurement of the property's current fair value. Examples of such circumstances include changed economic conditions since the last appraisal, stale appraisals, or imprecision and subjectivity in the appraisal process. Appraisal adjustments may be made by management to reflect these conditions resulting in a discount of the appraised value. 16 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
A reconciliation of the beginning and ending balances of the changes in the investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the year ended June 30, 2019:
Pooled Real Estate Diversifying Investment Commingled Equity Fund Fund Fund Real Estate Total
Investments: Beginning balance $ 6,213,377 $ 337,007 $ 4,769,865 $ 3,430,000 $ 14,750,249
Purchases 344,493 510,461 37,636 - 892,590 Proceeds - (41,906) - (2,135,000) (2,176,906) Realized gains (losses) (65,941) 719 14,342 - (50,880) Unrealized gains (losses) (72,042) (8,335) 86,538 - 6,161
Ending balance $ 6,419,887 $ 797,946 $ 4,908,381 $ 1,295,000 $ 13,421,214
Investment income for the year ended June 30, 2019 consisted of the following:
Interest and dividends $ 1,244,897 Realized and unrealized gains, net 139,350 Investment expenses (138,183)
$ 1,246,064
Beneficial Interests in Trusts Held by Others
The Organization is also the beneficiary of beneficial interests in trusts held by others, from which the Organization receives income in perpetuity. The Organization's interest in irrevocable trusts is recorded as net assets with donor restrictions based on the fair value of the underlying assets of the trust, which represents a proxy for the discounted present value of future cash flows. A summary of the change in the fair value of the trusts is as follows:
Beneficial interests in trusts held by others: Beginning balance $ 17,037,087 Change in value of beneficial interests in trusts held by others 611,284
Ending balance $ 17,648,371
Charitable Remainder Trusts
The Organization is the beneficiary of certain remainder trusts and charitable gift annuities which will pay over the remainder interest to the Organization upon the occurrence of specific events. These gifts are recorded at their estimated present value using discount rates ranging from 1 percent to 11 percent. This revenue has been recorded in accordance with donor stipulations. The fair value of the trusts was $1,129,635 at June 30, 2019 and is included as a component of net assets with donor restrictions. A summary of the change in the fair value of the trusts is as follows:
Charitable remainder trusts: Beginning balance $ 1,090,851
Change in value of charitable remainder trusts 38,784
Ending balance $ 1,129,635
17 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
5. Property and Equipment
Property and equipment is comprised of the following at June 30, 2019:
Building and equipment $ 68,679,404 Library books 4,338,069
73,017,473
Accumulated depreciation (41,746,703)
31,270,770
Construction in progress 145,683 Land and land improvements 3,153,159
$ 34,569,612
Depreciation expense for year ended June 30, 2019 totaled $2,397,475.
6. Lines of Credit
The Seminary has an available $3,000,000 revolving line of credit. The balance on the line of credit was $3,000,000 as of June 30, 2019. Amounts due are payable on demand and carry interest at a rate of prime plus 0.50 percent, 5.75 percent as of June 30, 2019. The line is secured by a pledge agreement, consistent with the terms of PNC Bank loan as described below. The line of credit was refinanced subsequent to June 30, 2019. See Note 16.
The SRHPF has an available $750,000 revolving line of credit. The balance on the line of credit was $750,000 as of June 30, 2019. The credit line carries an interest rate based on Daily LIBOR plus 250 basis points, 4.89 percent as of June 30, 2019. The line is secured by the same collateral as the PNC Bank loan. The line of credit was refinanced subsequent to June 30, 2019. See Note 16.
7. Long-Term Debt
Long-term debt consists of the following at June 30, 2019:
ACNB Bank loan $ 409,197 PNC Bank loan 2,280,968 ELCA loan 9,288,511 Various vehicle loans 19,229
Total $ 11,997,905
The Seminary holds a term loan with ACNB Bank (ACNB). The terms of the loan require monthly principal and interest payments of $3,973 to December 2019. The interest rate was fixed at 4.29 percent until March 2013, at which time the rate was revised to the higher of the prime rate or 4.25 percent. The interest rate at June 30, 2019 was 5.00 percent. The loan is secured by the related real property. The loan was refinanced subsequent to June 30, 2019. See Note 16.
The Seminary and the SRHPF jointly obtained, as co-borrowers, a $3,288,400 term loan with PNC Bank. The loan requires monthly principal and interest payments of $18,456 through December 31, 2019. The interest rate is fixed at 4.11 percent for the entire term of the loan. This loan was made to fund the Seminary Ridge Museum Project. The loan was refinanced subsequent to June 30, 2019. See Note 16.
18 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
LTSP holds a mortgage loan payable to the Evangelical Lutheran Church in America's (ELCA) Mission Investment Fund. The terms of the loan require monthly principal and interest payments of $46,976 at a rate of 3.0 percent through February 2022. At March 1 2022, 2027, 2032 and 2037, the interest rate can be reset at the discretion of the lender. The monthly payment is subject to change by the effect of the change in the interest rate. All unpaid principal and interest is due in March 2042. The mortgage is secured by the related real property. The loan was refinanced subsequent to June 30, 2019. See Note 16.
Subsequent to the refinancing of long-term debt and lines of credit, as disclosed in Note 16, the future scheduled maturities of long-term debt are as follows as of June 30:
2020 $ 377,820 2021 472,519 2022 493,612 2023 515,645 2024 538,663 Thereafter 13,349,646
Total $ 15,747,905
8. Net Assets
As of June 30, 2019, net assets with donor restrictions are available for the following purposes:
Not In Perpetuity In Perpetuity Total
Scholarships $ 3,560,669 $ 53,119,230 $ 56,679,899 Library books and expenses - 2,004,715 2,004,715 Instruction 2,160,338 7,171,537 9,331,875 Public service 650,753 289,865 940,618 Other activities of the Organization 5,952,001 9,235,140 15,187,141
$ 12,323,761 $ 71,820,487 $ 84,144,248
Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes for the year ended June 30, 2019:
Scholarships $ 2,208,150 Instruction 1,204,654 Other 160,612
$ 3,573,416
19 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
9. Concentrations
The Organization receives support from the ELCA through an affiliated cluster and its synods. This support totaled $1,357,365 for the year ended June 30, 2019.
As of June 30, 2019, one contribution accounted for approximately 88 percent of total contributions.
The Seminary participates in the Federal Direct Student Loans program through the United States Department of Education. These loans are certified by a Seminary official and awarded directly to qualifying students.
10. Retirement Plan
The Organization has a defined contribution retirement plan covering all full time employees. Employer contributions to the plan ranged from 6 percent - 10 percent of eligible compensation during the fiscal year ending June 30, 2019. The Organization pays the cost of the retirement plan. Retirement contributions were approximately $400,000 for the year ended June 30, 2019.
11. Related-Party Transactions
The Eastern Cluster of Lutheran Seminaries (ECLS) was created to "cluster" three eastern seminaries together, namely the Seminary, LTSP and The Lutheran Theological Southern Seminary. The combination of LTSP with the Seminary resulted in the ECLS facilitating projects for the two seminaries, rather than three. This had no material change on the operations of the ECLS. The ELCA supports the ECLS, which then allocates this support to the seminaries.
During the year ended June 30, 2019, the ECLS provided support of $480,896 to the Organization. In addition, the ECLS continues to administer grants for the benefit of the two seminaries by directly supporting programs of the seminaries or indirectly by administering a program for the ECLS which is beneficial to the mission of the ECLS and the seminaries. The ECLS remains an unconsolidated entity with respect to the Organization, since it has different funding sources and purpose from the Organization and the Organization does not have a controlling financial interest in ECLS.
A summary of the ECLS statements of financial position and activities as of June 30, 2019 is as follows:
Statement of Financial Position: Total assets $ 189,540
Total net assets $ 189,540
Statement of Activities: Total revenues without donor restrictions, other support and reclassification $ 878,570
Total program expenses 839,515 Total general and administrative expenses 9,127
Total expenses 848,642
Increase in net assets without donor restrictions 29,928
Decrease in net assets with donor restrictions (118,373)
Decrease in net assets $ (88,445) 20 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
12. Endowment
The Organization follows Pennsylvania Act 141 in regards to the donor restricted funds held in the endowment. Act 141 allows not-for-profits to elect a spending fund withdrawal rate based on a total return policy of 2-7 percent of the average fair value of the endowment assets over a period of three or more years or the actual investment income of the fund.
The Organization's long-term expectations are for an expected investment return of at least 8 percent. The Statement of Investment policy includes a net target spending withdrawal rate of 4 percent to 5 percent. However, this spending rate is sometimes insufficient to meet programmatic cash flow needs, in which case the Board of Trustees can authorize an additional budgeted spending amount.
From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the original gift amount maintained as donor restricted net assets in perpetuity. Management has interpreted state law to permit prudent spending from underwater endowments.
Cumulative amounts borrowed from the endowment fund for operating purposes totaled approximately $5,200,000 as of June 30, 2019. All inter-fund or inter-entity borrowings are eliminated in the accompanying consolidated financial statements. Subsequent to June 30, 2019, the Seminary executed an interest-bearing promissory note payable to LTSP for the repayment of $3,700,000 of this amount, and subsequent to that, the note was paid in full with proceeds from debt refinancing. See note 16.
The endowment is comprised of the following as of June 30, 2019:
Without With Donor Restrictions Donor Accumulated Restrictions Original Gift Gains (Losses) Total
Board designated funds $ 3,739,952 $ - $ - $ 3,739,952 Donor restricted funds: Funds with deficiencies - 36,729,071 (8,071,947) 28,657,124 Other funds - 35,061,524 1,988,698 37,050,222
Total $ 3,739,952 $ 71,790,595 $ (6,083,249) $ 69,447,298
Changes in board designated and donor restricted endowment funds by net asset type for the year ended June 30, 2019 are as follows:
Without Donor With Donor Restrictions Restrictions Total
Balance, June 30, 2018 $ 4,279,702 $ 40,382,178 $ 44,661,880
Investment returns, net of fees (288,446) 1,554,053 1,265,607 Contributions 73,696 25,371,115 25,444,811 Appropriation of endowment assets for expenditures (325,000) (1,600,000) (1,925,000)
Balance, June 30, 2019 $ 3,739,952 $ 65,707,346 $ 69,447,298
21 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
13. Contingencies
The Organization is aware of certain remainder trusts for which the information necessary to record the present value of the gifts is not available at this time. These gifts (and the associated investments and annuity liabilities) have not been recorded in the consolidated financial statements as of June 30, 2019.
14. Operating Leases
The Organization has entered into an operating lease agreement for copiers and related accessories. The agreement calls for 60 monthly payments of $3,270, which includes a $770 monthly charge for service and usage and expires March 2022. Rent expense for the year ended June 30, 2019 was $39,240. The future minimum lease payments are as follows:
Years ending June 30: 2020 $ 39,240 2021 39,240 2022 32,700
Total $ 111,180
15. Operating Leases, Lessor
The Seminary has entered into lease agreements with Gettysburg College (the College) to lease certain residential dormitories and apartments to the College through June 2019, with renewal options to extend through June 2021. The agreement has currently been extended through June 2020.
16. Subsequent Events
Subsequent to June 30, 2019, the Organization executed a formal promissory note between ULS and LTSP for amounts borrowed from the endowment, of approximately $3,700,000, payable in twenty-five quarterly installments, and bearing an interest rate of 4 percent.
On May 1, 2020, the Organization secured a loan totaling $19,237,000 from the ELCA Mission Investment Fund. The terms of the loan require monthly principal and interest payments of approximately $106,000 at a rate of 4.375 percent through April 1, 2045. This loan consolidates all external debt and outstanding lines of credit of the Organization and pays in full the internal $3,700,000 promissory note that ULS owes to LTSP. The loan is collateralized by all the real property on the Philadelphia and Gettysburg campuses owned by the Organization.
Also on May 1, 2020, the Organization obtained a line of credit in the amount of $2,000,000 from the Mission Investment Fund. This line of credit matures April 1, 2021 and is at a rate of 4.25 percent. The line may be extended on an annual basis by the borrower if certain conditions are met, principally that any borrowings on the line are paid down to $0 annually. This line is also collateralized by all the real property on the Philadelphia and Gettysburg campuses owned by the Organization. No borrowings have been made on this line of credit.
The COVID-19 outbreak in the United States has caused disruption to traditional methods of educational delivery through mandated and voluntary closings of college campuses. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration of the closings. Therefore, the Organization has considered the possibility that this matter will negatively impact its operating results in the year subsequent to June 30, 2019. However, the related financial impact and duration cannot be reasonably estimated at this time.
22 United Lutheran Seminary and Subsidiaries Notes to Consolidated Financial Statements June 30, 2019
In response to COVID-19, ULS and SRHPF have applied for and received loan proceeds under the Payroll Protection Program as provided by the Coronavirus Aid, Relief and Economic Security Act (the Act) totaling approximately $1.1 million in April 2020. The Organization intends to use these loan proceeds for payroll and related costs, and expects the loan amounts to be forgiven under the terms of the Act in 2020.
17. Liquidity and Availability of Resources
The following reflects the Organization's financial assets as of the statement of financial position date, reduced by amounts not available for general use because of contractual or donor-imposed restrictions within one year of the statement of financial position date. Amounts available include the board-approved appropriation from the endowment fund for the following year.
Financial assets: Cash and cash equivalents $ 390,711 Receivables and unconditional promises to give 1,774,390 Investments 59,459,643 Beneficial interests in trusts held by others and charitable remainder trusts 18,778,006
Financial assets at year-end 80,402,750
Approved endowment income in support of operations 3,600,000
Less those unavailable for general expenditures within one year due to contractual obligation or donor restriction: Receivables expected to be received after one year 1,000,000 Donor-restricted endowments and accumulated earnings 65,707,346
Financial assets available to meet cash needs for general expenditures within one year $ 18,295,404
The Organization’s practice is to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. Although the Organization does not intend to spend from its board-designated endowment other than amounts appropriated for general expenditure as part of its annual budget approval and appropriation process, amounts from the Organization board-designated endowment could be made available if necessary. In addition, as indicated in Note 16, the Organization secured a line of credit subsequent to year end with an available amount of $2,000,000, which could be drawn upon to manage such liquidity needs.
23 United Lutheran Seminary and Subsidiaries Consolidating Schedule of Financial Position June 30, 2019
The United Lutheran Seminary The Seminary Lutheran Ridge Theological Historic ULS Seminary at Preservation Luther Operations Philadelphia Total Foundation Institute Eliminations Total Assets
Cash and cash equivalents $ 310,045 $ 68,788 $ 378,833 $ 10,870 $ 1,008 $ - $ 390,711 Accounts receivable, net 25,612 232,061 257,673 1,392 - (625) 258,440 Unconditional promise to give, net 10,200 - 10,200 5,750 - - 15,950 Due from related parties 957,000 3,849,091 4,806,091 - - (4,806,091) - Other assets 110,193 30,943 141,136 33,701 - - 174,837 Beneficial interests in trusts held by others 17,648,371 - 17,648,371 - - - 17,648,371 Investments 49,902,200 9,557,443 59,459,643 - - - 59,459,643 Charitable remainder trusts 416,029 713,606 1,129,635 - - - 1,129,635 Note receivable 1,500,000 - 1,500,000 - - - 1,500,000 Property and equipment, net 17,305,876 17,045,509 34,351,385 218,227 - - 34,569,612
Total assets $ 88,185,526 $ 31,497,441 $ 119,682,967 $ 269,940 $ 1,008 $ (4,806,716) $ 115,147,199
Liabilities and Net Assets
Liabilities Lines of credit $ 3,000,000 $ - $ 3,000,000 $ 750,000 $ - $ - $ 3,750,000 Accounts payable 96,840 67,248 164,088 61,630 - - 225,718 Other liabilities 197,696 17,550 215,246 492 - - 215,738 Due to related parties 447,566 3,402,150 3,849,716 957,000 - (4,806,716) - Long-term debt 428,426 9,288,511 9,716,937 2,280,968 - - 11,997,905 - Total liabilities 4,170,528 12,775,459 16,945,987 4,050,090 - (4,806,716) 16,189,361
Net Assets 84,014,998 18,721,982 102,736,980 (3,780,150) 1,008 - 98,957,838
Total liabilities and net assets $ 88,185,526 $ 31,497,441 $ 119,682,967 $ 269,940 $ 1,008 $ (4,806,716) $ 115,147,199
24 United Lutheran Seminary and Subsidiaries Consolidating Schedule of Activities Year Ended June 30, 2019
The United Lutheran Seminary The Seminary Lutheran Ridge Theological Historic ULS Seminary at Preservation Luther Operations Philadelphia Total Foundation Institute Eliminations Total
Revenues and Other Support Tuition and fees $ 2,872,605 $ - $ 2,872,605 $ - $ - $ - $ 2,872,605 Less scholarships (2,032,804) - (2,032,804) - - - (2,032,804)
Net tuition and fees 839,801 - 839,801 - - - 839,801
Church appropriations: Eastern Cluster of Lutheran Seminaries 480,896 - 480,896 - - - 480,896 Synods 876,469 - 876,469 - - - 876,469 Grants - - - 7,940 - - 7,940 Contributions 28,126,779 102,530 28,229,309 140,772 - - 28,370,081 Endowment investment return designated for current operations 1,250,000 675,000 1,925,000 - - - 1,925,000 Auxiliary enterprises 300,486 264,774 565,260 - - - 565,260 Rental income 328,604 1,136,673 1,465,277 - - (950,000) 515,277 Other income 210,861 1,825 212,686 347,853 - (127,000) 433,539
Total revenues and other support 32,413,896 2,180,802 34,594,698 496,565 - (1,077,000) 34,014,263
Expenses Instruction 3,550,014 871,121 4,421,135 - - (278,635) 4,142,500 Academic support 2,148,369 260,619 2,408,988 - - (167,200) 2,241,788 Student services 669,024 77,309 746,333 - - (90,725) 655,608 Institutional support 3,232,861 444,991 3,677,852 - - (194,877) 3,482,975 Advancement 978,359 50,211 1,028,570 - - (33,060) 995,510 Community activities 213,289 71,464 284,753 - - (23,940) 260,813 Auxiliary enterprises 1,223,800 880,950 2,104,750 - - (309,605) 1,795,145 Museum operations - - - 1,175,806 - (127,000) 1,048,806
Total expenses 12,015,716 2,656,665 14,672,381 1,175,806 - (1,225,042) 14,623,145
Change in net assets from operating activities 20,398,180 (475,863) 19,922,317 (679,241) - 148,042 19,391,118
Nonoperating Income (Expense) Gain (loss) on forgiveness of debt 13,638,902 - 13,638,902 (10,127,552) - - 3,511,350 Endowment investment return net of amounts designated for current operations 307,219 (703,319) (396,100) - - (148,042) (544,142) Other investment gains (losses) (214,675) - (214,675) 79,881 - - (134,794) Net gain on beneficial interests in trusts held by others and charitable remainder trusts 611,888 38,180 650,068 - - - 650,068 Gain on sale of property 3,377,428 - 3,377,428 - - - 3,377,428
Change in net assets from nonoperating activities 17,720,762 (665,139) 17,055,623 (10,047,671) - (148,042) 6,859,910
Change in net assets 38,118,942 (1,141,002) 36,977,940 (10,726,912) - - 26,251,028
Net Assets, Beginning 45,896,056 19,862,984 65,759,040 6,946,762 1,008 - 72,706,810
Net Assets, Ending $ 84,014,998 $ 18,721,982 $ 102,736,980 $ (3,780,150) $ 1,008 $ - $ 98,957,838
25 United Lutheran Seminary Schedule of Expenditures of Federal Awards Year Ended June 30, 2019
Federal CFDA Federal Federal Grantor/Program or Cluster Title Number Expenditures
Student Financial Assistance Cluster
U.S. Department of Education Federal Direct Student Loans 84.268$ 917,690
Total expenditures of federal awards $ 917,690
See notes to schedule of expenditures of federal awards 26 United Lutheran Seminary and Subsidiaries Notes to Schedule of Expenditures of Federal Awards Year Ended June 30, 2019
1. Basis of Accounting
The accompanying schedule of expenditures of federal awards (the Schedule) presents the expenditures of all federal awards programs of United Lutheran Seminary and Subsidiaries (the Organization) using the accrual basis of accounting. The Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this Schedule may differ from certain financial reports submitted to governmental or other funding agencies. Because the Schedule presents only a selected portion of the operations of the Organization it is not intended to and does not present the financial position, changes in net assets or cash flows of the Organization.
2. Student Financial Assistance Programs
The total loans granted under the Federal Direct Student Loan Program, which were not made by the Organization but were received by its students, were approximately $918,000 for the year ended June 30, 2019.
3. Indirect Costs
The Organization has not elected to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance.
27 Independent Auditors' 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
To the Board of Trustees of United Lutheran Seminary and Subsidiaries
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of United Lutheran Seminary and Subsidiaries (the Organization), which comprise the consolidated statement of financial position as of June 30, 2019, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated June 18, 2020
Internal Control Over Financial Reporting
In planning and performing our audit of the consolidated financial statements, we considered the Organization's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization'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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's consolidated 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 and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify a deficiency in internal control, described in the accompanying schedule of findings and questioned costs as item 2019-001 that we consider to be a material weakness.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Organization's consolidated financial statements are free from 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.
Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP 28 The Organization's Response to Findings
The Organization's response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The Organization's response was not subjected to the auditing procedures applied in the audit of the consolidated financial statements and, accordingly, we express no opinion on it.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Pittsburgh, Pennsylvania June 18, 2020
29 Independent Auditors' Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance
To the Board of Trustees of United Lutheran Seminary and Subsidiaries
Report on Compliance for the Major Federal Program
We have audited United Lutheran Seminary and Subsidiaries' (the Organization) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the Organization's major federal program for the year ended June 30, 2019. The Organization's major federal program is identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs.
Management's Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal program.
Auditors' Responsibility
Our responsibility is to express an opinion on compliance for the Organization's major federal program 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 financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform 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 effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Organization'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 its major federal program. However, our audit does not provide a legal determination of the Organization's compliance.
Opinion on the Major Federal Program
In our opinion, the Organization complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended June 30, 2019.
Other Matters
The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance and which are described in the accompanying schedule of findings and questioned costs as items 2019-003, 2019-004 and 2019-005. Our opinion on the major federal program is not modified with respect to this matter.
Baker Tilly Virchow Krause, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2018 Baker Tilly Virchow Krause, LLP 30 The Organization's Response to Findings
The Organization's response to the noncompliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The Organization's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.
Report on Internal Control Over Compliance
Management of the Organization is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Organization's internal control over compliance with types of requirements that could have a direct and material effect on its major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for its major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, 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 Organization's internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as discussed below, we identified a certain deficiency in internal control over compliance that we consider to be a material weakness and another deficiency that we consider to be a significant deficiency.
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 on a timely basis. A material weakness in internal control over compliance is a deficiency, or a 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 federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item 2019-002 to be a material weakness.
A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. We consider the deficiency in internal control over compliance described in the accompanying schedule of findings and questioned costs as item 2019-003 to be a significant deficiency.
The Organization's Response to Findings
The Organization's response to the internal control over compliance findings identified in our audit is described in the accompanying schedule of findings and questioned costs. The Organization's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.
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Purpose of This Report
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Pittsburgh, Pennsylvania June 18, 2020
32 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Section I - Summary of Auditors' Results
Consolidated Financial Statements
Type of auditors' report issued on whether the consolidated financial statements audited were prepared in accordance with GAAP: Unmodified
Internal control over financial reporting: Material weakness(es) identified? X yes no Significant deficiency(ies) identified? yes X none reported
Noncompliance material to consolidated financial statements noted? yes X no
Federal Awards
Internal control over major federal program: Material weakness(es) identified? X yes no Significant deficiency(ies) identified? X yes none reported
Type of auditors' report issued on compliance for major federal program: Unmodified
Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? X yes no
Identification of federal major program:
CFDA Number(s) Name of Federal Program or Cluster
Student Financial Assistance Cluster 84.268 Federal Direct Student Loans
Dollar threshold used to distinguish between Type A and Type B programs: $750,000
Auditee qualified as low-risk auditee? yes X no
33 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Section II - Financial Statement Finding
Finding 2019-001: Internal Control Over Financial Reporting - Material Weakness (Repeat Finding)
Criteria: A system of internal control should be in place that provides reasonable assurance that the consolidated financial statements, including the schedule of expenditures of federal awards (SEFA), are complete and accurate.
Condition: There was a lack of internal controls over the year-end financial reporting process. Material misstatements were discovered during the course of the audit and we, as your auditors, prepared the Organization's consolidated financial statements as a non-attest service. However, management reviewed, approved and accepted responsibility for the consolidated financial statements and SEFA prior to their issuance.
Cause: Lack of internal controls is due to a high degree of turnover in key financial reporting staff positions at the Organization. In conjunction with this turnover, the Organization has chosen to have its auditors prepare its consolidated financial statements.
Effect: The Organization's financial records and may be materially misstated before the annual audit is completed. In addition, the consolidated financial statements are not available to the Organization until they are completed by the auditors.
Recommendation: Policies and procedures related to the year-end financial reporting process should be reviewed to determine whether improvements to accuracy and timeliness of financial information are feasible. Management and the governing board or board designated committee should continue to make reasonable effort to be knowledgeable about the Organization's financial condition and financial reporting requirements.
Views of Responsible Official(s): Management agrees with this finding and reaffirms its responsibility to prepare consolidated financial statements in accordance with accounting principles generally accepted in the United States of America on a timely basis. A new CFO was hired in February 2020 and a new Staff accountant with financial statement expertise was hired in April 2020. These two individuals will lead the financial statement close process for the fiscal year ending June 30, 2020 with the support of experienced department personnel. See management's corrective action plan.
34 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Section III - Federal Award Findings and Questioned Costs
Finding 2019-002: Internal Control over Compliance - Material Weakness
Federal Program - Student Financial Assistance Cluster, Federal Direct Loan Program
Federal Agency - U.S. Department of Education
Pass-Through Entity - Not applicable
CFDA Number - 84.268
Federal Award Year - June 30, 2019
Criteria: Title IV regulations (34 US Code of Federal Regulations (CFR) 668.16) requires recipients of Federal awards to administer its Federal programs with an adequate system of internal controls over applicable compliance requirements.
Condition: There was not an adequate system of controls in place that would have prevented or detected potential material noncompliance matters within the Activities Allowed or Unallowed, Eligibility, and Special Tests and Provisions (related to Return of Title IV Funds, Enrollment Reporting and Federal Direct Loan Disbursements) compliance requirement areas.
Cause: The Office of Student Financial Aid is comprised of a single employee who performs all of the required calculations, reconciliations, and other related compliance work for the Activities Allowed or Unallowed, Eligibility, and Special Tests and Provisions compliance requirement areas. For the entire year, there was no review of this employees work.
Effect: The potential exists that noncompliance could occur in the Activities Allowed or Unallowed, Eligibility and Special Tests and Provisions compliance areas and not be detected by the by the Organization's internal controls over compliance.
Questioned Costs: There were no questioned costs associated with this finding.
Recommendation: The Organization should implement review procedures over the applicable compliance areas by an independent individual who is knowledgeable about the compliance requirements and ensure employees have adequate time and resources to perform the compliance work within the required timeframes.
Views of Responsible Official(s): Management agrees with this finding and understands the critical nature of a review function in an internal control environment. The financial aid function is being restructured and external financial aid consultants have been engaged to assume responsibilities for certain aspects of the financial aid process. See management's corrective action plan.
35 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Finding 2019-003: Late Enrollment Reporting - Significant Deficiency
Federal Program - Student Financial Assistance Cluster, Federal Direct Loan Program
Federal Agency - U.S. Department of Education
Pass-Through Entity - Not applicable
CFDA Number - 84.268
Federal Award Year - June 30, 2019
Repeat of Prior Year Finding 2018-002
Criteria: Title IV regulations (34 CFR 685.309(b)) require that upon receipt of an enrollment report from the Secretary, institutions must update all information included in the report and return the report to the Secretary: (i) in the manner and format prescribed by the Secretary; and (ii) within the timeframe prescribed by the Secretary. Unless it expects to submit its next updated enrollment report to the Secretary within the next 60 days, an institution must notify the Secretary within 30 days after the date the institution discovers that: (i) a loan under Title IV of the Act was made to or on behalf of a student who was enrolled or accepted for enrollment at the institution, and the student has ceased to be enrolled on at least a half-time basis or failed to enroll on at least a half-time basis for the period for which the loan was intended; or (ii) a student who is enrolled at the institution and who received a loan under Title IV of the Act has changed his or her permanent address.
Condition: The change in student status for 1 of 3 students tested was not reported to the National Student Loan Data System (NSLDS) within 30 days or included in a response to a roster file within 60 days. However, the students were ultimately reported to the NSLDS. The sample not a statistically valid sample.
Cause: The Organization's procedures for reporting all students was not designed appropriately in order to allow for timely reporting to the NSLDS.
Effect: The accuracy of Title IV student loan records depends heavily on the accuracy of the enrollment information reported by schools. If an institution does not review, update, and verify student enrollment statuses, effective dates of the enrollment status, and the anticipated completion dates, then the Title IV student loan records will be inaccurate.
Questioned Costs: There were no questioned costs associated with this finding.
Recommendation: The Organization should revise its procedures to ensure accurate enrollment information is sent to the NSLDS within the required timeframe.
Views of Responsible Official(s): Management agrees with this finding and understands the critical nature of timely enrollment reporting. The financial aid function is being restructured and external financial aid consultants have been engaged to assume responsibilities for certain aspects of the financial aid process. See management's corrective action plan.
36 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Finding 2019-004: Lack of Quality Assurance Program for Federal Direct Loans
Federal Program - Student Financial Assistance Cluster, Federal Direct Loan Program
Federal Agency - U.S. Department of Education
Pass-Through Entity - Not applicable
CFDA Number - 84.268
Federal Award Year - June 30, 2019
Criteria: The Organization is required to implement and document a quality assurance process to ensure it is complying with Federal Direct Loan Program requirements and meeting program objectives (34 CFR 685.300(b) (9)).
Condition: The Organization has not implemented and thus has no documentation of such a program.
Cause: The Organization has not developed this program requirement.
Effect: Federal Direct Loans could potentially be incorrectly awarded.
Questioned Costs: There were no questioned costs associated with this finding.
Recommendation: The Organization should research the suggested guidelines disclosed by the U.S. Department of Education in the IFAP Electronic announcement posted November 13, 2013 detailing the requirements of a Direct Loan Quality Assurance program and implement a program as soon as possible.
Views of Responsible Official(s): Management agrees with this finding and understands the critical nature of a quality assurance program for the federal loan program. The financial aid function is being restructured and external financial aid consultants have been engaged to assume responsibilities for certain aspects of the financial aid process. See management's corrective action plan.
37 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Finding 2019-005: Timely Submission of Single Audit Reporting Package
Federal Program - Federal Direct Loan Programs
Federal Agency - U.S. Department of Education
Pass-Through Entity - Not applicable
CFDA Number - 84.268
Federal Award Year - June 30, 2019
Criteria: According to the requirements of Title 2 CFR Part 200.512 of Uniform Guidance requirements, the single audit reporting package must be submitted the earlier of 30 days after receipt of the auditors' report, or 9 months after the end of the fiscal year.
Condition: The Organization's fiscal year 2018 single audit reporting package was not submitted within the required timeframe.
Cause: The single audit reporting package was not completed and submitted until after the deadline of 9 months after the Organization's fiscal year end.
Effects: Untimely reporting hinders the awarding agencies ability to monitor recipients of federal awards.
Identification of Questioned Costs: There were no questioned costs associated with this finding.
Recommendation: The Organization should establish policies and procedures over the completion and submission of the single audit reporting package to ensure compliance with Uniform Guidance requirements.
Views of Responsible Official(s): Management agrees with this finding and acknowledges its responsibility for timely submission of the data collection form. The Financial department reorganization and upgrade, coupled with the Financial Aid function evaluation currently underway is expected to ensure future submissions to be made on a timely basis. See management's corrective action plan.
38 United Lutheran Seminary and Subsidiaries Schedule of Findings and Questioned Costs Year Ended June 30, 2019
Section IV - Summary of Prior Year Audit Findings
Finding 2018-001: Internal Control over Financial Reporting - Preparation of Financial Statements
Condition and Criteria: Accounting personnel lacked the expertise necessary to prepare consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). This resulted in a delay in completion of the consolidated financial statements and delay in completion of the data collection form for the year ended June 30, 2018.
Status: This condition was present again in the current year, and is noted as finding 2019-001.
Finding 2018-002: Federal Program: Student Financial Assistance Cluster, Federal Direct Student Loans
Federal Agency - Department of Education
CFDA - 84.268
Condition and Criteria: An institution is required to notify the National Student Loan Data System (NSLDS) within thirty days of when it discovers that a student who received student loans did not enroll or ceased to be enrolled on at least a half-time basis, unless it expects to submit an enrollment report within the next sixty days (34 CFR section 685.309). NSLDS was not notified in a timely manner for seven withdrawn students out of a sample of seven students.
Status: This condition was present again in the current year, and is noted as finding 2019-003.
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Finding 2019-001 CAP – Internal Control Over Financial Reporting The organization reaffirms its responsibility to prepare financial statements in accordance with US generally accepted accounting principles on a timely basis. The restructuring of operational responsibilities and the replacement of personnel took longer than anticipated. A new CFO (Buff Carlson) was hired in February 2020 and a new Staff accountant (Rhonda Shupp) with financial statement expertise was hired in April 2020. These two individuals will head up the financial statement close process for the fiscal year ended 6/30/2020 with the support of experienced department personnel with the goal of closing the fiscal year and having financial statements available to issue by November 30, 2020.
Finding 2019-002 CAP – Internal Control Over Compliance Requirements The organization understands the critical nature of a review function in an internal control environment. As part of our reevaluation of the Financial Aid function with our Financial Aid consultants FA Solutions, overseen by Kiran Sebastian (Dean), we are building this function in the process and are exploring ways for technology to make the process more effective and efficient. Our plan is to have this new system in place by the beginning of our School Year in August, 2020. FA Solutions will be taking the lead on this project.
Finding 2019-003 CAP – Late Enrollment Reporting Timely reporting of changes in student status to the National Student Loan Data System (NSLDS) is recognized by the organization as an important compliance requirement. We are building this requirement into our redesigned Financial Aid program, including an appropriate control component to ensure timely compliance. As part of this program we are exploring the way technology can enhance the compliance and control functions. Don Redman, Director of IT is responsible for the Technology. The expectation is that this new system will be in place by the beginning of our School Year in August, 2020. FA Solutions is responsible for the overall System design.
Finding 2019-004 CAP – Lack of a Quality Assurance Program for Federal Direct Loans The organization recognizes the need to implement and document a quality assurance program to ensure it is complying with Federal Direct Loan requirements and meeting program objectives. We have obtained the US Department of Education guidelines detailing the requirements of the Direct Loan Quality Assurance program and are working with our consultant FA Solutions, who is overseen by Kiran Sebastian (Dean) to implement this program in our organization coincident with the beginning of our School Year in August, 2020.
Finding 2019-005 CAP – Timely Submission of Single Audit Reporting Package The Seminary acknowledges that the fiscal year 2018 Single Audit reporting package was not submitted within the required timeframe, 9 months after the fiscal year end of June 30th. The Financial department reorganization and upgrade, coupled with the Financial Aid function evaluation currently underway is expected to ensure future submissions to be made on a timely basis. Buff Carlson, CFO is charged with ensuring the Single Audit is submitted on a timely basis.
GETTYSBURG 61 Seminary Ridge | Gettysburg, PA 17325 PHILADELPHIA 7301 Germantown Avenue | Philadelphia, PA 19119
717-338-3000 | uls.edu | [email protected]