MASSACHUSETTS INSTITUTE OF TECHNOLOGY REPORTS ON THE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS IN ACCORDANCE WITH OMB CIRCULAR A-133 FOR THE YEAR ENDED JUNE 30, 2011 MASSACHUSETTS INSTITUTE OF TECHNOLOGY Reports on the Audit of Federal Financial Assistance Programs in Accordance with OMB Circular A-133 For the Year Ended June 30, 2011 ______________________________________________________________________ __ Table of Contents I. Financial Reports Report of Independent Auditors (PricewaterhouseCoopers - PwC)………………….. 2 Basic Financial Statements of the Institute for the Year Ended June 30, 2011………. 4 II. Schedule of Expenditures of Federal Awards Schedule of Expenditures of Federal Awards for the Year Ended June 30, 2011 …... 33 Notes to the Schedule of Expenditures of Federal Awards………………………….. 35 Appendices to the Schedule of Federal Awards…………………………………….. 37 III. Reports on Internal Control and Compliance and Summary of Auditors’ Results Report of Independent Auditors 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 (PwC)…………… 241 Report of Independent Auditors on Compliance with Requirements that could have a Direct and Material Effect on each Major Program (Except Lincoln Lab) and on Internal Control over Compliance in Accordance with OMB Circular A-133 (PwC)………………………………………………………………………………… 243 Schedule of Findings and Questioned Costs (PwC)…………………………………. 247 Summary Schedule of Prior Audit Findings (PwC)…………………………….…… 251 Management Response to Schedule of Findings and Questioned Costs……………. 252 Report on MIT Lincoln Laboratory’s Compliance with Requirements Applicable to its Research and Development Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133, for the Year Ended June 30, 2010 (DCAA)………………………………………………………………. 257 SECTION I FINANCIAL REPORTS Report of Independent Auditors To the Audit Committee of the Massachusetts Institute of Technology In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of activities and cash flows present fairly, in all material respects, the financial position of the Massachusetts Institute of Technology (the “Institute”) as of June 30, 2011 and 2010, and the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Institute's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In accordance with Government Auditing Standards, we have also issued our report dated September 15, 2011 on our consideration of the Institute'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 for the year ended June 30, 2011. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. PricewaterhouseCoopers LLP, 125 High Street, Boston, MA 02110 T: (617) 530 5000, F: (617) 530 5001, www.pwc.com/us 2 Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying Schedule of Expenditures of Federal Awards, including the related Appendices A, B, and C, is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects, in relation to the basic consolidated financial statements taken as a whole. September 15, 2011 3 Massachusetts Institute of Technology Statements of Financial Position at June 30, 2011 and 2010 (in thousands of dollars) 2011 2010 Assets Cash ...................................................................... $ 131,221 $ 133,973 Accounts receivable, net ...................................................... 261,206 203,116 Pledges receivable, net, at fair value............................................. 422,965 412,310 Contracts in progress, principally U.S. Government ............................... 68,411 68,344 Deferred charges, inventories and other assets .................................... 70,127 54,306 Student notes receivable, net .................................................. 49,757 49,496 Investments, at fair value...................................................... 12,199,451 9,913,877 Minority interests ........................................................... 282,041 230,433 Retirement plan asset-overfunded status ......................................... 113,715 18,841 Land, buildings & equipment (at cost $3,406,169 for June 2011; $3,208,140 for June 2010), net of accumulated depreciation .............................................. 2,451,479 2,327,810 Total assets.............................................................. $ 16,050,373 $ 13,412,506 Liabilities and Net Assets Liabilities: Accounts payable, accruals and other liabilities .................................... $ 366,161 $ 309,098 Liabilities due under life income fund agreements, at fair value....................... 84,225 74,256 Minority interests ........................................................... 282,041 230,433 Deferred revenue and other credits ............................................. 123,215 112,516 Advance payments ........................................................... 389,253 362,147 Borrowings................................................................. 2,467,825 1,728,526 Government advances for student loans.......................................... 33,754 33,590 Accrued benefit liabilities ..................................................... 198,209 237,635 Total liabilities ........................................................... 3,944,683 3,088,201 Net Assets: Unrestricted................................................................ 4,603,280 3,759,301 Temporarily restricted........................................................ 5,044,519 4,463,066 Permanently restricted ....................................................... 2,457,891 2,101,938 Total net assets .......................................................... 12,105,690 10,324,305 Total liabilities and net assets ............................................... $ 16,050,373 $ 13,412,506 The accompanying notes are an integral part of the financial statements. 4 financial statements 11 Massachusetts Institute of Technology Statements of Activities for the years ended June 30, 2011 and 2010 (in thousands of dollars) Unrestricted Temporarily Restricted 2011 2010 2011 2010 Operating Activities Operating Revenues: Tuition and similar revenues, net of discount of $240,299 in 2011 and $230,269 in 2010 ............ $ 253,478 $ 238,301 $ – $ – Research revenues: Direct........................................ 1,250,388 1,172,406 – – Indirect ...................................... 196,818 197,197 – – Total research revenues.......................... 1,447,206 1,369,603 – – Gifts and bequests for current use .................... 111,114 108,674 – – Fees and services . 198,971 162,300 – – Other programs................................... 87,133 70,439 – – Investment income ................................ 117,004 99,669 – – Net gains on investments, distributed ................. 379,793 459,138 – – Auxiliary enterprises ............................... 100,135 96,015 – – Net asset reclassifications and transfers ................ 55,813 58,964 – – Total operating revenues............................ 2,750,647 2,663,103 – – Operating Expenses: Salaries and wages ................................. 1,006,458 967,190 – – Employee benefits ................................. 223,568 181,116 – – Supplies and services ............................... 898,284 811,780 – – Subrecipient agreements............................ 120,977 117,442 – – Utilities, rent, and repairs ........................... 131,539 144,201 – – Depreciation ....................................