1. UNCF ICB 2015 CFO Institute Financial Statements & Financial Responsibility

2. Financial Statements & Financial Responsibility Session Objectives  Financial Statements  GAAP  Examples  USDE Composite Score  Formula/Example  Composite Financial Index (CFI) and Core Ratios  Formula/Example  UNCF Financial Indicators The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

3. Financial Statements  Complete Set of Financial Statements (FASB ASC 958-205-45-4)  Statement of Financial Position(FASB ASC 958-210-45)  Statement of Activities (FASB ASC 958-225-45)  Statement of Cash Flows(FASB ASC 958-230-45)  Notes to Financial Statements (FASB ASC 958-205-50) Online: fasb.org The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

4. Financial Statements Statement of Financial Position – Disclosures ( ASC 958-210-45&50 )  Liquidity of assets and liabilities by sequencing or by presenting classified statement  Totals should be presented for current assets and current liabilities when presenting classified statement  Assets/liabilities aggregated into homogeneous groups  Info. about donor restrictions resulting in temp./perm. restricted net assets The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

5. Financial Statements Statement of Financial Position – Disclosures ( ASC 958-210-45&50 )  Categories of receivables shown separately, such as A/R, pledge receivables, student receivables  Assets (e.g. cash) with donor imposed restrictions limiting use to long-term purposes shown separately from similar assets available for current use.  Separate line item for “Cash” or “Cash equivalents.” The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

6. Financial Statements Statement of Activities – Disclosures ( ASC 958-225-45&50; 958-720-45 )  The amount of unrestricted revenue/support by major category  The amount of temporarily restricted revenue/support by major source  The amount of permanently restricted revenue/support by major source  Report expenses as decreases in unrestricted net assets The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

7. Financial Statements Statement of Activities – Disclosures ( ASC 958-225-45&50; 958-720-45 )  Report expenses by functional or natural classification  Change in net assets by class and in total The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

8. Financial Statements Statement of Cash Flows – Disclosures ( ASC 958-230-55 )  Accounting policy for determining items treated as cash/cash equivalent should be disclosed  Cash receipts/payments must be classified as operating, investing and financing activities and reported separately.  The net effect of cash flows and cash equivalents should be shown to allow a reader to reconcile beginning and ending cash/cash equivalents. The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

9. Financial Statements Statement of Cash Flows – Disclosures ( ASC 958-230-55 )  Separate disclosure of noncash investing and financing activities  If indirect method is used, the amounts of interest paid, excluding capitalized amounts, should be disclosed  Items reconciling change in net assets to cash flows from operating activities should include separately all major classes of operating items The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

10. Financial Statements Pending Changes FASB Exposure Draft—Comment Deadline: Aug. 20, 2015  Proposed Accounting Standards Update would significantly change existing financial reporting model.  Net asset classification  Liquidity information  Statement of activities  Presentation of operating cash flows The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

11. Financial Statements Examples  Berea College  Barnard College  North Central College The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

12. Financial Statements  Example #1 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

18. Financial Statements  Example #2 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

22. Financial Statements  Example #3 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

27. Financial Statements  Best Practices Sample College The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

31. USDE Composite Score  Financial Responsibility Composite Scores  Section 498(c) of the Higher Education Act of 1965  Requires institutions to annually submit audited financial statements to the USDE to demonstrate financial responsibility necessary to participate in the Title IV programs.  A composite of three ratios derived from the audited financial statements is used to gauge the institution’s financial responsibility.  primary reserve ratio  equity ratio  net income ratio The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

32. USDE Composite Score  Reflects the overall relative financial health of institutions on a scale from -1.0 to 3.0.  A score greater than or equal to 1.5 indicates the institution is considered financially responsible.  A score of less than 1.5 but greater than or equal to 1.0 is considered financially responsible, but requires additional oversight of the institution.  A score less than 1.0 is considered not financially responsible. However, an institution with a score less than 1.0 may continue to participate in the Title IV programs under provisional certification. The institution is also subject to cash monitoring requirements and must post a letter of credit. The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

33. USDE Composite Score Primary Reserve Ratio = Expendable Net Assets Total Expenses Equity Ratio = Modified Net Assets Modified Assets Net Income Ratio = Change in Unrestricted Net Assets Total Unrestricted Revenue The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

34. USDE Composite Score Primary Reserve Ratio = Expendable Net Assets Total Expenses BARNARD COLLEGE Expendable Net Assets = 184,480 + Unrestricted Net Assets 86,499 + Temporarily Restricted Net Assets 145,718 – Annuities, term endowments, life income funds (temp. restr.) 0 – Intangible assets 0 – Property, plant and equipment net of depreciation 142,781 + Post-employment and retirement liabilities 18,045 + All debt obtained for long-term purposes 76,999 (PPE > LTD) – Unsecured related-party receivables 0 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

35. USDE Composite Score Primary Reserve Ratio = Expendable Net Assets Total Expenses BARNARD COLLEGE Primary Reserve Ratio = 1.311 Expendable Net Assets = 184,480 Total Expenses = 140,684 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

36. USDE Composite Score Equity Ratio = Modified Net Assets Modified Assets BARNARD COLLEGE Modified Net Assets = 378,909 + Unrestricted Net Assets 86,499 + Temporarily Restricted Net Assets 145,718 + Permanently Restricted Net Assets 146,692 – Intangible assets 0 – Unsecured related-party receivables 0 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

37. USDE Composite Score Equity Ratio = Modified Net Assets Modified Assets BARNARD COLLEGE Modified Assets = 500,765 + Total Assets 500,765 – Intangible assets 0 – Unsecured related-party receivables 0 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

38. USDE Composite Score Equity Ratio = Modified Net Assets Modified Assets BARNARD COLLEGE Equity Ratio = 0.756 Modified Net Assets = 378,911 Modified Assets = 500,765 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

39. USDE Composite Score Net Income Ratio = Change in Unrestricted Net Assets Total Unrestricted Revenue BARNARD COLLEGE Net Income Ratio = 0.010 Change in UR Net Assets = 1,453 Unrestricted Revenue = 139,195 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

40. USDE Composite Score Ratio Result x Strength Factor SF Score Primary Reserve Ratio = 1.311 10 13.11 Equity Ratio = 0.756 6 4.54 Net Income Ratio = 0.010 (1+ (50 x Result) 1.52 (Min -1 * Max 3) Weighted Ratio SF Score WeightScore Primary Reserve Ratio = * 3.00 40% 1.20 Equity Ratio = * 3.00 40% 1.20 Net Income Ratio = 1.52 20% 0.30 Composite Score = 2.70 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com BARNARD COLLEGE

41. USDE Composite Score Ratio Result x Strength Factor SF Score Primary Reserve Ratio = 1.311 10 13.11 Equity Ratio = 0.756 6 4.54 Net Income Ratio = 0.010 (1+ (50 x Result) 1.52 (Min -1 * Max 3) Weighted Ratio SF Score WeightScore Primary Reserve Ratio = * 3.00 40% 1.20 Equity Ratio = * 3.00 40% 1.20 Net Income Ratio = 1.52 20% 0.30 Composite Score = 2.70 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com Financial Responsibility Composite Score Scale: 1.5 – 3.0 Institution demonstrates overall financial health 1.0 – 1.4 Institution demonstrates minimal financial health; additional monitoring is needed in the areas of viability, liquidity and/or profitability. -1.0 -.9 Institution demonstrates relative weakness in fundamental elements of financial health (viability, liquidity and/or profitability). BARNARD COLLEGE

42. Composite Financial Index and Core Ratios  Financial Component of an Institution's Well-being  Developed by KPMG/Prager, McCarthy & Sealy to measure financial performance.  Used to assist institutions:  understand the affordability of strategies  monitor financial results of implemented initiatives  Combines four core ratios in a manner similar to the Composite Score (i.e. applies strength factor and weight).  Net Operating Revenues Ratio  Return on Net Assets Ratio  Primary Reserve Ratio  Viability Ratio The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

43. Composite Financial Index and Core Ratios  Reflects the overall relative financial health of institutions on a scale from -4.0 to 10.0.  CFI of 3 indicates that the institution is relatively financially healthy. This may be attained by achieving the following targets on core ratios (that yield each a Strength Factor of about 3):  Net Operating Revenues of 2%  Return on Net Assets of 6%  Primary Reserve of 0.40x  Viability of 1.25x The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

44. Composite Financial Index and Core Ratios Reflects the overall relative financial health of institutions on a scale from -4.0 to 10.0.  CFI of 3 indicates that the institution is relatively financially healthy. This may be attained by achieving the following targets on core ratios (that yield each a Strength Factor of about 3):  Net Operating Revenues of 2.00% ÷ 0.70% = 3 * x 10% = 0.30  Return on Net Assets of 6.00% ÷ 2.00% = 3 x 20% = 0.60  Primary Reserve of 0.40x ÷ 0.133x = 3 x 35% = 1.05  Viability of 1.25x ÷ 0.417x = 3 * x 35% = 1.05 Composite Financial Index 3.00 * Rounded up The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

45. Composite Financial Index and Core Ratios CORE RATIOS Net Operating Revenues = Excess of UR Operating Revenues Unrestricted Operating Revenues Return on Net Assets = Change in Net Assets. Total Net Assets Beginning of Year Primary Reserve Ratio = Expendable Net Assets Total Expenses Viability Ratio = Expendable Net Assets Long Term Debt The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

46. Composite Financial Index and Core Ratios Net Operating Revenues = Excess of UR Operating Revenues Unrestricted Operating Revenues BARNARD COLLEGE Net Operating Revenues Ratio = -1.1% Excess (Deficiency)of UR Operating Revenues = -1,489 Unrestricted Operating Revenues= 139,195 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com Target 2%

47. Composite Financial Index and Core Ratios Return on Net Assets = Change in Net Assets Total Net Assets Beginning of Year BARNARD COLLEGE Return on Net Assets Ratio = 12.8% Change Net Assets = 42,932 Total Net Assets Beginning of Year = 335,977 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com Target 6%

48. Composite Financial Index and Core Ratios Primary Reserve Ratio = Expendable Net Assets Total Expenses BARNARD COLLEGE Primary Reserve Ratio = 1.2x Expendable Net Assets = 166,435 Total Expenses = 140,684 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com Target 0.4x

49. Composite Financial Index and Core Ratios Viability Ratio = Expendable Net Assets Long Term Debt BARNARD COLLEGE Viability Ratio = 2.2x Expendable Net Assets = 166,435 Long Term Debt = 76,999 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com Target 1.25x

50. Composite Financial Index and Core Ratios Ratio Result / SF____ SF Score_ Net Operating Revenues = -1.1% 0.7% -1.5 Return on Net Assets = 12.8% 2.0% 6.4 Primary Reserve Ratio = 1.2x 0.133x 9.0 Viability Ratio = 2.2x 0.417x 5.2 (Min -4 Max 10) Weighted Ratio Score x Weight Score. Net Operating Revenues = -1.5 10% -0.2 Return on Net Assets = 6.4 20% 1.3 Primary Reserve Ratio = 9.0 35% 3.2 Viability Ratio = 5.2 35% 1.8 Composite Financial Index = 6.1 The Wesley Peachtree Group, CPAs ____________ wpg-inc.com BARNARD COLLEGE

51. The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

52. UNCF Financial Indicators Report III The Wesley Peachtree Group, CPAs ____________ wpg-inc.com  Financial Ratios  37 Member Institutions  Five Years  41 Ratios  Sent Via Email July 13, 2015  To Presidents & CFOs A Study Conducted by WPG

53. Closing Comments QUESTIONS? The Wesley Peachtree Group, CPAs ____________ wpg-inc.com

54. Cr.FA, FCPA, CGMA Senior Vice President Keith X. Terrell, CPA The Wesley Peachtree Group, CPAs UNCF ICB 2015 CFO Institute Financial Statements & Financial Responsibility THANK YOU Contact: (404) 874-0555 keith@wpg-inc.com