SAN DIEGO CHRISTIAN COLLEGE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2014 SAN DIEGO CHRISTIAN COLLEGE TABLE OF CONTENTS YEAR ENDED JUNE 30, 2014 INDEPENDENT REPORT FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION STATEMENT OF ACTIVITIES STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS INDEPENDENT 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 INDEPENDENT REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS SCHEDULE OF FINDINGS AND QUESTIONED COSTS 17 19 22 23 24 ?m CliftonLarsonAllen LLP CLAconnect.com CliftonLarsonAllen INDEPENDENT REPORT Board of Directors San Diego Christian College El Cajon, California We have audited the accompanying financial statements of San Diego Christian College (the College), which comprise the statement of financial position as of June 30, 2014, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management?s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of 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 financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors? judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity?s preparation and fair presentation of the 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. An trucpermm member of Nana International (1 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF FINANCIAL POSITION JUNE 30, 2014 ASSETS CURRENT ASSETS Cash and Cash Equivalents 1,186,533 Student and Other Accounts Receivable, Net of Allowance of $597,753 659,226 Inventory 5,629 Current Portion of Pledges Receivable 73,100 Prepaid Expenses and Other Assets 206,278 Total Current Assets 2,130,766 NONCURRENT ASSETS Investments 914,771 Pledges Receivable - Net of Current Portion 27,845 Student Loans 206,572 Property and Equipment - at Cost, Net 14,192,417 Total Noncurrent Assets 15,341,605 Total Assets 17,472,371 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts Payable 2,001,619 Accrued Expenses 267,013 Amounts Held for Others 270,699 Deferred Revenue 777,144 Capital Lease Payable 68,015 Notes Payable - Current Portion 428,051 Total Current Liabilities 3,812,541 LONG-TERM LIABILITIES Notes Payable - Net of Current Portion 9,662,044 Deposits Payable 74,500 Other Liabilities 32,858 Capital Lease Payable 129,720 Perkins Loan Liability 178,685 Total Long-Term Liabilities 10,077,807 Total Liabilities 13,890,348 NET ASSETS Unrestricted: Undesignated (1,360,039) Net Investment in Property and Equipment 3,904,587 Total Unrestricted 2,544,548 Temporarily Restricted 414,748 Permanently Restricted Scholarship Endowments 622,727 Total Net Assets 3,582,023 Total Liabilities and Net Assets 17,472,371 See accompanying Notes to Financial Statements. (3) Board of Trustees San Diego Christian College Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of San Diego Christian College as of June 30, 2014, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis-of-Matter Regarding Restatement As discussed in Note 13 to the financial statements, certain errors resulted in restatement of amounts previously recorded for deferred revenue and net assets as of June 30, 2013. Accordingly, amounts reported for beginning net assets have been restated in the financial statements now presented. Our opinion is not modified with respect to that matter. Other Matters Other Information Schedule of Expenditures of Federal Awards Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The schedule of expenditures of federal awards, as required by US. Office of Management and Budget Circular A-133, Audit of States, Local Governments, and Non-Profit Organizations, is also presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the 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 March 31, 2015, on our consideration of San Diego Christian College's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the result of that testing, and not to provide an opinion on 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 San Diego Christian College?s internal control over financial reporting and compliance. WW CliftonLarsonAllen LLP San Diego, California March 31,2015 (2) Contributions Auxiliary Programs Investment Income, Net Gain/(Loss) on Disposal of Equipment Other Income Reclassification of Temporarily Restricted SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2014 SUPPORT, REVENUE, AND RECLASSIFICATIONS Tuition and Fees - Net of Discounts of $4,328,494 and $3,485,313, Respectively Net Assets Released from Donor Restrictions: Scholarships Missions Operating Projects Expiration of Time Restrictions Total Support, Revenue, and Reclassifications EXPENSES Instruction Student Services Auxiliary Services Academic Support Institutional Support Total Expenses CHANGES IN NET ASSETS Net Assets, Beginning of Year, before Restatements Restatements Net Assets. Beginning of Year. as Restated NET ASSETS, END OF YEAR Temporarin Permanently Unrestricted Restricted Restricted Total 16,451,911 - - 16,451,911 510,362 3,450 513,812 49,433 - - 49,433 120,991 38,695 2,853 162,539 (294,961) - (294,961) 369,978 - 369,978 17,207,714 38,695 6,303 17,252,712 105,418 (105,418) - 81 (81) - - 3,213 (3,213) 27,745 (27,745) - - 136,457 (136,457) - 17,344,171 (97,762) 6,303 17,252,712 6,189,694 6,189,694 5,079,097 - 5,079,097 879,983 - 879,983 6,517,633 6,517,633 1 ,000,129 - - 1 ,000,129 19,666,536 19,666,536 (2,322,365) (97,762) 6,303 (2,413,824) 5,136,230 512,510 616,424 6,265,164 (269,317) - - (269,317) 4,866,913 512,510 616,424 5,995,847 2,544,548 414,748 622,727 3,582,023 See accompanying Notes to Financial Statements. (4) NOTE 1 NOTE 2 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NATURE OF ORGANIZATION San Diego Christian College (the College) was incorporated in 1971 in California as a not- for-profit Christian college offering undergraduate degrees in religion, science, business, and liberal arts. The College is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code (the Code). It is also exempt from state income taxes. The College has been classified as a publicly supported organization, which is not a private foundation, under Section 509(a) of the Code. Contributions by the public are deductible for income tax purposes. Primary sources of income for the College include tuition and contributions. Accreditation The College is accredited by the Western Association of Schools and Colleges. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the College have been prepared on the accrual basis. A summary of significant accounting policies followed are described below to enhance the usefulness of the financial statements to the reader. MW For statements of financial position and cash flow purposes, cash and cash equivalents include cash on hand, cash on deposit, money market funds, and certificates of deposit with a maturity of less than 90 days that are not part of an investment pool or held for long-term purposes. Cash and cash equivalents accounts may, at times, exceed federally insured limits. The College has not experienced any losses in such accounts. Investments Investments consist of cash and cash equivalents that are part of an investment pool, fixed income church bonds, mutual funds, and stocks. Investments with readily determinable fair values and all investments in debt securities are measured at fair value in the statements of financial position. Accounts Receivable ang Student Loans Accounts receivable and student loans are reported net of any anticipated losses due to uncollectible accounts. The College?s policy for determining when receivables are past due is after an account becomes more than 10 days delinquent. Uncollectible accounts are reported as additions to the allowance for bad debts when it is determined the amounts will become uncollectible. Severely delinquent accounts are assigned to a collection agency and written off against the allowance. Management reserves the right to withdraw a student from the classroom if the student?s account becomes more than 10 days delinquent. Furthermore, a student will not be allowed to take final exams, re-enroll for a new semester, obtain a transcript, or graduate with an unpaid account. SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets (2,413,824) Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation 333,367 Realized and Unrealized (Gain) Loss on Investments (104,556) (Gain) Loss on Sale of Property and Equipment 294,961 Net Change in: Student and Other Accounts Receivable (465,789) Pledges Receivable 27,746 Inventory 21,907 Prepaid Expenses and Other Assets 72,927 Accounts Payable 1,630,142 Accrued Expenses 29,948 Deferred Revenue 454,735 Amounts Held for Others (196,458) Other Liabilities 9,400 Net Cash Used by Operating Activities (305,494) CASH FLOWS FROM INVESTING ACTIVITIES Land, Building, and Equipment Purchases (7,668,229) Purchases of Investments (11,031) Proceeds from Sale of Investments 144,925 Net Cash Used by Investing Activities (7,534,335) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Notes Payable 6,155,862 Payments on Notes Payable (154,813) Net Cash Provided by Financing Activities 6,001,049 NET DECREASE IN CASH AND CASH EQUIVALENTS (1,838,780) Cash and Cash Equivalents, Beginning of Year 3,025,313 CASH AND CASH EQUIVALENTS, END OF YEAR 1,186,533 SUPPLEMENTAL DISCLOSURE Cash Paid for Interest 321 z128 Noncash ltem - Capital Assets Acquired through Capital Lease 228,639 See accompanying Notes to Financial Statements. SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Receivable and Student Loans (Continued) The allowance for doubtful accounts is maintained at a level which, in management?s judgment, is adequate to absorb potential losses inherent in the receivable portfolio. The amount of the allowance is based on management?s evaluation of the collectability of the student accounts. However, for student loans under the Perkins Loan program, the allowance for doubtful accounts is based on management's evaluation of the collectibility of the loan portfolio and trends in historical loss experience. Loans assigned to the Department of Education are charged to the allowance in the year they are assigned. Inventory Inventory consists primarily of bookstore textbooks and other supplies that are valued at the lower of cost or market using the first-in, first-out method. Pledges Receivable Unconditional pledges are recognized as income when received and recorded at fair value based upon estimated future cash flows. No allowance for uncollectible amounts has been recorded for contributions receivable since the College's management expects to collect all pledges made by donors. At June 30, 2014, all pledges are expected to be collected within one year with the exception of the pledge noted in Note 11, so no discount was necessary. Property and quipment Expenditures over $1,000 for property and equipment are capitalized at cost. Donated items are recorded at fair market value on the date of the gift. Depreciation is computed on the straight?line method over the following estimated useful lives of the assets: Buildings and Improvements 5 to 40 Years Equipment 3 to 10 Years Library Books 3 to 25 Years Vehicles 10 Years Deferred Revenue The College records cash received for future services as deferred revenue. This revenue is recognized when services are provided. Deferred revenue consists primarily of unearned tuition. EM Each student who attends the College is required to make a $100 contingency deposit. Upon graduation, transfer, or other withdrawal from school the College is obligated to refund this to the student if the student requests the amount within 12 months from leaving the College. Many students do not request the refund and the College takes the unclaimed contingency deposits into income. SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Assets The financial statements report amounts by class of net assets: Unrestricted net assets are those currently available at the discretion of the board for use in the College?s operations and those resources invested in property and equipment. Temporarily restricted net assets are those which are stipulated by donors for specific operating purposes, time restricted pledges, or for specific projects. Permanent/y restricted net assets are those that represent permanent endowments where the donors have stipulated that the principal remain in perpetuity and earned income is expended in accordance with the endowment agreement. All contributions are considered available for unrestricted use unless specifically restricted by the donor or subject to legal restrictions. For contributions restricted by donors for the acquisition of property or other long-lived assets, the restriction is considered to be met when the property or other long-lived asset is purchased or expenses are incurred to construct the asset. Public Support, Revenue. and Expenses Contributions are recorded when cash or unconditional promises-to-give have been received or ownership of donated assets is transferred to the ministry. The College records contributions as temporarily restricted if they are received with donor stipulations that limit their use either through purpose or time restrictions, or both. When donor restrictions expire, that is when the purpose restriction is fulfilled or the time restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as released from donor restrictions. The College receives non-cash gifts which are recorded as support at the estimated fair market value on the date of the gift. Revenue is recorded when earned. Expenses are recorded when incurred in accordance with the accrual basis of accounting. Tuition revenue is earned as instruction is delivered. Traditional school terms end prior to fiscal year-end. For non-traditional programs, revenue is pro-rated between the fiscal years using the straight-line proportional method. (8) NOTE 3 NOTE 4 NOTE 5 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 INVESTMENTS (CONTINUED) Investment Income consists of the following for the year ended June 30, 2014: Interest and Dividends 57,983 Realized and Unrealized Gains 104,556 Total 162,539 STUDENT LOANS Student loans include loans made through the Perkins Loan Program. The loans stipulate that the federal government provide 75% of the total funds available with the College providing the remaining 25%. Student loans receivable balance is $206,572 as of June 30, 2014. The College is required to maintain separate bank accounts related to these loans. The balances in these accounts at June 30, 2014 totaled $26,812. These amounts are included in cash and cash equivalents on the statements of financial position. The total amount of the cash and net loans receivable as of June 30, 2014 was $233,384. The federal government's portion was $178,685 as of June 30, 2014 and is reflected as a liability on the College?s statements of financial position under the heading Perkins loan liability. PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30, 2014: Buildings 10,443,043 Leasehold Improvements 45,157 Equipment 2,015,823 Library Books 1,095,524 Vehicles 213,976 13,813,523 Less: Accumulated Depreciation (1,506,106) Land 1 ,885,000 Property and Equipment, Net of Depreciation 14,192,417 Less: Debt Secured by Property (10,090,095) Less: Capital Lease Liability on Equipment 1197,7352 Net Investment in Property and Equipment 3,904,587 (10) NOTE 2 NOTE 3 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Functional Allocation of Expenses The college expenses by functional classification in accordance with the overall mission of the College. Each functional classification displays most expenses related to the underlying natural classification. Interest expense on external debt is allocated to the functional categories which have benefited from the proceeds of the external debt. Plant operations and maintenance (stated separately) represents space related costs, including depreciation and lease expense, are allocated to the functional categories directly and/or based on the square footage occupancy. Fundraising costs for the year ended June 30, 2014 was $217,445 and are included in institutional support. The College had no joint costs for the year ended June 30, 2014. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Advertising The College advertises to promote their programs and to create awareness for their donors of projects occurring on campus, and to advertise job openings. Advertising costs are expensed as incurred. For the year ended June 30, 2014, advertising costs were $44,909. Income Taxes The College qualifies as a tax-exempt nonprofit organization under Section 501(c)(3) of the Internal Revenue Code and similar statutes of California law. The College is subject to federal income tax only on net unrelated business income under the provisions of Section 501 of the Internal Revenue Code. The College has evaluated its tax positions and determined it has no uncertain tax positions and has recorded no obligation for unrelated business income tax. No provisions for federal or state income taxes are required as of June 30, 2014. The College?s 2011 through 2013 tax years are open for examination by federal and state taxing authorities. INVESTMENTS Investments consist of the following at June 30, 2014: Cash Equivalents 45,144 Fixed Income Church Bonds 633,185 Mutual Funds 210,916 Common Stocks 25,526 Total 914,771 (9) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 7 TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30, 2014: Scholarships 104,744 Endowment for Scholarships 26,437 Missions 90,104 Other 15,380 Operating Projects 77,138 Time Restrictions 100,945 Total 414,748 NOTE 8 PERMANENTLY RESTRICTED NET ASSETS The College's endowments consist of two individual funds established for scholarships. Its endowments include donor restricted funds held in perpetuity. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The Board of Trustees of the College has interpreted the State Prudent Management of Institutional Funds Act (SPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the College classifies as permanently restricted net assets the original value of gifts donated to the permanent endowment, the original value of subsequent gifts to the permanent endowment, and accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted or board designated net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by SPMIFA. In accordance with SPMIFA, the board of trustees considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 0 The purposes of the College and the donor-restricted endowment fund 0 The investment policies of the College, including guidance contained in the donor stipulations Priorities of needs of the College 0 General economic conditions (12) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 8 PERMANENTLY RESTRICTED NET ASSETS (CONTINUED) NOTE 9 ?pending Policv and How the Investment Obiectives Related to Spending Policv The income derived from contributions to any endowment fund shall be distributed at such times as the board of trustees may determine for the purposes specified for the fund, and the board of trustees may, in its sole discretion, resolve any ambiguities or questions of interpretation which may arise with respect to such purposes. Distributions shall ordinarily be made out of the College?s funds from income only so that the corpus of the fund may be preserved and maintained as an endowment. However, unless otherwise provided in an applicable endowment fund agreement, the board of trustees may make distributions from the corpus of any fund for purposes consistent with those of the fund. The distribution policy for each endowment is as follows, the San Diego Christian College Endowment with 75% of the income available to support scholarships and 25% of the income added to principal and the Argue-Johnson Family Endowed Scholarship with income up to 5% available for scholarships and any excess income added to principal. FAIR VALUE MEASUREMENTS The College uses appropriate valuation techniques to determine fair value based on inputs available. When available, the College measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value. Level 1 inputs are based on quoted prices in active markets for identical assets. Level 2 inputs are based on similar assets based on significant other observable inputs. Level 3 inputs are based on significant unobservable inputs. Level 3 inputs are only used when Level 1 or Level 2 inputs were not available. Fair values of assets measured on a recurring basis at June 30, 2014 are as follows: June 30, 2014 Level 1 Level 2 Level 3 Investments: Fixed Income Church Bonds: Church Bonds 613,185 - 613,185 Money Market 20,000 20,000 - - Total Fixed Income Church Bonds 633,185 20,000 613,185 Common Stocks: Commercial 15,393 15,393 Energy 10,133 10,133 Total Common Stocks 25,526 25,526 Mutual Funds - Global: Debt Fund 178,058 178,058 Pension Funds 32,858 32,858 Total Mutual Funds - Global 210,916 210,916 Total Investments 869,627 256,442 - 613,185 (14) NOTE 12 NOTE 13 NOTE 14 NOTE 15 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 COMMITMENTS AND CONTINGENCIES The College is subject to certain claims arising out of the ordinary course of business. Although it is not possible to predict the outcome of these claims, management believes they will not have a material effect on the financial condition of the College. RESTATEMENT The College has restated previously reported net assets as of the year ended June 30, 2013, to correct certain errors that occurred in the prior year. In prior years, deferred revenue was not recorded properly in accordance with GAAP. As a result of this restatement, previously reported unrestricted and total net assets decreased by $269,317 as follows: Unrestricted Total Net Assets - Beginning of Year, as Previously Reported 5,136,230 6,265,164 Restatement: Correct Deferred Revenue Balance (269,317) (269,317) Net Assets - Beginning of Year, as Restated 4,866,913 5,995,847 CAPITAL LEASES The College has acquired certain computer and copier equipment under lease agreements. The leases are accounted for as copier leases and expire at various dates. The future minimum lease payments are as follows for the years ending June 30: Year Endinq June 30, Amount 2015 79,034 2016 77,328 201 7 54,61 3 2018 8,096 Total Lease Payments 219,071 Less: Interest Portion 21,336 Total Minimum Lease Payments 197,735 The College has recorded the related assets acquired under the capital leases, which have a book value of $228,639 and the accumulated depreciation at June 30, 2014 is $22,864. SUBSEQUENT EVENTS The College has evaluated subsequent events through March 31, 2015, the date which the financial statements were available to be issued. (16) Board of Trustees San Diego Christian College Internal Control Over Financial Reporting (Continued) 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. We consider none of the deficiencies described in the accompanying schedule of findings and questioned costs to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether San Diego Christian College's 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. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying schedule of findings and questioned costs. San Diego Christian College?s Response to Findings San Diego Christian College?s response to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. San Diego Christian College?s response was not subjected to the auditing procedures applied in the audit of the 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 result of that testing, and not to provide an opinion on the effectiveness of San Diego Christian College's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering San Diego Christian College?s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. WW CliftonLarsonAllen LLP Minneapolis, Minnesota March 31, 2015 (18) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 6 NOTES PAYABLE Notes payable consist of the following at June 30, 2014: Description Amount Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $27,899 due Original due date is May 15, 2032, but is shown as current as of June 30, 2014 as the College was not in compliance with one of its debt covenants for fiscal year 2014. As of June 30, 2014, the variable interest rate was 4.93%. 3,955,631 Line of Credit borrowing payable to Chase Bank, secured by the Santee property, interest and principal payments of $33,292 due with a variable interest rate, due October 15, 2035. As of June 30, 2014, the interest rate was 5.52%. 4,800,000 Line of Credit borrowing payable to Chase Bank, secured by furniture and equipment on the Santee property, interest and principal payments of $22,921 due with a variable interest rate, due October 15, 2019. As of June 30, 2014, the interest rate was 5.42%. 1,200,000 Five vehicle loan payables on vans purchased during fiscal year 2014, secured by the vehicles, payments range from $873 to $879 are due through January 2017. The interest rates are 0.90%. 134,464 Total 10,090,095 Annual maturities are: Year Ending June 30, Amount 2015 428,051 2016 565,889 2017 575,132 2018 574,098 2019 605,315 Thereafter 7,341,610 Total 10,090,095 Loan Covenants In conjunction with its loans, the College is required to comply with certain reporting and ratio covenants. The College was not in compliance with all of the covenants as of June 30, 2014. (11) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 8 PERMANENTLY RESTRICTED NET ASSETS (CONTINUED) Endowment Net Asset Composition by Type of Fund as of June 30, 2014: Temporarily Permanently Restricted Restricted Total Donor Restricted Endowments 31,161 622,727 653,888 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2014: Temporarily Permanently Restricted Restricted Total Endowment Net Assets, Beginning of Year 26,437 616,424 642,861 Total Investment Return 8,574 2,853 11,427 Contributions - 3,450 3,450 Appropriation of Endowment Assets for Expenditure (3,850) - (3,850) Endowment Net Assets, End of Year 31 ,161 622,727 653,888 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor or SPMIFA requires the College to retain as a fund of perpetual duration. There were no deficiencies of this nature that are reported in unrestricted net assets. Return Obiectives and Risk Parameters The College has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets that the College must hold in perpetuity or for a donor-specified period(s). Strategies Emmved for Achieving Objectives To satisfy its long-term rate-of-return objectives, the College relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). (13) NOTE 9 NOTE 10 NOTE 11 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 FAIR VALUE MEASUREMENTS (CONTINUED) Valuation techniques: Fair values for common stocks are determined by reference to quoted market prices and other relevant information generated by market transactions. The fair value of mutual funds is based on quoted net asset values of the shares held by the College at year-end. The fair values of installment notes held as investments for which quoted market prices are not available are valued based on yields currently available on comparable notes of issuers with similar credit ratings. The fair value of fixed income church bonds are based on model-based techniques using significant assumptions that are not observable. These unobservable assumptions reflect estimates of assumptions that market participants would use. The fixed income church bonds are not readily available for liquidation. Accordingly, a discount for present value has been recorded and applied against the church bonds based on the expected future cash flow. Changes in valuation techniques: None. The following is a reconciliation of investments in securities for which significant unobservable inputs (Level 3) were used in determining value as of June 30, 2014: Gross Balance of Investment 1,000,000 Less: Principal Payments Received $198,196} 801,804 Less: Present Value Discount ?88,6192 Ending Balance 613,185 PENSION PLAN The College has a defined contribution pension plan covering all employees who have met certain service requirements. The College contributes 3% to 5% of participants? compensation annually. Contributions to the plan were $119,426 for the year ended June 30,2014. RELATED PARTY TRANSACTIONS During the year ended June 30, 2013, the president of the College made a $100,000 pledge to be paid $20,000 annually over five years. Management has decided not to discount the future payments on the pledge to present value since the present value discount is immaterial. The outstanding balance on the pledge at June 30, 2014 is $73,100. The College also receives gifts from Board members and employees. For the year ended June 30, 2014, the College received gifts of $105,852 and $12,100 from faculty and Board members, respectively. (15) ?m CliftonLarsonAllen LLP CLAconnect.com CliftonLarsonAllen INDEPENDENT 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 Board of Trustees San Diego Christian College San Diego, California 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 financial statements of San Diego Christian College, which comprise the statement of financial position as of June 30, 2014, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated March 31, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered San Diego Christian College'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 financial statements, but not for the purpose of expressing an opinion on the effectiveness of San Diego Christian College?s internal control. Accordingly, we do not express an opinion on the effectiveness of San Diego Christian College?s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph 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 were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. 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 financial statements will not be prevented, or detected and corrected on a timely basis. We consider of the deficiencies described in the accompanying schedule of findings and questioned costs findings 2014-001 and 2014-002 to be material weaknesses. Iixltk??iIOSAL An trucme member of New International (1 ?m CliftonLarsonAllen LLP CLAconnect.com CliftonLarsonAllen INDEPENDENT REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Trustees San Diego Christian College San Diego, California Report on Compliance for Each Major Federal Program We have audited San Diego Christian College?s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of San Diego Christian College's major federal programs for the year ended June 30, 2014. San Diego Christian College's major federal programs are 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 the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors? Responsibility Our responsibility is to express an opinion on compliance for each of San Diego Christian College?s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 San Diego Christian College's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of San Diego Christian College?s compliance. Opinion on Each Major Federal Program In our opinion, San Diego Christian College complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2014. An "unperth mam of New International (1 9) Board of Trustees San Diego Christian College San Diego Christian College?s response to the internal control over compliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. San Diego Christian College?s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. 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 result of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. WM 11;? CliftonLarsonAllen LLP Minneapolis, Minnesota March 31, 2015 (21) NOTE 1 SAN DIEGO CHRISTIAN COLLEGE NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2014 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards includes the federal grant activity of San Diego Christian College and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. (23) Board of Trustees San Diego Christian College Other Matters The results of our auditing procedures disclosed instances of noncompliance, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2014-003 through 2014-011. Our opinion on each major federal program is not modified with respect to these matters. San Diego Christian College?s response to the noncompliance findings identified in our audit are described in the accompanying schedule of findings and questioned costs. San Diego Christian College?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 San Diego Christian College 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 San Diego Christian College's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 San Diego Christian College?s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of 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. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section 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 were not identified. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, we identified certain deficiencies in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as finding numbers 2014-3 through 2014-11, we consider to be significant deficiencies. SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 B. FINDINGS - FINANCIAL STATEMENTS AUDIT 2014-001 Condition: Oversight of the Financial Reporting Process Generally, a federal award recipient is to have no material weaknesses or significant deficiencies in the design or operation of the internal control system, which could adversely affect the College?s ability to record, process, summarize and report financial data in the financial statements. We noted the absence of appropriate internal controls in the following areas: 0 The College's internal control system did not bring the accounting records into alignment with generally accepted accounting principles prior to the audit. Audit procedures identified adjustments to the financial statements which included, but are not limited to, a decrease of beginning net assets by $269,317 and the removal of material in-kind contributions. - In fiscal year 2014, the College incurred significant costs totaling $366,390 by credit card and department advances that were not reconciled and recorded by object in a timely manner. These costs should be actively reviewed and coded every month to ensure that the costs are properly incurred by the College and that financial reports can more accurately classify the activity for analysis. Criteria Management is responsible for establishing and maintaining internal controls in the financial reporting system and for the fair presentation of the financial position, change in net assets, cash flows, and disclosures in the financial statements, in conformity with US. generally accepted accounting principles (GAAP). Effect 0 Auditor-detected adjustments were material, individually and in the aggregate, to the financial statements. This also creates the risk that financial statements reviewed internally by governance throughout the year are not complete or in agreement with the year-end audited statements. 0 The un-coded costs were shown as Other Costs for both internal and external analysis, which makes proper analysis difficult and less effective. Cause of Condition The College experienced significant turnover in their finance and administrative roles. Review procedures were not properly in place to ensure all accounting records were in accordance with GAAP. They had not recently performed a detailed analysis of deferred revenue balances. (25) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2014 Federal Federal Federal Grantor/Program Title CFDA No. Expenditures STUDENT FINANCIAL AID CLUSTER Department of Education - Direct Programs Federal Direct Loan Program 84.268 7,729,990 Federal Pell Grant 84.063 2,080,075 Federal Supplemental Educational Opportunity Grant 84.007 49,573 Federal Work Study 84.033 29,012 Federal Perkins Loans 84.038 40,750 Total 99291400 (22) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2014 A. SUMMARY OF AUDIT RESULTS 1. The auditors' report expresses an unmodified opinion on the financial statements of San Diego Christian College. Two material weaknesses were identified during the audit of the financial statements of San Diego Christian College. No instances of material noncompliance were disclosed during the audit of the financial statements of San Diego Christian College. Nine significant deficiencies were disclosed related to the audit of the major federal award programs for San Diego Christian College. The auditors' report on compliance for the major federal award programs for San Diego Christian College expresses an unmodified opinion. Audit findings relative to the major federal award programs for San Diego Christian College are reported in Part of this schedule. The programs tested as major programs include: CFDA No. Various Program Student Financial Aid Cluster The threshold for distinguishing type A and programs was $300,000. San Diego Christian College was not determined to be a low risk auditee. SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 B. FINDINGS - FINANCIAL STATEMENTS AUDIT (CONTINUED) 2014-001 (Continued) Auditor Recommendation We recommend the College review its procedures around the preparation of the financial statements to ensure the balances, activities, schedules and disclosures are reported properly. The College should review the draft financial statements utilizing a disclosure checklist to ensure they are properly reported in accordance with GAAP. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: 0 We agree with the prior period adjustment associated with deferred revenue and have amended procedures to properly record deferred revenue. 0 We agree with the findings to record the in-kind donations for services and goods received. We have already addressed the operational workflow to address this item. We have retroactively performed the review and approval to record all in-kind donations. We agree with the findings regarding unreconciled credit card and advance expenses by object in a timely manner. The college has already taken the necessary actions required to address the submission of credit card and advance reconciliations. In addition we have retroactively performed supervisory review and approval of all credit card and advance reconciliations. Responsible party: Chief Financial Officer Planned completion date for corrective action plan: February 28, 2015 Plan to monitor completion of corrective action plan: Review with the Finance Committee at its next meeting. 201 4-002 Condition: Segregation of Duties Generally, a federal award recipient is to have no material weaknesses or significant deficiencies in the design or operation of the internal control system, which could adversely affect the College?s ability to record, process, summarize and report financial data in the financial statements. We noted that there was not proper segregation of Duties for journal entry posting and review, the handling and recording of cash receipts, and the recording and review of payroll. Criteria Adequate segregation is normally accomplished by assigning duties so that 1) no one person handles a transaction from beginning to end, and 2) incompatible duties between functions are not handled by the same person. In addition, a review of these completed duties should be performed by an individual independent of those functions. Whenever possible, efforts should be made to segregate duties. SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 B. FINDINGS - FINANCIAL STATEMENTS AUDIT (CONTINUED) 2014-002 (Continued) Effect If the segregation of duties is inadequate, there is a resulting risk that intentional fraud or unintentional errors could occur and not be detected on a timely basis. There was no noted fraud during fiscal year 2014 as a result of these inadequate segregation of duties. Cause of Condition The College experienced significant turnover in their finance and administrative roles. Procedures were not properly in place to ensure all transactions had adequate segregation of duties and independent reviews performed. Auditor Recommendation We have identified the following as specific recommendations for improving internal controls: 0 Review of Disbursements: We noted that there was no formal documentation of the review and approval of certain internal controls such as payroll transactions. Although we were advised that the College reviews and approves all payroll disbursements, we found no indication that these reviews had taken place. Documentation for this review should be retained with the payroll reports to indicate this control process has taken place. Such a procedure would strengthen overall controls over disbursements. 0 Journal Entries: During our audit, we noted that adjusting journal entries are being made to the trial balance on a regular basis. However, these adjustments are not being reviewed on a timely basis and/or approved by another individual. We suggest that all adjusting journal entries are reviewed on a basis by a member of management or the board and that written approval be documented and retained along with support for the entries. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: We agree that our disbursement policy should be formally documented with the source documents. We also believe that we have a thorough internal control process over disbursements such as payroll. The review and approval process is completely electronic. Management has retroactively addressed the concern to establish a documented review and approval process. - We believe that we have a thorough review and approval process for journal entries. Each journal entry is supported by a source document. The review and approval process is completely electronic in the college?s accounting system. Management has retroactively addressed the concern to establish a documented review and approval process. Responsible party: Chief Financial Officer Planned completion date for corrective action plan: February 28, 2015 Plan to monitor completion of corrective action plan: Review with the Finance Committee at its next meeting. SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 0. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-003 (Continued) Views of responsible officials andglanneg corrective actions (continued): The following measures were acted upon by Financial Director, as audit was taking place. Which is to say, the following actions precede receipt of the management letter noting irregularities and corresponding recommendations. Audit covered period which came before hiring of new more professional financial aid staff. Hiring and training of current SDC Financial Aid office staff inaugurated two weeks prior to the conclusion of audit range. Consequently, beginning May 12, 2014, SDC hired the following Financial Aid Staff: Mr. Daniel Reed, director; MS. Cassidy Mertens, financial aid traditional programs specialist; Mr. Jeremy Sukup, financial aid non-traditional programs and VA Specialist; Mrs. Faythe Blair, financial aid non-traditional and tracking and reporting systems management Specialist. Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. 2014-004: Student Financial Aid - Notification of Disbursements Condition During Student Financial Aid testing, it was noted that 20 of the 40 students tested did not receive disbursement notifications to notify them that their loan funds would be credited to their student accounts. In addition, we noted that 11 of the 40 students tested did not have updated award letters for changes in their student financial aid award amounts. The Department of Education requires notification be sent within 30 days to students when Direct Loans are disbursed to their accounts and the College obtains active confirmation. If the College does not obtain active confirmation, notifications are required to be sent within 7 days to the student when Direct Loans are disbursed to their accounts. Questioned Costs None noted. Possible Asserted Effect Students may not be aware that their loan funds were being credited to their accounts in a timely manner. SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 C. FINDINGS AND OUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT 2014-003: Student Financial Aid - Reporting Condition During Student Financial Aid testing, we noted 3 of 5 students tested were not reported to before the required deadline established by the Department of Education. Additionally, during our testing we noted that 2 of the 37 disbursements tested were not reported to COD before the required deadline established by the Department of Education. Criteria The Department of Education requires the College to report accurate information to the National Student Loan Data System in a timely manner, and requires errors in submissions to be corrected within 10 days. Additionally, the Department of Education requires the College to report the disbursement dates and amounts to the Common Origination and Disbursement (COD) system within 15 days of disbursing funds to a student. Questioned Costs None identified. Possible Assertec?ffect The College is not in compliance with the Department of Education requirements. Recommendation We recommend the College evaluate its procedures and policies around and COD reporting to ensure that student information is reported accurately and timely. Views of responsible officials and_planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: October 2014, Financial Aid was placed under the Vice President of Student Services. As the new chief administrator, the Vice President of Student Services hired an outside consultant to evaluate the and weaknesses, opportunities and threats, of SDC Financial Office. The consultant?s analysis, received November 2014, identified many present and potential concerns. After VP of Student Services reviewed consultant letter with the president and his cabinet, plans were constructed to implement several changes in the coming weeks, including. Gradually replacing all current Financial Aid staff with Financial Aid professionals; bringing all manual tracking and reporting processes to an end, as transitioning to FA software concluded; expanding staff to include non-traditional and VA financial aid professionals; reviewing and updating policy and procedure manual; modifying so as to strengthen review of data before actions such as loan initiations and refunds were initialized; cross-training all Financial Aid office staff; and improving collaboration between Financial Aid office and Student Accounts office. SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 0. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-005: Student Financial Aid - Perkins Due Diligence (Continued) Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. 2014-006: Student Financial Aid Federal Work Study Condition During Student Financial Aid testing, we noted that 2 of the 2 students received total earnings in excess of their award amount. In addition, we noted that 1 of the two students tested was not paid and have their supervisor approve their timecard. Per federal financial aid regulations, the College must take steps to resolve an overpayment of federal work study if the overpayment is in excess of $300. Additionally, the College is required by the Department of Education to pay students and have supervisor approval of their time cards. Questioned Costs $858 Possible Asserted Effect The College could potentially award students beyond their estimated financial need. In addition, the College did not comply with the federal regulations requiring students to be paid and have a supervisor approve their timecard. Recommendation We recommend the College strengthen its procedures relating to the awarding and tracking of students federal work study amounts in order to ensure compliance with federal regulations. (31) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 0. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-004: Student Financial Aid - Notification of Disbursements (Continued) Recommendation We recommend the College review its procedures for notifying students of their Direct Loan disbursements within the required time frame and that documentation of the letters sent iS maintained. In addition the College Should review their procedures to ensure the student has accepted their most recent award. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There iS no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. 2014-005: Student Financial Aid Perkins Due Diligence Condition During Student Financial Aid testing, we noted that 1 of the 4 students tested were not in repayment status and had not been sent to second collections in over 5 years. Per federal financial aid regulations, if the College or delegated collection agency cannot convert a defaulted account to a regular repayment status by the end of 12 months, the school must attempt to collect by using their own personnel or use a different collection agency than that was originally used. Questioned Costs None identified. Possible Asserted Effect The College is not in compliance with the Department of Education requirements regarding performing due diligence for Perkins loans. Recommendation We recommend the College strengthen its procedures relating to the tracking and assignment of default Perkins Loan accounts in order to ensure compliance with federal regulations. (30) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-006: Student Financial Aid Federal Work Study (Continued) Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above. Funds have been returned. Responsible party: Vice President of Student Services Planned completion date for corrective action plan: March 2015 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. 2014-007: Student Financial Aid - Verification Condition During Student Financial Aid testing, we noted that 6 of the 40 students did not have the required support retained in the student files. Criteria: Per federal financial aid regulations, the College is required to obtain supporting documentation and perform verification procedures for students selected by the Central Processing System (CPS). Supporting documents must be retained to support the results of students selected for verification. Questioned Costs None identified. Possible Asserted Effect The College did not either obtain or retain information to support the verification process. Documentation needs to be retained to show that the verification process was completed. Recommendation We recommend the College review the procedures surrounding the verification process to ensure all necessary support and documentation is obtained and retained in the student files. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. (32) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 c. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-008: Student Financial Aid Pell Disbursements Condition During Student Financial Aid testing, we noted that the College does not disburse Financial Aid funds until the College confirms the student?s attendance in their second class of their APS schedule. In addition, we noted that 1 of the 28 student?s tested did not receive their Pell award during the term it was awarded for. Per federal financial aid regulations, the College is required to disburse Financial Aid Funds in the term that the funds were awarded for. Questioned Costs None identified. Possible Asserted Effect The College is not in compliance with federal requirements regarding the time of disbursement of Financial Aid funds. Recommendation We recommend the College review the procedures for disbursing Financial Aid funds to ensure student awards are credited to their account during the term in which the funds were awarded for. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There iS no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. (33) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-010: Student Financial Aid Fiscal Operations Report and Application to Participate (FISAP) Condition During Student Financial Aid testing, we noted that the submitted Fiscal Operations Report and Application to Participate (FISAP) for the College did not include the correct amount Campus-Based funds awarded by the Department of Education. Criteria: Per federal financial aid regulations, the College is required report on their activities for Campus- Based Programs they participated in during the year. Questioned Costs None identified. Possible Asserted Effect The College is not in compliance with federal requirements regarding the reporting of their activities for Campus-Based Programs they participated in during the year. Recommendation We recommend the College review its procedures regarding the reporting of Campus-Based Programs on the FISAP. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. (35) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-009: Student Financial Aid ECAR Condition During Student Financial Aid testing, we noted that the ECAR for the College has not been updated to include the Teacher Certification Program. Criteria: Per federal financial aid regulations, the College is required update the ECAR during their next submission after self-determining the program is eligible for Financial Aid disbursements. Questioned Costs None identified. Possible Asserted Effect The College is not in compliance with federal requirements regarding the eligibility of programs to disburse Financial Aid funds. Recommendation We recommend the College review and update its ECAR. Views of responsible officials and planned corrective actions: Explanation of disagreement with audit finding: There is no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. (34) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED JUNE 30, 2014 c. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAMS AUDIT (CONTINUED) 2014-011: Student Financial Aid Entrance and Exit Counseling Condition During Student Financial Aid testing, we noted that one out of 39 did not have proper documentation Showing that entrance counseling was performed before loan funds were disbursed to the student. 5 out of 39 students tested did not have proper documentation that exit counseling was performed for a student that ceased enrollment. Per federal financial aid regulations, the College iS required to perform entrance counseling before disbursing loan funds to the student. The College iS also required to perform exit counseling for all students who cease enrollment at the school. Questioned Costs None identified. Possible Asserted Effect Not performing or retaining the required support for exit or entrance counseling could result in Students not being fully aware of the requirements of their debt which could result in a higher cohort default rate. Recommendation We recommend the College review its procedures surrounding counseling to ensure all students receive required counseling and the supporting documentation is retained in the student files. Views of responsible officials angplanned corrective actions: Explanation of disagreement with audit finding: There iS no disagreement with the audit finding. Actions planned in response to finding: See 2014-003 response above Responsible party: Vice President of Student Services Planned completion date for corrective action plan: October 2014 Plan to monitor completion of corrective action plan: Review with the CFO at their next meeting. D. SUMMARY SCHEDULE OF PRIOR YEAR SINGLE AUDIT FINDINGS AND QUESTIONED COSTS NONE (36)