SAN DIEGO CHRISITAN COLLEGE (A California Nonpro?t Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION AND INDEPENDENT REPORT YEAR ENDED JUNE 30, 2015 INDEPENDENT REPORT Board of Directors San Diego Christian College Santee, California We have audited the accompanying ?nancial statements of San Diego Christian College (the College), which comprise the statements of ?nancial position as of June 30, 2015 and the related statements of activities and changes in net assets and cash flows for the year then ended, and the related notes to the ?nancial statements. Management?s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these ?nancial 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 ?nancial statements that are free from material misstatement, whether due to fraud or error. Auditors? Responsibility Our responsibility is to express an opinion on these ?nancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to ?nancial 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 ?nancial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ?nancial statements. The procedures selected depend on the auditors? judgment, including the assessment of the risks of material misstatement of the ?nancial 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 ?nancial 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 signi?cant accounting estimates made by management, as well as evaluating the overall presentation of the ?nancial statements. We believe that the audit evidence we have obtained is suf?cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the ?nancial statements referred to above present fairly, in all material respects, the ?nancial position of San Diego Christian College as of June 30, 2015 and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF FINANCIAL POSITION JUNE 30, 2015 ASSETS Current assets: Cash and cash equivalents Student and other accounts receivable, net of allowance (Note 2e) Inventory Current portion of pledge receivable Prepaid expenses and other assets Total current assets Noncurrent assets: Investments (Note 3) Pledges receivable - net of current portion Student loans (Note 4) Property, equipment and library books, net (Note 5) Total noncurrent assets Total assets LIABILITIES AND NET ASSETS Current liabilities: Accounts payable Accrued expenses Deferred revenue Capital lease payable - current portion (Note 1 1) Notes payable - current portion (Note 6) Total current liabilities Long-term liabilities: Deposits payable Perkins loan payable Other liabilities Capital lease payable - net of current portion (Note 1 1) Notes payable - net of current portion (Note 6) Total long-term liabilities Total liabilities Net assets: Unrestricted Undesignated Net investment in property and equipment (Note 5) Total unrestricted Temporarily restricted (Note 7) Permanently restricted - scholarship endowments (Note 8) Total net assets Total liabilities and net assets See accompanying notes to ?nancial statements. -3- 1 17,258 1,804,704 10,486 74,055 1,118,814 3,125,317 833,656 20,000 131,572 13,893,] 89 14,878,417 2,433,815 251,677 851,292 70,540 565,889 4,173,213 76,730 178,685 13,237 57,189 9,101,702 9,427,543 13,600,756 (727,835) 4,097,869 3,370,034 400,904 632,040 4,402,978 18,003,734 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2015 Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash used for operating activities Depreciation (Increase) decrease in assets: Student and other account receivable Pledges receivable Inventory Prepaid expenses and other assets Student loans Increase (decrease) in liabilities: Accounts payable Accrued expenses Amounts held for others Deposits payable Deferred revenue Other liabilities Net cash used by operating activities Cash flows from investing activities: Purchase of property, equipment and library books Proceeds from sale of investments Net cash used in investing activities Cash flows from financing activities: Note payable - principal payments Capital lease payments Net cash used in ?nancing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplementary information: Cash Paid for interest See accompanying notes to ?nancial statements. -5- 820,955 627,199 (1,145,478) 6,890 (4,857) (912,536) 75,000 432,196 (15,336) (270,699) 2,230 74,148 (32,858) (343,146) (327,971) 94,352 (233,619) (422,504) (70,006) (492,510) (1,069,275) 1,186,533 SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Cash and Cash Equivalents The College considers cash on hand, cash on deposit, and investments with original maturities of ninety days or less at the time of purchase to be cash and cash equivalents. 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, ?xed 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 ?nancial position. Student and Other Accounts Receivable and Allowance for Doubtful Accounts Student and other accounts receivable and student loans are stated at unpaid balances, less an allowance for doubtful accounts. The amount of the allowance is based on management?s evaluation of the collectability of the student 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 doubtful accounts when it is determined the amounts will be uncollectible. Severely delinquent accounts are assigned to a collection agency and written off against the allowance. Management reserves the right to withdraw a student if their account becomes more than 10 days delinquent. Furthermore, a student will not be allowed to take ?nal exams, re- enroll for a new semester, obtain a transcript, or graduate with an unpaid account. The net student and other accounts receivable totaled $1,804,704 for the year ended June 30, 2015. The allowance for doubtful accounts was $679,254. Student loans under the Perkins Loan program, the allowance for doubtful accounts is based on management?s evaluation of the collectability 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. The Perkins Loan Program allowance for doubtful accounts totaled $75,000 for the year ended June 30, 2015. Property, Equipment and Library Books Property, equipment and library books acquired in excess of $1,000 and a life expectancy of more than one year are capitalized and stated at cost if purchased and at fair value if donated. Maintenance and repair costs are expensed as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are as follows: Equipment, furniture and ?xtures 3 - 10 years Building and improvements 5 - 40 years Library 3 - 25 years Vehicles 10 years 9 Depreciation expense charged to operations was $627,199 for the year ended June 30, 2015. -7- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued Functional Allocation of Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the Statement of Activities and in the Statement of Functional Expenses. Directly identi?able expenses are charged to programs and supporting services. Expenses related to more than one function are charged to programs and supporting services on the basis of periodic time and expense studies. Management and general expenses include those expenses that are not directly identi?able with any other speci?c function but provide the overall support and direction of The College. (0) Support and Revenue The College receives its revenue primarily from student tuition, private donations and the sale of textbooks. A signi?cant portion of revenue is received on behalf of students through federal and state loans and grants. Tuition is recognized as revenue during the applicable college quarter. Tuition received in advance of the quarter is recorded as deferred revenue until earned. Registration and other non-refundable fees are recognized when received. Contributions are recognized when the donor makes a promise to give to The College that is, in substance, unconditional. Conditional promises to give are recognized when the conditions upon which they depend are substantially met. Donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassi?ed to unrestricted net assets. Support from government grants and other sources are recognized when earned. Income Taxes The College is a quali?ed organization exempt from Federal income and California franchise taxes under the provisions of Sections 501(c)(3) of the Internal Revenue Code and 2370l(d) of the California Revenue and Taxation Code, respectively. Accordingly, no provision for income taxes has been made. During the ?scal year ended June 30, 2015, The College had no unrelated business income on which taxes would be due. Schedule of Expenditures of Federal Awards The Schedule of Expenditures of Federal Awards was prepared using the same accounting policies as applicable to The College and ?nancial statements as a whole. Use of Estimates The preparation of ?nancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the ?nancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. -9- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (6) NOTES PAYABLE Secured notes payable at June 30, 2015 were comprised of: 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. 3,812,652 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, 2015, the interest rate was 5.52%. 4,714,397 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, 2015, the interest rate was 5.42%. 1,057,759 Five vehicle loan payables on vans purchased during the 2014 ?scal year, secured by the vehicles, payments range from $873 to $879 due through January 2017. The interest rates are 0.90% 82,783 Total notes payable 9,667,591 Less: notes payable current portion $565,889! Total notes payable net of current portion 9,101,702 Future maturities of long-term debt are as follows: Year ended June 30, 2016 565,889 2017 575,130 2018 574,098 2019 605,315 20120 449,981 Thereafter 6,897,178 Total 9,667,591 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, 2015. -11- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2015 TABLE OF CONTENTS Page(s) Independent Auditor's Report Financial Statements: Statement of Financial Position 3 Statement of Activities and Changes in Net Assets 4 Statement of Cash Flows 5 Notes to the Financial Statements 6-16 Supplementary Information: Schedule of Expenditures of Federal Awards 18 Report on lntemal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .. 19-20 Report on Compliance with Requirements Applicable to Each Major Program and lntemal Control Over Compliance in Accordance with OMB Circular A-l33 21-23 Schedule of Findings and Questioned Costs 24?25 KPM Accounting Management Solutions 1351 California Street, #4 - San Francisco, CA 94109 Telephone 415.819.6718 SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (8) PERMANENTLY RESTRICTED NET ASSETS continued Endowment Net Asset Composition by Type of Fund as of June 30, 2015 Temporarily Permanently Restricted Restricted Total Donor restricted endowments 24,559 8 632,040 656,599 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2015: Temporarily Permanently Restricted Restricted Total Endowment net assets, beginning of year 31,161 622,727 653,888 Total Investment Return - 9,474 9,474 Appropriation for Expenditure (6,602) (161) (6,763) End of the year 24,559 632,040 656,599 Funds with De?ciencies From time to time, the fair value of assets associated with individual donor restricted endowment funds may fall below the level that the donor of 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-speci?ed period(s). Strategies Employed for Achieving Objectives To satisfy its long-term rate-of?retum 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- Board of Directors San Diego Christian College Other Matters Other Information Schedule of Expenditures of Federal Awards Our audits were conducted for the purpose of forming an opinion on the ?nancial statements as a whole. The accompanying schedule of expenditures of federal awards and the schedule of ?ndings and questioned costs, as required by US. Of?ce of Management and Budget Circular A- 133, Audits of States, Local Governments, and Non- Pro?t Organizations, are presented for purposes of additional analysis and are not a required part of the ?nancial 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 ?nancial statements. The information has been subjected to the auditing procedures applied in the audit of the basic ?nancial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the ?nancial statements or to the ?nancial 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 presented in all material respects in relation to the ?nancial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 8, 2015, on our consideration of the College?s internal control over ?nancial 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 ?nancial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over ?nancial reporting or 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 ?nancial reporting and compliance. KPM Accounting Management Solutions Kw WW, 6,04 Ken Micrzwinski, CPA San Francisco, California October 8, 2015 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted Total Support and Revenues Tuition and fees 22,735,885 3 - - 22,735,885 Discounts (5,704,515) - - (5,704,515) Net tuition and fees 17,031,370 - 17,031,370 Contributions 121,574 176,571 9,313 307,458 Auxiliary programs 49,887 - - 49,887 Investment income, net 71,457 - - 71,457 Other income 102,449 - - 102,449 Income before reclassi?cations 17,376,737 176,571 9,313 17,562,621 {eclassi?cation of Temporarily Restricted Net assets released from donor restrictions: Scholarships 66,627 (66,627) - - Missions 1 16,898 (1 16,898) - - Expiration of Time Restrictions 6,890 (6,890) - - 190,415 (190,415) - - Total support and revenues 17,567,152 (13,844) 9,313 17,562,621 EXPENSES Instruction 5,733,306 - - 5,733,306 Student services 5,129,099 - - 5,129,099 Auxiliary services 856,324 - 856,324 Academic support 3,882,072 - - 3,882,072 Institutional support 1,140,865 - - 1,140,865 Total Expenses 16,741,666 - - 16,741,666 Change in net assets 825,486 (13,844) 9,313 820,955 \Iet assets, beginning of year 2,544,548 414,748 622,727 3,582,023 \let assets, end of year 3,370,034 400,904 632,040 4,402,978 See accompanying Notes to Financial Statements. .4- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (I) ORGANIZATION AND NATURE OF ACTIVITIES San Diego Christian College (the College) was incorporated in 1971 in California and offers undergraduate degrees in religion, science, business, and liberal arts. The College exists to educate and inspire students through the truth of Scripture and the development of competencies that prepare graduates whose purpose is to impact the world. The primary sources of income for the College include tuition and contributions. The College is a 501(c)(3) California nonpro?t educational corporation classi?ed as a publicly supported organization under Section 509(a) of the code and is accredited by the Western Association of Schools and Colleges. It is exempt from federal and state income taxes. Contributions to the public are deductible for income tax purposes. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of A ccounting The accompanying ?nancial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Under this basis of accounting, revenues are recognized in the period in which they are earned and expenses are recognized in the period incurred. Basis of Presentation Net assets and revenues, expenses, gains and losses are classi?ed based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of The College and changes therein are classi?ed and reported as follows: 0 Unrestricted net assets Net assets that are not subject to donor-imposed stipulations and are currently available at the discretion of the board for use in the College?s operations. 0 Temporarily restricted net assets Net assets subject to donor-imposed stipulations that may or will be met, either by actions of the College and/or passage of time. When a restriction expires, temporarily restricted net assets are reclassi?ed to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Temporarily restricted net assets for the year ended June 30, 2015 totaled $400,904, refer to (Note 7). Permanently restricted net assets-Net assets subject to donor-imposed stipulations that they be maintained permanently by the College. Generally, the donors of these assets permit the College to use all or part of the income earned on related investments for general or speci?c purposes. Permanently restricted net assets for the year ended June 30, 2015 totaled $632,040, refer to (Note 8). SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (9) FAIR VALUE MEASUREMENTS continued Valuation techniques: I Fair value for common stocks determined by reference to quoted market prices and other relevant information generated by market transactions. I Fair value for mutual funds based on quoted net asset values of the shares held by the College at year-end. I Fair value for installment notes based on yields currently available on comparable notes of issuers with similar credit ratings. I Fair value for ?xed income bonds based on model-based techniques using significant assumptions that are not observable. (10) 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 ?ve 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, 2015 is $53,300 The College also receives gifts from Board members and employees. For the year ended June 30, 2015, the College received gifts of $72,705 from the faculty and Board members. (11) CAPTIAL LEASES The College has acquired 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 ended June 30, 2016 75,049 2017 51,922 2018 8,095 Total lease payments 135,066 Less: interest portion (7,337) Total minimum lease payments 127,729 Less: current portion (70,540) Total capital leases net of current portion 57,189 The College has record the related assets acquired under the capital leases, which have a book value of $223,197 and the accumulated depreciation at June 30, 2015 is $45,184 -15- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Inventory Inventory consists primarily of bookstore textbooks and other supplies that are valued at the lower of cost or market using the ?rst-in, ?rst-out method. Prepaid Expenses and Other Assets Prepaid expenses are contractual advance payments made with a reasonable, certain anticipation of a future expense. Prepaid expenses at June 30, 2015 totaled 18,814. 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, 2015 all pledges except for the pledge noted in Note 10 are expected to be collected within one year, therefore no discount was necessary. The total of pledges receivable at June 30, 2015 totaled $94,055. Deferred Revenue The College records cash received for future services as deferred revenue. This revenue is recognized when services are performed. Deferred revenue consists primarily of unearned tuition and totaled $851,292 for the year ended June 30, 2015. Deposit Payable Each student who attends the College is required to make a $100 contingency deposit. Upon graduation, transfer, or other withdrawal from the 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. (I) Contributed Services Contributed services are recognized if services received create non-?nancial assets or require specialized skills which typically need to be purchased if not provided by donation. The College did not have any contributed services for the year ended June 30, 2015. 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 expenses as incurred. For the year ended June 30, 2015, advertising costs were $54,270 SUPPLEMENTARY INFORMATION SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (3) INVESTMENTS Investments consist of the following at June 30, 2015: Fixed Income Church Bonds 571,535 Mutual Funds 236,282 Common Stocks 25,839 Total 833,656 Refer to Note 9 for the Fair Value Measurements Investment Income consists of the following for the year ended June 30, 2015 Interest and Dividends 71,456 (4) 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 $131,572 as of June 30, 2015. The College is required to maintain separate bank accounts related to these loans. The balances in these accounts at June 30, 2015 totaled $17,982. These amounts are included in cash and cash equivalents on the statement of ?nancial position. The total amount of the cash and net loans receivable as of June 30, 2015 was $149,554. The federal government?s portion was $178,685 as of June 30, 2015 and is reflected as a liability on the College?s statements of ?nancial position under the heading Perkins loan liability. (5) PROPERTY, EQUIPMENT AND LIBRARY BOOKS Property, equipment and library books at June 30, 2015 consist of the following: Building and land 12,595,195 Leasehold improvements 45,157 Equipment 2,074,642 Library books 1,095,524 Vehicles 215,976 Property, equipment and library books before depreciation 16,026,494 Less: accumulated depreciation (2,133,305) Property, equipment and library books, net 13,893,189 Less: Debt secured by property (9,667,591) Less: Capital lease liability on equipment (127,729) Net investment in property, equipment and library books 4,097,869 -10- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (7) TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30, 2015 Scholarships 64,988 Campus relocation 15,380 Endowment for scholarships 18,439 Missions 102,43 8 Other 36,450 Operating projects 69,154 Time restrictions 94,055 Total 400,904 (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 classi?ed and reported based on the existence or absence of donor-imposed restrictions. The Board of Directors of the College have 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 classi?es as permanently restricted net assets the original value of gifts donated to the permanent endowment, the original value of the 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 net assets or board designated net assets until those amounts are appropriated for expenditure by the College in a manner consistent with SPMIFA. In accordance with SPMIFA, the board of directors considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: The purpose of the College and the donor-restricted endowment fund. The investment policies of the College, including guidance contained in the donor stipulations. Priorities of needs of the College General economic conditions -12- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (8) PERMANENTLY RESTRICTED NET ASSETS continued Spending Policy and How the Investment Obiectives Relate to the Spending Policy The income derived from contributions to any endowment fund shall be distributed at such times as the board of directors may determine for the purposes speci?ed for the fund, and the board of directors may, in its dole 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 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 directors 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: 0 The San Diego Christian College Endowment with 75% of the income available to support scholarships and 25% of the income added to principal. 0 The Argue-Johnson Family Endowed Scholarship with income up to 5% available for scholarships and any excess income added to principal. (9) 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. 0 Level 1 inputs are based on quoted prices in active markets for identical assets. 0 Level 2 inputs are based on similar assets based on signi?cant other observable inputs. 0 Level 3 inputs are based on signi?cant unobservable inputs. Level 3 inputs are only used when Level 1 or Level 2 inputs were not available. June 30, 2015 Level 1 Level 2 Level 3 Investments Fixed income bonds: Church bonds 571,535 - - 571,535 Total ?xed income bonds 571,535 - - 571,535 Common stocks: Commercial 16,348 16,348 - - Energy 9,491 9,491 - - Total common stocks 25,839 25,839 - - Mutual funds: Debt fund 177,384 177,384 - - Pension funds 58,898 58,898 - - Total mutual funds 236,282 236,282 - - Total investments 53 833,656 262,121 - 571,535 -14- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (12) 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 ?nancial condition of the College. (13) PENSION PLAN The College has a de?ned 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 $140,879 for the year ended June 30, 2015. (14) SUBSEQUENT EVENTS The College evaluated subsequent events through October 8, 2015 the date which the ?nancial statements were available to be issued. No subsequent events were identi?ed that required accrual or disclosure in the ?nancial statements. -16- 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 Directors San Diego Christian College Santee, California We have audited in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to ?nancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the ?nancial statements of San Diego Christian College, which comprise the statement of ?nancial position as of June 30, 2015, and the related statements of activities and cash ?ows for the year then ended, and the related notes to the ?nancial statements, and have issued our report thereon dated October 8, 2015. Internal Control Over Financial Reporting In planning and performing our audit of the ?nancial statements, we considered San Diego Christian College's internal control over ?nancial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the ?nancial 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. 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 de?ciency, or a combination of de?ciencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity?s ?nancial statements will not be prevented, or detected and corrected on a timely basis. A signi?cant deficiency is a de?ciency, or a combination of de?ciencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the ?rst paragraph of this section and was not designed to identify all de?ciencies in internal control that might be material weaknesses or signi?cant de?ciencies. Given these limitations, during our audit we did not identify any de?ciencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identi?ed. -19- INDEPENDENT REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT MATERIAL EFFECT ON EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY OMB CIRCULAR A-133 Board of Directors San Diego Christian College Santee, 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, 2015. San Diego Christian College?s major federal programs are identi?ed in the summary of auditor?s results section of the accompanying schedule of ?ndings 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. Auditor?s Responsibility Our responsibility is to express an opinion on compliance for each of the 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 ?nancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-l33, Audits ofStates, Local Governments. and Non-Pro?t 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, 2015. SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2015 Federal Pass-Through Federal Grantor/Pass-Through CFDA Entity Identifying Federal Grantor/Program Title Number Number Expenditures US. Department of Education Student Financial Aid Cluster: Federal Work-Study Program (FWS) 84.033 32,803 Federal Perkins Loans 84.038 36,341 Federal Supplemental Educational Opportunity Grants FSEOG) 84.007 55,022 Federal Pell Grant Program (PELL) 84.063 1,945,279 Federal Direct Student Loans (Direct Loan) 84.268 7,239,523 Total Expenditures of Federal Awards 9,308,968 Note 1: Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards includes the federal award 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-l33, Audits of States, Local Governments, and Nonpro?t Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic ?nancial statements. -l8- Board of Directors San Diego Christian College Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 - (continued) The information has been subjected to the auditing procedures applied in the audit of the ?nancial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the ?nancial statements or to the ?nancial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditure of federal awards is fairly stated in all material respects in relation to the ?nancial statements as a whole. KPM Accounting Management Solutions Kw WW, CA4 Ken Mierzwinski, CPA San Francisco, CA October 8, 2015 -23- Board of Directors San Diego Christian College Compliance and Other Matters As part of obtaining reasonable assurance about whether San Diego Christian College's ?nancial 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 ?nancial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report This report is intended solely for the information and use of management, the audit committee, Board of Directors, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these speci?ed parties KPM Accounting Management Solutions Kw WW, 6,04 Ken Mierzwinski, CPA San Francisco, CA October 8, 2015 -70- SAN DIEGO CHRISTIAN COLLEGE (A California Nonpro?t Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - continued YEAR ENDED JUNE 30, 2015 Section I - Summary of Auditor's Results Identi?cation of Major Programs: FDA Numbers Name Qf'Federal Program 84.007, 84.033, 84.038, 84.063, 84.268 Student Financial Aid Cluster Dollar threshold used to distinguish between type A and type programs: $300,000 Auditee quali?ed as low-risk auditee? yes no Section II - Financial Statement Findings Current Year Findings: None Section - Federal Award Findings and Questioned Costs Current Year Findings and Questioned Costs: None -25- Board of Directors San Diego Christian College 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 detemiine 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 de?ciency 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 de?ciency, or combination of de?ciencies, 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 signi?cant de?ciency in internal control over compliance is a de?ciency, or a combination of de?ciencies, 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 ?rst paragraph of this section and was not designed to identify all de?ciencies in internal control over compliance that might be material weaknesses or signi?cant de?ciencies. We did not identify any de?ciencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identi?ed. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133 We have audited the ?nancial statements of San Diego Christian College as of and for the year ended June 30, 2015, and have issued our report thereon dated July 21, 2015, which contained an unmodi?ed opinion on those ?nancial statements. Our audit was conducted for the purpose of forming an opinion on the ?nancial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the ?nancial 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 ?nancial statements. -22- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2015 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unmodified lntemal control over ?nancial reporting: 0 Material weakness(es) identi?ed? yes no 0 Signi?cant de?ciencies identi?ed yes none reported Noncompliance material to ?nancial statements noted? yes no Federal A wards lntemal control over major programs: 0 Material weakness(es) identi?ed? yes no 0 Signi?cant de?ciencies identi?ed yes none reported Type of auditor?s report issued on compliance for major programs: Unmodified Any audit ?ndings disclosed that are required to be reported in accordance with section 510(a) of Circular A-l 33? yes no -24-