SAN DIEGO CHRISTIAN COLLEGE TABLE OF CONTENTS YEAR ENDED JUNE 30, 2014 INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION 3 STATEMENT OF ACTIVITIES 4 STATEMENT OF CASH FLOWS 5 NOTES TO FINANCIAL STATEMENTS 6 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 17 INDEPENDENT AUDITORS 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 19 SUPPLEMENTARY INFORMATION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 22 NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 23 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 24 CliftonLarsonAllen CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' 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. NEXiA INTERAATIO:, AL An mdependect neater Cl Nemo 1111 ef naltonal (1) 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 U.S. 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. 4 4 1Z/a .Z.Z >1 CliftonLarsonAllen LLP San Diego, California March 31, 2015 (2) SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF FINANCIAL POSITION JUNE 30, 2014 ASSETS CURRENT ASSETS Cash and Cash Equivalents Student and Other Accounts Receivable, Net of Allowance of $597,753 Inventory Current Portion of Pledges Receivable Prepaid Expenses and Other Assets Total Current Assets $ NONCURRENT ASSETS Investments Pledges Receivable - Net of Current Portion Student Loans Property and Equipment - at Cost, Net Total Noncurrent Assets 1,186,533 659,226 5,629 73,100 206,278 2,130,766 914,771 27,845 206,572 14,192,417 15,341,605 Total Assets $ 17,472,371 $ 2,001,619 267,013 270,699 777,144 68,015 428,051 3,812,541 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts Payable Accrued Expenses Amounts Held for Others Deferred Revenue Capital Lease Payable Notes Payable - Current Portion Total Current Liabilities LONG-TERM LIABILITIES Notes Payable - Net of Current Portion Deposits Payable Other Liabilities Capital Lease Payable Perkins Loan Liability Total Long-Term Liabilities 9,662,044 74,500 32,858 129,720 178,685 10,077,807 Total Liabilities 13,890,348 NET ASSETS Unrestricted: Undesignated Net Investment in Property and Equipment Total Unrestricted (1,360,039) 3,904,587 2,544,548 Temporarily Restricted Permanently Restricted Scholarship Endowments Total Net Assets 414,748 622,727 3,582,023 Total Liabilities and Net Assets $ 17,472,371 See accompanying Notes to Financial Statements. (3) 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 Contributions Auxiliary Programs Investment Income, Net Gain/(Loss) on Disposal of Equipment Other Income Temporarily Restricted Unrestricted $ 16,451,911 510,362 49,433 120,991 (294,961) 369,978 17,207,714 Reclassification of Temporarily Restricted Net Assets Released from Donor Restrictions: Scholarships Missions Operating Projects Expiration of Time Restrictions Total Support, Revenue, and Reclassifications $ $ 38,695 2,853 38,695 6,303 6,303 17,252,712 (105,418) (81) (3,213) (27,745) (136,457) 17,344,171 (97,762) EXPENSES Instruction Student Services Auxiliary Services Academic Support Institutional Support Total Expenses 6,189,694 5,079,097 879,983 6,517,633 1,000 129 19,666,536 CHANGES IN NET ASSETS (2,322,365) (97,762) 5,136,230 (269,317) 4,866,913 NET ASSETS, END OF YEAR $ See accompanying Notes to Financial Statements. (4) 2,544,548 3,450 Total $ 16,451,911 513,812 49,433 162,539 (294,961) 369,978 17,252,712 105,418 81 3,213 27,745 136,457 Net Assets, Beginning of Year, before Restatements Restatements Net Assets, Beginning of Year, as Restated Permanently Restricted 6,189,694 5,079,097 879,983 6,517,633 1,000,129 19,666,536 $ 6,303 (2,413,824) 512,510 616,424 512,510 616,424 6,265,164 (269,317) 5,995,847 414,748 $ 622,727 $ 3,582,023 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation Realized and Unrealized (Gain) Loss on Investments (Gain) Loss on Sale of Property and Equipment Net Change in: Student and Other Accounts Receivable Pledges Receivable Inventory Prepaid Expenses and Other Assets Accounts Payable Accrued Expenses Deferred Revenue Amounts Held for Others Other Liabilities Net Cash Used by Operating Activities $ (2,413,824) 333,367 (104,556) 294,961 (465,789) 27,746 21,907 72,927 1,630,142 29,948 454,735 (196,458) 9,400 (305,494) CASH FLOWS FROM INVESTING ACTIVITIES Land, Building, and Equipment Purchases Purchases of Investments Proceeds from Sale of Investments Net Cash Used by Investing Activities (7,668,229) (11,031) 144,925 (7,534,335) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Notes Payable Payments on Notes Payable Net Cash Provided by Financing Activities 6,155,862 (154,813) 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 $ 321,128 $ 228,639 Noncash Item - Capital Assets Acquired through Capital Lease See accompanying Notes to Financial Statements. (5) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1 NATURE OF ORGANIZATION San Diego Christian College (the College) was incorporated in 1971 in California as a notfor-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. NOTE 2 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. Cash and Cash Equivalents 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 and 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. (6) 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. Inventor 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 Equipment 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 Equipment Library Books Vehicles 5 to 40 Years 3 to 10 Years 3 to 25 Years 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. Deposit Payable 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. (7) 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. Permanently 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) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 2 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(c)(3) 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. NOTE 3 INVESTMENTS Investments consist of the following at June 30, 2014: Cash Equivalents Fixed Income Church Bonds Mutual Funds Common Stocks Total $ $ (9) 45,144 633,185 210,916 25,526 914,771 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 3 INVESTMENTS (CONTINUED) Investment Income consists of the following for the year ended June 30, 2014: Interest and Dividends Realized and Unrealized Gains Total NOTE 4 $ $ 57,983 104,556 162,539 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. NOTE 5 PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30, 2014: Buildings Leasehold Improvements Equipment Library Books Vehicles Less: Accumulated Depreciation Land Property and Equipment, Net of Depreciation Less: Debt Secured by Property Less: Capital Lease Liability on Equipment Net Investment in Property and Equipment (10) $ 10,443,043 45,157 2,015,823 1,095,524 213,976 13,813,523 (1,506,106) 1,885,000 14,192,417 (10,090,095) (197,735) $ 3,904,587 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 monthly. 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 monthly, 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 monthly, 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, monthly payments range from $873 to $879 are due through January 2017. The interest rates are 0.90%. Total 134,464 $ 10,090,095 Annual maturities are: Year Ending June 30, 2015 2016 2017 2018 2019 Thereafter Total Amount 428,051 565,889 575,132 574,098 605,315 7,341,610 $ 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. 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 Endowment for Scholarships Missions Other Operating Projects Time Restrictions Total NOTE 8 $ $ 104,744 26,437 90,104 15,380 77,138 100,945 414,748 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 (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) 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: • • • • The purposes 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 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 Restricted $ 31,161 Donor Restricted Endowments Permanently Restricted $ 622,727 $ Total 653.888 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2014: Endowment Net Assets, Beginning of Year Total Investment Return Contributions Appropriation of Endowment Assets for Expenditure Endowment Net Assets, End of Year Temporarily Restricted $ 26,437 8.574 $ (3,850) 31,161 Permanently Restricted $ 616,424 2,853 3,450 $ $ $ 622,727 Total 642.861 11.427 3,450 (3.850) 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 Objectives 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 Employed 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) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 8 PERMANENTLY RESTRICTED NET ASSETS (CONTINUED) Spending Policy and How the Investment Objectives Related to Spending Policy 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. NOTE 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. 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: Investments: Fixed Income Church Bonds: Church Bonds Money Market Total Fixed Income Church Bonds June 30, 2014 $ Common Stocks: Commercial Energy Total Common Stocks Mutual Funds - Global: Debt Fund Pension Funds Total Mutual Funds - Global Total Investments $ 613,185 20,000 Level 1 $ 20,000 633,185 20,000 15,393 10,133 25,526 15,393 10,133 25,526 178,058 32,858 210,916 178,058 32,858 210,916 869,627 (14) $ 256,442 Level 2 $ Level 3 _ $ 613,185 613,185 _ _ - $ $ 613,185 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 9 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 Less: Principal Payments Received Less: Present Value Discount Ending Balance $ 1,000.000 (198.196) 801.804 (188.619) 613.185 NOTE 10 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. NOTE 11 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) SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 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 financial condition of the College. NOTE 13 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: Net Assets - Beginning of Year, as Previously Reported Restatement: Correct Deferred Revenue Balance Net Assets - Beginning of Year, as Restated Unrestricted Total $ 5,136,230 $ 6,265,164 $ (269,317) 4,866,913 $ (269,317) 5,995,847 NOTE 14 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 Ending June 30, 2015 2016 2017 2018 Total Lease Payments Less: Interest Portion Total Minimum Lease Payments $ $ Amount 79,034 77,328 54,613 8,096 219,071 (21,336) 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. NOTE 15 SUBSEQUENT EVENTS The College has evaluated subsequent events through March 31, 2015, the date which the financial statements were available to be issued. (16) CliftonLarsonAllen CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 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. NEXiA IN IERN.1110AL An fndependent rterrber of AWoa If fief national (17) 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. CliftonLarsonAllen LLP Minneapolis, Minnesota March 31, 2015 (18) CliftonLarsonAllen CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' 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. NEXiA INTERAATIO:, AL An mdependent neater Cl Nona 1111 ef naltonal (19) 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. (20) 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. CliftonLarsonAllen LLP Minneapolis, Minnesota March 31, 2015 (21) SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2014 Federal CFDA No. Federal Grantor/Program Title STUDENT FINANCIAL AID CLUSTER Department of Education - Direct Programs Federal Direct Loan Program Federal Pell Grant Federal Supplemental Educational Opportunity Grant Federal Work Study Federal Perkins Loans Total (22) 84.268 84.063 84.007 84.033 84.038 Federal Expenditures $ 7,729,990 2,080,075 49,573 29,012 40,750 $ 9,929,400 SAN DIEGO CHRISTIAN COLLEGE NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2014 NOTE 1 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) 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. 2. Two material weaknesses were identified during the audit of the financial statements of San Diego Christian College. 3. No instances of material noncompliance were disclosed during the audit of the financial statements of San Diego Christian College. 4. Nine significant deficiencies were disclosed related to the audit of the major federal award programs for San Diego Christian College. 5. The auditors' report on compliance for the major federal award programs for San Diego Christian College expresses an unmodified opinion. 6. Audit findings relative to the major federal award programs for San Diego Christian College are reported in Part C of this schedule. 7. The programs tested as major programs include: Student Financial Aid Cluster Program CFDA No. Various 8. The threshold for distinguishing type A and B programs was $300,000. 9. San Diego Christian College was not determined to be a low risk auditee. (24) 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: • 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 U.S. generally accepted accounting principles (GAAP). Effect • 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. • 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 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: • We agree with the prior period adjustment associated with deferred revenue and have amended procedures to properly record deferred revenue. • 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. 2014-002 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. (26) 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: • 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. • 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 monthly 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. (27) 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 2014-003: Student Financial Aid — Reporting Condition During Student Financial Aid testing, we noted 3 of 5 students tested were not reported to NSLDS 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 (NSLDS) 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 Asserted Effect The College is not in compliance with the Department of Education requirements. Recommendation We recommend the College evaluate its procedures and policies around NSLDS 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 strengths 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. (28) 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) 2014-003 (Continued) Views of responsible officials and planned corrective actions (continued): The following measures were acted upon by SDC's 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. Criteria 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. (29) 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) 2014-004: 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. Criteria: 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) 2014-005: 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 monthly and have their supervisor approve their timecard. Criteria: 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 monthly 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 monthly 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 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. Criteria: 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) 2014-009: 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) 2014-010: 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 CampusBased 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) 2014-011: 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. Criteria: 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 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. D. SUMMARY SCHEDULE OF PRIOR YEAR SINGLE AUDIT FINDINGS AND QUESTIONED COSTS NONE (36) SAN DIEGO CHRISITAN COLLEGE (A California Nonprofit Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION AND INDEPENDENT AUDITORS'REPORT YEAR ENDED JUNE 30, 2015 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2015 TABLE OF CONTENTS Page(s) Independent Auditor's Report 1-7 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 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 _19-20 Report on Compliance with Requirements Applicable to Each Major Program and Internal Control 21-23 Over Compliance in Accordance with OMB Circular A-133 Schedule of Findings and Questioned Costs KPM Accounting & Management Solutions 1351 California Street, #4 • San Francisco, CA 94109 Telephone 415.819.6718 • www.kpmcpas.com 24-25 .)11 31\1 7 7 Solutions Outside de -Box INDEPENDENT AUDITOR'S REPORT Board of Directors San Diego Christian College Santee, California We have audited the accompanying financial statements of San Diego Christian College (the College), which comprise the statements of financial 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 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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. 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, 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. 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 financial statements as a whole. The accompanying schedule of expenditures of federal awards and the schedule of findings and questioned costs, as required by U.S. Office of Management and Budget Circular A133, Audits of States, Local Governments, and Non- Profit Organizations, are presented for purposes of additional analysis and are 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 basic 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 presented 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 October 8, 2015, on our consideration of the 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 results of that testing, and not to provide an opinion on internal control over financial 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 financial reporting and compliance. KPM Accounting & Management Solutions Ken Mierzwinski, CPA San Francisco, California October 8, 2015 -2- 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 $ 117,258 1,804,704 10,486 74,055 1,118,814 3,125,317 833,656 20,000 131,572 13,893,189 14,878,417 $ 18,003,734 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable Accrued expenses Deferred revenue Capital lease payable - current portion (Note 11) 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 11) Notes payable - net of current portion (Note 6) Total long-term liabilities Total liabilities $ 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 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 financial statements. -3- (727,835) 4,097,869 3,370,034 400,904 632,040 4,402,978 $ 18,003,734 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Unrestricted Support and Revenues Tuition and fees Discounts Net tuition and fees Contributions Auxiliary programs Investment income, net Other income Income before reclassifications $ 22,735,885 (5,704,515) 17,031,370 121,574 49,887 71,457 102,449 17,376,737 Reclassification of Temporarily Restricted Net assets released from donor restrictions: Scholarships Missions Expiration of Time Restrictions Total support and revenues EXPENSES Instruction Student services Auxiliary services Academic support Institutional support Total Expenses Permanently Restricted $ 176,571 9,313 176,571 9,313 66,627 116,898 6,890 190,415 (66,627) (116,898) (6,890) (190,415) 17,567,152 (13,844) Total $ 22,735,885 (5,704,515) 17,031,370 307,458 49,887 71,457 102,449 17,562,621 9,313 17,562,621 5,733,306 5,129,099 856,324 3,882,072 1,140,865 16,741,666 Change in net assets 5,733,306 5,129,099 856,324 3,882,072 1,140,865 16,741,666 (13,844) 825,486 2,544,548 Net assets, beginning of year Net assets, end of year Temporarily Restricted $ 3,370,034 414,748 $ 400,904 See accompanying Notes to Financial Statements. -4- $ 9,313 820,955 622,727 3,582,023 632,040 $ 4,402,978 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 $ 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) Net cash used by operating activities (343,146) Cash flows from investing activities: Purchase of property, equipment and library books Proceeds from sale of investments (327,971) 94,352 Net cash used in investing activities (233,619) Cash flows from financing activities: Note payable - principal payments Capital lease payments (422,504) (70,006) Net cash used in financing activities (492,510) Net decrease in cash and cash equivalents (1,069,275) Cash and cash equivalents, beginning of year 1,186,533 Cash and cash equivalents, end of year $ 117,258 Supplementary information: Cash Paid for interest $ 530,782 See accompanying notes to financial statements. -5- SAN DIEGO CHRISTIAN COLLEGE (A Cahfornia Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (1)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 nonprofit educational corporation classified 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 (a) Basis of Accounting The accompanying financial 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. (b) Basis of Presentation Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of The College and changes therein are classified and reported as follows: • 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. • 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 reclassified 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 specific purposes. Permanently restricted net assets for the year ended June 30, 2015 totaled $632,040, refer to (Note 8). -6- SAN DIEGO CHRISTIAN COLLEGE (A Cahfornia Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (c) 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. (d) 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. (e) 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 final exams, reenroll 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. (f) 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 fixtures Building and improvements Library Vehicles 3 - 10 years 5 -40 years 3 - 25 years 10 years Depreciation expense charged to operations was $627,199 for the year ended June 30, 2015. -7- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit 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 first-in, first-out method. (h) 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 $1,118,814. (i) 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. (j 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. (k) 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-financial 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. (m) 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 -8- SAN DIEGO CHRISTIAN COLLEGE (A Cahfornia Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued (n) 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 identifiable 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 identifiable with any other specific function but provide the overall support and direction of The College. (o) Support and Revenue The College receives its revenue primarily from student tuition, private donations and the sale of textbooks. A significant 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 reclassified to unrestricted net assets. Support from government grants and other sources are recognized when earned. (p) Income Taxes The College is a qualified organization exempt from Federal income and California franchise taxes under the provisions of Sections 501(c)(3) of the Internal Revenue Code and 23701(d) of the California Revenue and Taxation Code, respectively. Accordingly, no provision for income taxes has been made. During the fiscal year ended June 30, 2015, The College had no unrelated business income on which taxes would be due. (q) 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 financial statements as a whole. (r) Use of Estimates The preparation of financial 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 financial 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 Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (3) INVESTMENTS Investments consist of the following at June 30, 2015: Fixed Income Church Bonds Mutual Funds Common Stocks Total $ 571,535 236,282 25,839 $ 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 financial 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 financial 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 Leasehold improvements Equipment Library books Vehicles Property, equipment and library books before depreciation Less: accumulated depreciation Property, equipment and library books, net Less: Debt secured by property Less: Capital lease liability on equipment Net investment in property, equipment and library books -10- $ 12,595,195 45,157 2,074,642 1,095,524 215,976 16,026,494 (2,133,305) 13,893,189 (9,667,591) (127,729) $ 4,097,869 SAN DIEGO CHRISTIAN COLLEGE (A Caltfornia Nonprofit 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 monthly. 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 monthly, 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 monthly, with a variable interest rate, due October 15, 2019, As of June 30, 2015, the interest rate was 5.42%. Five vehicle loan payables on vans purchased during the 2014 fiscal year, secured by the vehicles, monthly payments range from $873 to $879 due through January 2017. The interest rates are 0.90% Total notes payable Less: notes payable — current portion Total notes payable — net of current portion 1,057,759 82,783 9,667,591 (565,889) $ 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 Nonprofit 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 Campus relocation Endowment for scholarships Missions Other Operating projects Time restrictions Total $ 64,988 15,380 18,439 102,438 36,450 69,154 94,055 $ 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 classified 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 classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of the subsequent gifts to the permanent endowment, and (c) 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 Nonprofit 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 Restricted Donor restricted endowments $ 24,559 Permanently Restricted $ Total 632,040 $ 656,599 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2015: Endowment net assets, beginning of year Total Investment Return Appropriation for Expenditure Temporarily Restricted $ 31,161 (6,602) Permanently Restricted $ 622,727 9,474 (161) Total $ 653,888 9,474 (6,763) $ 24,559 $ 632,040 $ 656,599 End of the year 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 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 Objectives 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 Employed 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- SAN DIEGO CHRISTIAN COLLEGE (A Caltfornia Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (8) PERMANENTLY RESTRICTED NET ASSETS — continued Spending Policy and How the Investment Objectives 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 specified 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: • The San Diego Christian College Endowment with 75% of the income available to support scholarships and 25% of the income added to principal. • 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. • • • 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. Investments Fixed income bonds: Church bonds Total fixed income bonds June 30, 2015 $ Common stocks: Commercial Energy Total common stocks Mutual funds: Debt fund Pension funds Total mutual funds Total investments $ Level 1 571,535 571,535 16,348 9,491 25,839 16,348 9,491 25,839 177,384 58,898 236,282 177,384 58,898 236,282 833,656 -14- $ 262,121 Level 2 Level 3 $ 571,535 571,535 $ 571,535 SAN DIEGO CHRISTIAN COLLEGE (A Caltfornia Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 (9) FAIR VALUE MEASUREMENTS — continued Valuation techniques: • Fair value for common stocks — determined by reference to quoted market prices and other relevant information generated by market transactions. • Fair value for mutual funds — based on quoted net asset values of the shares held by the College at year-end. • Fair value for installment notes — based on yields currently available on comparable notes of issuers with similar credit ratings. • Fair value for fixed 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 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, 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 2017 2018 Total lease payments Less: interest portion Total minimum lease payments Less: current portion Total capital leases — net of current portion 75,049 51,922 8,095 135,066 (7,337) 127,729 (70,540) S 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 Nonprofit 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 financial condition of the College. (13)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 $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 financial statements were available to be issued. No subsequent events were identified that required accrual or disclosure in the financial statements. -16- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2015 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Pass-Through Entity Identifying Number 84.033 84.038 N/A N/A 84.007 84.063 84.268 N/A N/A N/A Federal Expenditures U.S. Department of Education Student Financial Aid Cluster: Federal Work-Study Program (FWS) Federal Perkins Loans Federal Supplemental Educational Opportunity Grants FSEOG) Federal Pell Grant Program (PELL) Federal Direct Student Loans (Direct Loan) Total Expenditures of Federal Awards $ 32,803 36,341 55,022 1,945,279 7,239,523 $ 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-133, Audits of States, Local Governments, and Nonprofit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. -18- AFIM"'n7' Solutions Outside tke Box INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 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 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, 2015, 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 October 8, 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 opinions 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. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -19- Board of Directors San Diego Christian College 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 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 specified parties KPM Accounting & Management Solutions A'aiP 7'144.24.8; CI)4 Ken Mierzwinski, CPA San Francisco, CA October 8, 2015 -20- Solutions Outside tke -Box INDEPENDENT AUDITORS'REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT MATERIAL EFFECT ON EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE; 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 identified in the summary of auditor's 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. 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 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 prop-am. 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. -21- 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 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. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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 financial 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 unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial 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 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. -22- Board of Directors San Diego Christian College Report on Schedule of Expenditures of Federal Awards Required by ()NIB Circular A-133 (continued) 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 schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. KPM Accounting & Management Solutions X'eup714;2486; ei 4) Ken Mierzwinski, CPA San Francisco, CA October 8, 2015 -23- SAN DIEGO CHRISTIAN COLLEGE (A Cahfornia 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 Internal control over financial reporting: • Material weakness(es) identified? yes • no • Significant deficiencies identified yes • none reported yes • no Noncompliance material to financial statements noted? Federal Awards Internal control over major programs: • Material weakness(es) identified? yes • no • Significant deficiencies identified yes • none reported Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Unmodified yes -24- x no SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - continued YEAR ENDED JUNE 30, 2015 Section I - Summary of Auditor's Results Identification of Major Programs: Name of Federal Program CFDA Numbers Student Financial Aid Cluster 84.007, 84.033, 84.038, 84.063, 84.268 Dollar threshold used to distinguish between type A and type B programs: $300,000 Auditee qualified as low-risk auditee? yes Section II - Financial Statement Findings Current Year Findings: None Section III - Federal Award Findings and Questioned Costs Current Year Findings and Questioned Costs: None -25- X no SAN DIEGO CHRISITAN COLLEGE (A California Nonprofit Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION AND INDEPENDENT AUDITORS'REPORT YEAR ENDED JUNE 30, 2016 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2016 TABLE OF CONTENTS Page(s) Independent Auditor's Report I-? 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 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.. 19-20 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 21-23 Schedule of Findings and Questioned Costs KPM Accounting & Management Solutions 1351 California Street, #4 • San Francisco, CA 94109 Telephone 415.819.6718 • www.kpmcpas.com 24-25 Solutions Outsicle tke Box INDEPENDENT AUDITOR'S REPORT Board of Directors San Diego Christian College Santee, California We have audited the accompanying financial statements of San Diego Christian College (the College), which comprise the statements of financial position as of June 30, 2016 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 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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. 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, 2016 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. 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 financial statements as a whole. The accompanying schedule of expenditures of federal awards as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards are presented for purposes of additional analysis and are 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 basic 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 presented 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 October 4, 2016, on our consideration of the 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 results of that testing, and not to provide an opinion on internal control over financial 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 financial reporting and compliance. KPM Accounting & Management Solutions 24 /c.sf-71/1444, uxoted., Ken Mierzwinski, CPA San Francisco, California October 4, 2016 -2- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 ASSETS Current assets: Cash and cash equivalents Student and other accounts receivable, net of allowance (Note 2e) Inventory Pledges receivable Prepaid expenses and other assets Total current assets Noncurrent assets: Investments (Note 3) Student loans (Note 6) Property, equipment and library books, net (Note 4) Total noncurrent assets Total assets $ 166,867 2,297,209 5,645 57,640 885,885 3,413,246 753,967 270,185 13,381,900 14,406,052 $ 17,819,298 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable Accrued expenses Deferred revenue Capital lease payable - current portion (Note 11) Notes payable - current portion (Note 5) Total current liabilities Long-term liabilities: Perkins loan payable Capital lease payable - net of current portion (Note 11) Notes payable - net of current portion (Note 5) Total long-term liabilities Total liabilities $ 1,560,882 311,455 529,505 51,922 636,429 3,090,193 229,657 5,267 9,165,273 9,400,197 12,490,390 Net assets: Unrestricted: Undesignated Net investment in property and equipment (Note 4) Total unrestricted Temporarily restricted (Note 8) Permanently restricted - scholarship endowments (Note 7) Total net assets Total liabilities and net assets See accompanying notes to financial statements. -3- 743,556 3,523,009 4,266,565 430,303 632,040 5,328,908 $ 17,819,298 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 Unrestricted Support and Revenues Tuition and fees Discounts Net tuition and fees Contributions Auxiliary programs Investment income, net Other income Income before reclassifications $ 20,669,917 (5,101,129) 15,568,788 168,701 41,192 74,593 253,199 16,106,473 Reclassification of Temporarily Restricted Net assets released from donor restrictions: Scholarships Missions Others Expiration of Time Restrictions $ $ Total $ 21,100,220 (5,101,129) 15,999,091 168,701 41,192 74,593 253,199 16,536,776 430,303 (64,988) (102,438) (139,423) (94,055) (400,904) 16,507,377 EXPENSES Instruction Student services Auxiliary services Academic support Institutional support Total Expenses 430,303 Permanently Restricted 430,303 64,988 102,438 139,423 94,055 400,904 Total support and revenues 29,399 16,536,776 5,417,104 4,596,991 781,121 3,734,774 1,080,856 15,610,846 Change in net assets Net assets, beginning of year Net assets, end of year Temporarily Restricted $ 5,417,104 4,596,991 781,121 3,734,774 1,080,856 15,610,846 896,531 29,399 3,370,034 400,904 4,266,565 $ 430,303 See accompanying Notes to Financial Statements. -4- 925,930 632,040 $ 632,040 4,402,978 $ 5,328,908 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2016 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 Deposits payable Deferred revenue Perkins loan payable Other liabilities $ 925,930 614,500 (492,505) 36,415 4,841 232,929 (138,613) (872,932) 59,778 (76,730) (321,787) (13,237) 50,972 Net cash provided by operating activities 9,561 Cash flows from investing activities: Purchase of property, equipment and library books Proceeds from sale of investments (103,212) 79,689 Net cash used in investing activities (23,523) Cash flows from financing activities: Note payable - principal payments Proceeds from notes payable Capital lease payments (565,889) 700,000 (70,540) Net cash provided by financing activities 63,571 Net increase in cash and cash equivalents 49,609 Cash and cash equivalents, beginning of year 117,258 Cash and cash equivalents, end of year S 166,867 Supplementary information: Cash Paid for interest $ 495,607 See accompanying notes to financial statements. -5- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (1) 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 nonprofit educational corporation classified 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 (a) Basis of Accounting The accompanying financial 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. (b) Basis of Presentation Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of The College and changes therein are classified and reported as follows: • 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. • 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 reclassified 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, 2016 totaled $430,303, refer to (Note 8). • 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 specific purposes. Permanently restricted net assets for the year ended June 30, 2016 totaled $632,040, refer to (Note 7). -6- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (c) 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. (d) 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. (e) 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 final exams, reenroll for a new semester, obtain a transcript, or graduate with an unpaid account. The net student and other accounts receivable totaled $2,297,209 for the year ended June 30, 2016. The allowance for doubtful accounts was $679,254. (f) 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 fixtures Building and improvements Library Vehicles 3 - 10 years 5 -40 years 3 - 25 years 10 years Depreciation expense charged to operations was $614,500 for the year ended June 30, 2016. (g) 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. -7- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (h) Prepaid Expenses and Other Assets Prepaid expenses and other assets are contractual advance payments made with a reasonable, certain anticipation of a future expense. Prepaid expenses and other assets at June 30, 2016 totaled $885,885. (i) 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, 2016 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, 2016 totaled $57,640. (j) 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 $529,505 for the year ended June 30, 2016 (k) 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. (l) Contributed Services Contributed services are recognized if services received create non-financial 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, 2016. (m)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, 2016, advertising costs were $48,744. -8- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued (n) 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 identifiable 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 identifiable with any other specific function but provide the overall support and direction of The College. (o) Support and Revenue The College receives its revenue primarily from student tuition, private donations and the sale of textbooks. A significant 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 reclassified to unrestricted net assets. Support from government grants and other sources are recognized when earned. (p) Income Taxes The College is a qualified organization exempt from Federal income and California franchise taxes under the provisions of Sections 501(c)(3) of the Internal Revenue Code and 23701(d) of the California Revenue and Taxation Code, respectively. Accordingly, no provision for income taxes has been made. During the fiscal year ended June 30, 2016, The College had no unrelated business income on which taxes would be due. (q) Use of Estimates The preparation of financial 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 financial 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 Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued (r) 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 financial statements as a whole. (3) INVESTMENTS Investments consist of the following at June 30, 2016: Fixed Income Church Bonds Mutual Funds Common Stocks Total $ 502,764 224,509 26,694 $ 753,967 Refer to Note 9 for the Fair Value Measurements Investment Income consists of the following for the year ended June 30, 2016 Interest and Dividends $ 74,593 (4)PROPERTY, EQUIPMENT AND LIBRARY BOOKS Property, equipment and library books at June 30, 2016 consist of the following: Building and land Leasehold improvements Equipment Library books Vehicles Property, equipment and library books before depreciation Less: accumulated depreciation Property, equipment and library books, net Less: Debt secured by property Less: Capital lease liability on equipment Net investment in property, equipment and library books -10- $ 12,644,174 89,001 2,085,031 1,095,524 215,976 16,129,706 (2,747,806) 13,381,900 (9,801,702) (57,189) $ 3,523,009 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (5) NOTES PAYABLE Secured notes payable at June 30, 2016 were comprised of: Loan payable to California Baptist Foundation. Interest on the unpaid principal balance calculated at an annual rate of 6.5%. Original due date on June 30, 2016 extended to September 11, 2016 with a daily interest rate. Loan payable to Ministry Partners Investment Co., LLC. Three monthly interest payments beginning July 1, 2016 at a rate of 6.50%. One principal and interest payment of $354,240.72 on September 11, 2016. Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $27,899 due monthly. Original due date is May 15, 2032. Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $33,292 due monthly, with a variable interest rate, due October 15, 2035, As of June 30, 2015, the interest rate was 5.52%. Loan payable to Chase Bank, secured by furniture and equipment on the Santee property, interest and principal payments of $22,921 due monthly, with a variable interest rate, due October 15, 2019, As of June 30, 2015, the interest rate was 5.42%. Five vehicle loan payables on vans purchased during the 2014 fiscal year, secured by the vehicles, monthly payments range from $873 to $879 due through January 2017. The interest rates are 0.90% Total notes payable Less: notes payable — current portion Total notes payable — net of current portion Future maturities of long-term debt are as follows: Year ended June 30, 2017 $ 636,429 2018 624,926 2019 581,491 2020 605,315 2021 449,981 Thereafter 6,903,560 Total $ 9,801,702 -11- $ 350,000 350,000 3,666,139 4,568,915 836,012 30,636 9,801,702 (636,429) $ 9,165,273 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (6) 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 $270,185 as of June 30, 2016. The College is required to maintain separate bank accounts related to these loans. The balances in these accounts at June 30, 2016 totaled $2,041. These amounts are included in cash and cash equivalents on the statement of financial position. The total amount of the cash and net loans receivable as of June 30, 2016 was $272,226. The federal government's portion was $229,657 as of June 30, 2016 and is reflected as a liability on the College's statements of financial position under the heading Perkins loan liability. (7)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 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 classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of the subsequent gifts to the permanent endowment, and (c) 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 Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (7) PERMANENTLY RESTRICTED NET ASSETS — continued Endowment Net Asset Composition by Type of Fund as of June 30, 2016 Temporarily Restricted Donor restricted endowments $ 24,559 Permanently Restricted Total $ 632,040 $ 656,599 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2015: Endowment net assets, beginning of year Total Investment Return Appropriation for Expenditure Temporarily Restricted $ 31,161 (6,602) Permanently Restricted $ 622,727 9,474 (161) Total $ 653,888 9,474 (6,763) $ 24,559 $ 632,040 $ 656,599 End of the year 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 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 Objectives 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 Employed 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- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (7) PERMANENTLY RESTRICTED NET ASSETS — continued Spending Policy and How the Investment Objectives 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 specified 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: • The San Diego Christian College Endowment with 75% of the income available to support scholarships and 25% of the income added to principal. • The Argue-Johnson Family Endowed Scholarship with income up to 5% available for scholarships and any excess income added to principal. (8)TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30, 2016: Scholarships Campus relocation Endowment for scholarships Missions Other Operating projects Time restrictions Total $ 125,899 15,380 25,195 111,062 36,450 58,677 57,640 $ 430,303 (9)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, 2016 is $23,025. The College also receives gifts from Board members and employees. For the year ended June 30, 2015, the College received gifts of $57,640 from the faculty and Board members. -14- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (10) 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. Investments Fixed income bonds: Church bonds Total fixed income bonds June 30, 2016 $ Common stocks: Commercial Energy Total common stocks Mutual funds: Debt fund Pension funds Total mutual funds Total investments $ Level 1 Level 2 502,764 502,764 18,818 7,876 26,694 18,818 7,876 26,694 178,232 46,277 224,509 178,232 46,277 224,509 753,967 $ 251,203 $ Level 3 $ 502,764 502,764 $ 502,764 Valuation techniques: • Fair value for common stocks — determined by reference to quoted market prices and other relevant information generated by market transactions. • Fair value for mutual funds — based on quoted net asset values of the shares held by the College at year-end. • Fair value for installment notes — based on yields currently available on comparable notes of issuers with similar credit ratings. • Fair value for fixed income bonds — based on model-based techniques using significant assumptions that are not observable. -15- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 (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, 2017 2018 Total lease payments Less: interest portion Total minimum lease payments Less: current portion Total capital leases — net of current portion $ 51,922 7,391 59,313 (2,124) 57,189 (51,922) $ 5,267 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, 2016 is $45,184 . (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 financial condition of the College. (13)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 $155,379 for the year ended June 30, 2016. (14) SUBSEQUENT EVENTS The College evaluated subsequent events through October 4, 2016 the date which the financial statements were available to be issued. No subsequent events were identified that required accrual or disclosure in the financial statements. -16- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2016 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Pass Through Number 84.033 84.038 N/A N/A 84.007 84.063 84.268 N/A N/A N/A Federal Expenditures U.S. Department of Education Student Financial Aid Cluster: Federal Work-Study Program (FWS) Federal Perkins Loans Federal Supplemental Educational Opportunity Grants FSEOG) Federal Pell Grant Program (PELL) Federal Direct Student Loans (Direct Loan) Total Expenditures of Federal Awards $ 48,710 32,372 64,773 1,980,701 6,154,056 $ 8,280,612 Note 1: Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal award activity of San Diego Christian College under programs of the federal government for the year ended June 30, 2016. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Umform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of San Diego Christian College, it is not intended and does not present the financial position, changes in net assets, or cash flows of San Diego Christian College. Note 2: Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Note 3: Federal Student Loan Programs The federal student loan programs listed are administered directly by San Diego Christian College, and balances and transactions relating to these programs are included in San Diego Christian College's basic financial statements. Loans outstanding at the beginning of the year and loans made during the year are included in the federal expenditures presented in the Schedule. -18- AIM P - Solutions Outsle tke Box INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS. 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 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, 2016, 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 October 4, 2016. 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 opinions 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. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -19- Board of Directors San Diego Christian College 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 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 specified parties KPM Accounting & Management Solutions Ken Mierzwinski, CPA San Francisco, CA October 4, 2016 CA4 -20- AIM;n° Solutions Outsje tke Bo. INDEPENDENT AUDITORS'REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE. 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 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, 2016. San Diego Christian College's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal 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 financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about 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, 2016. -21- Board of Directors San Diego Christian College Other Matters The results of our auditing procedures disclosed no instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance. 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 the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of 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. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of San Diego Christian College as of and for the year ended June 30,2016, and have issued our report thereon dated October 4, 2016, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance 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. -22- Board of Directors San Diego Christian College Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance (continued) 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 schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. KPM Accounting & Management Solutions /02,11 7114:2/& Ken Mierzwinsld, CPA San Francisco, CA October 4, 2016 t)i.frt-ied, /6 ,' 4 -23- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued on whether the financial statements audited were prepared in accordance with GAAP. Unmodified Internal control over financial reporting: • Material weakness(es) identified? yes x no • Significant deficiencies identified yes x none reported yes x no Noncompliance material to financial statements noted? Federal Awards Internal control over major programs: • Material weakness(es) identified? yes x no • Significant deficiencies identified yes x none reported Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516 (a) Unmodified yes -24- x no SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - continued YEAR ENDED JUNE 30, 2016 Section I - Summary of Auditor's Results Identification of Major Programs: CFDA Numbers Name of Federal Pro ram Student Financial Aid Cluster 84.007, 84.033, 84.038, 84.063, 84.268 Dollar threshold used to distinguish between type A and type B programs: S750,000 Auditee qualified as low-risk auditee? yes Section II- Financial Statement Findings Current Year Findings: None Section BI - Federal Award Findings and Questioned Costs Current Year Findings and Questioned Costs: None -25- X no SAN DIEGO CHRISITAN COLLEGE (A California Nonprofit Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION AND INDEPENDENT AUDITORS'REPORT YEAR ENDED JUNE 30, 2017 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2017 TABLE OF CONTENTS Page(s) Independent Auditor's Report I-? Financial Statements: Statement of Financial Position 3 Statement of Activities and Changes in Net Assets 4 Statement of Functional Expenses 5 Statement of Cash Flows 6 Notes to the Financial Statements 7-17 Supplementary Information: Schedule of Expenditures of Federal Awards 19 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 .. 20-21 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 22-24 Schedule of Findings and Questioned Costs KPM Accounting & Management Solutions 1351 California Street, #4 • San Francisco, CA 94109 Telephone 415.819.6718 • www.kpmcpas.com 25-26 Solutions Outsicle tke Box INDEPENDENT AUDITOR'S REPORT Board of Directors San Diego Christian College Santee, California We have audited the accompanying financial statements of San Diego Christian College (the College), which comprise the statements of financial position as of June 30, 2017 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 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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. 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, 2017 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. 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 financial statements as a whole. The accompanying schedule of expenditures of federal awards as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards are presented for purposes of additional analysis and are 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 basic 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 presented 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 September 22, 2017, on our consideration of the 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 results of that testing, and not to provide an opinion on internal control over financial 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 financial reporting and compliance. KPM Accounting & Management Solutions /ce4-714:24juie;t44; C/04 Ken Mierzwinski, CPA San Francisco, California September 22, 2017 -2- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF FINANCIAL POSITION JUNE 30, 2017 ASSETS Current assets: Cash and cash equivalents Student and other accounts receivable, net of allowance (Note 2e) Inventory Pledges receivable Prepaid expenses and other assets Total current assets Noncurrent assets: Investments (Note 3) Student loans receivable (Note 6) Property, equipment and library books, net (Note 4) Total noncurrent assets Total assets $ 133,019 2,019,579 5,646 87,640 1,032,174 3,278,058 875,854 267,283 13,016,708 14,159,845 $ 17,437,903 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable Accrued expenses Deferred revenue Capital lease payable - current portion (Note 9) Notes payable and line of credit - current portion (Note 5) Total current liabilities Long-term liabilities: Perkins loan payable (Note 6) Notes payable and line of credit net of current portion (Note 5) Total long-term liabilities Total liabilities $ 1,371,628 262,191 345,510 7,393 1,874,926 3,861,648 229,657 7,960,118 8,189,775 12,051,423 Net assets: Unrestricted: Undesignated Net investment in property and equipment (Note 4) Total unrestricted Temporarily restricted (Note 8) Permanently restricted - scholarship endowments (Note 7) Total net assets Total liabilities and net assets See accompanying notes to financial statements. -3- 1,224,092 3,154,271 4,378,363 315,486 692,631 5,386,480 $ 17,437,903 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 Unrestricted Support and Revenues Tuition and fees Discounts Net tuition and fees Contributions Auxiliary programs Investment income, net Other income Income before reclassifications $ 16,773,858 (4,312,653) 12,461,205 188,438 20,808 64,232 163,165 12,897,848 Reclassification of Temporarily Restricted Net assets released from donor restrictions: Scholarships Missions Operating projects Others Expiration of Time Restrictions $ EXPENSES Program services: Instruction Student services Auxiliary services Academic support Total program services Supporting activities: Institutional support Total Expenses Change in net assets Net assets, beginning of year $ Permanently Restricted 518,262 $ 518,262 "rot al - 518,262 57,974 2,617 60,591 (43,157) (72,347) (423,055) (64,520) (30,000) (633,079) (114,817) 60,591 - 43,157 72,347 423,055 64,520 30,000 633,079 13,530,927 Total support and revenues Net assets, end of year Temporarily Restricted $ 17,292,120 (4,312,653) 12,979,467 246,412 20,808 66,849 163,165 13,476,701 13,476,701 3,984,881 4,119,360 745,779 3,403,046 12,253,066 3,984,881 4,119,360 745,779 3,403,046 12,253,066 1,166,063 13,419,129 1,166,063 13,419,129 111,798 (114,817) 60,591 57,572 4,266,565 430,303 632,040 5,328,908 4,378,363 $ 315,486 See accompanying Notes to Financial Statements. -4- $ 692,631 $ 5,386,480 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2017 Department Program services: Instruction Student services Auxiliary services Academic support Total program services $ Supporting activities: Institutional support Total expenses 3,037,416 2,563,060 46,476 2,150,738 7,797,690 Operation and Maintenance $ 580,131 $ 8,377,821 $ Depreciation 762,085 1,364,664 664,609 1,107,682 3,899,040 185,380 191,636 34,694 144,626 556,336 531,686 54,246 4,430,726 $ See accompanying notes to financial statements. -5- 610,582 2017 Total Expenses $ 3,984,881 4,119,360 745,779 3,403,046 12,253,066 1,166,063 $ 13,419,129 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2017 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 Prepaid expenses and other assets Student loans Increase (decrease) in liabilities: Accounts payable Accrued expenses Deferred revenue $ 57,572 610,582 277,629 (30,000) (146,289) 2,902 (189,254) (49,264) (183,995) Net cash provided by operating activities 349,883 Cash flows from investing activities: Purchase of property, equipment and library books Purchase of investments (245,390) (121,887) Net cash (used) in investing activities (367,277) Cash flows from financing activities: Note payable - principal payments Proceeds from line of credit Capital lease payments (1,216,658) 1,250,000 (49,796) Net cash (used) in financing activities (16,454) Net (decrease) in cash and cash equivalents (33,848) Cash and cash equivalents, beginning of year 166,867 Cash and cash equivalents, end of year $ 133,019 Supplementary information: Cash Paid for interest $ 439,214 See accompanying notes to financial statements. -6- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (1) 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 nonprofit educational corporation classified 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 (a) Basis of Accounting The accompanying financial 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. (b) Basis of Presentation Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of The College and changes therein are classified and reported as follows: • 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. • 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 reclassified 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, 2017 totaled $315,486, refer to (Note 8). • 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 specific purposes. Permanently restricted net assets for the year ended June 30, 2017 totaled $692,631, refer to (Note 7). -7- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (c) 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. (d) 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. (e) 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 final exams, reenroll for a new semester, obtain a transcript, or graduate with an unpaid account. The net student and other accounts receivable totaled $2,019,579 for the year ended June 30, 2017. The allowance for doubtful accounts was $613,994. (f) 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 fixtures Building and improvements Library Vehicles 3 - 10 years 5 -40 years 3 - 25 years 10 years Depreciation expense charged to operations was $610,582 for the year ended June 30, 2017. (g) 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. -8- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (h) Prepaid Expenses and Other Assets Prepaid expenses and other assets are contractual advance payments made with a reasonable, certain anticipation of a future expense. Prepaid expenses and other assets at June 30, 2017 totaled $1,032,174. (i) 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, 2017 all pledges except for the pledge noted in Note 11 are expected to be collected within one year, therefore no discount was necessary. The total of pledges receivable at June 30, 2017 totaled $87,640. (j) 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 $345,510 for the year ended June 30, 2017. (k) 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. (l) Contributed Services Contributed services are recognized if services received create non-financial 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, 2017. (m)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, 2017, advertising costs were $59,713. -9- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued (n) 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 identifiable 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 identifiable with any other specific function but provide the overall support and direction of The College. (o) Support and Revenue The College receives its revenue primarily from student tuition, private donations and the sale of textbooks. A significant 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 reclassified to unrestricted net assets. Support from government grants and other sources are recognized when earned. (p) Income Taxes The College is a qualified organization exempt from Federal income and California franchise taxes under the provisions of Sections 501(c)(3) of the Internal Revenue Code and 23701(d) of the California Revenue and Taxation Code, respectively. Accordingly, no provision for income taxes has been made. During the fiscal year ended June 30, 2017, The College had no unrelated business income on which taxes would be due. (q) Use of Estimates The preparation of financial 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. -10- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued (r) 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 financial statements as a whole. (3) INVESTMENTS Investments consist of the following at June 30, 2017: Cash Reserves Fixed Income Church Bonds Mutual Funds Common Stocks Total $ 153,517 502,765 188,699 30,873 $ 875,854 Refer to Note 10 for the Fair Value Measurements Investment Income consists of the following for the year ended June 30, 2017 Interest and Dividends $ 66,849 (4)PROPERTY, EQUIPMENT AND LIBRARY BOOKS Property, equipment and library books at June 30, 2017 consist of the following: Building and land Leasehold improvements Equipment Library books Vehicles Property, equipment and library books before depreciation Less: accumulated depreciation Property, equipment and library books, net Less: Debt secured by property Less: Capital lease liability on equipment Net investment in property, equipment and library books -11- $ 12,644,174 242,822 2,176,600 1,095,524 215,976 16,375,096 (3,358,388) 13,016,708 (9,855,044) (7,393) $ 3,154,271 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (5) NOTES PAYABLE AND LINE OF CREDIT Secured notes payable and line of credit at June 30, 2017 were comprised of: Line of credit payable to Ministry Partners Investment Co, LLC, secured by receivables. Interest on the unpaid principal balance calculated at an annual rate of 7%. Original due date is October 20, 2017. $ 1,250,000 Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $27,899 due monthly. Original due date is May 15, 2032. 3,526,531 Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $33,292 due monthly, with a variable interest rate, due October 15, 2035, As of June 30, 2015, the interest rate was 5.52%. 4,437,404 Loan payable to Chase Bank, secured by furniture and equipment on the Santee property, interest and principal payments of $22,921 due monthly, with a variable interest rate, due October 15, 2019, As of June 30, 2015, the interest rate was 5.42%. Total notes payable and line of credit Less: notes payable and line of credit — current portion 621,109 9,835,044 (1,874,926) Total notes payable and line of credit— net current portion Future maturities of long-term debt are as follows: Year ended June 30, 2018 $ 1,874,926 2019 581,491 2020 605,315 2021 380,498 2022 400,850 Thereafter 5,991,964 $ 9,835,044 Total \ -12- $ 7,960,118 SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (6) 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 $267,283 as of June 30, 2017. The College is required to maintain separate bank accounts related to these loans. The balances in these accounts at June 30, 2017 totaled $762. These amounts are included in cash and cash equivalents on the statement of financial position. The total amount of the cash and net loans receivable as of June 30, 2017 was $268,045. The federal government's portion was $229,657 as of June 30, 2017 and is reflected as a liability on the College's statements of financial position under the heading Perkins loan liability. (7)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 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 classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of the subsequent gifts to the permanent endowment, and (c) 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 SPM1FA. In accordance with SPM1FA, 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 -13- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (7) PERMANENTLY RESTRICTED NET ASSETS — continued Endowment Net Asset Composition by Type of Fund as of June 30, 2017 Permanently Restricted Donor restricted endowments $ 692,631 Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2015: Endowment net assets, beginning of year Donor restricted contribution Total investment return End of the year Permanently Restricted $ 632,040 57,974 2,617 $ 692,631 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 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 Objectives 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 Employed 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). -14- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (7) PERMANENTLY RESTRICTED NET ASSETS — continued Spending Policy and How the Investment Objectives 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 specified 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: • The San Diego Christian College Endowment with 75% of the income available to support scholarships and 25% of the income added to principal. • The Argue-Johnson Family Endowed Scholarship with income up to 5% available for scholarships and any excess income added to principal. (8)TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30, 2017: Scholarships Campus relocation Endowment for scholarships Missions Total $ 142,475 14,039 33,045 125,927 $ 315,486 (9)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 year ending June 30, 2017. 2018 $ 7,393 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, 2017 is $89,276. -15- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (10) 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. Investments Cash reserves June 30, 2016 $ Level 1 153,517 $ 153,517 Fixed income bonds: Church bonds 502,765 Common stocks: Commercial Energy Total common stocks 21,129 9,744 30,873 21,129 9,744 30,873 188,699 188,699 Mutual funds: Debt fund Total investments $ 875,854 Level 2 Level 3 $ 502,765 $ 373,089 $ 502,765 Valuation techniques: • Fair value for common stocks — determined by reference to quoted market prices and other relevant information generated by market transactions. • Fair value for mutual funds — based on quoted net asset values of the shares held by the College at year-end. • Fair value for installment notes — based on yields currently available on comparable notes of issuers with similar credit ratings. • Fair value for fixed income bonds — based on model-based techniques using significant assumptions that are not observable. -16- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 (11)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. The president increased his pledge by an additional $30,000 during the year ended June 30, 2017. 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, 2017 is $53,025. (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 financial condition of the College. (13)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 $173,850 for the year ended June 30, 2017. (14) SUBSEQUENT EVENTS The College evaluated subsequent events through September 22, 2017 the date which the financial statements were available to be issued. No subsequent events were identified that required accrual or disclosure in the financial statements. -17- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2017 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Pass Through Number 84.033 84.038 N/A N/A 84.007 84.063 84.268 N/A N/A N/A Federal Expenditures U.S. Department of Education Student Financial Aid Cluster: Federal Work-Study Program (FWS) Federal Perkins Loans Federal Supplemental Educational Opportunity Grants FSEOG) Federal Pell Grant Program (PELL) Federal Direct Student Loans (Direct Loan) Total Expenditures of Federal Awards $ 49,732 32,372 64,816 1,526,051 5,371,802 $ 7,044,773 Note 1: Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal award activity of San Diego Christian College under programs of the federal government for the year ended June 30, 2017. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of San Diego Christian College, it is not intended and does not present the financial position, changes in net assets, or cash flows of San Diego Christian College. Note 2: Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Note 3: Federal Student Loan Programs The federal student loan programs listed are administered directly by San Diego Christian College, and balances and transactions relating to these programs are included in San Diego Christian College's basic financial statements. Loans outstanding at the beginning of the year and loans made during the year are included in the federal expenditures presented in the Schedule. AIM P - Solutions Outsle tke Box INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS. 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 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, 2017, 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 September 22, 2017. 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 opinions 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. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -20- Board of Directors San Diego Christian College 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 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 specified parties KPM Accounting & Management Solutions /ce,f-klaAefie;td4; 5 04 Ken Mierzwinski, CPA San Francisco, CA September 22, 2017 -21- AIM;n° Solutions Outsje tke Bo. INDEPENDENT AUDITORS'REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; REPORT ON INTERNAL CONTROL OVER COMPLIANCE; AND REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE. 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 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, 2017. San Diego Christian College's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal 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 financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about 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, 2017. -22- Board of Directors San Diego Christian College Other Matters The results of our auditing procedures disclosed no instances of noncompliance, which are required to be reported in accordance with the Uniform Guidance. 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 the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of 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. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of San Diego Christian College as of and for the year ended June 30, 2017, and have issued our report thereon dated September 22, 2017, which contained an unmodified opinion on those financial statements. Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance 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. -23- Board of Directors San Diego Christian College Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance (continued) 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 schedule of expenditure of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. KPM Accounting & Management Solutions A'.24-714..gAre;t44; Ci04 Ken Mierzwinsld, CPA San Francisco, CA September 22, 2017 -24- SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2017 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued on whether the financial statements audited were prepared in accordance with GAAP. Unmodified Internal control over financial reporting: • Material weakness(es) identified? yes x no • Significant deficiencies identified yes x none reported yes x no Noncompliance material to financial statements noted? Federal Awards Internal control over major programs: • Material weakness(es) identified? yes x no • Significant deficiencies identified yes x none reported Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516 (a) Unmodified yes -25- x no SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Educational Corporation) SCHEDULE OF FINDINGS AND QUESTIONED COSTS - continued YEAR ENDED JUNE 30, 2017 Section I - Summary of Auditor's Results Identification of Major Federal Programs: CFDA Numbers Name of Federal Pro ram Student Financial Aid Cluster 84.007, 84.033, 84.038, 84.063, 84.268 Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? yes Section II- Financial Statement Findings Current Year Findings: None Section BI - Federal Award Findings and Questioned Costs Current Year Findings and Questioned Costs: None -26- X no SAN DIEGO CHRISTIAN COLLEGE (A California Nonprofit Corporation) FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION ON FEDERAL AWARDS PROGRAMS JUNE 30, 2018 (With Independent Auditors'Reports Thereon) San Diego Christian College (A California Nonprofit Corporation) TABLE OF CONTENTS Page(s) Independent Auditors' Report 1 Financial Statements: Statement of Financial Position 3 Statement of Activities 4 Statement of Cash Flows 5 Notes to the Financial Statements 6 Supplementary Information: Schedule of Expenditures of Federal Awards 19 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 20 Independent Auditors' Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 22 Schedule of Findings and Questioned Costs 24 Summary Schedule of Prior Year Audit Findings 26 KPM Accounting & Management Solutions PO Box 641773 • San Francisco, CA 94164 Telephone 415.819.6718 • www.kpmcpas.com AIM.° Solutions Outsic!e tke eo. Independent Auditors'Report Board of Directors San Diego Christian College Santee, California Report on the Financial Statements We have audited the accompanying financial statements of San Diego Christian College (SDC), which comprise the statements of financial position as of June 30, 2018 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 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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. 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, 2018 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. Board of Directors San Diego Christian College Santee, California Other Matters Adjustments to Prior Period Financial Statements As described in Note (9) during the year ended June 30, 2018, due to unforeseen circumstances, management encountered events that changed the outcome of specific assets and liabilities, which overstated net assets by $1,200,717. As a result, SDC has restated the accompanying financial statements as of and for the year ended June 30, 2017 to correctly state the assets and liabilities for that year. Our opinion is not modified with respect to this matter. Report on Summarized Comparative Information We have previously audited the SDC's June 30, 2017 financial statements, and we expressed an unmodified audit opinion on those audited financial statements in our report dated September 22, 2017. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2017 is consistent, in all material respects, with the audited financial statements from which it has been derived, taking into consideration the prior period adjustments noted above. Other Information — Schedule of Expenditures of Federal Awards Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards are presented for purposes of additional analysis and are 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 basic 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 presented 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 19, 2019, on our consideration of SDC'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 results of that testing, and not to provide an opinion on internal control over financial reporting or compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering SDC's internal control over financial reporting and compliance. 7VN 4cc-&ail-ti:ef- ,--( c5'64-EL.4/24.- KPM Accounting & Management Solutions San Francisco, California March 19,2019 2 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF FINANCIAL POSITION JUNE 30, 2018 (with comparative financial information as of June 30, 2017) ASSETS Current assets: Cash and cash equivalents Student accounts receivable, net of allowance $738,958 and $613,994 Student loans receivable Other accounts receivable Pledges receivable Prepaid expenses Total current assets $ Noncurrent assets Investments Property, equipment and library books, net Total noncurrent assets Total assets 2018 237,241 2,851,780 871,123 55,396 58,040 196,090 4,269,670 $ 2017 133,019 1,602,720 279,259 57,238 87,640 215,663 2,375,539 629,839 13,948,053 14,577,892 875,854 14,339,252 15,215,106 $ 18,847,562 $ 17,590,645 $ 53,627 71,429 2,012,905 $ 1,512,873 262,191 344,155 7,393 50,525 1,874,926 4,052,063 1,339,074 12,274,028 13,613,102 1,392,701 7,960,118 9,352,819 15,626,007 13,404,882 2,069,314 209,895 2,279,209 124,057 3,053,589 3,177,646 240,880 701,466 3,221,555 315,486 692,631 4,185,763 $ 18,847,562 $ 17,590,645 LIABILITIES AND NET ASSETS Current liabilities: Accounts payable Accrued expenses Deferred revenue Capital lease payable Equipment financing - current portion Notes payable and line of credit, current portion Total current liabilities Long-term liabilities: Equipment financing Notes payable and line of credit, net of current portion and deferred debt costs Total long-term liabilities Total liabilities Net assets: Unrestricted: Undesignated Net investment in property and equipment Total unrestricted net assets Temporarily restricted Permanently restricted - scholarship endowments Total net assets Total liabilities and net assets See accompanying notes to financial statements. 3 548,501 363,500 975,848 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2018 (with summarized comparative financial information for the year ended June 30, 2017) Unrestricted Support and Revenues: Tuition and fees Scholarships and grants Net tuition and fees Contributions Other income Investment income Income before reclassifications Net assets released from donor restrictions Total support and revenue $ 16,830,602 (4,091,564) 12,739,038 272,171 173,408 837 13,185,454 213,696 13,399,150 Temporarily Restricted $ Permanently Restricted 2018 Total 2017 Total 8,835 8,835 $ 16,969,692 (4,091,564) 12,878,128 272,171 173,408 9,672 13,333,379 $ 17,292,120 (4,312,652) 12,979,468 246,412 183,972 66,849 13,476,701 8,835 13,333,379 13,476,701 139,090 139,090 139,090 (213,696) (74,606) Expenses: Program services: Student services Institutional support Instruction Auxiliary services Academic support Interest expense Depreciation Total program services 4,175,915 1,756,835 3,033,697 1,654,562 1,003,112 978,892 699,720 13,302,733 4,175,915 1,756,835 3,033,697 1,654,562 1,003,112 978,892 699,720 13,302,733 3,093,063 1,654,177 3,464,004 1,668,333 1,435,938 708,033 610,583 12,634,131 Supporting services: General and administrative 994,854 994,854 784,998 14,297,587 14,297,587 13,419,129 Total expenses Change in net assets Prior period adjustment Change in net assets, after adjustment (898,437) (74,606) 8,835 (964,208) (898,437) (74,606) 8,835 (964,208) 57,572 (1,200,717) (1,143,145) Net assets, beginning of year, as restated 3,177,646 315,486 692,631 4,185,763 5,328,908 Net assets, end of year 2,279,209 240,880 701,466 3,221,555 4,185,763 See accompanying notes to financial statements. 4 SAN DIEGO CHRISTIAN COLLEGE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash used for operating activities Depreciation expense Amortization expense Bad debt expense (Increase) decrease in assets: Student accounts receivable Pledges receivable A/R other Inventory Prepaid expenses Student loans receivable Increase (decrease) in liabilities: Accounts payable Accrued expenses Deferred revenue Perkins loan payable Net cash (used in)/provided by operating activities 2018 $ (964,208) 2017 $ (1,143,145) 699,720 85,982 124,965 610,582 (65,261) (1,374,025) 29,600 1,842 759,750 (30,000) (57,238) 5,645 670,222 (9,074) 19,573 (591,864) (964,372) 101,309 631,693 (48,009) (49,264) (185,350) (229,657) 229,201 (2,199,785) Cash flows from investing activities: Purchase of property, equipment and library books Sales and maturities of investments Purchase investments Net cash (used in) investing activities (308,521) 246,015 (1,567,934) (121,887) (1,689,821) (62,506) Cash flows from financing activities: Proceeds from financed debt Refinance debt - payoff Payoff line of credit Proceeds from line of credit Note payable - principal payments Debt issuance costs Equipment financing and capital lease principal payments Net cash provided by financing activities 13,000,000 (8,585,044) (1,250,000) 1,250,000 (1,216,658) (740,525) (57,918) 2,366,513 1,393,430 1,426,772 Net increase/(decrease) in cash and cash equivalents 104,222 (33,848) Cash and cash equivalents, beginning of year 133,019 166,867 Cash and cash equivalents, end of year $ 237,241 $ 133,019 Supplementary information: Cash Paid for interest $ 905,577 $ 495,607 See accompanying notes to financial statements. 5 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (1)ORGANIZATION AND NATURE OF ACTIVITIES San Diego Christian College (SDC) was incorporated in 1971 in California and offers undergraduate and graduate degrees in religion, science, business, and liberal arts. SDC 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 SDC includes tuition and contributions. SDC is a 501(c) (3) California nonprofit educational corporation classified 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 (a) Basis of Accounting The accompanying financial 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. (b) Basis of Presentation Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of SDC and changes therein are classified and reported as follows: • 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 SDC's operations. • Temporarily restricted net assets — Net assets subject to donor-imposed stipulations that may or will be met, either by actions of SDC and/or passage of time. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Temporarily restricted net assets for the years ended June 30, 2018 and 2017 totaled $240,880 and $315,486, respectively refer to (Note 11). • Permanently restricted net assets-Net assets subject to donor-imposed stipulations that they be maintained permanently by SDC. Generally, the donors of these assets permit SDC to use all or part of the income earned on related investments for general or specific purposes. Permanently restricted net assets for the years ended June 30, 2018 and June 30, 2017 totaled $701,466 and $692,631, respectively refer to (Note 10). (c) Cash and Cash Equivalents SDC 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. SDC has not experienced any losses in such accounts. 6 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (d) 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. (e) Student Accounts Receivable Student receivables 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. SDC'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. Management reserves the right to withdraw a student if their account becomes more than 10 days delinquent. Furthermore, students will not be allowed to take final exams, re-enroll for a new semester, obtain a transcript or receive a diploma with an unpaid account (f) Property and Equipment Property and equipment 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 fixtures Building and improvements Vehicles 3 - 10 years 5 -40 years 5 - 10 years (g) Prepaid Expenses and Other Assets Prepaid expenses and other assets are contractual advance payments made with a reasonable, certain anticipation of a future expense. Prepaid expenses and other assets were $196,090 and $215,664 at June 30, 2018 and June 30, 2017, respectively. (h) 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 pledges receivable since SDC's management expects to collect all pledges made by donors. As June 30, 2018 all pledges except for the pledge noted in Note 12, related party transactions, are expected to be collected within one year and therefore, no discount was necessary. Pledges receivable were $58,040 and $87,640 at June 30, 2018 and 2017, respectively. (i) Deferred Revenue SDC records tuition received in advance as deferred revenue until earned. The revenue is recognized when services are performed. Deferred revenue was $975,848 and $344,155 at June 30, 2018 and 2017, respectively. 7 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Donated Services and Materials Contributions of donated noncash assets are recorded at fair value in the period received. Contributions of donated services that create or enhance non-financial assets or that are provided by individuals possessing specialized skills are recorded at fair value in the period received if such services would typically be purchased if not provided by donation. (k) Support and Revenue SDC receives its revenue primarily from student tuition and private contributions. A significant portion of revenue is received on behalf of students through federal, state and private loans and grants. Contributions are recognized when the donor makes a promise to give to SDC 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 reclassified to unrestricted net assets. Support from government grants and other sources are recognized when earned. (I) Tuition and Fees Tuition and fees are recognized as revenue during the applicable academic period. Registration and other non-refundable fees are recognized when received. Financial assistance in the form of scholarships and grants that cover a portion or all of a student's tuition and fees is reflected as a reduction of tuition and fees revenues. (m) Advertising SDC 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. Advertising costs for the year ended June 30, 2018 were $32,584. The advertising costs for the year ended June 30, 2017 were $59,713. (n) 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. Directly identifiable expenses are charged to programs and supporting services. Expense not directly identifiable have been allocated among the programs and the supporting services benefited. General and administrative expenses include those expenses that are not directly identifiable with any other specific function but provide the overall support and direction of SDC. (o) Income Taxes SDC is a qualified organization exempt from Federal income and California franchise taxes under the provisions of Sections 501(c)(3) of the Internal Revenue Code and 23701(d) of the California Revenue and Taxation Code, respectively. Accordingly, no provision for income taxes has been made. During the fiscal years ended June 30, 2018 and 2017, SDC had no unrelated business income on which taxes would be due. 8 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (p) Use of Estimates The preparation of financial 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (q) Summarized Comparative Financial Information The financial statements include certain prior-year summarized comparative financial information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with SDC's financial statements for the year ended June 30, 2017, from which the summarized information was derived. (r) Reclassifications Certain items in the June 30, 2017 financial statements have been reclassified to conform to the June 30, 2018 financial statement presentation. These reclassifications had no material effect on previously reported net assets. (s) New Accounting Pronouncements In August 2016, FASB issued ASU 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities. The new guidance improves and simplifies the current net asset classification requirements and information presented in financial statements and notes that are useful in assessing a not-for-profit's liquidity, financial performance and cash flows. ASU 201614 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. ASU 2016-14 is to be applied retroactively with transition provisions. SDC will adopt ASU 2016-14 for its fiscal year beginning July 1, 2018. (3) STUDENT ACCOUNTS AND LOANS RECEIVABLE Student accounts receivable consists of the following at June 30 2018 and 2017: Student accounts receivable 2018 $ 3,590,738 2017 $ 2,216,714 Less: allowance for doubtful accounts Total ( 738,958 ) $ 2,851,780 ( 613,994 ) $ 1,602,720 Student receivables 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. 9 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (3) STUDENT ACCOUNTS AND LOANS RECEIVABLE-continued Student loans receivable consist of the following at June 30 2018 and 2017: Federal Student Loans California State Student Loans Private Loans Total 2018 $ 52,588 483,122 335,413 S 871,123 2017 $ 60,037 126,371 92,851 $ 279,259 The balances of $871,123 and $279,259 are the amounts that the students owe to SDC for the years June 30, 2018 and 2017, respectively. (4)INVESTMENTS Investments consist of the following at June 30 2018 and 2017: Cash Reserves Fixed Income Church Bonds Mutual Funds Common Stocks Total 2018 47,635 363,965 187,000 31,239 $ 629,839 2017 $ 153,517 502,765 188,699 30,873 $ 875,854 $ Refer to Note 8 for the Fair Value Measurements Investment Income consists of the following for the years ended June 30, 2018 and 2017 2018 Interest and Dividends $ 2017 837 $ 66,849 (5)PROPERTY, EQUIPMENT AND LIBRARY BOOKS Property, equipment and library books consist of the following at June 30, 2018 and 2017: Building and land Leasehold improvements Equipment Library books Vehicles Property, equipment and library books before depreciation Less: accumulated depreciation Property, equipment and library books, net Less: Debt secured by property Less: Equipment financing Less: Capital lease liability on equipment Net investment in property, equipment and library books 10 2018 $ 14,275,239 242,822 2,176,600 1,095,524 215,976 18,006,161 (4,058,108) 13,948,053 (12,345,457) (1,392,701) $ 209,895 2017 $ 13,966,718 242,822 2,176,600 1,095,524 215,976 17,697,640 (3,358,388) 14,339,252 (9,835,044) (1,443,226) (7,393) $ 3,053,589 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (6) NOTES PAYABLE AND LINE OF CREDIT Secured notes payable and line of credit as of June 30, 2018 and 2017 were comprised of: 2017 2018 Line of credit payable to Ministry Partners Investment Co, LLC, secured by receivables. Interest on the unpaid principal balance calculated at an annual rate of 7%. Original due date is October 20, 2017. $ 1,250,000 Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $27,899 due monthly. Original due date is May 15, 2032. 3,526,531 Loan payable to Chase Bank, secured by the Santee property, interest and principal payments of $33,292 due monthly, with a variable interest rate, due October 15, 2035. 4,437,404 Loan payable to Chase Bank, secured by furniture and equipment on the Santee property, interest and principal payments of $22,921 due monthly, with a variable interest rate, due October 15, 2019. Loan payable to CLI capital, secured by the Santee property, interest and principal payments of $87,777 through July 2018, then increasing to $92,044, due monthly, with a variable interest rate, due February 28, 2021, As of June 30, 2018, the interest rate was 7.50%. Total notes payable and line of credit Less: notes payable and line of credit — current portion Total notes payable and line of credit— net of current portion Less: Deferred debt costs Total note payable net of current portion and deferred costs 621,109 13,000,000 13,000,000 9,835,044 (71,429) (1,874,926) 12,928,571 7,960,118 (654,543) 7,960,118 $ 12,274,028 $ On February 16, 2018 SDC refinanced all of their debt with a promissory note in the amount of $13,000,000 with CLI Capital, a Texas real estate investment trust. $13,000,000 Note Payable The note payable will bear interest at the lesser of (a) the maximum rate of interest permitted by applicable law; or (b) a variable rate of 2.50% per year in excess of the prime rate of interest. The interest rate cannot be less than 6.50% per year nor more than 18.00% per year on unpaid principal. The index rate as of February 16, 2018 was 4.50% per year, resulting in an initial rate of 7.00% per year. The note is due on February 28, 2021, when the entire balance and accrued interest is payable in full. 11 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (6) NOTES PAYABLE AND LINE OF CREDIT — continued Future maturities of long-term debt are as follows: Year ended June 30, 71,429 2019 $ 2020 89,016 2021 12,839,555 Total $ 13,000,000 Note Payable Debt Covenants The outstanding debt with CLI Capital requires that SDC complies with certain covenants, including two financial covenants: (a) maintain a debt service coverage ratio of not less than 1.2 to 1 and (b) maintain a positive working capital position of at least $1.5 million. The debt service coverage ratio is calculated by dividing change in net assets plus interest expense, depreciation expense, amortization expense, and other non-cash expense by annual required debt service. The working capital position is calculated by subtracting total current liabilities from total current assets. As of June 30, 2018, SDC was not in compliance with the debt service coverage ratio as the ratio was less than 1.2 to 1 (actual ratio approximately 0.7 to 1) based on fiscal 2018 results. As of June 30, 2018, SDC was in compliance with the working capital requirement. SDC not satisfying the debt service coverage ratio is considered an Event of Default under the loan agreement with CLI Capital and, as a result, CLI Capital has the right to enforce the payment of the outstanding note immediately or non-judicial foreclosure as allowed by the law, among other rights. CLI Capital has not enforced its rights allowed under the Event of Default provisions in the loan agreement and SDC continues to make its monthly loan payments to CLI Capital in fiscal 2019. (7) EQUIPMENT FINANCING SDC has an Assessment Financing Contract for Solar Panels with the California Enterprise Development Authority. The Authority has established the Property Assessed Clean Energy (PACE) program. They assist property owners with the financing of the acquisition and installation of certain qualifying renewable energy systems and energy or water efficiency equipment (Assessment Financing). The Solar Panels have been capitalized and recorded as an asset and equipment financing liability in the Statement of Financial Position. The total Solar Panel improvement amount is $1,449,200, which is made up of ten parcels. Each parcel has monthly payments of interest and principal with an interest rate of 6.14% through March 2035. The future principal payments for the next five years are as follows: Year ended June 30, 2019 $ 2020 2021 2022 2023 12 53,627 56,920 60,414 64,124 68,061 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (8) FAIR VALUE MEASUREMENTS SDC uses appropriate valuation techniques to determine fair value based on inputs available. When available, SDC 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. June 30, 2018 Investments: Cash reserves $ Level 1 47,635 $ 47,635 Fixed income bonds: Church bonds 363,965 Common stocks: Commercial Energy Total common stocks 19,643 11,596 31,239 19,643 11,596 31,239 187,000 187,000 Mutual funds: Debt fund Total investments $ $ $ 265,874 $ 153,517 Fixed income bonds: Church bonds 502,765 Common stocks: Commercial Energy Total common stocks 21,129 9,744 30,873 21,129 9,744 30,873 188,699 188,699 Mutual funds: Debt fund Total investments $ $ 875,854 13 $ $ $ Level 1 153,517 Level 3 363,965 June 30, 2017 Investments: Cash reserves 629,839 Level 2 Level 2 363,965 Level 3 $ $ 502,765 $ 373,089 _ $ - $ 502,765 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (8) FAIR VALUE MEASUREMENTS-continued Valuation techniques: • Fair value for common stocks — determined by reference to quoted market prices and other relevant information generated by market transactions. • Fair value for mutual funds — based on quoted net asset values of the shares held by SDC at year-end. • Fair value for installment notes — based on yields currently available on comparable notes of issuers with similar credit ratings. • Fair value for fixed income bonds — based on model-based techniques using significant assumptions that are not observable. (9) PRIOR PERIOD ADJUSTMENT In preparation of the June 30, 2018 audit, due to unforeseen circumstances, management encountered events that changed the outcome of specific assets and liabilities in the amount of ($1,200,717), which overstated the fiscal year ended June 30, 2017 audited financial statements. The assets restated were prepaid assets written off in the amount of ($816,510), other receivables and obsolete inventory written off in the amount of ($353,292) and a retroactive adjustment related to capitalizing building improvements of $1,322,544. The liabilities restated were accounts payable for legal invoices received after the June 30, 2017 audit in the amount of $141,245, building improvements related financing of $1,443,226 and other liabilities written off in the amount of ($231,012). The net effect on the change in net assets for the year ended June 30, 2017 was ($1,200,717). KPM Accounting & Management Solutions, the audit firm, decided the proper treatment is to restate the prior year Statement of Financial Position, Statement of Activities and Statement of Cashflows for the year ended June 30, 2017. Financial statement effect of prior period adjustment as follows: Total assets — previously reported - 6/30/2017 Capitalize building improvements Write-off prepaid assets Write-of other receivables and obsolete inventory Total assets — restated - 6/30/2017 $ 17,437,903 1,322,544 ( 816,510 ) ( 353,292 ) S 17,590,645 Total liabilities — previously reported - 6/30/2017 Building improvements related financing Account payable for legal invoices received after June 30, 2017 Write-off other liabilities Total liabilities - restated - 6/30/2017 $ 12,051,423 1,443,226 141,245 ( 231,012 ) $ 13,404,882 Net assets — beginning of year - 6/30/2017 Adjusted change in net assets Net assets — end of year - 6/30/2017, as restated 5,386,480 ( 1,200,717 ) 4,185,763 S 14 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (10)PERMANENTLY RESTRICTED NET ASSETS SDC's endowments consist of 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 Directors of SDC 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, SDC classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of the subsequent gifts to the permanent endowment, and (c) 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 SDC 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 SDC and the donor-restricted endowment fund. The investment policies of SDC, including guidance contained in the donor stipulations. Priorities of needs of SDC General economic conditions Endowment Net Asset Composition by Type of Fund as of June 30, 2018 and 2017. Permanently Restricted 2018 2017 Donor restricted endowments S 701,466 $ 692,631 Changes in Endowment Net Assets for the Years Ended June 30, 2018 and 2017: Endowment net assets, beginning of year Donor restricted contribution Total investment return Permanently Restricted 2017 2018 $ 692,631 $ 632,040 57,974 2,617 8,835 End of the year $ 701,466 S 692,631 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 of SPMIFA requires SDC to retain as a fund of perpetual duration. There were no deficiencies of this nature that are reported in unrestricted net assets. 15 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (10)PERMANENTLY RESTRICTED NET ASSETS-continued Spending Policy and How the Investment Objectives 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 specified 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 SDC'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: • The San Diego Christian College Endowment with 75% of the income available to support scholarships and 25% of the income added to principal. • The Argue-Johnson Family Endowed Scholarship with income up to 5% available for scholarships and any excess income added to principal. Return Objectives and Risk Parameters SDC 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 SDC must hold in perpetuity or for a donor-specified period(s). Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, SDC 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). (11)TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30, 2018 and 2017: 2018 $ 13,962 15,380 33,045 71,450 107,043 Scholarships Campus relocation Endowment for scholarships Operating projects - other Missions Total $ 240,880 16 2017 $ 142,475 14,039 33,045 125,927 $ 315,486 SAN DIEGO CHRISTIAN COLLEGE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2018 (with comparative financial information for the year ended June 30, 2017) (12)RELATED PARTY TRANSACTIONS SDC's president increased his pledge by an additional $30,000 during the year ended June 30, 2017. 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, 2018 is $30,000. (13)LEASE COMMITMENT SDC leases its Athletics office and Campus apartments under operating lease agreements. The lease agreement for Athletics commenced on January 1, 2014 and will expire on March 31, 2019. The current monthly payments are $10,313. The initial lease agreement for the Campus apartments expired on September 30, 2018. A new lease was negotiated on October 2, 2018 and will expire on September 30, 2021. The monthly payments under the prior lease were $53,550 as of June 30, 2018, increased to $54,600 upon the commencement of the new lease in October 2018 and will increase 2% annually on October 1" in subsequent years. The total lease expense was $758,552 for the year ended June 30, 2018. As of June 30, 2018, the future minimum rental payments are as follows: Year ended June 30, 2019 744,866 $ 2020 665,028 2021 678,330 2022 170,418 Total $ 2,258,642 (14)PENSION PLAN SDC has a defined contribution pension plan covering all employees who have met certain service requirements. SDC contributes 2% to 6% of participants' compensation annually. Contributions to the plan were $146,900 and $173,850 for the years ended June 30, 2018 and 2017, respectively. (15)SUBSEQUENT EVENTS In connection with the preparation of the financial statements, SDC evaluated events after the Statement of Financial Position date of June 30, 2018 through March 19, 2019, which was the date the financial statements were issued, and determined that there were no additional matters that are required to be disclosed. 17 SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED JUNE 30, 2018 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Pass Through Number 84.033 84.038 N/A N/A 84.007 84.063 84.268 N/A N/A N/A 2018 Federal Expenditures 2017 Federal Expenditures U.S. Department of Education Student Financial Aid Cluster: Federal Work-Study Program (FWS) Federal Perkins Loans Federal Supplemental Educational Opportunity Grants FSEOG) Federal Pell Grant Program (PELL) Federal Direct Student Loans (Direct Loan) Total Expenditures of Federal Awards $ 32,563 33,473 $ 46,439 1,420,664 5,602,142 $ 7,135,281 64,816 1,526,051 5,371,802 $ Note 1: Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule) includes the federal award activity of San Diego Christian College (SDC) under programs of the federal government for the year ended June 30, 2018. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of SDC, it is not intended and does not present the financial position, changes in net assets, or cash flows of SDC. Note 2: Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the Schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. SDC has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. Note 3: Federal Student Loan Programs The federal student loan programs listed are administered directly by San Diego Christian College, and balances and transactions relating to these programs are included in San Diego Christian College's basic financial statements. Loans outstanding at the beginning of the year and loans made during the year are included in the federal expenditures presented in the Schedule. 19 49,732 32,372 7,044,773 Solutions OutsiJe tke eox INDEPENDENT AUDITORS'REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS. 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 financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of San Diego Christian College (SDC), which comprise the statement of financial position as of June 30, 2018, 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 19, 2019. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered SDC'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 opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of SDC's internal control. Accordingly, we do not express an opinion on the effectiveness of SDC's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 20 Board of Directors San Diego Christian College Compliance and Other Matters As part of obtaining reasonable assurance about whether SDC'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 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 specified parties 4e..c&az& o .7 KPM Accounting & Management Solutions San Francisco, CA March 19,2019 21 r) AFM j :c Solutions Outside tke eox INDEPENDENT AUDITORS'REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE. 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 (SDC) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of SDC's major federal programs for the year ended June 30, 2018. SDC's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of SDC'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 the audit requirements of Title 2 US. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about SDC'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 the major federal program. However, our audit does not provide a legal determination of SDC'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, 2018. 22 Board of Trustees San Diego Christian College Report on Internal Control Over Compliance Management of SDC 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 SDC'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 the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of SDC'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. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. /Vie 4ccetattz'off- 9-‘941-adtarartaott-519/6etZersdKPM Accounting & Management Solutions San Francisco, CA March 19, 2019 23 SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2018 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued on whether the financial statements audited were prepared in accordance with GAAP. Unmodified Internal control over financial reporting: • Material weakness(es) identified? yes x no • Significant deficiencies identified yes x none reported yes x no Noncompliance material to financial statements noted? Federal Awards Internal control over major programs: • Material weakness(es) identified? yes x no • Significant deficiencies identified yes x none reported Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516 (a) Unmodified yes 24 x no SAN DIEGO CHRISTIAN COLLEGE SCHEDULE OF FINDINGS AND QUESTIONED COSTS - continued YEAR ENDED JUNE 30, 2018 Section I - Summary of Auditor's Results Identification of Major Federal Programs: CFDA Numbers Name of Federal Program Student Financial Aid Cluster 84.007, 84.033, 84.038, 84.063, 84.268 Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? X yes Section II - Financial Statement Findings Current Year Findings: None Section III - Federal Award Findings and Questioned Costs Current Year Findings and Questioned Costs: None 25 no SAN DIEGO CHRISTIAN COLLEGE SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS YEAR ENDED JUNE 30, 2018 The previous audit of the Federal Award Programs was for the year ended June 30, 2017. There were no findings or questioned costs related to the federal award programs reported in that audit. 26