OMB Circular Carleton College

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OMB Circular Carleton College Powered By Docstoc
					Carleton College
Financial Statements and Reports on
Federal Award Programs in Accordance with
OMB Circular A-133
June 30, 2005
EIN 41-0694747
Carleton College
Index
June 30, 2005

                                                                                                                                       Page(s)

PART I     FINANCIAL STATEMENTS

           Report of Independent Auditors......................................................................................... 1

           Financial Statements

           Balance Sheet......................................................................................................................... 2

           Statement of Activities and Change in Net Assets................................................................. 3

           Statement of Cash Flows ....................................................................................................... 4

           Notes to Financial Statements.......................................................................................... 5–12

           Supplemental Schedule

           Schedule of Expenditures of Federal Awards...................................................................... 13

           Notes to Schedule of Expenditures of Federal Awards ....................................................... 14


PART II    REPORTS ON INTERNAL CONTROL, COMPLIANCE AND OTHER MATTERS

           Report of Independent Auditors on Internal Control Over Financial
           Reporting and on Compliance and Other Matters Based on an Audit of Financial
           Statements Performed in Accordance with Government Auditing Standards ............... 15–16

           Report of Independent Auditors on Compliance with Requirements
           Applicable to Each Major Program and on Internal Control Over Compliance
           in Accordance with OMB Circular A-133 ..................................................................... 17–18


PART III   SCHEDULE OF FINDINGS AND QUESTIONED COSTS

           Independent Auditor’s Schedule of Findings and Questioned Costs............................. 19–21
FINANCIAL STATEMENTS
                                                                                          PricewaterhouseCoopers LLP
                                                                                          Suite 1400
                                                                                          225 South Sixth Street
                                                                                          Minneapolis MN 55402
                                                                                          Telephone (612) 596 6000
                                                                                          Facsimile (612) 373 7160

                                    Report of Independent Auditors


To the Board of Trustees
Carleton College


In our opinion, the accompanying balance sheet and the related statements of activities and change in
net assets and cash flows present fairly, in all material respects, the financial position of Carleton
College (the “College”) at June 30, 2005, and the change in its net assets and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the College’s management. Our
responsibility is to express an opinion on these financial statements based on our audit. The prior year
summarized comparative information has been derived from the College’s 2004 financial statements;
and in our report dated September 10, 2004, we expressed an unqualified opinion of those financial
statements. We conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.

In accordance with Government Auditing Standards, we have also issued a report dated September 9,
2005, 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 for the year ended June 30, 2005. The purpose of that report is to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing, and not
to provide an opinion on the internal control over financial reporting or on compliance. That report is
an integral part of an audit performed in accordance with Governmental Auditing Standards and should
be considered in assessing the results of our audit.

The accompanying Schedule of Expenditures of Federal Awards for the year ended June 30, 2005, is
presented for purposes of additional analysis as required by U.S. Office of Management and Budget
Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a
required part of the basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in
all material respects, in relation to the basic financial statements taken as a whole.




September 9, 2005
                                                     1
Carleton College
Balance Sheet
June 30, 2005, with Summarized Financial Information for June 30, 2004

                                            General         Physical           Financial
                                           Operations       Capital             Capital            2005 Totals        2004 Totals

Assets
Cash and cash equivalents              $ 27,162,226     $     2,974,691    $               -   $    30,136,917    $      9,893,836
Receivables, net
  Pledges                                           -                  -        17,518,992          17,518,992           3,485,602
  Government                                2,591,214                  -                 -           2,591,214           4,137,256
  Other                                     1,345,543                  -                 -           1,345,543           1,214,805
Inventories, prepaid expenses and
 deferred charges                           2,626,245                 -                  -           2,626,245          1,755,392
Loans to students                           6,627,831                 -                  -           6,627,831          6,364,447
Deposits with bond trustee                          -         2,760,120                  -           2,760,120            206,667
Investments                                 6,210,003                 -        591,305,221         597,515,224        580,183,374
Property, plant and equipment,
 net of depreciation                                -       116,608,296                    -       116,608,296        114,727,020
       Total assets                    $ 46,563,062     $ 122,343,107      $ 608,824,213       $ 777,730,382      $ 721,968,399
Liabilities and Net Assets
Liabilities
 Accounts payable                      $    2,123,720 $               -    $             -     $     2,123,720    $      1,843,257
 Accrued expenses                           6,250,906                 -                  -           6,250,906           6,523,323
 Deferred income and deposits              16,453,011                 -                  -          16,453,011          12,714,849
 Annuities payable                                  -                 -         23,600,459          23,600,459          21,864,563
 Bonds payable                                      -        68,139,867                  -          68,139,867          65,088,799
 Interfund loans                           (1,795,590)        1,795,590                  -                   -                   -
 Refundable government grants
  for student loans                         5,266,787                  -                   -          5,266,787          5,156,146
       Total liabilities                   28,298,834        69,935,457         23,600,459         121,834,750        113,190,937
Net assets
 Unrestricted
  Operations                                1,693,760                 -                  -           1,693,760          2,343,634
  Student loan funds                        3,306,746                 -                  -           3,306,746          3,245,521
  Plant funds                                       -                 -                  -                   -           (261,983)
  Net investment in plant                           -        50,729,378                  -          50,729,378         45,833,584
  Appreciation on endowments                        -                 -        308,063,639         308,063,639        289,988,768
  Funds functioning as endowment                    -                 -         62,694,044          62,694,044         60,742,444
       Total unrestricted net assets        5,000,506        50,729,378        370,757,683         426,487,567        401,891,968
 Temporarily restricted
  Operations                               13,263,722                 -                  -          13,263,722          15,875,308
  Plant funds                                       -         1,678,272                  -           1,678,272             473,782
  Appreciation on true endowments                   -                 -         40,508,982          40,508,982          38,437,988
  Funds functioning as endowment                    -                 -         17,065,248          17,065,248           2,906,266
  Split interest funds                              -                 -         19,360,209          19,360,209          19,538,005
       Total temporarily restricted
       net assets                          13,263,722         1,678,272         76,934,439          91,876,433          77,231,349
 Permanently restricted
  True endowments                                   -                  -       129,226,229         129,226,229        122,610,388
  Split interest fund                               -                  -         8,305,403           8,305,403          7,043,757
       Total permanently restricted
       net assets                                   -                  -       137,531,632         137,531,632        129,654,145
       Total net assets                    18,264,228        52,407,650        585,223,754         655,895,632        608,777,462
       Total liabilities and net assets $ 46,563,062    $ 122,343,107      $ 608,824,213       $ 777,730,382      $ 721,968,399




                   The accompanying notes are an integral part of these financial statements.

                                                                2
Carleton College
Statement of Activities and Change in Net Assets
Year Ended June 30, 2005, with Summarized Financial Information for June 30, 2004

                                                 General Operations                       Physical Capital                                   Financial Capital
                                                            Temporarily                             Temporarily                                Temporarily           Permanently
                                            Unrestricted     Restricted            Unrestricted      Restricted           Unrestricted          Restricted            Restricted        2005 Totals           2004 Totals

Revenues and other additions
Tuition and fees                        $     59,378,173    $             -    $              -    $              -   $                  -   $             -     $              -   $     59,378,173      $     55,131,371
Room and board                                 9,366,271                  -                   -                   -                      -                 -                    -          9,366,271             8,641,529
Scholarships                                 (19,522,411)                 -                   -                   -                      -                 -                    -        (19,522,411)          (17,545,615)
        Net student fees                      49,222,033                  -                   -                   -                      -                 -                    -         49,222,033            46,227,285
Private gifts and pledges                      6,335,588         2,449,032                    -         976,834              1,402,082            16,737,641            5,613,873         33,515,050            19,945,091
Government reimbursements                        759,377                 -                    -               -                                                                              759,377               758,976
Interest and dividends                           104,062           125,812              120,715               -              2,959,326             8,129,338                    -         11,439,253             7,521,513
Net realized gain                                      -                 -                    -               -             11,303,048            14,030,269                    -         25,333,317            58,374,645
Net unrealized gain                               48,179                 -           (1,464,636)              -             11,237,458             4,122,359                    -         13,943,360            16,902,422
Net change in split interest                           -           337,058                    -               -                      -            (3,108,763)           1,261,646         (1,510,059)           (4,505,701)
Bookstore, rents and other                     3,524,027            37,663               94,211               -                      -                     -                    -          3,655,901             3,723,416
        Subtotal revenue                      59,993,266         2,949,565           (1,249,710)        976,834             26,901,914            39,910,844            6,875,519        136,358,232           148,947,647
Fund transfers                                         -                  -           5,212,344         227,656              (5,440,000)                   -                    -                     -                     -
Investment returns utilized                    6,519,626         17,787,388                   -               -              (6,519,626)         (17,787,388)                   -                     -                     -
Net assets released from restrictions         23,333,664        (23,348,539)                  -               -               5,084,183           (6,071,276)           1,001,968                     -                     -
        Total revenues and other
        additions                             89,846,556         (2,611,586)          3,962,634        1,204,490            20,026,471            16,052,180            7,877,487        136,358,232           148,947,647
Expenses
Instruction                                   29,977,241                  -           6,191,307                   -                      -                 -                    -         36,168,548            36,233,494
Academic support
  Library                                      3,826,563                  -             124,377                   -                      -                 -                    -          3,950,940             4,003,464
  Other                                        5,647,411                  -             687,136                   -                      -                 -                    -          6,334,547             5,742,688
Student services                               8,710,187                  -           3,711,730                   -                      -                 -                    -         12,421,917            11,838,725
Institutional support
  Administration                               4,817,819                  -             (98,892)                  -                      -                 -                    -          4,718,927             4,170,538
  External relations                           3,362,664                  -              25,828                   -                      -                 -                    -          3,388,492             3,099,507
  Fund raising                                 3,860,761                  -              65,320                   -                      -                 -                    -          3,926,081             3,247,164
  General                                      5,383,847                  -              15,817                   -                      -                 -                    -          5,399,664             5,038,512
Plant operations                               8,845,008                  -          (8,845,008)                  -                      -                 -                    -                  -                     -
Debt                                           3,988,995                  -          (3,988,995)                  -                      -                 -                    -                  -                     -
Auxiliary enterprises                         12,014,709                  -             916,237                   -                      -                 -                    -         12,930,946            13,587,926
        Total expenses                        90,435,205                  -          (1,195,143)                  -                      -                 -                    -         89,240,062            86,962,018
        Change in net assets                    (588,649)        (2,611,586)          5,157,777        1,204,490            20,026,471            16,052,180            7,877,487         47,118,170            61,985,629
Net assets
Beginning of year                              5,589,155        15,875,308           45,571,601         473,782            350,731,212            60,882,259          129,654,145        608,777,462           546,791,833
End of year                             $      5,000,506    $   13,263,722     $     50,729,378    $   1,678,272      $    370,757,683       $    76,934,439     $    137,531,632   $    655,895,632      $    608,777,462


                                                            The accompanying notes are an integral part of these financial statements.

                                                                                                       3
Carleton College
Statement of Cash Flows
Years Ended June 30, 2005 and 2004

                                                                           2005                2004

Cash flows from operating activities
Change in net assets                                                $    47,118,170     $    61,985,629
Adjustments to reconcile change in net assets to net cash
used in operating activities
 Depreciation                                                              6,554,420           6,259,617
 Net realized and unrealized gain on investments                         (39,276,679)        (75,277,067)
 Private gifts for long-term investments                                 (24,730,430)        (12,225,626)
 Bond discount amortized                                                      15,862              15,862
 Changes in operating assets and liabilities
   Receivable, net - pledges                                             (14,033,390)            869,646
   Receivable, net - government                                            1,546,042            (203,749)
   Receivable, net - other                                                  (130,738)           (398,984)
   Inventories, prepaid expenses and deferred charges                       (870,853)             92,145
   Loans to students                                                        (263,384)             14,156
   Accounts payable                                                          280,463            (720,033)
   Accrued expenses                                                         (272,417)            630,318
   Deferred income and deposits                                            3,738,162           2,412,605
   Annuities payable                                                       1,735,896           3,735,832
   Refundable government grants for student loans                            110,641              22,027
          Net cash used in operating activities                          (18,478,235)        (12,787,622)
Cash flows from investing activities
Purchase of investments                                                 (359,743,184)       (727,378,259)
Proceeds from sale of investments                                        381,688,013         740,047,440
Acquisition of property, plant and equipment                              (8,435,696)         (6,798,116)
          Net cash provided by investing activities                       13,509,133           5,871,065
Cash flows from financing activities
Changes in deposits with bond trustee                                     (3,288,247)            (3,388)
Proceeds from private gifts for long-term investment                      24,730,430         12,225,626
Proceeds from bond issue                                                  31,460,000                  -
Principal payments                                                       (27,690,000)          (975,000)
           Net cash provided by financing activities                      25,212,183         11,247,238
           Net increase in cash and cash equivalents                      20,243,081          4,330,681
Cash and cash equivalents
Beginning of the year                                                     9,893,836            5,563,155
End of the year                                                     $    30,136,917     $      9,893,836
Supplemental disclosure of cash flow information
The College paid $2,968,995 and $2,385,326 in interest during fiscal years 2005 and 2004,
respectively.
As of June 30, 2005 and 2004, the College had $314,841 and $400,284, respectively, of acquisitions
of land, building and equipment in both property, plant and equipment, and accounts payable.




               The accompanying notes are an integral part of these financial statements.

                                                      4
Carleton College
Notes to Financial Statements
June 30, 2005

1.   Summary of Significant Accounting Policies

     Accrual Basis
     The financial statements of Carleton College (the “College”) have been prepared on the accrual
     basis of accounting.

     Basis of Presentation
     The financial statements include certain prior year summarized comparative information in total but
     not by net asset class. Such information does not include sufficient detail to constitute a
     presentation in conformity with accounting principles generally accepted in the United States of
     America. Accordingly, such information should be read in conjunction with the organization’s
     financial statements for the year ended June 30, 2004, from which the summarized information was
     derived.

     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 unrestricted, temporarily restricted, or permanently restricted and within
     those classifications the College has chosen to reflect three categories: general operations, physical
     capital, and financial capital. Further explanation is as follows:

     •   Unrestricted - Net assets that are not subject to donor-imposed stipulations. Unrestricted net
         assets may be designated for specific purposes by action of the Board of Trustees.

     •   Temporarily restricted - Net assets whose use by the College is subject to donor-imposed
         stipulations that can be fulfilled by actions of the College pursuant to those stipulations or that
         expire by the passage of time.

     •   Permanently restricted - 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 of, or part of, the income earned on related investments for general or specific
         purposes.

     •   Operations - Net assets arising from the annual, recurring flow of revenue and expenses.
         Operations reflect the annual operating budget and include gifts and the income from endowed
         funds that support operations.

     •   Physical plant - Net assets arising from gifts for building projects, funds internally designated
         for physical plant maintenance, and plant debt service, and the accumulated investment in
         physical assets, net of depreciation and borrowed funds.

     •   Financial capital - Net assets arising from gifts and the related gains on investments that are
         held as endowment and the split interest gifts and their related gains.

     Revenues are reported as increases in unrestricted net assets unless use of the revenue is restricted
     by donor-imposed restrictions. Expenses are reported as decreases in unrestricted net assets. Gains
     and losses on investments and other assets or liabilities are reported as increases or decreases in
     unrestricted net assets unless their use is restricted by explicit donor stipulation.




                                                     5
Carleton College
Notes to Financial Statements
June 30, 2005

    Temporarily restricted net assets for which donor-imposed restrictions are met in the current period
    are reclassified to unrestricted net assets and reported as assets released from restrictions.

    Contributions, including unconditional promises to give, are recognized as revenues in the period
    received. Conditional promises to give are not recognized until they become unconditional, that is,
    when the conditions on which they depend are substantially met. Contributions of assets other than
    cash are recorded at their estimated fair value. Contributions to be received after one year are
    discounted at an appropriate discount rate commensurate with the risks involved. Amortization of
    discounts is recorded as additional contribution revenue in accordance with donor-imposed
    restrictions, if any, on the contributions. An allowance for uncollectible contributions receivable is
    provided based upon management’s judgment including such factors as prior collection history,
    type of contribution and nature of fundraising activity.

    Cash and Cash Equivalents
    Cash and cash equivalents include interest-bearing money market accounts and short-term
    investments with an original maturity of less than three months.

    Investments
    Investments are stated at quoted market value or the value provided by an external investment
    manager. Changes in quoted market value are recorded as unrealized gains or losses in the period
    of change.

    Endowment and board-designated funds are invested on the basis of a total return policy to provide
    income and to realize appreciation in investment values. Under this policy, a portion of realized
    and unrealized gains accumulated, in addition to accumulated net investment income, are used to
    support operations. Any such gains used to support operations are utilized in accordance with the
    same restrictions, if any, imposed by donors on the use of income earned by the endowment and
    similar funds.

    Property, Plant and Equipment
    Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is
    computed on the straight-line method over the estimated useful lives of the assets (3 to 40 years).
    Expenditures for new construction, interest on construction, major renewals and replacements and
    equipment costing over $10,000 are capitalized. The capitalized interest is recorded as part of the
    asset to which it relates and is amortized over the assets’ estimated useful life.

    Inventories
    Inventories consist primarily of print center supplies; bookstore books and merchandise as well as
    steam plant fuel oil reserves and are stated at the lower of cost, determined by the first-in, first-out
    method, or market.

    Gift Annuity Contracts
    Annuities payable represent the College’s liability under annuity contracts with donors. Specific
    contract terms vary by donor. The liability is established at the time of the contribution using life
    expectancy actuarial tables and discount rates and is revalued annually. Actual gains and losses
    resulting from the annual revaluation of annuity obligations are reflected as temporarily or
    permanently restricted, consistent with the method used to initially record the contributions. The
    basis used to recognize the asset is fair value.



                                                     6
Carleton College
Notes to Financial Statements
June 30, 2005

     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 Minnesota 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 no obligation for unrelated business income tax.
     Accordingly, no provisions for federal or state income taxes are required.

     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 these estimates.

     Risks and Uncertainties
     Investments are exposed to various risks such as interest rate, market and credit risks. Due to the
     level of risk associated with certain investments, it is at least reasonably possible that changes in the
     values will occur in the near term and that such changes could materially affect the financial
     statements.

     Concentration of Credit Risk
     Financial instruments, which potentially subject the College to concentrations of credit risk, consist
     primarily of cash accounts. Cash accounts are generally held in federally insured banks. As of
     June 30, 2005, the College exceeds the FDIC limit by $2,218,172.

2.   Investments

     The investments include funds traditionally considered the endowment of the College as well as
     assets of deferred gifts, funds designated for debt service and funds temporarily restricted for
     building projects.

     Allocations at market value are as follows:

                                                                            2005                 2004

     Permanent endowment                                              $ 128,772,485        $ 122,031,052
     Gains related to permanent endowment                               246,027,255          229,577,003
     Funds functioning as endowment                                      62,694,044           60,742,444
     Gains related to funds functioning as endowment                    102,545,367           98,849,753
                                                                        540,039,151          511,200,252
     Split-interest agreements                                           51,329,263           48,446,324
     Other invested assets                                                6,146,810           20,536,798
                 Total investments                                    $ 597,515,224        $ 580,183,374




                                                     7
Carleton College
Notes to Financial Statements
June 30, 2005

     The assets of the investments include:

                                                 June 30, 2005                         June 30, 2004
                                          Cost            Market Value          Cost            Market Value

     Cash and short-term
     investments                    $    40,511,529     $    40,470,176   $    34,848,354     $    35,138,833
     Bonds                               82,502,123          85,494,996       108,298,993         113,135,166
     Marketable equity securities       228,062,802         293,994,801       232,963,608         289,554,225
     Private capital                    135,629,734         138,729,189       114,532,749         111,394,573
     Other                               34,108,799          38,826,062        28,228,379          30,960,577
                                    $ 520,814,987       $ 597,515,224     $ 518,872,083       $ 580,183,374

     The majority of the investment assets are pooled on a market value basis with each individual fund
     subscribing to or disposing of shares on the basis of the market value per share at the beginning of
     the calendar quarter within which the transaction takes place. At June 30, 2005, the endowment
     and similar funds owned 37,689,223 shares and the annuity and life income funds owned 1,241,520
     shares, each share having a market value of approximately $14.0952. At June 30, 2004, the
     endowment and similar funds owned 37,343,069 shares and the annuity and life income funds
     owned 1,263,014 shares, each share having a market value of approximately $13.4720. In addition,
     included in investments is $8,827,443 and $7,984,261 of separately invested endowment funds,
     $34,069,853 and $31,560,949 of split-interest agreement gifts primarily comprised of annuities,
     charitable remainder trusts and pooled income funds, and $6,146,810 and $20,536,797 of other
     invested assets at June 30, 2005 and 2004, respectively.

     The majority of private capital investments are carried at the estimated fair value provided by the
     general partners of these investment partnerships or funds, adjusted for cash and securities
     distributions as well as capital calls. The College believes that the carrying amount of its private
     capital investments is a reasonable estimate of fair value as of June 30, 2005 and 2004. Because
     private capital investments are not publicly traded and are expected to be held for several years, the
     estimated value is subject to uncertainty.

     At June 30, 2005, the College had outstanding commitments of $48,162,143 to private capital
     investments that have not yet been drawn down by the general partners of these funds. Typically,
     committed capital is drawn down and invested over a several year period. In the past, draw downs
     on outstanding commitments have been funded by distributions from the private capital portfolio.

3.   Investment Income

     The College utilizes the total return method of accounting for income from its investments. Under
     this method, a spending rate per share is established which is considered to be a prudent use of the
     return on investments, consisting of both yield (dividends and interest) and realized and unrealized
     appreciation. Each year, the spending rate per share is increased by 4.5% from the previous year,
     independent of the market value changes in investments. Due to the market value decline the
     Board of Trustees approved a variance over a three-year period to return to a level of 4.5% of
     current market value. For the year ended June 30, 2005, the spending amount per share was
     $0.6448, down from $0.6710 as of June 30, 2004.




                                                       8
Carleton College
Notes to Financial Statements
June 30, 2005

     Investment expense totaled $2,617,143 and $3,080,270 for the years ended June 30, 2005 and 2004,
     respectively, and is netted with investment income.

4.   Property, Plant and Equipment

     Property, plant and equipment as of June 30, 2005 and 2004, are as follows:

                                                                          2005               2004

     Land and real estate improvements                              $     3,010,324    $     3,010,324
     Buildings                                                          143,074,356        139,076,393
     Equipment and books                                                 64,111,996         59,674,264
                                                                        210,196,676        201,760,981
     Less: Accumulated depreciation                                   (93,588,380)       (87,033,961)
                                                                    $ 116,608,296      $ 114,727,020

5.   Bonds Payable

     Bonds payable at June 30, 2005 and 2004, are as follows:

                                                                          2005               2004

     Minnesota Higher Education Facilities Authority (MHEFA)
      First Mortgage Revenue Bond Series T                   $            1,305,000    $     1,425,000
      Variable and Fixed Rate Demand Revenue Bonds
       Series 3L1 and 3L2                                                10,300,000         20,300,000
      Revenue bonds Series 4N                                             3,000,000         20,570,000
      Revenue bonds Series 5G                                            23,000,000         23,000,000
      Revenue bonds Series 6D                                            31,460,000                  -
                                                                         69,065,000         65,295,000
     Less: Unamortized discount                                            (925,133)          (206,201)
                                                                    $    68,139,867    $    65,088,799

     The Series T bonds bear interest at 5.625% per annum payable semi-annually, and mature March 1,
     2007. The financing was structured through leases with MHEFA under the terms of which the
     College has an option to purchase the facilities at the termination of the leases for $500. The
     transactions have been accounted for as capitalized leases with the related assets and liabilities
     being reflected in the statement of financial position. The Series T bonds are collateralized by a
     first mortgage on the facilities for which the funds were used and first liens and pledge of the net
     revenues derived from the operations of these facilities.

     The Series 3-L2, in the amount of $10,300,000, bears a variable rate of interest and matures
     November 1, 2012. The interest rate was 2.15% and 0.92% at June 30, 2005 and 2004,
     respectively. The proceeds from these bonds were used to finance construction projects. These
     bonds require the College to comply with various covenants, including maintaining a positive
     change in unrestricted net assets for at least two of the preceding three fiscal years.



                                                   9
Carleton College
Notes to Financial Statements
June 30, 2005

    Revenue Bonds, Series 4N, bear interest at a fixed rate of interest ranging from 5.0% to 5.5%.
    Principal and interest is payable semi-annually. The Series 4N mature November 1, 2018. The
    proceeds from these bonds were used to finance construction projects. These bonds require the
    College to comply with various covenants, including specifying a maximum amount of bonds
    outstanding of $150,000,000.

    Revenue Bonds, Series 5G, bear interest at a variable rate, with interest payable monthly. The
    interest rate was 2.15% and 0.92% at June 30, 2005 and 2004, respectively. The interest rate on
    these bonds may be converted to a fixed rate at the direction of the College, at which time interest
    will be payable semi-annually. Interest and principal payments are required to be deposited to a
    Bond and Interest Sinking fund as they become due. This bond requires the College to comply with
    various covenants, including maintaining a positive change in unrestricted net assets, adjusted for
    certain items, for at least two of the preceding three fiscal years.

    During fiscal year 2005, the College borrowed $31,460,000 in order to effect legal defeasement of
    the College’s Series 3L-1 and a portion of the College’s Series 4N debt. The College placed the
    majority of the proceeds of this borrowing along with the funds from existing bond reserves and
    additional borrowings into an escrow account to service the Series 3L-1 and Series 4N principal
    and interest until maturity. The escrow account is to be invested in direct obligations of the United
    States of America or other permitted investments that are expected to mature at such times and in
    such amounts sufficient to retire all the Series 3L1 bonds identified Series 4N bonds upon maturity.
    The College estimates that the amounts on deposit will be sufficient to cover the debt service on
    these bonds and that defeasement will result in lower overall debt service payments to the College.

    The College has deposited $30,000 for Series T bonds in general bond reserve accounts of the
    MHEFA for the purpose of collateralizing the College’s bonds issued by MHEFA. The Series T
    issue contains a sinking fund requirement of $120,000 per year continuing through 2006. The
    College must also maintain a debt service reserve account for Series T bonds with qualified reserve
    investments having market values equal at least to 110% of the principal amount of the bonds
    outstanding less any balances in the sinking funds. Such investments, whose market value
    aggregates $1,752,427 and $1,707,634 at June 30, 2005 and 2004, respectively, have been recorded
    as unrestricted investments of the College.

    The maturities of debt in each of the five years subsequent to June 30, 2005, are as follows:

     2006                                                                              $     1,215,000
     2007                                                                                    2,320,000
     2008                                                                                    1,190,000
     2009                                                                                    1,260,000
     2010                                                                                    1,315,000
     Thereafter                                                                             61,765,000
                                                                                       $    69,065,000




                                                  10
Carleton College
Notes to Financial Statements
June 30, 2005

     Effective for ten years commencing on July 1, 1998 and October 1, 1998, the College entered into
     two interest rate swap agreements with Wells Fargo Bank Minnesota (the “Bank”) under which the
     College makes payment to the Bank whenever the floating PSA Municipal Swap Index (the
     “Index”) lies below the agreed-upon fixed interest rate and the Bank pays the College if ever the
     Index lies ahead the fixed rate. The notional amount of each agreement is $5,150,000,
     corresponding, in total, to the $10,300,000 outstanding MHEFA Series 3L-2 variable rate bonds.
     Fixed rates are 4.47% and 4.12%, respectively, and the all-in interest rates of the College are
     expected to average 4.32% and 3.97% assuming that “spread” between the interest rate paid on the
     MHEFA bonds continue to average 15 basis points less than the Index.

     On March 31, 2005, the College entered into an interest rate swap agreement with Morgan Stanley
     Capital Services Inc. effective April 13, 2005, terminating April 1, 2022, under which the College
     makes payment to Morgan Stanley whenever the floating BMA rate (effective until November 1,
     2007) or floating rate 68% of USD-LIBOR-BBA (effective November 1, 2007 until termination)
     lies below the agreed-upon fixed interest rate of 3.53% and Morgan Stanley pays the College if the
     floating lies above the fixed rate. The notional amount of the agreement, $31,460,000 corresponds
     to the outstanding MHEFA Series 6D variable rate bonds.

6.   Retirement Plan

     Substantially all nonunion employees of the College participate in an arrangement whereby the
     individuals and the College contribute to individual employee TIAA-CREF retirement accounts
     which fund individual retirement benefits.

     Expenses for the College’s share of the contributions were $4,296,826 and $4,086,403 in 2005 and
     2004, respectively.

7.   Pledges Receivable

     Unconditional promises to give are included in the financial statements as pledges receivable and
     revenue in the appropriate net asset category.

     Pledges receivable are summarized as follows at June 30, 2005 and 2004:

                                                                         2005               2004

     Unconditional promises expected to be collected in
      Less than one year                                           $     1,545,542     $    1,381,630
      One year to five years                                            20,523,143          2,504,840
      Over five years                                                      389,377            414,403
      Less: Discount                                                    (4,939,070)          (815,271)
                                                                   $    17,518,992     $    3,485,602




                                                  11
Carleton College
Notes to Financial Statements
June 30, 2005

8.    Fair Value of Financial Instruments

      The carrying amounts of cash and cash equivalents and pledges receivable approximate fair value
      because of the short maturity of these financial instruments. The carrying values of investments,
      which are the fair value, are based upon values provided by an external investment manager or
      quoted market values.

      Student loans receivable consist primarily of loans made to students under U.S. government loan
      programs. The loans are stated at net realizable value in the accompanying statements. It is not
      practicable to estimate the fair value of these receivables since they contain federally-mandated
      interest rates and repayment terms subject to significant restrictions as to their transfer and
      disposition.

      The carrying amount of bonds payable approximates fair value because these financial instruments
      bear interest at rates which approximate current market rates for bonds with similar maturities and
      credit quality.

9.    Commitments and contingencies

      The College is involved in various legal actions arising in the normal course of activities and is
      subject to periodic audits and inquiries by various regulatory agencies. Although the ultimate
      outcome of such matters is not determinable at this time, management believes that the resolution
      of these pending matters will not have a materially adverse effect on the College’s financial
      statements.

10.   Expenses by Object

      The expenses reported by function on the Statement of Activities and Changes in Net Assets are
      summarized by object as follows:

                                                      General             Physical
                                                     Operations            Capital
                                                     Unrestricted        Unrestricted         Total

      Salaries and wages                         $     39,763,288    $              -    $   39,763,288
      Employee benefits                                12,409,731                   -        12,409,731
      Supplies and equipment                           10,255,762          (4,031,014)        6,224,748
      Utilities and buildings                           9,399,121          (2,698,549)        6,700,572
      Debt service                                      3,988,995          (1,020,000)        2,968,995
      Depreciation                                              -           6,554,420         6,554,420
      Food service                                      4,550,186                   -         4,550,186
      Travel                                            2,390,683                   -         2,390,683
      Other                                             7,677,439                   -         7,677,439
                                                 $     90,435,205    $     (1,195,143)   $   89,240,062




                                                     12
SUPPLEMENTAL SCHEDULE
Carleton College
Schedule of Expenditures of Federal Awards
Year Ended June 30, 2005

                                                                               Pass-Through
                                                                    Federal       Entity
                                                                    Catalog     Identifying
                    Federal Grantor/Program Title                   Number       Number          Expenditures

Student Financial Assistance Cluster
U.S. Department of Education
  Federal Workstudy Program                                         84.033                       $    337,142
  Federal Pell Grant Program                                        84.063                            568,529
  Supplemental Educational Opportunity Grant Program                84.007                            380,979
  Federal Perkins Loan Program (Note 3)                             84.038                            221,720
  Federal Family Education Loan Program (Note 3)                    84.032                                  -
            Total Student Financial Assistance                                                       1,508,370
Research and Development Cluster
U.S. Department of Education:
  Special Services                                                   84.042                           220,139
  Undergraduate International Studies and Foreign Language          84.016A                            32,453
  FIPSE - Comprehensive Program                                     84.116B                            95,044
               Total U.S. Department of Education                                                     347,636
National Endowment for the Humanities History NEH Fellowship        45.160                             53,334
U.S. Department of Agriculture:
     Iowa State University                                          10.303    2002-51100-01904         22,030
U.S. Environmental Protection Agency
     University of WI - Madison                                     66.509     R-82979801-0               995
National Science Foundation:
  Direct programs:
     Education & Human Resources                                    47.076                            461,340
     Geosciences                                                    47.050                            333,545
     Social, Behavioral and Economic Sciences                       47.075                             39,338
     Mathematical and Physical Sciences                             47.049                            333,441
     Biological Sciences                                            47.074                            151,526
               Total direct programs                                                                 1,319,190
  Pass-through programs:
    Montana State University Bozeman                                47.076     DUE-0333402             22,139
    University of WI - Madison                                      47.076       0435398               15,427
    University of CO - Boulder                                      47.050     EAR 0435645              5,000
    Montana State University Bozeman                                47.050     EAR-0345708              5,000
    Technical Education Research Centers, Inc.                      47.076     DUE-00226199            16,338
    College of William and Mary                                     47.076     DUE-0127310             21,452
    University of MN                                                47.050     ATM-0096555             20,317
    University of WI - Madison                                      47.070       0326328               50,195
               Total pass-through programs                                                            155,868
               Total National Science Foundation                                                     1,475,058
U.S. Department of Health and Human Services
  Academic Research Enhancement Award                               93.390                              8,592
  National Institute of Deafness & Other Communication
   Disorders                                                        93.173                             30,754
  National Institute of Allergy & Infectious Diseases               93.855                             61,920
               Total U.S. Department of Health and Human Services                                     101,266
               Total Research and Development Cluster                                                2,000,319
               Total Federal Financial Assistance                                                $   3,508,689


                   The accompanying notes are an integral part of the financial statements.

                                                             13
Carleton College
Notes to Schedule of Expenditures of Federal Awards
June 30, 2005

1.   Summary of Significant Accounting Policies

     Basis of Presentation
     The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity
     of Carleton College (the “College”) and is presented on the accrual basis of accounting.

2.   Loan Balances and Advances

     Outstanding balances of student loans held by the College at June 30, 2005, and student loans
     advanced during the year were as follows:

                                                                            Loans             Loans
                                                                           Balance           Advanced

     Federal Perkins Loan Program (CFDA #84.038)                        $ 6,064,570      $ 1,101,739
     Federal Family Education Loan Program (CFDA #84.032)                            -       4,607,736

     The Schedule of Expenditures of Federal Awards includes expenditures under the Federal Perkins
     Loan Program which represents the fiscal year 2005 federal capital contribution and $110,822 of
     administration cost allowance.

3.   Federal Awards Provided to Subrecipients

     Of the federal expenditures presented on the Schedule of Expenditures of Federal Awards, Carleton
     College provided federal awards to subrecipients in the research and development cluster as
     follows:

                                                                           Federal         Amount
                                                                           Catalog       Provided to
                       Federal Grantor/Program Title                       Number        Subrecipient

     National Science Foundation
      Universities Space Research Assoc.                                       47.076    $       5,247
      Highline Community College                                               47.050           14,182
      University of Arizona                                                    47.050           37,250
      University of WI Oshkosh                                                 47.050            5,725
               Total NSF direct grants paid to sub-recipients                            $      62,404




                                                  14
REPORTS ON INTERNAL CONTROL,
COMPLIANCE AND OTHER MATTERS
                                                                                       PricewaterhouseCoopers LLP
                                                                                       Suite 1400
                                                                                       225 South Sixth Street
                                                                                       Minneapolis MN 55402
                                                                                       Telephone (612) 596 6000
                                                                                       Facsimile (612) 373 7160



               Report of Independent Auditors on Internal Control Over Financial
                 Reporting and on Compliance and Other Matters Based on an
                    Audit of Financial Statements Performed in Accordance
                              with Government Auditing Standards


To the Board of Trustees
Carleton College


We have audited the financial statements of Carleton College (the “College”) as of and for the year
ended June 30, 2005, and have issued our report thereon dated September 9, 2005. We conducted our
audit 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 of America.


Internal Control Over Financial Reporting

In planning and performing our audit, we considered the College’s internal control over financial
reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the
financial statements and not to provide an opinion on the internal control over financial reporting. Our
consideration of the internal control over financial reporting would not necessarily disclose all matters
in the internal control over financial reporting that might be material weaknesses. A material weakness
is a reportable condition in which the design or operation of one or more of the internal control
components does not reduce to a relatively low level the risk that misstatements caused by error or
fraud in amounts that would be material in relation to the financial statements being audited may occur
and not be detected within a timely period by employees in the normal course of performing their
assigned functions. We noted no matters involving the internal control over financial reporting and its
operation that we consider to be material weaknesses.


Compliance and Other Matters

As part of obtaining reasonable assurance about whether the College’s financial statements are free of
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.




                                                  15
We noted certain matters that we reported to management of the College in a separate letter dated
September 27, 2005.

This report is intended solely for the information and use of the College’s audit committee,
management and federal awarding agencies and pass-through entities and is not intended to be and
should not be used by anyone other than those specified parties.




September 9, 2005




                                                 16
                                                                                      PricewaterhouseCoopers LLP
                                                                                      Suite 1400
                                                                                      225 South Sixth Street
                                                                                      Minneapolis MN 55402
                                                                                      Telephone (612) 596 6000
                                                                                      Facsimile (612) 373 7160




                         Report of Independent Auditors on Compliance
                      with Requirements Applicable to Each Major Program
                     and on Internal Control Over Compliance in Accordance
                                    with OMB Circular A-133


To the Board of Trustees
Carleton College


Compliance

We have audited the compliance of Carleton College (the “College”) with the types of compliance
requirements described in the U.S. Office of Management and Budget (“OMB”) Circular A-133
Compliance Supplement that are applicable to each of its major federal programs for the year ended
June 30, 2005, except as described in the second paragraph of this report. The College’s major federal
programs are identified in the summary of auditor’s results section of the accompanying schedule of
findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and
grants applicable to each of its major federal programs is the responsibility of the College’s
management. Our responsibility is to express an opinion on the College’s compliance based on our
audit.

We did not audit the College’s compliance with the billing, collection and due diligence compliance
requirements specified by the Federal Perkins Loan Program and described in the OMB Circular A-133
Compliance Supplement. Compliance with these requirements was audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the
College’s compliance with those requirements, is based solely on the report of the other auditors.

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 of America; 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 the 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. Our audit does not provide a legal determination on the College’s
compliance with those requirements.




                                                 17
In our opinion, based on our audit and the report of other auditors, the College complied, in all material
respects, with the requirements referred to above that are applicable to each of its major federal
programs for the year ended June 30, 2005.


Internal Control Over Compliance

The management of the College is responsible for establishing and maintaining effective internal
control over compliance with requirements of laws, regulations, contracts and grants applicable to
federal programs. In planning and performing our audit, except as noted in the following paragraph, we
considered the College’s internal control over compliance with requirements that could have a direct
and material effect on a major federal program in order to determine our auditing procedures for the
purpose of expressing our opinion on compliance and to test and report on internal control over
compliance in accordance with OMB Circular A-133.

We did not consider internal control over compliance with the billing, collection and due diligence
compliance requirements specified by the Federal Perkins Loan Program and described in the OMB
Circular A-133 Compliance Supplement. Internal control over these compliance requirements was
considered by the other auditors referred to above; and our report, insofar as it relates to the College’s
internal control over those compliance requirements, is based solely upon the report of the other
auditors.

Our consideration and the other auditors’ consideration of the internal control over compliance would
not necessarily disclose all matters in the internal control that might be material weaknesses. A
material weakness is a reportable condition in which the design or operation of one or more of the
internal control components does not reduce to a relatively low level the risk that noncompliance with
applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would
be material in relation to a major federal award program being audited may occur and not be detected
within a timely period by employees in the normal course of performing their assigned functions. We
noted no matters involving the internal control structure over compliance and its operation that we
considered to be material weaknesses. Also, the report of the other auditors noted no matters involving
the internal control structure over compliance and its operation that they consider to be material
weaknesses.

This report is intended solely for the information and use of the College’s audit committee,
management and federal awarding agencies and pass-through entities and is not intended to be and
should not be used by anyone other than those specified parties.




November 18, 2005




                                                   18
         SCHEDULE OF
FINDINGS AND QUESTIONED COSTS
Carleton College
Independent Auditor’s Schedule of Findings and Questioned Costs
Year Ended June 30, 2005

SECTION I - SUMMARY OF AUDITOR’S RESULTS

Financial Statements

Type of auditor’s report issued:                       Unqualified

Internal control over financial reporting:
 Material weakness(es) identified?                              yes               X     no

 Reportable condition(s) identified that are
  not considered to be material weaknesses?                     yes               X     none reported

 Noncompliance material to financial
  statements noted?                                             yes               X     no

Federal Awards

Internal Control over major programs:
 Material weakness(es) identified?                              yes               X     no

 Reportable condition(s) identified that are
  not considered to be material weakness(es)?                   yes               X     none reported

Type of auditor’s report issued on compliance
 for major programs:                                   Unqualified

 Any audit findings disclosed that are required
  to be reported in accordance with section
  510(a) of Circular A-133?                                     yes               X     no

Identification of major programs:

CFDA Number(s)                                         Name of Federal Program or Cluster

See Schedule of Expenditures of Federal Awards         Student Financial Assistance Cluster

See Schedule of Expenditures of Federal Awards         Research and Development Cluster

Dollar threshold used to distinguish
 between type A and type B programs:                   $300,000

Auditee qualified as low-risk auditee?                    X     yes                    no


SECTION II - FINANCIAL STATEMENT FINDINGS

No matters are reportable.




                                                  19
Carleton College
Independent Auditor’s Schedule of Findings and Questioned Costs
Year Ended June 30, 2005

SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS CURRENT YEAR
FINDINGS

Part A
No matters are reportable.

Part B
Carleton College utilizes Affiliated Computer Services, Inc. Education Services (“ACS”) as its institutional
servicer to perform billing, collection and due diligence compliance requirements related to the Perkins
loan program. The ACS Audits of Federal Student Financial Assistance Programs Report for the year
ended June 30, 2005, includes a finding together with ACS management’s response related to the timing of
certain due diligence procedures performed by ACS on behalf of ACS customers.




                                                    20
Carleton College
Independent Auditor’s Schedule of Findings and Questioned Costs
Year Ended June 30, 2005

STATUS OF PRIOR YEAR FINDINGS

No matters are reportable.




                                      21

				
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