Financial Statements and Independent Auditor’s Report June 30, 2013
INDEPENDENT AUDITOR’S REPORT Board of Directors Accrediting Council for Independent Colleges and Schools CERTIFIED PUBLIC ACCOUNTANTS
STOKES & COMPANY, P.C. 1201 15TH STREET. NW SUITE 340 WASHINGTON, D.C. 20005-2842 (202) 293-9000 FAX (202) 293-9666 WWW.STOKESPC.COM
LARRY F. STOKES. C.P.A .
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION GOVERNMENTAL AUDIT QUALITY CENTER EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER
We have audited the accompanying financial statements the Accrediting Council for Independent Colleges and Schools (ACICS), which comprise the balance sheet as of June 30, 2013, 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. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative balance sheet has been derived from ACICS’ 2012 balance sheet and, in our report dated November 26, 2012; we expressed an unqualified opinion on those financial statements. 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 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 auditor’s 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 my 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 the Accrediting Council for Independent Colleges and Schools as of June 30, 2013, 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. STOKES & COMPANY, P.C. Washington, D.C. November 21, 2013
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ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Balance Sheet June 30, 2013 With comparative totals for June 30, 2012
ASSETS
2013
2012
CURRENT ASSETS Cash and cash equivalents
$
Accounts receivable, net Prepaid expenses Total current assets INVESTMENTS PROPERTY AND EQUIPMENT, net
1,313,889
$
1,760,584
1,894,125
1,855,421
110,039
190,318
3,318,053
3,806,323
12,122,509
11,015,609
2,011,444
2,542,367
11,273
11,273
OTHER ASSETS Deposits Total assets
$
17,463,279
$
17,375,572
$
1,000,241
$
1,412,023
LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued expenses Salaries
69,433
62,969
Vacation
242,105
225,836
Pension
317,655
289,657
37,420
38,473
126,313
67,530
1,793,167
2,096,488
Accrued rent, non-current portion
189,059
197,690
Total long term liabilities
189,059
197,690
1,982,226
2,294,178
Other accrued expenses Deferred revenue Total current liabilities LONG TERM LIABILITIES
Total liabilities NET ASSETS Unrestricted Total liabilities and net assets
$
15,481,053 17,463,279
$
15,081,394 17,375,572
The accompanying notes are an integral part of this financial statement. 3
SUPPORT AND REVENUE Sustaining fees Accreditation visits User fees Workshop registration fees Investment income Other revenue
$
Total support and revenue
5,515,484 4,603,981 3,481,735 607,703 1,179,844 149,712
Statement of Activities and Changes in Net Assets Year Ended June 30, 2013
15,538,459
EXPENSES Program services Accreditation expense Education Supporting services Management and general
8,291,259 3,300,481
Total expenses
15,138,800
3,547,060
Change in net assets
399,659
NET ASSETS at beginning of year
NET ASSETS at end of year
ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS
15,081,394
$
15,481,053
The accompanying notes are an integral part of this financial statement. 4
ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS
Statement of Cash Flows Year Ended June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Fees received Other revenue received Investment income received Payments to vendors and suppliers
$
211,113
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment Proceeds from sale of property and equipment Purchases of investments Proceeds from sale of investments
(419,627) (4,198,723) 3,960,542
NET CASH USED BY INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Payments on note payable
(657,808) -
NET DECREASE IN CASH AND CASH EQUIVALENTS
(446,695)
CASH AND CASH EQUIVALENTS at beginning of year CASH AND CASH EQUIVALENTS at end of year
The accompanying notes are an integral part of this financial statement.
RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Change in net assets Adjustments Net unrealized and realized gains/losses Net loss on disposal of fixed assets Depreciation (Increase) decrease in assets Accounts receivable Prepaid expenses Increase (decrease) in liabilities Accounts payable Accrued expenses Salaries Vacation Pension Other accrued expenses Deferred revenue Accrued rent NET CASH PROVIDED BY OPERATING ACTIVITIES
14,228,982 149,712 311,125 (14,478,706)
1,760,584 $
1,313,889
$
399,659 (868,719) 47,891 902,659 (38,704) 80,279 (411,782) 6,464 16,269 27,998 (1,053) 58,783 (8,631)
$
211,113
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ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Notes to Financial Statements June 30, 2013 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation Financial statement presentation follows accounting principles generally accepted in the United States of America in relation to net asset classification. The organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. There are no temporarily or permanently restricted net assets at June 30, 2013. Cash and cash equivalents ACICS considers all short-term, highly liquid investments with initial maturities of three months or less to be cash equivalents. Since all such cash equivalents are contained in its investment portfolio and are not used in current operations, they are reported as investments. Investments ACICS invests in a professionally managed portfolio. All investments are carried at fair value. Such investments are exposed to various risks such as market and credit. Due to the level of risk associated with such investments, and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risk in the near term could materially affect investment balances and the amounts reported in the financial statements. Realized and unrealized gains and losses are reported as investment income in the statement of activities and changes in net assets. Property and equipment Property and equipment are recorded at cost. All acquisitions in excess of $1,000 are capitalized. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Artwork is not considered a collection and is a nonÂdepreciable asset. Property and equipment are reviewed for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The cost of property and equipment retired or disposed of is removed from the accounts along with the related accumulated depreciation, and any gain or loss is reflected in income. Revenue recognition Sustaining fees are recognized in the year to which they apply. Sustaining fees received in advance are recorded as deferred revenue and are recognized in subsequent periods when they are earned. User fees are charged to cover the administrative costs of processing forms and are recognized when the forms have been processed. ACICS utilizes fixed fee and geographical discount schedules to determine visit billings. Accounts receivable includes program related revenue that has not been received as of June 30, 2013. No interest is accrued on receivables. Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts. At June 30, 2013, the allowance for doubtful accounts amounted to $58,789. ACICS provides for losses on accounts receivable using the allowance method. The allowance is based on experience. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is ACICS’ policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Substantially all receivables are derived from institutions that ACICS accredits. All receivables to these institutions are made on an unsecured basis. Historically, ACICS has not incurred significant credit related losses.
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ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Notes to Financial Statements (continued) June 30, 2013 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Functional allocation of expenses The costs of providing programs and other activities have been summarized on a functional basis in the statement of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. 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. Fair value measurement Accounting principles generally accepted in the United States of America provide a common definition of fair value, establish a framework for measure of fair value and expand disclosures about fair value measurements, but do not require any new fair value measurements. All assets and liabilities required to be measured at fair value by these accounting principles have been assessed with the following three-tier hierarchy of inputs:
Level 1 – quoted prices in active markets for identical instruments Level 2 – other significant observable inputs Level 3 – significant unobservable inputs
All assets and liabilities are considered Level 1. Financial information as of June 30, 2012 The financial information as of June 30, 2012 is presented for balance sheet comparative purposes only and is not intended to represent complete financial statement presentation. Certain accounts in the prior financial statements have been reclassified for comparative purposes to conform to the presentation in the current period. Advertising costs ACICS expenses advertising costs as they are incurred.
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ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Notes to Financial Statements (continued) June 30, 2013 ORGANIZATION AND TAX STATUS The Accrediting Council for Independent Colleges and Schools (ACICS) was founded in 1912 to establish and advance the quality of education of independent, non-public career schools, career institutions, and colleges. ACICS accomplishes these objectives by performing the accreditation function for its members. ACICS is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code as an organization that is not a private foundation. ACICS is, however, subject to income tax on any net profits generated by unrelated business activities as defined under the tax laws. To date, ACICS has not engaged in such activities. Accounting principles generally accepted in the United States of America require that uncertain tax positions be evaluated and the potential impact of unfavorable outcome of a tax authority's assessment of such uncertain tax position be reflected in the financial statements. From time to time, management must assess the need to accrue or disclose a possible loss contingency for proposed adjustments from various federal and state tax authorities who may audit the organization in the normal course of business. ACICS has evaluated its tax reporting and has not reflected any contingent liability for any such potential assessment. In the event there were any proposed adjustments any associated penalties and interest would be separately reported. The organization is no longer subject to examinations by relevant tax authorities for years prior to fiscal year ended June 30, 2010. CONCENTRATION OF CREDIT RISK ACICS maintains its cash balances at one financial institution in the Washington, D.C. area. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. At June 30, 2013, the uninsured balance for all cash accounts was $1,119,805. The Association has never experienced a loss on its cash deposits. ACICS maintains its investments at one financial institution in the Washington, D.C. area. The cash equivalents and certificates of deposit held at this institution are insured by the FDIC up to $250,000. At June 30, 2013, the uninsured balance for these cash equivalents and certificates of deposit was $79,014. All other investments held in this institution are insured by the Securities Investor Protection Corporation (SIPC) for up to $500,000. At June 30, 2013, the uninsured balance for these investments was $11,293,495. PROPERTY AND EQUIPMENT Property and equipment as of June 30, 2013 consists of the following:
Furniture and fixtures
$ 5,271,269
Leasehold improvements
679,088
Artwork
4,006
5, 954,363 Less accumulated depreciation and amortization
(3,942,919) $ 2,011,444
Depreciation and amortization expense was $902,659 for the year ended June 30, 2013.
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ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Notes to Financial Statements (continued) June 30, 2013 INVESTMENTS The fair value of investments as of June 30, 2013 is presented below, along with a summary of investment income earned on investments and cash and cash equivalents for the year then ended. Common stock $ 3,905,846 Cash equivalents 329,014 Bond funds 4,682,741 Mutual funds 2,811,103 Commodities 187,468 REITS 206,337 $
12,122,509
$
311,125 421,722 446,997
$
1,179,844
Investment income: Interest and dividends Realized gains/(losses) Unrealized gains/(losses)
COMMITMENTS AND CONTINGENCIES Operating leases ACICS leases office space in Washington, D.C., which has a term that expires September 30, 2017. Minimum monthly rent is currently $57,582. The total of all rental payments due under the lease are being recognized on a straight-line basis in the statement of activities and changes in net assets. Accordingly, there is a liability recorded for accrued rent equal to the difference between the rent expense and the actual cash payments required by the lease. ACICS also leases equipment under operating leases. The copiers have leases that expire in March and September of 2014. The monthly lease payments are $3,268 and $1,411. The postage machine lease expired November 21, 2011 and an agreement was reached to continue on a quarterly payment plan equal to $2,100. A new agreement is being negotiated. The following is a schedule of future minimum lease payments as of June 30, 2013: 2014
$
742,349
2015
705,616
2016
715,367
2017
729,749
2018
183,344 $
3,076,425
The total expense incurred under all operating leases during the year ended June 30, 2013 was $811,961.
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ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Notes to Financial Statements (continued) June 30, 2013 COMMITMENTS AND CONTINGENCIES (continued) Contractual ACICS has contracted various consultants and insurance providers. ACICS is obligated to pay fees for these relationships. ACICS has an employment contract with its executive director. Should the executive director be dismissed, ACICS may be subject to severance payments. PENSION PLANS ACICS has a defined contribution pension plan, ACICS retirement/savings plan, as regulated by the Internal Revenue Service Code 401(a). Employees become eligible after one year of service, and become 25% vested for every year of employment. Contributions to the plan are discretionary and ACICS contributed 10% of eligible employees’ salaries. $317,655 was contributed for the year ended June 30, 2013. ACICS's employees are also eligible to participate in a 403(b) tax deferred annuity plan through which they can defer a portion of their annual salary. These voluntary contributions immediately vest to the employees. ACCREDITATION AUTHORITY The Secretary of the United States Department of Education has extended the recognition of ACICS as an accrediting body through July 2016. ACICS must reaffirm this authority every five years. Management believes it is highly probably that ACICS will continue to be recognized as an accrediting body for an indefinite period. SUBSEQUENT EVENTS In preparing these financial statements, management of ACICS has evaluated events and transactions that occurred after June 30, 2013 for potential recognition or disclosure in the financial statements. These events and transactions have been evaluated through November 21, 2013. This is the date that the financial statements were available to be issued.
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OTHER FINANCIAL INFORMATION
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INDEPENDENT AUDITOR’S REPORT ON OTHER FINANCIAL INFORMATION CERTIFIED PUBLIC ACCOUNTANTS
STOKES & COMPANY, P.C. 1201 15TH STREET. NW SUITE 340 WASHINGTON, D.C. 20005-2842 (202) 293-9000 FAX (202) 293-9666 WWW.STOKESPC.COM
Board of Directors Accrediting Council for Independent Colleges and Schools Our report on our audit of the basic fmancial statements of the Accrediting Council for Independent Colleges and Schools for year ended June 30, 2013 appears on page 3and 4. We conducted our audit for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of functional expenses on page 14 is presented for purposes of additional analysis 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 to the basic financial statements taken as a whole.
LARRY F. STOKES. C.P.A .
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES PRACTICE SECTION GOVERNMENTAL AUDIT QUALITY CENTER EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER
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STOKES & COMPANY, PC Washington, D.C. November 21,2013
ACCREDITING COUNCIL FOR INDEPENDENT COLLEGES AND SCHOOLS Schedule of Functional Expenses Year Ended June 30, 2013
Program Services Accreditation Expense Education Salaries and benefits Travel and meals Advertising Bad debt expense Computers Depreciation Dues and subscriptions Equipment rentals and maintenance Insurance Interest and fees Legal and accounting Meetings Miscellaneous Occupancy Office supplies Payroll taxes Printing and postage Professional fees Training Utilities Workshops
$
1,532,106 5,010,943 205,777 315,931 1,408 33,700
$
13,537 318,940 22,077 253,782 16,985 86,248 16,021 387,647 24,928 51,229 $
8,291,259
1,444,557 16,847 194,019 297,877 1,327 31,774
Supporting Services Management and General $
12,764 300,714 20,815 239,280 16,015 81,320 15,105 365,495 23,503 48,301 190,768 $
3,300,481
1,400,783 34,206 2,728 38,770 188,139 288,851 1,287 30,811
Total $
12,377 333,266 138,944 291,602 20,185 232,030 15,529 78,856 14,647 354,420 22,791 46,838 $
3,547,060
4,377,446 5,061,996 2,728 38,770 587,935 902,659 4,022 96,285 38,678 333,266 138,944 911,256 63,077 725,092 48,529 246,424 45,773 1,107,562 71,222 146,368 190,768
$
15,138,800
The accompanying auditor’s report on other financial information should be read with this statement.
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