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Audit Reports | Notes to Financial statements Year Ended June 30, 2003 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The financial statements of Lane Community College have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). The College implemented a new financial reporting model, as required by the provisions of GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments, and Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis for Public Colleges and Universities, during the current fiscal year. The College now follows the “business-type activities” reporting requirements of GASB Statement Nos. 34 and 35 that provides a comprehensive one-column look at the College’s financial activities. The College formerly accounted for its financial activities using a fund accounting model with a combination of governmental and proprietary funds. (A) Organization and Operation Lane Community College (the College) was formed in 1964 under ORS Chapter 341. The College is governed by a seven member Board of Education whose members are elected independently. (B) Description of the Reporting Entity The financial statements of the College include all accounts of the College, and the Board of Education is not financially accountable for any other entity. Financial accountability is determined in accordance with criteria set forth in GAAP, primarily on the basis of authority to appoint voting majority of an organization's governing board, ability to impose its will on that organization, the potential for that organization to provide specific financial benefits or impose specific financial burdens and that organization's fiscal dependency. (C) Basis of Accounting The basic financial statements are reported using the economic resources measurement focus and accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Property taxes are recognized as revenues in the years in which they are levied. Grants and other similar types of revenue are recognized as soon as all eligibility requirements imposed by the grantor have been met. The College applies all applicable Governmental Accounting Standards Board (GASB) pronouncements and all applicable Financial Accounting Standards Board (FASB) statements and interpretations, Accounting Principles Board (APB) opinions and Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements. (C) Basis of Accounting (Contd) Operating revenues and expenses are distinguished from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the College’s ongoing operations. The principal operating revenues of the College are charges to students for tuition and fees, grants and contracts for specific operating activities of the College and sales of goods and services. Operating expenses include the cost of faculty, administration and support expenses, enterprise operations and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. (D) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (E) Investments Investments included in cash and investments are reported at fair value. The College invests primarily in the State of Oregon Local Government Investment Pool, U.S. government and agencies securities, bankers' acceptances and commercial paper. All College investments are authorized by Oregon Revised Statutes. For purposes of the statement of cash flows, cash, demand deposits, the State of Oregon Local Government Investment Pool and short-term investments purchased with original maturities of three months or less are considered to be cash and cash equivalents.The College maintains depository insurance under Federal depository insurance funds and state and financial institution collateral pools for its cash deposits and investments, except the Local Government Investment Pool, U.S. government and agencies securities, bankers' acceptances and commercial paper, which are exempt from statutes requiring such insurance. (F) Property Taxes Receivable Ad valorem property taxes are levied on all taxable property as of July 1. Property taxes become an enforceable lien on that date for real property and for personal property. Collection dates are November 15, February 15, and May 15. Discounts are allowed if amounts due are received by November 15. Taxes unpaid and outstanding on May 16 are considered delinquent. Uncollected taxes, including delinquent amounts, are considered substantially collectable or recoverable through liens. Property taxes are recognized as revenues when levied. (G) Accounts, Grants and Loans Receivable Unreimbursed grant expenditures due from grantor agencies are recorded in the financial statements as receivables and revenues. Cash received from grantor agencies in excess of related grant expenditures is recorded as unearned revenue.Loans receivable consist primarily of student financial aid loans made with federal funds. Accounts receivable and loans receivable are shown net of an allowance for uncollectible amounts. (H) Inventories Inventories, primarily books and supplies, are carried at the lower of cost (first-in, first-out method) or market, and are charged to expense as sold or used. (I) Capital Assets Capital assets include land, buildings and improvements, furniture and equipment and library books. The College’s capitalization threshold is $5,000 for all capital assets except library books. Library books are capitalized regardless of cost. Donated assets are recorded at their fair market value on the date donated. Major outlays for capital assets and improvements are capitalized as projects are constructed. The cost of normal maintenance and repairs that do not add value or functionality to the asset are not capitalized, but are expensed as incurred. Capital assets are depreciated using the straight-line method over the following useful lives:
(J) Compensated Absences Vacation payable is recorded as a liability and an expense when earned by employees. Sick pay, which does not vest, is recorded when leave is taken. (K) Leases Leases which meet certain criteria established by the Financial Accounting Standards Board are classified as capital leases. Leases which do not meet criteria of a capital lease are classified as operating leases. (L) Retirement Plans Public Employees Retirement System Substantially all of the College's employees are participants in the Oregon Public Employees Retirement System (PERS). Contributions to PERS are made on a current basis as required by the plan and charged to expense as accrued. Early Retirement ProgramThe College offers a voluntary early retirement program to management and faculty employees who are between the ages of 55 and 65 and meet certain service criteria. Participants receive a monthly early retirement payment (until age 62 for faculty employees, until age 65 or a maximum of 84 payments for management employees). Payment of benefits is made from a pension trust fund which accumulates employer contributions. The employer contributions are based upon actuarially determined amounts. Pension expense equal to the annual required contribution is recognized on the accrual basis. Post-Retirement Program The College offers a voluntary early retirement health care and life insurance program to faculty and management employees who are between the ages of 55 and 65 and meet certain service criteria. For faculty participants, the College pays the employees' and employee spouses' monthly cost of coverage until the employee reaches age 65 or qualifies for Medicare coverage. Spouse coverage continues until the spouse reaches age 65. For management participants, the College pays the employees' and employee spouses' monthly cost of coverage until the employee qualifies for Medicare coverage or for 84 months, whichever comes first. Spouse coverage ceases when employee coverage ceases. Payment of benefits is made from a pension trust fund which accumulates employer contributions. The employer contributions are based upon actuarially determined amounts. Pension expense equal to the annual required contribution is recognized on the accrual basis. (M) Restricted Net Assets Restricted net assets reported in the Statement of Net Assets represent amounts for which constraints were imposed by creditors, grantors, contributors or laws or regulations.2 - CASH AND INVESTMENTS: Cash and investments are comprised of the following at June 30, 2003:
Deposits Deposits with financial institutions are bank demand deposits and certificates of deposit. The total bank balance, as shown on the banks' records at June 30, 2003, is $2,202,132. Of these deposits, $220,414 was covered by federal depository insurance and the balance was collateralized with certificates of participation. Oregon laws require municipal corporations to obtain certificates of participation issued by a pool manager for amounts on deposits in excess of federal depository insurance, and the college held certificates totaling $12,500,000 at June 30, 2003. Oregon Revised Statutes require the depository institution to maintain on deposit with a collateral pool manager securities having a value of not less than 25% of the outstanding certificates of participation issued by the pool manager. Deposits in excess of federal depository insurance, even to the extent collateralized by certificates of participation, are considered uncollaterized by GASB Statement No. 3.Investments State statutes authorize the College to invest in general obligations of the U.S. Government and its agencies, certain bonded obligations of Oregon municipalities, bank repurchase agreements, bankers' acceptances, commercial paper, and the State Treasurer's Oregon Local Government Investment Pool, among others.Investments are categorized as either (1) insured or registered or for which the securities are held by the College or its agents in the College's name, (2) uninsured and unregistered for which the securities are held in the College's name by the trust department of the financial institution selling the security to the College, or (3) uninsured and unregistered for which the securities are held by the financial institution selling the security to the College or by its trust department but not in the College's name. At June 30, 2003, the College's investments consisted of:
3 - CAPITAL ASSETS Capital assets activity for the year ended June 30, 2003 was as follows:
4 - LONG-TERM OBLIGATIONS: Changes in long-term obligations for the year ended June 30, 2003 are as follows:
Bonds Payable The full faith and credit of the College is pledged for the Series 1995 General Obligation Bonds. The bonds were issued to provide funds for improvements to existing facilities, construct additional learning centers and purchase instructional equipment. The bonds are being retired from property taxes levied by the College. The bonds are due annually and interest is payable semi-annually, on June 1 and December 1, with interest rates ranging from 4.85% to 5.5%. Future bonded debt requirements are as follows:
Debt Obligations Payable The College has outstanding at June 30, 2003, the Full Faith and Credit Debt Obligations, Series 1992, in the amount of $350,000. These obligations are due serially, with an interest rate of 6.15%, payable semi-annually on August 1 and February 1. Obligations maturing on or after February 1, 2001 are subject to redemption at the option of the College on or after February 1, 2000, in whole at any time or in part on any interest payment date at a price of par plus accrued interest to the date of redemption. The full faith and credit of the College is pledged for the payment of this debt. Future obligations requirements are as follows:
Pension Bonds Payable In April 2003, the College issued $51,803,948 of Limited Tax Pension Obligation Bonds and transferred the net proceeds to the State of Oregon Public Employees Retirement System to cover a portion of the College’s share of the cost sharing plan’s unfunded actuarial liability. The resulting pension asset will be used to pay a portion of the College’s annual required contribution. Principal payments are due annually through
State of Oregon Public Employees Retirement System: Plan DescriptionThe College participates in the State of Oregon Public Employees Retirement System (PERS), a cost sharing multiple-employer pension plan which provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The system is a statewide defined benefit retirement plan for units of state government, community colleges, political subdivisions, and school districts. PERS is administered under Oregon Revised Statutes Chapter 238 by the Public Employees Retirement Board. Participation by state government units, community colleges, and school districts is mandatory. Participation by most political subdivisions is optional but irrevocable if elected. A stand-alone financial report is not available for the College. However, the State of Oregon Public Employees Retirement System issues a publicly available financial report that includes financial statements and supplementary information. That report may be obtained by writing to Oregon Public Employees Retirement System, 11410 S.W. 68th Parkway, P.O. Box 23700, Tigard, Oregon 97281-3700 or by calling (503) 598-PERS. Funding Policy PERS members are required to contribute 6% of their annual covered salary. The College is required to contribute an actuarially determined rate; the rate through April 2003 was 9.49% of annual covered payroll. Beginning in May 2003, the College’s contribution rate was reduced to 0.73% due to the issuance of limited tax pension obligation bonds. The rate increased to 7.19% effective . The contribution requirements of plan members and the College are established and may be amended by the Public Employees Retirement Board. The College's contributions to PERS for the years ending June 30, 2003, 2002 and 2001, totaled $3,195,441, $3,884,593 and $3,654,029, respectively, equal to the required contributions. Early Retirement Plan: Plan Description The College maintains a single-employer defined benefit public employee early retirement supplement plan which provides early retirement benefits to substantially all management personnel who commenced employment with the College prior to July 1, 1991, and all faculty members of the College. The plan was established under collective bargaining agreements with the faculty and contract negotiations with management. Funding Policy The benefits from this program are fully paid by the College and, consequently, no contributions by employees are required. Although there is no obligation on the part of the College to fund these benefits in advance, the College has established the Early Retirement Fund, a pension trust fund, to accumulate assets to pay these benefits in the future. The funding policy for this plan provides for actuarially determined transfer of resources to the Early Retirement Fund that is intended to be a constant dollar amount for each employee covered by the plan so that sufficient assets will be available to pay benefits when due. Annual Pension Cost and Net Pension Obligation The College's annual pension cost and net pension obligation to the plan for the year ended
The annual required contribution for the year was determined as part of the June 30, 2002 actuarial valuation using the aggregate actuarial cost method. The aggregate actuarial cost method does not identify or separately amortize unfunded actuarial liabilities. The actuarial assumptions included (a) a rate of return on the investment of present and future assets of 4.25% compounded annually, and (b) 4.25% salary increases per annum for management employees, reflecting both inflation and seniority/merit adjustments. Three-Year Trend Information
Plan Description The College maintains a single-employer defined benefit post-retirement benefits plan. The plan provides group health care and life insurance benefits for retired employees from the employees' retirement date to age 65. Substantially all management personnel who commenced employment with the College prior to July 1, 1991, and all faculty employees become eligible for these benefits if they qualify for retirement while working for the College. The plan was established under collective bargaining agreements with the faculty and contract negotiations with management. Funding Policy The benefits from this program are fully paid by the College and, consequently, no contributions by employees are required. Although there is no obligation on the part of the College to fund these benefits in advance, the College has established the Post-Retirement Benefits Fund, a pension trust fund, to accumulate assets to pay these benefits in the future. The funding policy for this plan provides for actuarially determined transfer of resources to the Post-Retirement Benefits Fund that is intended to be a constant dollar amount for each employee covered by the plan so that sufficient assets will be available to pay benefits when due. Annual Pension Cost and Net Pension Obligation The College's annual pension cost and net pension obligation to the plan for the year ended June 30, 2003, are as follows:
Three-Year Trend Information
Information regarding the pension trust funds, which are not included in the basic financial statements, is detailed, as of and for the year ended June 30, 2003, in the following table:
Grants receivable and grant receipts are subject to adjustment by grantor agencies, principally the Federal Government. Any disallowed claims, including claims already collected, could become a liability to the College. The College is involved in various legal proceedings. Management believes that any losses arising from these actions will not materially affect the College's financial position. 7 - RISK MANAGEMENT: The College is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The College participates in the Oregon School Boards Association Property and Casualty Trust and pays an annual premium to the Trust for its property, crime, commercial general liability and automobile liability and physical damage coverages. The Trust is to be self-sustaining through participant premiums and reinsures through commercial companies for claims in excess of certain limits. The College carries commercial insurance for workers' compensation, boiler and machinery, public official bond and employee dishonesty coverage. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three years. 8 – BUDGET: The College budgets all College funds required to be budgeted in accordance with the Oregon Local Budget Law on a Non-GAAP budgetary basis. The College follows these procedures in establishing its budget: 1. In the spring of each year, the President of the College submits a proposed budget to the budget committee which consists of the Board of Education and an equal number of concerned citizens of the community. Estimated receipts and expenditures are budgeted by fund, department and major category. 2. The budget committee conducts public hearings for the purpose of obtaining taxpayer comments. 3. The budget committee proposes a budget to the Board of Education. The estimated expenditures for each fund may not be increased by more than 10 percent by the Board, and ad valorem taxes for all funds may not exceed the amount shown in the budget document unless the Board republishes the budget and holds additional public hearings. 4. The Board legally adopts the budget before July 1 through a Board resolution. The resolution authorizing appropriations for each fund sets the level by which expenditures cannot legally exceed appropriations. The level of control established by the resolution for each fund is at the major expense function level (i.e. Instruction, Community Services, etc.). Appropriations lapse at year-end. 5. The Board may change the budget throughout the year by appropriation transfers between levels of control and supplemental budgets as authorized by Oregon Revised Statutes. During the fiscal year ended June 30, 2003, the Board adopted a supplemental budget and approved transfer resolutions as allowed by state law. During the 2002-03 fiscal year, the
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