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BOARD OF EDUCATION MONITORING REPORT
February 14, 2007
Presented by Greg Morgan, College Operations

POLICY TYPE: EXECUTIVE DIRECTIONS

POLICY TITLE: FINANCIAL CONDITIONS AND ACTIVITIES

POLICY NUMBER: A.050

ADOPTED: November 9, 1998
REVISED: May 12, 1999
REVISED: April 12, 2000
REVISED: January 14, 2004
REVISED: March 9, 2005
REVISED: July 19, 2006

With respect to the actual, on-going financial condition and activities, the president shall avoid fiscal jeopardy and assure that actual expenditures reflect board priorities as established in its policies.

Accordingly, the president shall:

1. Not expend more funds than have been received in the fiscal year to date, except as approved by the board.

As indicated in the 2005-06 Audit Report, fiscal year 2005-06 expenditures exceeded revenues for the General Fund and Fund IX. We are taking action during our current budget development process to correct this situation and are establishing additional controls to prevent future recurrence.

2. Not use any long-term reserves that are not budgeted and appropriated for expenditure.

For the 2005-06 fiscal year, Lane did not expend any long-term reserves.

3. Settle payroll and debts in a timely manner.

Payroll
The College settles its payroll obligation using a semi-monthly payroll cycle. This cycle is in conformance with federal and state requirements as well as classified, faculty and management employee agreements. For the 2005-06 fiscal year and for the 2006-07 fiscal year to date Lane has not missed a payroll.

Debts
Other debts addressed in this report include accounts payable, obligations from borrowing, and amounts due to federal and state governments.

Accounts Payable, resulting from the procurement of goods, services, capital items, capital construction, capital repairs & maintenance, utilities, etc.

• Typically, these debts are incurred through the issuance of a purchase order or use of a procurement card. Invoices are processed for payment and when approved for payment, are paid in a regularly scheduled check run. Regularly scheduled check runs have been on the 10th, 20th and 30th of each month. Effective 3 Jan 2007 the frequency was increased to every Wednesday which will improve payment timeliness, however, most delays in payment are related to obtaining necessary documentation from departments.

The following is an excerpt from the Dun & Bradstreet 'Business Scope' report dated November 30, 2006.

"Lane Community College's Paydex Score (a numerical indicator of payment performance based upon payment experiences in D&B's file) was 69 as of November 30, 2006, which corresponds to average payments of 16 days slow. This score was below the industry median of 74 [9 days slow]. The company's payment record declined during the 12 months ended November 2006."

Obligations from Borrowing, such as bank loans, certificates of participation, bonds, etc.:

• Bank Loans: The College has outstanding at June 30, 2006, $1,560,000 remaining on a loan with the Bank of America to partially finance the Banner software. Interest on this loan is 4.7% fixed; final payment will be on July 10, 2011. All principle and interest payments have been made as required.
• Certificates of Participation (COP’s): The College has outstanding at June 30, 2006, Full Faith and Credit Debt Obligations, Series 1992, in the amount of $95,000. These obligations carry interest rates of 6.15%, payable semi-annually on August 1 and February 1; final payment will be on February 1, 2007. Obligations maturing on or after February 1, 2001 are subject to redemption at the option of the college on or after February 1, 2000. All principle and interest payments have been made as required.
• Bonds: The college has outstanding at June 30, 2006, General Obligation Bonds, Series 1995, in the amount of $ 15,210,000. 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 %; final payment will be on June 1, 2009. These bonds are not callable. All principle and interest payments have been made as required.
• Pension Bonds: The college has outstanding at June 30, 2006, Limited Tax Pension Obligation Bonds in the amount of $49,709,165. Principal payments are due annually through June 30, 2028 and interest is payable in December and June of each year with rates ranging from 2.73% to 6.25%. All principle and interest payments have been made as required.
• Current Bond Ratings:
Standard & Poor’s: A+. An obligation rated “A” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.

4. Assure tax payments or other government-ordered payments or filings be on time and accurately filed.

During the course of a year, the following tax filings, reports and payments are made:

• January 31 – employees W-2, Vendors 1099 and students 1098T are due to recipients.
• February 28 – file forms W-2 and W-3, file forms 1099 and 1096 and file forms 1098T are due to the Internal Revenue Service.
• April 30, July 31, October 31 and January 31 – Form 941, Employer’s Quarterly Federal Tax Return and OQ Oregon Quarterly Tax Return are due to the Internal Revenue Service and Oregon Department of Revenue respectively.
• The Federal and State payroll tax deposits are due the day after payday and semi-weekly, payable on Wednesday and Friday.
• As part of our annual audit LCC contracts with actuaries to determine our annual funding requirements for LCC’s Faculty and Management Early Retirement obligations. On an annual basis we make these actuarially determined deposits.

For the entire 2005-2006 fiscal year and for the quarter ended December 2006, LCC has filed the required reports and made the required deposits in a timely and accurate manner.

5. Make no single purchase or commitment of greater than $100,000 for goods and services contracts, or $150,000 for public improvements contracts, without board approval, except in extreme emergencies.

No single purchase or commitment of $75,000 or greater has been made without board approval. Those purchases which have been processed during fiscal year 2005-06 with board approval are as follows:

Project/Name	Awarded To	Date	Amount
Board's annual authorizations (greater than $75,000)	Varies	July 2005	* $ 24,663,254
05-06/03 Health Clinic Remodel	ATR Air Inc.	August 2005	$94,946
05-06/03 Health Clinic Remodel	Robinson Plumbing	August 2005	$106,205
05-06/04 Media & Public Relations Services	Funk/Levis & Associates	March 2006	$250,000
05-06/06 SCT Assessment Project	SunGard SCT	October 2005	$88,000
05-06/07 College Audit Services	Ken Khuns & Co.	March 2006	$53,460
05-06/08 Wastewater Treatment System	2G Construction	May 2006	$2,001,000
05-06/10 Center Building Roofing, Phase 2	2G Construction	May 2006	$296,981
05-06/11 Virtual Tape Library System	HP and SyncSoft	June 2006	$167,000
05-06/12 Center Building HVAC System	FM Sheet metal	June 2006	$371,594
05-06/13 Center Building Air Cleaning	IRC Abatement Technologies	June 2006	$132,320
05-06/16Auto Tech Training System	Klein Educational Systems	June 2006	$145,479
Total All Projects			* $28,370,239

* Figure is approximate

Note: Some purchases are pre-authorized by the board in its approval of the President's Annual Authorizations.

6. Acquire, encumber, or dispose of real property only with board approval, except in extreme emergencies.

During the 2005-06 fiscal year, the college acquired two properties with board approval and direction, the new downtown location for KLCC and the Oregon Military department property across 30th avenue. The college disposed of a property in Cottage Grove also with board approval.

7. Pursue receivables aggressively after a reasonable grace period.

The college’s billing and collection procedures consist of sending monthly statements that indicate the total amount due. Account status advances through series of four increasingly delinquent account status codes. The last statement is a pink final demand notice, with the messaging indicating, “Final Notice – If your account is not paid in full by due date, it will be sent to collection”.

On a monthly basis, accounts that meet minimum selection criteria are assigned to outside collection agencies. If an agency is unable to collect an account, the account is cancelled and returned to the college. On a monthly basis, the majority of these cancelled and returned accounts are reassigned to a second collection agency.

If a student has an accounts receivable balance from a prior term, there is an automatic “hold” placed on registration for subsequent terms and the student is required to pay in full before being allowed to register again.

8. Comply with budget and financial policies contained in Section E.

See Appendix A.

9. Not contract with the College’s independent auditors for non-audit services without prior approval of the board.

During 2005-06 fiscal year, Lane did not contract with our independent auditors for any non-audit services.

10. Provide the following annual certifications, by the president and by the vice president for college operations, to the board upon receipt of the audited financial statements:

1. He/she has reviewed the annual audit report;
2. Based on his/her knowledge, the report does not contain any untrue statement of a material fact or omission of a material fact that makes the financial statements misleading;
3. Based on his/her knowledge, the financial statements present in all material respects the financial condition and results of operations.

This certification was prepared and signed by the President and Vice President December 6, 2006. This certification is not appropriate to be included in the audit report itself.

11. Establish and maintain an adequate internal control structure and procedures for financial operations and reporting.

Internal Controls Accounting (ICA) was created in response to Standard Seven (C.11) of the 2004 Self-Study: “The institution demonstrates a well-organized program of internal audit (where appropriate) and control that complements the accounting system and the external audit.” In FY 03-04 the Board funded a new position of internal controls accountant, who is functioning to provide systems analysis, procedure improvements and training for employees in order to strengthen and maintain an up-to-date and effective internal controls system.

ICA takes as its standard the COSO framework (Committee of Sponsoring Organizations of the Treadway Commission), an independent private sector initiative which studied the causal factors that can lead to fraudulent financial reporting. The new guidance identifies five key components of internal control: control environment, risk assessment, control activities, information and communication; and monitoring. Risk is assessed and controls evaluated within each component of the framework.

The ICA process began with a college-wide risk assessment of all revenue generating departments. Risk factors were evaluated and quantified in terms of significance and likelihood of loss. IC Studies are proceeding through departments according to the risk hierarchy, by narrating current practices, comparing to best practices and making recommendations to the Director of Finance and department process owners to mitigate risk and generate business process efficiencies. Departments that have participated in the Study process are Enrollment Services, Downtown Center, Bookstore, Foodservices and the Center for Meeting and Learning.

APPENDIX A: Board of Education Policies - Section E Monitoring Report

POLICY NUMBER: E.010
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: DEFINITION OF A BALANCED BUDGET

ADOPTED: January 14, 2004

The board directs the president to develop annual budget recommendations that are in accordance with the college’s strategic plan and conform to the requirements of Local Budget Law (ORS 294.326). The budget shall provide for:

• Annual operating expenditures not to exceed projected revenues (Expenditures shall be budgeted according to the college’s strategic priorities.)

At the time the fiscal year 2006-07 budget was developed, projections for current year revenue and expenditures were roughly balanced through budget and staff reductions.

• Debt service, both current (due in less than 12 months) and long term

The fiscal year 2006-07 budget provides for debt service requirements through a levy of property taxes for bonded debt, and transfers from other funds to cover financing obligations and PERS bonds repayments.

• Reserves for maintenance and repairs to its existing facilities

A reserve has not been established; however, the Board-approved a phased in increase of $270,000 each year through fiscal year 2008-09 when the recurring annual allocation will reach $1,650,000.

• Reserves for acquisition, maintenance and replacement of capital equipment.

Following the fiscal year 2006-07 Budget development, the president did not recommend funding a capital reserve fund therefore, none was established.

• Reserves for strategic capital projects

The president did not recommend funding a strategic capital projects reserve for fiscal year 2006-07; therefore, none was established.

• Funding levels to fulfill future terms and conditions of employment, including early retirement benefits

The current budget contains allocations for agreed upon salaries and fringe benefits necessary to meet estimated obligations.

• Allocations for contingencies (unforeseen events requiring expenditures of current resources)

The current budget contains allocations for contingencies in accordance with Board Policy E.070.

• Ending Fund Balances (according to policies set specifically for that purpose)

Refer to Board policies E.020 and E.030

Lane has a further responsibility to:

• Plan how it will spend any “onetime” unanticipated revenue, allocating it strategically and prudently between:

o The restoration of any shortfall to targeted ending fund balances,
o Currently unfunded projects in the strategic plan, and/or
o Holding some or all of it in reserve during financially volatile periods.

• Permanently stabilize its finances in their entirety (operating budget, reserves, contingencies and ending fund balances) when it perceives a long term change (increase or decrease) to its available future recurring resources

Lane will continue to make fiscally responsible decisions that are guided by current, appropriate, and sound data and financial policies and in accordance with the strategic directions of the college.

POLICY NUMBER: E.020
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: UNAPPROPRIATED ENDING FUND BALANCE
ADOPTED: January 14, 2004

The president shall assure budgeting that maintains the estimate of unappropriated ending fund balance at no less than three percent of the general fund operational expenditure budget.
See Ending Fund Balance calculations below shown with Policy Number E.030.

POLICY NUMBER: E.030
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: ENDING FUND BALANCE
ADOPTED: January 14, 2004

The president shall assure budgeting that maintains the estimate of unappropriated ending fund balance at no less than three percent of the general fund operational expenditure budget.
Lane Community College shall maintain an “unrestricted” General Fund Ending Fund Balance equal to approximately 5% of total budgeted expenditures. This amount shall be considered a “target” and the target range may fluctuate up to 1% above or below the target from year to year depending on financial conditions and the needs of the college.

The Ending Fund Balance target shall include the Unappropriated Ending Fund Balance (UEFB) as set by board policy E.020. When the Ending Fund Balance falls to 4% or less, the college shall adopt a plan to replenish the Ending Fund Balance to 5% within two years. When the Ending Fund Balance exceeds 6%, the excess shall be set aside for investment in one-time expenditures.

If the total Ending Fund Balance (including restricted) falls to levels that require short-term borrowing, the levels set by this policy shall be automatically reviewed and adjusted as necessary. The Ending Fund Balance for FY2006 is shown below and is not compliant with board policy.

Definitions:
Ending Fund Balance: Beginning balance plus revenues less expenses for the year
Unappropriated Ending Fund Balance: Amount set aside for use as a resource in the beginning of the next fiscal year
Unrestricted: Amounts in Funds 1 and 9 not legally encumbered

	GF Unrestricted	GF Restricted	GF Total	F9 Restricted	Total GF/F9
Audit Ending Fund Balance	(1,798,857)	701,147	(1,097,710)	4,269,937	3,172,227
Required EFB Components
UEFB	2,390,000	-	2,390,000	-	2,390,000
Financial Stabilization Reserve	800,000	-	800,000	-	800,000
OPE Fund Balance*	2,861,365	-	2,861,365	-	2,861,365
Department NWC**	500,000	701,147	1,201,147	733,999	1,935,146
PERS Reserve	-	-	-	3,535,938	3,535,938
Total Required EFB Components	6,551,365	701,147	7,252,512	4,269,937	11,522,449
Adjusted EFB	$ (8,350,222)	$ 701,147	$ (8,350,222)	$ 4,269,937	$ (3,379,138)
*OPE Fund balance at 6-30-06 due to unanticipated savings in health care benefits.
Fund balance excess used to reduce FY07 calculated OPE rate.
**M&S carryover to departments suspended for FY06 ending balances except for
certain specific unspent allocations.

POLICY NUMBER: E.040
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: STABILIZATION RESERVE FUND
ADOPTED: January 14, 2004

The board may require the president to establish a separate “reserve fund” (as described in ORS 341.321 and ORS 294.525) for the purpose of providing short-term stabilization in anticipation of possible shortfalls in revenue.

A stabilization reserve fund may be established under one or more of the following circumstances:

• State budget appropriations for community colleges are not approved by the time the college budget is approved and adopted.
• A situation exists where significant changes in enrollment are possible but not reasonably predictable.
• When any major revenue source has a reasonable possibility of decreasing after the college budget is approved and adopted.
• When any operating expenditure that is beyond the control of the college could reasonably be expected to increase after the college budget is approved and adopted.
• Any other situation in which the board determines that there is a reasonable expectation that major shifts in revenue or expenditures could occur during the budget year.

Stabilization reserve levels:

• Minimum reserve levels shall be at the discretion of the board under advice from the budget committee and the president.
• Maximum reserve levels shall be no more than the maximum reasonably estimated shortfall at the time of the adoption of the budget.

Stabilization reserves will be reviewed annually as part of the budget development process. The stabilization reserve fund shall be closed out when the board determines that the precipitating threat to revenues and/or expenditures no longer exists. As long as the conditions exist that caused the fund to be established, the funds shall be kept in reserve for the purpose intended. If and when the fund is closed out, any remaining balance shall be released for use as a resource in the General Fund.

POLICY NUMBER: E.050
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: CAPITAL RESERVE FUNDS
ADOPTED: January 14, 2004

The college shall establish and maintain separate “reserve funds” (as described in ORS 341.321 and ORS 294.525) in Capital Projects Fund IV for the following purposes:

1. To replace capital equipment that is broken or beyond its useful life as determined by the Capital Assets Replacement Forecast;
2. To maintain and repair college facilities according to the Major Maintenance Schedule;
3. To maintain and upgrade the college’s information/telecommunications system according to planning schedules maintained by Information Technology;
4. To build new instructional facilities and/or to purchase property that facilitates planned long-term growth of the college.

Appropriate levels of funding for reserves will be determined using existing college decision-making structures. The president will make recommendations to the Board of Education for approval to establish and fund these reserves.

Optimal funding levels will be determined using benchmarks, professional standards and best practices from other colleges and adapting these to Lane’s specific situation. It is expected that full funding of these reserves will take place over a number of years and that annual transfers to these reserves will be budgeted from the General Fund and other sources as appropriate.

As required in ORS 294.525, the board shall periodically review the reserve fund “and determine whether the fund will be continued or abolished.” While ORS 294 allows review to take place every 10 years, reserve funds established under these policies shall be reviewed (a) annually by the president; and (b) at least every three years or more frequently as determined by the board.

As allowed in ORS 294.525, the board may determine at any time that a reserve fund is no longer necessary or that some or all of the reserves may be transferred to the General Fund.

In accordance with the fiscal year 2006-07 Budget development, the president did not recommend funding a capital reserve fund.

POLICY NUMBER: E.060
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: BUDGETING OF NON-RECURRING RESOURCES
ADOPTED: January 14, 2004

Non-recurring resources are resources that are not part of an annual revenue stream. Non-recurring resources include but are not limited to such categories as:

• Fund balances (i.e., “carryover”)
• Reserves
• One-time grants or awards of money
• Funds withheld from annual budget allocations (e.g., funds held back from annual General Fund transfer to Capital Repair & Improvement)
• Special allocations from the state (e.g., allocations from the Emergency Board)
• Other special allocations (e.g., “seed money” for a project)

Non-recurring resources shall not be budgeted for ongoing recurring expenditures.
Non-recurring resources may be allocated for one-time expenditures including but not limited to the following:

• Capital equipment
• Capital construction
• Investment in a new program or service that will move to recurring funding sources after a specified trial period
• Projects related to the strategic directions of the college.

However, the college shall not rely on non-recurring resources for funding ongoing needs such as major maintenance and equipment replacement.

The college has not budgeted non-recurring resources for funding ongoing needs in the current budget.

POLICY NUMBER: E.070
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: GENERAL FUND CONTINGENCY
ADOPTED: January 14, 2004

Board Contingency:
The annual budget shall set aside approximately one-half percent (0.5%) of the budgeted revenues each year for Board Contingency. Use of Board Contingency shall be at the discretion of the Board of Education and shall be allocated by formal approval of the board according to its policies.

Administrative Contingency:
Administrative Contingency shall be approximately one percent (1%) of the budgeted revenues each year. Administrative Contingency shall be allocated by approval of the president.

The fiscal year 2006-07 budget contains the following contingency accounts:

Board Contingency:		$350,000
.5% budgeted revenue		$350,000
Administrative Contingency:		$700,000
1% budgeted revenue		$700,000

POLICY NUMBER: E.080
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: INTERFUND TRANSFERS
ADOPTED: January 14, 2004

All transfers between funds shall be in conformance with ORS 294.361. The Budget Document shall clearly show for each fund the amounts, origin and destination of each transfer. Accompanying documentation shall list the specific purposes for each transfer.

Transfers from the General Fund to other funds (except Fund IX-Special Revenue Admin Restricted) shall be for the following purposes:

• Debt service on an obligation incurred as a part of normal operations of the college;
• Goods and services provided to General Fund units by units in other funds;
• Construction, maintenance and acquisition of facilities and/or real property used by the college in support of its mission;
• Acquisition of capital equipment for use by the college in support of its mission;
• Matching funds for grants and contracts;
• Operation of certain financial aid functions and matching funds required for financial aid grants;
• Contractual and legal obligations to employees and retirees for compensation and benefits;
• Other needs as deemed appropriate and necessary by the board for fulfilling the obligations of the college.

Since Fund IX contains units that could be considered general operations of the college, the boundary between the General Fund and Fund IX is more “permeable.” While units in Fund IX primarily rely on designated revenues, transfers from the General Fund may be used to augment the resources for any or all of these units. The level of funding through General Fund transfers to Fund IX is at the discretion of the board under advice from the Budget Committee and the president.

The fiscal year 2005-06 budget contains interfund transfers made in accordance with this policy and adopted by the board during the budget process.

POLICY NUMBER: E.090
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: INTERFUND LOANS
ADOPTED: June 9, 2004

Loans from one fund to another shall conform to the requirements of ORS 294.460 and be authorized by the Board of Education. Interfund loans may not be from: a Debt Service fund, a Financial Aid fund, employee/retiree benefit funds, or funds legally restricted to specific uses. Repayment of the loan must be budgeted according to an approved schedule and at a stated rate of interest.

The full repayment of interfund loans shall occur no later than:

• Five years from the date of the loan, if the funds are to be used to acquire or improve real or personal property, or
• June 30 of the fiscal year following the year in which the loan was authorized, if the funds are to be used for operating purposes.

There were two interfund loans in fiscal year 2005-06. The Board approved an interfund loan of $200,000 from the Enterprise Fund VI to KLCC Fund IX for purchase of the Wings Building and a loan to the Enterprise Fund to the General Fund for purchase for the wetlands across 30th Avenue for $642,247. The remaining balance on that loan is $508,562.

POLICY NUMBER: E.100
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: DEBT ISSUANCE AND MANAGEMENT
ADOPTED: June 9, 2004

The president shall ensure that sufficient funds are available to meet current and future debt service requirements on all indebtedness, while adequately providing for recurring operating requirements. The issuance of debt limits the college’s flexibility to respond to future learning priorities; consequently, the college shall issue and manage debt in a manner which maintains a sound fiscal position, protects its creditworthiness and complies with ORS 341.675 and ORS 341.715.

To meet the objectives of this policy the president shall ensure that the college incurs and services all debts in a manner that will:

• Maintain a balanced relationship between debt service requirements and current operating needs.
• Maintain and enhance the college’s ability to obtain access to credit markets, at favorable interest rates, in amounts needed for capital improvements and to provide essential learning services.
• Prudently incur and manage debt to minimize costs to the taxpayers and ensure that current decisions do not adversely affect future generations.
• Preserve the college’s flexibility in capital financing by maintaining an adequate margin of statutory debt capacity.

The board shall approve borrowing as described in Board Policy C.040. Long-term debt (due more than a year in the future) shall not be issued to fund normal operating needs.

To certify compliance with Lane’s legal debt margin, please refer to the college’s June 30, 2006, audit report presented to the Board in December 2005. Table 7, on page 50, shows that Lane is well within its debt limitation of 1.5% of Real Market Value of taxable property in Lane County, last calculated to be $400,000,000. No new debt was issued in fiscal year 2005-06. All prior debt was reviewed by staff and the board to be sure the debt was in compliance with this policy. College Operations includes future year’s debt payment requirements as expenditures in its multi-year financial projections. The most recent credit rating from Standard & Poor’s reaffirmed Lane’s “A+” rating and stable outlook.

POLICY NUMBER: E.110
POLICY TYPE: BUDGET AND FINANCIAL
POLICY TITLE: FINANCIAL REPORTING
ADOPTED: March 9, 2005

Lane's annual audited financial statements shall conform to generally accepted accounting principles. Applicable professional accounting standards and guidance shall be incorporated into Lane's financial statements.

To certify compliance, please refer to the college’s June 30, 2006, audit report presented to the Board in December 2006. Page 1, paragraph 3 of the ‘INDEPENDENT AUDITOR’S REPORT’ states:

“In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Lane Community college as of June 30, 2006, and the changes in its financial position and, where applicable, its cash flows of the year then ended in conformity with accounting principles generally accepted in the United States of America.”