13.2   FINANCIAL DOCUMENTS [CR] 

            The member institution provides the following financial statements:

(a) an institutional audit (or Standard Review Report issued in accordance with Statements on Standards for Accounting and Review Services issued by the AICPA for those institutions audited as part of a system wide or statewide audit) for the most recent fiscal year prepared by an independent certified public accountant and/or an appropriate governmental auditing agency employing the appropriate audit (or Standard Review Report) guide.

(b) a statement of financial position of unrestricted net assets, exclusive of plant assets and plant-related debt, which represents the change in unrestricted net assets attributable to operations for the most recent year.

(c) an annual budget that is preceded by sound planning, is subject to sound fiscal procedures, and is approved by the governing board.

 

JUDGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

 

    Compliance     Non-Compliance     Partial Compliance

 

NARRATIVE

 

(a)   Institutional Audits

 

External Audits.  The NC Office of the State Auditor (OSA) fulfills the annual fiscal year-end audit requirement. The OSA provides audit services to North Carolina state agencies, including annual audits of state financial statements.  As a state agency N.C. A&T’s audit is included in the Statewide Single Audit Act mandate. The Fiscal Year 2020 Audit Report is anticipated to be completed by December, 2020 and will be ready for review by the onsite team

 

The university received unqualified audit opinions on its audited financial statements for fiscal years ending June 30, 2010 through June 30, 2019 which demonstrates the financial statements fairly present the financial condition of the organization. The university works diligently to address audit findings as soon as they become apparent, and an independent review procedure is in place that involves the university’s Internal Audit and Business and Finance staffs, a representative from the UNC System Office and the State audit team to ensure that findings are addressed in a timely manner.

 

Additionally, the university athletics department is required by the NCAA to have an annual procedures review performed.  The department has contracted with an independent accounting firm, RSM McGladrey, to conduct this annual review.  Over forty operational and financial items are reviewed, and there have been no findings.

 

Internal Audits.  The Office of Internal Auditing (OIA) organization chart show that it reports administratively to the Chancellor and functionally to the Board of Trustees Risk Management, Audit and Compliance Committee to ensure independence in carrying out its responsibility of promoting and supporting a culture of compliance and control consciousness.

 

The OIA also maintains a hotline, which provides university employees with a confidential way to report suspected fraud, waste, and abuse at the university.  To continually improve its services and professional abilities, the OIA staff members receive professional development annually.

 

The OIA conducts audits of cash receipting and key operating areas, and both the North Carolina Office of the State Auditor and the OIA perform financial and program audits at the university on an annual basis.  Copies of all audit reports, as they are issued, are presented to the Board of Trustees Risk Management, Audit & Compliance Committee; the UNC System Office; and the NC Office of State Budget & Management.

 

(b)     Statement of Financial Position of Unrestricted Net Assets

 

N.C. A&T provides the following analysis as an overview of the financial activities for the fiscal year ended June 30, 2019. The June 2020 audit should be available by December 2020.  Comparative data for the year ended June 30, 2018, is also included.  The information that is presented in Table 13.2-I, shows trends and events that have impacted the fiscal health of the university and that may continue to exert influence in future years.  It is recommended that this discussion and analysis be read in conjunction with the related financial statements and notes to the financial statements.

 

The Financial Statements

 

The financial statements for North Carolina Agricultural and Technical State University include:

 

a.      Statement of Net Position

b.      Statement of Revenues, Expenses, and Changes in Net Position

c.       Statement of Cash Flows. 

 

The statements were prepared in accordance with Governmental Accounting Standards Board (GASB) principles and reflect an economic resource measurement focus and the accrual basis of accounting.  Management’s discussion and analysis will concentrate on the Statement of Net Assets and the Statement of Revenues, Expenses, and Changes in Net Assets, using condensed versions for the purposes of this discussion. 

 


 

Effects of Other Postemployment Benefits (OPEB)

In Fiscal Year 2018, the university implemented GASB Statement No.75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB).  Participants in the State’s OPEB plans, including the university, were allocated a proportionate share of the OPEB plan’s net OPEB liabilities (assets), deferred outflows of resources, deferred inflows of resources, and OPEB benefits expense, specifically for the Disability Income Plan of North Carolina (DIPNC) and the Retiree Health Benefit Fund (RHBF).  For the purpose of reporting actuarial determined OPEB benefits expense for Fiscal Year 2018, the Statement of Net Position was restated as of June 30, 2017. 

 

Table 13.2-i: Unrestricted Net Assets, Excluding Plant Assets and Related Debt (UNAEP)

 

2019

2018

2017

Unrestricted Net Assets,

excluding plant assets and related debt

(204,003,373)

(214,666,438)

(222,236,979)

Impact of OPEB and Pensions

265,658,359

276,185,180

281,396,214

Unrestricted Net Assets excluding OPEB and Pensions

61,654,986

61,518,742

59,159,235

 

Table 13.2-ii: Condensed Statement of Net Position

 

 

2019

 

2018

(as Restated)

 

Dollar Change

 

Percent Change

 

Assets

 

 

 

 

 

 

 

Current Assets

              $ 99,087,361.54

 

           $ 96,672,429.71

 

            $ 2,414,931.83

 

2.50%

Noncurrent Capital Assets, Net

406,254,135.54

 

395,196,138.11

 

11,057,997.43

 

2.80%

Other Noncurrent Assets

75,149,602.84

 

78,768,627.58

 

(3,619,024.74)

 

(4.59%)

 

Total Assets

 

580,491,099.92

 

 

570,637,195.40

 

 

9,853,904.52

 

 

1.73%

 

Deferred Outflows of Resources

 

 

 

 

 

 

 

Deferred Loss on Refunding

203,712.19

 

248,008.53

 

(44,296.34)

 

(17.86%)

Deferred Outflows Related to Pensions

26,457,001.31

 

18,829,612.92

 

7,627,388.39

 

40.51%

Deferred Outflows Related to OPEB

20,606,245.57

 

7,007,646.70

 

13,598,598.87

 

194.05%

 

Total Deferred Outflows

 

47,266,959.07

 

 

26,085,268.15

 

 

21,181,690.92

 

 

81.20%

 

Liabilities

 

 

 

 

 

 

 

Current Liabilities

17,592,597.63

 

19,946,208.12

 

(2,353,610.49)

 

(11.80%)

Long-Term Liabilities, Net

320,569,492.08

 

327,889,595.76

 

(7,320,103.68)

 

(2.23%)

Other Noncurrent Liabilities

958,620.31

 

988,351.78

 

(29,731.47)

 

(3.01%)

 

Total Liabilities

 

339,120,710.02

 

 

348,824,155.66

 

 

(9,703,445.64)

 

 

(2.78%)

 

Deferred Inflows of Resources

 

 

 

 

 

 

 

Deferred Inflows Related to Endowments

131,166.67

 

 

 

131,166.67

 

 

Deferred Inflows Related to Pensions

423,224.00

 

1,050,456.00

 

(627,232.00)

 

(59.71%)

Deferred Inflows Related to OPEB

104,613,040.00

 

89,580,532.00

 

15,032,508.00

 

16.78%

 

Total Deferred Inflows of Resources

 

105,167,430.67

 

 

90,630,988.00

 

 

14,536,442.67

 

 

16.04%

 

Net Position

 

 

 

 

 

 

 

Net Investment in Capital Assets

307,943,377.12

 

302,442,526.82

 

5,500,850.30

 

1.82%

Restricted-Nonexpendable

44,716,002.57

 

41,099,238.24

 

3,616,764.33

 

8.80%

Restricted-Expendable

34,813,911.82

 

31,740,391.81

 

3,073,520.01

 

9.68%

Unrestricted

(204,003,373.21)

 

(218,014,836.98)

 

14,011,463.77

 

6.43%

Total Net Position

            $ 183,469,918.30 

 

          $ 157,267,319.89 

 

           $ 26,202,598.41 

 

16.66%

 

Plant Assets and Debt Administration

The university is fiscally conservative in the administration of its debt and is prudent in its expenditures for capital projects that enhance the teaching/learning experience for its students, provide adequate space and equipment for its research, and maintain the quality of its physical plant.  As a state university, NC A&T receives funding from the state budget but because of limitations on that budget, the university will very thoughtfully and purposefully issue debt.

 

Recognizing the benefits of strategic debt issuance, the Board of Trustees approved a Debt Management Policy in 2018 that was developed to assist A&T’s efforts to manage its debt on a long-term, portfolio basis and in a manner consistent with A&T’s capital improvement plan, stated policies, objectives and core values.

 

Additionally, through a UNC system-wide contract with a financial advisor the university annually conducts a debt capacity study that, in coordination with the debt management policy, analyzes key debt ratios and provides comparable data on UNC system and external peers.  The peer comparison shows that N.C. A&T situates itself in an excellent position with respect to debt capacity.  Current debt capacity is calculated to be $88.6 million and over $111.6 million by 2024 if no other debt is issued.

 

Bond agencies Moody’s and Fitch provide A1 and AA- ratings.

 

The university’s Statement of Net Position reflects a total investment in capital assets, net of accumulated depreciation and related liabilities, as of June 30, 2019, of $307,943,377. This amount includes land, plant (facilities), equipment and construction in progress, net of related liabilities.

 

(c)    Annual Approved Budget

 

The State Executive Budget Act is the legal foundation for the North Carolina State budget system.  The Office of State Budget and Management (OSBM) submits instruction to the University of North Carolina System Office and its Board of Governors to direct the preparation and submission of budgets as may be required by the General Assembly on a biennium or annual basis. The Board of Governors presents to the legislature the request for continuation funds for each of the 17 constituent institutions of the University System, including N.C. A&T.  Constituent institutions share a common budget process that is administered by the UNC System Office.

 

The state of North Carolina has a biennium (two-year) budget cycle.  The process for the current biennium, from July 1, 2019, through June 30, 2021, began during the fall of 2018 and, to-date, has not been approved by the General Assembly and the Governor.  The second year of the biennium is referred to as a “short legislative session.”   Budget submissions during the second year of the biennium occur primarily due to adjustments in state revenue forecasts with either budget reductions or expansions as necessary.

 

Appropriations, awarded in response to the budget requests, are made directly to the individual institutions in the university system by the OSBM. The university received the following state support over the past three years, as shown in Table 13.2.iii.

 

Table 13.2-iii:  State Appropriations

 

 

2018

2019

2020

Noncapital Appropriations

$92,315,806

$93,838,063

$95,490,571

Capital Appropriations

$2,292,115

$1,393,521

$0.00

Total Appropriations

$94,607,921

$95,231,584

$95,490,571

 

The university’s internal budget allocation process is designed to provide an open, inclusive, and objective process by which to allocate N.C. A&T’s resources. The university prepares its budget based on a strategic plan, and the budget is approved by its Board of Trustees.

 

Impacts on the budget development process include:

 

The budget process starts with a review of the current base budget, enrollment projections, the master plan (for capital projects), a review of new programs, and a survey of tuition and fees. The calculated figure in the enrollment model is based on actual enrollment determined by fall census and an estimate of spring enrollment based on a three-year average.  The university will receive additional funding for teaching and support functions of the university.  The Biennium Budget includes a component to account for changes in enrollment in the Universities. Enrollment growth is legislated with G. S. 143C-3-5 which states that the State Budget Office shall include funds for university enrollment increases in the continuation budget. The enrollment growth funds are determined using the enrollment model maintained by the UNC Systems Office.

Each college, school, and administrative unit must submit budget requests for its unit.  In FY 2016-17, the Office of Budget and Planning developed and implemented the Results Based Budgeting process in anticipation for the 2017-19 Budget.  Results Based Budgeting was established to increase transparency, ensure accountability, promote proactive management, and focus on assessment, performance and evaluation.

In Fiscal Year 2008-09, under the direction of the Vice Chancellor for Business and Finance, the university established the Budget Advisory Committee (BAC). Led by the Associate Vice Chancellor for Budget and Planning, the BAC reviews recommendations and constructs a preliminary budget. The preliminary allocation is published for review and comment prior to the committee making the final recommendations to the Chancellor. The Chancellor makes the final decision about the budget allocation and approves the budget proposal.  The final budget is approved by the UNC Board of Governors.

 

Once the budget has been reviewed for approval and released by the Office of State Budget and Management (OSBM), the university’s Budget Office uploads the budgets to the various university accounts.  The budgets are monitored monthly by the Budget Office via the use of budget reports (BD701 and BD702) to ensure adequate progress of revenue collection and expenditures.  A budget report of capital projects (BD725) is reviewed by the university’s Accounting Office. This internal monitoring of budgets is reviewed by the university’s external budget agency, the Office of State Budget and Management.  Additionally, budget checking is a daily process conducted prior to the expenditure of funds for purchases via the online requisitioning, approval and purchasing processes. On a quarterly basis, budget updates are provided to the Board of Trustees.

 

Departments have some budget flexibility and can transfer funds between expense codes using a Budget Transfer Form or Allotment Revision Form. These forms are approved by the department manager and forwarded to the University Budget Office for approval by the Budget Director prior to input into the Banner Finance system.

 

All state-level budget revisions are processed through the automated Integrated Budget Information System (IBIS) developed by OSBM. Adjustments to the budget that change state appropriations or increase receipts are reviewed and approved by OSBM. The university has management flexibility and is able to approve internal budget changes.  The University Budget Office maintains a reconciliation of all changes to the budget received by OSBM or UNC-System Office throughout the year.

The budget process is key to ensuring effective management and efficient response to unforeseen events such as state-wide decreased revenue collections or natural disasters.  At the outset, 3 percent is set aside in reserves for such matters.  If more is needed to accommodate reductions in appropriations, the Budget Office conducts analysis and recommends the most efficient remedy, which may include not filling vacant positions or restriction of travel or other expenditures review. 

 

Supporting Documents

 

  1. Office of the State Auditor OSA) Website
  2. Audited Financial Statements,

a.      Fiscal Year 2018

b.      Fiscal Year 2019

  1. NC A&T Budgets FY 2020, 2021
  2. Division of Business & Finance Organization Chart
  3. Statewide Single Audit Report FSA-2019-8730
  4. RSM “NCAA Agreed Upon Procedures Review of Athletics”
  5. Office of Internal Audit (OIA) Organization Chart
  6. Internal Audit Surprise Cash Count Registrar 2019
  7. Internal Audit FY 2019-20 Audit Plan

10.     Board of Trustees Committees and Meetings 2019-20

11.     Debt Management Policy

12.     UNC System Debt Capacity Study Full Report (2019)

13.     Moody's US Higher Ed Ratings – Public-Private HBCUs May 2017

14.     Fitch Final Press Release Affirming Rating 2020

15.     State of NC Budget Act Chapter 143C

16.     NC A&T Strategic Plan 2023

17.     Office of Budget and Planning

18.     NC A&T Budget Advisory Committee

19.     Budget Update for Board of Trustees February 2020

20.     Office of State Budget (OSBM)

21.   Integrated Budget Information System (IBIS)

22.     Budget Revision BR11-0102 FY19 Stage I UNC IPG Award