Upload
doanthuan
View
214
Download
0
Embed Size (px)
Citation preview
Ave Maria University, Inc. and Subsidiaries
Consolidated Financial Report
June 30, 2013 and 2012
Ave Maria University, Inc. and Subsidiaries
Contents
Independent Auditor’s Report 1-2
Consolidated Financial Statements
Statement of Financial Position 3
Statement of Activities and Changes in Net Assets 4-5
Statement of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-48
Report 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 49-50
Report on Compliance for Each Major Federal and State Program;
Report on Internal Control Over Compliance 51-53
Schedule of Expenditures of Federal Awards and State Financial Assistance 54
Notes to Schedule of Expenditures of Federal Awards and
State Financial Assistance 55-57
Schedule of Findings and Questioned Costs 58-63
Summary Schedule of Prior Audit Findings 64
1
Independent Auditor's Report
To the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Ave Maria University,
Inc. and Subsidiaries (the “University”), which comprise the consolidated statement of financial
position as of June 30, 2013 and 2012 and the related consolidated statements of activities and
changes in net assets and cash flows for the years then ended, and the related notes to the
consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
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 consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express opinions on these consolidated financial statements based on our
audit. 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. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated 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 consolidated 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 by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.
To the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
2
Opinions
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Ave Maria University, Inc. and Subsidiaries as of June
30, 2013 and 2012 and the changes in their net assets and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As described in Note 22 to the consolidated financial statements, the June 30, 2012 consolidated
financial statements have been restated to correct a misstatement. Our opinion is not modified
with respect to this matter.
Other Matters
Other Information
The accompanying schedule of expenditures of federal awards and state financial assistance and
other supplemental information are presented for the purpose of additional analysis as required
by U.S. Office of Management and Budget Circular A-133, Audit of States, Local Governments, and
Non-Profit Organizations, Section 215.97, Florida Statutes, and Chapter 10.650, Rules of the
Florida Auditor General and are not a required part of the consolidated financial statements.
Such information is the responsibility of management and was derived from and relates directly
to the underlying accounting and other records used to prepare the consolidated financial
statements. The information has been subjected to the auditing procedures applied in the audit
of the consolidated financial statements and certain additional procedures, including comparing
and reconciling such information directly to the underlying accounting and other records used to
prepare the consolidated financial statements or to the consolidated financial statements
themselves, and other additional procedures in accordance with auditing standards generally
accepted in the United States of America. In our opinion, the information is fairly stated in all
material respects in relation to the consolidated financial statements taken as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
November 25, 2013 on our consideration of Ave Maria University and Subsidiaries’ internal
control over financial reporting and on our tests of their compliance with certain provisions of
laws, regulations, contracts, grant agreements, and other matters.
The purpose of the 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 (included on pages 49-50 herein) is an integral
part of an audit performed in accordance with Government Auditing Standards in considering Ave
Maria University, Inc. and Subsidiaries' internal control over financial reporting and compliance.
November 25, 2013
Columbus, Ohio
Ave Maria University, Inc. and Subsidiaries
See Notes to Consolidated Financial Statements. 3
Consolidated Statement of Financial Position
2013 2012
(Restated)
Cash and cash equivalents 14,039,129$ 8,425,794$
Restricted cash (Note 9) 1,000,000 1,000,000
Investments (Notes 2 and 6) 6,508,991 4,205,042
Receivables:
Student accounts receivable - Net of allowance for doubtful accounts
of approximately $730,000 and $579,000 at June 30, 2013 and 2012,
respectively 254,774 247,994
Related party receivables (Note 10) 1,158,851 974,898
Other receivables 782,060 206,420
Inventories 135,564 141,953
Prepaid expenses and other assets 432,435 93,723
Student loans receivable - Net of allowance for doubtful accounts (Note 5) 320,188 546,031
Pledges receivable - Net (Note 4) 1,325,000 2,229,950
Notes receivable - Related party (Note 11) 15,096,666 15,016,438
Assets held for sale (Notes 2 and 17) 1,347,352 -
Land and buildings held for rent - Net (Note 2) 25,748,802 30,551,655
Land held for investment (Notes 2 and 7) 41,122,442 43,529,100
Notes receivable - Net (Note 5) 1,768,023 6,239,108
Beneficial interest in trusts (Note 6) 1,173,682 999,155
Employee loans and advances - Net (Note 3) 2,587,319 2,677,871
Intangible asset (Notes 1 and 20) 2,000,000 4,400,000
Capital assets - Net (Note 8) 221,604,423 226,460,127
Deferred bond issuance costs (Note 9) 729,593 729,334
Discontinued operations (Note 18) 885,301 3,743,117
Total assets 340,020,595$ 352,417,710$
Liabilities
Accounts payable 834,073$ 823,729$
Accrued payroll and other liabilities 1,393,231 1,157,052
Gift annuities payable (Note 6) 1,383,562 1,425,267
Line of credit (Note 9) 1,654,822 1,788,155
Loans payable (Note 9) 4,105,769 4,213,387
Fair value of interest rate swap agreements (Note 9) 1,074,574 1,619,230
Deferred revenue on land sale agreements (Note 11) 8,805,020 8,731,085
Bonds payable (Note 9) 52,315,000 53,730,000
Discontinued operations (Note 18) 894,578 999,438
Total liabilities 72,460,629 74,487,343
Net Assets
Unrestricted 258,248,517 269,647,142
Temporarily restricted (Note 14) 7,708,368 6,085,144
Permanently restricted (Note 14) 1,603,081 2,198,081
Total net assets 267,559,966 277,930,367
Total liabilities and net assets 340,020,595$ 352,417,710$
June 30
Assets
Liabilities and Net Assets
Ave Maria University, Inc. and Subsidiaries
See Notes to Consolidated Financial Statements. 4
Consolidated Statement of Activities and Changes in Net Assets
2013 2012
(Restated)
Unrestricted Net Assets
Operating revenue:
Tuition and fees 19,443,826$ 15,655,249$
Less scholarships and allowance (10,882,590) (9,232,454)
Net tuition and fees 8,561,236 6,422,795
Auxiliary income 6,581,674 5,309,463
Private gifts and grants (Note 4) 7,844,315 14,645,680
Investment income (Note 2) 1,990,202 2,503,563
Unrealized gain (loss) on investments (Note 2) 108,951 (74,210)
Other revenue 1,207,798 651,516
Net assets released from restrictions (Note 15) 1,201,366 1,611,485
Total operating revenue 27,495,542 31,070,292
Operating expenses:
Instruction 8,880,147 9,099,852
Academic support 2,027,538 2,218,691
Student services 7,587,120 7,401,007
Institutional support 3,114,348 4,136,535
Institutional relations and fundraising 2,761,090 3,218,652
Auxiliary 6,601,245 6,085,531
Total operating expenses 30,971,488 32,160,268
Net loss before other changes in unrestricted net assets from
continuing operations (3,475,946) (1,089,976)
Other changes in unrestricted net assets from continuing operations:
Increase in reserve on employee housing loans (Note 3) - (65,377)
Loss on write-down of employee housing loan (Note 3) (90,000) -
Loss on write-down of notes receivable (Note 5) (268,376) (1,257,415)
Loss on disposal and abandonment of capital assets (Note 8) (7,198) (162,467)
Loss on impairment of assets (Note 20) (5,502,222) (650,000)
Decrease in Unrestricted Net Assets from Continuing Operations (9,343,742) (3,225,235)
(Decrease) Increase in Unrestricted Net Assets from Discontinued
Operations - (Loss) gain on discontinued operations (Note 18) (2,054,883) 567,709
Net Decrease in Unrestricted Net Assets (11,398,625) (2,657,526)
Temporarily Restricted Net Assets
Contributions 1,710,604 570,236
Increase (decrease) in value of split-interest agreements 388,738 (623,557)
Gain (loss) on investments (Notes 2 and 21) 138,706 (54,325)
Net assets released from restrictions (Note 15) (601,366) (1,611,485)
Increase (Decrease) in Temporarily Restricted Net Assets from
Continuing Operations 1,636,682 (1,719,131)
Decrease in Temporarily Restricted Net Assets from Discontinued
Operations - Loss on discontinued operations (Note 18) (13,458) (25,200)
Net Increase (Decrease) in Temporarily Restricted Net Assets 1,623,224 (1,744,331)
Year Ended June 30
Ave Maria University, Inc. and Subsidiaries
See Notes to Consolidated Financial Statements. 5
Consolidated Statement of Activities and Changes in
Net Assets (Continued)
2013 2012
(Restated)
Permanently Restricted Net Assets
Contributions 5,000$ 30,000$
Net assets released by donor from restrictions (Notes 15 and 21) (600,000) -
(Decrease) Increase in Permanently Restricted Net Assets (595,000) 30,000
Decrease in Net Assets (10,370,401) (4,371,857)
Net Assets - Beginning of year - As restated (Note 22) 277,930,367 282,302,224
Net Assets - End of year 267,559,966$ 277,930,367$
Year Ended June 30
Ave Maria University, Inc. and Subsidiaries
See Notes to Consolidated Financial Statements. 6
Consolidated Statement of Cash Flows
2013 2012
(Restated)
Cash Flows from Operating Activities
Decrease in net assets (10,370,401)$ (4,371,857)$
Adjustments to reconcile decrease in net assets to net cash
from operating activities:
Depreciation expense 5,260,000 5,395,032
Depreciation expense included in discontinued operations 212,916 200,780
Amortization of bond issuance costs 31,702 31,702
(Increase) decrease in value of split-interest agreements (388,738) 623,557
Bad debt expense - Loans and accounts receivable 570,794 247,926
Loss on write-down of notes receivable 268,376 1,257,415
Increase in reserve on pledges and loans receivable 137,162 497,528
Increase in reserve on student loans receivable included in discontinued operations - 516,184
Net depreciation of investments 157,128 368,031
Net realized loss on sale of investments 1,124 414,965
Loss on disposal and abandonment of capital assets 7,198 162,467
Contributions received restricted for long-term investments (5,000) (30,000)
Net changes in value of interest rate swap agreement (544,656) (83,279)
Gain on sale of capital assets in discontinued operations - (35,505)
Loss on impairment of assets 5,502,222 650,000
Loss on write-down of assets of discontinued operations 3,028,092 -
Changes in assets and liabilities:
Student accounts receivable (448,005) (63,552)
Pledges receivable 647,781 (244,750)
Other receivables (1,304,881) (473,200)
Inventory 6,389 4,535
Prepaid expenses and other assets (370,673) (57,098)
Beneficial interest in trusts 115,127 (196,586)
Accounts payable 10,344 (56,005)
Accrued payroll and other accrued liabilities 236,179 (807,827)
Gift annuities payable 188,479 8,778
Deferred revenue on land sale agreements 73,935 (488,559)
Discontinued operations (692,082) (371,189)
Net cash provided by operating activities 2,330,512 3,099,493
Cash Flows from Investing Activities
Purchase of investments (4,828,581) (7,064,413)
Proceeds from sale of investments 5,380,317 8,930,061
Student loans advanced (13,903) (316,027)
Student loans repaid 70,484 378,153
Employee loans advanced (9,453) (61,818)
Employee loans repaid 5,705 174,622
Payments received on notes receivable 4,202,709 1,340,578
Interest collected on notes receivable 465,060 728,327
Cash paid for acquisition of capital assets (411,494) (358,116)
Discontinued operations 204,030 (232,849)
Net cash provided by investing activities 5,064,874 3,518,518
Year Ended June 30
Ave Maria University, Inc. and Subsidiaries
See Notes to Consolidated Financial Statements. 7
Consolidated Statement of Cash Flows (Continued)
2013 2012
(Restated)
Cash Flows from Financing Activities
Increase in restricted cash - (1,000,000)
Contributions received restricted for long-term investment 5,000 30,000
Proceeds from new split-interest agreements - 175,000
Payments to beneficiaries under split-interest agreements (131,100) (143,109)
Payments on bonds payable (1,415,000) (2,250,000)
Proceeds from loans - 3,000,000
Principal payments on loans and line of credit (240,951) (280,793)
Net cash used in financing activities (1,782,051) (468,902)
Net Increase in Cash and Cash Equivalents 5,613,335 6,149,109
Cash and Cash Equivalents - Beginning of year (as restated) 8,425,794 2,276,685
Cash and Cash Equivalents - End of year 14,039,129$ 8,425,794$
Year Ended June 30
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
8
Note 1 - Nature of Entity and Summary of Significant Accounting Policies
Nature of Operations - Ave Maria University, Inc. (AMU) commenced operations through
incorporation as a Florida nonprofit corporation pursuant to the provisions of Florida
statutes on September 3, 2002. The consolidated financial statements include the accounts
of Ave Maria University, Inc., its wholly owned subsidiaries, Ave Maria College (AMC or the
“College”) and Ave Maria Foundation for the Arts (AMFA), and two supporting
organizations: Ave Maria University Land Trust, Inc. (the “Land Trust”) and its wholly
owned subsidiary, AMULT, LLC (AMULT) (collectively known as the “University"). The
University offers a full schedule of postsecondary education with a primary emphasis on
providing a university education grounded in the traditions and faith of the Roman Catholic
Church as determined by the Holy See in Rome. AMU includes the accounts of Ave Maria University - Latin America (AMU-LA), formerly
Ave Maria College of the Americas (AMCA), which is located in San Marcos, Nicaragua.
Effective June 2013, the University transferred control of operations of AMU-LA to an
unrelated party. Effective August 2013, the University transferred all remaining assets and
liabilities to the new owner. The statement of financial position and statement of activities
and changes in net assets of AMU-LA are included in discontinued operations as of and for
the years ended June 30, 2013 and 2012 (see Note 18).
AMC commenced operations through incorporation as a Michigan nonprofit corporation
pursuant to the Michigan Non-Profit Corporation Act (Act 162, P.A. of 1982) on May 15,
1998. Effective June 30, 2007, AMC ceased operations and transferred substantially all
AMU-LA’s assets and liabilities to AMU along with any assets of AMC’s that were not
considered held for sale. As of October 31, 2012, AMC transferred all remaining assets and
liabilities to AMU and was legally dissolved.
AMFA commenced operations through incorporation as a Florida nonprofit corporation
pursuant to the provisions of Florida statutes on December 15, 2008, and was subsequently
granted tax-exempt status by the IRS as a Type 1 supporting organization. The purpose of
the corporation is to accept gifts of art and to otherwise acquire works of art for display to
the public throughout the University and the city of Ave Maria, Florida in furtherance of the
University’s charitable, religious, and educational purposes. As of June 30, 2013, the board
of directors has approved the dissolution of AMFA, pending filing of certain documents with
the State of Florida. Upon filing, all assets and liabilities of AMFA will be transferred to AMU.
The Land Trust was formed as a Florida nonprofit corporation pursuant to the provisions of
Florida statutes. Concurrently, AMULT was formed as a single member LLC, a disregarded
entity for tax purposes with the Land Trust being the single member.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
9
Note 1 - Nature of Entity and Summary of Significant Accounting Policies
(Continued)
Basis of Presentation
Principles of Consolidation - All significant intercompany balances and transactions have
been eliminated.
Accrual Basis - The consolidated financial statements of the University have been prepared
using the accrual basis of accounting.
Discontinued Operations - Assets and liabilities related to AMU-LA and AMC are
reflected on the consolidated statement of financial position as discontinued operations,
recorded at an amount equal to the lower of carrying value or fair value as of June 30, 2013
and 2012. If the carrying value is in excess of fair value, a loss is recognized (see Note 18).
Fair value is estimated based on all available information, with purchase agreements and
appraisals as being most indicative of fair value.
Discontinued operations, including any gain or loss on sale of assets, are reported separately
in the consolidated statement of activities and changes in net assets for the periods
presented. See Note 18 for additional disclosure.
Classification of Net Assets - Net assets of the University are classified as permanently
restricted, temporarily restricted, or unrestricted depending on the presence and
characteristics of donor-imposed restrictions limiting the University's ability to use or
dispose of contributed assets or the economic benefits embodied in those assets. Donor-
imposed restrictions that expire with the passage of time or fulfillment of a donor-specified
purpose result in temporarily restricted net assets. Permanently restricted net assets result
from donor-imposed restrictions that limit the use of net assets in perpetuity. Earnings,
gains, and losses on restricted net assets are classified as unrestricted unless specifically
restricted by the donor or by applicable state law.
Contributions that are restricted by the donor are reported as an increase in unrestricted
net assets if the restriction expires in the reporting period in which the contribution is
recognized. When other restrictions expire, temporarily restricted net assets are presented
as net assets released from restrictions on the consolidated statement of activities and
changes in net assets.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
10
Note 1 - Nature of Entity and Summary of Significant Accounting Policies
(Continued)
Cash Equivalents - The University considers all highly liquid investments with maturities of
three months or less to be cash equivalents, unless they are designated for long-term
purposes. The University maintains cash balances at various times during the year in excess
of the $250,000 guarantee by the Federal Deposit Insurance Corporation. The University
has not experienced any losses in such accounts. Management believes the University is not
exposed to any significant credit risk related to cash.
Investment Securities - The University records investments in marketable equity
securities with readily determinable market values and debt securities at their fair values.
Unrealized gains and losses are included in the consolidated statement of activities and
changes in net assets.
Risks and Uncertainties - The University’s marketable securities consist primarily of debt
and equity securities and alternative investments. These securities are exposed to various
risks, such as interest rate, market, and credit risks. Due to the level of risk associated with
certain marketable securities, it is reasonably possible that changes in risks in the near term
would materially affect the carrying value of the securities.
Student and Other Accounts Receivable - Accounts receivable are stated at net
amounts. An allowance for doubtful accounts and related expenses is established based on
the age of receivables from students and others. Actual uncollectible accounts are recorded
as bad debts in the period that determination is made.
Inventories - Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. The cost is recorded as an expense as the inventory is
consumed.
Property and Equipment - The University capitalizes major additions to property and
equipment. Recorded amounts for such assets are stated at cost of acquisition or
construction or at fair or appraised value at the date of gift, if so acquired. Rare books and
art collections are valued at appraised value and are not depreciated. Depreciation is
computed by a straight-line method over the estimated useful lives of assets as follows:
Buildings and building improvements 20 to 60 years
Land improvements 7 years
Leasehold improvements 5 years
Equipment 3 to 15 years
Furniture and fixtures 7 years
A 10 percent estimated salvage value was placed on the buildings of the permanent campus
that were placed into service during the current and previous fiscal years.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
11
Note 1 - Nature of Entity and Summary of Significant Accounting Policies
(Continued)
Impairment and Disposal of Long-lived Assets - The University evaluates the
recoverability of its property and equipment whenever adverse events or changes in a
business climate indicate that the expected undiscounted future cash flows from a related
asset may be less than previously anticipated. If the net book value of related assets exceeds
the undiscounted future cash flows of the assets, the carrying amount would be reduced to
the fair value of the asset and an impairment loss would be recognized.
Assets classified as held for sale in the consolidated statement of financial position are
recorded at an amount equal to the lower of carrying value or fair value, less cost to sell. If
the carrying value is in excess of the fair value, a loss is recognized. Fair value is estimated
based on available market information.
There were no impairment charges related to long-lived assets during the years ended June
30, 2013 and 2012 other than the impairment charge discussed in Note 18 related to
discontinued operations.
Land and Buildings Held for Investment and Rent - Land and buildings held for
investment and rent are initially recorded at cost or estimated fair value at the date received
as a gift. Subsequently, the carrying value is reported net of accumulated depreciation. The
University evaluates the recoverability of its land and buildings held for investment and rent
whenever adverse events or changes in a business climate indicate that the carrying value
may not be fully recoverable. During the year ended June 30, 2013, the carrying value of the
University’s land and buildings held for rent was determined to exceed their fair value and
an impairment loss was recognized. There was no impairment charge related to land and
buildings held for investment and rent during the year ended June 30, 2012. See Note 20 for
additional information.
Intangible Assets - Intangible assets consist of the University’s licensing agreement to
broadcast and other intangibles related to the University’s radio station. The intangible
assets were originally recorded at cost, have an indefinite useful life, and are evaluated for
impairment on an annual basis. Recoverability is determined based on an estimate of the
expected cash flow of the intangible asset. During the years ended June 30, 2013 and 2012,
the carrying value of the University’s intangible assets was determined to exceed the fair
value and an impairment loss was recognized. See Note 20 for additional information.
Government Grants - Support funded by grants is recognized as the University performs
the contracted services under grant agreements. Grant revenue is recognized as earned as
the eligible expenses are incurred. Grant expenditures are subject to audit and acceptance
by the granting agency and adjustments may be required if audited.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
12
Note 1 - Nature of Entity and Summary of Significant Accounting Policies
(Continued)
Income Taxes - The Internal Revenue Service has determined that AMU, the College,
AMFA, and the Land Trust are exempt from federal income taxes under Section 501(c)(3)
of the Internal Revenue Code. Accounting principles generally accepted in the United States
of America require management to evaluate tax positions taken by the University and
recognize a tax liability if the University has taken an uncertain position that more likely than
not would not be sustained upon examination by the IRS or other applicable taxing
authority. Management has analyzed the tax positions taken by the University and has
concluded that as of June 30, 2013 and 2012, there are no uncertain positions taken or
expected to be taken that would require recognition of a liability or disclosure in the
financial statements. The University is subject to routine audits by taxing jurisdictions;
however, there are currently no audits for any tax periods in progress. Management
believes it is no longer subject to income tax examinations for tax years prior to 2010.
Contributions - Contributions, including unconditional promises to give in the future, are
measured at fair value and reported as revenue when received. Donor promises to give in
the future are recorded at the present value of estimated future cash flows. Contributions
with donor-imposed time or purpose restrictions are reported as restricted support. All
other contributions are reported as unrestricted support. When a donor restriction expires
(that is, when a stipulated time restriction ends or purpose restriction is accomplished) and
the funds have been appropriated for expenditure, temporarily restricted net assets are
reclassified to unrestricted net assets and reported in the consolidated statement of
activities and changes in net assets as net assets released from restrictions.
Other Changes - Other changes in unrestricted net assets reflect transactions that are
peripheral to the University’s primary operating activities, providing a postsecondary
education. The other changes are primarily capital in nature or additional reserves related to
assets not utilized in the University’s primary operating activities.
Fair Value of Financial Instruments - The carrying amounts of the University's cash
equivalents, accounts receivable, accrued liabilities, accounts payable, and line of credit
approximate their fair value due to the short maturity of such instruments, while the fair
market value of employee advances and related party notes receivable is not determinable
due to the relationship between the parties. The carrying values of the bond payable and
other debt obligations approximate fair value based on borrowing rates currently available
to the University and the associated contractual agreements. The inputs are based upon
terms in contractual agreements. The fair value of these financial instruments is determined
using Level 2 inputs.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
13
Note 1 - Nature of Entity and Summary of Significant Accounting Policies
(Continued)
Fair Value Option - The fair value option for financial assets and financial liabilities permits
entities to choose to measure many financial instruments and certain other items at fair
value. The fair value option may be applied instrument by instrument, is irrevocable, and is
applied only to entire instruments and not to portions of instruments.
Management made the election for the fair value option to provide an accurate portrayal of
these balances by discounting the gift annuities payable given the length of time involved
with some of the annuities and by adjusting the refundable advances to their underlying
investment’s market value.
Use of Estimates - The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (GAAP) 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 consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period.
The most significant assumptions and estimates relate to the valuation of real estate and
related intangible assets, including the assessment of impairments, as well as depreciable
lives and the collectibility of student and other accounts receivable, notes receivable, and
employee loans receivable. Application of these assumptions requires the exercise of
judgment as to future uncertainties and, as a result, actual results could differ from these
estimates.
Subsequent Events - The consolidated financial statements and related disclosures include
evaluation of events up through and including November 25, 2013, which is the date the
consolidated financial statements were issued.
New Accounting Pronouncements - The University adopted ASU No. 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRS. This update results in common fair value measurement and disclosure
requirements in U.S. GAAP and International Financial Reporting Standards. The
amendments in this update explain how to measure fair value. They do not require
additional fair value measurements and are not intended to establish valuation standards or
affect valuation practices outside of financial reporting. However, this update does require
expanded disclosure related to the nature and significance of inputs that are used in
estimating and measuring the fair value of financial instruments. The amendments in this
update are to be applied prospectively and are effective for annual reporting periods
beginning after December 15, 2011. The new pronouncement did not impact the
consolidated statement of financial position or statement of activities and changes in net
assets.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
14
Note 2 - Investments
The following summarizes the University’s securities, land held for investment, and land and
buildings held for rent by type as of June 30, 2013 and 2012:
Cost Carrying Value Cost Carrying Value
Stocks 424,272$ 461,590$ 540,180$ 393,200$
Corporate bonds 335,000 335,000 1,030,000 1,030,000
Government bonds 1,120,000 1,120,000 - -
Mutual funds 3,856,053 4,592,401 2,281,673 2,781,842
Total securities 5,735,325 6,508,991 3,851,853 4,205,042
Land and buildings held for rent 25,748,802 25,748,802 30,551,655 30,551,655
Land held for investment (Note 7) 41,122,442 41,122,442 43,529,100 43,529,100
Total investments 72,606,569$ 73,380,235$ 77,932,608$ 78,285,797$
2013 2012
Land and buildings held for rent are recorded at cost or estimated fair value at the date
received as a gift. Depreciation expense recognized on land and buildings held for rent
during the years ended June 30, 2013 and 2012 was $607,279 and $635,189, respectively.
During the year ended June 30, 2013, $1,093,352 of land and buildings held for rent was
transferred to assets held for sale. The University evaluates the recoverability of its long-
lived assets whenever such changes in classification occur. There was no impairment charge
recorded as a result of the change in classification. In August 2013, the asset was sold to an
unrelated third party and a gain on sale was recorded of approximately $57,000.
Investment income included in the accompanying consolidated statement of activities and
changes in net assets is as follows:
2013 2012
Investment interest and dividends - Net of fees 205,484$ 403,783$
Interest collected on land held for investment (Note 11) 138,396 728,327
Interest on bank account land trusts 159 -
Net realized and unrealized gains (losses) 243,542 (144,712)
Realized gain on land held for investment (Note 11) 224,165 8,296
Investment rental income - Net of depreciation 1,426,113 1,379,334
Total 2,237,859$ 2,375,028$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
15
Note 2 - Investments (Continued)
Of the approximately $25,749,000 in land and buildings held for rent (net of depreciation) at
June 30, 2013, $13,690,000 relates to the former Naples, Florida campus, which is being
leased to an affiliated entity for $1,250,000 per annum through June 30, 2014. During the
year ended June 30, 2013, the carrying value of the Naples campus was determined to
exceed the fair value and an impairment loss of approximately $3,102,000 was recognized.
See Note 20 for additional information.
Additionally, approximately $12,059,000 classified as land and buildings held for rent is
leased to an affiliated entity operating a K-12 grammar and prep school for $300,000 per
annum through June 30, 2022. Effective each July 1
thereafter, the rent will increase by the
change in the Consumer Price Index for the previous calendar year. The University has
granted the affiliated entity free rent for the first four years of the lease term, a 75 percent
discount in year five, a 50 percent discount in year six, a 25 percent discount in year seven,
and no discount in subsequent years. The rent and aforementioned discounts are being
recognized on a straight-line basis over the term of the lease agreement.
The following is the estimated future annual rental income of land and buildings held for rent
on a straight-line basis:
Years Ending
June 30 Amount
2014 1,440,000$
2015 190,000
2016 190,000
2017 190,000
2018 190,000
Thereafter 760,000
Total 2,960,000$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
16
Note 3 - Employee Loans and Advances
Employee loans and advances as of June 30, 2013 and 2012 are summarized as follows:
2013 2012
Employee housing assistance loans 4,164,610$ 4,314,610$
Other employee loans 88,553 89,105
Subtotal 4,253,163 4,403,715
Less reserve for housing assistance loans (1,665,844) (1,725,844)
Net employee loans 2,587,319$ 2,677,871$
During the year ended June 30, 2007, the University introduced an Employee Housing
Assistance Loan program to all employees in order to assist University employees to
purchase housing within the town of Ave Maria. Under the program guidelines, the
employee takes out a first mortgage with a third-party lender of their choice and a second
shared appreciation mortgage with the University, which the employee is not required to
repay until the home is sold or the employee terminates service with the University. These
loans have ranged from $50,000 to $150,000. Upon the sale of the home, the University
shares in the appreciation (or depreciation) allocated pro rata based upon the original loan
amount as a percentage of the purchase price. The employee housing loan is noninterest-
bearing. The University imputes interest at the applicable federal rate and includes the
amount in the employee’s compensation. The program was suspended during fiscal year
2009 and no new loans are currently being offered.
Due to the recent depreciation in housing prices, management has placed a reserve of
$1,665,844 and $1,725,844 on the outstanding loan balances as of June 30, 2013 and 2012,
respectively. During the year ended June 30, 2013, one of the employee housing loans with
a balance due of $150,000 was determined to be uncollectible due to bankruptcy. As a
result, the University wrote off the unreserved balance of $90,000. The loss from the write-
down is presented on the consolidated statement of activities and changes in net assets as
other changes in unrestricted net assets from continuing operations. There are no amounts
considered past due at June 30, 2013 and 2012.
The University provides financing options to employees with loans with maturities greater
than one year. Employee loans receivable are periodically evaluated for collectibility.
Provisions for losses are determined on the basis of loss experience, known and inherent
risks in the loans held, the estimated value of underlying collateral, if any, and current
economic conditions.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
17
Note 3 - Employee Loans and Advances (Continued)
The University considers an employee loan to be impaired when, based upon current
information and events, it believes it is probable that the University will be unable to collect
all amounts due according to the contractual terms of the promissory notes receivable
agreements. The University did not have any other promissory notes receivable considered
to be impaired as of June 30, 2013 and 2012 after impairing the aforementioned $150,000
employee loan.
Note 4 - Pledges Receivable
Unconditional promises to give are included in the consolidated financial statements as
pledges receivable. Pledges are recorded at their net present value using the long-term U.S.
Treasury note rate in effect the year the pledge is received. There was one new pledge
received during fiscal year 2013. There were no new pledges received in 2012. The future
expected cash flows from pledges receivable as of June 30, 2013 and 2012 have been
discounted using a discount rate of 5 percent. The pledges are expected to be received as
follows:
2013 2012
In one year or less 315,000$ 1,506,285$
Between one and five years 1,196,000 915,000
Gross pledges receivable 1,511,000 2,421,285
Less discount to present value (186,000) (191,335)
Net pledges receivable 1,325,000$ 2,229,950$
On August 22, 2003, the University entered into a charitable pledge agreement (the
“Agreement”) with Ave Maria Foundation (the “Foundation”) and Thomas S. Monaghan,
Chancellor of the University. Under the terms of the Agreement, the University would
receive, subject to certain conditions as set forth in the Agreement, up to $10,000,000 each
fiscal year (noncumulative) to cover operating deficits, beginning with the opening of the
permanent campus.
On June 25, 2012, the University entered into a supplemental charitable pledge agreement
with the Chancellor. This agreement allows for up to an additional $2,000,000 to cover
operating deficits to maintain compliance with the debt covenants discussed in Note 9 and is
effective for the year ended June 30, 2012.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
18
Note 4 - Pledges Receivable (Continued)
These pledge agreements are conditional and awarded only in the event of operating deficits
as defined in the agreements. During the years ended June 30, 2013 and 2012, the
University recorded revenue of approximately $0 and $7,470,000, respectively, attributable
to these operating pledges. As of June 30, 2013 and 2012, $0 and $1,100,000, respectively,
of these amounts are included in pledges receivable, and the revenue is included in private
gifts and grants.
Note 5 - Notes Receivable and Student Loans Receivable
Stock Purchase Agreement
During the year ended June 30, 2011, the University entered into a signed stock purchase
agreement with a privately held company to sell back 132,744 shares of a private equity
investment. At the time of the agreement, the shares were valued at $22.27 per share. The
stock is to be redeemed in three annual payments of $985,403 each plus interest at 2.40
percent per annum, with the first payment having been made in January 2011. The company
exercised its option to defer its 2012 principal payment for one year, extending the final
payoff to January 2014. The University has included the value of the remaining payments as
a note receivable, with a balance outstanding of $985,403 and $1,970,806 as of June 30,
2013 and 2012, respectively. There are no amounts considered past due at June 30, 2013
and 2012.
Orchard Lake Schools Note
AMC had a $5,000,000 note receivable due from Orchard Lake Schools (OLS) until the
rights to the note receivable were transferred to AMU effective June 29, 2007. The note
receivable was also amended whereby OLS agreed to pay $1,000,000 of the principal
outstanding in October 2007 with the remaining $4,000,000 accruing interest at 4 percent
per annum through June 30, 2010 and 6 percent per annum starting July 1, 2010 with
principal and interest of $44,408 payable monthly until June 30, 2020. In October 2012, the
parties to the note entered into a settlement agreement and release, which provided for a
one-time pay-down of $3,000,000 against the remaining balance of the note as of the date
of the agreement. As part of the agreement, the University agreed to write down the
balance outstanding at September 30, 2012 by $268,376. This amount is reflected in the
other changes in unrestricted net assets from continuing operations on the consolidated
statement of activities and changes in net assets. The balance on the note at June 30, 2013
and 2012 was $0 and $3,406,627, respectively, which is included in notes receivable on the
consolidated statement of financial position.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
19
Note 5 - Notes Receivable and Student Loans Receivable (Continued)
Donor Promissory Note
During the year ended June 30, 2009, three promissory notes were assigned to the
University from one donor unrelated to the University. Under terms of the original
underlying agreements, the notes accrued interest at 4.73 percent per annum with principal
and interest of $72,884 (approximately $24,000 per promissory note) payable quarterly
until September 30, 2015, when the entire remaining principal balance and any unpaid
accrued interest were payable in full. In February 2012, the parties to the notes entered into
a settlement agreement and release, which provided for a one-time pay-down of
$1,000,000 against the remaining balance of the three original notes, a new interest rate of
2.89 percent per annum, a revised payment schedule of principal and interest totaling
$100,000 due each December 31 through 2021, and a consolidation of the three individual
notes into one obligation, with each of the original obligors jointly and severally liable for the
payment of the total note balance.
As part of the agreement, the University agreed to write down the original notes by
$1,257,415 during the year ended June 30, 2012. This amount is reflected in the other
changes in unrestricted net assets from continuing operations on the consolidated statement
of activities and changes in net assets. The balance on the notes at June 30, 2013 and 2012
was $782,620 and $861,675, respectively, which is included in notes receivable on the
consolidated statement of financial position. There are no amounts considered past due at
June 30, 2013 and 2012.
Student Loan Receivables
Prior to its accreditation, the University was not eligible to participate in the federal Title IV
student aid program. As a result, in order to be competitive with other schools, it offered
and awarded institutional Stafford replacement loans to its students. The terms of these
loans were similar to the then-currently awarded federal Stafford loans. These
uncollateralized loans were awarded based on student financial need, and the University did
not take into consideration the creditworthiness of the student or parents. If these loans
were awarded to students participating in the University’s vocation discernment program,
the terms were modified to include a provision to forgive the loan if (1) the student went on
to seminary, (2) was ordained a priest or took final vows as a Religious, and (3) did not
receive a loan pay-off option as part of their compensation package. The University stopped
awarding replacement Stafford loans when it became eligible to participate in the federal
Title IV program beginning with the fall 2005 school year.
Beginning in 2010, the University introduced the St. Rita Loan Program with the intention of
retaining students that would otherwise not be able to afford to continue school because of
financial need and an inability to secure traditional student loans. Institutional policy is to
limit these loans to hardship cases, with seven and eight new loans issued in the years ended
June 2013 and 2012, respectively. The loan repayment terms are similar to Stafford loans.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
20
Note 5 - Notes Receivable and Student Loans Receivable (Continued)
At June 30, 2013 and 2012, student loans consisted of the following:
2013 2012
Institutional Student Loans Receivable
Stafford replacement - Performing 67,833$ 255,012$
Stafford replacement - Nonperforming, collectively evaluated 871,515 754,821
Stafford replacement - Nonperforming, individually evaluated 174,447 174,447
Vocational discernment - Collectively evaluated 609,041 635,806
Need-based gap loans 71,525 57,620
Total institutional student loans receivable 1,794,361 1,877,706
Less Allowance for Doubtful Accounts
Beginning balance (1,331,675) (806,922)
Current year increases (149,913) (524,753)
Write-offs of loans 7,415 -
Total allowance for doubtful accounts (1,474,173) (1,331,675)
Student loans receivable - Net 320,188$ 546,031$
Allowances for doubtful accounts are established based on prior collection experience and
current economic factors which, in management’s judgment, could influence the ability of
loan recipients to repay the amounts per the loan terms. Institutional loan balances are
written off only when they are deemed to be permanently uncollectible.
As of June 30, 2013 and 2012, the University has $1,655,004 and $1,442,865, respectively,
in gross student loan receivables that are more than 90 days delinquent.
In relation to the sale of AMU-LA as discussed in Note 18, student loans receivable of
$108,634 and $1,139,108 (net of allowances and impairments) have been included with
assets of discontinued operations on the consolidated statement of financial position as of
June 30, 2013 and 2012, respectively.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
21
Note 5 - Notes Receivable and Student Loans Receivable (Continued)
Financing Notes Receivable
The University provides financing options to aforementioned organizations, donors, and
students for promissory notes and student loan receivables with maturities greater than one
year. Financing promissory notes and student loan receivables are periodically evaluated for
collectibility based on past credit history with the donors, organizations, and students and
their current financial condition. Provisions for losses on promissory notes and student loan
receivables are determined on the basis of loss experience, known and inherent risks in the
receivables held, the estimated value of underlying collateral, if any, and current economic
conditions. Financing notes receivable are placed in nonaccrual status when they become
past due. Upon suspension of the accrual of interest, interest income is subsequently
recognized to the extent cash payments are received. Accrual of interest is resumed when
loans are removed from nonaccrual status. Notes receivable are charged against the
allowance for credit losses when they are deemed to be uncollectible. The University did
not have any notes receivable on nonaccrual status at June 30, 2013 and 2012. The
University considers the promissory notes receivable to be fully collectible at June 30, 2013
and 2012 and has established the above reserves for student loans receivable.
The University considers promissory notes and student loan receivables to be impaired
when, based upon current information and events, it believes it is probable that the
University will be unable to collect all amounts due according to the contractual terms of
the promissory notes and student loan receivables agreements. Financing receivables are
assessed for impairment based on the following factors: (1) changes in external credit
ratings, (2) changes in regional and local economic conditions, and (3) changes in borrower-
specific financial condition. As mentioned previously, the University agreed to write down
promissory notes receivable of $268,376 and $1,257,415 and student loan receivables of
$7,415 and $0 during the years ended June 30, 2013 and 2012, respectively,
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
22
Note 6 - Split-interest Agreements
AMU is the beneficiary of various split-interest agreements including charitable remainder
trusts and charitable gift annuities. AMU recognizes irrevocable split-interest agreements
when they are executed. If an unrelated third party acts as trustee or fiscal agent, a
contribution is recognized when AMU is notified of the agreement’s existence. Investments
held in split-interest agreements are reported at fair market value of assets donated as of
the date of the gift and by recording the actuarial present value of the annuities payable
using the 10-year U.S. Treasury discount rate (discount rates used at June 30, 2013 and
2012 were 2.5 percent and 1.7 percent, respectively). Real property and other assets are
reported at the appraised value at the date of donation. All distributions or remainder
interests in the split-interest agreements are available for AMU’s use based on the existence
or absence of donor-imposed restrictions.
As of June 30, 2013 and 2012, a beneficial interest in trust of $662,681 and $654,041,
respectively, was recorded for split-interest agreements with unrelated third parties acting
as trustees. For split-interest agreements under which the University acts as the trustee,
AMU has recorded an asset included in investments in the consolidated statement of
financial position of $2,256,677 and $2,199,300 with a corresponding life income obligation
of $1,383,562 and $1,425,267 at June 30, 2013 and 2012, respectively.
AMU is the beneficiary of additional split-interest agreements held by the Ave Maria
Foundation (the “Foundation”), for which the Foundation acts as the trustee. Once the
agreements have been satisfied, the remaining assets will be transferred to AMU. The
University recorded revenue of $256,684 and $95,075 under satisfied split-interest
agreements for the years ended June 30, 2013 and 2012, respectively. As of June 30, 2013
and 2012, a beneficial interest in charitable annuity trust of $511,001 and $345,114,
respectively, was recorded related to these agreements. The Foundation used the 10-year
U.S. Treasury discount rate of 2.5 percent and 1.7 percent to determine its liability for
annuity payments under these agreements during the years ended June 30, 2013 and 2012,
respectively.
Note 7 - Land Held for Investment
AMULT owns a 50 percent undivided interest in real property that is recorded at cost and
considered held for investment to be sold as needed to fund operations or provide long-
term investment for the University. As of June 30, 2013 and 2012, AMULT had a 50 percent
undivided interest in 7,441 acres and 7,877 acres of land, respectively, which is considered
held for investment at cost of $41,122,442 and $43,529,100, respectively.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
23
Note 8 - Capital Assets
Major classes of capital assets at June 30, 2013 and 2012 are as follows:
2013 2012
(Restated)
Land 3,191,234$ 3,130,447$
Land improvements 450,251 450,251
Buildings and building improvements 221,275,331 221,275,331
Equipment 10,623,578 11,089,117
Furniture and fixtures 5,564,033 5,915,007
Library collection 2,622,403 2,622,403
Artwork 3,725,006 3,725,006
Construction in progress 2,511,253 2,298,850
Total cost 249,963,089 250,506,412
Less accumulated depreciation 28,358,666 24,046,285
Net carrying amount 221,604,423$ 226,460,127$
Depreciation expense on capital assets was $5,260,000 and $5,395,032 for the years ended
June 30, 2013 and 2012, respectively.
During the years ended June 30, 2013 and 2012, the University expensed $7,198 and
$162,467, respectively, of previously capitalized construction in progress costs on projects
which will never be placed in service or were cancelled by the University before
completion.
In relation to the sale of AMU-LA as discussed in Note 18, capital assets of $263,182 and
$2,457,355 (net of accumulated depreciation and impairment) have been included with
assets of discontinued operations on the consolidated statement of financial position as of
June 30, 2013 and 2012, respectively. Depreciation expense on AMU-LA capital assets for
the years then ended was $212,916 and $200,780, respectively, and is included in
discontinued operations on the consolidated statement of activities and changes in net
assets.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
24
Note 9 - Debt Obligations
Bonds Payable
Bonds payable at June 30, 2013 and 2012 are summarized as follows:
2013 2012
Bonds payable - Collier County Educational
Facilities Authority:
Series 2008 16,535,000$ 17,000,000$
Series 2007 9,490,000 9,750,000
Series 2006 26,290,000 26,980,000
Total 52,315,000$ 53,730,000$
As of June 30, 2013, the aforementioned bonds were outstanding with Collier County
Educational Facilities Authority under a trust indenture with a trustee bank. The variable
rate bonds bore interest at an average rate of 0.160 percent and 0.225 percent as of June
30, 2013 and 2012, respectively. The maturity dates for the bonds, Series 2008, Series
2007, and Series 2006 were October 1, 2036, October 1, 2035, and October 1, 2034,
respectively.
The proceeds of the Series 2006 and 2007 bonds were used to finance a portion of the
acquisition and construction of housing facilities and the construction of an undergraduate
dormitory. The proceeds of the Series 2008 bond were used to finance the acquisition,
construction, and equipping of a four-floor, 554-bed student dormitory. All of the bond
proceeds were disbursed as of June 30, 2010.
As of June 30, 2013, all bonds were collateralized by outstanding letters of credit equal to
the aggregate principal outstanding plus interest in the amount not to exceed $16,738,856
(Series 2008), $9,607,000 (Series 2007), and $26,678,948 (Series 2006). The University pays
a letter of credit fee equal to 1.50 percent per annum on the Series 2008 bond, 1.35
percent per annum on the Series 2007 bond, and 2.0 percent per annum on the Series 2006
bond. The maturity dates of the letters of credit are August 2014 (Series 2008), August
2013 (Series 2007), and October 2012 (Series 2006). The letters of credit are secured by a
first priority interest in housing and a first priority collateral assignment of rents and leases
generated by the housing. As part of an extension agreement in 2011, an additional
$1,000,000 was deposited with the bank in a draw reimbursement account as collateral.
This collateral will be applied to the outstanding principal of the bonds in the event that
certain performance metrics are not met and is considered restricted cash on the
consolidated statement of financial position.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
25
Note 9 - Debt Obligations (Continued)
During the year ended June 30, 2013, the bank amended the terms of the Series 2006
bonds in its extension of the letter of credit from October 2012 to October 2014. This
extension amended the performance metrics to include minimum enrollment and net
average tuition and fees targets, as well as maximum reported cash-basis deficits.
The University also entered into a remarketing agreement for the bonds whereby the
remarketing agent receives a fee equal to 0.10 percent of the average principal outstanding
during the preceding six-month period payable semiannually in arrears each June 1 and
December 1 on the Series 2008 and 2007 bonds.
The remarketing agent receives a fee equal to 0.125 percent per annum of the average
principal outstanding during the preceding 12-month period payable on October 1 of each
year on the Series 2006 bond.
The University has also agreed to certain financial covenants including a debt service
coverage ratio and a liquidity ratio. The University has also granted a mortgage security
interest on real estate located at Collier County, Florida and certain rental and lease
revenue generated by the University further collateralizes the bonds. Furthermore,
AMULT and the Land Trust have granted guarantees to the obligor as further collateral on
the bonds.
The bondholders have the ability to call the bonds. If the remarketing agent is unable to sell
the bonds, the aforementioned maturity dates may change and be subject to the letter of
credit’s repayment terms, which may be less than one year. Under the letter of credit
agreement, if there is a purchase draw on these bonds, the full balance of the note could be
due within 180 days of the purchase drawing.
In July 2013, the University refunded the Series 2006, 2007, and 2008 bonds in full through
the issuance of two new bonds with principal amounts of $60,515,000 (Series 2013A) and
$2,720,000 (Series 2013B). The bonds are outstanding with Collier County Educational
Facilities Authority under a trust indenture with a trustee bank. These fixed rate bonds bear
interest at rates ranging from 4.5 percent to 6.125 percent. The maturity dates for the
Series 2013A and Series 2013B bonds are June 1, 2043 and June 1, 2017, respectively.
Additionally, as a result of the refunding, the three letters of credit discussed previously have
been terminated as of July 2013.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
26
Note 9 - Debt Obligations (Continued)
The principal maturities on all bonds payable under the new agreements are as follows:
Year Ending
June 30 Series 2013A Series 2013B Total
2014 -$ -$ -$
2015 - 1,010,000 1,010,000
2016 - 1,055,000 1,055,000
2017 440,000 655,000 1,095,000
2018 1,140,000 - 1,140,000
Thereafter 58,935,000 - 58,935,000
Total 60,515,000$ 2,720,000$ 63,235,000$
Interest Rate Swap Agreements
The University is exposed to certain risks in the normal course of its operations. The main
risks are those relating to the variability of future earnings and cash flows, which are
managed through the use of derivatives. In particular, interest rate swaps (which are
designated as cash flow hedges) are used to manage the risk associated with interest rates
on variable borrowings.
The University entered into five interest rate swap agreements to reduce the University’s
risk exposure to rising interest rates and effectively lower its cost of borrowing over time.
Under each of the interest rate swap agreements, the University pays a fixed rate to, and
receives a variable rate from, the counterparty based on notional amounts listed below.
Unrealized gains in the fair value in the interest rate swap agreements of $544,656 and
$83,279 are recognized as a component of auxiliary expenses in the accompanying
consolidated statement of activities and changes in net assets for the years ended June 30,
2013 and 2012, respectively. In July 2013, the interest rate swap agreements were
terminated in conjunction with the refunding of the associated bonds mentioned previously.
The University used proceeds of $1,066,200 from the bond refinancing in July 2013 to
terminate the interest rate swap agreements.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
27
Note 9 - Debt Obligations (Continued)
The terms and fair values of the outstanding swaps as of June 30, 2013 and 2012 are as
follows:
Bond Issue Maturity Dates
Notional
Amounts Interest Rate
Fair Value at
June 30, 2013
Fair Value at
June 30, 2012
Series 2006 March 1, 2017 10,000,000$ 3.825% (714,790)$ (1,042,774)$
Series 2007 November 1, 2017 3,000,000 3.800% (176,483) (256,803)
Series 2007 November 1, 2017 3,000,000 3.600% (166,552) (250,790)
Series 2008 June 1, 2014 1,500,000 1.290% (16,749) (28,741)
Series 2008 June 1, 2013 5,500,000 0.980% - (40,122)
Total(1,074,574)$ (1,619,230)$
Deferred Bond Issuance Costs
Deferred bond issuance costs represent legal and other financing costs incurred during
2013, 2008, 2007, and 2006 related to the aforementioned bond issuances. As of June 30,
2013 and 2012, deferred bond issuance costs amounted to $729,593 and $729,334,
respectively. The deferred financing costs will be amortized over the life of the bonds on a
straight-line basis as follows:
Years Ending
June 30 Amount
2014 32,767$
2015 32,767
2016 32,767
2017 32,767
2018 32,767
Thereafter 565,758
Total 729,593$
Amortization expense related to these deferred bond issuance costs was $31,702 for each
of the years ended June 30, 2013 and 2012. Due to refunding of the bonds as mentioned
previously, $697,633 of deferred bond costs was written off in July 2013.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
28
Note 9 - Debt Obligations (Continued)
Line of Credit
As of June 30, 2013, the University had a line of credit facility with a bank maturing in
July 2014 to borrow $2,000,000. The line was secured by a portion of the employee
housing loans described in Note 3. Additionally, AMULT, LLC granted an unconditional
guarantee to the obligor as collateral on the line of credit. The total outstanding borrowing
at June 30, 2013 (accruing interest at LIBOR plus 200 basis points, an effective rate of 2.22
percent) and June 30, 2012 (accruing interest at LIBOR plus 200 basis points, an effective
rate of 2.24 percent) was $1,654,822 and $1,788,155, respectively. Under the agreement,
payments made through July 2011 were payments of interest only. Monthly principal
payments of $11,111 began in August 2011 and mature in July 2014. In July 2013, the line of
credit was repaid and the agreement terminated in conjunction with the refunding of the
associated bonds mentioned previously.
Loans Payable
Loans payable at June 30, 2013 and 2012 are as follows:
2013 2012
Note payable in the amount of $63,528 in exchange for capital
assets obtained in fiscal year 2010. The note is due in monthly
installments of $1,228, including interest at 6 percent per annum
through October 2014 18,840$ 32,016$
Note payable in the amount of $26,048 in exchange for capital
assets obtained in fiscal year 2011. The note is due in monthly
installments of $724 through December 2013 and is noninterest-
bearing 3,617 12,300
Mortgage note payable in the amount of $937,500 for the
purpose of refinancing a building during fiscal year 2011. The
note is due in 35 monthly installments of $6,493, with a balloon
payment of $860,690 due in May 2014. The loan accrues
interest at 5.5 percent per annum and is secured by the
property. In August 2013, the related building was sold (see
Note 2) and the mortgage note paid in full. 877,855 906,854
Note payable in the amount of $36,665 in exchange for capital
assets obtained in fiscal year 2012. The note is due in monthly
installments of $1,230, including interest at 12.7 percent per
annum through December 2014 20,064 32,707
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
29
Note 9 - Debt Obligations (Continued)
2013 2012
Note payable in the amount of $247,019 in exchange for capital
assets obtained in fiscal year 2012. The note is due in monthly
installments of $4,876, including interest at 6.9 percent per
annum through February 2017 185,393$ 229,510$
Mortgage note payable in the amount of $3,000,000 for the
purpose of refinancing a building during fiscal year 2012. The
note is due in annual principal installments of $100,000 beginning
on July 1, 2013, with a balloon payment of $1,000,000 due on
July 1, 2032. The loan accrues interest at 5 percent per annum
and is secured by the property 3,000,000 3,000,000
Total loans payable 4,105,769$ 4,213,387$
The principal maturities on all loans payable are as follows:
Years Ending
June 30 Amount
2014 1,055,521$
2015 162,698
2016 154,185
2017 133,365
2018 100,000
Thereafter 2,500,000
Total4,105,769$
Interest Expense
Total interest expense and bond-related costs, including letter of credit fees incurred during
fiscal years 2013 and 2012, were approximately $2,010,000 and $2,034,000, respectively.
Note 10 - Related Party Transactions
Related party receivables at June 30, 2013 and 2012 are summarized as follows:
2013 2012
Rhodora J. Donahue Academy (Academy) 1,058,953$ 875,000$
Ave Maria Development (AMD) 99,898 99,898
Total 1,158,851$ 974,898$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
30
Note 10 - Related Party Transactions (Continued)
Shared Services with Rhodora J. Donahue Academy - The Academy is a not-for-profit
private K-12 school which received an operating grant from the Foundation to start
operations. One member of AMU and AMC’s board of trustees also serves on the board of
the Academy.
During the years ended June 30, 2013 and 2012, the Academy reimbursed AMU
approximately $0 and $56,500, respectively, for expenditures paid by AMU on behalf of the
Academy related to maintenance of the school grounds. At June 30, 2013 and 2012,
approximately $69,000 and $0, respectively, is included in the receivable balance above
related to such shared expenditures.
Also, as disclosed in Note 2, the Academy leases a building from AMU for $300,000 per
annum. Due to the free rent period and subsequent discounts, AMU has recognized rental
income on a straight-line basis over the lease term as required under GAAP. At June 30,
2013 and 2012, $990,000 and $875,000, respectively, is included in the receivable balance
above related to the straight-line rent adjustment. Rental revenue of $190,000 is included in
investment income in the consolidated statement of activities and changes in net assets for
the years ended June 30, 2013 and 2012.
Shared Services with AMD - AMD is an entity which has purchased land from AMULT in
the past and is partially owned by the chancellor of the University. AMU reimbursed AMD
approximately $55,000 and $25,000 for expenditures paid by AMD on behalf of AMU
related to construction and maintenance of the permanent campus during the years ended
June 30, 2013 and 2012, respectively. During the years ended June 30, 2013 and 2012, AMU
also paid approximately $216,000 and $210,000, respectively, to AMD for rental costs of
the bookstore and visitor center within the town of Ave Maria. As of June 30, 2013 and
2012, the University had recorded $439,997 and $470,780, respectively, within accrued
payroll and other liabilities on the consolidated statement of financial position for amounts
due to AMD related to these shared service agreements.
The following are the estimated future rental costs associated with the book store and the
visitor center:
Years Ending
June 30 Amount
2014 136,713$
2015 22,099
Total 158,812$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
31
Note 10 - Related Party Transactions (Continued)
Activity with the Ave Maria Foundation - AMU receives grants from the Foundation to
cover various operating expenses (see Note 4). This revenue is included in private gifts and
grants in the consolidated statement of activities and changes in net assets. Additionally,
AMU reimbursed the Foundation approximately $27,000 and $8,000 during the years ended
June 30, 2013 and 2012, respectively, for expenditures paid by the Foundation on behalf of
AMU. One member of AMU and AMC’s board of trustees also serves on the board of the
Foundation.
Shamrock Bank of Florida - AMU has a mortgage note payable and cash on deposit with
Shamrock Bank of Florida, for which the chancellor of AMU is a stockholder. The mortgage
note payable is disclosed in Note 9 and the outstanding balance was $877,855 and $906,854
as of June 30, 2013 and 2012, respectively. Cash on deposit was $13,194,314 and $0 as of
June 30, 2013 and 2012, respectively.
Note 11 - Land Sale Agreements
AMULT and the Partnership and a related party of the partnership (collectively known as
the “Seller”) entered into a purchase agreement with Ave Maria Development, LLLP
(AMD), allowing AMD to purchase 9,310 acres of land held for investment (see Note 7)
over time from AMULT and the Seller at the then fair market value. Upon closing of each
sale, a portion of the purchase price, cash paid at closing, and promissory notes is allocated
to AMULT in accordance with a tenancy in common agreement. None of the proceeds
applicable to habitat and stewardship credits are allocated to AMULT.
Under the original terms of the notes, interest was due at a rate of 6.5 percent per annum
and the promissory notes mature at dates ranging from September 21, 2011 to July 14,
2014. During the 2011 fiscal year, the terms were amended. Interest is now due at a rate
of 1.6 percent per annum and the promissory notes mature at dates ranging from
September 21, 2016 to July 14, 2018. Principal on the promissory notes is payable as land is
sold to third parties as residential homes or commercial property. Interest is recognized
when collected. Given the contingent nature of when AMULT collects on the promissory
notes including accrued interest, the timing of repayment is not determinable. Certain notes
receivable are collateralized by related buildings, structures, and improvements on the
property under a mortgage and security agreement. Under the terms of the 2011
amendment, collateral under each of the promissory notes serves as security for all other
outstanding promissory notes.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
32
Note 11 - Land Sale Agreements (Continued)
The following table summarizes the land sale transactions with Ave Maria Development,
LLLP from inception through June 30, 2013:
Date Sold Acres Sold Purchase Price
Proceeds
Allocable to
Other Partners
Cash Paid at
Closing
Original Note
Receivable
Deferred
Revenue as of
June 30, 2013
Notes
Receivable as of
June 30, 2013
Accrued
Interest as of
June 30, 2013
September 21, 2006 673.150 20,507,500$ 14,266,866$ -$ 6,240,634$ 2,520,580$ 6,240,356$ 19,783$
December 18, 2006 51.480 3,217,500 2,345,735 - 871,765 373,983 555,146 3,585
February 19, 2007 149.300 9,331,250 5,629,754 933,125 2,768,371 1,453,974 1,871,022 30,190
April 11, 2008 98.996 4,749,525 2,374,763 474,953 1,899,809 1,460,434 1,899,726 30,653
July 11, 2008 359.210 11,689,610 5,846,805 1,356,785 4,486,020 2,759,350 4,203,316 20,397
December 31, 2012 28.002 1,050,000 670,971 75,806 303,223 131,029 221,430 1,062
Total 1,360.138 8,699,350$ 14,990,996$ 105,670$
Purchase Price
Allocable to AMULT
The following table summarizes the notes receivable activity during fiscal years ended June
30, 2013 and 2012:
2013 2012
Beginning balance 15,016,438$ 15,509,415$
Interest accrued 242,065 248,064
Collections on principal and interest (465,060) (741,041)
Issuance of notes receivable 303,223 -
Ending balance 15,096,666$ 15,016,438$
The following table summarizes the deferred revenue activity during fiscal years ended June
30, 2013 and 2012:
2013 2012
Beginning balance 8,731,085$ 9,219,644$
Revenue recognized on prior year sales (224,165) (8,296)
Revenue deferred in current year 194,431 -
Accrued interest deferred during the year 242,065 248,064
Accrued interest collected (138,396) (728,327)
Ending balance 8,805,020$ 8,731,085$
Deferred Revenue as of June 30
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
33
Note 11 - Land Sale Agreements (Continued)
AMULT has accounted for the sales agreements listed above on the installment method.
Under the installment method, income is recognized as a portion of each cash payment is
received. Accordingly, AMULT recorded a net gain of $224,165 and $8,296, which is
included in investment income in the consolidated statement of activities and changes in net
assets, for the years ended June 30, 2013 and 2012, respectively. AMULT has recorded
interest income related to the sales agreements of approximately $138,000 and $728,000,
which is also included in investment income in the consolidated statement of activities and
changes in net assets, for the years ended June 30, 2013 and 2012, respectively.
The Seller provides financing options to AMD for promissory notes receivable with
maturities greater than one year. Financing promissory notes receivable are periodically
evaluated for collectibility based on past credit history with AMD and their current financial
condition. Provisions for losses on financing promissory notes receivable are determined on
the basis of loss experience, known and inherent risks in the promissory notes held, the
estimated value of underlying collateral, if any, and current economic conditions. The Seller
considers the notes receivable to be fully collectible at June 30, 2013 and 2012 and there are
no amounts considered past due at June 30, 2013 and 2012.
The Seller considers a promissory note receivable to be impaired when, based upon current
information and events, it believes it is probable that the Seller will be unable to collect all
amounts due according to the contractual terms of the promissory notes receivable
agreement. Individual promissory notes receivable are assessed for impairment based on
the following factors: (1) changes in external credit ratings, (2) changes in regional and local
economic conditions, and (3) changes in borrower-specific financial condition. The Seller did
not have any promissory notes receivable considered to be impaired as of June 30, 2013 and
2012.
Note 12 - Health Plan
Effective January 2010, the Foundation implemented a premium-based health insurance
program for the benefit of substantially all employees of the University, the Foundation, and
other entities supported by the Foundation. Under terms of that plan, the Foundation billed
the University for its share of healthcare premiums. Effective January 2013, the University
terminated the agreement with the Foundation, instead offering coverage directly with a
local provider. The health insurance costs incurred by the University under the Foundation
for the years ended June 30, 2013 and 2012 were $501,790 and $1,581,356, respectively.
The health insurance costs incurred by the University under the local provider for the year
ended June 30, 2013 was $681,120.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
34
Note 13 - Retirement Plan
AMU and U.S. citizens of AMU-LA participate in defined contribution retirement plans
sponsored by Ave Maria Foundation. All regular full-time employees are eligible for this
benefit. The 401(k) and 403(b) savings plans allow the employees to elect how much salary
they want to contribute and direct the investments of their plan accounts so they can tailor
their own retirement package to meet their individual needs. The University also
contributes an additional matching amount of 50 percent up to 5 percent of the employee's
annual salary to each employee's 401(k) or 403(b) account. The employer matching
contribution was suspended in October 2010 and has not been reinstated as of the issuance
date of the consolidated financial statements.
Note 14 - Temporarily and Permanently Restricted Net Assets
Temporarily restricted net assets as of June 30, 2013 and 2012 are restricted for the
following purposes:
2013 2012
(Restated)
Program support 711,253$ 1,014,275$
Scholarships 2,236,837 877,270
Split-interest agreements 2,074,097 1,800,485
Capital additions 2,686,181 2,393,114
Total temporarily restricted net assets 7,708,368$ 6,085,144$
Permanently restricted net assets as of June 30, 2013 and 2012 are restricted for the
following purposes:
2013 2012
Program support 500,090$ 500,090$
Scholarships 1,102,991 1,697,991
Total permanently restricted net assets 1,603,081$ 2,198,081$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
35
Note 15 - Net Assets Released from Restrictions
During the years ended June 30, 2013 and 2012, the University released the following
amounts from temporarily restricted net assets upon satisfying the terms of restriction:
2013 2012
Program support 563,358$ 928,692$
Scholarships 38,008 84,499
Capital acquisitions - 598,294
Total temporarily restricted net assets
released from restriction 601,366$ 1,611,485$
During the year ended June 30, 2013, a donor agreed to release $600,000 in permanently
restricted net assets for the purpose of allowing the University to use the funds for
immediate operating needs. There were no releases of permanently restricted net assets
during the year ended June 30, 2012.
Note 16 - Commitments and Contingencies
Leases - The University leases certain equipment under operating leases. Future minimum
lease payments under operating leases as of June 30, 2013 are as follows:
Years Ending
June 30 Amount
2014 28,851$
2015 26,796
2016 26,235
2017 26,235
Total 108,117$
Rent expense related to these leases was $41,958 and $113,029 for the years ended June
30, 2013 and 2012, respectively. Future minimum payments and rent expense for 2013 and
2012 are exclusive of the related party leases disclosed in Note 10.
Contingencies - In the normal course of its activities, the University has been a party in
various legal actions. After taking into consideration legal counsel's evaluation of pending
actions, the University is of the opinion that the outcome thereof will not have a material
effect on its consolidated financial statements.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
36
Note 17 - Cash Flow
Cash paid for interest and other bond-related costs, including letter of credit fees for the
years ended June 30, 2013 and 2012, was approximately $1,980,500 and $2,036,000,
respectively.
Capital assets obtained in exchange for debt obligations during the years ended June 30,
2013 and 2012 totaled $0 and $283,684, respectively. For further information, see Note 9.
During the year ended June 30, 2013, the following noncash transactions also occurred:
The University accepted land with a fair market value of $254,000 from a donor in
satisfaction of a portion of an outstanding pledge. The land is included with assets held
for sale in the consolidated statement of financial position.
The University transferred $1,093,352 of land and buildings held for rent on the
consolidated statement of financial position to assets held for sale.
Note 18 - Discontinued Operations
In 2007, the board of trustees passed resolutions to approve the dissolution of AMC’s
operations and to transfer AMU-LA to AMU along with any assets of AMC that would not
be considered held for sale. In 2013, AMC was legally dissolved. Activity associated with the
closure of AMC for the years ended June 30, 2013 and 2012 includes costs to wind-down
operations and dispose of remaining assets.
In June 2013, the University transferred operational control of AMU-LA to an unrelated
third party under an asset purchase agreement. Under the agreement, AMU-LA’s assets
were transferred to the buyer in August 2013 in exchange for $5,000 and the assumption of
certain liabilities by the buyer. The University has adjusted the value of AMU-LA’s assets as
of June 30, 2013 in the consolidated statement of financial position to this agreed-upon
purchase price, which is considered to be the fair value of the assets. As a result, a loss on
the write-down of assets was recorded totaling $3,028,092, which is included in the results
of discontinued operations on the consolidated statement of activities and changes in net
assets for the year ended June 30, 2013.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
37
Note 18 - Discontinued Operations (Continued)
The results of discontinued operations, after eliminations, as of and for the years ended June
30, 2013 and 2012 are as follows:
2013 2012
Assets
Student accounts receivable - Net 427,639$ 93,221$
Other receivables 28,192 18,122
Inventories 48,791 18,973
Prepaid expenses and other assets 7,923 7,923
Student loans receivable - Net 108,634 1,139,108
Employee loans and advances - Net 940 8,415
Capital assets - Net 263,182 2,457,355
Total assets 885,301$ 3,743,117$
Liabilities
Accounts payable 118,029$ 208,943$
Accrued payroll and other liabilities 776,549 790,495
Total liabilities 894,578$ 999,438$
Assets and Liabilites Related to Discontinued Operations
The table above is exclusive of $0 and $437,819 of cash included in the consolidated
statement of financial position as of June 30, 2013 and 2012, respectively, but not
considered to be related to discontinued operations.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
38
Note 18 - Discontinued Operations (Continued)
Year Ended
June 30, 2013
Year Ended
June 30, 2012
Unrestricted Net Assets
Operating revenue:
Net tuition and fees 5,385,706$ 5,015,580$
Auxiliary income 645,341 577,405
Private gifts and grants 26,308 31,419
Other revenue 201,172 194,810
Net assets released from restrictions 13,458 31,775
Total operating revenue 6,271,985 5,850,989
Operating expenses:
Instruction (854,598) (1,062,695)
Academic support (318,043) (388,224)
Student services (483,584) (479,664)
Institutional support (3,127,514) (2,949,792)
Institutional relations and fundraising (215,654) (171,194)
Auxiliary (299,383) (267,216)
Total operating expenses (5,298,776) (5,318,785)
Other changes in unrestricted net assets:
Loss on write-down of assets (3,028,092) -
Gain on sale of capital assets - 35,505
Total other changes in unrestricted net assets(3,028,092) 35,505
Change in Unrestricted Net Assets (2,054,883) 567,709
Temporarily Restricted Net Assets
Contributions - 6,575
Net assets released from restrictions (13,458) (31,775)
Change in Temporarily Restricted Net Assets (13,458) (25,200)
Total Change in Net Assets (2,068,341)$ 542,509$
Statement of Activities and Changes in Net Assets
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
39
Note 19 - Program, Support Services, and Fundraising Expenses
The University adheres to generally accepted accounting principles in reporting expenses by
their functional classification. The University considers the following functional classifications
of expenses to be program expenses: instruction, academic support, student services, and
auxiliary. Costs are allocated between the various programs and support services on an
actual basis, where available, or based upon reasonable methods. Although methods of
allocation used are considered appropriate, other methods could be used that would
produce different amounts.
2013 2012
(Restated)
Program support 25,096,050$ 24,805,081$
Support services 3,114,348 4,136,535
Institutional relations and fundraising 2,761,090 3,218,652
Total 30,971,488$ 32,160,268$
Note 20 - Fair Value
Accounting standards require certain assets and liabilities be reported at fair value in the
financial statements and provide a framework for establishing that fair value. The
framework for determining fair value is based on a hierarchy that prioritizes the inputs and
valuation techniques used to measure fair value.
Level 1 - In general, fair values determined by Level 1 inputs use quoted prices in active
markets for identical assets or liabilities that the University has the ability to access.
Level 2 - Fair values determined by Level 2 inputs use other inputs that are observable,
either directly or indirectly. These Level 2 inputs include quoted prices for similar assets
and liabilities in active markets and other inputs such as interest rates and yield curves that
are observable at commonly quoted intervals.
Level 3 - Level 3 inputs are unobservable inputs, including inputs that are available in
situations where there is little, if any, market activity for the related asset or liability. These
Level 3 fair value measurements are based primarily on management’s own estimates using
pricing models, discounted cash flow methodologies, or similar techniques taking into
account the characteristics specific to each asset or liability.
In instances whereby inputs used to measure fair value fall into different levels in the above
fair value hierarchy, fair value measurements in their entirety are categorized based on the
lowest level input that is significant to the valuation. The University’s assessment of the
significance of particular inputs to these fair value measurements requires judgment and
considers factors specific to each asset or liability.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
40
Note 20 - Fair Value (Continued)
The University’s policy is to recognize transfers between levels of the fair value hierarchy as
of the end of the reporting period. For the years ended June 30, 2013 and 2012, there
were no transfers between levels of the fair value hierarchy.
The following tables present information about the University’s assets and liabilities
measured at fair value on a recurring basis at June 30, 2013 and 2012 and the valuation
techniques used by the University to determine those fair values.
Disclosures concerning assets and liabilities measured at fair value on a recurring basis as of
June 30, 2013 are as follows:
Balance at
June 30, 2013
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Investments:
Common stock 461,590$ 461,590$ -$ -$
Mutual funds - Equities 3,218,556 3,218,556 - -
Mutual funds - Bonds 1,373,845 1,373,845 - -
Municipal bonds 1,120,000 - 1,120,000 -
Corporate bonds 335,000 - 335,000 -
Total investments 6,508,991 5,053,991 1,455,000 -
Beneficial interest in trusts 1,173,682 - - 1,173,682
Total assets 7,682,673$ 5,053,991$ 1,455,000$ 1,173,682$
Liabilities:
Interest rate swap agreements (1,074,574)$ -$ (1,074,574)$ -$
Gift annuities payable (1,383,562) - - (1,383,562)
Total liabilities (2,458,136)$ -$ (1,074,574)$ (1,383,562)$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
41
Note 20 - Fair Value (Continued)
Disclosures concerning assets and liabilities measured at fair value on a recurring basis as of
June 30, 2012 are as follows:
Balance at
June 30, 2012
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Investments:
Common stock 393,200$ 393,200$ -$ -$
Mutual funds - Equities 1,993,584 1,993,584 - -
Mutual funds - Bonds 788,258 788,258 - -
Corporate bonds 1,030,000 - 1,030,000 -
Total investments 4,205,042 3,175,042 1,030,000 -
Beneficial interest in trusts 999,155 - - 999,155
Total assets 5,204,197$ 3,175,042$ 1,030,000$ 999,155$
Liabilities:
Interest rate swap agreements (1,619,230)$ -$ (1,619,230)$ -$
Gift annuities payable (1,425,267) - - (1,425,267)
Total liabilities (3,044,497)$ -$ (1,619,230)$ (1,425,267)$
At both June 30, 2013 and 2012, all amounts above are domestic (U.S.) investments.
The fair values of municipal and corporate bonds and interest rate swap agreements at June
30, 2013 and 2012 were determined primarily based on Level 2 inputs. The University
estimates the fair value of these investments based on market data provided by the
custodian. The fair value of the interest rate swap agreements is estimated based on a
valuation model that takes into account estimates of changes in interest rates based on yield
curves and other market-based information as provided by the bank.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
42
Note 20 - Fair Value (Continued)
Changes in Level 3 assets and liabilities measured at fair value on a recurring basis are
described in the following tables:
2013 2012 2013 2012
Beginning balance 999,155$ 1,435,628$ (1,425,267)$ (1,394,100)$
Unrealized gains (losses)
included in change in net assets 289,654 (458,059) (89,395) (165,498)
New agreements - 175,000 - (8,778)
Payments made to annuitants - - 131,100 143,109
Sales of investment (115,127) (153,414) - -
Ending balance 1,173,682$ 999,155$ (1,383,562)$ (1,425,267)$
Assets -
Beneficial Interest in Trusts
Liabilities -
Gift Annuities Payable
Measurement of Level 3 Assets and Liabilities
Both observable and unobservable inputs may be used to determine the fair value of
positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses
for these assets and liabilities presented in the tables above may include changes in fair value
that were attributable to both observable and unobservable inputs.
The University estimates the fair value of beneficial interest in trusts and gift annuities
payable, which relates to the split-interest agreements, based upon the present value of the
expected future cash flows using management’s best estimate of key assumptions including
life expectancies of annuitants, payment periods, and a discount rate commensurate with
the current market and other risks involved. Significant changes in these key assumptions
would result in a significantly higher or lower fair value measurement. These assets and
liabilities are characterized as Level 3 assets and liabilities at June 30, 2013 and 2012.
The following table summarizes the valuation methods and inputs used to determine fair
value at June 30, 2013 and 2012 for assets and liabilities measured at fair value on a
recurring basis using unobservable inputs (Level 3 inputs):
Significant Unobservable Range
June 30, 2013 June 30, 2012 Valuation Technique Inputs Used (Weighted Average)
Assets - Beneficial interest
in trusts 1,173,682$ 999,155$
IRS Pub 590 actuarial tables
Discounted cash flow
Life expectancy of beneficiaries
Risk free rate of return
3.9 - 30.8 Years
1 - 3%
Liabilities - Gift annuities
payable (1,383,562)$ (1,425,267)$
IRS Pub 590 actuarial tables
Discounted cash flow
Life expectancy of beneficiaries
Risk free rate of return
3.9 - 30.8 Years
1 - 3%
Fair Value at
Unobservable Inputs Used to Measure Level 3 Assets and Liabilities
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
43
Note 20 - Fair Value (Continued)
The University has processes in place to select the appropriate valuation technique and
unobservable inputs to perform Level 3 fair value measurements. These processes include
regular review of the inputs used in valuation. The University utilizes a third-party
investment manager to advise on reasonableness of inputs.
Fair Value Measurement of Assets on a Nonrecurring Basis
The University measures assets held for rent on a nonrecurring basis and records an
impairment charge to the extent the carrying value of the asset held for rent is greater than
the fair value, less any costs to sell. The fair value of the assets held for rent is based
primarily on Level 3 inputs including a sales comparison approach developed by analyzing
sales of similar properties using the most relevant units of comparison. The University also
measures intangible assets on a nonrecurring basis and records an impairment charge to the
extent the carrying value of the intangible asset is greater than the fair value. The fair value
of intangible assets is based primarily on Level 3 inputs including an estimate of expected
cash flow and other market considerations.
During the year ended June 30, 2013, management determined that the fair value of its
former Naples, Florida campus (currently included with land and buildings held for rent on
the statement of financial position) was less than its carrying value and recorded an
impairment charge of $3,102,222.
During the years ended June 30, 2013 and 2012, management determined that the fair value
of its radio station intangible asset was less than its carrying value and recorded impairment
charges of $2,400,000 and $650,000, respectively.
The following table summarizes the valuation methods and inputs used to determine fair
value at June 30, 2013 and 2012 for assets measured at fair value on a nonrecurring basis
using unobservable inputs (Level 3 inputs):
Significant Unobservable Range
June 30, 2013 June 30, 2012 Valuation Technique Inputs Used (Weighted Average)
Land and buildings held for
rent - Naples Campus 13,690,000$ N/A Third-party appraisal Sales comparison approach 13,690,000$
Intangible assets -
Radio station 2,000,000$ 4,400,000$ Third-party appraisal Discounted cash flow approach $1,962,000 - $2,027,000
Unobservable Inputs Used to Measure Nonrecurring Level 3 Assets
Fair Value at
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
44
Note 20 - Fair Value (Continued)
The University has processes in place to select the appropriate valuation technique and
unobservable inputs to perform Level 3 fair value measurements. These processes include
regular meetings of the board of trustees and management during which the above assets
(among others) are reviewed for impairment indicators. Upon identification of such
indicators, the University utilizes a third-party appraiser to assess the fair value of the
identified assets. If the appraisal report indicates that the current carrying value exceeds the
appraised fair value, an impairment of the asset is recorded.
Note 21 - Donor-restricted Endowments
Changes in Donor-restricted Endowments
Changes in donor-restricted endowments, during the years ended June 30, 2013 and 2012,
are described in the following tables:
Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2013
Unrestricted
Temporarily
Restricted
Permanently
Restricted Total
Endowment net assets - Beginning of year (27,818)$ 104,432$ 2,198,081$ 2,274,695$
Investment income 12,612 39,339 - 51,951
Net appreciation in market value - 86,755 - 86,755
Appropriation of endowment net assets
for expenditures - (16,630) - (16,630)
Release of restrictions by donor (Note 15) 15,206 - (600,000) (584,794)
Contributions received - - 5,000 5,000
Endowment net assets - End of year -$ 213,896$ 1,603,081$ 1,816,977$
Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2012
Unrestricted
Temporarily
Restricted
Permanently
Restricted Total
Endowment net assets - Beginning of year -$ 172,409$ 2,168,081$ 2,340,490$
Investment loss (27,818) (37,040) - (64,858)
Net depreciation in market value - (17,285) - (17,285)
Appropriation of endowment net assets
for expenditures - (13,652) - (13,652)
Contributions received - - 30,000 30,000
Endowment net assets - End of year (27,818)$ 104,432$ 2,198,081$ 2,274,695$
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
45
Note 21 - Donor-restricted Endowments (Continued)
Interpretation of Relevant Law
In Florida, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) governs
the investment of and spending from true endowments. The act was signed into law
effective July 1, 2012 and the University has adopted this policy as of that date.
UPMIFA requires the preservation of the fair value of the original gift as of the gift date of
the donor-restricted endowment funds absent explicit donor stipulations to the contrary.
The University classifies as permanently restricted net assets (a) the original value of gifts
donated to the permanent endowment, (b) the original value of subsequent gifts to the
permanent endowment, and (c) accumulations to the permanent endowment made in
accordance with the direction of the applicable donor gift instrument at the time the
accumulation is added to the fund. The remaining portion of the donor-restricted
endowment fund that is not classified in permanently restricted net assets is classified as
temporarily restricted net assets until those amounts are appropriated for expenditure by
the University in a manner consistent with the standard of prudence prescribed by UPMIFA.
In accordance with UPMIFA, the University considers the following factors in making a
determination to appropriate or accumulate donor-restricted endowment funds:
(1) The duration and preservation of the fund
(2) The purposes of the University and the donor-restricted endowment fund
(3) General economic conditions
(4) The possible effect of inflation and deflation
(5) The expected total return from income and the appreciation of investments
(6) Other resources of the University
(7) The investment policies of the University
Funds with Deficiencies
The University has interpreted this act as requiring the preservation of the historical value of
the original gift as of the gift date of the donor-restricted endowment fund. Under this
interpretation, if the market value of an endowment drops below the historic gift value, the
endowment is considered to be underwater. The net depreciation of an underwater
endowment will reduce unrestricted net assets. Any future gains will be used to restore the
cumulative deficiency within unrestricted net assets. Once unrestricted net assets have
been fully restored, net appreciation will be recorded within either temporarily or
permanently restricted net assets, as required by the donor’s restriction.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
46
Note 21 - Donor-restricted Endowments (Continued)
From time to time, the fair value of assets associated with individual donor-restricted
endowment funds may fall below the level that the donor or UPMIFA requires the
University to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies
of this nature that are reported in unrestricted net assets were $0 and $27,818 as of June
30, 2013 and 2012, respectively. These deficiencies resulted from unfavorable market
fluctuations that occurred after the investment of permanently restricted contributions.
Return Objectives and Risk Parameters
The University has adopted a policy to ensure a total return (yield plus capital appreciation)
necessary to preserve and enhance the principal of the funds. Under this policy, as
approved by the board of trustees, the endowment assets are invested in a manner that is
intended to offset the effects of inflation as measured by the Consumer Price Index and to
increase the principal value of the assets in excess of established benchmarks. The
University expects its endowment funds, over time, to provide an average rate of return of
approximately 7 percent annually. Actual returns in any given year may vary from this
amount.
Strategies Employed for Achieving Objectives
To satisfy its long-term rate-of-return objectives, the University relies on a total return
strategy in which investment returns are achieved through both capital appreciation
(realized and unrealized) and current yield (interest and dividends). The University targets a
diversified allocation that places a greater emphasis on equity-based investments to achieve
its long-term return objectives within prudent risk constraints.
Spending Policy and How the Investment Objectives Relate to Spending Policy
During the year ended June 30, 2010, the University revised its spending policy to authorize
the smaller of the endowment fund’s rolling 36-month average total annual return or
3 percent of the market value of the endowment fund determined as of the preceding June
30 (or the last business day of the fiscal year). If the market value of the endowment fund is
greater than the corpus of the endowment fund by 10 percent or more as of June 30, the
authorized spending rate may be as high as 5 percent of the market value of the endowment
fund. The three-year (or actual period of the fund’s existence, if shorter) rolling average
total annual return shall be determined annually for each endowment fund. Total annual
return for purposes of this spending policy shall mean the total annual dividends, interest,
and realized (or unrealized) gains and losses experienced by the endowment fund less
applicable investment manager’s fees. It is anticipated that the total annual return will
exceed the amount of authorized annual spending from each fund. To the extent that the
total annual return does exceed the annual spending allotment, the excess shall be
accumulated and carried forward on the endowment fund’s record.
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
47
Note 22 - Restatement
During the year ended June 30, 2013, the University determined that the accounts of Ave
Maria Foundation for the Arts (AMFA) should be included with the consolidated financial
statements of the University. A prior period adjustment was therefore recorded to properly
consolidate the assets, liabilities, net assets, and results of operations for AMFA.
Changes to the consolidated statement of financial position and statement of activities and
changes in net assets, after consideration of discontinued operations as discussed in
Note 18, as of and for the year ended June 30, 2012 are detailed as follows:
Assets
Cash and cash equivalents 8,425,794$ 8,420,301$ 5,493$
Restricted cash 1,000,000 1,000,000 -
Receivables 1,429,312 1,516,566 (87,254)
Capital assets - Net 226,460,127 224,080,254 2,379,873
Other assets 115,102,477 115,102,477 -
Total assets 352,417,710$ 350,119,598$ 2,298,112$
Liabilities 74,487,343$ 74,487,343$ -$
Net Assets
Unrestricted 269,647,142 269,728,903 (81,761)
Temporarily restricted 6,085,144 3,705,271 2,379,873
Permanently restricted 2,198,081 2,198,081 -
Total net assets 277,930,367 275,632,255 2,298,112
Total liabilities and net assets 352,417,710$ 350,119,598$ 2,298,112$
Adjustment
Consolidated Statement of Financial Position as of June 30, 2012
As
Reported
As Previously
Presented
Ave Maria University, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2013 and 2012
48
Note 22 - Restatement (Continued)
Unrestricted Net Assets
Total operating revenue 31,070,292$ 31,070,292$ - $
Total operating expenses 32,160,268 32,149,748 10,520
Other changes in unrestricted net assets from
continuing operations (2,135,259) (2,135,259) - Forgiveness of intercompany debt - - -
Decrease in Unrestricted Net Assets from
Continuing Operations (3,225,235) (3,214,715) (10,520)
Increase in Unrestricted Net Assets from
Discontinued Operations 567,709 567,709 -
Net Decrease in Unrestricted Net Assets (2,657,526) (2,647,006) (10,520) Loss from operations of subsidiary - - -
Decrease in Temporarily Restricted Net Assets from
Continuing Operations (1,719,131) (1,719,131) -
Decrease in Temporarily Restricted Net Assets from
Discontinued Operations (25,200) (25,200) -
Net Decrease in Temporarily Restricted Net Assets (1,744,331) (1,744,331) -
Increase in Permanently Restricted Net Assets 30,000 30,000 -
Decrease in Net Assets (4,371,857) (4,361,337) (10,520)
Net Assets - Beginning of year 282,302,224 279,993,592 2,308,632
Net Assets - End of year 277,930,367$ 275,632,255$ 2,298,112$
For the Year Ended June 30, 2012
As
Reported
As Previously
Presented Adjustment
Consolidated Statement of Activities and Changes in Net Assets
49
Report 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
Independent Auditor's Report
To Management and the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
We have audited, 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, the consolidated financial
statements of Ave Maria University, Inc. and Subsidiaries (the “University”), which comprise the
consolidated statement of financial position as of June 30, 2013 and the related consolidated
statements of activities and changes in net assets and cash flows for the year then ended, and
related notes to the financial statements, and have issued our report thereon dated November
25, 2013.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the University's
internal control over financial reporting (internal control) to determine the audit procedures that
are appropriate in the circumstances for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the
University's internal control. Accordingly, we do not express an opinion on the effectiveness of
the University's internal control.
Our consideration of internal control was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control that
might be material weaknesses or significant deficiencies and therefore, material weaknesses or
significant deficiencies may exist that were not identified. However, as described in the
accompanying schedule of findings and questioned costs, we identified a certain deficiency in
internal control that we consider to be a material weakness and other deficiencies that we
consider to be significant deficiencies.
To Management and the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
50
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be prevented
or detected and corrected on a timely basis. We consider the deficiency described in the
accompanying schedule of findings and questioned costs as Finding 2013-001 to be a material
weakness. A significant deficiency is a deficiency, or a combination of deficiencies, in internal
control that is less severe than a material weakness, yet important enough to merit attention by
those charged with governance. We consider the deficiencies described in the accompanying
schedule of findings and questioned costs as Findings 2013-002 and 2013-003 to be significant
deficiencies.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the University’s consolidated 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 consolidated 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.
We also noted certain matters that we have reported to management of the University in a
separate letter dated November 25, 2013.
The University’s Responses to Findings
The University’s responses to the findings identified in our audit are described in the
accompanying schedule of findings and questioned costs. The University's responses were not
subjected to the auditing procedures applied in the audit of the consolidated financial statements
and, accordingly, we express no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of
the entity's internal control or on compliance. This report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the entity's internal
control and compliance. Accordingly, this communication is not suitable for any other purpose.
Columbus, Ohio
November 25, 2013
51
Report on Compliance for Each Major Federal and State Program;
Report on Internal Control Over Compliance
Independent Auditor's Report
To the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
Report on Compliance for Each Major Federal and State Program
We have audited Ave Maria University, Inc. and Subsidiaries’ (the “University”) compliance with
the types of compliance requirements described in the U.S. Office of Management and Budget
(OMB) Circular A-133 Compliance Supplement, and the State of Florida's State Projects
Compliance Supplement, that could have a direct and material effect on each of its major federal
and state programs for the year ended June 30, 2013. The University’s major federal and state
programs are identified in the summary of auditor's results section of the accompanying schedule
of findings and questioned costs.
Management’s Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts,
and grants applicable to each of its major federal and state programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the University's major
federal and state programs based on our audit of the types of compliance requirements referred
to above.
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; OMB
Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; Section 215.97,
Florida Statutes, and Chapter 10.650, Rules of the Florida Auditor General. Those standards,
OMB Circular A-133, Section 215.97, Florida Statutes, and Chapter 10.650, Rules of the Florida
Auditor General 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 or state program occurred. An
audit includes examining, on a test basis, evidence about the University's compliance with those
requirements and performing such other procedures as we considered necessary in the
circumstances.
To the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
52
We believe that our audit provides a reasonable basis for our opinion on compliance for each
major federal and state program. However, our audit does not provide a legal determination of
the University's compliance.
Opinion on Each Major Federal and State Program
In our opinion, the University complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on its major federal
and state programs for the year ended June 30, 2013.
Report on Internal Control Over Compliance
Management of the University is responsible for establishing and maintaining effective internal
control over compliance with the types of compliance requirements referred to above. In
planning and performing our audit of compliance, we considered the University's internal control
over compliance with the types of requirements that could have a direct and material effect on
each major federal and state program in order to determine the auditing procedures that are
appropriate in the circumstances for the purpose of expressing an opinion on compliance for
each major federal and state program and to test and report on internal control over compliance
in accordance with OMB Circular A-133, Section 215.97, Florida Statutes, and Chapter 10.650,
Rules of the Florida Auditor General, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an opinion on
the effectiveness of the University’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control
over compliance does not allow management or employees, in the normal course of performing
their assigned functions, to prevent or detect and correct noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal
control over compliance is a deficiency, or a combination of deficiencies, in internal control over
compliance such that there is a reasonable possibility that material noncompliance with a type of
compliance requirement of a federal and state program will not be prevented or detected and
corrected on a timely basis. A significant deficiency in internal control over compliance is a
deficiency, or a combination of deficiencies, in internal control over compliance with a type of
compliance requirement of a federal and state program that is less severe than a material
weakness in internal control over compliance, yet important enough to merit attention by those
charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in
the first paragraph of this section and was not designed to identify all deficiencies in internal
control over compliance that might be material weaknesses or significant deficiencies, and
therefore, material weaknesses or significant deficiencies may exist that were not identified. We
did not identify any deficiencies in internal control over compliance that we consider to be
material weaknesses. However, we identified certain deficiencies in internal control over
compliance, as described in the accompanying schedule of findings and questioned costs, as
Findings 2013-004 and 2013-005 that we consider to be significant deficiencies.
To the Board of Trustees
Ave Maria University, Inc. and Subsidiaries
53
The University’s Responses to Findings
The University’s responses to the internal control over compliance findings identified in our audit
are described in the accompanying schedule of findings and questioned costs. The University’s
responses were not subjected to the auditing procedures applied in the audit of compliance and,
accordingly, we express no opinion on them.
Purpose of this Report
The purpose of this report on internal control over compliance is solely to describe the scope of
our testing of internal control over compliance and the results of that testing based on the
requirements of OMB Circular A-133, Section 215.97, Florida Statutes, and Chapter 10.650,
Rules of the Florida Auditor General. Accordingly, this report is not suitable for any other
purpose.
Columbus, Ohio
November 25, 2013
Ave Maria University, Inc. and Subsidiaries
See Notes to Schedule of Expenditures of
Federal Awards and State Financial Assistance. 54
Schedule of Expenditures of Federal Awards
and State Financial Assistance
Year Ended June 30, 2013
Federal Agency/Program Title
CFDA
Number
Grant
Number
Award
Amount
Federal
Expenditures
Federal Awards
Student Financial Assistance Cluster - U.S. Department of Education -
Direct programs:
Federal Supplemental Education Opportunity Grants 84.007 P007A128874 41,546$ 35,533$
Federal Work Study Program 84.033 P033A128874 59,383 35,808
Federal Pell Grant Program 84.063 P063P125744 2,618,052 2,256,581
Federal Direct Loan Program:
Federal Stafford - Subsidized 84.268 N/A N/A 2,522,020
Federal Stafford - Unsubsidized 84.268 N/A N/A 2,869,442
Federal PLUS Loan Program 84.268 N/A N/A 1,471,956
Total Federal Direct Loan Program 6,863,418
Total Student Financial Assistance Cluster 9,191,340
Total federal awards 9,191,340$
State Agency/Program Title
CSFA
Number
Appropriation
Category
Disbursement
Amount
State
Expenditures
State Awards
Student Financial Assistance Cluster - Florida Department of Education:
Florida Work Experience Project 48.053 110096 4,844$ 4,844$
Florida Postsecondary Student Assistance Grant 48.054 110096 9,764 9,764
Florida Bright Futures Scholarship Program 48.059 100373 344,250 334,350
Florida Resident Access Grant 48.064 104125 621,350 621,350
Total Student Financial Assistance Cluster 970,308
Total state awards 970,308$
Total federal and state awards 10,161,648$
* During the year ended June 30, 2013, the University has refunded $9,900 to the Florida Department of Education for
excess amounts received related to the Florida Bright Scholarship Program.
Ave Maria University, Inc. and Subsidiaries
55
Notes to Schedule of Expenditures of Federal Awards
and State Financial Assistance
Year Ended June 30, 2013
Note 1 - Basis of Presentation and Significant Accounting Policies
The accompanying schedule of expenditures of federal awards and state financial
assistance (the “Schedule”) includes the federal and state grant activity of Ave Maria
University, Inc. and Subsidiaries (the “University”) under programs of the federal
government and the State of Florida for the year ended June 30, 2013. Expenditures
reported on the Schedule are reported on the same basis of accounting as the
consolidated financial statements, although the basis for determining when federal and
state awards are expended is presented in accordance with the requirements of OMB
Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, Section
215.97, Florida Statutes, and Chapter 10.650, Rules of the Florida Auditor General. In
addition, expenditures reported on the Schedule are recognized following the cost
principles contained in OMB Circular A-21, Cost Principles for Educational Institutions,
wherein certain types of expenditures are not allowable or are limited as to
reimbursement. Therefore, some amounts presented in this Schedule may differ from
amounts presented in, or used in the preparation of, the basic consolidated financial
statements.
Because the Schedule presents only a selected portion of the operations of the
University, it is not intended to and does not present the consolidated financial position,
changes in net assets, or cash flows, if applicable, of the University.
Note 2 - State Program Information
The administration of each program is the responsibility of the Florida Department of
Education’s Office of Student Financial Assistance and the University. The following is a
brief description of each Florida Student Financial Assistance Program administered by
the student financial aid office for the year ended June 30, 2013:
Florida Academic Scholars Award Program (BFFAS) - BFFAS is a State of Florida
scholarship under the Florida Bright Futures Scholarship Program that provides certain
qualified, full-time undergraduate students with assistance in paying for costs of
education. BFFAS is available only to Florida residents attending eligible colleges and
universities located in the state of Florida.
Florida Medallion Scholars Award Program (BFFMS) - BFFMS is a State of Florida
scholarship under the Florida Bright Futures Scholarship Program that provides certain
qualified, first-time-in-college, full-time undergraduate students with assistance in paying
for costs of education. BFFMS is available only to Florida residents attending eligible
colleges and universities located in the state of Florida.
Ave Maria University, Inc. and Subsidiaries
56
Notes to Schedule of Expenditures of Federal Awards
and State Financial Assistance
Year Ended June 30, 2013
Note 2 - State Program Information (Continued)
Florida Postsecondary Student Assistance Grant (FSAG) - FSAG is a State of
Florida financial aid program that provides certain qualified, full-time undergraduate
students with assistance in paying for costs of education including tuition, fees, and living
expenses. FSAG is available only to Florida residents attending eligible colleges and
universities located in the state of Florida.
Florida Work Experience Project (FWEP) - FWEP is a State of Florida need-based
financial aid program that provides certain qualified students work experiences to
enhance and support their educational and career goals. Although this program is
administered by the State of Florida, it is a decentralized program, meaning each
respective institution determines the eligibility requirements, application procedures,
deadlines, and amounts awarded.
Florida Resident Access Grant (FRAG) - FRAG is a tuition assistance grant created by
the Florida legislature to increase opportunities for Floridians seeking a college degree,
strengthen the private higher education sector, and create savings for taxpayers by
reducing demand on the public systems. FRAG was created by the Legislature in 1979 as
a non-need-based program to provide tuition assistance to Florida’s undergraduates who
attend independent, nonprofit, SACS-accredited institutions in the state.
Note 3 - State Program Selection
In accordance with the requirements of the Florida Department of Education, only the
Bright Futures programs were required to be audited during the 2012-2013 award year.
In accordance with the requirements of Section 215.97, Florida Statutes and Chapter
10.650, Rules of the Florida Auditor General, programs are required to be tested when
identified as major. As noted on the schedule of findings and questioned costs, the Bright
Futures and Florida Resident Access Grant programs were identified as major programs
for the 2012-2013 award year and tested accordingly.
Ave Maria University, Inc. and Subsidiaries
57
Notes to Schedule of Expenditures of Federal Awards
and State Financial Assistance (Continued)
Year Ended June 30, 2013
Note 3 - State Program Selection (Continued)
A summary of program testing under the requirements of the Florida Department of
Education, Section 215.97 Florida Statutes, and Chapter 10.650, Rules of the Florida
Auditor General is as follows:
State
Program
Description of
Category
Number of
Students
Percent of
Population
Amount of
Awards
Percent of
Population
BFFAS Population 38 100% 119,700$ 100%
Tested 10 26% 30,800 26%
Findings 1 10% - -
BFFMS Population 99 100% 214,650$ 100%
Tested 25 25% 53,775 25%
Findings 1 4% - -
FSAG Population 16 100% 9,764$ 100%
Tested - - - -
Findings - - - -
FWEP Population 3 100% 4,844$ 100%
Tested - - - -
Findings - - - -
FRAG Population 309 100% 621,350$ 100%
Tested 50 16% 94,600 15%
Findings - - - -
Ave Maria University, Inc. and Subsidiaries
58
Schedule of Findings and Questioned Costs
Year Ended June 30, 2013
Section I - Summary of Auditor’s Results
Financial Statements
Type of auditor's report issued: Unmodified
Internal control over financial reporting:
• Material weakness(es) identified? X Yes No
• Significant deficiency(ies) identified that are
not considered to be material weaknesses? X Yes None reported
Noncompliance material to financial
statements noted? Yes X No
Federal and State Awards
Internal control over major federal programs:
• Material weakness(es) identified? Yes X No
• Significant deficiency(ies) identified that are
not considered to be material weaknesses? X Yes None reported
Internal control over major state programs:
• Material weakness(es) identified? Yes X No
• Significant deficiency(ies) identified that are
not considered to be material weaknesses? X Yes None reported
Type of auditor's report issued on compliance for major programs: Unmodified
Any audit findings disclosed that are required
to be reported in accordance with
Section 510(a) of Circular A-133 and/or
Section 215.97, Florida Statutes? X Yes No
Any items related to state financial assistance
disclosed in the management letter that are
required to be reported in accordance with
Chapter 10.656, Rules of the Auditor General? Yes X No
Identification of major programs:
CFDA/CSFA Numbers
84.007, 84.268,
84.033, 84.063
48.059
48.064 Florida Resident Access Grant
Dollar threshold used to distinguish between type A and type B programs:
Federal $ 300,000
State $ 291,092
Auditee qualified as low-risk auditee? X Yes No
Name of Federal or State Program or Cluster
Federal Student Financial Aid Cluster
Florida Bright Futures Scholarship Program
Ave Maria University, Inc. and Subsidiaries
59
Schedule of Findings and Questioned Costs (Continued)
Year Ended June 30, 2013
Section II - Financial Statement Audit Findings
Finding 2013-001
Year Affected June 30, 2013
Finding Type Material weakness
Criteria
Condition
Context
Cause
Effect
Recommendation
Views of Responsible
Officials and Corrective
Action Plan
Management agrees with the recommendation and believes this was and
will remain an isolated incident. Procedures are now in place for both the
controller and the CFO to be contemporaneously informed about all
University activity that may relate to legal or financial activity.
Accounting standards require the University to consolidate a related entity
over which it has control through a majority voting interest. Standards also
require transactions to be recorded in the period the related activities
occur.
The University recorded a significant transaction in 2013 that was executed
in a prior period. Management determined the entity was not material to
the consolidated financial statements in the past.
During the year ended June 30, 2013, management identified a previous
transaction with a related entity was not recorded and should have been
recorded prior to June 30, 2011. This entity was not consolidated into the
University financial statements in prior periods due to management's
conclusion that its activities were insignificant. However, the inclusion of
the transaction causes this entity to be significant and require consolidation
in prior periods.
Information was not provided to the University controller to properly
record the activity and evaluate the entity for consolidation.
Temporarily restricted net assets for the years ended June 30, 2011 and
2012 were understated by $2,308,632 and $2,298,112, respectively.
Increase in temporarily restricted net assets for the year ended June 30,
2011 was understated by $2,287,068 and was overstated by $10,520 for
the year ended June 30, 2012.
We recommend increased communication amongst management to ensure
all financial transactions are properly identified and recorded within the
appropriate reporting period.
Ave Maria University, Inc. and Subsidiaries
60
Schedule of Findings and Questioned Costs (Continued)
Year Ended June 30, 2013
Section II - Financial Statement Audit Findings (Continued)
Finding 2013-002
Year Affected June 30, 2013
Finding Type Significant deficiency
Criteria
Condition
Context
Cause
Effect
Recommendation
Views of Responsible
Officials and Corrective
Action Plan
Management agrees with the recommendation and is in the process of
evaluating revised operating procedures, including the implementation of
specialized data processing software and cross training among business
office staff. Management believes this will ensure accurate loan balances and
improve internal control over this asset group.
Management is responsible for maintaining accurate records to support
financial statement balances.
The University could not provide independent support for certain individual
institutional loan balances.
During our audit procedures, student loan statements and amortization
schedules were requested to support the balances within the financial
statements. Loan statements could not be produced and amortization
schedules provided did not agree to accounting records.
Accurate information on institutional loans is not maintained outside of the
accounting function and reconciled to accounting records.
The University has no way to verify accounting records are accurate. The
absence of accurate records of student balances and payment activity could
result in misstatement of the ending loan balance and could alter
management's estimate of the allowance for doubtful accounts which is
based on prior collection experience.
We recommend that current information be maintained by the Bursar for
all student loan balance and activity. This information should be periodically
reconciled to accounting records.
Ave Maria University, Inc. and Subsidiaries
61
Schedule of Findings and Questioned Costs (Continued)
Year Ended June 30, 2013
Section II - Financial Statement Audit Findings (Continued)
Finding 2013-003
Year Affected June 30, 2013
Finding Type Significant deficiency
Criteria
Condition
Context
Cause
Effect
Recommendation
Views of Responsible
Officials and Corrective
Action Plan
Management agrees with the recommendation and has been in the process
of evaluating and revising the business office's staffing, organizational
structure, and control procedures as they relate to the University's financial
leadership team's oversight of significant financial activity and reporting.
Management, with the support of the board, has identified this as a priority
and is working to ensure sufficient attention and resources are in place to
support this initiative.
Management is responsible for maintaining internal controls to prevent,
detect, and correct material misstatements in the financial statements.
There has been a lack of internal control review procedures for certain
account reconciliations and related accounting adjustments.
During the past three years, there has been significant turnover in the CFO
position which has resulted in a lack of review of significant account
reconciliations and related accounting adjustments.
Frequent turnover in the CFO position resulted in no independent review
of certain accounts in some cases.
The lack of review could result in significant errors in the financial
statements.
We recommend a second review of significant account reconciliations and
accounting adjustments be performed by another member of management
if there is a vacancy in the CFO position. The process of which accounts are
reviewed by the CFO should be evaluated and changed to ensure all
significant accounts are reviewed.
Ave Maria University, Inc. and Subsidiaries
62
Schedule of Findings and Questioned Costs (Continued)
Year Ended June 30, 2013
Section III - Federal Program Audit Findings
Finding 2013-004
Year Affected June 30, 2013
Program Federal Direct Loan Program (CFDA 84.268)
Finding Type Significant deficiency
Criteria
Condition
Questioned Costs None
Context
Cause
Effect
Recommendation
Views of Responsible
Officials and Corrective
Action Plan
Per Chaper 3 of the 2012-2013 Federal Student Aid Handbook and
Chapter 1.2 of the National Student Loan Data System Enrollment
Reporting Guide, the University is required to confirm the accuracy of the
Student Status Change Report (SSCR) to NSLDS in order to report student
withdrawals and graduations in a timely manner.
The University did not fully reconcile the SSCR to its internal records,
resulting in the omission of three students who graduated in Spring 2013.
Of the 32 students selected for status change testing, three were never
reported to NSLDS as graduated due to their omission from the SSCR.
During the University's process to reconcile the SSCR to internal records,
three students were improperly omitted and thus not reported to NSLDS
as graduated.
Students with direct loans were not reported to NSLDS as having
graduated.
The University should institute a review and reconciliation of reports
submitted to NSLDS for accuracy in comparison to its internal records.
The University did reconcile the SSCR with internal records. These three
students had previously been reported as withdrawn on NSLDS. They
resumed their studies after 180 days and Stafford loans were processed.
Despite the fact that the loans were originated in COD and reported to
NSLDS, these students did not appear on the SSCR. The University has
implemented enrollment reporting through the National Student Loan
Clearinghouse which reports all students' enrollment status. The University
will reconcile the Clearinghouse file with the institutional enrollment
records to ensure accurate reporting of student status to NSLDS.
Ave Maria University, Inc. and Subsidiaries
63
Schedule of Findings and Questioned Costs (Continued)
Year Ended June 30, 2013
Section IV - State Program Audit Findings
Finding 2013-005
Year Affected June 30, 2013
Program Bright Futures (CSFA 48.059)
Finding Type Significant deficiency
Criteria
Condition
Questioned Costs The above condition resulted in a shortage of $400 of BFAS funding and
an excess of $300 of BFMS funding.
Context
Cause
Effect
Recommendation
Views of Responsible
Officials and Corrective
Action Plan
Per Chapter 8.3, Section D, Paragraph 3 of the Florida Department of
Education's State Student Financial Aid Database Guide For
Postsecondary Institutions, the University is required to report a
qualifying student's credit hours per semester to the State for
determination of the award amount for which the student is eligible.
The University under-reported the number of credit hours for one of
10 students selected for testing of the Bright Futures Academic Scholars
Award Program (BFAS) and over-reported the number of credit hours
for one of 25 students selected for testing of the Bright Futures
Medallion Scholars Award Program (BFMS).
Of the students receiving state awards, two of the 35 students tested
for the Bright Futures Awards had the improper amount of credit hours
reported to the State.
When reviewing the academic transcripts for the students identified
during the reconciliation process, the institution incorrectly determined
the final number of hours enrolled for two students.
The net effect of the error resulted in the University having a $100
shortage in Bright Futures funds received from the State.
The University should institute a review process wherein reporting
errors would be caught internally prior to submission to the State.
We agree with the recommendation and have set up a review process
that will verify the amount and hours that have been reported to Bright
Futures. This process will be conducted prior to the end of each term.
Ave Maria University, Inc. and Subsidiaries
64
Summary Schedule of Prior Audit Findings
Year Ended June 30, 2013
Prior Year
Finding
Number
Prior Year Finding
Type
Program/
Cluster
Original Finding
Description Planned Corrective Action Status
2012-2 Noncompliance/
Significant deficiency
Bright Futures
(CSFA 48.059)
The University
incorrectly reported
cumulative GPAs after
the Spring 2012
semester.
Management has taken
corrective measures including
reconciling the GPA that was
reported for the Grade and
Hour Report with a report
from Power Campus which
reflects the actual GPA.
No related errors
were noted during
audit procedures for
the year ended June
30, 2013.
1
November 25, 2013
To the Finance and Audit Committee
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
5050 Ave Maria Boulevard, Suite 327
Ave Maria, FL 34142
Dear Committee Members:
We have audited the consolidated financial statements of Ave Maria University, Inc. and
Subsidiaries (the “University”) as of and for the year ended June 30, 2013 and have issued our
report thereon dated November 25, 2013. Professional standards require that we provide you
with the following information related to our audit which is divided into the following sections:
Section 1 - Required Communications with Those Charged with Governance
Section II - Other Recommendations and Related Information
Section I includes information that current auditing standards require independent auditors to
communicate to those individuals charged with governance. We will report this information
annually to the finance and audit committee of the board of trustees of Ave Maria University,
Inc. and Subsidiaries.
Section II presents recommendations related to internal control, procedures, and other matters
noted during our current year audit. These comments are offered in the interest of helping the
University in its efforts toward continuous improvement, not just in the areas of internal control
and accounting procedures, but also in operational or administrative efficiency and effectiveness.
We would like to take this opportunity to thank the University’s staff for the cooperation and
courtesy extended to us during our audit. Their assistance and professionalism are invaluable.
This report is intended solely for the use of the finance and audit committee of the board of
trustees, and management of Ave Maria University, Inc. and Subsidiaries and is not intended to
be and should not be used by anyone other than these specified parties.
We welcome any questions you may have regarding the following communications and we
would be willing to discuss any of these or other questions that you might have at your
convenience.
Very truly yours,
Plante & Moran, PLLC
Keith S. Martinez, CPA
Partner
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
2
Section I - Communications Required Under AU 260
Our Responsibility Under U.S. Generally Accepted Auditing Standards
As stated in our engagement letter dated August 21, 2013, our responsibility, as described by
professional standards, is to express an opinion about whether the consolidated financial
statements prepared by management with your oversight are fairly presented, in all material
respects, in conformity with U.S. generally accepted accounting principles. Our audit of the
consolidated financial statements does not relieve you or management of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute,
assurance that the consolidated financial statements are free of material misstatement.
As part of our audit, we considered the internal control of Ave Maria University, Inc. and
Subsidiaries. Such considerations were solely for the purpose of determining our audit
procedures and not to provide any assurance concerning such internal control.
We are responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting
process. However, we are not required to design procedures specifically to identify such
matters.
Our audit of the University’s consolidated financial statements has also been conducted in
accordance with Government Auditing Standards, issued by the Comptroller General of the
United States. Under Government Auditing Standards, we are obligated to communicate certain
matters that come to our attention related to our audit to those responsible for the governance
of the University, including compliance with certain provisions of laws, regulations, contracts,
grant agreements, certain instances of error or fraud, illegal acts applicable to government
agencies, and significant deficiencies in internal control that we identify during our audit. Toward
this end, we issued a separate letter dated November 25, 2013 regarding our consideration of
the University’s internal control over financial reporting and on our tests of its compliance with
certain provisions of laws, regulations, contracts, and grant agreements.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing previously communicated to
you in our meeting about planning matters on June 7, 2013.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. In
accordance with the terms of our engagement letter, we will advise management about the
appropriateness of accounting policies and their application. The significant accounting policies
used by the University are described in Note 1 to the consolidated financial statements.
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
3
During the year, the University adopted UPMIFA, which was signed into law in the state of
Florida effective July 1, 2012. UPMIFA replaced UMIFA in the state of Florida. The FASB has
issued Staff Position Paper (FSP) 117-1 which requires new note disclosures including the board
of trustees’ interpretation of state law, return objectives, spending rate policy, and treatment of
permanently restricted net assets, which are included in Note 21 of the University’s June 30,
2013 consolidated financial statements.
The University also adopted ASU No. 2011-04, Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This update results in common
fair value measurement and disclosure requirements in GAAP and International Financial
Reporting Standards. The amendments in this update explain how to measure fair value. They
do not require additional fair value measurements and are not intended to establish valuation
standards or affect valuation practices outside of financial reporting. However, this update does
require expanded disclosure related to the nature and significance of inputs that are used in
estimating and measuring the fair value of financial instruments. The amendments in this update
are to be applied prospectively and are effective for annual reporting periods beginning after
December 15, 2011 (therefore, June 30, 2013 for the University). The new pronouncement did
not impact the consolidated statement of financial position or consolidated statement of
activities.
We noted no transactions entered into by the University during the year for which there is a lack
of authoritative guidance or consensus.
During 2013, the University recorded a contribution of a sculpture made prior to June 30, 2011
valued at approximately $2.4 million. The sculpture was donated to a not-for-profit organization
of which the University is the sole member. A prior period adjustment has been recorded
because of this donation, and the consolidated financial statements have been restated to include
the Ave Maria Foundation for the Arts as part of the consolidated group. See Note 22 for further
details regarding the impact on the consolidated financial statements.
Accounting estimates are an integral part of the financial statements prepared by management
and are based on management’s knowledge and experience about past and current events and
assumptions about future events. Certain accounting estimates are particularly sensitive because
of their significance to the consolidated financial statements and because of the possibility that
future events affecting them may differ significantly from those expected.
The most sensitive estimates affecting the consolidated financial statements were:
Allowance for student accounts receivable and loans receivable
Estimated fair value of the radio station intangible in accordance with ASC 820
Estimated fair value of assets held for sale and rent in accordance with ASC 820
Allowance for employee housing loans
Allowance for land notes receivable
Fair value of investments held
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
4
The allowance for doubtful accounts related to student loans, student receivables, and employee
loans was based on the age of the receivables, prior collection experience, and current
economic conditions. The estimated fair values of the radio station and assets held for sale and
rent were based on appraisals obtained from independent valuation experts, a discounted cash
flow model, or recent sale activity. We evaluated the key factors and assumptions used to
develop these estimates in determining that they are reasonable in relation to the consolidated
financial statements taken as a whole.
The disclosures in the consolidated financial statements are neutral, consistent, and clear.
Certain financial statement disclosures are particularly sensitive because of their significance to
financial statement users. The most sensitive disclosures affecting the consolidated financial
statements were:
Loans to employees to purchase housing within the town of Ave Maria as disclosed in
Note 3.
Recognition of pledges and related grant agreements as disclosed in Note 4.
Bonds issued to fund construction of facilities on the permanent campus as disclosed in
Note 9 including relevant terms of the bonds, letters of credit agreements, and interest rate
swap agreements.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and
completing our audit.
Disagreements with Management
For the purpose of this letter, professional standards define a disagreement with management as
a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction,
that could be significant to the consolidated financial statements or the auditor’s report.
We are pleased to report that no such disagreements arose during the course of our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified
during the audit, other than those that are trivial, and communicate them to the appropriate
level of management.
The attached schedule summarizes uncorrected misstatements of the consolidated financial
statements which were requested to be recorded. Management has determined that their
effects are immaterial, both individually and in the aggregate, to the consolidated financial
statements taken as a whole. In addition, none of the misstatements detected as a result of
audit procedures and corrected by management were material, either individually or in the
aggregate, to the consolidated financial statements taken as a whole.
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
5
Significant Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, business conditions affecting the University, and business plans and strategies
that may affect the risks of material misstatement with management each year prior to retention
as the University’s auditors. However, these discussions occurred in the normal course of our
professional relationship and our responses were not a condition of our retention.
Management Representations
We have requested certain representations from management that are included in the
management representation letter dated November 25, 2013.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a “second opinion” on certain situations. If a
consultation involves application of an accounting principle to the University’s consolidated
financial statements or a determination of the type of auditor’s opinion that may be expressed
on those statements, our professional standards require the consulting accountant to check with
us to determine that the consultant has all the relevant facts. To our knowledge, there were no
such consultations with other accountants.
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
6
Client: Ave Maria University, Inc. and Subsidiaries
Y/E: 6/30/2013
Ref. # Description of Misstatement
Current
Assets
Long-term
Assets
Current
Liabilities
Long-term
Liabilities Net Assets Revenue Expenses
Impact to Net
Assets
FACTUAL MISSTATEMENTS:
A1 None
JUDGMENTAL ADJUSTMENTS:
B1 To adjust the fair value of the Thul Real Estate to
management's estimate of market value as of June
30, 2013 (145,000)$ 145,000$ (145,000)$
B2 To record an accrual for estimated lease
payments due for radio station tower use as of
June 30, 2013 150,000$ 150,000 (150,000)
PROJECTED ADJUSTMENTS:
C1 None
-$ - - -$ -$ -$ - -
Total -$ (145,000)$ 150,000$ -$ -$ -$ 295,000$ (295,000)$
PASSED DISCLOSURES:
D1
The effect of misstatements and classification errors identified would be to increase (decrease) the reported
amounts in the financial statement categories identified below:
SUMMARY OF UNRECORDED POSSIBLE ADJUSTMENTS
The University has not included operations related to the subsequent sale of the Annex building with discontinued operations. Approximately $1,093,000 of assets
held for sale and $250,000 of rental income are included in continuing operations on the consolidated statement of financial position and statement of operations
and changes in net assets, respectively, at June 30, 2013.
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
7
Section II - Other Recommendations and Related Information
During our audit, we noted areas where we believe there are opportunities for the University to
further strengthen internal control or to increase operating efficiencies. Our observations on
those areas are presented for your consideration below:
Allowance for Doubtful Accounts
Management evaluates and adjusts the student accounts receivable and institutional loan
allowance for doubtful accounts annually. We suggest management review the allowances on a
quarterly basis and adjust the reserves accordingly to ensure accurate financial information is
maintained and provided to outside third parties and the board members.
Accounts Payable Support and Cut-off
While testing accounts payable, the accounting department was unable to provide an invoice that
was dated in the current fiscal year. Though the amount was not significant, the accounting
department should maintain supporting documentation and invoices for a reasonable period of
time to support the value of liabilities recorded. We also identified an invoice improperly
included in accounts payable at June 30, 2013 but related to the following fiscal year. We
recommend the University review their cut-off procedures to ensure transactions are recorded
in the correct reporting period.
Secondary Review of Expense Reimbursements
In response to prior audit recommendations, the University implemented a procedure for
secondary review of expense reimbursements. However, while sampling expense
reimbursement requests, we identified a secondary review was not performed and receipts
were not attached to support one of the selections subsequent to implementation of the new
procedure. We suggest that someone within the related employees' department, preferably
their direct supervisor, review and approve expense reimbursements before the funds are
disbursed. This review should be performed consistently.
Employee Compensation and Compensated Absences
Two years ago, the payroll department informed us they review reports created from Empower
and compare it to original data before processing payroll. We were unable to verify this process
as the human resources (HR) coordinator did not sign off that this task was completed. Based
upon discussion with the HR director and the HR specialist last year, they were reviewing their
procedures to further formalize the review process and planned to implement new procedures
in the fall or winter of 2011. During our internal control review procedures for this year’s audit,
it appears the updated procedures still have not been implemented. We also identified vacation
hours were improperly calculated for an employee during the year, resulting in a shortage of
hours accrued compared to the University’s policy. We suggest the procedures drafted in 2011
be implemented to improve the internal control structure surrounding the employee
compensation cycle.
To the Finance and Audit Committee November 25, 2013
of the Board of Trustees
Ave Maria University, Inc. and Subsidiary
8
Functional Allocation of Expenses
The University allocates operating, maintenance, and depreciation costs on a pro-rata basis
across all functional categories of expenses. We suggest management perform a comprehensive
analysis of the University's overhead costs in order to ensure indirect costs are allocated to the
specific functional categories using a more systematic and rational methodology. This allocation,
once finalized, should be performed whenever internally prepared consolidated financial
statements are provided to outside third parties.
Formal Bid Process
The University does not have a formal procurement policy. As the University continues to
expand and require additional services, a formal policy will assist the University in obtaining
competitive quotes for significant purchases, services, and projects.
Analysis of Investment Policy for UPMIFA Compliance
Florida signed UPMIFA into law and management has represented that the University has
adopted this new state law beginning with the year ended June 30, 2013 as we advised in prior
years. The University has not performed a formal analysis to determine whether the investment
policy complies with UPMIFA. We recommend a review of the investment policy be performed
and a formal conclusion reached and documented to support management’s representation.