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2.11.1     The institution has a sound financial base and demonstrated financial stability to support the mission of the institution and the scope of its programs and services. The member institution provides the following financial statements: (1) an institutional audit (or Standard Review Report issued in accordance with Statements on Standards for Accounting and Review Services issued by the AICPA for those institutions audited as part of a system-wide or statewide audit) and written institutional management letter for the most recent fiscal year prepared by an independent certified public accountant and/or an appropriate governmental auditing agency employing the appropriate audit (or Standard Review Report) guide; (2) a statement of financial position of unrestricted net assets, exclusive of plant assets and plant-related debt, which represents the change in unrestricted net assets attributable to operations for the most recent year; and (3) an annual budget that is preceded by sound planning, is subject to sound fiscal procedures, and is approved by the governing board.  Audit requirements for applicant institutions may be found in the Commission policy “Accreditation Procedures for Applicant Institutions.” (Financial Resources)

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Summary

Fayetteville Technical Community College (FTCC) is in compliance with this core requirement.  The College has a sound financial base and demonstrates financial stability to support the mission of the College and the scope of its programs and services.  This is made possible through stable enrollment and growth in revenues.  The College also has adequate financial liquidity in the event of an economic downturn.

An institutional audit and written institutional management letter, prepared by the Office of the State Auditor (OSA), is available for the 2008-2009 fiscal year.  The OSA is an independent audit agency that conducts audits in accordance with auditing standards generally accepted in the United States.  These financial auditing standards are contained in Government Auditing Standards, issued by the Comptroller General of the United States.

A statement of financial position of unrestricted net assets, exclusive of plant assets and plant-related debt, is available. This statement represents the change in unrestricted net assets attributable to operations for the most recent year.

The College provides an annual budget that is preceded by sound campus wide planning by the Planning Council.  This standing committee is comprised of faculty and staff representing all major functional areas of the College and submits their recommendations for future planning activities to the President and the Executive Council.  The President and the Executive Council consider all planning improvements submitted by the Planning Council and take appropriate approval actions unless the plans require a policy change.  In those cases, the President presents the proposals to the College’s Board of Trustees for their approval.

Narrative

FTCC has a sound financial base and demonstrates financial stability to support its mission and the scope of its academic programs and support services. 

(1)  Financial Stability

The majority of the College’s funding is appropriated by the State of North Carolina and is distributed by the North Carolina Community College System (NCCCS) as directed by the State Board of Community Colleges.  State funding is based on a student full-time equivalency (FTE) formula.   The College’s budgeted FTE increased from 9,166 in 2003-04 to 10,193 in 2008-09, an increase of 11 percent. 

State Aid, as reported in the College’s 2008-09 financial statements, Exhibit A-2, was $39,750,043.28, which represents an increase of $13,733,719.55, or 53 percent, compared to State Aid, as reported in the College’s 2003-04 financial statements, Exhibit A-2.  The College’s Tuition and Fees’ revenues are shown separately from State Aid on Exhibit A-2 for financial statement presentation.  Tuition and fees are shown net of discounts.  Tuition discounts are funded by Federal Title IV grants, State grants, and Institutional scholarships. 

FTCC also receives significant support from residents of the College’s service area.  Cumberland County provides funding to the College to operate and maintain facilities within county service area boundaries.  Cumberland County Appropriations, as reported in the College’s 2008-09 financial statements, were $8,283,893.00, representing an increase  of $2,392,412.00 or 41 percent compared to 2003-04. 

The 1999-2000 Session of the General Assembly of North Carolina authorized the issuance of $600 million of State General Obligation Bonds, as approved by North Carolina voters, to provide funds for NCCCS capital improvements.  The funds were restricted for the construction of new buildings and renovation/ modernization of existing buildings on NCCCS campuses.  FTCC was authorized $38,491,174.00 in bond funds, which resulted in an increase of 80 percent in capital assets by the end of fiscal year 2008-09 as compared to 2003-04.

There are a variety of ratios that can be used to analyze an entity’s financial condition.  The four-year data used in the ratio calculations was extracted from the College's audit reports for fiscal year 2008-09 and from the 2006-07. Per NCCCS guidelines, the College’s individual financial statements are audited every other year. The College used the 2008-09 and 2006-07 Audit Reports to compile the ratio data for fiscal years 2007-08, 2008-09, 2005-06 and 2006-07 since the Management’s Discussion and Analysis section of the Audit Reports includes comparative financial statements for two years. 

The audit results demonstrate the College is financially sound and stable.  Since the College is a publicly funded institution, the State appropriation revenue is shown under non-operating revenues as State Aid on the Statement of Revenues, Expenses, and Changes in Net Assets, as specified by Governmental Accounting Standards Board guidelines.  This format resulted in a net operating loss on the financial statement; however, once the College’s State appropriation and other non-operating revenues are taken into account, the College can demonstrate an increase in net assets.

The current ratio is a measurement of financial liquidity calculated by comparing current assets to current liabilities.  A current ratio of 2.00 or greater indicates that the College’s liquidity is adequate to meet its financial obligations in the event of an economic downturn.  Over the last four years, from 2005-06 through 2008-09, the current ratio was 6.81, 7.41, 8.72, and 7.17, respectively. The high current ratios indicate that the College’s financial liquidity is outstanding. 

The primary reserve ratio measures the financial strength of the College and its ability to support its current obligations utilizing all available resources.  It is determined by comparing expendable net assets to total operating expenses.   Over the last four years, from 2005-06 through 2008-09, the primary reserve ratio was 12 percent, 17 percent, 19 percent, and 23 percent, respectively.  The increasing trend in this ratio indicates the College’s strengthening financial position. 

The return-on-net assets ratio indicates the College’s strong financial position.  It is determined by comparing the change in net assets to total net assets.  Over the last four years, from 2005-06 through 2008-09, the return on net assets ratio was 3 percent, 10 percent, 5 percent, and 12 percent, respectively.  At first glance, it appears that the decrease in the ratio in 2007-08 indicates deterioration in the College’s financial position, but this is not the case.  In 2006-07, the College received $3,237,087.62 from Cumberland County, specifically for the purchase of the Service Merchandise Building.  The College does not typically receive this much capital aid from the County on a recurring basis.  When this revenue is removed from the 2006-07 net assets ratio calculation, the revised return on net assets ratio for 2006-07 is 6 percent, which is consistent with the ratio in 2007-08.

(2)  Financial Statements and Audits

The College’s Title IV compliance audit management letter revealed three audit findings for the 2006-07 fiscal year.  Two of the findings did not result in questioned costs.  In the third finding, the auditors reported “likely questioned costs estimated to exceed $10,000."  The College responded to the audit issues, and as a result, OSA only included two of the audit findings in the 2006-07 Statewide Single Audit Report.  The Department of Education responded by letter on October 3, 2008, and closed both of the College’s Single Audit findings. 

Based on documentation submitted by the College in response to the fiscal year 2006-07 findings (that questioned costs in excess of $10,000), FTCC was found in fault of over-awarding one student by $576.00.  This amount was refunded to the Department of Education on November 12, 2008.  OSA followed up on all three of the audit findings reported in January 2008 and concluded that FTCC resolved all of the audit issues.  Documentation of OSA’s Summary Schedule of Prior Year Audit Findings can be found in the 2008 Statewide Single Audit Report.  The two findings are mentioned in several locations within the report as prior year audit findings.  In all instances, the current status of the findings is “full corrective action has been taken,” which is indicated on page 418, page 426, and page 428.

The College’s financial statement audit management letter revealed one audit finding for the 2006-07 fiscal year.  FTCC responded to the finding.  Based on the College’s response, OSA did not perform an audit of the College’s financial statements in 2007-08, an indication by the auditors of no cause for concern to warrant the College being placed on an annual audit schedule.  FTCC received a response from the NCCCS on December 12, 2008, which stated that the College’s response to the audit finding was acceptable and the matter could be considered closed.    

The College’s annual financial statements consist of a Statement of Net Assets, a Statement of Revenues, Expenses, and Changes in Net Assets, a Statement of Cash Flows, Management Discussion and Analysis, and accompanying notes.  In years that audits are performed, the audit report is available to the general public via OSA’s webpage.  The College’s most recent completed audit was for fiscal year 2008-09.  The report contains an independent auditor’s report, management’s discussion and analysis, financial statements, accompanying notes, and an independent auditor’s report on internal control over financial reporting and on compliance and other matters.  In audit and non-audit years, the College’s unaudited financial statements are distributed to the College’s Board of Trustees, senior management, the County Board of Commissioners, and the College’s bank.

A Statement of Financial Position of Unrestricted Net Assets, exclusive of plant assets and plant-related debt, is not one of the College’s required annual financial statements.  The College’s Office of Business and Finance has prepared this statement for each of the last three years in order to monitor trends in unrestricted net assets.

(3)  Annual Budget

The College’s faculty and staff have an opportunity to participate in the development of the College’s budget for the upcoming year and for long-range budget forecasting.  Budget decision packages document critical needs in the areas of facilities, personnel, equipment, and other costs. 

Planning units conduct annual assessment plans to identify opportunities for enhancement of student learning outcomes and incorporate those planning activities into the next update of the Strategic Plan.  Assessment plans are used to identify critical resource needs, which are incorporated into the strategic plan for funding consideration.  Faculty and staff submit budget requests through the supervisory channels as part of the College’s strategic planning process.  Vice presidents review and forward their budget priorities to the Vice President for Business and Finance. 

The College fiscal year is July 1 through June 30.  The General Assembly typically passes the State budget around August each year.  Following State budget approval, the College receives its State budget allocation from the NCCCS.  The State budget allocation is based on the College’s FTE from the prior fiscal year or the College’s average FTE using the last three years, whichever is greater. 

The State budget allocation document is the North Carolina Community College System Formula Budget Computation. The top portion of this worksheet indicates the College’s prior-year Curriculum FTE, Occupational FTE, and Basic Skills FTE.  The College receives differing amounts of State funding based on the FTE in each of these three categories.  The second section of the worksheet shows the budgeted amount based on the previous year’s FTE.

The College receives a higher level of funding per FTE for the first 500 Curriculum and Occupational FTE and a reduced amount of funding for all FTE over 500 in both of these categories.  The College receives a base allotment for Basic Skills funding and includes additional formula-driven funding based on category of student (GED, Adult High School, etc.).  The College also receives a Community Service allotment. 

The last sections of the NCCCS Formula Budget Computation worksheet include funding for the President’s salary/benefits and for instructional support.  These amounts are driven by combined Curriculum, Occupational, and Basic Skills FTE. 

The College receives its Community College Fund Budget Allotments form, which is also referred to as a DCC 2-8.  This worksheet is typically received around mid-August each year and documents the State funding with a global view. The DCC 2-8 breaks down the State budget allocation by purpose code (executive management, general administration, associate degree, occupational, adult basic education, and community service) and function (salaries, fringe benefits, other) and indicates the approval of the NCCCS Vice President of Business and Finance.   The FTCC Vice President for Business and Finance has the responsibility to use this global information and prepare a detailed FTCC budget in conjunction with the College President and the Vice Presidents.

A Department of Community College’s Request for Budget Revision or a Form 104 is completed if State budget funds are transferred between purposes and functions or if budget increases or decreases occur.  All State budget transfers documented on a Form 104 are approved by the College’s President and presented to the Board of Trustees. The NCCCS indicates approval of the budget revision by signing the Form 104 and returning it to the College.

The Vice President for Business and Finance documents the official College budget on a DCC 2-1 form.  This budget is broken down by State funds, County funds, Equipment and Plant funds, and Institutional funds.  State funds include the FTE formula budget allocation, computed as previously described, and other funds that the College receives as categorical allotments from the State.  Examples include:

• Faculty position upgrades
• Vocational education allotment (Carl D. Perkins)
• Multi-campus allotment
• Nursing program funding
• Small business center funding
• Compensatory education allotment
• Child care funding
• Technical education funding

The Cumberland County Commissioners also allot a portion of the County budget to the College for expenditures not funded by the State budget. 

Federal funding includes:

• Federal Title IV funds
• Federal Work Study
• Federal Supplemental Educational Opportunity Grant
• Federal Pell Grant
• Academic Competitiveness Grant
• Direct Loans

Institutional funding includes:

• Budgeted bookstore receipts
• Vending receipts
• Interest income
• Student activity fees (library, technology, child care, etc.)
• Construction funds 

The final budget proposal is presented to FTCC’s Board of Trustees for approval. This normally occurs in mid-September.  Upon approval by the Board of Trustees, the proposed budget is submitted to NCCCS for approval by the State Board of Community Colleges. 

The College is notified of the State Board of Community College approval by

1)   a revised DCC 2-8, which must also be approved by the NCCCS Vice President of Business and Finance and
2)   an approved Form 104, which indicates the State Board of Community Colleges approved all budget revisions submitted by the College after the NCCCS’ approval of the original DCC 2-8.

If budget revisions are necessary after the DCC 2-1 is signed, the College must continue to document these budget revisions on a Form 104.  The same approvals required prior to the signing of the College’s official budget must be acquired for each Form 104.  FTCC’s approved, amended, and actual budget figures for the most recent three years are available for review.

The following example is provided to illustrate the College’s budget cycle from beginning to end for fiscal year 2008-09. 

• On July 17, 2008, a budget decision packet document, based on information from specialty accreditation guidelines, advisory committees, and/or assessment results, was completed in the Radiology Department. The budget decision packet included a request for an additional full-time instructor.  The form was signed by the Department Chair, Dean, Associate Vice President of Curriculum, and Vice President of Academic and Student Services. 
  
  
• Radiology’s budget request was assigned a priority code of one, indicating an immediate need, and was added to FTCC's Strategic Plan.  In August 2008, FTCC received its fiscal year 2008-09 State budget, as documented on the NCCCS Formula Budget Computation worksheet.  As indicated on the bottom of the document, FTCC’s total FTE formula budget allocation was $49,647,085. 
  
  
• On August 13, 2009, the NCCCS Vice President of Business and Finance approved FTCC’s State formula allocation, documented on DCC 2-8.  As indicated on DCC 2-8, the College’s budget for associate degree salaries and fringe benefits, purpose code 220, was $24,900,528.  The salary for the additional radiology position, if approved, would be charged to these funds.  The FTCC Vice President for Business and Finance, in consultation with other FTCC Vice Presidents and the College President, determined which budget requests could be fulfilled. 
  
  
• The additional radiology position was added in the 2008-09 fiscal year as indicated in FTCC’s End-of-Year Report. 

The College prepares DCC 2-1, for sign-off by the College’s Board of Trustees and the County Commissioners for submission to the State Board of Community Colleges.  The DCC 2-1 document includes the State formula allocation (based on FTE) as the first budget line item.  This amount agrees with the $49,647,085 budget allocation approved by the NCCCS.  Subsequent line items include the additional State non-formula driven, categorical allotments for a combined total of $51,546,417 in the first column.  The College’s equipment budget of $1,945,419 is identified in the third column.  It is also State funded.  The total State budget, as reflected on the DCC 2-1, is $53,491,836 (column one plus three). 

FTCC’s Director of Budget and Financial Systems posts the budget journal entries monthly on the 2-12 report for documentation and monitoring purposes. The original budget is in the first column of the 2-12 report and is typically journalized in September of each year.  The 2-12 report is a standard NCCCS report required of all 58 community colleges in North Carolina.  It is submitted to the NCCCS every month. 

FTCC’s original budget per the 2-12 report is $54,607,060.  The difference between this amount and the $53,491,836 State budget (column one plus three) approved by the Board of Trustees, the Chairman of County Commissioners, and the State Board of Community Colleges is $1,115,224.  This difference is due to

Supporting Documentation

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