American University
Financial Statements and Schedule
Of Expenditures of Federal Awards and Reports in
Accordance with OMB Circular A-133 Thereon
For the year ended April 30, 2014
EIN # 530196549
Page
Report of Independent Auditors
1
Financial Statements for the years ended April 30, 2014 and 2013
3
Notes to Financial Statements for the years ended April 30, 2014 and 2013
7
Schedule of Expenditures of Federal Awards for the year ended April 30, 2014
30
Notes to Schedule of Expenditures of Federal Awards for the year ended
April 30, 2014
34
Independent Auditors Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters Based on an Audits of Financial Statements
Performed in Accordance with Government Auditing Standards
37
Independent Auditors Report on Compliance with Requirements to each That Could
Have a Direct and Material Effect on Each Major Program and on Internal Control
Over Compliance in Accordance with OMB Circular A-133
39
Schedule of Findings and Questioned Costs
42
Summary Schedule of Prior Audit Findings and Questioned Costs
47
Management’s Views and Corrective Action Plan
48
Independent Auditor’s Report
To the Board of Trustees of American University:
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of American University and its
subsidiaries (the “University’), which comprise the consolidated balance sheets as of April 30, 2014 and
April 30, 2013 and related consolidated statements of activities and cash flows for the years then ended,
and the related notes to the financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the 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 an opinion on the 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 our 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, we consider 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 opinion.
PricewaterhouseCoopers LLP, 1800 Tysons Boulevard, McLean, VA 22102-4261
T: (703) 918-3000, F: (703) 918 3100, www.pwc.com/us
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the University and its subsidiaries as of April 30, 2014
and April 30, 2013, and the changes in its net assets and its cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
Other Matters
Other Information
Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements
as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of
additional analysis as required by Office of Management and Budget Circular A-133, Audits of States,
Local Governments, and Non-Profit Organizations and is 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 schedule of expenditures of federal awards is fairly stated, in all
material respects, in relation to the consolidated financial statements as a whole.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated August 29,
2014 on 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 and other
matters. The purpose of that 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
internal control over financial reporting or on compliance. That report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the University's internal
control over financial reporting and compliance.
August 29, 2014
2
American University
Balance Sheets
April 30, 2014 and 2013
(In thousands)
2014
Assets
Cash and cash equivalents
Accounts and University loans receivable, net
Contributions receivable, net
Prepaid expenses and inventory
Investments
Deposits with trustees/others
Deposits for collateralized swaps
Property, plant, and equipment, net
Deferred financing costs
Interest in perpetual trust
Total assets
Liabilities and Net Assets
Liabilities:
Accounts payable and accrued liabilities
Deferred revenue and deposits
Notes payable and long-term debt
Swap agreements
Assets retirement obligations
Refundable advances from the U.S. government
$
21,605
32,133
11,835
2,316
864,858
1,377
13,897
580,738
2,226
17,826
$
57,174
27,716
10,849
1,824
750,057
1,414
32,724
519,380
2,340
15,922
$
1,548,811
$
1,419,400
$
52,872
12,386
418,676
50,436
4,058
8,846
$
58,994
16,113
383,930
70,876
4,747
8,688
Total liabilities
Net assets:
Unrestricted
General operations
Internally designated
Capital
Designated funds functioning as endowments
Designated for plant
Total unrestricted
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
2013
$
547,274
543,348
8,882
189,242
8,271
172,498
428,476
172,674
374,040
134,084
799,274
688,893
103,056
99,207
91,903
95,256
1,001,537
876,052
1,548,811
$
1,419,400
See accompanying notes to the financial statements.
3
American University
Statements of Activities
Year ended April 30, 2014
(In thousands)
Operating revenues and support
Tuition and fees
Less scholarship allowances
General
operations
$
Net tuition and fees
Unrestricted net assets
Internally
designated
Capital
465,245 $
(93,929)
2,734 $
(8,158)
-
Temporarily Permanently
restricted
restricted
net assets
net assets
Total
$
467,979 $
(102,087)
-
$
$
467,979
(102,087)
371,316
(5,424)
-
365,892
-
365,892
1,113
8,832
2,047
10,397
4,325
4,729
72,350
913
176
16,841
8,206
6,312
4,672
430
122
1,568
6,189
2,581
198
17
87
2,343
17,954
17,038
2,047
19,290
9,195
5,176
72,472
2,568
8,708
5,103
5,327
176
(8,708)
3,028
124
-
17,954
17,038
2,047
27,421
14,646
5,352
72,472
2,568
-
476,198
38,916
5,226
520,340
1,898
3,152
525,390
132,109
32,262
20,769
51,560
39,142
74,336
26,396
2,719
17,645
135
4,555
321
3,808
45
16,861
3,277
5,867
2,723
11,020
29,483
151,689
49,907
24,181
61,982
42,186
89,164
55,924
-
-
151,689
49,907
24,181
61,982
42,186
89,164
55,924
47,386
13,046
-
(47,386)
(13,046)
-
-
-
-
Total operating expenses
437,006
29,228
8,799
475,033
-
-
475,033
Total operating activities
39,192
9,688
(3,573)
45,307
1,898
3,152
50,357
(40,932)
7,121
33,811
-
-
-
-
-
5,351
-
5,351
(3,920)
(1,709)
(278)
2,351
(5,416)
62,788
59,723
13,175
2,508
75,406
2,351
(65)
62,788
65,074
9,255
799
75,128
125,485
Federal grants and contracts
Private grants and contracts
Indirect cost recovery
Contributions
Endowment income
Investment income
Auxiliary enterprises
Other sources
Net asset release
Total operating
revenues and support
Operating expenses
Instruction
Research
Public service
Academic support
Student services
Institutional support
Auxiliary enterprises
Facilities operations and
maintenance
Interest expense
Transfer among funds
Nonoperating items
Investment income
Other revenue and transfers
Realized and unrealized net capital
gains
Total nonoperating
activities
-
-
Total
Change in net assets
611
16,744
93,026
110,381
11,153
3,951
Net assets at beginning of year
8,271
172,498
508,124
688,893
91,903
95,256
876,052
99,207
$ 1,001,537
Net assets at end of year
$
8,882
$
189,242
$
601,150
$
799,274
$
103,056
See accompanying notes to the financial statements
4
$
American University
Statements of Activities
Year ended April 30, 2013
(In thousands)
General
operations
Operating revenues and support
Tuition and fees
Less scholarship allowances
$ 456,154
(94,258)
Net tuition and fees
Unrestricted net assets
Internally
designated
Capital
$
1,431
(8,068)
$
-
Temporarily Permanently
restricted
restricted
net assets
net assets
Total
$
457,585
(102,326)
$
-
$
-
Total
$
457,585
(102,326)
361,896
(6,637)
-
355,259
-
-
355,259
1,116
8,609
2,170
10,236
2,778
5,724
67,900
971
214
17,908
8,617
5,201
5,168
376
132
1,507
6,181
2,315
187
58
2
2,216
19,024
17,226
2,170
17,752
8,133
6,158
68,032
2,480
8,611
3,615
4,869
176
(8,611)
2,141
117
-
19,024
17,226
2,170
23,508
13,119
6,334
68,032
2,480
-
461,614
38,453
4,778
504,845
49
2,258
507,152
126,725
30,740
19,767
49,888
37,460
72,572
35,164
3,972
18,555
343
4,698
344
662
19
17,114
693
5,616
2,636
10,050
26,967
147,811
49,295
20,803
60,202
40,440
83,284
62,150
-
-
147,811
49,295
20,803
60,202
40,440
83,284
62,150
40,351
11,755
-
(40,351)
(11,755)
-
-
-
-
Total operating expenses
424,422
28,593
10,970
463,985
-
-
463,985
Total operating activities
37,192
9,860
(6,192)
40,860
49
2,258
43,167
(37,416)
(5,955)
43,371
-
-
-
-
(200)
446
130
Federal grants and contracts
Private grants and contracts
Indirect cost recovery
Contributions
Endowment income
Investment income
Auxiliary enterprises
Other sources
Net asset release
Total operating
revenues and support
Operating expenses
Instruction
Research
Public service
Academic support
Student services
Institutional support
Auxiliary enterprises
Facilities operations and
maintenance
Interest expense
Transfer among funds
Nonoperating items
Investment income
Other revenue and transfers
Realized and unrealized net capital
gains
-
Total nonoperating
activities
(116)
-
(116)
692
(2,337)
35,393
33,748
11,930
1,555
47,233
692
(2,453)
35,393
33,632
11,730
2,001
47,363
Change in net assets
468
1,452
72,572
74,492
11,779
4,259
90,530
Net assets at beginning of year
7,803
171,046
435,552
614,401
80,124
90,997
785,522
Net assets at end of year
$
8,271
$
172,498
$
508,124
$
688,893
$
91,903
See accompanying notes to the financial statements.
5
$
95,256
$
876,052
American University
Notes to Financial Statements
April 30, 2014 and 2013
(In thousands)
2014
Cash flows from operating activities
Increase in net assets
Adjustments to reconcile increase in net assets to net cash
provided by operating activities:
Contributed art and property
Net realized and unrealized capital gains
Loss on disposal of fixed assets
Gain on asset retirement obliation remediation
Change in fair value of interest rate swaps
Depreciation, amortization and accretion
Changes in assets and liabilities
(Increase) decrease in accounts and university loans receivable, net
Increase in contributions receivable, net
(Increase) decrease in prepaid expenses
(Decrease) increase in accounts payable and accrued liabilities
Decrease in deferred revenue, deposits and other refundable advance
$
Contributions collected and revenues restricted for long-term investment
Net cash provided by operating activities
Cash flows from investing activities
Purchases of investments
Proceeds from sales and maturities of investments
Purchases of property, plant, and equipment
Capitalized interest
Decrease in deposits with trustees/other, net
Net cash used in investing activities
Cash flows from financing activities
Student loans issued
Student loans repaid
Issuance of debt
Repayment of mortgage note payable
Proceeds from contributions restricted for
Investment in plant
Investment in endowment
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Cash paid during year for interest
Contributed art and property
Mortgage Payable
Accrued payment for property, plant & equipment
$
$
6
125,485
2013
$
90,530
(7,548)
(66,731)
70
(593)
(20,440)
30,229
(2,011)
(60,758)
2,361
2,959
26,134
(3,928)
(986)
(492)
(9,593)
(3,569)
171
(719)
761
5,871
(2,307)
(5,551)
36,353
(5,268)
57,724
(369,894)
319,920
(78,850)
(176,020)
175,530
(77,578)
(1,770)
18,864
(111,730)
(1,879)
(2,824)
(82,771)
(1,731)
1,242
35,000
(254)
(2,032)
1,387
20,000
(145)
2,341
3,210
39,808
2,028
3,240
24,478
(35,569)
57,174
21,605
(569)
57,743
57,174
14,317
7,548
3,471
$
$
14,889
2,011
23,200
6,126
American University
Notes to Financial Statements
April 30, 2014 and 2013
1. American University
American University (the University) is an independent, coeducational university located on an 85-acre
campus in northwest Washington, D.C. It was chartered by an Act of Congress in 1893 (the Act). The Act
empowered the establishment and maintenance of a university for the promotion of education under the
auspices of the Methodist Church. While still maintaining its Methodist connection, the University is
nonsectarian in all of its policies.
American University offers a wide range of graduate and undergraduate degree programs, as well as nondegree study. There are approximately 825 full-time faculty members in six academic divisions, and
approximately 12,000 students, of which 6,800 are undergraduate students and 5,200, are graduate
students. The University attracts students from all 50 states, the District of Columbia, Puerto Rico, and
nearly 130 foreign countries.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the University have been reported on the accrual basis of accounting in
accordance accounting principles generally accepted in the United States of America.
Classification of Net Assets
Net assets, revenues, gains, and losses are classified based on the existence or absence of donor-imposed
restrictions. Accordingly, net assets of the University and changes therein are classified and reported as
follows:
Unrestricted – Net assets not subject to donor-imposed stipulations.
Temporarily Restricted – Net assets subject to donor-imposed stipulations that either expire by passage of
time or can be fulfilled by actions of the University pursuant to those stipulations.
Permanently Restricted – Net assets subject to donor-imposed stipulations that they be maintained
permanently by the University.
Revenues are reported as increases in unrestricted net assets unless use of the related assets is limited by
donor-imposed restrictions. Contributions are reported as increases in the appropriate category of net
assets. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments are
reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor
stipulations or by law. Expirations of temporary restrictions recognized on net assets
(i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are
reported as reclassifications from temporarily restricted net assets to unrestricted net assets. Temporary
restrictions on gifts to acquire long-lived assets are considered met in the period in which the assets are
acquired or placed in service.
Contributions, including unconditional promises to give, are recognized as revenues in the period received.
Conditional promises to give are not recognized until the conditions on which they depend are
substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the
date of gift. Contributions to be received after one year are discounted at a rate commensurate with the risk
involved. Amortization of the discount is recorded as contribution revenue. Allowance is made for
uncollectible contributions based upon management’s judgment and analysis of the creditworthiness of the
donors, past collection experience, and other relevant factors.
7
American University
Notes to Financial Statements
April 30, 2014 and 2013
The University follows a practice of classifying its unrestricted net asset class of revenues and expenses as
general operations, internally designated, or capital. Items classified as general operations include those
revenues and expenses included in the University’s annual operating budget. Items classified as capital
include accounts and transactions related to endowment funds and plant facilities and allocation of
facilities operations and maintenance, depreciation, and interest expense. All other accounts and
transactions are classified as internally designated.
Transfers consist primarily of funding designations for specific purposes and for future plant acquisitions
and improvements.
Non-operating activities represent transactions relating to the University’s long-term investments and plant
activities, including contributions to be invested by the University to generate a return that will support
future operations, contributions to be received in the future or to be used for facilities and equipment, and
investment gains or losses.
Principles of Consolidation
Our consolidated financial statements include our accounts and that of our wholly-owned and controlled
subsidiary, American University at Connecticut Avenue LLC, after elimination of intercompany accounts
and transactions.
Cash and Cash Equivalents
All highly liquid cash investments with maturities at date of purchase of three months or less are
considered to be cash equivalents. Cash equivalents consist primarily of money market funds.
Receivables
Receivables consist of tuition and fee charges to students and auxiliary enterprises’ sales and services,
loans receivable primarily related to donor-structured loans and federal student financial aid programs, and
amounts due from the federal government, state and local governments, or private sources, in connection
with reimbursement of allowable expenditures made pursuant to grants and contracts. Receivables are
recorded net of estimated uncollectible amounts. The University reviews the individual receivables as well
as the history of collectability to determine the collectible amount as of the balance sheet date.
Additionally, loans receivable are evaluated annually by looking at both unsecured and secured loans.
Deposits for Collateralized Swaps
Deposits consist of the cash held as collateral for the University’s interest rate swaps.
Investments
Equity securities with readily determinable fair values and all debt securities are recorded at fair value in
the balance sheet. See Note 7 for an explanation as to methodology for determining fair value. Endowment
income included in operating revenues consists of annual amounts allocated for spending of endowment
funds in accordance with the University's spending policy. All realized and unrealized gains and losses
from investments of endowment funds are reported as non-operating revenues. Investment income
included in operating revenues consists primarily of interest and dividends from investments of working
capital funds and unexpended plant funds.
The University has interests in alternative investments consisting of limited partnerships. Alternative
investments are less liquid than the University’s other investments. Furthermore, the investments in these
limited partnerships, as well as certain mutual funds classified as equity securities, may include derivatives
8
American University
Notes to Financial Statements
April 30, 2014 and 2013
and certain private investments which do not trade on public markets and therefore may be subject to
greater liquidity risk.
In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-04, Fair Value
Measurement (“ASU 2011-04”). ASU 2011-04 requires new disclosures for valuation techniques and
unobservable inputs related to Level 3 fair value measurements, excluding investments that measure fair
value using an NAV. The new guidance also requires the disclosure of transfers between Level 1 and
Level 2 investments. The new disclosures and clarifications of existing disclosures were effective for the
year ended April 30, 2013. The adoption of this guidance is included in the University’s fair value
disclosures.
Investment income is reported net of management fees and rental real estate property expenses.
Property, Plant, and Equipment, Net
Property, plant, and equipment are stated at cost on the date of acquisition or at estimated fair value if
acquired by gift including interest capitalized on related borrowings during the period of construction, less
accumulated depreciation. Certain costs associated with the financing of plant assets are deferred and
amortized over the terms of the financing. Depreciation of the University’s plant assets is computed using
the straight-line method over the asset’s estimated useful life, generally over 50 years for buildings,
20 years for land improvements, 5 years for equipment, 10 years for library collections, and 50 years for
art collections. The University’s capitalization policy is to capitalize all fixed assets and collection items
that have a cost of $5,000 or more per unit and a useful life of two years or more.
Refundable Advances from the U.S. Government
Funds provided by the United States Government under the Federal Perkins Loan Program are loaned to
qualified students and may be reloaned after collections. Such funds are ultimately refundable to the
government. Approximately 44% and 46% of net tuition and fees revenue for the years ended April 30,
2014 and 2013, respectively, was funded by federal student financial aid programs (including loan, grant,
and work-study programs).
Asset Retirement Obligations
The University records asset retirement obligations in accordance with the accounting standard for the
Accounting for Conditional Asset Retirement Obligations. This standard requires the fair value of the
liability for the asset retirement obligations (ARO) be recognized in the period in which it is incurred and
the settlement date is estimable, even if the exact timing or method of settlement is unknown. The ARO is
capitalized as part of the carrying amount of the long-lived asset retroactively to the time at which legal or
contractual regulations created the obligation. The University's ARO is primarily associated with the cost
of removal and disposal of asbestos, lead paint, and asset decommissioning. For the years ended April 30,
2014 and 2013, the accretion expenses were $193,000 and $226,000, respectively. Obligations of
$882,000 were settled during the fiscal year ended April 30, 2014.
Income Taxes
The University has been recognized by the Internal Revenue Service as exempt from federal income tax
under Section 501(c)(3) of the U.S. Internal Revenue Code, except for taxes on income from activities
unrelated to its exempt purpose. Such activities resulted in no net taxable income in fiscal years 2014 and
2013.
9
American University
Notes to Financial Statements
April 30, 2014 and 2013
Functional Expenses
The University has developed and implemented a system of allocating expenses related to more than one
function. These expenses are depreciation, interest and operations and maintenance of plant. Depreciation
is allocated by individual fixed assets to the function utilizing that asset. Interest is allocated based on the
use of borrowed money in the individual functional category.
The operations and maintenance of plant is divided into expenses used for the total institution not charged
back to the operating units, and those expenses charged to some units but not all units. The allocation was
determined through a study of departmental uses of the operations and maintenance budget within each
category.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect: (1) the reported amounts of assets and
liabilities; (2) disclosure of contingent assets and liabilities at the date of the financial statements; and (3)
the reported amounts of revenues and expenses during the reporting period. Significant items subject to
such estimates and assumptions are the value of alternative investments, the asset retirement obligations,
the postretirement benefit plan, and swap agreements. Actual results could differ materially, in the near
term, from the amounts reported.
3. Consolidation of Wholly Owned Subsidiary
In May 2012, the University became the sole member of American University at Connecticut Avenue LLC
(“the LLC”). The LLC purchased an office building to house the University’s public radio station,
WAMU - 88.5 FM, and other administrative offices. The University has consolidated the mortgage
liability along with the rental revenue of the LLC in our consolidated financial statements for the current
fiscal year.
4. Accounts and University Loans Receivable, Net
Accounts and loans receivable, net, at April 30, 2014 and 2013, are as follows (in thousands):
2014
Accounts receivable
Student
Grants, contracts, and other
Accrued interest
Student loans
$
10,209
9,837
506
13,732
2013
$
34,284
(2,151)
Less allowance for uncollectible accounts and loans
$
32,133
9,812
7,024
468
12,932
30,236
(2,520)
$
27,716
At April 30, 2014 and 2013, the University had an outstanding student loans receivable balance in the
amount of $13.7 million and $12.9 million, respectively. Management does not believe it has significant
exposure to credit risk related to the federal student financial aid programs as these accounts receivable
amounts are back by the U.S. Government. Additionally, management has considered the credit and
market risk associated with all other outstanding balances and believes the recorded cost of these loans
approximates fair market value at April 30, 2014 and 2013.
10
American University
Notes to Financial Statements
April 30, 2014 and 2013
5. Contributions Receivable, Net
As of April 30, 2014 and 2013, unconditional promises to give were as follows (in thousands):
2014
Amounts due in:
Less than one year
One year to five years
Over five years
$
10,883
6,280
745
2013
$
17,908
(928)
(5,145)
Less unamortized discount
Less allowance for doubtful accounts
$
11,835
10,139
5,537
855
16,531
(1,026)
(4,656)
$
10,849
Contributions receivable over more than one year are discounted at rates ranging from 3.0% to 6.5%. New
contributions received during fiscal years 2014 and 2013 were assigned a discount rate which is
commensurate with the market and credit risk involved.
As of April 30, 2014 and 2013, the University had also received bequest intentions and conditional
promises to give of $24.5 million and $26.4 million, respectively. These intentions to give are not
recognized as assets. If the bequests are received, they will generally be restricted for specific purposes
stipulated by the donors, primarily endowments for faculty support, scholarships, or general operating
support of a particular department of the University. Conditional promises to give are recognized as
contributions when the donor-imposed conditions are substantially met.
6. Property, Plant, and Equipment, Net
Property, plant, and equipment and related accumulated depreciation and amortization at April 30, 2014
and 2013, are as follows (in thousands):
2014
Land and improvements
Buildings
Equipment
Construction in progress
Library and art collections
$
Less accumulated depreciation and amortization
$
56,779
687,751
118,821
28,454
106,816
2013
$
56,494
581,484
103,945
65,811
99,614
998,621
907,348
(417,883)
(387,968)
580,738
$
519,380
Construction in progress at April 30, 2014 and 2013 relates to building improvements and renovations.
Capitalized interest for the years ended April 30, 2014 and 2013 was $1.8 million and $1.9 million,
respectively.
For the years ended April 30, 2014 and 2013, depreciation expense was approximately $29.9 million and
$26.1 million, respectively.
11
American University
Notes to Financial Statements
April 30, 2014 and 2013
7. Fair Value Measurements
The University determines fair value in accordance with fair value measurement accounting standards.
These standards establish a framework for measuring fair value, a fair value hierarchy based on the
observability of inputs used to measure fair value, and disclosure requirements for fair value
measurements. Financial assets and liabilities are classified and disclosed in one of the following three
categories based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: Inputs other than Level 1, that are observable either directly or indirectly, such as quoted prices
for similar assets or liabilities, quoted prices in markets that are not active; or inputs that are observable or
can be corroborated by observable market data for substantially the same term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair
value of the assets or liabilities.
Assets and Liabilities Measured at Fair Value
The following table displays the carrying value and estimated fair value of the University’s financial
instruments as of April 30, 2014 (in thousands):
Quoted Prices
in Active
Markets for
(Level 1)
Assets
Investments
Cash and Cash Equivalents
$
Equity - Corporate Stocks
Equity - Domestic Funds
Equity - International Funds
Equity - Hedge Funds
Equity - Real Asset Funds
Equity - Private Equity Funds
Fixed Income - Corporate Bonds
Fixed Income - Government Agency Bonds
Fixed Income - International Bonds
Fixed Income - US Treasury Securities
Fixed Income - Domestic Bond Funds
Deposits with trustees
Interest in perpetual trust
Total assets at fair value
$
Liabilities
Swap agreements
$
$
Significant
Other
Observable
(Level 2)
9,100
95,809
12,023
1,377
118,309
$
$
171,599
190,648
78,688
27,778
26,028
10,606
23
205,650
711,020
-
$
$
50,436
50,436
12
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
as of
April 30, 2014
$
$
$
$
$
18,434
18,472
17,826
54,732
$
9,100
95,809
171,599
190,648
97,122
27,778
18,472
26,028
10,606
23
12,023
205,650
1,377
17,826
884,061
-
$
$
50,436
50,436
American University
Notes to Financial Statements
April 30, 2014 and 2013
The following table displays the carrying value and estimated fair value of the University’s financial
instruments as of April 30, 2013 (in thousands):
Quoted Prices
in Active
Markets for
(Level 1)
Assets
Investments
Cash and Cash Equivalents
$
Equity - Corporate Stocks
Equity - Domestic Funds
Equity - International Funds
Equity - Hedge Funds
Equity - Real Asset Funds
Equity - Private Equity Funds
Fixed Income - Corporate Bonds
Fixed Income - Government Agency Bonds
Fixed Income - International Bonds
Fixed Income - US Treasury Securities
Fixed Income - Domestic Bond Funds
Deposits with trustees
Interest in perpetual trust
Total assets at fair value
$
Liabilities
Swap agreements
$
$
Significant
Other
Observable
(Level 2)
8,512
80,708
6,917
1,414
97,551
$
$
125,978
150,418
83,559
20,320
14,301
9,909
2,344
232,599
639,428
-
$
$
70,876
70,876
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
as of
April 30, 2013
$
2,159
12,333
15,922
30,414
$
$
8,512
80,708
125,978
150,418
85,718
20,320
12,333
14,301
9,909
2,344
6,917
232,599
1,414
15,922
767,393
-
$
$
70,876
70,876
$
$
$
The University determines a valuation estimate based on techniques and processes which have been
reviewed for propriety and consistency with consideration given to asset type and investment strategy. In
addition, the funds and fund custodians may also use established procedures for determining the fair value
of securities which reflect their own assumptions. Management makes best estimates based on
information available. The following estimates and assumptions were used to determine the fair value of
the financial instruments listed above:
•
Cash Equivalents – Cash equivalents primarily consist of deposits in money market funds and shortterm investments. These are priced using quoted prices in active markets and are classified as Level 1.
•
Equity Investments – Equity investments consist of, but are not limited to separate accounts,
common trust funds and hedge funds. These assets consist of both publicly traded and privately held
funds.
o
Publicly traded securities – These investments consist of domestic and foreign equity
holdings. Securities traded on active exchanges are priced using unadjusted market quotes for
identical assets and are classified as Level 1. Securities that are traded infrequently or that have
comparable traded assets are priced using available quotes and other market data that are observable
and are classified as Level 2.
o
Privately held funds – These investments consist of domestic, international, hedge, real
asset, and private equity funds which are privately held. The valuations of the funds are calculated
by the investment managers based on valuation techniques that take into account the market value of
the underlying assets to arrive at a net asset value or interest in the fund shares. The funds are
13
American University
Notes to Financial Statements
April 30, 2014 and 2013
commingled funds and limited partnerships and shares may not be readily redeemable. If an active
market exists for the fund and shares are redeemable at net asset value, these investments are
classified as Level 2. If no active market exists for these investments and/or there are significant
redemption restrictions, they are classified Level 3. In the absence of readily determinable fair value,
fair value of each investment is determined based on a review of the audited financial statements of
the underlying funds, when available, and other information from independent third parties including
information provided by the fund managers. Investments in such funds do carry certain risks
including lack of regulatory oversight, interest rate risk and market risk.
•
Fixed Income Investments – Fixed income securities include, but are not limited to, U.S. Treasury
issues, U.S. Government Agency issues, corporate debt, and domestic and international bond funds. Fixed
income securities assets are valued using quoted prices in active markets for similar securities and are
classified as Level 2. If an active market exists for fixed income funds and shares are redeemable at net
asset value, these investments are classified as Level 2. If no active market exists for these investments
and/or there are significant redemption restrictions, they are classified Level 3.
•
Deposits with Trustees - Deposits with trustees consist of debt service funds and the unexpended
proceeds of certain bonds payable. These funds are invested in short term, highly liquid securities and will
be used for construction of, or payment of debt service on, certain facilities.
•
Interest in Perpetual Trust - Beneficial and perpetual trusts held by third parties are valued at the
present value of the future distributions expected to be received over the term of the agreement.
•
Swap Agreements - Interest rate swaps are valued using both observable and unobservable inputs,
such as quotations received from the counterparty, dealers or brokers, whenever available and considered
reliable. In instances where models are used, the value of the interest rate swap depends upon the
contractual terms of, and specific risks inherent in, the instrument as well as the availability and reliability
of observable inputs. Such inputs include market prices for reference securities, yield curves, credit
curves, measures of volatility, prepayment rates, assumptions for nonperformance risk, and correlations of
such inputs. Certain of the interest rate swap arrangements have inputs which can generally be
corroborated by market data and are therefore classified within Level 2.
The methods described above may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while the University believes its valuation
methods are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different
estimate of fair value at the reporting date.
14
American University
Notes to Financial Statements
April 30, 2014 and 2013
Changes in Level 3 Assets
The following table is a roll-forward of the statement of financial position amounts for financial
instruments classified by the University within Level 3 of the fair value hierarchy defined above for the
years ended April 30, 2014 and 2013 (in thousands):
Beginning Balance at May 1, 2013
Total gains or losses (realized/unrealized) included in earnings
Purchases, issuances, sales and settlements
Purchases
Issuances
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending Balance at April 30, 2014
Total gains or losses for the period included in
earnings attributable to the change in unrealized
gains or losses relating to assets still held at
period end
Beginning Balance at May 1, 2012
Total gains or losses (realized/unrealized) included in earnings
Purchases, issuances, sales and settlements
Purchases
Issuances
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending Balance at April 30, 2013
Total gains or losses for the period included in
earnings attributable to the change in unrealized
gains or losses relating to assets still held at
period end
Investments
Equity - Hedge
Funds
$
2,159
1,382
Investments
Equity - Private
Equity Funds
$
12,333
1,548
Interest in
Perpetual
Trust
$
15,922
1,904
10,000
4,893
18,434
6,432
(1,841)
18,472
$
17,826
$
16,432
(1,841)
4,893
54,732
1,548
$
1,904
$
4,834
$
Total
28,825
2,906
$
$
1,382
$
$
$
Total
30,414
4,834
Investments
Equity - Hedge
Funds
$
6,587
465
Investments
Equity - Private
Equity Funds
$
7,641
1,116
Interest in
Perpetual
Trust
$
14,597
1,325
(4,893)
2,159
4,851
(1,275)
12,333
$
15,922
$
4,851
(1,275)
(4,893)
30,414
1,116
$
1,325
$
2,906
$
$
465
$
$
Transfers into and out of Level 3 are typically the result of a change in the availability and the ability to
observe market data which is considered a significant valuation input required by various models.
Generally, as markets evolve, the data required to support valuations becomes more widely available and
observable.
There were no significant transfers between Levels 1 and 2 for the year ended April 30, 2014.
15
American University
Notes to Financial Statements
April 30, 2014 and 2013
Investments that Calculate Net Asset Value
Investments in certain entities that calculate net asset values at April 30, 2014 and 2013 are as follows (in
thousands):
Domestic Equity Funds
International Equity Funds
Domestic Bond Funds
Real Asset Funds
Hedge Funds
Private Equity Funds
Total
Domestic Equity Funds
International Equity Funds
Domestic Bond Funds
Real Asset Funds
Hedge Funds
Private Equity Funds
Total
Fair Value
Unfunded
Commitments
$
$
$
171,599
190,648
205,650
27,778
97,122
18,472
711,269
$
32,033
32,033
Fair Value
Unfunded
Commitments
$
$
$
125,978
150,418
232,599
20,320
85,718
12,333
627,366
$
28,002
28,002
April 30, 2014
Redemption
Frequency
Daily
Daily, Bi-weekly
Daily
Daily, Monthly
Monthly, Annually
N/A
April 30, 2013
Redemption
Frequency
Daily
Daily, Bi-weekly
Daily
Daily, Monthly
Monthly, Annually
N/A
Redemption
Notice Period
Same Day
Same Day - 5 days
Same Day
1 - 10 days
30 - 90 days
N/A
Redemption
Notice Period
Same Day
Same Day - 5 days
Same Day
1 - 10 days
30 - 90 days
N/A
Investments in debt securities and equity securities consist primarily of investments in funds managed by
external investment managers.
For the years ended April 30, 2014 and 2013, the University’s investment management fees were
approximately $1.3 million and $1.5 million, respectively.
16
American University
Notes to Financial Statements
April 30, 2014 and 2013
Investment Income
Total net investment income for the years ended April 30, 2014 and 2013 consist of the following (in
thousands):
Endowment income
Investment income
Realized and unrealized net capital gains
Total
Operating
Investment income
Endowment income
Allocated from non-operating
Non-Operating
Realized and unrealized net capital gains
Allocation to operations
Total
Endowment income
Investment income
Realized and unrealized net capital gains
Total
Operating
Investment income
Endowment income
Allocated from non-operating
Non-Operating
Realized and unrealized net capital gains
Allocation to operations
Total
Unrestricted
$
9,195
5,176
59,723
$
74,094
2014
Temporarily
restricted
$
5,327
176
13,175
$
18,678
$
$
$
5,176
593
8,602
68,325
(8,602)
74,094
$
176
2,168
3,159
16,334
(3,159)
18,678
Unrestricted
$
8,133
6,158
33,748
$
48,039
2013
Temporarily
restricted
$
4,869
176
11,930
$
16,975
$
$
$
6,158
1,367
6,766
40,514
(6,766)
48,039
17
$
176
2,291
2,578
14,508
(2,578)
16,975
Permanently
restricted
$
124
2,508
$
2,632
$
$
124
2,508
2,632
Permanently
restricted
$
117
1,555
$
1,672
$
$
117
1,555
1,672
Total
14,646
5,352
75,406
$
95,404
$
$
$
5,352
2,885
11,761
87,167
(11,761)
95,404
Total
13,119
6,334
47,233
$
66,686
$
$
$
6,334
3,775
9,344
56,577
(9,344)
66,686
American University
Notes to Financial Statements
April 30, 2014 and 2013
8. Notes Payable and Long-term Debt
The University classifies its notes payable and long-term debt into two categories: core debt and special
purpose debt. Core debt represents debt that will be repaid from the general operations of the University
and includes borrowings for educational and auxiliary purposes. Special purpose debt represents debt that
is repaid from sources outside of general operations and includes borrowings for buildings, which house
some administrative offices, along with rental space.
Notes payable and long-term debt at April 30, 2014 and 2013 consists of the following (in thousands):
2014
Core Debt
District of Columbia University Revenue Bonds, American University
Issue Series 1999 maturing in 2028
District of Columbia University Revenue Bonds, American University
Issue Series 2003 maturing 2033
District of Columbia University Revenue Bonds, American University
Issue Series 2006 maturing 2036
District of Columbia University Revenue Bonds, American University
Issue Series 2008 maturing 2038
Term Loan maturing in 2021
Taxable Commerical Paper Note Program
Total core debt
$
Special Purpose Debt
Note payable due in full in 2021
Note payable due in full in 2020
Mortgage payable due in full in 2018
Total special purpose debt
Total indebtedness
$
21,000
2013
$
21,000
37,000
37,000
99,975
99,975
60,900
75,000
65,000
358,875
60,900
75,000
30,000
323,875
22,000
15,000
22,801
59,801
22,000
15,000
23,055
60,055
418,676
$
383,930
The principal balance of notes payable and long-term debt outstanding as of April 30, 2014 is due as
follows (in thousands):
Year ending April 30:
2015
2016
2017
2018
2019
Thereafter
$
$
18
65,271
285
308
21,937
330,875
418,676
American University
Notes to Financial Statements
April 30, 2014 and 2013
Due to the nature of certain variable rate bond agreements, the University may receive notice of an
optional tender on its variable rate bonds. In that event, the University would have an obligation to
purchase the tendered bonds if they were unable to be remarketed. The University has entered into letter
of credit agreements with various financial institutions to support the $218.9 million of variable rate
demand obligations all of which expire in fiscal year 2016. Under these agreements, the financial
institutions have agreed to purchase the bonds if the bonds are unable to be remarketed. Should that occur,
payment would be accelerated and ultimately differ from the dates stated above. In accordance with the
terms of the agreements, $58.0 million would convert to a term loan with principal and interest payable
over three years and $161.0 million would be payable in fiscal year 2015.
The estimated fair value of the University's notes payable and long-term debt at April 30, 2014 and 2013
was $422.1 million and $383.9 million, respectively. Taxable Commercial Paper and the District of
Columbia revenue bonds were valued using fair market prices. The Term Loan and Special Purpose debt
were valued using the discounted cash flow method.
District of Columbia Bonds Payable
In October 2008, the University refunded and reissued the Series 1985 and Series 1985A bonds as Series
2008 variable rate demand bonds with interest payable weekly. These bonds are general unsecured
obligations of the University. The interest rate at April 30, 2014 was 0.09%.
The Series 1999 bonds are general unsecured obligations of the University and bear interest at a variable
rate, payable weekly. The proceeds from the bonds were used to repay a mortgage note prior to its
scheduled maturity. The interest rate at April 30, 2014 was 0.09%.
The Series 2003 bonds are general unsecured obligations of the University and bear interest at a variable
rate, payable weekly. The proceeds were used to fund construction and renovation of Katzen Arts Center
and Greenburg Theatre. The interest rate at April 30, 2014 was 0.12%.
The Series 2006 bonds are general unsecured obligations of the University and bear interest at a variable
rate, payable weekly. The proceeds were used to advance refund the Series 1996 bond issue, thus reducing
the University’s overall interest costs, and to fund construction and renovation projects including Nebraska
Hall and the School of International Service building. The interest rate at April 30, 2014 was 0.14%.
On June 7, 2012, the University replaced the letters of credit for the 2006 and 2008 bonds that were held as
of April 30, 2012 with new letters of credit from JP Morgan Chase. The letter of credit for the 2003 Bonds
and the standby bond purchase agreement supporting the 1999 Bonds were replaced with new letters of
credit from Wells Fargo on June 28, 2012 and August 15, 2012, respectively.
Term Loan
In 2011, the University entered into a $75 million term loan with JPMorgan Chase Bank, N.A. to fund its
facilities development projects. The term loan is due in full in June 2021 and has a fixed 4.19% interest
rate, payable monthly.
Taxable Commercial Paper Note Program
On December 15, 2011, the University established a $125.0 million taxable commercial paper note
program which will be used to fund long-term projects for a temporary period until long-term financing is
implemented. The notes can be issued for a maximum of 270 days and carry a floating taxable interest
rate.
19
American University
Notes to Financial Statements
April 30, 2014 and 2013
In 2014, the University issued $35.0 million in additional commercial paper notes. The average interest
rate on outstanding commercial paper at April 30, 2014 is 0.15%.
Notes Payable
In 2001, the University issued a $22.0 million note for the purchase of a building. The note is payable in
full in September 2021 and bears an interest rate of LIBOR plus 0.45%, payable monthly. The interest rate
at April 30, 2014 was 0.60175%.
In 2003, the University issued a $15.0 million note payable to replace a 1998 note incurred for the
purchase of a building. The note is payable in full in April 2020 and bears an interest rate of LIBOR plus
0.45%, payable monthly. The interest rate at April 30, 2014 was 0.60175%.
Mortgage Payable
In 2012, the LLC purchased an office building to house its public radio station, WAMU - 88.5 FM, and
other administrative offices. The University, as the sole owner of the LLC, assumed the existing mortgage
on the property of $23.2 million, which is payable in full in August 2017. The interest rate on April 30,
2014 was 6.37%.
9. Interest Rate Swaps
The University has entered into interest rate swap agreements to reduce the impact of changes in interest
rates on its floating rate long term debt. The interest rate swap agreements were not entered into for trading
or speculative purposes. At April 30, 2014, the University had outstanding interest rate swap agreements
with Bank of America and Morgan Stanley Capital Services. The interest rate swap agreement with Bank
of America has a total notional principal amount of approximately $61 million. This agreement effectively
changes the interest rate to a 4.31% fixed rate for the Series 2008 bonds. Four interest rate swap
agreements are in place with Morgan Stanley with a total notional principal amount of approximately $134
million. These agreements effectively change the University’s interest rate to a 4.12% fixed rate for the
Series 1999 bonds, fixed rates of 5.26% and 4.37% on portions of the Series 2006 bonds, and a fixed rate
of 4.46% on a portion of the Series 2003 bonds. The interest rate swap agreements mature at the time the
related notes mature.
The interest rate swap agreements contain provisions that require the University's debt to maintain an
investment grade credit rating from each of the major credit rating agencies. If the University's debt were
to fall below investment grade, it would be in violation of these provisions, and the counterparties to the
derivative instruments could request immediate payment or demand immediate and ongoing full overnight
collateralization on derivative instruments in net liability positions. The University is currently in
compliance with these provisions.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in
a liability position on April 30, 2014 is $50.0 million, for which the University has posted collateral of
$14.0 million in the normal course of business. If the credit-risk-related contingent features underlying
these agreements were triggered on April 30, 2014, the University would be required to post an additional
$36.0 million of collateral to its counterparties. The University is also exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements. However, the University does
not anticipate nonperformance by the counter parties.
20
American University
Notes to Financial Statements
April 30, 2014 and 2013
Derivatives at April 30, 2014 and 2013 are as follows (in thousands):
Liability Derivatives
2014
Balance Sheet
Fair
Location
Value
2013
Balance Sheet
Location
Fair
Value
Derivatives not designated as hedging instruments:
Interest rate contracts
Swap
Agreements
$
Swap
Agreements
50,436
$
70,876
Amount of Gain (Loss) Recognized in
Statement of Activities
2014
2013
Location of Gain (Loss) Recognized in Statement of Activities
Derivatives not designated as hedging instruments:
Interest rate contracts
Realized and unrealized net
capital gains
$
20,440
$
(2,959)
10. Endowments
The University’s endowment consists of approximately 450 individual funds established for scholarships
and related academic activities. Its endowment includes both donor-restricted endowment funds and funds
designated by the Board of Trustees to function as endowments. As required by generally accepted
accounting principles, net assets associated with endowment funds, including funds designated by the
Board of Trustees to function as endowments, are classified and reported based on the existence or absence
of donor-imposed restrictions.
Permanently Restricted Net Assets – Interpretation of Relevant Law
The Board of Trustees has interpreted the District of Columbia enacted version of Uniform Prudent
Management of Institutional Funds Act (UPMIFA) as requiring 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. As a result of this interpretation, the University classifies as permanently restricted net
assets (a) the original value of gifts 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 not classified in permanently restricted net
assets is classified as temporarily restricted net assets until purpose and timing restrictions are met and
amounts are appropriated for expenditure by the Board of Trustees of the University in a manner consistent
with the standard of prudence prescribed by UPMIFA.
21
American University
Notes to Financial Statements
April 30, 2014 and 2013
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
The endowment net assets composition by type of fund at April 30, 2014 is as follows (in thousands):
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Donor-restricted endowment funds
Board-designated endowment funds
$
370,606
$
85,446
-
$
90,078
-
$
175,524
370,606
Total endowment funds
$
370,606
$
85,446
$
90,078
$
546,130
22
Total
American University
Notes to Financial Statements
April 30, 2014 and 2013
The changes in endowment net assets for the year ended April 30, 2014 is as follows (in thousands):
Unrestricted
Endowment net assets, May 1, 2013
$
Investment return:
Net depreciation on investments
Interest, dividends, and capital distributions
Total investment return
327,562
72,271
$
85,099
Total
$
484,932
16,277
2,425
18,702
2,557
2,557
58,380
3,007
61,387
-
-
2,422
2,422
-
(14,698)
-
12,087
Appropriation of endowment assets for
expenditure
(9,171)
Other changes:
Transfers to create board-designated
endowment funds
12,087
$
$
Permanently
Restricted
39,546
582
40,128
Contributions to endowment
Endowment net assets, April 30, 2014
Temporarily
Restricted
370,606
(5,527)
$
85,446
$
90,078
$
546,130
The endowment net assets composition by type of fund at April 30, 2013 is as follows (in thousands):
Unrestricted
Temporarily
Restricted
Permanently
Restricted
Donor-restricted endowment funds
Board-designated endowment funds
$
(20)
327,582
$
72,271
-
$
85,099
-
$
157,350
327,582
Total endowment funds
$
327,562
$
72,271
$
85,099
$
484,932
23
Total
American University
Notes to Financial Statements
April 30, 2014 and 2013
The changes in endowment net assets for the year ended April 30, 2013 is as follows (in thousands):
Unrestricted
Endowment net assets, May 1, 2012
$
Investment return:
Net appreciation on investments
Interest, dividends, and capital distributions
Total investment return
283,070
$
60,529
$
80,006
Total
$
423,605
14,273
2,536
16,809
1,322
1,322
51,904
3,893
55,797
-
-
3,771
3,771
-
(13,178)
(8,111)
Other changes:
Transfers to create board-designated
endowment funds
Transfers to remove board-designated
endowment funds
Endowment net assets, April 30, 2013
$
Permanently
Restricted
36,309
1,357
37,666
Contributions to endowment
Appropriation of endowment assets for
expenditure
Temporarily
Restricted
(5,067)
15,950
-
-
15,950
(1,013)
-
-
(1,013)
327,562
$
72,271
$
85,099
$
484,932
Funds with Deficiencies
From time to time, the fair value of the assets associated with individual restricted endowments may fall
below the level the donor or UPMIFA requires the University to retain as a fund of perpetual duration. In
accordance with generally accepted accounting principles, deficiencies of this nature reported in
unrestricted net assets were $20,000 at April 30, 2013. The deficiency resulted from market fluctuations
that occurred shortly after the investment of new permanently restricted contributions and continued
appropriation for certain programs deemed prudent by the Board of Trustees. There were no deficient
funds as of April 30, 2014.
Return Objectives, Risk Parameters, and Strategies
The University’s objective is to earn a predictable, long-term, risk-adjusted total rate of return to support
the designated programs. The University recognizes and accepts that pursuing such a rate of return
involves risk and potential volatility. The generation of current income will be a secondary consideration.
The University has established a policy portfolio, or normal asset allocation. The University targets a
diversified asset allocation that places a greater emphasis on equity-based investments to achieve its longterm return objectives within prudent risk constraints. While the policy portfolio can be adjusted from
time to time, it is designed to serve for long-time horizons based upon long-term expected returns.
Spending Policy and How the Investment Objectives Relate to Spending Policy
The University has a policy of appropriating for distribution each year, 5% of the endowment fund's
average fair value calculated on an annual basis over the preceding three fiscal years. In establishing this
policy, the University considered the long-term expected return on its endowment. Accordingly, over the
long term, the University expects the current spending policy to allow its endowment to grow at an average
of 3% annually. This is consistent with the University’s objective to provide additional real growth
through new gifts and investment return.
24
American University
Notes to Financial Statements
April 30, 2014 and 2013
11. Employee Benefit Plans
Eligible employees of the University may participate in two contributory pension and retirement plans, one
administered by the Teachers Insurance and Annuity Association and College Retirement Equities Fund
and the other administered by Fidelity Investments. Under these plans, contributions are fully vested and
are transferable by the employees to other covered employer plans. Participating employees contribute a
minimum of 1% up to a maximum of 5% of their base salary. The University contributes an amount equal
to twice the employee’s contribution.
The University’s contribution to these plans was approximately $15.5 million and $15.0 million for the
years ended April 30, 2014 and 2013, respectively.
Postretirement Healthcare Plan
The University provides certain healthcare benefits for retired employees. The plan is contributory and
requires payment of deductibles. The University’s policy is to fund the cost of medical benefits on the
pay-as-you-go basis. The plan’s measurement dates are April 30, 2014 and April 30, 2013, respectively.
Net periodic postretirement benefit cost for the years ended April 30, 2014 and 2013 includes the
following components (in thousands):
2014
2013
Service cost
Interest cost
Amortization of transition obligation over 20 years
Amortization of net loss
$
1,041
873
303
$
939
969
503
332
Net periodic postretirement benefit cost
$
2,217
$
2,743
25
American University
Notes to Financial Statements
April 30, 2014 and 2013
The following table sets forth the postretirement benefit plan’s funded status and the amount of
accumulated postretirement benefit plan costs for the years ended April 30, 2014 and 2013 using a
measurement date of April 30 (in thousands):
2014
2013
Change in Accumulated Postretirement Benefit Obligation:
Accumulated postretirement benefit obligation at beginning of year
Service Cost
Interest Cost
Net actuarial (gain)/loss
Plan participants' contributions
Benefits paid
Accumulated postretirement benefit obligation at end of year
$
$
25,599
1,041
873
(1,149)
552
(1,812)
25,104
$
$
24,869
939
969
(19)
518
(1,677)
25,599
Change in Fair Value of Plan Assets:
Fair value of plan assets at beginning of year
Plan participants' contributions
Employer contributions
Benefits paid
Fair value of plan assets at end of year
$
$
552
1,260
(1,812)
-
$
$
518
1,159
(1,677)
-
$
(25,104)
(25,104)
$
(25,599)
(25,599)
Reconciliation of Funded Status:
Funded status
Postretirement benefit liability
The following table sets forth the amounts not recognized in the net periodic benefit cost for the years
ended April 30, 2014 and 2013 (in thousands):
2014
2013
Amounts not Recognized in Net Periodic Benefit Cost:
Net actuarial loss
Transition obligation
Amounts included in unrestricted net assets
$
5,645
5,645
$
$
$
7,097
7,097
The amounts expected to be amortized from unrestricted net assets into net periodic benefit cost for the
year ended April 30, 2015 are as follows (in thousands):
Actuarial gain
Amortization of transition obligation
Total Other Changes in Benefit Obligations Recognized in
Unrestricted Net Assets
26
$
206
-
$
206
American University
Notes to Financial Statements
April 30, 2014 and 2013
Other changes in benefit obligations recognized in unrestricted net assets are as follows (in thousands):
Net actuarial loss
Transition obligation
Total
$
303
303
$
The weighted discount rate used in the actuarial valuation at the April 30, 2014 and April 30, 2013
measurement dates is as follows:
2014
2013
End of year benefit obligation
4.00%
3.50%
Net periodic postretirement benefit cost
3.50%
4.00%
An 7% healthcare cost trend rate was assumed for fiscal year 2014, with the rate in the following fiscal
years assumed to be 6.5%, 6.0%, 5.5%, 5.2% and 5.1% until reaching an ultimate rate of 5% in fiscal year
2020, and thereafter. An increase in the assumed healthcare cost trend rate of 1% would increase the
aggregate of the service and interest cost by approximately $242,000 and $225,000 for 2014 and 2013,
respectively and the accumulated postretirement benefit obligation at April 30, 2014 and 2013, by
approximately $1,561,000 and $1,547,000, respectively. A decrease in the assumed healthcare cost trend
rate of 1% would decrease the net periodic postretirement benefit cost by approximately $200,000 and
$188,000 for 2014 and 2013, respectively, and the accumulated postretirement benefit obligations at April
30, 2014 and 2013 by approximately $1,335,000 and $1,328,000, respectively.
The expected contributions by the University to the plan are as follows:
Year ending April 30
2015
2016
2017
2018
2019
2020-2024
Payment with
Medicare
Part D
Subsidy
$
1,265,385
1,379,769
1,442,555
1,487,588
1,519,362
9,134,063
27
Payment without
Medicare
Part D
Subsidy
$
1,390,497
1,530,042
1,606,443
1,664,323
1,705,646
9,134,063
Medicare
Part D
Subsidy
Receipts
$
125,112
150,273
163,888
176,735
186,284
-
American University
Notes to Financial Statements
April 30, 2014 and 2013
12. Expenses
For the years ended April 30, 2014 and 2013, the University’s program services and supporting services
were as follows (in thousands):
2014
Program services
Instruction
Research
Public service
Academic support
Student services
$
Total program services
Supporting services
Institutional support
Auxiliary enterprises
$
151,689
49,907
24,181
61,982
42,186
2013
$
147,811
49,295
20,803
60,202
40,440
329,945
318,551
89,164
55,924
83,284
62,150
475,033
$
463,985
For the years ended April 30, 2014 and 2013, the University’s fundraising expenses totaled approximately
$18.1 million and $16.9 million, respectively. The expenses are included in institutional support in the
accompanying statements of activities.
13. Net Assets
Temporarily restricted net assets consist of the following at April 30, 2014 and 2013 (in thousands):
2014
Unspent contributions and related investment income
for instruction and faculty support
Gifts received for construction of facilities
$
$
97,009
6,047
103,056
2013
$
$
84,180
7,723
91,903
Permanently restricted net assets were held, the income of which will benefit the following at April 30,
2014 and 2013 (in thousands):
2014
Permanent endowment funds, for scholarships
and related academic activity
Interest in trust assets
Student loans
$
$
28
74,795
17,827
6,585
99,207
2013
$
$
73,158
15,922
6,176
95,256
American University
Notes to Financial Statements
April 30, 2014 and 2013
14. Operating Lease
The University leases office space and buildings used for student housing with terms ranging from three to
ten years. The leases for student housing will expire at various times throughout 2014 and 2015. The
office space lease does not expire until 2018. Minimum lease payments under these agreements are as
follows (in thousands):
Year ending April 30:
2015
2016
2017
2018
2019
Thereafter
$
$
1,411
519
249
168
2,347
Rent expense in 2014 and 2013 was approximately $4.9 million and $6.0 million, respectively.
15. Commitments and Contingencies
At April 30, 2014 and 2013, commitments of the University under contracts for construction of plant
facilities amounted to approximately $97.0 million and $47.4 million, respectively. Subsequent to April
30, 2014, the University entered into commitments with various investment fund managers totaling $7.0
million.
Amounts received and expended by the University under various federal programs are subject to audit by
governmental agencies. In the opinion of the University’s administration, audit adjustments, if any, will
not have a significant effect on the financial position, changes in net assets, or cash flows of the
University.
The University is a party to various litigations, arising out of the normal conduct of its operations. In the
opinion of the University’s administration, the ultimate resolution of these matters will not have a
materially adverse effect on the University’s financial position, changes in net assets or cash flows.
16. Related Parties
Members of the University's Board of Trustees and their related entities contributed approximately $1.3
million and $3.6 million during the years ended April 30, 2014 and 2013, respectively, which is included
in contribution revenue in the accompanying statements of operations. Also for the years ended April 30,
2014 and 2013, approximately $4.7 million and $5.2 million, respectively, were included in contribution
receivable in the accompanying balance sheets.
17. Subsequent Events
The University has performed an evaluation of subsequent events through August 29, 2014 which is the
date the financial statements were issued. Nothing was noted which affect the financial statements as of
April 30, 2014.
29
American University
Schedule of Expenditures of Federal Awards
For the year ended April 30, 2014
Federal
CFDA
Number
STUDENT FINANCIAL AID CLUSTER
Federal Supplemental Educational Opportunity Grants
Federal Work Study Program
Federal Perkins Loan Program
Federal Pell Grant Program
Federal Direct and Direct PLUS Student Loans
Teacher Education Assistance for College and Higher
Education Grants - TEACH
TOTAL STUDENT FINANCIAL AID CLUSTER
RESEARCH AND DEVELOPMENT CLUSTER - DIRECT
Food Assistance and Nutrition Research Programs (FANRP)
Measurement and Engineering Research and Standards
Air Force Defense Research Sciences Program
Mathematical Sciences Grants program
Cooperative Research and Training Programs - Resources of
the National Park System
National Institute of Justice Research, Evaluation, and
Development Project Grants
Special Data Collections and Statistical Studies
Office of Global Women's Issues
Aeronautics
Science - Aerospace Education Services Program
Mathematical & Physical Science
Documenting Bleaching Suscept
Social, Behavioral, and Economic Sciences
CFDA#47.076
Education and Human Resources
Education and Human Resources
Subtotal CFDA #47.076
84.007
84.033
84.038
84.063
84.268
84.379
Department
of Education
$
$
10.253
11.609
12.800
12.901
364,060 $
1,410,157
1,645,853
5,211,107
150,898,748
51,496
159,581,421 $
National
Science
Foundation
Department
of Health and
Human
Services
Department
of State
Department
of Justice
National
Aeronautics
and Space
Administration
Other
Federal
Agencies
Total
Federal
Expenditures
-
$
-
$
-
$
-
$
-
$
-
$
364,060
1,410,157
1,645,853
5,211,107
150,898,748
51,496
-
$
-
$
-
$
-
$
-
$
-
$
159,581,421
-
-
-
-
15.945
16.560
-
-
-
-
162,271
16.734
19.801
43.002
43.008
47.049
47.05
47.075
-
146,352
12,372
222,291
-
59,369
-
50,571
-
47.076
47.076
-
366,277
11,500
377,777
-
-
-
See accompanying notes to this schedule
30
-
-
41,571
149,801
41,845
990
44,850
41,571
149,801
41,845
990
44,850
-
162,271
-
-
50,571
59,369
231,298
568,849
146,352
12,372
222,291
-
-
366,277
11,500
377,777
231,298
568,849
-
American University
Schedule of Expenditures of Federal Awards
For the year ended April 30, 2014
Promotion for the Humanities_Research
Office of Cyberinfrastructure
Trans-NSF Recovery Act Reasearch Support
Annual Grant Competition
Environmental Health
Alcohol Research Programs
Drug Abuse and Addiction Research Programs
Cancer Cause & Prevention Research
Extramural Research Programs in the Neurosciences &
Neurological Disorders
Child Health and Human Development Extramural Research
Immigrant Victims of Domestic Violence, Human Trafficking &
Sexual Assault
TOTAL RESEARCH AND DEVELOPMENT CLUSTER DIRECT
45.161
47.080
47.082
91.001
93.113
93.273
93.279
93.393
-
93.853
93.865
SJI-12-E-169
-
TOTAL RESEARCH AND DEVELOPMENT CLUSTER
-
-
Federal
CFDA
Number
RESEARCH AND DEVELOPMENT CLUSTER - PASS
THROUGH AWARDS AND PASS THROUGH NUMBERS
Child Nutrition Discretionary Grants Limited Availability
Basic Scientific Research (Z847302)
Air Force Defense Research Sciences Program
Fish and Wildlife Coordination and Assistance Programs
Assistance to State Water Resources Research Institutes
National Institute of Justice Research, Evaluation, and
Development Project Grants
Chesapeake Bay Program
Mental Health Research Grants
Centers for Disease Control and Prevention_Investigations
and Technical Assistance
Allergy, Immunology and Transplantation Research
USAID Foreign Assistance for Programs Overseas
TOTAL RESEARCH AND DEVELOPMENT CLUSTER PASS THROUGH AWARDS AND PASS THROUGH
NUMBERS
73,910
137,885
-
10.579
12.431
12.800
15.664
15.805
970,587
Department
of Education
$
16.560
66.466
93.242
93.283
93.855
98.001
$
-
-
-
-
-
39,071
56,950
-
39,071
73,910
137,885
56,950
62,948
392,245
909,347
146,148
216,621
307,689
-
-
-
-
22,298
307,689
22,298
397,376
4,475,319
2,034,998
National
Science
Foundation
$
62,948
392,245
909,347
146,148
216,621
59,369
Department
of Health and
Human
Services
$
-
212,842
Department
of State
$
-
Department
of Justice
$
800,147
National
Aeronautics
and Space
Administration
$
5,392
-
Other
Federal
Agencies
$
Total
Federal
Expenditures
57,834 $
144,062
10,726
15,935
19,091
-
57,834
144,062
10,726
15,935
19,091
5,392
-
-
152,041
11,701
-
-
-
17,321
-
17,321
152,041
11,701
-
-
8,338
172,080
-
5,392
-
27,176
292,145
8,338
27,176
469,617
-
$
970,587
$
2,207,078
$
See accompanying notes to this schedule
31
59,369
$
218,234
$
800,147
$
689,521
$
4,944,936
American University
Schedule of Expenditures of Federal Awards
For the year ended April 30, 2014
Federal
CFDA
Number
Department
of Education
National
Science
Foundation
10.025
16.526
-
-
-
-
55,115
-
65,400
-
CFDA#16.585
Drug Court Discretionary Grant Program
Drug Court Discretionary Grant Program
Subtotal CFDA #16.580
16.585
16.585
-
-
-
-
31,550
1,370,127
1,401,677
-
-
31,550
1,370,127
1,401,677
CFDA#16.585
Public Safety Partnership and Community Policing Grants
Public Safety Partnership and Community Policing Grants
Subtotal CFDA #16.580
16.710
16.710
-
-
-
-
35,386
255,032
290,418
-
-
35,386
255,032
290,418
16.751
19.030
19.124
21.008
85.300
-
-
-
71,368
30,595
-
84,862
-
-
97,080
95,464
84,862
71,368
30,595
97,080
95,464
218,958
218,958 $
-
OTHER DIRECT AWARDS
Plant and Animal Disease Pest Control and Animal Care
OVW Technical Assistance Initiative
Edward Byrne Memorial Competitive Grant Program
Antiterrorism Assistance Domestic Training Programs
East Asia and Pacific Grants Program
Low Income Taxpayer Clinics
Woodrow Wilson Center Fellowship in the Humanities and
Social Sciences
Transiton to Teaching
TOTAL OTHER DIRECT AWARDS
84.350
$
Department
of Health and
Human
Services
$
-
Department
of State
$
See accompanying notes to this schedule
32
101,963
Department
of Justice
$
1,832,072
National
Aeronautics
and Space
Administration
$
-
Other
Federal
Agencies
$
Total
Federal
Expenditures
257,944
65,400
55,115
$
218,958
2,410,937
American University
Schedule of Expenditures of Federal Awards
For the year ended April 30, 2014
Federal
CFDA
Number
OTHER PASS THROUGH FEDERAL FINANCIAL
ASSISTANCE
CFDA#19.010
Academic Exchange Programs - Hubert H. Humphrey
Fellowship Program
Academic Exchange Programs - Hubert H. Humphrey
Fellowship Program
Subtotal CFDA #19.010
CFDA#19.011
Academic Exchange Programs - Special Academic Exchange
Programs
OVW Technical Assistance Initiative
Protecting Inmates and Safeguarding Communities
Discretionary Grant Program (PRC-002)
Edward Byrne Memorial Competitive Grant Program
Promotion of the Humanities Public Programs
Public Education for Peace Building Awards Program
Jumpstart for Young Children Partnership Program
Program Development and Innovation Grans
USAID Development Partnerships for University Cooperation
and Development
TOTAL OTHER PASS THROUGH FEDERAL FINANCIAL
ASSISTANCE
TOTAL FEDERAL AWARDS
19.010
Department
of Education
$
19.010
-
National
Science
Foundation
$
-
Department
of Health and
Human
Services
$
-
Department
of State
$
Department
of Justice
242,108 $
-
National
Aeronautics
and Space
Administration
$
-
Other
Federal
Agencies
$
Total
Federal
Expenditures
-
$
242,108
-
-
-
1,661
-
-
-
1,661
-
-
-
243,769
-
-
-
243,769
19.011
-
-
-
225
-
-
-
225
16.526
16.735
-
-
-
-
311,864
602,503
-
-
311,864
602,503
16.751
45.164
91.004
94.006
94.007
98.012
-
-
-
2,000
-
29,739
-
-
2,580
111,002
1,500
330,165
29,739
2,580
2,000
111,002
1,500
330,165
-
-
-
245,994
944,106
-
445,247
1,635,347
$
159,800,379
$
970,587
$
2,207,078
$
See accompanying notes to this schedule
33
407,326
$
2,994,412
$
800,147
$
1,392,712
$
168,572,641
American University
Summary Schedule of Prior Audit Findings and Questioned Costs
For the year ended April 30, 2014
1) Basis of Presentation
The accompanying Schedule of Expenditures of Federal Awards (the Schedule) summarizes the
expenditures of American University (the University) under programs of the federal government for the
year ended April 30, 2014. Because the Schedule presents only a portion of the operations of the University,
it is not intended to and does not present the financial position and changes in net assets of the University.
For purposes of the Schedule, federal awards include all grants and contracts entered into directly between
the University and agencies and departments of the federal government and all sub-awards to the University
by nonfederal organizations pursuant to federal grants, contracts, and similar agreements. Expenditures
through Other Federal Agencies consist of the following:
Federal
CFDA
Number
Description of Agency
Research and Development Cluster:
Department of Agriculture
10.253
10.579
Department of Commerce
Department of Defense
Total
$
11.609
12.431
12.800
12.901
15.664
15.805
15.945
45.161
66.466
91.001
98.001
SJI-12-E-169
Department of Interior
National Endowment for the Humanities
Environmental Protection Agency
United States Institute of Peace
Agency for International Development
State Justice Institute
Subtotal Research and Development Cluster
Other Programs:
Department of Agriculture
Department of Treasury
National Endowment for the Humanities
Woodrow Wilson International Center for Scholars
Corporation for National and Community Service
Corporation of National and Community Service
Agency for International Development
Subtotal Other Programs
Total Expenditures from Other Agencies
149,801
144,062
52,571
990
15,935
19,091
44,850
39,071
17,321
56,950
27,176
22,298
689,521
10.025
21.008
45.164
85.300
94.006
94.007
98.012
$
34
41,571
57,834
65,400
97,080
2,580
95,464
111,002
1,500
330,165
703,191
1,392,712
American University
Summary Schedule of Prior Audit Findings and Questioned Costs
For the year ended April 30, 2014
2) Summary of Significant Accounting Policies for Federal Award Expenditures
Expenditures for the federal programs are recognized as incurred. Expenditures for student financial aid
include Pell program grants to students, the federal share of students’ FSEOG program grants and FWS
program earnings, loan disbursements to students, and administrative cost allowances, where applicable.
Expenditures for other federal awards are determined using the cost accounting principles and procedures
set forth in OMB Circular A-21, Cost Principles for Educational Institutions. Under these cost principles,
certain types of expenditures are not allowable or are limited as to reimbursement. Direct costs are
recognized as incurred using the accrual method of accounting.
Expenditures for non-financial aid awards include indirect costs, relating primarily to facilities operation
and maintenance and general administration services, which are allocated to direct cost objectives
(including federal award programs) based on negotiated formulas commonly referred to as indirect cost
rates. Indirect costs allocated to such awards for the year ended April 30, 2014 were based on predetermined
rates negotiated with the University’s cognizant federal agency, the Department of Human Services.
Indirect costs and recoveries of those costs under sponsored programs are classified as unrestricted revenues
and expenses in the University’s basic financial statements.
3) Federal Student Loan Programs
The Federal Perkins Loan Program (Perkins) is administered directly by the University and the balance and
transactions relating to this program are included in the University’s basic financial statements. Information
regarding this program for the year ended April 30, 2014, is summarized below:
Campus-Based Loan Programs:
Federal Perkins (CFDA No. 84.038)
FY 2014
Loans Issued
Outstanding at
April 30, 2014
$
1,646,000
$
11,714,000
$
1,646,000
$
11,714,000
The amount of Perkins loan principal cancelled for the year ended April 30, 2014 under CFDA 84.037 is
$32,447.
The University is responsible only for the performance of certain administrative duties with respect to
federal direct loans disbursed by the Department of Education on behalf of University students under the
direct loan programs (Federal Stafford, Federal Parents Loans for Undergraduate and Graduate Students,
and Unsubsidized Federal Stafford Loans). These loan programs collectively are CFDA # 84.268. It is not
practical to determine the balance of loans outstanding to students and former students of the University
under these federally guaranteed loan programs at April 30, 2014.
35
American University
Summary Schedule of Prior Audit Findings and Questioned Costs
For the year ended April 30, 2014
4) Subrecipients
Of the federal expenditures presented in the Schedules, the University provided federal awards to
subrecipients as follows:
CFDA Number
Various
Federal Program Name
Research and Development Cluster
Total Subrecipient Federal Awards
36
Total
$
1,374,996
$
1,374,996
Independent Auditor’s 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
To the Board of Trustees of American University:
We have audited, in accordance with the 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
American University and its subsidiaries (the University), which comprise the consolidated balance
sheets as of April 30, 2014, and the related consolidated statements of activities and cash flows for the
year then ended, and the related notes to the financial statements, and have issued our report thereon
dated August 29, 2014.
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.
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. 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.
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. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material
weaknesses may exist that have not been identified. We did identify certain deficiencies in internal
control, described in the accompanying schedule of findings and questioned costs as finding number
2014-001 that we consider to be a significant deficiency.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the University's financial statements are free
from 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 financial statement amounts. However, providing an opinion on
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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.
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.
August 29, 2014
38
Independent Auditor's Report on Compliance with Requirements
That Could Have a Direct and Material Effect on Each Major Program and on Internal
Control Over Compliance in Accordance with OMB Circular A-133
To the Board of Trustees of American University:
Report on Compliance for Each Major Federal Program
We have audited American University's (the University) compliance with the types of compliance
requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct
and material effect on each of the University's major federal programs for the year ended April 30, 2014.
The University’s major federal 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 its federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of the University's major federal
programs based on our audit of the types of compliance requirements referred to above. We did not
audit the University's compliance with the requirements governing maintaining contact with and billing
borrowers and processing deferment and cancellation requests and loan payments specified by the
Federal Perkins Loan Program and described in the OMB Circular A-133 Compliance Supplement.
Compliance with these requirements was audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the University's compliance with those requirements, is based
solely on the report of the other auditors. 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; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations. Those standards and OMB Circular A-133 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 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.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major
federal program. However, our audit does not provide a legal determination of the University's
compliance.
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Opinion on Each Major Federal Program
In our opinion, based on our audit and the report of other auditors, 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 each of its major federal programs for the year ended April 30, 2014.
Other Matters
The results of our auditing procedures disclosed instances of noncompliance, which are required to be
reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule
of findings and questioned costs as items 2014-001. Our opinion on each major federal program is not
modified with respect to these matters.
The University's response to the noncompliance finding identified in our audit is described in the
accompanying schedule of findings and questioned costs and corrective action plan. The University's
response was not subjected to the auditing procedures applied in the audit of compliance and,
accordingly, we express no opinion on the response.
Report on Internal Control Over Compliance
Management of the University is responsible for establishing and maintaining effective internal control
over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal
programs. In planning and performing our audit, except as noted in the following paragraph, we
considered the University’s internal control over compliance with the requirements that could have a
direct and material effect on a major federal program in order to determine our auditing procedures for
the purpose of expressing our opinion on compliance and to test and report on internal control over
compliance in accordance with OMB Circular A-133, 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 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
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 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 and the other auditors' 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
40
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, material weaknesses may exist that have not been identified.
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. Accordingly, this report is not suitable for any other purpose.
January 27, 2015
41
American University
Schedule of Findings and Questioned Costs
For the year ended April 30, 2014
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?
 Significant deficiency(ies) identified that are not
considered to be material weaknesses?
 Non-compliance material to financial statements
noted?
_____ yes
__X__ yes
__X__ no
_____ none noted
_____ yes
__X__ no
Federal Awards
Internal control over major programs:
 Material weakness(es) identified?
 Significant deficiency(ies) identified that are not
considered to be material weaknesses?
_____ yes
_____ yes
__X__ no
__X__ none reported
Type of auditor’s report issued on compliance for major programs: unqualified
Any audit findings disclosed that are required to be
reported in accordance with section 510(a) of OMB
Circular A-133?
_X _ yes
____ no
Identification of major programs
CFDA Number(s):
Name of Federal Program or Cluster
Various
Student Financial Aid Cluster
16.526
OVW Technical Assistance Initiative
93.273
Alcohol Research Programs
98.012
USAID Development Partnerships for
University Cooperation and Development
Dollar threshold used to distinguish between type A
and type B programs:
Auditee qualified as low-risk auditee?
$300,000
42
__X__ yes
____ no
American University
Schedule of Findings and Questioned Costs
For the year ended April 30, 2014
Section II – Financial Statement Findings
Finding 2014-001: PROCUREMENT AND SUSPENSION AND DEBARMENT
Criteria
When a non-federal entity enters into a covered transaction with an entity at a lower tier, the non-federal
entity must verify that the entity, as defined in 2 CFR section 180.995 and agency adopting regulations,
is not suspended or debarred or otherwise excluded from participating in the transaction. This verification
may be accomplished by (1) checking the Excluded Parties List System (EPLS) maintained by the
General Services Administration (GSA) and available at https://www.sam.gov/portal/public/SAM/
(note: EPLS is no longer a separate system; however, the OMB guidance and agency implementing
regulations still refer to it as EPLS), (2) collecting a certification from the entity, or (3) adding a clause
or condition to the covered transaction with that entity (2 CFR section 180.300).
Condition
OVW Technical Assistance Initiative
PwC selected a sample of 6 vendors. The total number of vendors for OVW Technical Assistance
Initiative Grant program during the current fiscal year was 57. We noted the following with regards to
the sample selected for testing:

5 of 6 samples selected for testing did not have evidence of a search for debarment or a vendor
contract with a debarment clause.
Alcohol Research Programs
PwC selected a sample of 2 vendors. Total number of vendors for Alcohol Research Programs Grant
program during the current fiscal year was 9. We noted the following with regards to the sample selected
for testing:

2 of 2 samples selected for testing did not have evidence of a search for debarment or a vendor
contract with a debarment clause.
USAID Development Partnerships for University Cooperation and Development
PwC selected a sample of 3 vendors. Total number of vendors for USAID Development Partnerships for
University Cooperation and Development Grant program during the current fiscal year was 5. We noted
the following with regards to the sample selected for testing:

3 of 5 samples selected for testing did not have evidence of a search for debarment or a vendor
contract with a debarment clause.
Questioned Costs
There are no questioned costs associated with this finding as no vendors were found to be debarred upon
the engagement team’s independent search of the Excluded Parties List System (EPLS).
43
American University
Schedule of Findings and Questioned Costs
For the year ended April 30, 2014
Cause
Management does not have a policy which states that a search must be performed for suspension or
debarment of vendors or other recipients of federal award money. For some vendor contracts specifically
related to performance on federal awards, a debarment clause is included in the contract. The contractor
must sign they are not currently, nor have they ever been, debarred. This clause is not included in the
contracts with vendors who serve the entire university.
Effect
Debarred vendors could be used and not detected by management, which would result in an unallowed
cost.
Recommendation
We recommend management implement a policy that ensures a debarment clause is included in all
vendor contracts. In the event there is no contract, the university should search the vendor for debarment
prior to entering covered transactions and update periodically as necessary.
Management's view and correction action
Refer to Management’s Views and Corrective Action Plan at the end of the report.
44
American University
Schedule of Findings and Questioned Costs
For the year ended April 30, 2014
Section III – Federal Award Findings and Questioned Costs
Part A- Auditor Findings
Finding 2014-001 as noted in Part II to the Schedule of Findings and Questioned Costs applies to
federal awards below.
Federal Agency:
Program:
Department of Justice
Department of Health and Human Services
USAID
OVW Technical Assistance Initiative
Alcohol Research Programs
USAID Development Partnerships for University Cooperation and
Development
CFDA #:
16.526
93.273
98.012
Award #:
2011-TA-AX-K002/ 2013-TA-AX-K009
1R01AA021888-02
HED085-9751-LAC-12-05
Award year:
02/01/2012 - 03/31/2014, 10/1/2013 - 9/30/2015
12/1/2013 - 11/30/2014
10/19/2012 - 6/30/2015
Pass-through:
2011-TA-AX-K002
None
HED085-9751-LAC-12-05
45
___________
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
_____________
American University
Summary Schedule of Prior Audit Findings and Questioned Costs
For the year ended April 30, 2014
Section II – Financial Statement Findings
There are no matters to report.
Section III – Federal Award Findings and Questioned Costs
Part A- Auditor Findings
2013-001: ALLOWABLE COSTS/COST PRINCIPLES - COST TRANSFERS
Condition
PwC selected a sample of 38 cost transfers which included both salary and non-salary related
expenditures. Total cost transfers for the University during the current fiscal year were approximately
$1.7 million. Our sample totaled $152,554. We noted the following with regards to the sample selected
for testing:

7 of 38 samples selected for testing totaling $9,969 were cost transfers where salary and nonsalary related items needing correction were processed in excess of 90 days from the initial
charge.
We noted that all cost transfers had adequate documentation to support allowability and included
evidence of authorization along with justification for the cost transfer.
Status
The University has fully implemented its corrective action plan.
2013-002: REPORTING
Condition
Management informed PwC due to staff turnover there were no policies and procedures established in
fiscal 2013 to ensure timely reporting under FFATA. Therefore, subaward reporting under FFATA was
not performed in a timely manner during the current fiscal year.
Status
The University has fully implemented its corrective action plan.
2013-003: ALLOWABLE COSTS/COST PRINCIPLES: INDIRECT COSTS
Condition
There are approximately 49 awards within the Research and Development Cluster. PwC selected 14
awards and recalculated the indirect costs recovered for the fiscal year. There were 2 instances where
the federal agency was overcharged.
Status
The University has fully implemented its corrective action plan.
47