HARTNELL COMMUNITY COLLEGE DISTRICT FINANCIAL STATEMENTS Salinas, California June 30, 2013

HARTNELL COMMUNITY COLLEGE DISTRICT

Salinas, California

FINANCIAL STATEMENTS

June 30, 2013



WITH SUPPLEMENTARY INFORMATION

For the Year Ended June 30, 2013

TABLE OF CONTENTS

Independent Auditor's Report

Management's Discussion and Analysis

Basic Financial Statements:

Statement of Net Position

Statement of Revenues, Expenses and Change in Net Position

Statement of Cash Flows

Statement of Fiduciary Net Position

Statement of Change in Fiduciary Net Position

Discretely Presented Component Unit - Hartnell

College Foundation - Statement of Net Assets

Discretely Presented Component Unit - Hartnell

College Foundation - Statement of Activities

Notes to Basic Financial Statements

Required Supplementary Information:

Schedule of Other Postemployment Benefits (OPEB) Funding Progress

Note to Required Supplementary Information

Supplementary Information:

Organization

Schedule of Expenditures of Federal Awards

Schedule of State Financial Awards

Schedule of Workload Measures for State General Apportionment

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45

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4

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WITH SUPPLEMENTARY INFORMATION


TABLE OF CONTENTS

(Continued)

Supplementary Information: (Continued)

Reconciliation of Annual Financial and Budget Report (CCFS-311) with Audited Financial Statements

Reconciliation of ECS 84362 (50 Percent Law) Calculation

Prop 30 EPA Expenditure Report

Notes to Supplementary Information

Independent Auditor's Report on State Compliance Requirements

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

Independent Auditor's Report on Compliance For Each Major

Federal Program and Report on Internal Control Over Compliance

Findings and Recommendations:

Schedule of Audit Findings and Questioned Costs

Status of Prior Year Findings and Recommendations

Page

52

53

55

56

57

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63

68


MANAGEMENT’S DISCUSSION AND ANALYSIS

Fiscal Year Ending June 30, 2013

USING THIS ANNUAL REPORT

In accordance with generally accepted accounting principles, the annual report consists of three basic financial statements that provide information on Hartnell Community College District's (the District) activities as a whole: the Statement of Net Position; the Statement of Revenues, Expenses, and Change in

Net Position; and the Statement of Cash Flows.

The focus of the Statement of Net Position is designed to show the financial position of the District. This statement combines and consolidates current financial resources (net short-term spendable resources) with capital assets and long-term obligations. The Statement of Revenues, Expenses, and Change in Net

Position focuses on the costs of the District's operational activities, which are supported mainly by property taxes and State revenues. This approach is intended to summarize and simplify the user's analysis of the costs of various District services to students and the public. The Statement of Cash Flows provides an analysis of the sources and uses of cash within the operations of the District.

Responsibility for the completeness and accuracy of this information rests with the District management.

FINANCIAL HIGHLIGHTS x The District's primary funding source is based upon apportionment received from the State of

California. The primary basis of this apportionment is the calculation of Full-Time Equivalent

Students (FTES). During the 2012-13 fiscal year, recalculated FTES at August 2013 were 6,749 as compared to 7,089 in the 2011-12 fiscal year. Of the total FTES generated, 6,545 were funded in 2012-13 based on P2 FTES and any additional funding for the recalculated FTES of 6,749 will be received in February 2014. 6,465 FTES were funded in 2011-12. The District anticipates there will be additional restoration of prior years FTES workload reduction into fiscal year 2012-

13 and 2013-14. x During the 2012-13 fiscal year, the District provided over $18 million in financial aid to students.

This aid was provided in the form of grants, scholarships, loans, and tuition discounts funded through the Federal government, State Chancellor's Office, and local funding. x The District passed $131 million in general obligation bonds in November 2002 for the construction and renovation of buildings and equipment throughout the District. These projects were approved by the voters within the District's boundaries. The first series of $35 million was issued in April 2003. The second series of $35 million was issued in June 2006. The third series of $12.6 million was issued in June 2009, proceeds were received in June 2009. The fourth series of $48.4 million was issued in September 2009. Proceeds were received in October 2009. Over

75% of projects have been completed as of 6/30/2013. The remaining projects will be completed within the next two years.

4




FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE

NET POSITION as of June 30,

(Amounts in thousands)

2013 2012

ASSETS

Current Assets

Cash and investments

Accounts receivable, net

Other current assets

$ 14,317

8,110

$ 12,881

8,940

Total Current Assets

Restricted cash and other non-current assets

Capital Assets, net

Total Assets

22,826

43,561

21,929

53,075

LIABILITIES

Current Liabilities

Accounts payable, accrued liabilities

and other current liabilities

Current portion of long-term obligations

Total Current Liabilities

Long-Term Obligations

Total Liabilities

$ 10,317

12,988

$ 6,322

8,591

NET POSITION

Net investment in capital assets 42,293

Restricted 4,482

Unrestricted

Total Net Position

41,645

10,989

Total Liabilities and Net Position

This schedule has been prepared from the District's Statement of Net Position in the audited financial statements, which is presented on an accrual basis of accounting whereby assets are capitalized and depreciated.

Cash and short-term investments consist primarily of funds held in the Monterey County Treasury. The changes in the cash position are explained in the Statement of Cash Flows.

Unrestricted net position is composed of reserves for self-insurance, retiree health benefits, bookstore and cafeteria reserves, and general reserves for the ongoing financial health of the District.

5




There were substantial changes in ending balances from prior fiscal year to current fiscal year. Restricted cash decreased by $9.5 million from June 30, 2012. This decrease was primarily due to spending of bond proceeds on new construction projects. As a result, capital assets, net increased due to the completion of various construction projects.

Operating Results for the Year Ended June 30,


2013 2012

Operating Revenues

Tuition and fees

Grants and contracts

Sales and charges

$ 2,151

10,938

$ 2,345

12,028

Total Operating Revenues

Operating Expenses

Salaries and benefits

Supplies, other operating expenses, and financial aid

Depreciation

Total Operating Expenses

33,361

21,764

34,755

23,617

Loss on Operations

Nonoperating Revenues and (Expenses)

State apportionments

Property taxes

State revenues

Pell Grants

Interest income

Other nonoperating revenues

and (expenses)

Total Nonoperating Revenue

and (Expenses)

12,638

18,755

-

10,885

53

12,912

17,770

1,185

11,603

75

Other Revenues, Expenses, Gains and Losses

State and local capital income

Interest income, Capital

Interest expenses and losses

Total Revenues, Expenses, Gains

and Losses

5,123

191

5,124

351

Decrease in Net Position

This schedule has been prepared from the Statement of Revenues, Expenses, and Change in Net Position presented in the audited financial statements.

Sales and charges consist of cafeteria revenues. The operations are self-supporting.

6




Grant and contract revenues relate to student financial aid, as well as specific Federal and State grants received for programs serving the students of the District. These grant and program revenues are restricted as to the allowable expenses related to the programs.

Operating expenses decreased due to a number of factors. A decrease in salaries and benefits was due primarily to the workload reduction of approximately 4%. The workload reduction reduced Adjunct cost by approximately $1 million. A one-time salary increase of 2% was provided to faculty and staff in fiscal year 2011-12. No increase was provided in fiscal year 2012-13.

Non-operating interest expense relates directly to debt service requirements of the general obligation bonds.

In 2008-09 the District had a negative balance in interest income. This was the result of the write-off of

$1,448,134 in Washington Mutual and Lehman Brothers Investments held by Monterey County Treasurer.

A portion of this loss, $512,674, was recovered in fiscal years 2009-10 through 2011-12. The District recovered $274,837 in fiscal year 2009-10, $101,328 in fiscal year 2010-11 and $136,509 in fiscal year

2011-12. No restoration occurred in fiscal year 2012-13.

The District is recording the depreciation expense related to capital assets. The detail of the changes in capital assets for the year is included in the notes to the financial statements as Note 4.

The Statement of Cash Flows provides information about cash receipts and payments during the year. This statement also assists users in assessing the District's ability to meet its obligations as they come due and its need for external financing.

Statement of Cash Flows for the Year Ended June 30,


2013 2012

Cash Provided by (Used in)

Operating activities

Noncapital financing activities

Capital financing activities

Investing activities

$ (37,656)

43,740

(12,668)

$ (30,920)

38,354

(11,051)

Net (Decrease) in Cash

Cash, Beginning of Year

(6,584) (3,857)

Cash, End of Year

The primary operating receipts are student tuition and fees and Federal, State, and local grants and contracts. The primary operating expense of the District is the payment of salaries and benefits to faculty and staff.

7




While State apportionment and property taxes are the primary sources of noncapital related revenue, GASB accounting standards require that this source of revenue is shown as non-operating revenue because it comes from the general resources of the State and not from the primary users of the District’s programs and services. The District depends upon this funding as the primary source of funds to continue the current level of operations.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

At June 30, 2013, the District had $147.3 million in a broad range of capital assets, including land, buildings, and furniture and equipment, net of depreciation. At June 30, 2012, net capital assets were $140.3 million. The District is currently in the middle of a major capital improvement project with construction ongoing throughout the District. These projects are funded primarily through local and state general obligation bonds.

The majority of our West campus property was purchased in 1936 and 1954 from the U.S. Government.

The Alisal campus property was purchased for $1 from the U.S. Government in 1948. Capital assets reported within these financial statements reflect the cost at the time of purchase. Current market values of our property are not reflected in the financial statements.

Capital projects are planned for the 2013-14 fiscal year with funding through the general obligation bonds.

Land and construction in progress

Buildings and improvements

Furniture and equipment


2013 2012

$ 12,085

167,650

$ 5,922

164,695

194,439 183,735 Subtotal

Accumulated depreciation

Totals

8




Long-Term Obligations

At the end of the 2012-13 fiscal year, the District had $138.6 million in bonds outstanding from the voter approved general obligation bonds and other long-term obligations. These bonds will be repaid annually through property taxes on assessed property within the Hartnell Community College District boundaries.

General obligation bonds

Premium on obligations

Early retirement incentive

Other post employment benefits


2013 2012

$ 138,626

3,601

379

$ 135,341

3,842

436

Total

Less short term portion

143,555 140,390

Total long-term portion

District bond ratings have changed as more debt has been issued and property values have declined in recent years. The rating from Moody’s Investors Service has been downgraded from a rating of Aaa in

2006 to a rating of A1 Standard in August 2010 for Series A, B, C, and D. The Standard & Poor’s rating has also been downgraded from AAA to AA- during the same period for Series A, C, and D. Series B was downgraded to AA+ Watch Negative. There has been no change to ratings as of June 30, 2013.

ECONOMIC FACTORS AFFECTING THE FUTURE OF HARTNELL COMMUNITY COLLEGE

DISTRICT

The economic position of Hartnell Community College District is closely tied to the State of California as

State apportionments and property taxes allocated to the District represent approximately 94.5 percent of the total sources of revenues received by the District for unrestricted general operating fund. The District is aligning its course offerings with the reduction of workload measures as issued by the Chancellor’s Office.

9




ECONOMIC FACTORS AFFECTING THE FUTURE OF HARTNELL COMMUNITY COLLEGE

DISTRICT (Continued)

The State of California is still in a precarious financial condition due to the nationwide recession and the mortgage, real estate, banking and unemployment crisis. The State budget for fiscal year 2011-12 did not change much from prior fiscal year. In fiscal year 2011-12 the State funding level was reduced substantially from the prior fiscal year. In fiscal year 2012-13 the State funding level was reduced by $502 million from the prior fiscal year. With the passage of Proposition 30, The Education Protection Act, funding for California educational institutions has stabilized. For fiscal year 2013-14 Hartnell College will receive a COLA of 1.57% and restoration/growth funding of 1.65%. Hartnell College will increase Full

Time Equivalent Student(FTES) count by 100 FTES over fiscal year 2012-13. Funding for FTES will be at approximately 6,650. Hartnell has budgeted for 6,850 FTES, 200 FTES above funding level. Restoration of prior years workload reduction will generate funding for approximately 100 FTES of the 200 FTES over

2013-14 funding level. There is statewide uncertainty related to property tax revenues generated at the local level with the dissolution of Redevelopment Agencies in February 2012. Hartnell and other educational institutions did not received the anticipated property tax revenues in 2012-13 as projected in the state budget. Hartnell reduced property tax revenues by approximately $650,000 for 2012-13 in anticipation of state Department of Finance lowered projection in property tax revenues. With no clear direction from the state, Hartnell will reduce expectations of fully funded apportionment for 2013-14 by approximately $500,000.

The District issued general obligation bonds in April 2003 to fund various construction projects throughout the District. The District issued a second series of general obligation bonds in June 2006, a third series in

June 2009, and a fourth series in September 2009. All bonds, related to the 2002 Measure H election, have been issued as of September 2009. The major projects outstanding are the Technology Building, the

Classroom Administration Building renovation, the Science Building and Athletic Field House.

At the time the budget was developed, the following assumptions were made: x The 2013-14 State budget for community colleges contains Cost of Living Allowance (COLA) increase at 1.57%. x The 2013-14 State budget for community colleges contains an increase of 1.63% in funding for student restoration/growth.

The 2013-14 State budget for community colleges contains no change in categorical funding from the previous year other then adding $109,713 for instructional equipment and library and $109,705 for scheduled maintenance and repair of facilities.

10




CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. Questions may be directed to the Vice President of

Administrative Services, Hartnell Community College District, 411 Central Avenue, Salinas, CA

93901.

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STATEMENT OF NET POSITION

June 30, 2013

ASSETS

Current assets:

Cash and cash equivalents (Note 2)

Receivables, net (Note 3)

Prepaid expenses

Inventory

Total current assets

Noncurrent assets:

Restricted cash and cash equivalents (Note 2)

Depreciable capital assets, net (Note 4)

Non-depreciable capital assets (Note 4)

Total noncurrent assets

Total assets

LIABILITIES

Current liabilities:

Accounts payable

Unearned revenue (Note 5)

Due to fiduciary funds

Long-term liabilities - current portion (Note 6)

Total current liabilities

Noncurrent liabilities:

Long-term liabilities - noncurrent portion (Note 6)

Total liabilities

Commitments and contingencies (Note 10)

NET POSITION

Net Investment in capital assets

Restricted for:

Expendable:

Capital projects and debt service

Other special purposes

Unrestricted

Total net position

Total liabilities and net position $

42,292,618

4,389,705

92,046

13,020,416

59,794,785

213,666,955

$ 14,317,376

8,109,350

379,141

19,876

22,825,743

$

43,561,420

135,194,351

12,085,441

190,841,212

213,666,955

$ 7,617,223

2,688,579

11,523

2,670,908

12,988,233

140,883,937

153,872,170

See accompanying notes to financial statements.

12


STATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET POSITION


Operating revenues:

Tuition and fees

Less: scholarship discounts and allowances

Net tuition and fees

Grants and contracts, non-capital:

Federal

State

Auxiliary enterprise sales and charges

Total operating revenues

Operating expenses:

Salaries

Employee benefits (Notes 8 and 9)

Supplies, materials, and other operating expenses and services

Student aid

Depreciation (Note 4)

Total operating expenses

Loss from operations

Non-operating revenues (expenses):

State apportionment, non-capital

Local property taxes (Note 7)

Pell grants

Interest and investment income, non-capital

Interest and investment income, capital

Interest expense on capital asset-related debt

Other non-operating revenues, net

Loss on disposal of capital assets

Total non-operating revenues (expenses)

Loss before capital revenues

Capital revenues:

State grants, capital

Local property taxes and revenue, capital

Total capital revenues

Decrease in net position

Net position, July 1, 2012, originally stated

Cumulative effect of change in accounting principle

Net position, July 1, 2012, restated

Net position, June 30, 2013

$

$

6,693,458

(4,542,455)

2,151,003

6,159,027

4,779,797

662,591

13,752,418

24,991,498

8,369,049

9,213,917

12,550,431

6,159,384

61,284,279

(47,531,861)

12,638,493

18,754,818

10,884,585

53,401

190,635

(9,512,866)

2,289,584

(229,581)

35,069,069

(12,462,792)

149,786

4,972,976

5,122,762

(7,340,030)

68,628,411

(1,493,596)

67,134,815

59,794,785


13


STATEMENT OF CASH FLOWS


Cash flows from operating activities:

Tuition and fees

Federal grants and contracts

State grants and contracts

Local grants and contracts

Payments to students

Payments to suppliers and vendors

Payments to and on behalf of employees

Auxiliary enterprises sales and charges

Net amounts due to (from) fiduciary funds

Net cash used in operating activities

Cash flows from noncapital financing activities:

State appropriations

Local property taxes

State taxes and other revenues

Pell grants

Investment income, non-capital

Net cash provided by noncapital financing activities

Cash flows from capital and related financing activities:

State apportionments for capital purposes

Local property taxes and other revenues for capital purposes

Interest received on capital debt

Purchase of capital assets

Principal paid on capital debt

Interest paid on capital debt, net

Net cash used in capital and related financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, July 1, 2012

Cash and cash equivalents, June 30, 2013

$ 2,151,003

6,503,879

5,457,767

767,431

(12,550,431)

(7,409,843)

(33,239,409)

662,591

1,397

(37,655,615)

12,638,493

18,754,818

1,408,545

10,884,585

53,401

43,739,842

149,786

4,972,976

190,635

(13,331,446)

(1,386,735)

(3,263,465)

(12,668,249)

(6,584,022)

64,462,818

$ 57,878,796

(Continued)

14


STATEMENT OF CASH FLOWS

(Continued)


Reconciliation of loss from operations to net cash used in operating activities:

Loss from operations

Adjustments to reconcile loss from operations to net cash used in operating activities:

Depreciation expense

Changes in assets and liabilities:

Receivables, net

Prepaid expenses

Inventories

Accounts payable and accrued liabilities

Due to fiduciary funds, net

Unearned revenue

Early retirement incentive

Other postemployment benefits and compensated absences

Net cash used in operating activities

$ (47,531,861)

6,159,384

830,260

(287,589)

(3,549)

2,095,212

1,397

959,993

(56,856)

177,994

$ (37,655,615)


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STATEMENT OF FIDUCIARY NET POSITION

June 30, 2013

Trust

Funds

ASSETS


Receivables, net

Due from other funds

Total assets

LIABILITIES

Accounts payable

Due to student groups

Total liabilities

NET POSITION

Restricted net position held in trust

Total liabilities and net position

$

$

$

$

242,539 $

223

1,081

243,843 $

-

4,687 $

4,687

239,156

243,843 $

Student

Agency

Fund

578,907

384

10,442

589,733

1,788

587,945

589,733

-

589,733


16

Additions:

Local revenues


STATEMENT OF CHANGE IN FIDUCIARY NET POSITION


Interest and investment income

Total additions

Deductions:

Operating expenses

Net increase

Net position held in trust:

Net position, July 1, 2012

Net position, June 30, 2013

$

Trust

Funds

119,648

1,085

120,733

88,427

32,306

$

206,850

239,156


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DISCRETELY PRESENTED COMPONENT UNIT -

HARTNELL COLLEGE FOUNDATION

(A Nonprofit Organization)

STATEMENT OF NET ASSETS

June 30, 2013

ASSETS

Current assets:


Pledges receivable, net

Investments, short-term

Prepaid expenses

Total current assets

Noncurrent assets:

Pledges receivable, net of current portion

Investments, less short-term portion (Note 2)

Property and Equipment, net

Total noncurrent assets

Total assets

LIABILITIES

Current liabilities:

Accounts payable and accrued liabilities

Scholarships payable

Deferred revenue

Total current liabilities

NET ASSETS

Net assets:

Unrestricted

Temporarily restricted

Permanently restricted

Total net assets

Total liabilities and net assets

$ 3,809,180

593,994

302,545

39,098

4,744,817

$

209,596

5,445,114

326,582

5,981,292

10,726,109

$ 1,110,018

154,217

40,890

1,305,125

$

608,676

4,099,881

4,712,427

9,420,984

10,726,109


18


DISCRETELY PRESENTED COMPONENT -

HARTNELL COLLEGE FOUNDATION

(A Nonprofit Organization)

STATEMENT OF ACTIVITIES


Revenues:

Donations

Special events

In-kind donations

Interest and dividends (Note 2)

Realized gain on investments (Note 2)

Unrealized gain on investments (Note 2)

Miscellaneous revenue

Net assets released from restriction

Total revenues

Expenses:

Program expenses

Operating expenses

Fundraising expenses

Total expenses

Change in net assets

Net assets, July 1, 2012

Net assets, June 30, 2013

$

$

Unrestricted

73,731 $

232,177

166,881

12,154

15,911

179,367

239,811

3,134,229

4,054,261

3,224,392

438,129

119,193

3,781,714

272,547

336,129

608,676 $

Temporarily

Restricted

2,124,081 $

108,641

17,265

139,072

223,023

125,445

-

(3,134,229)

(396,702)

-

-

-

-

(396,702)

4,496,583

4,099,881 $

Permanently

Restricted

-

-

-

-

116,571 $

-

-

-

116,571

-

-

-

-

116,571

4,595,856

4,712,427 $

Total

2,314,383

340,818

184,146

151,226

238,934

304,812

239,811

-

3,774,130

3,224,392

438,129

119,193

3,781,714

(7,584)

9,428,568

9,420,984


19

1.


NOTES TO BASIC FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

Hartnell Community College District (the "District") is a political subdivision of the State of California and provides educational services to the local residents of the surrounding area. While the District is a political subdivision of the State, it is not a component unit of the State in accordance with the provisions of Governmental Accounting Standards

Board (GASB) Codification Section (Cod. Sec.) 2100.101. The District is classified as a state instrumentality under Internal Revenue Code Section 115.

The decision to include potential component units in the reporting entity was made by applying the criteria set forth in generally accepted accounting principles (GAAP) and

GASB Cod. Sec. 2100. The three criteria for requiring a legally separate, tax-exempt organization to be presented as a component unit are the "direct benefit" criterion, the

"entitlement/ability to access" criterion, and the "significance" criterion. The District identified the Hartnell College Foundation (the "Foundation") as its potential component unit.

The Foundation is a nonprofit, tax-exempt organization dedicated to providing financial benefits generated from fundraising efforts and investment earnings to the District. The funds contributed by the Foundation to the District are significant to the District's financial statements. The District applied the criteria for identifying component units in accordance with GASB Cod. Sec. 2100 and therefore, the District has classified the

Foundation as a component unit that will be discretely presented in the District's financial statements.

Basis of Accounting

For financial reporting purposes, the District is considered a special-purpose government engaged only in business-type activities as defined by GASB. Under this model, the District's financial statements provide a comprehensive entity-wide perspective of the District's financial position and activities. Accordingly, the District's financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenues are recognized when earned and expenses are recorded when the obligation has been incurred. All significant intra-agency transactions have been eliminated.

Fiduciary funds for which the District acts only as an agent are not included in the business-type activities of the District. These funds are reported in the Statement of

Fiduciary Net Position and the Statement of Change in Fiduciary Net Position at the fund financial statement level.

The Foundation's financial statements are prepared on the accrual basis of accounting.

Under this method, revenues are recorded when earned and expenses are recognized when they are incurred in accordance with accounting principles generally accepted in the United States of America. Classification of contributions is dependent upon whether the contribution is restricted or unrestricted. Net assets are classified on the Statement of Net Assets as unrestricted, temporarily restricted or permanently restricted net position based on the absence or existence of donor-imposed restrictions.

20

1.



(Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Accounting

The District records revenues when earned and expenses when a liability is incurred regardless of the timing of the related cash flow. The budgetary and financial accounts of the District are recorded and maintained in accordance with the Chancellor's Office's

Budget and Accounting Manual.

Cash and Cash Equivalents

For the purposes of the financial statements, cash equivalents are defined as financial instruments with an original maturity of three months or less. Funds invested in the

County Treasury are considered cash equivalents and are stated at fair value.

Restricted Cash and Cash Equivalents

Cash that is externally restricted to make debt service payments, maintain sinking or reserve funds, or to purchase or construct capital or other noncurrent assets, is classified as noncurrent assets in the statement of net position.

Fair Value of Investments

The Foundation's investments are valued at fair value based upon quoted market prices, when available, or estimates of fair value in the Statement of Net Assets and unrealized and realized gains and losses are included in the Statement of Activities.

Receivables

Receivables consist of tuition and fee charges to students and auxiliary enterprise services provided to students, faculty and staff. Receivables also include amounts due from the federal government, state and local governments, or private sources, in connection with reimbursement of allowable expenditures made pursuant to the District's grants and contracts. The District provides for an allowance for uncollectible accounts as an estimation of amounts that may not be received. The allowance is based upon management's estimates and analysis. The allowance was estimated at $1,211,976 for the year ended June 30, 2013.

Pledges Receivable

Pledges receivable consist of unconditional promises to give. Unconditional promises to give that are expected to be collected within one year are recorded at net realizable value. An allowance for uncollectible pledges receivable is established based upon estimated losses related to specific amounts and is recorded through a provision for bad debt which is charged to expense. At June 30, 2013, management has determined that an allowance for uncollectible pledges is not considered necessary. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using rates commensurate with risks applicable in the years in which those promises are received. As of June 30, 2013, the Foundation has not applied a present value discount as the amount was not significant.

21

1.



(Continued)


Inventory

Inventory consists of cafeteria food and educational supplies. Inventories are stated at the lower of cost (first-in, first-out method) or market.

Capital Assets

Capital assets are recorded at cost at the date of acquisition or, if donated, at fair market value at the date of donation. For equipment, the District's capitalization policy includes all items with a unit cost of $5,000 or more and an estimated useful life of greater than one year. Renovations to buildings, infrastructure, and land improvements that significantly increase the value or extend the useful life of the structure are capitalized.

Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 – 50 years depending on asset type.

The District capitalizes interest paid on obligations related to the acquisition, construction or rehabilitation of District capital assets. Interest capitalized totaled

$591,637 for the year ended June 30, 2013.

Compensated Absences

Compensated absence costs are accrued when earned by employees. Accumulated unpaid employee vacation benefits are recognized at year end as liabilities of the

District.

Accumulated Sick Leave

Sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expenditure or expense in the period taken since such benefits do not vest nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefits for certain STRS and PERS employees, when the employee retires.

Unearned Revenue

Revenues from Federal, State and local special projects and programs is recognized when qualified expenditures have been incurred. Tuition, fees and other support received but not earned are recorded as unearned revenue until earned.

22

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(Continued)


Net Position

The District's net position is classified as follows:

Net investment in capital assets : This represents the District's total investment in capital assets, net of associated outstanding debt obligations related to those capital assets.

To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component net investment in capital assets.

Restricted net position: Restricted expendable net position includes resources in which the District is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties. Nonspendable restricted net position consists of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income, which may either be expended or added to the principal.

Unrestricted net position: Unrestricted net position represents resources derived from student tuition and fees, State apportionments, and sales and services of educational departments and auxiliary enterprises. These resources are used for transactions relating to the educational and general operations of the District, and may be used at the discretion of the governing board to meet current expenses for any purpose.

When an expense is incurred that can be paid using either restricted or unrestricted resources, the District typically applies the expense toward restricted resources, then to unrestricted resources.

Net Assets

The Foundation's net assets are classified as follows:

Unrestricted : Unrestricted net assets consist of all resources of the Foundation, which have not been specifically restricted by a donor.

Temporarily restricted : Temporarily restricted net assets consist of cash and other assets received with donor stipulations that limit the use of the donated assets. When a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net position is reclassified to unrestricted net position and reported in the

Statement of Activities as net assets released from restriction.

Permanently restricted : Permanently restricted net assets are nonexpendable net assets consisting of endowment and similar type funds in which the donor has stipulated as condition of the gift, that the principal be maintained in perpetuity.

23

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(Continued)


Net Assets (Continued)

The Foundation's endowment assets consist of individual funds established for the purpose to provide financial support to the Foundation in perpetuity. The endowment assets include donor-restricted endowment funds. Net assets associated with endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions.

The Board of Directors of the Foundation has interpreted Uniform Prudent Management of Institutional Funds Act of 2006 (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

Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that are not classified in permanently restricted net assets are classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard prudence prescribed by UPMIFA.

The Foundation has adopted an investment policy that attempts to maximize total return consistent with an acceptable level of risk. Endowment assets are invested in a well diversified asset mix, which includes investment grade mutual bond funds and equity securities, that is intended to result in a consistent inflation-protected rate of return.

Investment risk is measured in terms of the total endowment fund; investment assets and allocation between asset classes and strategies are managed to not expose the fund to unacceptable levels of risk.

The Foundation uses a method based upon the total return on assets to determine the amounts appropriated for expenditures for endowments under which the organization is the income beneficiary in conformity with UPMIFA. To satisfy its long-term rate-of-return objectives, the Foundation seeks investment returns through both capital appreciation

(realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that includes equity and debt investments to achieve its long-term return objectives within prudent risk constraints.

State Apportionments

Certain current year apportionments from the state are based on various financial and statistical information of the previous year. Any prior year corrections due to a recalculation will be recorded in the year completed by the state. When known and measurable, these recalculations and corrections are accrued in the year in which FTES are generated.

24

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(Continued)


On-Behalf Payments

GASB Cod. Sec. N50 requires that direct on-behalf payments for benefits and salaries made by one entity to a third party recipient for the employees of another, legally separate entity be recognized as revenue and expenditures by the employer government. The State of California makes direct on-behalf payments for retirement benefits to the State Teachers Retirement Systems on behalf of all Community Colleges in California. However, a fiscal advisory issued by the California Department of

Education instructed districts not to record revenue and expenditures for these on-behalf payments. These payments consist of state general fund contributions to CalSTRS in the amount of $646,542 (5.041% of salaries subject to CalSTRS).

Classification of Revenue and Expenses

The District has classified its revenues and expenses as either operating or nonoperating revenues and expenses. Certain significant revenue streams relied upon for operations are recorded as nonoperating revenues, as defined by GASB Cod. Sec.

Co5.101 including State appropriations, local property taxes, and investment income.

Nearly all the District's expenses are from exchange transactions. Revenues and expenses are classified according to the following criteria:

Operating revenues and expenses: Operating revenues and expenses include activities that have the characteristics of exchange transactions, such as (1) student tuition and fees, net of scholarship discounts and allowances, (2) sales and services of auxiliary enterprises, and (3) most Federal, State and local grants and contracts and Federal appropriations. All expenses are considered operating expenses except for interest expense on capital related debt.

Nonoperating revenues and expenses: Nonoperating revenues include activities that have the characteristics of nonexchange transactions, such as Pell grants, gifts and contributions, and other revenue sources described in GASB Cod. Sec. Co5.101, such as State appropriations and investment income. Interest expense on capital related debt is the only nonoperating expense.

All contributions received by the Foundation are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or are restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net position classes. Unconditional promises to give that are silent as to the due date are presumed to be time restricted by the donor until received and are reported as temporarily restricted net assets.

25

1.



(Continued)


Scholarship Discounts and Allowances

Student tuition and fee revenue are reported net of scholarship discounts and allowances in the Statement of Revenues, Expenses and Change in Net Position.

Scholarship discounts and allowances represent the difference between stated charges for goods and services provided by the District and the amount that is paid by students and/or third parties making payments on the students' behalf. Certain governmental grants are recorded as operating revenues in the District's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the District has recorded a scholarship discount and allowance.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Accordingly, actual results may differ from those estimates.

Tax Status

The Foundation is a nonprofit public benefit corporation exempt from federal income tax under Section 501(c)(3) of the U.S. Internal Revenue Code. The Foundation has been classified as an organization that is not a private foundation and has been designated as a "publicly supported" organization. Contributions to the Foundation are deductible under Section 170(c)(2). The Foundation believes that it has appropriate support for any tax positions taken, and as such, does not have any uncertain tax positions that are material to the financial statements. Interest and penalties on tax assessments are classified as an expense when incurred. For the year ended June 30, 2013, the

Foundation did not incur any interest or penalties.

Income tax returns for the Foundation are filed in U.S. federal and state of California jurisdictions. Tax returns remain subject to examination by the U.S. federal jurisdiction for three years after the return is filed and for four years by the California jurisdiction.

There are currently no tax years under examination.

New Accounting Pronouncements

In November 2010, the GASB issued Statement No. 61, The Financial Reporting Entity:

Omnibus. The Statement improves financial reporting for a governmental financial reporting entity. The requirements of Statement No. 14, The Financial Reporting Entity, and the related financial reporting requirements of Statement No. 34, Basic Financial

Statements—and Management’s Discussion and Analysis—for State and Local

Governments, were amended to better meet user needs and to address reporting entity issues. This statement was adopted for the District’s fiscal year ended June 30, 2013 with no material impact on the District.

26

1.



(Continued)


New Accounting Pronouncements (Continued)

In December 2010, the GASB issued Statement No. 62, Codification of Accounting and

Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA

Pronouncements. The Statement incorporates into the GASB’s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: (1) Financial Accounting Standards Board

(FASB) Statements and Interpretations; (2) Accounting Principles Board Opinions; and

(3) Accounting Research Bulletins of the American Institute of Certified Public

Accountants’ (AICPA) Committee on Accounting Procedure. This statement was adopted for the District’s fiscal year ended June 30, 2013 with no material impact on the

District.

In June 2011, the GASB issued Statement No. 63, Financial Reporting of Deferred

Outflows of Resources, Deferred Inflows of Resources, and Net Position. This

Statement provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position (which is the net residual amount of the other elements). This Statement requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities. This Statement also amends certain provisions of GASB

Statement No. 34, Basic Financial Statement – and Management’s Discussion and

Analysis – for State and Local Governments, and related pronouncements to reflect the residual measure in the statement of financial position as net position, rather than net position. This statement was adopted for the District’s fiscal year ended June 30, 2013 with no material impact on the District.

In March 2012, the GASB issued Statement No. 65, Items Previously Reported as

Assets and Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. This Statement also provides other financial reporting guidance related to the impact of the financial statement elements deferred outflows of resources and deferred inflows of resources, such as changes in the determination of the major fund calculations and limiting the use of the term deferred in financial statement presentations. The provisions of this Statement are effective for the

District’s fiscal year ended June 30, 2014, with earlier application being encouraged.

The District early adopted this Statement and the financial statements as of June 30,

2013 have been retroactively restated for the change. Under this Statement, debt issuance costs, except for prepaid insurance are recognized as an outflow/expense.

The adoption of this Statement resulted in a decrease in net position at July 1, 2012 of

$1,493,596, for debt issuance costs that were previously recognized as assets. Net position as of July 1, 2012, has been adjusted for the effect of retroactive application of the new standard.

27

1.



(Continued)



In March 2012, the GASB issued Statement No. 66, Technical Corrections – 2013, an amendment of GASB Statements No. 10 and No. 61. The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 64, Fund Balance Reporting and Governmental Fund

Type Definitions, and No. 62, Codification of Accounting and Financial Reporting

Guidance Contained in Pre- November 30, 1989 FASB and AICPA Pronouncements.

This Statement amends Statement No. 10, Accounting and Financial Reporting for Risk

Financing and Related Insurance Issues, by removing the provision that limits fundbased reporting of an entity’s risk financing activities to the general fund and the internal service fund type. As a result, Districts should base their decisions about fund type classification on the nature of the activity to be reported, as required in Statement

No. 54 and Statement No. 34, Basic Financial Statements-and Management’s

Discussion and Analysis-for State and Local Governments. This Statement also amends

Statement No. 62 by modifying the specific guidance on accounting for (1) operating lease payments that vary from a straight line basis, (2) the difference between the initial investment (purchase price) and the principal amount of a purchased loan or group of loans, and (3) servicing fees related to mortgage loans that are sold when the stated service fee rate differs significantly from a current (normal) servicing fee rate. These changes clarify how to apply Statement No. 13, Accounting for Operating Leases with

Scheduled Rent Increases, and result in guidance that is consistent with the requirements in Statement No. 48, Sales and Pledges of Receivables and Future

Revenues and Intra-Entity Transfers of Assets and Future Revenues, respectively. The provisions of this Statement are effective for the District’s fiscal year ended June

30, 2014, with earlier application encouraged. Management has not determined what impact, if any, this GASB statement will have on the District’s financial statements.

In June 2012, the GASB issued Statement No. 67, Financial Reporting for Pension

Plans. This Statement replaces the requirements of Statement No. 25, Financial

Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined

Contribution Plans and Statement 50 as they relate to pension plans that are administered through trusts or similar arrangements meeting certain criteria. The

Statement builds upon the existing framework for financial reports of defined benefit pension plans, which includes a statement of fiduciary net position (the amount held in a trust for paying retirement benefits) and a statement of changes in fiduciary net position.

Statement 67 enhances note disclosures and RSI for both defined benefit and defined contribution pension plans. Statement 67 also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year RSI schedules. This Statement is effective for the District’s financial period beginning July 1, 2013. Management has not determined what impact, if any, this GASB statement might have on its financial statements.

28

1.

2.



(Continued)



In June 2012, the GASB issued Statement No. 68, Accounting and Financial Reporting for Pensions. This Statement replaces the requirements of Statement No. 27,

Accounting for Pensions by State and Local Governmental Employers and Statement

No. 50, Pension Disclosures, as they relate to governments that provide pensions through pension plans administered as trusts or similar arrangements that meet certain criteria. Statement 68 requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures and required supplementary information

(RSI). This Statement is effective for the District’s financial period beginning July 1,

2014. Management has not determined what impact, if any, this GASB statement might have on its financial statements.

CASH, CASH EQUIVALENTS AND INVESTMENTS

Cash, cash equivalents and investments at June 30, 2013, consisted of the following:

District Fiduciary

Pooled Funds:

Cash in County Treasury

Investments - LAIF

Total pooled funds

Deposits:

Cash on hand and in banks

Total cash and cash equivalents

Less: restricted cash and cash equivalents


Net cash and cash equivalents

$ 55,835,719 $

240,107

56,075,826

1,802,970

57,878,796

43,561,420

$ 14,317,376 $

533,598

228,415

762,013

59,433

821,446

-

821,446

Foundation cash and cash equivalents at June 30, 2013, totaled $3,809,180.


In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the County Treasury. The County pools and invests the cash. Those pooled funds are carried at fair value, which approximates cost.

Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the District's share of the pool does not consist of specific, identifiable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial risk classifications is required.

29

2.



(Continued)

CASH, CASH EQUIVALENTS AND INVESTMENTS (Continued)

Cash in County Treasury (Continued)

The District's deposits in the fund are considered to be highly liquid. Interest earned is deposited quarterly into participating funds. Any investment losses are proportionately shared by all funds in the pool. The County Treasurer has indicated that there are no derivatives in the pool as of June 30, 2013.

Local Agency Investment Fund (LAIF)

Hartnell Community College District places certain funds with the State of California's

Local Agency Investment Fund (LAIF). The District is a voluntary participant in LAIF, which is regulated by the California Government Code Section 16429 under the oversight of the Treasurer of the State of California and the Pooled Money Investment

Board. The State Treasurer's Office pools these funds with those of other governmental agencies in the state and invests the cash. The fair value of the District's investment in this pool is reported in the accompanying financial statements based upon the District's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The monies held in the pooled investment funds are not subject to categorization by risk category. The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Funds are accessible and transferable to the master account with twenty-four hours notice. Included in LAIF's investment portfolio are collateralized mortgage obligations, mortgage-backed securities, other asset-backed securities, and floating rate securities issued by federal agencies, government-sponsored enterprises and corporations. At June 30, 2013, the interest rate was 0.24%.

LAIF is administered by the State Treasurer and is audited annually by the Pooled

Money Investment Board and the State Controller's Office. Copies of this audit may be obtained from the State Treasurer's Office: 915 Capitol Mall; Sacramento, California

95814. The Pooled Money Investment Board has established policies, goals, and objectives to make certain that their goal of safety, liquidity and yield are not jeopardized.

Custodial Credit Risk

The California Government Code requires California banks and savings and loan associations to secure the District's deposits by pledging government securities as collateral. The market value of pledged securities must equal 110 percent of an agency's deposits. California law also allows financial institutions to secure an agency's deposits by pledging first trust deed mortgage notes having a value of 150 percent of an agency's total deposits and collateral is considered to be held in the name of the District.

All cash held by financial institutions is entirely insured or collateralized.

The District limits custodial credit risk by ensuring uninsured balances are collateralized by the respective financial institution. Cash balances held in banks are insured up to

$250,000 by the Federal Deposit Insurance Corporation (FDIC) and are collateralized by the respective financial institution. At June 30, 2013, the carrying amount of the

District's accounts were $1,862,403, and the bank balances were $1,937,871. The total uninsured bank balances at June 30, 2013 were $1,573,937.

30

2.



(Continued)

CASH, CASH EQUIVALENTS AND INVESTMENTS (Continued)

Custodial Credit Risk (Continued)

At June 30, 2013, the bank balance of the Foundation's cash in banks was $4,161,077 of which $2,180,909 was insured by the FDIC.

Interest Rate Risk

The District and Foundation's investment policies do not limit cash and investment maturities as a means of managing their exposure to fair value losses arising from increasing interest rates. At June 30, 2013, the District and Foundation had no significant interest rate risk related to cash and investments held.

Concentration of Credit Risk

The District and Foundation do not place limits on the amount they may invest in any one issuer. At June 30, 2013, the District and Foundation had no concentration of credit risk.

Foundation investments at June 30, 2013 consisted of the following:

Fixed Income

Equity securities

Mutual funds

Investment in Foundation for California Community Colleges

Scholarship Endowment (FCCC/Osher)

Total

Less: short term investments

Noncurrent investments

$ 989,502

3,970,073

478,811

309,273

5,747,659

(302,545)

$ 5,445,114

Foundation investment income consisted of the following:

Interest and dividend income

Realized gain on investments

Unrealized gain on investments

Total

$

$

151,226

238,934

304,812

694,972

31

3.

4.



(Continued)

RECEIVABLES

Receivables

District receivables at June 30, 2013 are summarized as follows:

Federal

State

Local and other

Less allowance for doubtful accounts

$ 1,503,157

3,919,951

3,898,218

9,321,326

(1,211,976)

$ 8,109,350

CAPITAL ASSETS

Capital asset activity consists of the following:

Balance

July 1,

2012

Non-depreciable:

Land

Construction in progress

Depreciable:



Total

Less accumulated depreciation:



Total

Capital assets, net

Additions and

Transfers

$ 590,992 $

5,330,855

164,694,687

13,118,455

183,734,989

-

9,301,170

$

5,581,927

1,585,925

16,469,022

Deductions and

Transfers

Balance

June 30,

2013

-

(3,137,576)

$

(2,627,195)

-

(5,764,771)

590,992

11,494,449

167,649,419

14,704,380

194,439,240

35,355,309

8,042,369

43,397,678

5,174,812

984,572

6,159,384

(2,397,614)

-

(2,397,614)

38,132,507

9,026,941

47,159,448

$ 140,337,311 $ 10,309,638 $ (3,367,157) $ 147,279,792

32

5.

6.



(Continued)

UNEARNED REVENUE

Unearned revenue for the District consisted of the following:

Unearned tuition and student fees

Unearned local grant revenue and other

Total unearned revenue

$ 2,558,955

129,624

$ 2,688,579

LONG-TERM LIABILITIES

General Obligation Bonds

In November 2002, the constituents of the District approved Measure H authorizing the

District to issue $131,000,000 in general obligation bonds. As of June 30, 2013, the

District has issued approximately $131,000,000 of Measure H bonds.

2002 General Obligation Bonds, Series A

During April 2003, the District issued the 2002 General Obligation Bonds, Series A in the amount of $35,000,000. The bonds mature on August 1, 2013, with interest yields ranging from 2.00 to 5.00 percent.

The annual payments required to amortize the 2002 General Obligation Bonds, Series A outstanding as of June 30, 2013, are as follows:

Year Ending

June 30,

2014 $

Principal

715,000 $

Interest

14,300 $

Total

729,300

2005 General Obligation Refunding Bonds

During March 2005, the District issued 2005 General Obligation Refunding Bonds in the amount of $29,062,042. The bonds mature from August 1, 2005 through August 1, 2025 with interest yields ranging from 4.50 to 5.25 percent.

33

6.



(Continued)

LONG-TERM LIABILITIES (Continued)

General Obligation Bonds (Continued)

2005 General Obligation Refunding Bonds (Continued)

The annual payments required to repay the Current Interest portion of the 2005 General

Obligation Refunding Bonds are as follows:

Year Ending

June 30,

2015

2016

2017

2018

2019-2023

2024-2025

Principal

$ -

2,015,000

2,230,000

2,480,000

16,775,000

-

$

Interest Total

581,844 $

1,163,688

1,163,688

1,163,688

4,058,075

552,663

581,844

3,178,688

3,393,688

3,643,688

20,833,075

552,663

$ 23,500,000 $ 8,683,646 $ 32,183,646

The annual payments required to repay the Capital Appreciation portion of the 2005

General Obligation Refunding Bonds are as follows:

Year Ending

June 30, Principal Interest Total

2014

2015

$ 502,679 $

638,158

822,321

1,251,842

$ 1,325,000

1,890,000

$ 1,140,837 $ 2,074,163 $ 3,215,000

2002 General Obligation Bonds, Series B

During June 2006, the District issued the 2002 General Obligation Bonds, Series B in the amount of $32,815,000 of current interest bonds and $2,180,518 of capital appreciation bonds. The bonds mature from June 1, 2007 through December 1, 2035, with interest yields ranging from 4.10 to 5.25 percent.

34

6.



(Continued)



2002 General Obligation Bonds, Series B (Continued)

The annual payments required to amortize the Current Interest 2002 General Obligation

Bonds, Series B outstanding as of June 30, 2013, are as follows:

Year Ending

June 30,

2017

2018

2019-2023

2024-2028

2029-2033

2034-2036

$

Principal Interest Total

570,000 $ 1,622,241 $ 2,192,241

655,000 1,622,241 2,277,241

6,465,000

14,525,000

8,062,642

7,315,023

14,527,642

21,840,023

10,600,000

-

4,570,106

812,500

15,170,106

812,500

$ 32,815,000 $ 24,004,753 $ 56,819,753

The annual payments required to amortize the Capital Appreciation 2002 General

Obligation Bonds, Series B outstanding as of June 30, 2013, are as follows:

2014

2015

2016

$ 263,895

308,540

328,863

$ 106,105

146,460

181,137

$ 370,000

455,000

510,000

$ 901,298 $ 433,702 $ 1,335,000

2002 General Obligation Bonds, Series C

During June 2009, the District issued the 2002 General Obligation Bonds, Series C in the amount of $12,597,888 of capital appreciation bonds. The bonds mature beginning on February 1, 2010 through August 1, 2028, with interest yields ranging from 6.13 to

11.50 percent.

The annual payments required to amortize the Capital Appreciation 2002 General

Obligation Bonds, Series C outstanding as of June 30, 2013, are as follows:

2023

2024-2028

2029

$ 9,231,389

2,575,513

790,986

$ 11,163,611

4,744,487

1,754,014

$ 20,395,000

7,320,000

2,545,000

$ 12,597,888 $ 17,662,112 $ 30,260,000

35

6.



(Continued)



2002 General Obligation Bonds, Series D

During September 2009, the District issued the 2002 General Obligation Bonds, Series

D in the amount of $164,873 of non-callable capital appreciation bonds and $48,240,206 of callable capital appreciation bonds. The bonds mature beginning on August 1, 2023 through August 1, 2049, with interest yields ranging from 6.43 to 11.50 percent.

The annual payments required to amortize the Non-Callable Capital Appreciation 2002

General Obligation Bonds, Series D outstanding as of June 30, 2013, are as follows:

Year Ending

June 30,

2049 $

Principal Interest Total

164,873 $ 14,085,127 $ 14,250,000

The annual payments required to amortize the Callable Capital Appreciation 2002

General Obligation Bonds, Series D outstanding as of June 30, 2013, are as follows:

Year Ending

June 30, Principal Interest Total

2024-2028

2029-2033

2034-2038

2039-2043

2044-2048

2049-2050

$ 1,101,514 $ 13,445,986 $ 14,547,500

3,334,522

18,835,387

11,656,373

10,237,807

3,074,603

17,818,728

65,370,415

102,260,767

142,070,446

57,111,807

21,153,250

84,205,802

113,917,140

152,308,253

60,186,410

$ 48,240,206 $398,078,149 $446,318,355

Early Retirement Incentive

During April 2009, the Board of Trustees adopted a resolution for the implementation of an Early Retirement Incentive for full-time faculty. A total of seven full-time faculty are participating. The District will pay benefits totaling $600,551. A payment of was $56,856 made during the 2012-13 fiscal year. The total remaining liability has been reflected in these financial statements. The net savings for the life of the plan is estimated at

$945,000.

36

6.

7.

8.



(Continued)


Changes in Long-Term Debt

A schedule of changes in long-term debt for the year ended June 30, 2013 is as follows:

Balance

July 1,

2012

General Obligation Bonds

Premium on General Obligation

Bonds

Accreted interest

$ 121,461,839

3,842,756

13,878,946

Other postemployment benefits (Note 9) 770,625

Early retirement incentive 436,242

$

Additions

-

-

5,542,640

571,731

-

$ 140,390,408 $ 6,114,371 $

$

Deductions

Balance

June 30,

2013

1,386,735 $ 120,075,104 $

Amounts

Due Within

One Year

1,481,574

242,318

870,288

393,737

56,856

2,949,934

3,600,438

18,551,298

948,619

379,386

$ 143,554,845 $

260,908

928,426

-

-

2,670,908

PROPERTY TAXES

All property taxes are levied and collected by the Tax Assessors of the Counties of

Monterey and San Benito and paid upon collection to the various taxing entities including the District. Secured taxes are levied on July 1 and are due in two installments on

November 1 and February 1, and become delinquent on December 10 and April 10, respectively. The lien date for secured and unsecured property taxes is March 1 of the preceding fiscal year.

EMPLOYEE RETIREMENT SYSTEMS

Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the State Teachers' Retirement System, and classified employees are members of the

Public Employees' Retirement System.

State Teachers' Retirement System (STRS)

Plan Description

All certificated employees and those employees meeting minimum standards adopted by the Board of Governors of the California Community Colleges and employed 50 percent or more of a full-time equivalent position participate in the Defined Benefit Plan (DB

Plan). Part-time educators hired under a contract of less than 50 percent or on an hourly or daily basis without contract may elect membership in the Cash Balance Benefit

Program (CB Benefit Program). The State Teachers' Retirement Law (Part 13 of the

California Education Code , Section 22000 et seq.) established benefit provisions for

STRS. Copies of the STRS annual financial report may be obtained from the STRS

Executive Office, 100 Waterfront Place, West Sacramento, CA 95605.

37

8.



(Continued)

EMPLOYEE RETIREMENT SYSTEMS

State Teachers' Retirement System (STRS) (Continued)

Plan Description (Continued)

The State Teachers' Retirement Plan (STRP), a defined benefit pension plan, provides retirement, disability, and death benefits, and depending on which component of the

STRP the employee is in, postretirement cost-of-living adjustments may also be offered.

Employees in the DB Plan attaining the age of 60 with five years of credited California service (service) are eligible for "normal" retirement and are entitled to a monthly benefit of two percent of their final compensation for each year of service. Final compensation is generally defined as the average salary earnable for the highest three consecutive years of service. The plan permits early retirement options at age 55 or as early as age 50 with at least 30 years of service. Disability benefits of up to 90 percent of final service, members become 100 percent vested in retirement benefits earned to date. If a member's employment is terminated, the accumulated member contributions are refundable. The features of the CB Benefit Program include immediate vesting, variable contribution rates that can be bargained, guaranteed interest rates, and flexible retirement options. Participation in the CB benefit plan is optional; however, if the employee selects the CB benefit plan and their basis of employment changes to half time or more, the member will automatically become a member of the DB Plan.

Funding Policy

Active members of the DB Plan are required to contribute 8% of their salary while the

District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the STRS

Teachers' Retirement Board. The required employer contribution rate for fiscal year

2012-2013 was 8.25% of annual payroll. The contribution requirements of the plan members are established by State statute. The CB Benefit Program is an alternative

STRS contribution plan for instructors. Instructors who choose not to sign up for the DB

Plan or FICA may participate in the CB Benefit Program. The District contribution rate for the CB Benefit Program is always a minimum of 4% with the sum of the district and employee contribution always being equal or greater than 8%.

Annual Pension Cost

The District's total contributions to STRS for the fiscal years ended June 30, 2013, 2012 and 2011 were $1,038,973, $1,071,196 and $964,542, respectively, and equals 100% of the required contributions for each year. The State of California may make additional direct payments for retirement benefits to the STRS on behalf of all community colleges in the State. The revenue and expenditures associated with these payments, if any, have not been included in these financial statements.

38

8.

9.



(Continued)

EMPLOYEE RETIREMENT SYSTEMS (Continued)

California Public Employees' Retirement System (CalPERS)

Plan Description

The District contributes to the School Employer Pool under the California Public

Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS.

The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by state statutes, as legislatively amended, within the Public Employees'

Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive

Office, 400 Q Street, Sacramento, California 95811.

Funding Policy

Active plan members are required to contribute 7% of their salary and the district is required to contribute an actuarially determined rate. The required employer contribution rate for fiscal year 2012-2013 was 11.417% of annual payroll.

Annual Pension Cost

The District's contributions to CalPERS for the fiscal years ending June 30, 2013, 2012 and 2011 were $1,385,797, $1,325,842 and $1,274,324, respectively, and equaled 100 percent of the required contributions for each year.

OTHER POSTEMPLOYMENT BENEFITS

The District administers two single-employer defined benefit healthcare plans: the

Retiree Health Plan and the Retiree Health Plan - Faculty Post-65.

In addition to the pension benefits described in Note 8, the District provides medical, dental, and vision insurance coverage, as prescribed in the various employee union contracts, to retirees meeting plan eligibility requirements. Eligible employees retiring from the District may become eligible for these benefits when the requirements are met.

The eligibility requirements for employees who are members of the California School

Employees Association or International Union of Operating Engineers Stationary Local

Number 39 are a minimum age of 60 and have a minimum of ten years of continuous service with the District. These employees receive one year of benefits for each two years with the District not to exceed five years. Additional age and service criteria may be required.

The eligibility requirement for members of the Hartnell College Faculty Association is a minimum age of 58 with ten years of full-time service. These employees receive one year of benefits for each two years with the District not to exceed seven years. Additional age and service criteria may be required.

39

9.



(Continued)

OTHER POSTEMPLOYMENT BENEFITS (Continued)

The eligibility requirements for managers, supervisors, and confidential employees are: to be of eligible age to retire from STRS or PERS, whichever is appropriate and have five years of full-time employment with the District. Benefits will be granted for a maximum of ten years. The District paid health benefits for all retirees, except medical coverage for members of the Hartnell College Faculty Association terminates at age 65.

Retiree members of the Hartnell College Faculty Association receive lifetime District paid medical coverage for themselves and their dependents.

The District's annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Cod. Sec. P50.108-.109. The

ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed, and changes in the District's net OPEB obligation:

Annual required contribution

Interest on net OPEB obligation

$ 533,200

38,531

Adjustment to annual required contribution

Annual OPEB cost

Contributions made

Increase in net OPEB obligation

Net OPEB liability - beginning of year

Net OPEB liability - end of year $

-

571,731

(393,737)

177,994

770,625

948,619

The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the year ended June 30, 2013 and preceding two years were as follows:

Fiscal Year

Ended

Annual

OPEB Cost

Percentage of Annual

OPEB Cost

Contributed

Net OPEB

Obligation

June 30, 2011

June 30, 2012

June 30, 2013

$

$

$

623,431

634,508

571,731

72.30%

46.90%

68.87%

$

$

$

376,074

770,625

948,619

40

9.



(Continued)

OTHER POSTEMPLOYMENT BENEFITS (Continued)

As of November 1, 2012, the most recent actuarial valuation date, the actuarial accrued liability for benefits was for the was $4.9 million, and the actuarial value of assets was zero, resulting in an unfunded actuarial accrued liability (UAAL) of $4.9 million. For the year ended June 30, 2013, the covered payroll (annual payroll of active employees covered by the Plan) was $20.9 million, and the ratio of the UAAL to the covered payroll was 23.6 percent. Although the plan has no segregated assets, the District does maintain a retiree benefit fund to assign resources for retiree health care costs. The retiree benefit fund's assigned fund balance was $4,276,277 at June 30, 2013.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, included as Required Supplementary

Information following this section, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Projections of benefits for financial reporting purposes are based on the substantive plan

(the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the November 1, 2012, actuarial valuation for both the Retiree Health Plan and the

Retiree Health Plan - Faculty Post-65, the entry age normal actuarial cost method was used to value the liability. The actuarial assumptions included a 5.0 percent investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan on the valuation date, and an annual healthcare cost trend rate of 4.0 percent. A 2.0 percent morbidity assumption was used to increase expected medical claims. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a fifteen-year period. The UAAL is being amortized as a level percentage of projected payroll on an closed basis. The remaining amortization period at June 30, 2013, for the plans was 19 years.

41



(Continued)

10.

COMMITMENTS AND CONTINGENCIES

Contingent Liabilities

The District is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the District.

The District has received Federal and State funds for specific purposes that are subject to review or audit by the grantor agencies. Although such audits could results in expenditure disallowances under terms of the grants, it is management's opinion that any required reimbursements or future revenue offsets subsequently determined will not have a material effect.

Construction Commitments

As of June 30, 2013, the District has approximately $9.2 million in outstanding commitments on construction contracts.

11.

JOINT POWERS AGREEMENTS

Hartnell Community College District participates in public entity risk pool joint power agreements (JPAs), with Monterey County Schools Insurance Group (MCSIG), Bay Area

Community College Districts (BACCD), School Association for Excess Risk (SAFER), the Statewide Association of Community Colleges (SWACC), Protected Insurance

Program for Schools (PIPS), and the South Bay Regional Public Safety Training

Consortium (SBRPSTC). The relationship between Hartnell Community College District and the JPAs is such that the JPAs are not component units of Hartnell Community

College District for financial reporting purposes.

The JPAs are governed by boards consisting of a representative from each member district. The boards control the operations of the JPAs, including the selection of management and approval of operating budgets, independent of any influence by the member district beyond their representation on the governing board. MCSIG provides employee medical, dental and vision benefits, BACCD provides property and liability insurance, SAFER provides excess property and liability insurance, SWACC provides property and liability insurance, PIPS provides workers' compensation insurance and

SBRPSTC provides education and training to public safety students. Hartnell

Community College District pays a premium commensurate with the level of coverage requested.

Member districts share surpluses and deficits proportionate to their participation in the

JPAs. The JPAs are independently accountable for their fiscal matters and maintain their own accounting records. Budgets are not subject to any approval other than that of the governing board.

42



(Continued)

11.

JOINT POWERS AGREEMENTS (Continued)

Condensed financial information of the JPAs for the most recent year available is as follows:

MCSIG

June 30, 2012

BACCD

June. 30, 2012

Total assets

Total liabilities

Net position

Total revenues

Total expenses

Change in net position

$

$

$

$

$

$

23,438,953 $

16,791,964 $

6,646,989 $

62,573,054 $

68,777,967 $

(6,204,913) $

SWACC

June 30, 2012

6,882,451

3,566,057

3,316,394

3,981,065

5,847,845

(1,866,780)

PIPS

June. 30, 2012

Total assets

Total liabilities

Net position

Total revenues

Total expenses


Total assets

Total liabilities

Net position

Total revenues

Total expenses


$

$

$

$

$

$

$

$

$

$

$

$

48,874,611 $ 120,376,363

21,266,021 $ 97,382,754

27,608,590 $

10,916,311 $

22,993,609

34,054,980

6,710,584 $

4,205,727 $

33,820,261

234,719

SAFER

June 30, 2012

SBRPSTC

June. 30, 2012

10,462,248 $

9,648,799 $

813,449 $

9,585,343 $

8,960,233 $

625,110 $

3,355,143

1,533,661

1,821,482

6,427,786

7,039,693

(611,907)

43

REQUIRED SUPPLEMENTARY INFORMATION


SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB)

FUNDING PROGRESS


Schedule of Funding Progress

Unfunded

Actuarial

UAAL as a

Percentage

Fiscal

Year

Ended

Actuarial

Valuation

Date

Actuarial

Value of

Assets

Actuarial

Accrued

Liability

(AAL)

Accrued

Liability

(UAAL)

Funded

Ratio

Covered

Payroll of

Covered

Payroll

6/30/2009 June 1, 2009

6/30/2010 June 1, 2009

6/30/2011 October 1, 2010

6/30/2012 October 1, 2010

6/30/2013 November 1, 2012

$

$

$

$

$

-

-

-

-

-

$ 4,852,364

$ 4,922,642

$ 4,930,939

$ 4,852,364

$ 4,852,364 $ 4,852,364

$ 4,922,642 $ 4,922,642

$ 4,922,642

$ 4,930,939

0.0%

0.0%

0.0%

0.0%

0.0%

$ 16,251,014

$ 16,251,014

$ 20,923,926

$ 20,923,926

$ 20,877,941

29.86%

29.86%

23.53%

23.53%

23.62%

The accompanying notes are an integral part of these financial statements.

44

1.


NOTE TO REQUIRED SUPPLEMENTARY INFORMATION

PURPOSE OF SCHEDULE

A Schedule of Other Postemployment Benefits Funding Progress

The Schedule of Funding Progress presents multi-year trend information which compares, over time, the actuarially accrued liability for benefits with the actuarial value of accumulated plan assets. Although the plan has no segregated assets, the District does maintain a retiree benefit fund to assign resources for retiree health care costs. The fund's assigned fund balance was

$4,276,277 at June 30, 2013.

45

SUPPLEMENTARY INFORMATION


ORGANIZATION

June 30, 2013

Hartnell Community College District was established in 1949 and serves communities both Monterey and San Benito counties. The District currently operates one college.

The Governing Board and District Administration for the fiscal year ended June 30, 2013 were composed of the following members:

BOARD OF TRUSTEES

Members

Candi DePauw

Patricia Donohue

Erica Padilla-Chavez

William Freeman

Elia Gonzalez-Castro

Demetrio Pruneda

Ray Montemayor

Elaine Duran

Office

President

Vice President

Member

Member

Member

Member

Member

Student Trustee, Hartnell College

Term Expires

2013

2015

2013

2015

2015

2015

2013

2013

DISTRICT ADMINISTRATION

Dr. William Clark Lewallen

Superintendent/President

Matt Coombs

Vice President of Information and Technology Resources

Jackie Cruz

Executive Director of Advancement

Dr. Romero Jalomo

Vice President for Student Affairs

Stephanie Low **

Interim Vice President for Academic Affairs

Alfred Muñoz

Vice President for Administrative Services

**Effective August 2013, Dr. Lori Kildal, Vice President for Academic Affairs

See accompanying notes to supplementary information.

46


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Federal Grantor/

Pass-Through Grantor/

Program or Cluster Title

U.S. Department of Education

Federal

CFDA

Number

Direct Programs:

Student Financial Aid Cluster:

Federal Supplemental Educational Opportunity

Program (FSEOG)

Federal Work Study (FWS)

Federal Pell Grants (PELL)

Financial Aid Admin Allowance

Subtotal Financial Aid Cluster

TRIO - Student Support Services Program

Migrant Ed - High School Equivalency Program

Child Care Access Access Grant

GEAR UP (East Salinas)

Title V Cluster:

Direct Programs

Title V - Strengthening the Pipeline to Baccalaureate and

Graduate STEM program

Title V - STEM Regional Community College-to-University

Success Program (CUSP)

Title V - A Cooperative Effort to Establish Student Access &

Success Research Center

Title V - STEM

Passed through Gavilan Joint Community College District:

Streamlined Career Transfer Pathways

Passed through the University Corporation at CSU Monterey Bay:

E-Transcript Project

Subtotal Title V Cluster

VTEA Program:

Passed through California Community Colleges Chancellor's Office:

Carl D. Perkins Career and Technical Education (CTE) Act

CTE - Title I, Part C (Perkins IV)

Career Technical Education Transitions (CTE Transitions)

Subtotal VTEA Program

84.007

84.033

84.063

84.000

84.042A

84.141A

84.335A

84.334A

84.031C

84.031C

84.031S

84.031S

84.031

84.031

84.048

84.048A

Total U.S. Department of Education

Federal

Expenditures

$ 135,555

145,000

10,884,585

15,935

11,181,075

210,786

502,484

64,547

339,147

924,961

1,244,850

224,320

509,223

92,960

4,438

3,000,752

240,864

49,389

290,253

15,589,044

(Continued)

47



(Continued)





U.S. Department of Labor

Federal

CFDA

Number

Workforce Investment Act (WIA) Program:

Passed through California Employment Development Department:

WIA: Youth Career Technical Education Project

Passed through from Rancho Cielo Youth Campus Inc:

WIA: Youthbuild Grant

Total U.S. Department of Labor

U.S. Department of Health and Human Services

Foster Care Cluster:

Passed through California Community Colleges Chancellor's Office:

Foster and Kinship Care Education Program- Title IV-E

Passed through County of Monterey, Department of Social and Employee Services:

Foster Care- Title IV-E (DSES)

17.259

17.274

93.658

93.658

Subtotal Foster Care Cluster

Passed through Foundation for California Community Colleges:

Youth Empowerment Strategies for Successful Independent Living

Passed through University of California, Santa Cruz:

National Institute of Health

Passed through California Community College Chancellor's Office:

Temporary Assistance for Needy Families (TANF)

Passed through from Yosemite Community College District:

Child Development Training Consortium

Total U.S. Department of Health and Human Services

93.674

93.375

93.558

93.575

Federal

Expenditures

$ 261,065

31,942

293,007

157,240

365,465

522,705

23,433

14,873

57,633

10,000

628,644

(Continued)

48



(Continued)





U.S. Department of Agriculture

Federal

CFDA

Number

Passed through from the California Department of Education:

Forest Reserve Funds

Child Care Food Program

National Institute of Food and Agriculture

Total U.S. Department of Agriculture

Department of National Aeronautics & Space Administration

Direct Program:

Science, Engineering, Mathematics and Aerospace Academy

U.S. National Science Foundation

Direct Program:

Advanced Technological Education

STEM Scholarship Program

Passed through from the University Corporation at California Sate

University, Monterey Bay:

Monterey Bay Advanced Networking Education Consortium

Passed through from the University of California, Santa Cruz

CCLI- A Web-Enabled, Interactive Remote Laboratory for

Renewable Energy

Total U.S. National Science Foundation

10.665

10.558

10.223

43.000

47.076

47.076

47.076

47.076

U.S. Department of National and Community Service

Direct Program:

National Service Award for Scholarships

Total Federal Programs

94.006

$

Federal

Expenditures

3,328

2,622

59,687

65,637

104,087

236,649

87,460

2,900

8,934

335,943

27,250

$ 17,043,612


49


SCHEDULE OF STATE FINANCIAL AWARDS


Basic Skills

Cal Grants

CalWORKs

Career Technical Education Growth &

Enrollment Retention for Nursing

Career Technical Regional

Occupation Partner #5

Occupation Partner #6

CARE

Child Care and Development

Childcare Tax Bailout

California State Preschool

Disabled Students Services (DOSS)

Economic Opportunity Programs and Services (EOPS)

Faculty and Staff Development

Equal Employment Opportunity

Faculty and Staff Diversity

First 5 Contract

Foster & Kinship Care Education

Industry Driven Regional

Collaborative Media

Collaborative Sustainable Design

Lottery- Proposition 20

Mathematics-Engineering-Science-

Achievement (MESA)

MESA- Supplemental Matriculation

Matriculation

Student Financial Aid

Administration (SFAA)

Total State Programs

Program Entitlements Program Revenues

Deferred

Prior Year

Carryforward

Current

Entitlement

Total

Entitlement

Cash

Received

Accounts

Receivable

Revenue/

Accounts

Payable Total

$ 160,381

-

-

$ 97,610

626,133

203,277

$ 257,991

626,133

203,277

$ 257,991

626,133

203,277

$

-

-

-

$ 129,295

-

-

$ 128,696

626,133

203,277

$

Program

Expenditures

128,696

626,133

203,277

-

334,769

-

-

-

(15,417)

505

-

8,145

89,687

-

348,000

113,364

35,537

357,076

341,862

486,532

-

89,687

334,769

348,000

113,364

35,537

341,659

342,367

486,532

8,145

75,337

299,969

261,000

113,364

35,537

327,729

342,367

486,532

8,145

14,350

-

-

-

-

-

-

-

2,813

-

9,768

249,093

-

-

-

-

-

8,145

89,687

290,201

11,907

113,364

35,537

330,542

342,367

486,532

-

89,687

290,201

11,907

113,364

35,537

330,542

342,367

486,532

-

$

44,383

-

-

25,119

44,013

125,854

5,118

77,287

52,308

205,000

-

43,893

49,501

77,287

52,308

230,119

44,013

169,747

49,501

46,222

38,858

148,119

44,013

127,854

-

-

8,000

50,500

-

231,671

50,500

8,000

231,671

30,300

8,000

231,671

(1,054) 302,789 301,735 301,735

734,698 $ 3,667,644 $ 4,402,342 $ 4,063,654 $

-

31,065

13,555

-

-

41,894

20,200

-

-

-

123,877 $

45,953

-

-

12,791

-

-

-

-

-

363

455,408

3,548

77,287

52,413

135,328

44,013

169,748

50,500

7,637

231,671

301,735

$ 3,732,123

3,548

77,287

52,413

135,328

44,013

169,748

50,500

7,637

231,671

301,735

$ 3,732,123


50


SCHEDULE OF WORKLOAD MEASURES FOR

STATE GENERAL APPORTIONMENT

Annual Attendance as of June 30, 2013

Reported

Data

Audit

Adjustments Categories

A.

Summer Intersession (Summer 2012 only)

1.

Noncredit

2.

Credit

B.

Summer Intersession (Summer 2013) - Prior to

July 1, 2013)

1.

Noncredit

2.

Credit

C.

Primary Terms (Exclusive of Summer Intersession)

1.

Census Procedure Courses a.

Weekly Census Contact Hours b.

Daily Census Contact Hours

2.

Actual Hours of Attendance Procedure

Courses a.

Noncredit b.

Credit

3.

Independent Study/Work Experience a.

Weekly Census Contact Hours b.

Daily Census Contact Hours c.

Noncredit Independent Study/

Distance Education Courses

D.

Total FTES

Supplemental Information:

E.

In-Service Training Courses (FTES)

H.

Basic Skills Courses and Immigrant

Education a.

Noncredit b.

Credit

CCFS 320 Addendum

CDCP Noncredit FTES

Centers FTES a.

Noncredit b.

Credit

-

-

-

-

-

-

-

764

4,527

289

11

589

355

214

6,749

300

870

486

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Revised

Data

-

764

-

-

4,527

289

-

870

-

-

486

11

589

355

214

-

6,749

300


51


RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT

(CCFS-311) WITH AUDITED FINANCIAL STATEMENTS


There were no adjustments proposed to any funds of the District.


52

Academic Salaries

Instructional salaries:

Contract or regular

Other

Total instructional salaries

Non-instructional salaries:

Contract or regular

Other

Total non-instructional salaries

Total academic salaries

Classified Salaries

Non-instructional salaries:

Regular status

Other

Total non-instructional salaries

Instructional aides:

Regular status

Other

Total instructional aides

Total classified salaries

Employee benefits

Supplies and materials

Other operating expenses

Equipment replacement

Total expenditures prior to exclusions


RECONCILIATION OF ECS 84362 (50 PERCENT LAW) CALCULATION

Object/TOP

Codes


Activity (ECSA)

ECS 84362 A

Instructional Salary Cost

Activity (ECSB)

ECS 84362 B

Total CEE

AC 0100-5900 & AC 6110 AC 0100-6799

Reported Audit Revised Reported Audit Revised

Data Adjustments Data Data Adjustments Data

1100

1300

1200

1400

2100

2300

2200

2400

3000

4000

5000

6420

$ 10,156,802 $

-

10,156,802

-

-

-

10,156,802

-

-

-

461,585

-

461,585

461,585

2,857,700

-

478,807

-

$ 13,954,894 $

-

-

-

-

-

-

5,562,230

-

5,562,230

(74,715)

-

(74,715)

386,870

-

386,870

461,585

-

461,585

(74,715)

-

-

-

-

386,870

2,857,700

-

478,807

-

6,023,815

6,610,196

206,641

4,428,047

-

(74,715) $ 13,880,179 $ 29,669,413 $

-

-

-

5,562,230

-

5,562,230

(74,715)

-

(74,715)

386,870

-

386,870

(74,715)

-

-

-

-

5,949,100

6,610,196

206,641

4,428,047

-

(74,715) $ 29,594,698

(Continued)

53

-

-

-

-

-

-

-

$ 10,156,802 $ 10,156,802 $

-

10,156,802

-

-

-

10,156,802

10,156,802

2,243,912

-

2,243,912

12,400,714 -

-

-

-

-

-

-

$ 10,156,802

-

10,156,802

2,243,912

-

2,243,912

12,400,714


Exclusions

Activities to exclude:

Instructional staff-retirees' benefits and retirement incentives

Student health services above amount collected

Student transportation

Noninstructional staff-retirees' benefits and retirement incentives

Objects to exclude:

Rents and leases

Lottery expenditures

Academic salaries

Classified salaries

Employee benefits

Supplies and materials:

Software

Books, magazines and periodicals

Instructional supplies and materials

Noninstructional supplies and materials

Total supplies and materials

Other operating expenses and services

Capital outlay

Library books

Equipment:

Equipment - additional

Equipment - replacement

Total equipment

Total capital outlay

Other outgo

Total exclusions

Total for ECS 84362, 50% Law

Percent of CEE (instructional salary cost /Total CEE)

50% of current expense of education

RECONCILIATION OF ECS 84362 (50 PERCENT LAW) CALCULATION

(Continued)


Object/TOP

Codes

Activity (ECSA)

ECS 84362 A

Instructional Salary Cost

Activity (ECSB)

ECS 84362 B

Total CEE

AC 0100-5900 & AC 6110 AC 0100-6799

Reported Audit Revised Reported Audit Revised

Data Adjustments Data Data Adjustments Data

5900

6441

6491

6740

5060

1000

2000

3000

4000

4100

4200

4300

4400

5000

6000

6300

6400

6410

6420

7000

$

-

-

-

-

-

-

-

-

-

-

-

-

-

148,588 $

-

-

-

-

-

-

-

$

-

148,588 $

$ 13,806,306 $

50.63%

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

$

-

-

-

-

-

-

-

-

-

-

-

-

-

148,588 $

-

-

-

148,588 $

-

-

151,449

-

-

-

-

3,867

-

839,804

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

$

-

148,588 $

1,258,170

2,401,878 $

(74,715) $ 13,731,591 $ 27,267,535 $

(0.14%) 50.49% 100%

$ 13,633,768 $

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

$ 148,588

-

-

151,449

-

-

-

-

3,867

-

839,804

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

$

1,258,170

2,401,878

(74,715) $ 27,192,820

100%

(74,715) $ 13,559,053


54

EPA Proceeds:

Activity Classification

Total EPA


PROP 30 EPA EXPENDITURE REPORT


$ 5,433,950

Activity

Code

(0100-5900)

Salaries and

Benefits

(1000-3000)

$ 5,329,921 $

Operating

Expenses

(4000-5000)

104,029 $

Capital

Outlay

(6000)

-

Total

$ 5,433,950


55

1.


NOTES TO SUPPLEMENTARY INFORMATION

PURPOSE OF SCHEDULES

A Schedule of Expenditures of Federal Awards

The accompanying Schedule of Expenditures of Federal Awards includes the

Federal grant activity of the District and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the United States Office of Management and Budget

Circular A-133. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements.

B Schedule of State Financial Awards

The accompanying Schedule of Expenditures of State Awards includes State grant activity of the District and is presented on the accrual basis of accounting.

Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. The information in this schedule is presented to comply with reporting requirements of the California State Chancellor's Office.

C Schedule of Workload Measures for State General Apportionment

Full-time equivalent students is a measurement of the number of students attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to community college districts. This schedule provides information regarding the attendance of students based on various methods of accumulating attendance data.

D Reconciliation of Annual Financial and Budget Report (CCFS-311) with Audited

Financial Statements

This schedule provides the information necessary to reconcile the fund balance of all funds reported on the CCFS-311 to the audited financial statements.

E Reconciliation of ECS 84362 (50 Percent Law) Calculation

This schedule provides the information necessary to reconcile the 50 Percent

Law Calculation reported on the CCFS-311 to the audited data.

F Prop 30 EPA Expenditure Report

This schedule provides information about the District's EPA proceeds and summaries how the EPA proceeds were spent.

56

FINDINGS AND RECOMMENDATIONS


SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS

Year Ended June 30, 2013

SECTION I - SUMMARY OF AUDITORS' RESULTS


Type of auditors' report issued:

Internal control over financial reporting:

Material weakness(es) identified?

Significant deficiency(ies) identified not considered to be material weakness(es)?

Noncompliance material to financial statements noted?

FEDERAL AWARDS

Unmodified

Yes

Yes

Yes

X No

X None reported

X No

Internal control over major programs:

Material weakness(es) identified?

Significant deficiency(ies) identified not considered to be material weakness(es)?

Type of auditors' report issued on compliance for major programs:

Any audit findings disclosed that are required to be reported in accordance with Circular A-133,

Section .510(a)?

Identification of major programs:

CFDA Number(s)

84.007, 84.033, 84.063, 84.000

84.031, 84.031C, 84.031S

93.658

Yes

Yes

Unmodified

Yes

X No

X None reported

X No

Name of Federal Program or Cluster

Student Financial Aid Cluster

Title V- STEM Cluster

Foster Care Cluster

Dollar threshold used to distinguish between Type A and Type B programs:

Auditee qualified as low-risk auditee?

STATE AWARDS

Type of auditors' report issued on compliance for state programs:

$ 511,308

Yes

Qualified

X No

63



(Continued)


SECTION II - FINANCIAL STATEMENT FINDINGS

No matters were reported.

64



(Continued)


SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

No matters were reported.

65



(Continued)


SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS

2013-01 - STATE COMPLIANCE - GANN LIMIT

Criteria

Section 14502.1, California Education Code. Reference: Section 1.5 of Article XIIIB, California

Constitution.

Condition

The District did not use the correct FTES in preparing the Gann Limit Calculation.

Effect

The District did not comply with State requirements. The District revised the calculation and there was no impact to planned appropriations.

Cause

The District incorrectly used the wrong FTES balance to prepare the Gann Limit Calculation.

Fiscal Impact

None

Recommendation

The District should use P-2 FTES balances to correctly calculate the Gann Limit. Further, the

District should revise the Gann Limit Calculation using the proper factors.

Corrective Action Plan

The District has revised the Gann Limit Calculation and there was no impact to the District's planned appropriations.

66



(Continued)


2013-02 - STATE COMPLIANCE - SALARIES OF CLASSROOM INSTRUCTORS (50

PERCENT LAW)

Criteria

Education Code Section 84362, commonly known as the 50 Percent Law, requires that a minimum of 50 percent of the District's Current Expense of Education (CEE) be expended during each fiscal year for "Salaries of Classroom Instructors".

Condition

The District improperly included 37 individuals as instructional aides in the 50 Percent Law calculation.

Effect

The District did not comply with State requirements. We examined all payroll charges included in the instructional aide classification to determine the fiscal impact of the condition was

$74,715. After removing the improperly classified transactions the District was still in compliance with expending Instructional Salary Costs in excess of 50 percent.

Cause

The District incorrectly included salary for positions which were no instructional aides in the 50

Percent Law calculation.

Fiscal Impact

The fiscal impact of the condition was the overstatement of instructional aides payroll costs totaling $74,715.

Recommendation

The District should review procedures used in determining the proper classification of salary costs, to ensure job descriptions for instructional costs charged as instructional aides are properly classified for the 50 Percent Law calculation.

Corrective Action Plan

The District will ensure job descriptions of instructional aides charged to Instructional Salary

Costs are in compliance with State requirements.

67

STATUS OF PRIOR YEAR

FINDINGS AND RECOMMENDATIONS


STATUS OF PRIOR YEAR FINDINGS AND RECOMMENDATIONS


Finding/Recommendation Current Status

District Explanation

If Not Fully

Implemented

2012-01

The District is not reviewing support for reimbursement requests submitted by the subrecipient, Gavilan College, for Title V.

Implement specific procedures to review support for reimbursement requests to ensure expenditures are for authorized purposes.

2012-02

During the review of the course catalog and class schedule for 2011-12 academic year, it was identified that the District's open enrollment policy adopted by the board was not published in the Fall 2011 schedule of classes.

The District should continue to monitor compliance with this requirement for each published schedule of classes.

2012-03

Identified three course selections in a sample of 40 courses that had incorrectly calculated census dates.

The District should correct any FTES claimed in error. In addition, the District should establish procedures to review census date calculations for accuracy.

Implemented

Implemented

Implemented

68





If Not Fully

Implemented

Finding/Recommendation

2012-04

Audit of student contact hours identified 8 course selections in our sample of 40 course selections where the contact hours calculated by the District and used for apportionment purposes did not agree with the audit calculation. The course selections in question were daily census course types.

The District was advised to revise the

CCFS-320 report and submit a revised

CCFS-320 report to the State

Chancellor's Office. The District should implement controls to ensure the accuracy of reports generated from their student attendance system.

2012-05

During the review of eligibility testing for

DSPS, noted in a sample of 15 student files tested, two students receiving services did not have an SEC on file and four students with SECs were missing the

DSPS professionals' and students' signatures.

The District should implement procedures to ensure SECs are completed prior to services being provided and are updated annually. Also, the District should implement procedures to ensure SECs properly signed by both DSPS professional staff and the student prior to receiving or continuing to receive DSPS services.

Current Status

Implemented

Implemented

69





If Not Fully

Implemented

Finding/Recommendation Current Status

2012-06

During the review of TBA courses, noted in four out of six courses tested that the number of TBA hours required was not included in the official schedule of classes.

The District should include in their schedule of classes and course catalog a clear description of TBA hours, including the requirement and amount of hours needed to complete the course.

2012-07

Review of concurrent enrollment identified seventeen physical education courses which were comprised of special part-time or full-time students that exceeded the ten percent limit.

The District was advised to submit a revised CCFS-320 report to the State

Chancellor's Office. We recommend the district implement procedures to ensure that the necessary adjustments for apportionment reporting are taken for high school pupils enrolled in physical education classes.

Implemented

Implemented

70

HARTNELL COMMUNITY COLLEGE DISTRICT FINANCIAL STATEMENTS Salinas, California June 30, 2013

REQUIRED SUPPLEMENTARY INFORMATION

SUPPLEMENTARY INFORMATION

FINDINGS AND RECOMMENDATIONS

STATUS OF PRIOR YEAR

FINDINGS AND RECOMMENDATIONS

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HARTNELL COMMUNITY COLLEGE DISTRICT FINANCIAL STATEMENTS Salinas, California June 30, 2013

REQUIRED SUPPLEMENTARY INFORMATION

SUPPLEMENTARY INFORMATION

FINDINGS AND RECOMMENDATIONS

STATUS OF PRIOR YEAR

FINDINGS AND RECOMMENDATIONS

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