STANDARD III.D. Financial Resources
Financial resources are sufficient to support and improve student learning programs and services at the College in support of the Educational Master Plan (EMP) (III.D-1), and to maintain the ongoing fiscal stability of the District. This is ensured by Board Policy (BP) 6200 Budget Preparation (III.D-2), BP 6300 Fiscal Management (III.D-3), AP 6305 Reserves (III.D-4), and BP 6320 Investments (III.D-5).
Gavilan Joint Community College District passed an Adopted Budget for Fiscal Year 2016-2017 for the Unrestricted General Fund with available resources of $32.7 million (III.D-6). The initial budget showed a deficit of less than a million dollars, but later in February 2017, the budget was adjusted to end up with a $380,000 surplus for fiscal year 2016-17 which increased the reserves to over $4,600,000 or 13.73%, well over the recommended five percent minimum (III.D-7). This fund supports the core operations of the college, which includes Administration, Instruction, and Student Services. The largest expense of the District, representing 83% of the Unrestricted General Fund budget is for salaries and benefits (III.D-8).
The District under AP 6300 Fiscal Management (III.D-3) is responsible for the stewardship of all available resources by providing an organizational structure that incorporates clear delineation of fiscal responsibilities and staff accountability. The safeguarding of Districts assets is maintained by sustaining effective internal controls. Gavilan College funds are invested by Santa Clara County Treasurer in compliance with the county’s investment policy (III.D-9) as specified by AP 6320 Investments (III.D-10).
Gavilan’s financial procedures are outlined in Board policies and administrative procedures. Financial management is transparent and follows generally accepted accounting and internal control practices. The College plans for both short-term and long-term financial solvency. Its resources are sufficient to support and maintain student learning programs and student services. Resources are allocated based on the needs of maintaining programs and student services as outlined in the educational master plan and the five year strategic plan.
The institution’s mission and goals are the foundation for financial planning, and financial planning is integrated with and supports all institutional planning. The institution has policies and procedures to ensure sound financial practices and financial stability. Appropriate financial information is disseminated throughout the institution in a timely manner.
The Gavilan College mission (III.D-11) provides the basis for the fiscal planning, from the Educational Master Plan (EMP) (III.D-1), Facilities Master Plan (III.D-12), Technology Plan (III.D-13), and the Five-Year Full Time Faculty Hiring Plan (III.D-14) for setting the long-term goals, which are fulfilled through the Strategic Plan (III.D-15) and program plans produced by departments.
The budget building process uses the following general guidelines for prioritizing budget requests: First priority is identification of the level of ongoing expenditures necessary to sustain Gavilan's current operational services. Second priority is funding improvements to enhance the College mission; the Gavilan College budget committee and President’s Council establish these funding needs through a process of departmental review, program plan and budget requests, and then ranking according to a rubric. All funding requests must directly support a goal listed in the Strategic Plan. This process integrates financial planning with institutional planning, considers EMP and strategic plan goals, and program plan review results and additional requests, and provides essential input into the ongoing budgeting process. The annual budget guidelines, Exhibit 3, page 2 of the Adopted 2016-17 budget, list the current year's objectives for instructional and other institutional enhancement (III.D-15).
The budget planning calendar (III.D-16) approved by the Board of Trustees sets up a timeline for the budget process. The Board of Trustees’ policy regarding budget development (III.D-2) is as follows: Each year, the president of the College presents a budget to the Board of Trustees, prepared in accordance with Title 5 of the California Code of Regulations and the California Community Colleges Budget and Accounting Manual. The schedule for presentation and review of budget proposals complies with state law and regulations and provides adequate time for study by the Board of Trustees. Budget projections address long-term goals and commitments. Budget planning supports institutional goals and is linked to other institutional planning efforts such as the EMP and the Strategic Plan.
The Budget Committee makes the final recommendations in preparation of the tentative budget to the Superintendent/President. The Vice President of Administrative Services then reports out the ranking results on the program plan requests and the Business Services department sends out award letters to department chairs. The department chairs submit online purchasing requisitions for processing.
To ensure that the budget process follows a set structure, policies and procedures were put in place by the Board of Trustees. Board Policies such as AP 6200 Budget Preparation (III.D-17), BP 6200 Budget Preparation (III.D-2) and Fiscal Management (III.D-3) were developed to safeguard sound financial practices and financial stability of Gavilan short and long term. Responsibility and accountability for fiscal management are clearly delineated and must support the College’s mission and educational plans.
Dissemination of financial information occurs throughout the year to the entire institution and community in a timely manner. Gavilan’s tentative budget goes to the Board for approval in June (III.D-18) and the adoption of the final budget in September (III.D-6, III.D-7). The Associate Vice President of Business Services and Security also provides two budget presentations in June and September to the public and Board of Trustees on the budget documents (III.D-19). The College annually releases and posts the independent audit report online and takes it to the Board of Trustees for approval (III.D-20). The audit and the State Chancellor’s Office annual financial report (CCFS 311) (III.D-21) are public documents and are filed with State, Federal, and other organizations as required or requested. Gavilan also reports out quarterly on financial status on the chancellor’s quarterly report 311q (III.D-22) for board approval. All budget and financial reports are posted on Gavilan’s web site under Budget Information (III.D-23).
Gavilan provides all budget managers with an online budget tool that allows them to review and maintain budgets in real time, so that they can see account balances, year to date expenditures, and unused encumbrances. This access allows managers and staff to manage their budgets and provide information to management on financial status as a whole.
Analysis and Evaluation for Standard III.D.3
Financial planning at Gavilan College is based on the College’s mission, the Educational Master Plan (EMP), and strategic plan goals and is part of a formally established comprehensive budget process that involves administrators, faculty, staff and the Board of Trustees. Board policies and procedures require such integration and outline sound financial practices that promote financial stability. Financial planning is open and transparent to the entire college and local community. Information is disseminated via Web postings, presentations, and is shared through participatory governance.
The institution clearly defines and follows its guidelines and processes for financial planning and budget development, with all constituencies having appropriate opportunities to participate in the development of institutional plans and budgets.
The Budget Committee, as described in Standard III.D.2, is the College’s shared governance standing committee (III.D-24) and is charged with integrating the financial resources with the instructional master plan and program plan reviews (III.D-25) to accomplish the College’s strategic goals and mission. This committee has bylaws that clearly establish the charge, role, and contribution to the shared governance process. The membership appointments come from all College constituencies including faculty, classified staff, students, and administration. The budget committee reviews the planning and the budget assumptions developed by the Administrative Services Division and revenue and expenditure projections developed by Business Services (III.D-26). The committee sends budget recommendations to the President’s Council and the council sends it to the Superintendent/President for board consideration (III.D-17). The Business Services department takes the original assumptions and develops a tentative budget to be approved at the June Board of Trustees meeting so the District can operate from the beginning of July until the final budget is adopted at the September Board of Trustees meeting (III.D-19).
The budget process is consistent with the annual planning process and the tentative budget is made available to all constituencies so that all have the opportunity for active participation and feedback into budget development and financial planning. As needed, the budgeting process is updated to reflect the current budget development.
Business Services develops a Budget Calendar (III.D-16) providing a step by step plan of action for the process. The Business Services typically develops budget assumptions in coordination with the Vice President of Administrative Services with input from the Superintendent/President’s Cabinet and the Board of Trustees. These budget assumptions are presented to the budget committee for review and agreement (III.D-16).
The tentative budget and final adopted budget and periodic updates (III.D-6 and III.D-7) are developed based on the Business Services information provided by the Santa Clara & San Benito County Treasurer Departments to determine anticipated property tax revenues during the year. The Board of Trustees’ policy on fund balance reserve level (III.D-4) as well as revenue forecasts and fixed costs (such as permanent and part-time staff & faculty salaries, benefits, and utilities) are integrated into the development of budget projections that are provided to the budget committee for analysis and comment and at the same time the institutional planning priorities are ranked in order of priority with these assumptions (III.D-27). The Business Services department then distributes schedules online to respective budget managers with these budget assumptions for review and adjustment. Budget managers are responsible for developing their department budgets and meeting with the Associate Vice President of Business Services and Security to review each of their budgets.
Gavilan College continues to pursue the development of new financial resources to help augment budget resources. The college has had great success in obtaining Title V and STEM grants over the last several years to add resources for educational purposes (III.D-28, III.D-29). In 2017, the College hired a Coordinator of the Gavilan Educational Foundation and Alumni Relations to design, develop, and execute a comprehensive development strategy for the Gavilan College Education Foundation to support the college mission and goals, which includes seeking grants and endowments from individual donors, private foundations and leveraging bond funds through a capital campaign drive (III.D-30). The College placed a successful facilities bond measure on the ballot in November 2018. Measure X will provide resources for improving, building and expanding educational facilities to meet the strategic goals and mission of the college.
The budget development process builds an accurate representation of available resources that is based on the identification of significant budget assumptions, including fixed costs, forecasted expenditures; Board mandated reserve, and projected revenue. Gavilan has been awarded additional financial resources that support College’s mission and strategic goals. The annual planning and budget process has enhanced the College’s ability to contemplate planning needs and integrate the results into the budget development process.
To assure the financial integrity of the institution and responsible use of its financial resources, the internal control structure has appropriate control mechanisms and widely disseminates dependable and timely information for sound financial decision making. The institution regularly evaluates its financial management practices and uses the results to improve internal control systems.
Board Policy (BP) 6300 Fiscal Management (III.D-3) requires that the Superintendent/President establish procedures to ensure that the College’s fiscal management is in accordance with the principles contained in Title 5, section 58311 (III.D-31) and that adequate internal controls exist and that fiscal objectives, procedures, and constraints are communicated to the College community and Board of Trustees. Responsibility and accountability for fiscal management are clearly delineated and the books and records of the College are maintained pursuant to the California Community Colleges Budget and Accounting Manual (III.D-32). Quarterly financial statements are provided to the Board of Trustees (III.D-22). The Business Services department also has budget workshops for administrators, staff, and faculty and, at special Board retreats; time is set aside and dedicated to reviewing concerns that have a fiscal impact on the College (III.D-33).
All budget managers have online access to the College’s financial management system called Banner. Budget managers have the ability to view their annual budgets as well as see the year-to-date actual spending. The Business Services staff meets with budget managers as requested to review their expenditures and assist in answering questions to help with their understanding of their budgets and the budget process.
There is a formal evaluation of the College’s financial management through the annual audit conducted by an independent certified public accounting firm (III.D-20). The examination of financial records, statements, and audits for compliance is in accordance with generally accepted auditing standards and current Governmental Accounting Standards Board (GASB) requirements as specified in Statements on Auditing Standards published by the American Institute of Certified Public Accountants; Office of Management and Budget Circular A-128 and A-133; Government Auditing Standards issued by the Comptroller General of the United States; Standards for Audit of Governmental Organizations Programs, Activities, and Functions; and the standards specified in the California Community Colleges Contracted College Audit Manual. The audit report includes an opinion of the independent certified public accountant on the financial statements, as well as comments and recommendations about the internal control systems and compliance with state and federal mandates. The annual audit provides the Board of Trustees with substantiation that processes and practices are thorough and comprehensive.
The College periodically evaluates its financial management practices, in addition to the formal audits, to determine whether changes might strengthen ongoing internal controls. As an example, the College recently separated the cashiering function from Admission and Records Office and moved all the cashiering functions to the Business Services to improve internal controls by adding separation of duties (III.D-34).
Past financial management practices demonstrate a consistent pattern of prudent fiscal management and appropriate accounting processes using generally accepted accounting standards. Financial information is disseminated to the Board of Trustees and campus constituents. Managers can access their budgets and expenditures at any time for review and can request assistance from the Business Services office to support their understanding when needed. Audits are the formal means of evaluation, but internal evaluations are used to increase financial controls, such as separating admissions and records office from the cashiering function.
Financial documents, including the budget, have a high degree of credibility and accuracy, and reflect appropriate allocation and use of financial resources to support student learning programs and services.
Evidence for Standard III.D.6
To ensure that financial reports reflect appropriate use of financial resources, the Board of Trustees oversees the Gavilan budget processes and appoints an independent certified public accounting firm to perform annual independent audit of the College’s financial statements (III.D-20, III.D-35, III.D-36). The final audit report and the Chancellor’s Office CCFS-311 are reviewed and accepted by the Board of Trustees. The auditors have issued an unqualified/unmodified opinion to the College on its financial statements each year.
The Board of Trustees also reviews and approves the Colleges tentative budget in June (III.D-18) and final adopted budget in September (III.D-6). To ensure accuracy, budget drafts are closely aligned with revenue estimates provided by the Santa Clara and San Benito Treasurers. Gavilan routinely submits a revised budget at the end of December (III.D-7) or mid-year to align the changes in budget assumptions and/or update revenue or expenditure projections.
The budget is developed using budget assumptions that evolve from the financial and institutional planning processes and those assumptions are included in the budget document for transparency and credibility purposes (III.D-19). All budgets and quarterly and annual financial reports submitted to the California Community Colleges Chancellor’s Office, as well as audited financial statements, can be found on the Budget website (III.D-23) in the interest of transparency.
Supporting student learning programs and services is primary to achieving the College’s mission and it’s this mission that drives institutional planning and resource allocation. The ongoing financial resources of the College are allocated to academic programs and student support services to implement strategic planning goals that enhance these programs and services.
Analysis and Evaluation for Standard III.D.6
Financial documents are accurate and credible, as evidenced by audits, which have resulted in an unqualified or unmodified opinion in all years. Financial documents are made readily available to campus constituents, the Board of Trustees, and the public for transparency and credibility. All quarterly budgets, annual financial reports, and audited financial statements are submitted to the Chancellor’s Office and can also be found on the Budgets website.
Resources are appropriately allocated to support student learning programs and services, as discussed in the College’s budget committee meetings and in alignment with the Colleges mission and strategic plans.
Gavilan engages an independent certified public accounting firm to perform annual audits of the College’s financial statements, which includes all College funds.
When the College receives audit findings, they are discussed throughout the College community. The Superintendent/President’s Cabinet and the Business Services office work with deans and other appropriate departments to prepare a comprehensive response. All responses are reviewed by the Superintendent/President’s Cabinet and with the Board of Trustees and then included in the audit report and a correction plan is put in place immediately. If a correction is not made in a timely manner, that department must report to the Superintendent/President’s Cabinet why such improvements were not made in a timely manner.
The external auditors typically present the annual audit to the Board of Trustees on or before the December 31 statutory deadline. The final audit for FY 2016-2017 was reviewed and accepted by the Board of Trustees at the January 9, 2018 board meeting (III.D-38). The College has received positive unqualified/unmodified audits on its financial statements for a number of years (III.D-20, III.D-21, III.D-35, III.D-36, III.D-38, III.D-39, III.D-40, III.D-41, III.D-42).
Analysis and Evaluation for Standard III.D.7
The College responds and makes timely comprehensive corrections to external audit findings. Audits are comprehensive; they include all funds and findings, and corrections are communicated to the Superintendent/President’s Cabinet and then presented to the Board of Trustees for acceptance and recorded in College record.
An independent certified public accountant performs the annual audit of all financial records of the College. The auditors express an opinion on the financial statements and the adequacy of the accounting procedures and internal controls. The most recent audit report had unqualified/ unmodified opinions on the College’s financial statements and they stated the financial statements present fairly, in all material respects, the respective financial position of the business-type activities and its aggregate remaining fund information of the Gavilan Joint Community College District, as of June 30, 2017, and the respective changes in financial position (III.D-20, III.D-21). They also stated they did not identify any deficiencies in internal control that they consider to be a material weakness.
When the Business Office internally reviewed the processes around collection of cash, there was a determination that stronger internal controls were needed. As a result, the Business Office took over the collection of all cash and credit card charges and removed this function from all departments and divisions. The Business Office now has their staff at all activities where cash and credit cards are collected for the College and the Foundation. Receipts are issued, money and credit cards are balanced, and deposits into the bank are made in a timely manner.
The College engages an independent public accounting firm annually to perform an audit of its financial statements and controls.
The institution has sufficient cash flow and reserves to maintain stability, support strategies for appropriate risk management, and, when necessary, implement contingency plans to meet financial emergencies and unforeseen occurrences.
Through careful planning and fiscal management, the College has maintained a healthy fund balance and reserve. The Board of Trustees did not feel that compliance with the California Community Colleges Chancellor’s Office requirement to maintain a minimum reserve equal to five percent of the general fund was adequate and increased that minimum to a required 10 percent locally (III.D-4). The College has maintained more than the Board of Trustees minimum 10 percent reserve level (III.D-6, III.D-20, III.D-22).
Gavilan relies primarily on property taxes for the largest portion of the Chancellor’s Office total computational revenue funding. Property taxes, enrollment fees, Educational Protection Act funding and apportionment revenues are distributed by the county to the college. The year ended June 30, 2017, the College for the first time in its history exceeded the limit of revenue allowed by the Chancellor’s Office from all revenue sources. This was caused by Education Revenue Augmentation Fund (ERAF) property taxes delivered unexpectedly at the end of June and so the College was required to return apportionment received from the Chancellor’s Office. The College worked out an arrangement with the Chancellor’ Office for the return of these funds over seven years. However, this uncertainty surrounding the unknown receipt of ERAF dollars continues to cause the College challenges in cash flow and revenue projections. These property tax dollars are received for the most part on the last few days of the fiscal year.
In addition to fiscal prudence, the College has appropriate policies for risk management. Gavilan is covered by a comprehensive insurance plan that includes property, liability, and employee bonding coverage. The College uses a self-insurance approach for the first twenty five thousand dollars supplemented by joint powers authority risk management to meet its insurance needs. Starting on July 1, 2017, property and liability are insured through the Statewide Association of Community Colleges (SWACC) (III.D-43). This coverage includes all risk for the full replacement cost on buildings and contents. Property and liability coverage are supplemented by an umbrella policy of $5 million under SWACC. Schools Excess Liability Fund Joint Powers Authority (SELF JPA) covers the College with additional liability coverage (III.D-44).
In Fiscal Year 2016-17, the College set up a Self-Insurance Fund to help cover deductibles not covered by SWACC and small claims not covered by insurance (III.D-45).
Gavilan has adequate reserves which consistently exceed the Board of Trustees required level of 10 percent. The College is sufficiently protected against risk through its participation in the pooled efforts of the SWACC. SWACC is well managed and is the largest California Community College Joint Powers Authority for property and liability insurance, and the College is represented on the SWACC Board of Directors. The Board of Trustees requires the College to maintain at least 10 percent in general fund reserves.
The institution practices effective oversight of finances, including management of financial aid, grants, externally funded programs, contractual relationships, auxiliary organizations or foundations, and institutional investments and assets.
The College practices effective oversight and management of all financial resources, including financial aid resources, grants, externally funded programs, and contractual relationships, investments, and other assets. Board policies provide for responsible stewardship over available resources as directed by effective fiscal management direction. The College is guided by Board policies in developing administrative procedures that ensure compliance and sound fiscal management. Board Policy 6300 Fiscal Management (III.D-3) requires effective internal controls be implemented to ensure ongoing effective operations and that there is a clear delineation of fiscal responsibility and staff accountability.
Independent auditors and state/federal program auditors identify any compliance deficiencies. An independent certified public accountant performs the annual audit of all financial records of the College. The auditors express an opinion on the financial statements and the adequacy of the accounting procedures and internal control. In the audit report, issued June 30, 2017, the College received an unqualified/unmodified opinion on its financial statements with no material weaknesses (III.D-20, III.D-21).
The Financial Aid Department is audited every year by independent auditors regarding its practices and procedures and there have been no findings or material weaknesses noted, including contractual agreements with outside vendors. Many of the processes are automated through the financial aid module that exists in Banner, the College’s management information system. The issuance of financial aid checks is done through the College Business Services as part of the internal control structure. The drawdown of Federal funds is restricted to management positions in the Business Services that are registered with the Department of Education.
The safeguarding of Districts assets is maintained by sustaining effective internal controls. Gavilan College’s funds are invested by Santa Clara County Treasurer in compliance with the county’s investment policy (III.D-9) as specified by AP 6320 Investments (III.D-10).
The College also hired an accountant dedicated to serving departments or divisions that receive grants or categorical funds. This accountant reviews grant and categorical requirements and reviews all purchases to make sure that they are spending dollars as per the guidelines in each agreement. Regular budget monitoring by grant managers and the Business Services safeguards against overspending of grant funds which might cause the College to have unanticipated liabilities.
The Gavilan College Educational Foundation also goes through an audit by independent certified public accountant and has received unqualified/unmodified opinion on its financial statements with no material weaknesses for fiscal year ended June 30, 2017 (III.D-46). Since the Foundation is the umbrella organization for all booster clubs or other externally funded organizations which support the athletics teams and other areas of the college, the College ensures effective oversight of these groups, too. It is the opinion of the auditors that the financial statements present fairly, in all material respects, the financial position of the Foundation as of June 30, 2017.
The College brought the accounting for the Foundation into the Business Office in fiscal year 2018–2019. This allows the College to streamline accounting functions and reduce turnaround times on issuing scholarship checks to students. It also permits the College to apply more internal controls over the Foundation operations.
The College has a history of compliance and sound financial management and oversight practices, as evidenced by independent external audits, audits conducted by external auditing firms, and grantors. The Santa Clara County Investment policy protects the Colleges investment of resources. The College and the Gavilan College Educational Foundation have consistently received unqualified/unmodified opinions on its financial statements. Budget monitoring by grant managers and the Business Services office protects the College from exceeding expenditure limits on grant funds and overspending on contracts with outside vendors.
The level of financial resources provides a reasonable expectation of both short- term and long-term financial solvency. When making short-range financial plans, the institution considers its long-range financial priorities to assure financial stability. The institution clearly identifies, plans, and allocates resources for payment of liabilities and future obligations.
Gavilan is developing a five year budget projection model to assist in managing long-range financial priorities and commitments while still managing short-range financial plans. In accordance with state regulations, the College has maintained in excess of the required reserve of five percent of its expenditures. It is Board policy to maintain at least a ten percent reserve. In addition to this required reserve, the College has consistently had additional reserves available to maintain a stable financial climate. The College developed an administrative procedure for reserve levels to be maintained at ten percent (III.D-4).
The Vice President of Administrative Services works with the budget committee to provide members with pertinent information to educate them about short- and long-term financial planning as it relates to the Colleges financial activities, including planning and program review. The Business Services office prepares different scenarios during the budgeting process based on known facts and information that it receives from the Chancellor’s Office (III.D-19). Cash flow projections are monitored to make sure that the College has the resources ready for payroll of staff and meet contractual commitments (III.D-47). The uncertainty surrounding the unknown receipt of Education Augmentation Revenue Fund (ERAF) dollars continues to cause the College challenges in cash flow and revenue projections. These ERAF property tax dollars are received for the most part on the last few days of the fiscal year. The District continues to work with the Chancellor’s Office as we operate in ERAF Basic Aid status which causes the College to return apportionment dollars.
The College contributes to its fiscal stability and long-term financial solvency by implementing strategies that result in a balanced operating budget. In 2017, the College hired a Coordinator of the Education Foundation and Alumni Relations to assist with fundraising. This coordinator is also operates the auxiliary foundation to support the college mission and goals, including seeking grants and endowments from individual donors, private foundations, and leveraging bond funds through a capital campaign. In addition, the position calls for the Foundation to further support the development of an alumni network for the college through dedicated outreach and database tracking.
The College clearly identifies and plans for payment of liabilities and future obligations. Gavilan has made remarkable progress on funding the retiree benefit liability, also known as Other Post-Employment Benefits (OPEB) (III.D-48).
The most significant debt obligations are associated with the March 2, 2004 General Obligation Bond Measure E that was authorized through an election of registered voters authorizing up to $108,000,000 in bond issues. The bonds were issued for the purpose of renovation, construction of facilities, and the purchase of furniture, fixtures, and equipment. The bond issuance has provided funds for facilities, land, and equipment until they were completely spent in February of 2018. In order to save money for the Santa Clara and San Benito taxpayers who generously funded the bonds, the college has refinanced the debt a number of times, lowering the total amount to be paid by the voters (III.D-49, III.D-50). Bond obligations will be repaid by property taxes. In 2016, Lease Revenue bonds were issued totaling $7,415,000 for improvements to the College athletic complex and new educational site (III.D-51). Also, as a cost savings measure to lower utility bills and as a leader in environmental responsibility, the College issued $6,500,000 in Clean Renewable Energy Bonds (CREB) through the U.S. Department of Energy for solar photovoltaic systems for covered parking lots (III.D-52).
The College plans for and has successfully discharged its past financial obligations and has plans to support future obligations. The College maintains reserves in excess of the amount required and has made tremendous progress in funding its OPEB liability. The College has the financial means necessary to meet future obligations as well as reserves for emergencies.
Consequently, reserves have steadily increased over last several years and other sources of revenue have been developed. The College is committed to developing a five- year budget projection model to manage situations that arise outside of its control and anticipate long-term commitments for financial planning.
The institution plans for and allocates appropriate resources for the payment of liabilities and future obligations, including Other Post-Employment Benefits (OPEB), compensated absences, and other employee related obligations. The actuarial plan to determine Other Post- Employment Benefits (OPEB) is current and prepared as required by appropriate accounting standards.
The College provides post-employment healthcare benefits for certain employees. As a result of the new accounting principles, Governmental Accounting Standards Board (GASB) Statement 45, the College contracts for biannual actuarial studies (III.D-53). The actuarial amount of any liability associated with this obligation must be reported in the notes of the audited financial statements. As a result, the College reflects an unfunded post-employment (actuarial) accrued liability of $1.8 million in note 8 of the June 30, 2017, annual audit report. As of June 30, 2017, the most recent actuarial valuation date, the plan was 80 percent funded (III.D-53). The College made an annual contribution of $523,000 for fiscal year June 30, 2017
The College clearly identifies and plans for payments of liabilities and future obligations. On August 8, 2017, the Board of Trustees approved the additional funding of $500,000 for the retiree benefit liability (III.D-54). The Board took action to pay an amount into the Other Post-Employment Benefits (OPEB) fund, allowing expenditures to be reduced for the unrestricted fund from further obligations for fiscal year 2016-2017.
The actuarial plan to determine OPEB liability is prepared as required by appropriate accounting standards and GASB guidance. The College’s last study was conducted in 2017, and new studies will be commissioned biannually as required by GASB 43 and 45. The College plans to maintain allocating resources to manage this liability and continue to reduce the unfunded liability.
As part of the annual budget development process, Gavilan assesses and allocates resources for the payment of locally incurred debt. Currently, there are three kinds of local debt: Clean Renewable Energy Bonds (CREB) debt, general obligation (GO) bond debt, and lease revenue bond debt. Gavilan has $94,635,000 in outstanding GO bond debt as of June 30, 2017 (III.D-55). Bond debt service is managed collaboratively by the College, its financial advisors, and the Santa Clara & San Benito Assessor Office through the levy of local property taxes as approved by voters in support of GO bonds. GO bond repayment schedules were established when bonds were sold. When tax proceeds are collected, they are deposited into a dedicated Debt Service Fund to assure timely and appropriate retirement of the obligation. Because GO bond debt repayment is supported by the College’s taxpayers through property taxes, repayment schedules pose no adverse impact on the College’s financial stability. The College is appreciative and respects and supports the local taxpayers who funded the bond. Because of this, the College has been diligent in refunding bond issues to save the taxpayers millions of dollars throughout the life of the bond.
In 2016, Gavilan issued lease revenue bonds. As of June 30, 2017, the College has $7.4 million in outstanding lease revenue bonds (III.D-56). The first two years of lease revenue bond payments are made with capitalized interest and provided no cash flow issues for the district through June 30, 2018.
In June 2017, the college issued $6,500,000 in Clean Renewable Energy Bonds (CREB) through the U.S. Department of Energy for solar photovoltaic systems for covered parking lots (III.D-56). The repayment of these bonds, which is built into the Unrestricted General Fund budget as an operational expenditure, will be offset by the energy savings costs (III.D-57) and will have no detrimental effect on the budget going forward. When the bonds are paid off in twenty years, budget savings will provide the College with more operating resources.
Analysis and Evaluation Standard III.D.13
During the budget development process, beginning in early January, approved by the Board as a tentative budget in June, and concluding with the adoption of the final budget in September, resources are set aside to accommodate the payment for service of any local debt.
All financial resources, including short- and long-term debt instruments (such as bonds and Certificates of Participation), auxiliary activities, fund-raising efforts, and grants, are used with integrity in a manner consistent with the intended purpose of the funding source.
All financial resources, including short- and long-term debt instruments and grants, are subject to the same effective oversight and policies, in addition to the appropriate prescriptive federal and state fiscal and program compliance guidelines, to ensure integrity of use. Effective oversight begins with Board Policy (BP), and such policies are in place at Gavilan (III.D-58). The Business Services office is responsible for establishing and monitoring the internal control policies that protect the assets of the College. An independent certified public accountant performs the annual audit of all financial records, including grants and the Gavilan College Educational Foundation.
As an example, when the Business Office internally reviewed the processes around collection of cash, there was a determination that stronger internal controls were needed. As a result, the Business Office took over the collection of all cash and credit card charges and removed this function from all departments and divisions. The Business Office now has their staff at all activities where cash and credit cards are collected for the College and the Foundation. Receipts are issued, money and credit cards are balanced and deposits into the bank are made in a timely manner.
Oversight and management of financial resources at the institutional level is under the direction of the Vice President of Administrative Services in cooperation with the deans or managers. The auditors express an opinion on the financial statements and the adequacy of internal controls. The most recent audit reports, issued June 30, 2017, had unqualified/ unmodified opinions on the College’s financial statements with no material weaknesses (III.D-20). The use of bond funds for construction, modernization, and renovation efforts was dictated by Measure E ballot language, approved by the College voters in 2004, and reviewed and accepted quarterly, as required by law, by the Citizens’ Bond Oversight Committee (III.D-35, III.D-59, III.D-60, III.D-61, III.D-62).
Grant management is both centralized and decentralized at the College. Workforce grants are centralized and managed by the Dean of Career and Technical Education. Grant managers, as program area experts, are responsible for monitoring expenditures and ensuring that grant funds are expended as intended. The College’s Fiscal Business Services Department supports grant managers by co-monitoring expenditures with a dedicated grant accountant who generates reports and assists with state and federal audits. External auditors conduct annual audits of special-funded state programs including Extended Opportunity Programs and Services (EOPS), Student Accessibility Services (SAS), and others for accuracy of financial records and compliance with all local, state, and federal regulations. The external audit includes: Independent Auditor’s Report, Management’s Discussion and Analysis, Basic Financial Statements, Required Supplementary Information, Supplementary Information, Independent Auditor’s Report on State, Compliance Requirements, Independent Auditor’s Report on Internal Controls over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed, Independent Auditor’s Report on, Compliance for Each Major Federal, Program and Report on Internal Control over Compliance, Findings and Recommendations. Federal & State grants providers may conduct independent audits to ensure compliance with intent.
The Gavilan College Education Foundation is the umbrella organization for fund-raising efforts. The Foundation received an unqualified audit for 2016-17 (III.D-46).
For the 2016-2017 fiscal year, the College received a unmodified qualified opinion from its external auditors in relation to compliance with applicable state grant requirements (III.D-20). Previous years’ audits identified findings and recommendations which were sufficiently addressed in the final fiscal year audit report provided by the auditors to the College. These corrective actions were then tested in the subsequent year for accuracies by the auditors.
Processes, safeguards, and internal controls are in place to ensure that all financial resources of the College, including short- and long-term debt instruments and grants, are used with integrity in a manner consistent with the intended purpose. For the 2016-2017 fiscal year, the College received a qualified opinion from its external auditors in relation to compliance with applicable state grant requirements. Previous years’ audits identified findings and recommendations which were sufficiently addressed by the College.
To increase the College’s effectiveness, staff has been hired to increase collaborative and supportive relationship with the Gavilan College Educational Foundation to support the fundraising efforts defined by the College’s mission, goals, and priorities.
The institution monitors and manages student loan default rates, revenue streams, and assets to ensure compliance with federal requirements, including Title IV of the Higher Education Act, and comes into compliance when the federal government identifies deficiencies.
The College regularly monitors and manages student loan default rates through integrated planning efforts involving Financial Aid, Institutional Research, Business Services, and the Board of Trustees as well as third party contractors. Through this integrated planning process, default data (III.D-63) are regularly assessed, analyzed, and improved.
In September 2014, the College’s FY 2011 default rate of 27.2% was released (III.D-64). The FY 2011 rate was presented to the Board of Trustees at October 2014 meeting (III.D-65). As discussed at Board of Trustees’ meeting, the Office of Institutional Research conducted data analysis of 46 borrowers (III.D-66) who defaulted in FY 2011 using defined metrics (III.D-67). New collaborations were discussed (III.D-68) and established with third party servicers like Ed Financial, LCC for default management services. Local efforts to review data accuracy before the official rate is released have also proven successful in stabilizing a once elevated rate (III.D-69, III.D-70, III.D-71). Over a three year period, the default rate was reduced from 27.3% in FY 2013 to 15.9% in FY 2014, with an expected FY 2015 rate of 13.3%.
The Financial Aid department monitors and manages student loan default rates in compliance with federal requirements.
Contractual agreements with external entities are consistent with the mission and goals of the institution, governed by institutional policies, and contain appropriate provisions to maintain the integrity of the institution and the quality of its programs, services, and operations.
Evidence for Standard III.D.16
All contractual agreements of the College are governed by institutional policies and contain appropriate provisions to maintain the integrity of the institution. Board Policy 6100, Delegation of Authority (III.D-72), requires that contracts be approved or ratified by the Board before they constitute an enforceable obligation of the College.
All contracts and agreements are monitored by the Vice President of Administrative Services. The College’s legal counsel reviews specialized contracts as necessary to ensure legal compliance. These agreements include personal services, operating leases, lease purchase agreements, instructional programs and services, contract education, and outside facility use; all of which are necessary to support the College’s mission and strategic goals. The Board of Trustees adopts a resolution annually that gives signatory authority to specific management team members of the College (III.D-73). The College changed its past practice of allowing several individuals to sign contracts to limiting the signers to only three designated individuals by the Board of Trustees to provide more control over contracts.
All contracts and agreements for services contain the appropriate language to meet all state and federal regulations pertaining to the level of goods or services being procured. All grant agreements are reviewed by a dedicated grants accountant.
Purchasing practices are reviewed as part of the annual audit. This includes testing of expenditures for contracts. There have been no exceptions cited for contractual agreements with external agencies (III.D-16, III.D-41).
Contracting practices and agreements support the College mission, strategic goals, and priorities and are in compliance with Board policies and administrative procedures. College contract review and signatory processes ensure the integrity of such agreements, as do annual audits. No exceptions have been cited for contractual agreements with external entities.
The College has a history of compliance and sound financial management and oversight practices, as evidenced by independent external audits, audits conducted by external auditing firms, and grantors. Gavilan’s financial procedures are outlined in Board policies and administrative procedures. Financial management is transparent and follows generally accepted accounting and internal control practices. The College plans for both short-term and long-term financial solvency. Resources are allocated based on the needs of programs and student services as outlined in the educational master plan and the strategic plan. The budget process is consistent with the annual planning process and the tentative budget is made available to all constituencies so that all have the opportunity for active participation and feedback into budget development and financial planning. The budget development process builds an accurate representation of available resources that is based on the identification of significant budget assumptions, including fixed costs, forecasted expenditures; Board mandated reserve, and projected revenue.
Financial management practices demonstrate a consistent pattern of prudent fiscal management and appropriate accounting processes using generally accepted accounting standards. Audits are the formal means of evaluation, but internal evaluations are used to increase financial controls
Gavilan has adequate reserves which consistently exceed the Board of Trustees required level of 10 percent. The College is sufficiently protected against risk through its participation in a well-managed Joint Powers Authority for property and liability insurance.
The College plans for and has successfully discharged its past financial obligations and has plans to support future obligations. The College maintains reserves in excess of the amount required and has made tremendous progress in funding its OPEB liability. The College has the financial means necessary to meet future obligations as well as reserves for emergencies. The College is committed to developing a five- year budget projection model to manage situations that arise outside of its control and anticipate long-term commitments for financial planning.
Staff has been hired to increase collaborative and supportive relationship with the Gavilan College Educational Foundation to support fundraising efforts. The Financial Aid department monitors and manages student loan default rates in compliance with federal requirements. Contracting practices and agreements support the College mission, strategic goals, and priorities and are in compliance with Board policies and administrative procedures. All of these provide effective management and oversight in external financial agreements.
- Educational Foundation: Continue to apply internal controls over the Foundation operations.
- Budget Models: Develop a five year budget projection model to assist in managing long-range financial priorities and commitments while still managing short-range financial plans based on the new Student Success Funding Formula (SCFF).