Reports on the Audit of Federal Award Programs in Accordance With OMB Uniform Guidance The

108 Pages·2017·5.63 MB·English

by  Pennsylvania State University

________________________________________________________________________
Reports on the Audit of Federal
Award Programs in Accordance
with OMB Uniform Guidance

________________________________________________________________________
The Pennsylvania State University
Fiscal Year Ended June 30, 2017
________________________________________________________________________

University Park, Pennsylvania
THE PENNSYLVANIA STATE UNIVERSITY

REPORTS ON THE AUDIT OF
FEDERAL AWARDS
IN ACCORDANCE WITH OMB UNIFORM GUIDANCE
FISCAL YEAR ENDED JUNE 30, 2017

TABLE OF CONTENTS

Letter of Transmittal 3

Independent Auditors’ Report together with
Audited Financial Statements of the University 6

Schedule of Expenditures of Federal Awards 41

Notes to Schedule of Expenditures of Federal Awards 100

Independent Auditors’ 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 102

Independent Auditors’ Report on Compliance for Each Major Federal Program;
Report on Internal Control over Compliance; and Report on Schedule
Of Expenditures of Federal Awards Required by the Uniform Guidance 104

Schedule of Findings and Questioned Costs 107

Schedule of Status on Prior Year Findings 108
r:.J
[phone]
PennState
FAX: [phone]
Joseph J. Doncsecz The Pennsylvania State University
Associate Vice President for Finance 408 Old Main
and Corporate Controller University Park, PA 16802-1505
March 26, 2018
Federal Audit Clearinghouse
1201 E. 1o th Street
Jeffersonville, IN 47132
To Whom It May Concern:
The Pennsylvania State University's financial, internal control and compliance reports for the
fiscal year ended June 30, 2017 are presented on the accompanying pages. The reports have
been issued in accordance with the Office of Management and Budget (OMB) Title 2 U.S. Code
of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles,
and Audit Requirements for Federal Awards. Also enclosed is The Pennsylvania State
University's schedule of findings and questioned costs.
Sincerely,
WJ
~//l/L/l/L/
Joseph J. Doncsecz
Associate Vice President for Finance and Corporate Controller
JJD/kjm
Enclosures
3
This Page Is Intentionally Left Blank
________________________________________________________________________
Audited
Financial
Statements

________________________________________________________________________
The Pennsylvania State University
Fiscal Year Ended June 30, 2017
Deloitte & Touche LLP
1700 Market Street
Philadelphia, PA 19103
USA

Tel: [phone]
Fax: [phone]
www.deloitte.com

INDEPENDENT AUDITORS’ REPORT

To the Board of Trustees of The Pennsylvania State University
University Park, Pennsylvania

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of The Pennsylvania
State University and its subsidiaries (the "University”), which comprise the consolidated
statements of financial position as of June 30, 2017 and 2016, and the related consolidated
statements of activities and cash flows for the years then ended, and the related notes to
the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in the
United States of America; this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based
on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the
United States.

The consolidated financial statements of the University include various subsidiaries as
outlined in Note 1 to the consolidated financial statements. The Penn State Health
subsidiaries, including Saint Joseph’s Regional Health Network and Medical Group and
Nittany Health, Inc. and The Corporation for Penn State subsidiaries, including Penn State
Recycling Markets Center, Research Park Management Corporation, The Pennsylvania State
University Philanthropic Fund, Ben Franklin Technology Center of Central & Northern PA,
Penn State Research Foundation, Research Park Hotel Corporation, and Nittany Insurance
Company, are audited in accordance with generally accepted auditing standards, but were
not audited in accordance with Government Auditing Standards and, accordingly, are not
covered by our reports in accordance with Government Auditing Standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the University's preparation
and fair presentation of the consolidated financial statements in order to design audit
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procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the University's internal control. Accordingly, we express
no such opinion. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the University as of June 30, 2017 and 2016, and
the changes in its net assets and its cash flows for the years then ended in accordance with
accounting principles generally accepted in the United States of America.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated
October 20, 2017 on our consideration of the University’s internal control over financial
reporting and our tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements and other matters. The purpose of that report is to describe
the scope of our testing of internal control over financial reporting and compliance and the
results of that testing, and not to provide an opinion on internal controls over financial
reporting or on compliance. That report is an integral part of an audit performed in
accordance with the Government Auditing Standards in considering the University’s internal
control over financial reporting and compliance.

October 20, 2017
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THE PENNSYLVANIA STATE UNIVERSITY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
JUNE 30, 2017 AND 2016
(in thousands)
June 30, 2017 June 30, 2016
Current assets:
Cash and cash equivalents $ 1 ,761,703 $ 1 ,395,514
Short-term investments 3 25,758 3 71,363
Deposits held by bond trustees 1 38,954 1 09,739
Deposits held for others 3 7,031 1 0,240
Accounts receivable, net of allowances of $88,731 and $83,942 5 42,603 4 96,100
Contributions receivable, net 6 0,893 5 4,565
Loans to students, net of allowances of $570 and $419 9 ,461 9 ,304
Inventories 4 8,152 4 2,472
Prepaid expenses and other assets 1 05,807 1 10,995
Total current assets 3 ,030,362 2 ,600,292
Noncurrent assets:
Deposits held by bond trustees 4 0,000 2 1,348
Contributions receivable, net 1 40,165 1 24,988
Loans to students, net of allowances of $2,548 and $2,107 4 9,121 5 1,602
Total investment in plant, net 4 ,921,412 4 ,590,311
Beneficial interest in perpetual trusts 1 9,854 1 4,558
Investments 5 ,716,986 5 ,279,950
Other assets 1 12,391 9 7,932
Total noncurrent assets 1 0,999,929 1 0,180,689
Total assets $1 4,030,291 $1 2,780,981
See notes to consolidated financial statements.
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THE PENNSYLVANIA STATE UNIVERSITY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
LIABILITIES AND NET ASSETS
JUNE 30, 2017 AND 2016
(in thousands)
June 30, 2017 June 30, 2016
Current liabilities:
Accounts payable and other accrued expenses $ 6 89,885 $ 5 96,027
Deferred revenue 3 41,261 3 14,682
Long-term debt 4 9,432 4 0,729
Present value of annuities payable 6 ,574 6 ,361
Accrued postretirement benefits 5 6,466 5 2,665
Total current liabilities 1 ,143,618 1 ,010,464
Noncurrent liabilities:
Deposits held in custody for others 3 2,724 3 5,710
Deferred revenue 1 ,218 1 ,477
Long-term debt 1 ,419,961 1 ,130,547
Present value of annuities payable 5 1,496 4 7,498
Accrued postretirement benefits 2 ,261,996 2 ,095,857
Refundable United States Government student loans 4 6,713 4 7,687
Other liabilities 2 30,067 2 04,797
Total noncurrent liabilities 4 ,044,175 3 ,563,573
Total liabilities 5 ,187,793 4 ,574,037
Net assets:
Unrestricted -
Undesignated 1 ,692 1 ,658
Designated for specific purposes 3 ,350,691 3 ,144,389
Net investment in plant 3 ,169,239 2 ,987,299
Total unrestricted - The Pennsylvania State University 6 ,521,622 6 ,133,346
Noncontrolling interest 4 ,609 3 ,687
Total unrestricted 6 ,526,231 6 ,137,033
Temporarily restricted 7 08,103 5 51,073
Permanently restricted 1 ,608,164 1 ,518,838
Total net assets 8 ,842,498 8 ,206,944
Total liabilities and net assets $1 4,030,291 $1 2,780,981
See notes to consolidated financial statements.
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THE PENNSYLVANIA STATE UNIVERSITY
CONSOLIDATED STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2017
(in thousands)
Temporarily Permanently
Unrestricted Restricted Restricted Total
Operating revenues and other support:
Tuition and fees, net of discounts of $205,002 $ 1 ,786,430 $ - $ - $ 1 ,786,430
Commonwealth of Pennsylvania ­
Appropriations 296,764 - - 296,764
Special contracts 68,933 - - 68,933
Department of General Services projects 47,500 - - 47,500
United States Government grants and contracts 479,717 - - 479,717
Private grants and contracts 216,596 - - 216,596
Gifts and pledges 62,906 24,631 - 87,537
Endowment spending 98,521 - - 98,521
Other investment income 140,235 1,046 - 141,281
Sales and services of educational activities 84,508 - - 84,508
Recovery of indirect costs 171,442 - - 171,442
Auxiliary enterprises 465,716 - - 465,716
Health System revenue, net of provision for bad debts of $46,251 2,073,496 - - 2,073,496
Other sources 40,628 - - 40,628
Net assets released from restrictions 2,859 (2,859) - -
Total operating revenues and other support 6,036,251 22,818 - 6,059,069
Operating expenses:
Educational and general ­
Instruction 1,402,451 - - 1,402,451
Research 810,985 - - 810,985
Public service 100,573 - - 100,573
Academic support 404,098 - - 404,098
Student services 204,943 - - 204,943
Institutional support 400,646 - - 400,646
Total educational and general 3,323,696 - - 3,323,696
Auxiliary enterprises 426,204 - - 426,204
Health System expense 1,927,155 - - 1,927,155
Total operating expenses 5,677,055 - - 5,677,055
Increase in net assets from operating
activities 359,196 22,818 - 382,014
Nonoperating activities:
Gifts and pledges - - 83,529 83,529
Current year investment returns 160,882 136,561 9,056 306,499
Endowment appreciation utilized (75,871) - - (75,871)
Changes in funds held by others in perpetuity - - 5,204 5,204
Write-offs and disposals of assets (4,815) - - (4,815)
Nonperiodic change in postretirement benefit plan (51,116) - - (51,116)
Actuarial adjustment on annuities payable - (2,349) (8,463) (10,812)
Increase in net assets from nonoperating
activities 29,080 134,212 89,326 252,618
Increase in net assets - The Pennsylvania
State University 388,276 157,030 89,326 634,632
Noncontrolling interest:
Excess of revenues over expenses 922 - - 922
Increase in net assets - noncontrolling interest 922 - - 922
Increase in total net assets 389,198 157,030 89,326 635,554
Net assets at the beginning of the year 6,137,033 551,073 1,518,838 8,206,944
Net assets at the end of the year $ 6 ,526,231 $ 708,103 $ 1 ,608,164 $ 8 ,842,498
See notes to consolidated financial statements.
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