financial statements for the year ended july 31, 2013 and › ep787983-ep610113-ep1011649.pdf ·...

Financial Statements for the Year Ended July 31, 2013 and Independent Auditor’s Report

and

Schedule of Expenditures of Federal Awards for the Year

Ended July 31, 2013 and Reports on Compliance with Office of Management and Budget Circular A-133

CONTENTS

Page

INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS AND THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ...................................... 1 – 2 FINANCIAL STATEMENTS Statement of Financial Position ........................................................................................................ 3 Statement of Activities ...................................................................................................................... 4 Statement of Cash Flows ................................................................................................................. 5 Notes to Financial Statements .................................................................................................. 6 - 17 SUPPLEMENTAL INFORMATION Schedule of Expenditures of Federal Awards ................................................................................ 18 Notes to Schedule of Expenditures of Federal Awards ................................................................. 19 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 ...................................... 20 – 21 REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 .............................. 22 – 23 SUMMARY OF AUDITOR’S RESULTS AND SCHEDULE OF FINDINGS AND QUESTIONED COSTS ...................................................................................................... 24 – 25

An independent member of CPA Associates International with associated offices in principal U.S. Cities

3104 Fourth Avenue

San Diego, California 92103 619.615.5380 Fax 619.615.5389

INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS AND THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

Board of Trustees California Western School of Law San Diego, California Report on the Financial Statements We have audited the accompanying financial statements of California Western School of Law (a nonprofit organization), which comprise the statement of financial position as of July 31, 2013, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatements, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit invoices performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the 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 financial statements referred to above present fairly, in all material respects, the financial position of California Western School of Law as of July 31, 2013, and the changes in its net assets and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

Board of Trustees California Western School of Law Page 2 Other Matters Report on Summarized Comparative Information We have previously audited California Western School of Law’s 2012 financial statements, and our report dated November 13, 2012, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended July 31, 2012 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis, and is not a required part of the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 29, 2013, on our consideration of California Western School of Law’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering California Western School of Law’s internal control over financial reporting and compliance.

Cheryl Rhode, CPA San Diego, California for West Rhode & Roberts October 29, 2013

See Notes to Financial Statements. Page 3

STATEMENT OF FINANCIAL POSITIONJuly 31, 2013

(With Summarized Financial Information for July 31, 2012)

20122013 (Note 13)

ASSETSCash 8,383,338$ 6,977,770$ Other assets 1,864,067 2,283,247 Investments 48,090,792 44,765,161 Notes receivable 2,963,713 3,317,757 Bond issuance costs 315,878 337,355 Property and equipment, net 25,012,362 25,324,404

Total assets 86,630,150$ 83,005,694$

LIABILITIES AND NET ASSETSLiabilities:

Accounts and other payables 966,192$ 1,724,022$ Deferred tuition revenue 805,130 1,516,619 Accrued liabilities 2,849,916 2,058,521 Government loan program 4,084,923 4,022,761 Bonds payable 11,110,227 11,549,605

Total liabilities 19,816,388 20,871,528

Commitments (Notes 5, 8, and 9)

Net assets: Unrestricted 60,477,260 57,064,979 Temporarily restricted 2,581,237 2,026,963 Permanently restricted 3,755,265 3,042,224

Total net assets 66,813,762 62,134,166

Total liabilities and net assets 86,630,150$ 83,005,694$

CALIFORNIA WESTERN SCHOOL OF LAW



STATEMENT OF ACTIVITIES


Temporarily Permanently 2012Unrestricted Restricted Restricted Total (Note 13)

REVENUES, GAINS, AND OTHER SUPPORT

Net tuition and fees 28,623,212$ 28,623,212$ 29,701,577$ Contributions 202,469 446,010$ 612,092$ 1,260,571 791,704 Federal/state government grants 1,002,936 1,002,936 1,178,686 Net Investment income 2,667,259 489,797 949 3,158,005 207,272 Other 122,898 122,898 73,781 Net assets released

from restrictions 281,533 (281,533) Total revenues, gains, and

other support 32,900,307 654,274 613,041 34,167,622 31,953,020

EXPENSESInstructional 10,343,540 10,343,540 11,012,358 Academic support 8,669,737 8,669,737 9,086,398 Student support 5,534,576 5,534,576 5,713,131 Management and administration 4,940,173 4,940,173 5,784,148

Total expenses 29,488,026 - - 29,488,026 31,596,035

CHANGE IN NET ASSETS BEFORE 3,412,281 654,274 613,041 4,679,596 356,985 DONOR RECLASSIFIAITON

Reclassification of Donor Restriction (Note 12) - (100,000) 100,000 - -

CHANGE IN NET ASSETS 3,412,281 554,274 713,041 4,679,596 356,985

NET ASSETSBEGINNING OF YEAR 57,064,979 2,026,963 3,042,224 62,134,166 61,777,181 END OF YEAR 60,477,260$ 2,581,237$ 3,755,265$ 66,813,762$ 62,134,166$

Year Ended July 31, 2013

July 31, 2013


STATEMENT OF CASH FLOWSJuly 31, 2013


20122013 (Note 13)

OPERATING ACTIVITIESIncrease in net assets 4,679,596$ 356,985$ Adjustments to reconcile increases in net assets

to net cash provided by operating activities:Provision for bad debts 15,428 9,702 Depreciation and amortization 1,727,776 1,737,021 Net unrealized (gain) loss on investments (166,181) 285,187 Net realized gain on sale of investments (2,590,429) (127,486) Contributions restricted for long-term investments

or specific programs (1,058,102) (529,547) Change in assets and liabilities:

Other assets 392,262 (16,000) Accounts and other payables (757,830) 577,715 Deferred tuition revenue (711,489) 203,040 Accrued liabilities and reserves 791,395 203,433 Government loan program 62,162 82,852

Net cash provided by operating activities 2,384,588 2,782,902 INVESTING ACTIVITIES

Purchase of investments (13,132,038) (3,810,454) Proceeds from the sale and maturity of investments 12,563,017 3,002,608 Purchase of property and equipment (1,378,635) (951,647) Disbursement of loans (307,316) (335,045) Repayment of loans 672,850 842,915

Net cash used in investing activities (1,582,122) (1,251,623)

FINANCING ACTIVITIESContributions restricted for long-term

investments or specific programs 1,058,102 529,547 Payments on bond payable (455,000) (435,000)

Net cash provided by financing activities 603,102 94,547

NET INCREASE IN CASH 1,405,568 1,625,826 CASH AT BEGINNING OF YEAR 6,977,770 5,351,944 CASH AT END OF YEAR 8,383,338$ 6,977,770$

SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATIONCash paid for interest 577,920$ 599,062$




NOTES TO FINANCIAL STATEMENTS NOTE 1. NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization – California Western School of Law (the School) is a California not-for-profit corporation formed in 1975 as an independent educational institution located in San Diego, California. The School is accredited by the American Bar Association and the American Association of Law Schools offering courses of instruction in the profession of law and conferring the Doctorate of Jurisprudence (J.D.) degree, a Master of Comparative Law degree, and two Masters of Law degrees. Method of Accounting – The financial statements of the School have been prepared on the accrual basis of accounting. Basis of Presentation – Net assets, revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly the net assets of the School and changes therein are classified and reported as follows:

Unrestricted net assets - Net assets that are not subject to any donor-imposed stipulations. Temporarily restricted net assets - Net assets subject to donor-imposed restrictions on their use that may be met either by actions of the School or the passage of time. Permanently restricted net assets - Net assets subject to donor-imposed restrictions requiring that the principal be maintained permanently by the School. Generally, the donors permit the School to use all or part of the income earned for either general or donor-specified purposes.

Revenue Recognition – The School recognizes revenue in accordance with the following policies:

Tuition and Fees Revenue – The School requires tuition for courses to be paid in advance. Revenue is generally recognized during the term on a pro-rata basis as the students progress through their respective classes. Tuition and fees received before being earned are reflected as deferred tuition revenue. Net tuition and fees reflected on the statement of activities for the year ended July 31, 2013 (comparative amounts for the year ended July 31, 2012) are composed of the following:

2013 2012

Gross tuition and fees revenue 37,340,395$ 39,099,599$ Scholarships (8,717,183) (9,398,022) Net tuition and fees revenue 28,623,212$ 29,701,577$

Contribution Revenue – Contributions are recognized as revenue when they are received or unconditionally pledged. The School reports contributions as restricted if they are received with donor stipulations as to the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Contributions with donor restrictions that are met in the same reporting period are generally reported as unrestricted revenue. Contributions with donor restrictions requiring the principal gift to be held in perpetuity are reported as permanently restricted. The income earned from such assets is generally temporarily restricted for the purposes defined by the donor.



NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Contributions Receivables – Contributions Receivable are unconditional promises received and are recorded when the promise to contribute is made. The School provides an allowance for estimated uncollectible amounts at the time the pledges are recorded. The provision for uncollectible pledges is based, among other things, on the School’s past collection experience and the changes in the current economic conditions. Contributions receivable with payment terms in excess of one year have been discounted using an interest rate of 2%. Amortization of the discounts related to pledges receivable are recognized over the period of the promise as contribution revenue. Bond Issuance Costs – Bond issuance costs are amortized over the life of the bonds using the straight-line method, which approximates the effective interest rate method. Property and Equipment – Purchased property is recorded at cost and donated property is recorded at the estimated fair value on the date received. The School capitalizes all amounts greater than $1,000. Interest incurred from debt related to construction of assets is capitalized as a component of the cost of acquiring those assets. Property and equipment is depreciated on a straight-line basis as follows:

Buildings and improvements 40 years Library books 30 years Furniture and equipment 3 to 15 years

Depreciation expense totaled $1,690,677 for the year ended July 31, 2013. Government Loan Program – The School serves as an agent for the federal government in administering the Perkins Student Financial Aid Program. Monies received in conjunction with this program are recorded as a liability. Disbursements made to students, in accordance with the Federal Cash Management Requirements, are recorded as notes receivable. Notes receivable related to said disbursements totaled $2,808,598 at July 31, 2013. Fundraising Expenses – The School incurred $452,734 in fundraising expenses for the year ended July 31, 2013. These expenses are reflected in the Statement of Activities in the Management and administration expense category. Income Tax Status – The School is exempt from federal income tax pursuant to Section 501(c)(3) of the Internal Revenue Code and is also exempt from state income tax. The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification No. 740-10, Accounting for Uncertainties in Income Taxes, which sets a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The School reviewed its positions for all open tax years and has determined that no provision for uncertain tax positions is required. Use of Estimates – In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.




NOTE 1. NATURE OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Subsequent Events – Subsequent events are events or transactions that occur after the statement of financial position date but before financial statements are available to be issued. The School recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at that date, including the estimates inherent in the process of preparing financial statements. The School's financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the statement of financial position, but arose after that date and before the financial statements are available to be issued. The School has evaluated subsequent events through October 29, 2013, which is the date the financial statements are available for issuance, and concluded that there were no events or transaction that needed to be disclosed.

NOTE 2. INVESTMENTS

A summary of investments as of July 31, 2013 (comparative amounts at July 31, 2012) is as follows:

2013 2012Unrestricted:

Pooled investment fund 18,084,567$ 16,333,459$ Other investments 24,316,327 23,377,983

42,400,894$ 39,711,442$

Restricted:Pooled investment fund 3,768,611$ 3,291,701$ Other investments 1,921,287 1,762,018

5,689,898$ 5,053,719$

Total Investments 48,090,792$ 44,765,161$

Investments at July 31, 2013 are presented at fair value and are composed of the following:

Money market funds 106,714$ Mutual funds 17,563,930 Government and corporate bonds and notes 26,185,494 Equity securities 1,465,951 Alternative Investments 2,768,703

48,090,792$

The School pools some of its investments and allocates, on a pro-rata basis, the pooled investments and related investment returns to net assets, as appropriate. Unrestricted investments with a fair value of $1,076,860 are held for use as a debt-service reserve to support the School's 1998 Bonds (see Note 6).

The following is a summary of net investment income for the year ended July 31, 2013:

Interest and dividends 513,000$ Net realized and unrealized gains 2,756,610 Investment fees (111,605) Net investment income 3,158,005$




NOTE 3. FAIR VALUE MEASUREMENTS AND DISCLOSURES

The Financial Accounting Standards Board (FASB) issued Accounting Standards Codification No. 820-10 (ASC 820-10) Fair Value Measurements, that establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for the School’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect the School’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following table represents investments that are measured at fair value on a recurring basis at July 31, 2013:

Level 1 Level 2 Level 3 Total

Money market funds 106,714$ 106,714$ Mutual funds 14,979,808 2,584,122$ 17,563,930 Government and corporate bonds and notes 26,185,494 26,185,494 Equity Securities 1,465,951 1,465,951 Marketable alternative investments 1,683,395 1,683,395 Distressed opportunities fund 847,122 847,122 Real assets 147,775 147,775 Private equity 90,411 90,411

42,737,967$ 2,584,122$ 2,768,703$ 48,090,792$

Fair Value Measurements at July 31, 2013

There were no transfers between Level 1 and Level 2 (asset reclassification) during the year ended July 31, 2013.




NOTE 3. FAIR VALUE MEASUREMENTS AND DISCLOSURES (continued)

For the valuation of government and corporate bonds and notes, mutual funds, equity securities, and money market funds as of July 31, 2013, the School used quoted prices in principal active markets for identical assets as of the valuation date (Level 1). For the valuation of commingled funds as of July 31, 2013, the School used quoted prices in principal active markets for certain underlying fund positions and significant other observable inputs (Level 2). For the valuation of marketable alternative investments, nonmarketable real assets, private equity funds and distressed opportunities funds at July 31, 2013, the School used significant unobservable inputs, including information from fund managers or general partners based on quoted market prices, if available, or other valuation methods. The School reviews and evaluates the values provided by the fund managers and general partners and agrees with the valuation methods and assumptions used in determining the fair value of these investments (Level 3). The changes in assets by asset class measured at fair value for which the School used Level 3 inputs to determine fair value for the year ended July 31, 2013 are as follows:

Marketable DistressedAlternative Opportunities Real Private

Investments Funds Assets Equity Total

Balance, August 1, 2012 1,624,485$ 1,018,794$ -$ -$ 2,643,279$ Purchases 140,475 101,908 242,383 Sales - Distributions (84,866) (283,338) (4,462) (372,666) Realized gains - Unrealized gains (losses) 147,002 111,666 14,089 (5,127) 267,630 Fees (3,226) (6,789) (1,908) (11,923) Balance, July 31, 2013 1,683,395$ 847,122$ 147,775$ 90,411$ 2,768,703$

The School uses the net asset values (NAV) as a practical expedient to determine the fair value of all the underlying investments which do not have a readily determinable fair value. The following summarizes the nature and risk of those investments that are reported at estimated fair value utilizing net asset value as of July 31, 2013:

Unfunded Redemption RedemptionFair Value Commitments Frequency Notice Period

Marketable alternative investments (a) 1,683,395$ -$ Quarterly, not redeemable 65 daysDistressed opportunities fund (b) 847,122 231,000 Not redeemable N/AReal assets (c) 147,775 358,718 Not redeemable N/APrivate equity (d) 90,411 398,092 Not redeemable N/A

2,768,703$ 987,810$ (a) The strategies of the hedge funds in this category primarily include long/short equity, event

driven, relative value and global asset allocations. These funds invest predominantly in U.S. and non-U.S. investment funds. The fair value of these investments has been estimated using the NAV per share of the respective funds. As of July 31, 2013, 80% of the value is available for redemption quarterly with sixty-five days’ notice and 20% of the value is not redeemable.




NOTE 3. FAIR VALUE MEASUREMENTS AND DISCLOSURES (continued)

(b) This category is invested in funds which invest in direct or indirect securities of companies undergoing financial distress, operating difficulties, and significant restructuring. The funds in this category do not permit redemptions.

(c) This category is invested in funds which invest in a variety of real assets including oil, natural gas, alternative energy, minerals, mining, agriculture and timber. The funds in this category do not permit redemptions.

(d) This private equity fund is invested in venture capital, growth equity and buyout sector funds. The funds in this category do not permit redemptions.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment at July 31, 2013 consist of:

Building and improvements 27,182,543$ Furniture, fixtures, and equipment 10,846,028 Library books 13,401,601

51,430,172 Less accumulated depreciation (27,428,128)

24,002,044 Land 1,010,318 Property and equipment, net 25,012,362$

NOTE 5. CONTRIBUTIONS RECEIVABLE

Contributions receivable represent unconditional promises to give by donors. Amounts due more than one year later are recorded at the present value of estimated future cash flows discounted at the risk free rate of 2%.

The School has contributions receivable included in other assets as follows:

Due within one year 23,377$ Due between one and five years 500 Due after five years -

23,877 Less allowance for collectability (2,300) Less unamortized present value discount - Contributions receivable 21,577$




NOTE 6. BONDS PAYABLE

In April 1998, the School issued $16,000,000 of California Educational Facilities Authority (CEFA) revenue bonds (1998 Bonds) to construct a new library, renovate existing classroom facilities, and extinguish the School's 1991 CEFA revenue bonds (see Note 2). The 1998 bonds mature at various dates through fiscal 2028 and accrue interest, payable semiannually at interest rates ranging from 4 - 5%. During the year ended July 31, 2013, interest expense related to the 1998 Bonds totaled $570,640. The following table sets forth the School's principal payment requirements:

Years Ending July 31, Amount

2014 480,000$ 2015 505,000 2016 530,000 2017 555,000 2018 580,000 Thereafter 8,690,000

11,340,000 Less unamortized original bond issue discount (229,773) Bonds payable 11,110,227$

Payment of principal and interest on the 1998 Bonds is insured by a municipal bond insurance policy issued by Municipal Bond Investors Assurance Corporation. The School is subject to compliance with certain debt covenants, including restrictions on additional indebtedness. At July 31, 2013, management believes the School is in compliance with these covenants.




NOTE 7. NET ASSETS

Net assets at July 31, 2013 are as follows:

Unrestricted:Unrestricted for operations 42,265,445$ Board designated for scholarships 1,113,045 Board designated for professorships 1,053,677 Board designated for future uses 16,045,093

Total 60,477,260$

Temporarily restricted:Castetter Endowment 943,649$ Institute for Criminal Defense Advocacy 486,110 New Media Rights 221,526 Professorships 211,519 Other programs 718,433

Total 2,581,237$

Permanently restricted:Castetter Endowment 1,401,125$ Professorship program 1,380,513 Loan repayment assistance program 137,601 Student scholarships, grants and awards 666,987 Student loan programs 169,039

Total 3,755,265$

Permanently restricted net assets represent investments to be held in perpetuity, the income from which is expendable for purposes as defined by the donors. Both temporarily and permanently restricted net assets are reflected on the statement of financial position as cash, investments and other assets which include contributions receivable. Net assets are released from donor restrictions by incurring expenses satisfying the restricted purpose specified by the donors. Accomplishments of donor-specified purposes are as follows:

California Innocence Project 117,022$ Castetter 5,240 Institute of Criminal Defense Advocacy 9,862 New Media Rights 43,658 Professorships 41,550 Scholarships, grants and awards 20,400 Other donor designated programs 43,801 Total 281,533$




NOTE 8. ENDOWMENT

The School’s endowment (or pooled investment fund) consists of a number of funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Uniform Prudent Management of Institutional Funds Act as enacted in California (“UPMIFA”) does not establish a specific dollar value below which an endowment fund may not fall. Instead, UPMIFA requires that endowment fund investment and spending policies be designed with the aim of preserving that amount of each endowment fund which is prudent for the uses, benefits, purposes and duration for which each endowment fund was established. The Board of Trustees of the School has interpreted 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 School classifies as permanently restricted net assets the following: (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) the value of accumulations to the permanent endowment funds 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 a donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the School in a manner consistent with the standard of prudence prescribed by UPMIFA. Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the School to retain as a fund of perpetual duration. The School maintains records of the sum of: (a) the original value of gifts donated to its permanent endowment, (b) the original value of subsequent gifts to such permanent endowment, and (c) the value of accumulations to such permanent endowment funds made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The School has one temporarily restricted fund included in its endowment (or pooled investment fund) whose original value exceeded the market value of the endowment funds as of July 31, 2013 was $127,426. This difference in value resulted from the decline in the market value of the investments in which the funds are held, as well as a spending policy per the deed of gift historically higher than the earnings. Investment Objectives and Risk Parameters The School has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding for scholarships and programs supported by its endowments while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold indefinitely or for a donor-specified period as well as board-designated endowment funds. Under its investment policy, as approved by the Board of Trustees, funds are to be invested in a diversified portfolio in a way that maximizes value while avoiding undue risk concentration in any asset class or investment category. The School’s current target asset allocation is expected to provide, over time, an average rate of return of approximately eight percent annually. Actual returns in any given year may vary from this amount.




NOTE 8. ENDOWMENT (continued)

Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the School relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The School targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy In developing and applying its spending policy, the School considers certain of the following factors which it determines to be relevant:

1. The duration and preservation of the fund, 2. The purposes of the endowment funds (including the School’s Board-designated funds as well

as donor-restricted endowment funds), 3. General economic conditions, 4. The possible effect of inflation and deflation, 5. The expected total return from income and the appreciation of investments, 6. Other resources of the School, and 7. The investment policies of the School.

Except as set forth in the donors’ requirements or in the constitutive instruments establishing an endowment, the School has adopted a policy of appropriating for distribution each year 5 percent of the trailing three-year simple average of the endowments total asset value. In establishing this policy, the School considered the long-term expected return on its endowments. Accordingly, over the long term, the School expects the current spending policy to allow its endowment to grow at an average of 3 percent annually. This is consistent with the School’s objective to maintain the purchasing power of the endowment assets as well as to provide additional real growth through new gifts and investment return.

Temporarily PermanentlyUnrestricted Restricted Restricted Total

Donor-restricted endowment funds (127,426)$ 824,726 2,943,885 3,641,185$ Board-designated endowment funds 18,211,993 - - 18,211,993

Total pooled investment fund 18,084,567$ 824,726$ 2,943,885$ 21,853,178$ Cash and other investments - - 782,813 782,813

Total endowment funds 18,084,567$ 824,726$ 3,726,698$ 22,635,991

Temporarily PermanentlyUnrestricted Restricted Restricted Total

Endowment net assets, August 1, 2012 16,333,459$ 519,316$ 2,983,465$ 19,836,240$ Investment Return: Interest, dividends, realized

gains/(losses), net of fees 2,462,194 471,592 - 2,933,786 Net increase/(decrease) in market value 152,457 16,584 - 169,041

Total investment return 2,614,651 488,176 - 3,102,827 Cash endowment gifts received - - 743,233 743,233 Appropriation of endowment assets for

expenditure (863,543) (182,766) - (1,046,309) Endowment net assets, July 31, 2013 18,084,567$ 824,726$ 3,726,698$ 22,635,991$

At July 31, 2013, total endowment funds of $21,853,178 is included in total investments and referred to as the pooled investment fund in Note 2.




NOTE 9. COMMITMENTS

Employment Contracts and Retirement Agreement – The Board of Trustees or the Dean have authorized various employment agreements that include salary, paid sabbaticals, and retirement benefits. Future commitments under these agreements are as follows:


2014 10,790,510$ 2015 623,890 2016 388,960 2017 388,960 2018 - Thereafter -

12,192,320$

Leases – The School leases copier machines and a mailing system subject to operating leases with remaining terms through 2016. Rent expense for the year ended July 31, 2013 was $82,556. Future minimum rental commitments under non-cancelable operating leases at July 31, 2013 are as follows:


2014 70,258$ 2015 70,258 2016 48,470

188,986$ Professional Services – The School has entered into various contracts for professional services related to the operations of the School. Future commitments under these agreements are as follows:


2014 1,334,578$ 2015 1,048,755 2016 656,184

3,039,517$ Other – The School has entered into a number of agreements with various vendors related to the renovation of a portion of one of its buildings. Future commitments under these agreements total $289,275 for the year ending July 31, 2013. Alternative Investment – The School has commitments to invest in several alternative investments when capital calls are made by the investment partners. As of July 31, 2013, the School had $987,810 in investment commitments outstanding.




NOTE 10. QUALIFIED RETIREMENT PLAN

The School has a defined contribution retirement plan (the Plan). The Plan provides for three different types of contributions: voluntary employee contributions, mandatory employee contributions, and employer contributions. Generally, all employees regularly scheduled to work at least 20 hours per week are eligible to participate in the Plan. An eligible employee may elect to make voluntary employee contributions to the Plan at any time after employment commences.

In order to make mandatory employee contributions and to receive the employer contributions, an eligible employee must first complete either (a) 90 consecutive days of employment during which 390 hours of service is completed or (b) one year of service. This one year of service is defined as a twelve month consecutive period of time beginning on the employment anniversary date in which the employee completes at least 1,000 hours of service. Upon hire, an eligible employee must make a one-time irrevocable election to participate or not participate in the employer contribution portion of the Plan. If an eligible employee elects to participate in the employer contribution portion of the Plan, a mandatory employee contribution of 1.5% of their compensation and an employer contribution of 8% of their compensation will be contributed to the Plan. During the year ended July 31, 2013, the School's contribution expense related to the Plan was $1,163,349.

NOTE 11. CONCENTRATION OF CREDIT RISK

The School maintains its cash balances at a bank in excess of the Federal Deposit Insurance Corporation (FDIC) standard limit of $250,000. The School has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk.

In addition, the School invests in various investments including mutual funds, and money market accounts. Investment securities, in general, are subject to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of investments could occur in the near term and that such change could materially affect amounts reported on the financial statements.

NOTE 12. RECLASSIFICATION OF DONOR RESTRICTION

The School received a $100,000 donation from a donor to support an oral advocacy award and was recorded as a temporarily restricted contribution during the year ended July 31, 2010. During the year ended July 31, 2013 the School received a request from the donor to reclassify the gift as permanently restricted. As a result, the School’s financial statements reflect a reclassification of this $100,000 contribution from temporarily restricted to permanently restricted.

NOTE 13. PRIOR-YEAR SUMMARIZED COMPARATIVE INFORMATION

The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the School's financial statements for the year ended July 31, 2012 from which the summarized information was derived.

SUPPLEMENTAL INFORMATION

Pass-ThroughFederal Entity July 31, 2013CFDA Identifying Fiscal Year Outstanding

Number Number Activity Balance

U.S. Department of EducationStudent Financial Assistance Cluster

Federal Work Study Program 84.033 337,984$ n/aFederal Perkins Loan Program 84.038 261,761 2,808,598$ Federal Direct Student Loan Program 84.268 37,261,127 n/a

Total Student Financial Assistance Cluster 37,860,872 2,808,598

U.S. Department of Justice Pass-through Funds from:

California Emergency Management Agency - Post Conviction DNA Testing Assistance Program 16.741 CK 11021793 499,750 117,511

38,360,622$ 2,926,109$

The accompanying notes are an integral part of this schedule.


SCHEDULE OF EXPENDITURES OF FEDERAL AWARDSYEAR ENDED JULY 31, 2013


NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting – The accompanying Schedule of Expenditures of Federal Awards has been prepared from the School's accounting records and is presented according to the accrual basis method of accounting. Because the Schedule of Expenditures of Federal Awards presents only a selected portion of the activities of the School, it is not intended to and does not present either the financial position or changes in net assets of the School.

NOTE 2. LOAN PROGRAMS Federal Perkins Loan Program – Outstanding loans at July 31, 2013, under the Federal Perkins Loan Program, were $2,808,598. New Federal Perkins Loans of $261,761 were advanced to students during the year ended July 31, 2013. The School did not receive a federal contribution during the year ended July 31, 2013, and therefore, did not make a matching contribution to the Federal Perkins Loan Fund. New Perkins Loans were issued using cash collected on outstanding loans. Federal Direct Student Loan Program – The School participates in the Federal Direct Student Loan Program which includes unsubsidized Federal Stafford Loans as well as Grad Plus Loans. New loans disbursed for students during the year ended July 31, 2013 were as follows: Federal Direct Student Loan Program:

Stafford unsubsidized $16,568,464Grad Plus 20,692,663

37,261,127$


3104 Fourth Avenue


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

Board of Trustees California Western School of Law San Diego, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of California Western School of Law (a nonprofit organization), which comprise the statement of financial position as of July 31, 2013, and the related statements of activities, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated October 29, 2013. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered California Western School of Law’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of California Western School of Law’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

Board of Trustees California Western School of Law Compliance and Other Matters As part of obtaining reasonable assurance about whether California Western School of Law’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Cheryl Rhode, CPA for WEST RHODE & ROBERTS San Diego, California October 29, 2013


3104 Fourth Avenue


REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133

Board of Trustees California Western School of Law San Diego, California Report on Compliance for Each Major Federal Program We have audited California Western School of Law’s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of California Western School of Law’s major federal programs for the year ended July 31, 2013. California Western School of Law’s major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of California Western School of Law’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about California Western School of Law’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of California Western School of Law’s compliance. Opinion on Each Major Federal Program In our opinion, California Western School of Law complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended July 31, 2013.

Board of Trustees California Western School of Law Report on Internal Control Over Compliance Management of California Western School of Law is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered California Western School of Law’s internal control over compliance with the types of compliance requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of California Western School of Law’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.

Cheryl Rhode, CPA for WEST RHODE & ROBERTS San Diego, California October 29, 2013


SCHEDULE OF FINDINGS AND QUESTIONED COSTS

YEAR ENDED JULY 31, 2013 SECTION I - Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unqualified Internal control over financial reporting:

• Material weakness(es) identified? Yes X No • Significant deficiency(ies) identified that are

not considered to be material weakness(es)? Yes X None reported • Noncompliance material to financial

statements noted? Yes X No Federal Awards Internal control over major programs:

• Material weakness(es) identified? Yes X No • Significant deficiency(ies) identified that are

not considered to be material weakness(es)? Yes X None reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Yes X No Identification of Major Programs CFDA Numbers Name of Federal Programs or Cluster 16.741 California Emergency Management Agency- Post Conviction DNA Testing Assistance

84.033, 84.038, 84.268 Student Financial Assistance Cluster Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low-risk auditee? X Yes No


SCHEDULE OF FINDINGS AND QUESTIONED COSTS

YEAR ENDED JULY 31, 2013 SECTION II—Financial Statement Findings. The audit disclosed no material weaknesses in internal controls which are required to be reported in this schedule.

SECTION III—Federal Award Findings and Questioned Costs The audit disclosed no findings in relation to the School’s major federal program in the current year. SECTION IV—Status of Prior Year Findings No audit findings were noted in relation to the School’s major federal programs in the prior year.

Basis of Presentation – Net assets, revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly the net assets of the School and changes therein are classified and reported as foll...

financial statements for the year ended july 31, 2013 and › ep787983-ep610113-ep1011649.pdf ·...

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