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Ave Maria University, Inc. and Subsidiaries

Consolidated Financial Report

June 30, 2013 and 2012


Contents

Independent Auditor’s Report 1-2

Consolidated Financial Statements

Statement of Financial Position 3

Statement of Activities and Changes in Net Assets 4-5

Statement of Cash Flows 6-7

Notes to Consolidated Financial Statements 8-48

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 49-50

Report on Compliance for Each Major Federal and State Program;

Report on Internal Control Over Compliance 51-53

Schedule of Expenditures of Federal Awards and State Financial Assistance 54

Notes to Schedule of Expenditures of Federal Awards and

State Financial Assistance 55-57

Schedule of Findings and Questioned Costs 58-63

Summary Schedule of Prior Audit Findings 64

1

Independent Auditor's Report

To the Board of Trustees


Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of Ave Maria University,

Inc. and Subsidiaries (the “University”), which comprise the consolidated statement of financial

position as of June 30, 2013 and 2012 and the related consolidated statements of activities and

changes in net assets 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.

Auditor’s Responsibility

Our responsibility is to express opinions on these consolidated financial statements based on our

audit. We conducted our audit in accordance with auditing standards generally accepted in the

United States of America and the standards applicable to financial audits contained in Government

Auditing Standards, issued by the Comptroller General of the United States. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the

consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the consolidated financial statements. The procedures selected depend on 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 entity’s preparation and fair

presentation of the consolidated financial statements in order to design audit procedures that

are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit

also includes evaluating the appropriateness of accounting policies used and the reasonableness

of significant accounting estimates made by management, as well as evaluating the overall

presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinions.

kim.partlo

Praxity

kim.partlo

Columbus



2

Opinions

In our opinion, the consolidated financial statements referred to above present fairly, in all

material respects, the financial position of Ave Maria University, Inc. and Subsidiaries as of June

30, 2013 and 2012 and the changes in their net assets and cash flows for the years then ended, in

conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As described in Note 22 to the consolidated financial statements, the June 30, 2012 consolidated

financial statements have been restated to correct a misstatement. Our opinion is not modified

with respect to this matter.

Other Matters

Other Information

The accompanying schedule of expenditures of federal awards and state financial assistance and

other supplemental information are presented for the purpose of additional analysis as required

by U.S. Office of Management and Budget Circular A-133, Audit of States, Local Governments, and

Non-Profit Organizations, Section 215.97, Florida Statutes, and Chapter 10.650, Rules of the

Florida Auditor General and are not a required part of the consolidated financial statements.

Such information is the responsibility of management and was derived from and relates directly

to the underlying accounting and other records used to prepare the consolidated financial

statements. The information has been subjected to the auditing procedures applied in the audit

of the consolidated financial statements and certain additional procedures, including comparing

and reconciling such information directly to the underlying accounting and other records used to

prepare the consolidated financial statements or to the consolidated financial statements

themselves, and other additional procedures in accordance with auditing standards generally

accepted in the United States of America. In our opinion, the information is fairly stated in all

material respects in relation to the consolidated financial statements taken as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated

November 25, 2013 on our consideration of Ave Maria University and Subsidiaries’ internal

control over financial reporting and on our tests of their compliance with certain provisions of

laws, regulations, contracts, grant agreements, and other matters.

The purpose of the 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 (included on pages 49-50 herein) is an integral

part of an audit performed in accordance with Government Auditing Standards in considering Ave

Maria University, Inc. and Subsidiaries' internal control over financial reporting and compliance.

November 25, 2013

Columbus, Ohio

kim.partlo

PM Sig


See Notes to Consolidated Financial Statements. 3

Consolidated Statement of Financial Position

2013 2012

(Restated)

Cash and cash equivalents 14,039,129$ 8,425,794$

Restricted cash (Note 9) 1,000,000 1,000,000

Investments (Notes 2 and 6) 6,508,991 4,205,042

Receivables:

Student accounts receivable - Net of allowance for doubtful accounts

of approximately $730,000 and $579,000 at June 30, 2013 and 2012,

respectively 254,774 247,994

Related party receivables (Note 10) 1,158,851 974,898

Other receivables 782,060 206,420

Inventories 135,564 141,953

Prepaid expenses and other assets 432,435 93,723

Student loans receivable - Net of allowance for doubtful accounts (Note 5) 320,188 546,031

Pledges receivable - Net (Note 4) 1,325,000 2,229,950

Notes receivable - Related party (Note 11) 15,096,666 15,016,438

Assets held for sale (Notes 2 and 17) 1,347,352 -

Land and buildings held for rent - Net (Note 2) 25,748,802 30,551,655

Land held for investment (Notes 2 and 7) 41,122,442 43,529,100

Notes receivable - Net (Note 5) 1,768,023 6,239,108

Beneficial interest in trusts (Note 6) 1,173,682 999,155

Employee loans and advances - Net (Note 3) 2,587,319 2,677,871

Intangible asset (Notes 1 and 20) 2,000,000 4,400,000

Capital assets - Net (Note 8) 221,604,423 226,460,127

Deferred bond issuance costs (Note 9) 729,593 729,334

Discontinued operations (Note 18) 885,301 3,743,117

Total assets 340,020,595$ 352,417,710$

Liabilities

Accounts payable 834,073$ 823,729$

Accrued payroll and other liabilities 1,393,231 1,157,052

Gift annuities payable (Note 6) 1,383,562 1,425,267

Line of credit (Note 9) 1,654,822 1,788,155

Loans payable (Note 9) 4,105,769 4,213,387

Fair value of interest rate swap agreements (Note 9) 1,074,574 1,619,230

Deferred revenue on land sale agreements (Note 11) 8,805,020 8,731,085

Bonds payable (Note 9) 52,315,000 53,730,000

Discontinued operations (Note 18) 894,578 999,438

Total liabilities 72,460,629 74,487,343

Net Assets

Unrestricted 258,248,517 269,647,142

Temporarily restricted (Note 14) 7,708,368 6,085,144

Permanently restricted (Note 14) 1,603,081 2,198,081

Total net assets 267,559,966 277,930,367

Total liabilities and net assets 340,020,595$ 352,417,710$

June 30

Assets

Liabilities and Net Assets



Consolidated Statement of Activities and Changes in Net Assets

2013 2012

(Restated)

Unrestricted Net Assets

Operating revenue:

Tuition and fees 19,443,826$ 15,655,249$

Less scholarships and allowance (10,882,590) (9,232,454)

Net tuition and fees 8,561,236 6,422,795

Auxiliary income 6,581,674 5,309,463

Private gifts and grants (Note 4) 7,844,315 14,645,680

Investment income (Note 2) 1,990,202 2,503,563

Unrealized gain (loss) on investments (Note 2) 108,951 (74,210)

Other revenue 1,207,798 651,516

Net assets released from restrictions (Note 15) 1,201,366 1,611,485

Total operating revenue 27,495,542 31,070,292

Operating expenses:

Instruction 8,880,147 9,099,852

Academic support 2,027,538 2,218,691

Student services 7,587,120 7,401,007

Institutional support 3,114,348 4,136,535

Institutional relations and fundraising 2,761,090 3,218,652

Auxiliary 6,601,245 6,085,531

Total operating expenses 30,971,488 32,160,268

Net loss before other changes in unrestricted net assets from

continuing operations (3,475,946) (1,089,976)

Other changes in unrestricted net assets from continuing operations:

Increase in reserve on employee housing loans (Note 3) - (65,377)

Loss on write-down of employee housing loan (Note 3) (90,000) -

Loss on write-down of notes receivable (Note 5) (268,376) (1,257,415)

Loss on disposal and abandonment of capital assets (Note 8) (7,198) (162,467)

Loss on impairment of assets (Note 20) (5,502,222) (650,000)

Decrease in Unrestricted Net Assets from Continuing Operations (9,343,742) (3,225,235)

(Decrease) Increase in Unrestricted Net Assets from Discontinued

Operations - (Loss) gain on discontinued operations (Note 18) (2,054,883) 567,709

Net Decrease in Unrestricted Net Assets (11,398,625) (2,657,526)

Temporarily Restricted Net Assets

Contributions 1,710,604 570,236

Increase (decrease) in value of split-interest agreements 388,738 (623,557)

Gain (loss) on investments (Notes 2 and 21) 138,706 (54,325)

Net assets released from restrictions (Note 15) (601,366) (1,611,485)

Increase (Decrease) in Temporarily Restricted Net Assets from

Continuing Operations 1,636,682 (1,719,131)

Decrease in Temporarily Restricted Net Assets from Discontinued

Operations - Loss on discontinued operations (Note 18) (13,458) (25,200)

Net Increase (Decrease) in Temporarily Restricted Net Assets 1,623,224 (1,744,331)

Year Ended June 30



Consolidated Statement of Activities and Changes in

Net Assets (Continued)

2013 2012

(Restated)

Permanently Restricted Net Assets

Contributions 5,000$ 30,000$

Net assets released by donor from restrictions (Notes 15 and 21) (600,000) -

(Decrease) Increase in Permanently Restricted Net Assets (595,000) 30,000

Decrease in Net Assets (10,370,401) (4,371,857)

Net Assets - Beginning of year - As restated (Note 22) 277,930,367 282,302,224

Net Assets - End of year 267,559,966$ 277,930,367$

Year Ended June 30



Consolidated Statement of Cash Flows

2013 2012

(Restated)

Cash Flows from Operating Activities

Decrease in net assets (10,370,401)$ (4,371,857)$

Adjustments to reconcile decrease in net assets to net cash

from operating activities:

Depreciation expense 5,260,000 5,395,032

Depreciation expense included in discontinued operations 212,916 200,780

Amortization of bond issuance costs 31,702 31,702

(Increase) decrease in value of split-interest agreements (388,738) 623,557

Bad debt expense - Loans and accounts receivable 570,794 247,926

Loss on write-down of notes receivable 268,376 1,257,415

Increase in reserve on pledges and loans receivable 137,162 497,528

Increase in reserve on student loans receivable included in discontinued operations - 516,184

Net depreciation of investments 157,128 368,031

Net realized loss on sale of investments 1,124 414,965

Loss on disposal and abandonment of capital assets 7,198 162,467

Contributions received restricted for long-term investments (5,000) (30,000)

Net changes in value of interest rate swap agreement (544,656) (83,279)

Gain on sale of capital assets in discontinued operations - (35,505)

Loss on impairment of assets 5,502,222 650,000

Loss on write-down of assets of discontinued operations 3,028,092 -

Changes in assets and liabilities:

Student accounts receivable (448,005) (63,552)

Pledges receivable 647,781 (244,750)

Other receivables (1,304,881) (473,200)

Inventory 6,389 4,535

Prepaid expenses and other assets (370,673) (57,098)

Beneficial interest in trusts 115,127 (196,586)

Accounts payable 10,344 (56,005)

Accrued payroll and other accrued liabilities 236,179 (807,827)

Gift annuities payable 188,479 8,778

Deferred revenue on land sale agreements 73,935 (488,559)

Discontinued operations (692,082) (371,189)

Net cash provided by operating activities 2,330,512 3,099,493

Cash Flows from Investing Activities

Purchase of investments (4,828,581) (7,064,413)

Proceeds from sale of investments 5,380,317 8,930,061

Student loans advanced (13,903) (316,027)

Student loans repaid 70,484 378,153

Employee loans advanced (9,453) (61,818)

Employee loans repaid 5,705 174,622

Payments received on notes receivable 4,202,709 1,340,578

Interest collected on notes receivable 465,060 728,327

Cash paid for acquisition of capital assets (411,494) (358,116)

Discontinued operations 204,030 (232,849)

Net cash provided by investing activities 5,064,874 3,518,518

Year Ended June 30



Consolidated Statement of Cash Flows (Continued)

2013 2012

(Restated)

Cash Flows from Financing Activities

Increase in restricted cash - (1,000,000)

Contributions received restricted for long-term investment 5,000 30,000

Proceeds from new split-interest agreements - 175,000

Payments to beneficiaries under split-interest agreements (131,100) (143,109)

Payments on bonds payable (1,415,000) (2,250,000)

Proceeds from loans - 3,000,000

Principal payments on loans and line of credit (240,951) (280,793)

Net cash used in financing activities (1,782,051) (468,902)

Net Increase in Cash and Cash Equivalents 5,613,335 6,149,109

Cash and Cash Equivalents - Beginning of year (as restated) 8,425,794 2,276,685

Cash and Cash Equivalents - End of year 14,039,129$ 8,425,794$

Year Ended June 30


Notes to Consolidated Financial Statements

June 30, 2013 and 2012

8

Note 1 - Nature of Entity and Summary of Significant Accounting Policies

Nature of Operations - Ave Maria University, Inc. (AMU) commenced operations through

incorporation as a Florida nonprofit corporation pursuant to the provisions of Florida

statutes on September 3, 2002. The consolidated financial statements include the accounts

of Ave Maria University, Inc., its wholly owned subsidiaries, Ave Maria College (AMC or the

“College”) and Ave Maria Foundation for the Arts (AMFA), and two supporting

organizations: Ave Maria University Land Trust, Inc. (the “Land Trust”) and its wholly

owned subsidiary, AMULT, LLC (AMULT) (collectively known as the “University"). The

University offers a full schedule of postsecondary education with a primary emphasis on

providing a university education grounded in the traditions and faith of the Roman Catholic

Church as determined by the Holy See in Rome. AMU includes the accounts of Ave Maria University - Latin America (AMU-LA), formerly

Ave Maria College of the Americas (AMCA), which is located in San Marcos, Nicaragua.

Effective June 2013, the University transferred control of operations of AMU-LA to an

unrelated party. Effective August 2013, the University transferred all remaining assets and

liabilities to the new owner. The statement of financial position and statement of activities

and changes in net assets of AMU-LA are included in discontinued operations as of and for

the years ended June 30, 2013 and 2012 (see Note 18).

AMC commenced operations through incorporation as a Michigan nonprofit corporation

pursuant to the Michigan Non-Profit Corporation Act (Act 162, P.A. of 1982) on May 15,

1998. Effective June 30, 2007, AMC ceased operations and transferred substantially all

AMU-LA’s assets and liabilities to AMU along with any assets of AMC’s that were not

considered held for sale. As of October 31, 2012, AMC transferred all remaining assets and

liabilities to AMU and was legally dissolved.

AMFA commenced operations through incorporation as a Florida nonprofit corporation

pursuant to the provisions of Florida statutes on December 15, 2008, and was subsequently

granted tax-exempt status by the IRS as a Type 1 supporting organization. The purpose of

the corporation is to accept gifts of art and to otherwise acquire works of art for display to

the public throughout the University and the city of Ave Maria, Florida in furtherance of the

University’s charitable, religious, and educational purposes. As of June 30, 2013, the board

of directors has approved the dissolution of AMFA, pending filing of certain documents with

the State of Florida. Upon filing, all assets and liabilities of AMFA will be transferred to AMU.

The Land Trust was formed as a Florida nonprofit corporation pursuant to the provisions of

Florida statutes. Concurrently, AMULT was formed as a single member LLC, a disregarded

entity for tax purposes with the Land Trust being the single member.



June 30, 2013 and 2012

9


(Continued)

Basis of Presentation

Principles of Consolidation - All significant intercompany balances and transactions have

been eliminated.

Accrual Basis - The consolidated financial statements of the University have been prepared

using the accrual basis of accounting.

Discontinued Operations - Assets and liabilities related to AMU-LA and AMC are

reflected on the consolidated statement of financial position as discontinued operations,

recorded at an amount equal to the lower of carrying value or fair value as of June 30, 2013

and 2012. If the carrying value is in excess of fair value, a loss is recognized (see Note 18).

Fair value is estimated based on all available information, with purchase agreements and

appraisals as being most indicative of fair value.

Discontinued operations, including any gain or loss on sale of assets, are reported separately

in the consolidated statement of activities and changes in net assets for the periods

presented. See Note 18 for additional disclosure.

Classification of Net Assets - Net assets of the University are classified as permanently

restricted, temporarily restricted, or unrestricted depending on the presence and

characteristics of donor-imposed restrictions limiting the University's ability to use or

dispose of contributed assets or the economic benefits embodied in those assets. Donor-

imposed restrictions that expire with the passage of time or fulfillment of a donor-specified

purpose result in temporarily restricted net assets. Permanently restricted net assets result

from donor-imposed restrictions that limit the use of net assets in perpetuity. Earnings,

gains, and losses on restricted net assets are classified as unrestricted unless specifically

restricted by the donor or by applicable state law.

Contributions that are restricted by the donor are reported as an increase in unrestricted

net assets if the restriction expires in the reporting period in which the contribution is

recognized. When other restrictions expire, temporarily restricted net assets are presented

as net assets released from restrictions on the consolidated statement of activities and

changes in net assets.



June 30, 2013 and 2012

10


(Continued)

Cash Equivalents - The University considers all highly liquid investments with maturities of

three months or less to be cash equivalents, unless they are designated for long-term

purposes. The University maintains cash balances at various times during the year in excess

of the $250,000 guarantee by the Federal Deposit Insurance Corporation. The University

has not experienced any losses in such accounts. Management believes the University is not

exposed to any significant credit risk related to cash.

Investment Securities - The University records investments in marketable equity

securities with readily determinable market values and debt securities at their fair values.

Unrealized gains and losses are included in the consolidated statement of activities and

changes in net assets.

Risks and Uncertainties - The University’s marketable securities consist primarily of debt

and equity securities and alternative investments. These securities are exposed to various

risks, such as interest rate, market, and credit risks. Due to the level of risk associated with

certain marketable securities, it is reasonably possible that changes in risks in the near term

would materially affect the carrying value of the securities.

Student and Other Accounts Receivable - Accounts receivable are stated at net

amounts. An allowance for doubtful accounts and related expenses is established based on

the age of receivables from students and others. Actual uncollectible accounts are recorded

as bad debts in the period that determination is made.

Inventories - Inventories are stated at the lower of cost or market. Cost is determined

using the first-in, first-out method. The cost is recorded as an expense as the inventory is

consumed.

Property and Equipment - The University capitalizes major additions to property and

equipment. Recorded amounts for such assets are stated at cost of acquisition or

construction or at fair or appraised value at the date of gift, if so acquired. Rare books and

art collections are valued at appraised value and are not depreciated. Depreciation is

computed by a straight-line method over the estimated useful lives of assets as follows:

Buildings and building improvements 20 to 60 years

Land improvements 7 years

Leasehold improvements 5 years

Equipment 3 to 15 years

Furniture and fixtures 7 years

A 10 percent estimated salvage value was placed on the buildings of the permanent campus

that were placed into service during the current and previous fiscal years.



June 30, 2013 and 2012

11


(Continued)

Impairment and Disposal of Long-lived Assets - The University evaluates the

recoverability of its property and equipment whenever adverse events or changes in a

business climate indicate that the expected undiscounted future cash flows from a related

asset may be less than previously anticipated. If the net book value of related assets exceeds

the undiscounted future cash flows of the assets, the carrying amount would be reduced to

the fair value of the asset and an impairment loss would be recognized.

Assets classified as held for sale in the consolidated statement of financial position are

recorded at an amount equal to the lower of carrying value or fair value, less cost to sell. If

the carrying value is in excess of the fair value, a loss is recognized. Fair value is estimated

based on available market information.

There were no impairment charges related to long-lived assets during the years ended June

30, 2013 and 2012 other than the impairment charge discussed in Note 18 related to

discontinued operations.

Land and Buildings Held for Investment and Rent - Land and buildings held for

investment and rent are initially recorded at cost or estimated fair value at the date received

as a gift. Subsequently, the carrying value is reported net of accumulated depreciation. The

University evaluates the recoverability of its land and buildings held for investment and rent

whenever adverse events or changes in a business climate indicate that the carrying value

may not be fully recoverable. During the year ended June 30, 2013, the carrying value of the

University’s land and buildings held for rent was determined to exceed their fair value and

an impairment loss was recognized. There was no impairment charge related to land and

buildings held for investment and rent during the year ended June 30, 2012. See Note 20 for

additional information.

Intangible Assets - Intangible assets consist of the University’s licensing agreement to

broadcast and other intangibles related to the University’s radio station. The intangible

assets were originally recorded at cost, have an indefinite useful life, and are evaluated for

impairment on an annual basis. Recoverability is determined based on an estimate of the

expected cash flow of the intangible asset. During the years ended June 30, 2013 and 2012,

the carrying value of the University’s intangible assets was determined to exceed the fair

value and an impairment loss was recognized. See Note 20 for additional information.

Government Grants - Support funded by grants is recognized as the University performs

the contracted services under grant agreements. Grant revenue is recognized as earned as

the eligible expenses are incurred. Grant expenditures are subject to audit and acceptance

by the granting agency and adjustments may be required if audited.



June 30, 2013 and 2012

12


(Continued)

Income Taxes - The Internal Revenue Service has determined that AMU, the College,

AMFA, and the Land Trust are exempt from federal income taxes under Section 501(c)(3)

of the Internal Revenue Code. Accounting principles generally accepted in the United States

of America require management to evaluate tax positions taken by the University and

recognize a tax liability if the University has taken an uncertain position that more likely than

not would not be sustained upon examination by the IRS or other applicable taxing

authority. Management has analyzed the tax positions taken by the University and has

concluded that as of June 30, 2013 and 2012, there are no uncertain positions taken or

expected to be taken that would require recognition of a liability or disclosure in the

financial statements. The University is subject to routine audits by taxing jurisdictions;

however, there are currently no audits for any tax periods in progress. Management

believes it is no longer subject to income tax examinations for tax years prior to 2010.

Contributions - Contributions, including unconditional promises to give in the future, are

measured at fair value and reported as revenue when received. Donor promises to give in

the future are recorded at the present value of estimated future cash flows. Contributions

with donor-imposed time or purpose restrictions are reported as restricted support. All

other contributions are reported as unrestricted support. When a donor restriction expires

(that is, when a stipulated time restriction ends or purpose restriction is accomplished) and

the funds have been appropriated for expenditure, temporarily restricted net assets are

reclassified to unrestricted net assets and reported in the consolidated statement of

activities and changes in net assets as net assets released from restrictions.

Other Changes - Other changes in unrestricted net assets reflect transactions that are

peripheral to the University’s primary operating activities, providing a postsecondary

education. The other changes are primarily capital in nature or additional reserves related to

assets not utilized in the University’s primary operating activities.

Fair Value of Financial Instruments - The carrying amounts of the University's cash

equivalents, accounts receivable, accrued liabilities, accounts payable, and line of credit

approximate their fair value due to the short maturity of such instruments, while the fair

market value of employee advances and related party notes receivable is not determinable

due to the relationship between the parties. The carrying values of the bond payable and

other debt obligations approximate fair value based on borrowing rates currently available

to the University and the associated contractual agreements. The inputs are based upon

terms in contractual agreements. The fair value of these financial instruments is determined

using Level 2 inputs.



June 30, 2013 and 2012

13


(Continued)

Fair Value Option - The fair value option for financial assets and financial liabilities permits

entities to choose to measure many financial instruments and certain other items at fair

value. The fair value option may be applied instrument by instrument, is irrevocable, and is

applied only to entire instruments and not to portions of instruments.

Management made the election for the fair value option to provide an accurate portrayal of

these balances by discounting the gift annuities payable given the length of time involved

with some of the annuities and by adjusting the refundable advances to their underlying

investment’s market value.

Use of Estimates - The preparation of financial statements in conformity with accounting

principles generally accepted in the United States of America (GAAP) requires management

to make estimates and assumptions that affect the reported amounts of assets and liabilities

and disclosure of contingent assets and liabilities at the date of the consolidated financial

statements and the reported amounts of revenue and expenses during the reporting period.

The most significant assumptions and estimates relate to the valuation of real estate and

related intangible assets, including the assessment of impairments, as well as depreciable

lives and the collectibility of student and other accounts receivable, notes receivable, and

employee loans receivable. Application of these assumptions requires the exercise of

judgment as to future uncertainties and, as a result, actual results could differ from these

estimates.

Subsequent Events - The consolidated financial statements and related disclosures include

evaluation of events up through and including November 25, 2013, which is the date the

consolidated financial statements were issued.

New Accounting Pronouncements - The University adopted ASU No. 2011-04,

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.

GAAP and IFRS. This update results in common fair value measurement and disclosure

requirements in U.S. GAAP and International Financial Reporting Standards. The

amendments in this update explain how to measure fair value. They do not require

additional fair value measurements and are not intended to establish valuation standards or

affect valuation practices outside of financial reporting. However, this update does require

expanded disclosure related to the nature and significance of inputs that are used in

estimating and measuring the fair value of financial instruments. The amendments in this

update are to be applied prospectively and are effective for annual reporting periods

beginning after December 15, 2011. The new pronouncement did not impact the

consolidated statement of financial position or statement of activities and changes in net

assets.



June 30, 2013 and 2012

14

Note 2 - Investments

The following summarizes the University’s securities, land held for investment, and land and

buildings held for rent by type as of June 30, 2013 and 2012:

Cost Carrying Value Cost Carrying Value

Stocks 424,272$ 461,590$ 540,180$ 393,200$

Corporate bonds 335,000 335,000 1,030,000 1,030,000

Government bonds 1,120,000 1,120,000 - -

Mutual funds 3,856,053 4,592,401 2,281,673 2,781,842

Total securities 5,735,325 6,508,991 3,851,853 4,205,042

Land and buildings held for rent 25,748,802 25,748,802 30,551,655 30,551,655

Land held for investment (Note 7) 41,122,442 41,122,442 43,529,100 43,529,100

Total investments 72,606,569$ 73,380,235$ 77,932,608$ 78,285,797$

2013 2012

Land and buildings held for rent are recorded at cost or estimated fair value at the date

received as a gift. Depreciation expense recognized on land and buildings held for rent

during the years ended June 30, 2013 and 2012 was $607,279 and $635,189, respectively.

During the year ended June 30, 2013, $1,093,352 of land and buildings held for rent was

transferred to assets held for sale. The University evaluates the recoverability of its long-

lived assets whenever such changes in classification occur. There was no impairment charge

recorded as a result of the change in classification. In August 2013, the asset was sold to an

unrelated third party and a gain on sale was recorded of approximately $57,000.

Investment income included in the accompanying consolidated statement of activities and

changes in net assets is as follows:

2013 2012

Investment interest and dividends - Net of fees 205,484$ 403,783$

Interest collected on land held for investment (Note 11) 138,396 728,327

Interest on bank account land trusts 159 -

Net realized and unrealized gains (losses) 243,542 (144,712)

Realized gain on land held for investment (Note 11) 224,165 8,296

Investment rental income - Net of depreciation 1,426,113 1,379,334

Total 2,237,859$ 2,375,028$



June 30, 2013 and 2012

15

Note 2 - Investments (Continued)

Of the approximately $25,749,000 in land and buildings held for rent (net of depreciation) at

June 30, 2013, $13,690,000 relates to the former Naples, Florida campus, which is being

leased to an affiliated entity for $1,250,000 per annum through June 30, 2014. During the

year ended June 30, 2013, the carrying value of the Naples campus was determined to

exceed the fair value and an impairment loss of approximately $3,102,000 was recognized.

See Note 20 for additional information.

Additionally, approximately $12,059,000 classified as land and buildings held for rent is

leased to an affiliated entity operating a K-12 grammar and prep school for $300,000 per

annum through June 30, 2022. Effective each July 1

thereafter, the rent will increase by the

change in the Consumer Price Index for the previous calendar year. The University has

granted the affiliated entity free rent for the first four years of the lease term, a 75 percent

discount in year five, a 50 percent discount in year six, a 25 percent discount in year seven,

and no discount in subsequent years. The rent and aforementioned discounts are being

recognized on a straight-line basis over the term of the lease agreement.

The following is the estimated future annual rental income of land and buildings held for rent

on a straight-line basis:

Years Ending

June 30 Amount

2014 1,440,000$

2015 190,000

2016 190,000

2017 190,000

2018 190,000

Thereafter 760,000

Total 2,960,000$



June 30, 2013 and 2012

16

Note 3 - Employee Loans and Advances

Employee loans and advances as of June 30, 2013 and 2012 are summarized as follows:

2013 2012

Employee housing assistance loans 4,164,610$ 4,314,610$

Other employee loans 88,553 89,105

Subtotal 4,253,163 4,403,715

Less reserve for housing assistance loans (1,665,844) (1,725,844)

Net employee loans 2,587,319$ 2,677,871$

During the year ended June 30, 2007, the University introduced an Employee Housing

Assistance Loan program to all employees in order to assist University employees to

purchase housing within the town of Ave Maria. Under the program guidelines, the

employee takes out a first mortgage with a third-party lender of their choice and a second

shared appreciation mortgage with the University, which the employee is not required to

repay until the home is sold or the employee terminates service with the University. These

loans have ranged from $50,000 to $150,000. Upon the sale of the home, the University

shares in the appreciation (or depreciation) allocated pro rata based upon the original loan

amount as a percentage of the purchase price. The employee housing loan is noninterest-

bearing. The University imputes interest at the applicable federal rate and includes the

amount in the employee’s compensation. The program was suspended during fiscal year

2009 and no new loans are currently being offered.

Due to the recent depreciation in housing prices, management has placed a reserve of

$1,665,844 and $1,725,844 on the outstanding loan balances as of June 30, 2013 and 2012,

respectively. During the year ended June 30, 2013, one of the employee housing loans with

a balance due of $150,000 was determined to be uncollectible due to bankruptcy. As a

result, the University wrote off the unreserved balance of $90,000. The loss from the write-

down is presented on the consolidated statement of activities and changes in net assets as

other changes in unrestricted net assets from continuing operations. There are no amounts

considered past due at June 30, 2013 and 2012.

The University provides financing options to employees with loans with maturities greater

than one year. Employee loans receivable are periodically evaluated for collectibility.

Provisions for losses are determined on the basis of loss experience, known and inherent

risks in the loans held, the estimated value of underlying collateral, if any, and current

economic conditions.



June 30, 2013 and 2012

17

Note 3 - Employee Loans and Advances (Continued)

The University considers an employee loan to be impaired when, based upon current

information and events, it believes it is probable that the University will be unable to collect

all amounts due according to the contractual terms of the promissory notes receivable

agreements. The University did not have any other promissory notes receivable considered

to be impaired as of June 30, 2013 and 2012 after impairing the aforementioned $150,000

employee loan.

Note 4 - Pledges Receivable

Unconditional promises to give are included in the consolidated financial statements as

pledges receivable. Pledges are recorded at their net present value using the long-term U.S.

Treasury note rate in effect the year the pledge is received. There was one new pledge

received during fiscal year 2013. There were no new pledges received in 2012. The future

expected cash flows from pledges receivable as of June 30, 2013 and 2012 have been

discounted using a discount rate of 5 percent. The pledges are expected to be received as

follows:

2013 2012

In one year or less 315,000$ 1,506,285$

Between one and five years 1,196,000 915,000

Gross pledges receivable 1,511,000 2,421,285

Less discount to present value (186,000) (191,335)

Net pledges receivable 1,325,000$ 2,229,950$

On August 22, 2003, the University entered into a charitable pledge agreement (the

“Agreement”) with Ave Maria Foundation (the “Foundation”) and Thomas S. Monaghan,

Chancellor of the University. Under the terms of the Agreement, the University would

receive, subject to certain conditions as set forth in the Agreement, up to $10,000,000 each

fiscal year (noncumulative) to cover operating deficits, beginning with the opening of the

permanent campus.

On June 25, 2012, the University entered into a supplemental charitable pledge agreement

with the Chancellor. This agreement allows for up to an additional $2,000,000 to cover

operating deficits to maintain compliance with the debt covenants discussed in Note 9 and is

effective for the year ended June 30, 2012.



June 30, 2013 and 2012

18

Note 4 - Pledges Receivable (Continued)

These pledge agreements are conditional and awarded only in the event of operating deficits

as defined in the agreements. During the years ended June 30, 2013 and 2012, the

University recorded revenue of approximately $0 and $7,470,000, respectively, attributable

to these operating pledges. As of June 30, 2013 and 2012, $0 and $1,100,000, respectively,

of these amounts are included in pledges receivable, and the revenue is included in private

gifts and grants.

Note 5 - Notes Receivable and Student Loans Receivable

Stock Purchase Agreement

During the year ended June 30, 2011, the University entered into a signed stock purchase

agreement with a privately held company to sell back 132,744 shares of a private equity

investment. At the time of the agreement, the shares were valued at $22.27 per share. The

stock is to be redeemed in three annual payments of $985,403 each plus interest at 2.40

percent per annum, with the first payment having been made in January 2011. The company

exercised its option to defer its 2012 principal payment for one year, extending the final

payoff to January 2014. The University has included the value of the remaining payments as

a note receivable, with a balance outstanding of $985,403 and $1,970,806 as of June 30,

2013 and 2012, respectively. There are no amounts considered past due at June 30, 2013

and 2012.

Orchard Lake Schools Note

AMC had a $5,000,000 note receivable due from Orchard Lake Schools (OLS) until the

rights to the note receivable were transferred to AMU effective June 29, 2007. The note

receivable was also amended whereby OLS agreed to pay $1,000,000 of the principal

outstanding in October 2007 with the remaining $4,000,000 accruing interest at 4 percent

per annum through June 30, 2010 and 6 percent per annum starting July 1, 2010 with

principal and interest of $44,408 payable monthly until June 30, 2020. In October 2012, the

parties to the note entered into a settlement agreement and release, which provided for a

one-time pay-down of $3,000,000 against the remaining balance of the note as of the date

of the agreement. As part of the agreement, the University agreed to write down the

balance outstanding at September 30, 2012 by $268,376. This amount is reflected in the

other changes in unrestricted net assets from continuing operations on the consolidated

statement of activities and changes in net assets. The balance on the note at June 30, 2013

and 2012 was $0 and $3,406,627, respectively, which is included in notes receivable on the

consolidated statement of financial position.



June 30, 2013 and 2012

19

Note 5 - Notes Receivable and Student Loans Receivable (Continued)

Donor Promissory Note

During the year ended June 30, 2009, three promissory notes were assigned to the

University from one donor unrelated to the University. Under terms of the original

underlying agreements, the notes accrued interest at 4.73 percent per annum with principal

and interest of $72,884 (approximately $24,000 per promissory note) payable quarterly

until September 30, 2015, when the entire remaining principal balance and any unpaid

accrued interest were payable in full. In February 2012, the parties to the notes entered into

a settlement agreement and release, which provided for a one-time pay-down of

$1,000,000 against the remaining balance of the three original notes, a new interest rate of

2.89 percent per annum, a revised payment schedule of principal and interest totaling

$100,000 due each December 31 through 2021, and a consolidation of the three individual

notes into one obligation, with each of the original obligors jointly and severally liable for the

payment of the total note balance.

As part of the agreement, the University agreed to write down the original notes by

$1,257,415 during the year ended June 30, 2012. This amount is reflected in the other

changes in unrestricted net assets from continuing operations on the consolidated statement

of activities and changes in net assets. The balance on the notes at June 30, 2013 and 2012

was $782,620 and $861,675, respectively, which is included in notes receivable on the

consolidated statement of financial position. There are no amounts considered past due at

June 30, 2013 and 2012.

Student Loan Receivables

Prior to its accreditation, the University was not eligible to participate in the federal Title IV

student aid program. As a result, in order to be competitive with other schools, it offered

and awarded institutional Stafford replacement loans to its students. The terms of these

loans were similar to the then-currently awarded federal Stafford loans. These

uncollateralized loans were awarded based on student financial need, and the University did

not take into consideration the creditworthiness of the student or parents. If these loans

were awarded to students participating in the University’s vocation discernment program,

the terms were modified to include a provision to forgive the loan if (1) the student went on

to seminary, (2) was ordained a priest or took final vows as a Religious, and (3) did not

receive a loan pay-off option as part of their compensation package. The University stopped

awarding replacement Stafford loans when it became eligible to participate in the federal

Title IV program beginning with the fall 2005 school year.

Beginning in 2010, the University introduced the St. Rita Loan Program with the intention of

retaining students that would otherwise not be able to afford to continue school because of

financial need and an inability to secure traditional student loans. Institutional policy is to

limit these loans to hardship cases, with seven and eight new loans issued in the years ended

June 2013 and 2012, respectively. The loan repayment terms are similar to Stafford loans.



June 30, 2013 and 2012

20


At June 30, 2013 and 2012, student loans consisted of the following:

2013 2012

Institutional Student Loans Receivable

Stafford replacement - Performing 67,833$ 255,012$

Stafford replacement - Nonperforming, collectively evaluated 871,515 754,821

Stafford replacement - Nonperforming, individually evaluated 174,447 174,447

Vocational discernment - Collectively evaluated 609,041 635,806

Need-based gap loans 71,525 57,620

Total institutional student loans receivable 1,794,361 1,877,706

Less Allowance for Doubtful Accounts

Beginning balance (1,331,675) (806,922)

Current year increases (149,913) (524,753)

Write-offs of loans 7,415 -

Total allowance for doubtful accounts (1,474,173) (1,331,675)

Student loans receivable - Net 320,188$ 546,031$

Allowances for doubtful accounts are established based on prior collection experience and

current economic factors which, in management’s judgment, could influence the ability of

loan recipients to repay the amounts per the loan terms. Institutional loan balances are

written off only when they are deemed to be permanently uncollectible.

As of June 30, 2013 and 2012, the University has $1,655,004 and $1,442,865, respectively,

in gross student loan receivables that are more than 90 days delinquent.

In relation to the sale of AMU-LA as discussed in Note 18, student loans receivable of

$108,634 and $1,139,108 (net of allowances and impairments) have been included with

assets of discontinued operations on the consolidated statement of financial position as of

June 30, 2013 and 2012, respectively.



June 30, 2013 and 2012

21


Financing Notes Receivable

The University provides financing options to aforementioned organizations, donors, and

students for promissory notes and student loan receivables with maturities greater than one

year. Financing promissory notes and student loan receivables are periodically evaluated for

collectibility based on past credit history with the donors, organizations, and students and

their current financial condition. Provisions for losses on promissory notes and student loan

receivables are determined on the basis of loss experience, known and inherent risks in the

receivables held, the estimated value of underlying collateral, if any, and current economic

conditions. Financing notes receivable are placed in nonaccrual status when they become

past due. Upon suspension of the accrual of interest, interest income is subsequently

recognized to the extent cash payments are received. Accrual of interest is resumed when

loans are removed from nonaccrual status. Notes receivable are charged against the

allowance for credit losses when they are deemed to be uncollectible. The University did

not have any notes receivable on nonaccrual status at June 30, 2013 and 2012. The

University considers the promissory notes receivable to be fully collectible at June 30, 2013

and 2012 and has established the above reserves for student loans receivable.

The University considers promissory notes and student loan receivables to be impaired

when, based upon current information and events, it believes it is probable that the

University will be unable to collect all amounts due according to the contractual terms of

the promissory notes and student loan receivables agreements. Financing receivables are

assessed for impairment based on the following factors: (1) changes in external credit

ratings, (2) changes in regional and local economic conditions, and (3) changes in borrower-

specific financial condition. As mentioned previously, the University agreed to write down

promissory notes receivable of $268,376 and $1,257,415 and student loan receivables of

$7,415 and $0 during the years ended June 30, 2013 and 2012, respectively,



June 30, 2013 and 2012

22

Note 6 - Split-interest Agreements

AMU is the beneficiary of various split-interest agreements including charitable remainder

trusts and charitable gift annuities. AMU recognizes irrevocable split-interest agreements

when they are executed. If an unrelated third party acts as trustee or fiscal agent, a

contribution is recognized when AMU is notified of the agreement’s existence. Investments

held in split-interest agreements are reported at fair market value of assets donated as of

the date of the gift and by recording the actuarial present value of the annuities payable

using the 10-year U.S. Treasury discount rate (discount rates used at June 30, 2013 and

2012 were 2.5 percent and 1.7 percent, respectively). Real property and other assets are

reported at the appraised value at the date of donation. All distributions or remainder

interests in the split-interest agreements are available for AMU’s use based on the existence

or absence of donor-imposed restrictions.

As of June 30, 2013 and 2012, a beneficial interest in trust of $662,681 and $654,041,

respectively, was recorded for split-interest agreements with unrelated third parties acting

as trustees. For split-interest agreements under which the University acts as the trustee,

AMU has recorded an asset included in investments in the consolidated statement of

financial position of $2,256,677 and $2,199,300 with a corresponding life income obligation

of $1,383,562 and $1,425,267 at June 30, 2013 and 2012, respectively.

AMU is the beneficiary of additional split-interest agreements held by the Ave Maria

Foundation (the “Foundation”), for which the Foundation acts as the trustee. Once the

agreements have been satisfied, the remaining assets will be transferred to AMU. The

University recorded revenue of $256,684 and $95,075 under satisfied split-interest

agreements for the years ended June 30, 2013 and 2012, respectively. As of June 30, 2013

and 2012, a beneficial interest in charitable annuity trust of $511,001 and $345,114,

respectively, was recorded related to these agreements. The Foundation used the 10-year

U.S. Treasury discount rate of 2.5 percent and 1.7 percent to determine its liability for

annuity payments under these agreements during the years ended June 30, 2013 and 2012,

respectively.

Note 7 - Land Held for Investment

AMULT owns a 50 percent undivided interest in real property that is recorded at cost and

considered held for investment to be sold as needed to fund operations or provide long-

term investment for the University. As of June 30, 2013 and 2012, AMULT had a 50 percent

undivided interest in 7,441 acres and 7,877 acres of land, respectively, which is considered

held for investment at cost of $41,122,442 and $43,529,100, respectively.



June 30, 2013 and 2012

23

Note 8 - Capital Assets

Major classes of capital assets at June 30, 2013 and 2012 are as follows:

2013 2012

(Restated)

Land 3,191,234$ 3,130,447$

Land improvements 450,251 450,251

Buildings and building improvements 221,275,331 221,275,331

Equipment 10,623,578 11,089,117

Furniture and fixtures 5,564,033 5,915,007

Library collection 2,622,403 2,622,403

Artwork 3,725,006 3,725,006

Construction in progress 2,511,253 2,298,850

Total cost 249,963,089 250,506,412

Less accumulated depreciation 28,358,666 24,046,285

Net carrying amount 221,604,423$ 226,460,127$

Depreciation expense on capital assets was $5,260,000 and $5,395,032 for the years ended


During the years ended June 30, 2013 and 2012, the University expensed $7,198 and

$162,467, respectively, of previously capitalized construction in progress costs on projects

which will never be placed in service or were cancelled by the University before

completion.

In relation to the sale of AMU-LA as discussed in Note 18, capital assets of $263,182 and

$2,457,355 (net of accumulated depreciation and impairment) have been included with

assets of discontinued operations on the consolidated statement of financial position as of

June 30, 2013 and 2012, respectively. Depreciation expense on AMU-LA capital assets for

the years then ended was $212,916 and $200,780, respectively, and is included in

discontinued operations on the consolidated statement of activities and changes in net

assets.



June 30, 2013 and 2012

24

Note 9 - Debt Obligations

Bonds Payable

Bonds payable at June 30, 2013 and 2012 are summarized as follows:

2013 2012

Bonds payable - Collier County Educational

Facilities Authority:

Series 2008 16,535,000$ 17,000,000$

Series 2007 9,490,000 9,750,000

Series 2006 26,290,000 26,980,000

Total 52,315,000$ 53,730,000$

As of June 30, 2013, the aforementioned bonds were outstanding with Collier County

Educational Facilities Authority under a trust indenture with a trustee bank. The variable

rate bonds bore interest at an average rate of 0.160 percent and 0.225 percent as of June

30, 2013 and 2012, respectively. The maturity dates for the bonds, Series 2008, Series

2007, and Series 2006 were October 1, 2036, October 1, 2035, and October 1, 2034,

respectively.

The proceeds of the Series 2006 and 2007 bonds were used to finance a portion of the

acquisition and construction of housing facilities and the construction of an undergraduate

dormitory. The proceeds of the Series 2008 bond were used to finance the acquisition,

construction, and equipping of a four-floor, 554-bed student dormitory. All of the bond

proceeds were disbursed as of June 30, 2010.

As of June 30, 2013, all bonds were collateralized by outstanding letters of credit equal to

the aggregate principal outstanding plus interest in the amount not to exceed $16,738,856

(Series 2008), $9,607,000 (Series 2007), and $26,678,948 (Series 2006). The University pays

a letter of credit fee equal to 1.50 percent per annum on the Series 2008 bond, 1.35

percent per annum on the Series 2007 bond, and 2.0 percent per annum on the Series 2006

bond. The maturity dates of the letters of credit are August 2014 (Series 2008), August

2013 (Series 2007), and October 2012 (Series 2006). The letters of credit are secured by a

first priority interest in housing and a first priority collateral assignment of rents and leases

generated by the housing. As part of an extension agreement in 2011, an additional

$1,000,000 was deposited with the bank in a draw reimbursement account as collateral.

This collateral will be applied to the outstanding principal of the bonds in the event that

certain performance metrics are not met and is considered restricted cash on the

consolidated statement of financial position.



June 30, 2013 and 2012

25

Note 9 - Debt Obligations (Continued)

During the year ended June 30, 2013, the bank amended the terms of the Series 2006

bonds in its extension of the letter of credit from October 2012 to October 2014. This

extension amended the performance metrics to include minimum enrollment and net

average tuition and fees targets, as well as maximum reported cash-basis deficits.

The University also entered into a remarketing agreement for the bonds whereby the

remarketing agent receives a fee equal to 0.10 percent of the average principal outstanding

during the preceding six-month period payable semiannually in arrears each June 1 and

December 1 on the Series 2008 and 2007 bonds.

The remarketing agent receives a fee equal to 0.125 percent per annum of the average

principal outstanding during the preceding 12-month period payable on October 1 of each

year on the Series 2006 bond.

The University has also agreed to certain financial covenants including a debt service

coverage ratio and a liquidity ratio. The University has also granted a mortgage security

interest on real estate located at Collier County, Florida and certain rental and lease

revenue generated by the University further collateralizes the bonds. Furthermore,

AMULT and the Land Trust have granted guarantees to the obligor as further collateral on

the bonds.

The bondholders have the ability to call the bonds. If the remarketing agent is unable to sell

the bonds, the aforementioned maturity dates may change and be subject to the letter of

credit’s repayment terms, which may be less than one year. Under the letter of credit

agreement, if there is a purchase draw on these bonds, the full balance of the note could be

due within 180 days of the purchase drawing.

In July 2013, the University refunded the Series 2006, 2007, and 2008 bonds in full through

the issuance of two new bonds with principal amounts of $60,515,000 (Series 2013A) and

$2,720,000 (Series 2013B). The bonds are outstanding with Collier County Educational

Facilities Authority under a trust indenture with a trustee bank. These fixed rate bonds bear

interest at rates ranging from 4.5 percent to 6.125 percent. The maturity dates for the

Series 2013A and Series 2013B bonds are June 1, 2043 and June 1, 2017, respectively.

Additionally, as a result of the refunding, the three letters of credit discussed previously have

been terminated as of July 2013.



June 30, 2013 and 2012

26


The principal maturities on all bonds payable under the new agreements are as follows:

Year Ending

June 30 Series 2013A Series 2013B Total

2014 -$ -$ -$

2015 - 1,010,000 1,010,000

2016 - 1,055,000 1,055,000

2017 440,000 655,000 1,095,000

2018 1,140,000 - 1,140,000

Thereafter 58,935,000 - 58,935,000

Total 60,515,000$ 2,720,000$ 63,235,000$

Interest Rate Swap Agreements

The University is exposed to certain risks in the normal course of its operations. The main

risks are those relating to the variability of future earnings and cash flows, which are

managed through the use of derivatives. In particular, interest rate swaps (which are

designated as cash flow hedges) are used to manage the risk associated with interest rates

on variable borrowings.

The University entered into five interest rate swap agreements to reduce the University’s

risk exposure to rising interest rates and effectively lower its cost of borrowing over time.

Under each of the interest rate swap agreements, the University pays a fixed rate to, and

receives a variable rate from, the counterparty based on notional amounts listed below.

Unrealized gains in the fair value in the interest rate swap agreements of $544,656 and

$83,279 are recognized as a component of auxiliary expenses in the accompanying

consolidated statement of activities and changes in net assets for the years ended June 30,

2013 and 2012, respectively. In July 2013, the interest rate swap agreements were

terminated in conjunction with the refunding of the associated bonds mentioned previously.

The University used proceeds of $1,066,200 from the bond refinancing in July 2013 to

terminate the interest rate swap agreements.



June 30, 2013 and 2012

27


The terms and fair values of the outstanding swaps as of June 30, 2013 and 2012 are as

follows:

Bond Issue Maturity Dates

Notional

Amounts Interest Rate

Fair Value at

June 30, 2013

Fair Value at

June 30, 2012

Series 2006 March 1, 2017 10,000,000$ 3.825% (714,790)$ (1,042,774)$

Series 2007 November 1, 2017 3,000,000 3.800% (176,483) (256,803)

Series 2007 November 1, 2017 3,000,000 3.600% (166,552) (250,790)

Series 2008 June 1, 2014 1,500,000 1.290% (16,749) (28,741)

Series 2008 June 1, 2013 5,500,000 0.980% - (40,122)

Total(1,074,574)$ (1,619,230)$

Deferred Bond Issuance Costs

Deferred bond issuance costs represent legal and other financing costs incurred during

2013, 2008, 2007, and 2006 related to the aforementioned bond issuances. As of June 30,

2013 and 2012, deferred bond issuance costs amounted to $729,593 and $729,334,

respectively. The deferred financing costs will be amortized over the life of the bonds on a

straight-line basis as follows:

Years Ending

June 30 Amount

2014 32,767$

2015 32,767

2016 32,767

2017 32,767

2018 32,767

Thereafter 565,758

Total 729,593$

Amortization expense related to these deferred bond issuance costs was $31,702 for each

of the years ended June 30, 2013 and 2012. Due to refunding of the bonds as mentioned

previously, $697,633 of deferred bond costs was written off in July 2013.



June 30, 2013 and 2012

28


Line of Credit

As of June 30, 2013, the University had a line of credit facility with a bank maturing in

July 2014 to borrow $2,000,000. The line was secured by a portion of the employee

housing loans described in Note 3. Additionally, AMULT, LLC granted an unconditional

guarantee to the obligor as collateral on the line of credit. The total outstanding borrowing

at June 30, 2013 (accruing interest at LIBOR plus 200 basis points, an effective rate of 2.22

percent) and June 30, 2012 (accruing interest at LIBOR plus 200 basis points, an effective

rate of 2.24 percent) was $1,654,822 and $1,788,155, respectively. Under the agreement,

payments made through July 2011 were payments of interest only. Monthly principal

payments of $11,111 began in August 2011 and mature in July 2014. In July 2013, the line of

credit was repaid and the agreement terminated in conjunction with the refunding of the

associated bonds mentioned previously.

Loans Payable

Loans payable at June 30, 2013 and 2012 are as follows:

2013 2012

Note payable in the amount of $63,528 in exchange for capital

assets obtained in fiscal year 2010. The note is due in monthly

installments of $1,228, including interest at 6 percent per annum

through October 2014 18,840$ 32,016$



installments of $724 through December 2013 and is noninterest-

bearing 3,617 12,300

Mortgage note payable in the amount of $937,500 for the

purpose of refinancing a building during fiscal year 2011. The

note is due in 35 monthly installments of $6,493, with a balloon

payment of $860,690 due in May 2014. The loan accrues

interest at 5.5 percent per annum and is secured by the

property. In August 2013, the related building was sold (see

Note 2) and the mortgage note paid in full. 877,855 906,854



installments of $1,230, including interest at 12.7 percent per

annum through December 2014 20,064 32,707



June 30, 2013 and 2012

29


2013 2012



installments of $4,876, including interest at 6.9 percent per

annum through February 2017 185,393$ 229,510$

Mortgage note payable in the amount of $3,000,000 for the

purpose of refinancing a building during fiscal year 2012. The

note is due in annual principal installments of $100,000 beginning

on July 1, 2013, with a balloon payment of $1,000,000 due on

July 1, 2032. The loan accrues interest at 5 percent per annum

and is secured by the property 3,000,000 3,000,000

Total loans payable 4,105,769$ 4,213,387$

The principal maturities on all loans payable are as follows:

Years Ending

June 30 Amount

2014 1,055,521$

2015 162,698

2016 154,185

2017 133,365

2018 100,000

Thereafter 2,500,000

Total4,105,769$

Interest Expense

Total interest expense and bond-related costs, including letter of credit fees incurred during

fiscal years 2013 and 2012, were approximately $2,010,000 and $2,034,000, respectively.

Note 10 - Related Party Transactions

Related party receivables at June 30, 2013 and 2012 are summarized as follows:

2013 2012

Rhodora J. Donahue Academy (Academy) 1,058,953$ 875,000$

Ave Maria Development (AMD) 99,898 99,898

Total 1,158,851$ 974,898$



June 30, 2013 and 2012

30

Note 10 - Related Party Transactions (Continued)

Shared Services with Rhodora J. Donahue Academy - The Academy is a not-for-profit

private K-12 school which received an operating grant from the Foundation to start

operations. One member of AMU and AMC’s board of trustees also serves on the board of

the Academy.

During the years ended June 30, 2013 and 2012, the Academy reimbursed AMU

approximately $0 and $56,500, respectively, for expenditures paid by AMU on behalf of the

Academy related to maintenance of the school grounds. At June 30, 2013 and 2012,

approximately $69,000 and $0, respectively, is included in the receivable balance above

related to such shared expenditures.

Also, as disclosed in Note 2, the Academy leases a building from AMU for $300,000 per

annum. Due to the free rent period and subsequent discounts, AMU has recognized rental

income on a straight-line basis over the lease term as required under GAAP. At June 30,

2013 and 2012, $990,000 and $875,000, respectively, is included in the receivable balance

above related to the straight-line rent adjustment. Rental revenue of $190,000 is included in

investment income in the consolidated statement of activities and changes in net assets for

the years ended June 30, 2013 and 2012.

Shared Services with AMD - AMD is an entity which has purchased land from AMULT in

the past and is partially owned by the chancellor of the University. AMU reimbursed AMD

approximately $55,000 and $25,000 for expenditures paid by AMD on behalf of AMU

related to construction and maintenance of the permanent campus during the years ended

June 30, 2013 and 2012, respectively. During the years ended June 30, 2013 and 2012, AMU

also paid approximately $216,000 and $210,000, respectively, to AMD for rental costs of

the bookstore and visitor center within the town of Ave Maria. As of June 30, 2013 and

2012, the University had recorded $439,997 and $470,780, respectively, within accrued

payroll and other liabilities on the consolidated statement of financial position for amounts

due to AMD related to these shared service agreements.

The following are the estimated future rental costs associated with the book store and the

visitor center:

Years Ending

June 30 Amount

2014 136,713$

2015 22,099

Total 158,812$



June 30, 2013 and 2012

31

Note 10 - Related Party Transactions (Continued)

Activity with the Ave Maria Foundation - AMU receives grants from the Foundation to

cover various operating expenses (see Note 4). This revenue is included in private gifts and

grants in the consolidated statement of activities and changes in net assets. Additionally,

AMU reimbursed the Foundation approximately $27,000 and $8,000 during the years ended

June 30, 2013 and 2012, respectively, for expenditures paid by the Foundation on behalf of

AMU. One member of AMU and AMC’s board of trustees also serves on the board of the

Foundation.

Shamrock Bank of Florida - AMU has a mortgage note payable and cash on deposit with

Shamrock Bank of Florida, for which the chancellor of AMU is a stockholder. The mortgage

note payable is disclosed in Note 9 and the outstanding balance was $877,855 and $906,854

as of June 30, 2013 and 2012, respectively. Cash on deposit was $13,194,314 and $0 as of


Note 11 - Land Sale Agreements

AMULT and the Partnership and a related party of the partnership (collectively known as

the “Seller”) entered into a purchase agreement with Ave Maria Development, LLLP

(AMD), allowing AMD to purchase 9,310 acres of land held for investment (see Note 7)

over time from AMULT and the Seller at the then fair market value. Upon closing of each

sale, a portion of the purchase price, cash paid at closing, and promissory notes is allocated

to AMULT in accordance with a tenancy in common agreement. None of the proceeds

applicable to habitat and stewardship credits are allocated to AMULT.

Under the original terms of the notes, interest was due at a rate of 6.5 percent per annum

and the promissory notes mature at dates ranging from September 21, 2011 to July 14,

2014. During the 2011 fiscal year, the terms were amended. Interest is now due at a rate

of 1.6 percent per annum and the promissory notes mature at dates ranging from

September 21, 2016 to July 14, 2018. Principal on the promissory notes is payable as land is

sold to third parties as residential homes or commercial property. Interest is recognized

when collected. Given the contingent nature of when AMULT collects on the promissory

notes including accrued interest, the timing of repayment is not determinable. Certain notes

receivable are collateralized by related buildings, structures, and improvements on the

property under a mortgage and security agreement. Under the terms of the 2011

amendment, collateral under each of the promissory notes serves as security for all other

outstanding promissory notes.



June 30, 2013 and 2012

32

Note 11 - Land Sale Agreements (Continued)

The following table summarizes the land sale transactions with Ave Maria Development,

LLLP from inception through June 30, 2013:

Date Sold Acres Sold Purchase Price

Proceeds

Allocable to

Other Partners

Cash Paid at

Closing

Original Note

Receivable

Deferred

Revenue as of

June 30, 2013

Notes

Receivable as of

June 30, 2013

Accrued

Interest as of

June 30, 2013

September 21, 2006 673.150 20,507,500$ 14,266,866$ -$ 6,240,634$ 2,520,580$ 6,240,356$ 19,783$

December 18, 2006 51.480 3,217,500 2,345,735 - 871,765 373,983 555,146 3,585

February 19, 2007 149.300 9,331,250 5,629,754 933,125 2,768,371 1,453,974 1,871,022 30,190

April 11, 2008 98.996 4,749,525 2,374,763 474,953 1,899,809 1,460,434 1,899,726 30,653

July 11, 2008 359.210 11,689,610 5,846,805 1,356,785 4,486,020 2,759,350 4,203,316 20,397

December 31, 2012 28.002 1,050,000 670,971 75,806 303,223 131,029 221,430 1,062

Total 1,360.138 8,699,350$ 14,990,996$ 105,670$

Purchase Price

Allocable to AMULT

The following table summarizes the notes receivable activity during fiscal years ended June

30, 2013 and 2012:

2013 2012

Beginning balance 15,016,438$ 15,509,415$

Interest accrued 242,065 248,064

Collections on principal and interest (465,060) (741,041)

Issuance of notes receivable 303,223 -

Ending balance 15,096,666$ 15,016,438$

The following table summarizes the deferred revenue activity during fiscal years ended June

30, 2013 and 2012:

2013 2012

Beginning balance 8,731,085$ 9,219,644$

Revenue recognized on prior year sales (224,165) (8,296)

Revenue deferred in current year 194,431 -

Accrued interest deferred during the year 242,065 248,064

Accrued interest collected (138,396) (728,327)

Ending balance 8,805,020$ 8,731,085$

Deferred Revenue as of June 30



June 30, 2013 and 2012

33

Note 11 - Land Sale Agreements (Continued)

AMULT has accounted for the sales agreements listed above on the installment method.

Under the installment method, income is recognized as a portion of each cash payment is

received. Accordingly, AMULT recorded a net gain of $224,165 and $8,296, which is

included in investment income in the consolidated statement of activities and changes in net

assets, for the years ended June 30, 2013 and 2012, respectively. AMULT has recorded

interest income related to the sales agreements of approximately $138,000 and $728,000,

which is also included in investment income in the consolidated statement of activities and

changes in net assets, for the years ended June 30, 2013 and 2012, respectively.

The Seller provides financing options to AMD for promissory notes receivable with

maturities greater than one year. Financing promissory notes receivable are periodically

evaluated for collectibility based on past credit history with AMD and their current financial

condition. Provisions for losses on financing promissory notes receivable are determined on

the basis of loss experience, known and inherent risks in the promissory notes held, the

estimated value of underlying collateral, if any, and current economic conditions. The Seller

considers the notes receivable to be fully collectible at June 30, 2013 and 2012 and there are

no amounts considered past due at June 30, 2013 and 2012.

The Seller considers a promissory note receivable to be impaired when, based upon current

information and events, it believes it is probable that the Seller will be unable to collect all

amounts due according to the contractual terms of the promissory notes receivable

agreement. Individual promissory notes receivable are assessed for impairment based on

the following factors: (1) changes in external credit ratings, (2) changes in regional and local

economic conditions, and (3) changes in borrower-specific financial condition. The Seller did

not have any promissory notes receivable considered to be impaired as of June 30, 2013 and

2012.

Note 12 - Health Plan

Effective January 2010, the Foundation implemented a premium-based health insurance

program for the benefit of substantially all employees of the University, the Foundation, and

other entities supported by the Foundation. Under terms of that plan, the Foundation billed

the University for its share of healthcare premiums. Effective January 2013, the University

terminated the agreement with the Foundation, instead offering coverage directly with a

local provider. The health insurance costs incurred by the University under the Foundation

for the years ended June 30, 2013 and 2012 were $501,790 and $1,581,356, respectively.

The health insurance costs incurred by the University under the local provider for the year

ended June 30, 2013 was $681,120.



June 30, 2013 and 2012

34

Note 13 - Retirement Plan

AMU and U.S. citizens of AMU-LA participate in defined contribution retirement plans

sponsored by Ave Maria Foundation. All regular full-time employees are eligible for this

benefit. The 401(k) and 403(b) savings plans allow the employees to elect how much salary

they want to contribute and direct the investments of their plan accounts so they can tailor

their own retirement package to meet their individual needs. The University also

contributes an additional matching amount of 50 percent up to 5 percent of the employee's

annual salary to each employee's 401(k) or 403(b) account. The employer matching

contribution was suspended in October 2010 and has not been reinstated as of the issuance

date of the consolidated financial statements.

Note 14 - Temporarily and Permanently Restricted Net Assets

Temporarily restricted net assets as of June 30, 2013 and 2012 are restricted for the

following purposes:

2013 2012

(Restated)

Program support 711,253$ 1,014,275$

Scholarships 2,236,837 877,270

Split-interest agreements 2,074,097 1,800,485

Capital additions 2,686,181 2,393,114

Total temporarily restricted net assets 7,708,368$ 6,085,144$

Permanently restricted net assets as of June 30, 2013 and 2012 are restricted for the

following purposes:

2013 2012

Program support 500,090$ 500,090$

Scholarships 1,102,991 1,697,991

Total permanently restricted net assets 1,603,081$ 2,198,081$



June 30, 2013 and 2012

35

Note 15 - Net Assets Released from Restrictions

During the years ended June 30, 2013 and 2012, the University released the following

amounts from temporarily restricted net assets upon satisfying the terms of restriction:

2013 2012

Program support 563,358$ 928,692$

Scholarships 38,008 84,499

Capital acquisitions - 598,294

Total temporarily restricted net assets

released from restriction 601,366$ 1,611,485$

During the year ended June 30, 2013, a donor agreed to release $600,000 in permanently

restricted net assets for the purpose of allowing the University to use the funds for

immediate operating needs. There were no releases of permanently restricted net assets

during the year ended June 30, 2012.

Note 16 - Commitments and Contingencies

Leases - The University leases certain equipment under operating leases. Future minimum

lease payments under operating leases as of June 30, 2013 are as follows:

Years Ending

June 30 Amount

2014 28,851$

2015 26,796

2016 26,235

2017 26,235

Total 108,117$

Rent expense related to these leases was $41,958 and $113,029 for the years ended June

30, 2013 and 2012, respectively. Future minimum payments and rent expense for 2013 and

2012 are exclusive of the related party leases disclosed in Note 10.

Contingencies - In the normal course of its activities, the University has been a party in

various legal actions. After taking into consideration legal counsel's evaluation of pending

actions, the University is of the opinion that the outcome thereof will not have a material

effect on its consolidated financial statements.



June 30, 2013 and 2012

36

Note 17 - Cash Flow

Cash paid for interest and other bond-related costs, including letter of credit fees for the

years ended June 30, 2013 and 2012, was approximately $1,980,500 and $2,036,000,

respectively.

Capital assets obtained in exchange for debt obligations during the years ended June 30,

2013 and 2012 totaled $0 and $283,684, respectively. For further information, see Note 9.

During the year ended June 30, 2013, the following noncash transactions also occurred:

The University accepted land with a fair market value of $254,000 from a donor in

satisfaction of a portion of an outstanding pledge. The land is included with assets held

for sale in the consolidated statement of financial position.

The University transferred $1,093,352 of land and buildings held for rent on the

consolidated statement of financial position to assets held for sale.

Note 18 - Discontinued Operations

In 2007, the board of trustees passed resolutions to approve the dissolution of AMC’s

operations and to transfer AMU-LA to AMU along with any assets of AMC that would not

be considered held for sale. In 2013, AMC was legally dissolved. Activity associated with the

closure of AMC for the years ended June 30, 2013 and 2012 includes costs to wind-down

operations and dispose of remaining assets.

In June 2013, the University transferred operational control of AMU-LA to an unrelated

third party under an asset purchase agreement. Under the agreement, AMU-LA’s assets

were transferred to the buyer in August 2013 in exchange for $5,000 and the assumption of

certain liabilities by the buyer. The University has adjusted the value of AMU-LA’s assets as

of June 30, 2013 in the consolidated statement of financial position to this agreed-upon

purchase price, which is considered to be the fair value of the assets. As a result, a loss on

the write-down of assets was recorded totaling $3,028,092, which is included in the results

of discontinued operations on the consolidated statement of activities and changes in net

assets for the year ended June 30, 2013.



June 30, 2013 and 2012

37

Note 18 - Discontinued Operations (Continued)

The results of discontinued operations, after eliminations, as of and for the years ended June

30, 2013 and 2012 are as follows:

2013 2012

Assets

Student accounts receivable - Net 427,639$ 93,221$

Other receivables 28,192 18,122

Inventories 48,791 18,973

Prepaid expenses and other assets 7,923 7,923

Student loans receivable - Net 108,634 1,139,108

Employee loans and advances - Net 940 8,415

Capital assets - Net 263,182 2,457,355

Total assets 885,301$ 3,743,117$

Liabilities

Accounts payable 118,029$ 208,943$

Accrued payroll and other liabilities 776,549 790,495

Total liabilities 894,578$ 999,438$

Assets and Liabilites Related to Discontinued Operations

The table above is exclusive of $0 and $437,819 of cash included in the consolidated

statement of financial position as of June 30, 2013 and 2012, respectively, but not

considered to be related to discontinued operations.



June 30, 2013 and 2012

38

Note 18 - Discontinued Operations (Continued)

Year Ended

June 30, 2013

Year Ended

June 30, 2012


Operating revenue:

Net tuition and fees 5,385,706$ 5,015,580$

Auxiliary income 645,341 577,405

Private gifts and grants 26,308 31,419

Other revenue 201,172 194,810

Net assets released from restrictions 13,458 31,775

Total operating revenue 6,271,985 5,850,989

Operating expenses:

Instruction (854,598) (1,062,695)

Academic support (318,043) (388,224)

Student services (483,584) (479,664)

Institutional support (3,127,514) (2,949,792)

Institutional relations and fundraising (215,654) (171,194)

Auxiliary (299,383) (267,216)

Total operating expenses (5,298,776) (5,318,785)

Other changes in unrestricted net assets:

Loss on write-down of assets (3,028,092) -

Gain on sale of capital assets - 35,505

Total other changes in unrestricted net assets(3,028,092) 35,505

Change in Unrestricted Net Assets (2,054,883) 567,709

Temporarily Restricted Net Assets

Contributions - 6,575

Net assets released from restrictions (13,458) (31,775)

Change in Temporarily Restricted Net Assets (13,458) (25,200)

Total Change in Net Assets (2,068,341)$ 542,509$

Statement of Activities and Changes in Net Assets



June 30, 2013 and 2012

39

Note 19 - Program, Support Services, and Fundraising Expenses

The University adheres to generally accepted accounting principles in reporting expenses by

their functional classification. The University considers the following functional classifications

of expenses to be program expenses: instruction, academic support, student services, and

auxiliary. Costs are allocated between the various programs and support services on an

actual basis, where available, or based upon reasonable methods. Although methods of

allocation used are considered appropriate, other methods could be used that would

produce different amounts.

2013 2012

(Restated)

Program support 25,096,050$ 24,805,081$

Support services 3,114,348 4,136,535

Institutional relations and fundraising 2,761,090 3,218,652

Total 30,971,488$ 32,160,268$

Note 20 - Fair Value

Accounting standards require certain assets and liabilities be reported at fair value in the

financial statements and provide a framework for establishing that fair value. The

framework for determining fair value is based on a hierarchy that prioritizes the inputs and

valuation techniques used to measure fair value.

Level 1 - In general, fair values determined by Level 1 inputs use quoted prices in active

markets for identical assets or liabilities that the University has the ability to access.

Level 2 - Fair values determined by Level 2 inputs use other inputs that are observable,

either directly or indirectly. These Level 2 inputs include quoted prices for similar assets

and liabilities in active markets and other inputs such as interest rates and yield curves that

are observable at commonly quoted intervals.

Level 3 - Level 3 inputs are unobservable inputs, including inputs that are available in

situations where there is little, if any, market activity for the related asset or liability. These

Level 3 fair value measurements are based primarily on management’s own estimates using

pricing models, discounted cash flow methodologies, or similar techniques taking into

account the characteristics specific to each asset or liability.

In instances whereby inputs used to measure fair value fall into different levels in the above

fair value hierarchy, fair value measurements in their entirety are categorized based on the

lowest level input that is significant to the valuation. The University’s assessment of the

significance of particular inputs to these fair value measurements requires judgment and

considers factors specific to each asset or liability.



June 30, 2013 and 2012

40

Note 20 - Fair Value (Continued)

The University’s policy is to recognize transfers between levels of the fair value hierarchy as

of the end of the reporting period. For the years ended June 30, 2013 and 2012, there

were no transfers between levels of the fair value hierarchy.

The following tables present information about the University’s assets and liabilities

measured at fair value on a recurring basis at June 30, 2013 and 2012 and the valuation

techniques used by the University to determine those fair values.

Disclosures concerning assets and liabilities measured at fair value on a recurring basis as of

June 30, 2013 are as follows:

Balance at

June 30, 2013

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Assets:

Investments:

Common stock 461,590$ 461,590$ -$ -$

Mutual funds - Equities 3,218,556 3,218,556 - -

Mutual funds - Bonds 1,373,845 1,373,845 - -

Municipal bonds 1,120,000 - 1,120,000 -

Corporate bonds 335,000 - 335,000 -

Total investments 6,508,991 5,053,991 1,455,000 -

Beneficial interest in trusts 1,173,682 - - 1,173,682

Total assets 7,682,673$ 5,053,991$ 1,455,000$ 1,173,682$

Liabilities:

Interest rate swap agreements (1,074,574)$ -$ (1,074,574)$ -$

Gift annuities payable (1,383,562) - - (1,383,562)

Total liabilities (2,458,136)$ -$ (1,074,574)$ (1,383,562)$



June 30, 2013 and 2012

41


Disclosures concerning assets and liabilities measured at fair value on a recurring basis as of

June 30, 2012 are as follows:

Balance at

June 30, 2012

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

Significant Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Assets:

Investments:

Common stock 393,200$ 393,200$ -$ -$

Mutual funds - Equities 1,993,584 1,993,584 - -

Mutual funds - Bonds 788,258 788,258 - -

Corporate bonds 1,030,000 - 1,030,000 -

Total investments 4,205,042 3,175,042 1,030,000 -

Beneficial interest in trusts 999,155 - - 999,155

Total assets 5,204,197$ 3,175,042$ 1,030,000$ 999,155$

Liabilities:

Interest rate swap agreements (1,619,230)$ -$ (1,619,230)$ -$

Gift annuities payable (1,425,267) - - (1,425,267)

Total liabilities (3,044,497)$ -$ (1,619,230)$ (1,425,267)$

At both June 30, 2013 and 2012, all amounts above are domestic (U.S.) investments.

The fair values of municipal and corporate bonds and interest rate swap agreements at June

30, 2013 and 2012 were determined primarily based on Level 2 inputs. The University

estimates the fair value of these investments based on market data provided by the

custodian. The fair value of the interest rate swap agreements is estimated based on a

valuation model that takes into account estimates of changes in interest rates based on yield

curves and other market-based information as provided by the bank.



June 30, 2013 and 2012

42


Changes in Level 3 assets and liabilities measured at fair value on a recurring basis are

described in the following tables:

2013 2012 2013 2012

Beginning balance 999,155$ 1,435,628$ (1,425,267)$ (1,394,100)$

Unrealized gains (losses)

included in change in net assets 289,654 (458,059) (89,395) (165,498)

New agreements - 175,000 - (8,778)

Payments made to annuitants - - 131,100 143,109

Sales of investment (115,127) (153,414) - -

Ending balance 1,173,682$ 999,155$ (1,383,562)$ (1,425,267)$

Assets -

Beneficial Interest in Trusts

Liabilities -

Gift Annuities Payable

Measurement of Level 3 Assets and Liabilities

Both observable and unobservable inputs may be used to determine the fair value of

positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses

for these assets and liabilities presented in the tables above may include changes in fair value

that were attributable to both observable and unobservable inputs.

The University estimates the fair value of beneficial interest in trusts and gift annuities

payable, which relates to the split-interest agreements, based upon the present value of the

expected future cash flows using management’s best estimate of key assumptions including

life expectancies of annuitants, payment periods, and a discount rate commensurate with

the current market and other risks involved. Significant changes in these key assumptions

would result in a significantly higher or lower fair value measurement. These assets and

liabilities are characterized as Level 3 assets and liabilities at June 30, 2013 and 2012.

The following table summarizes the valuation methods and inputs used to determine fair

value at June 30, 2013 and 2012 for assets and liabilities measured at fair value on a

recurring basis using unobservable inputs (Level 3 inputs):

Significant Unobservable Range

June 30, 2013 June 30, 2012 Valuation Technique Inputs Used (Weighted Average)

Assets - Beneficial interest

in trusts 1,173,682$ 999,155$

IRS Pub 590 actuarial tables

Discounted cash flow

Life expectancy of beneficiaries

Risk free rate of return

3.9 - 30.8 Years

1 - 3%

Liabilities - Gift annuities

payable (1,383,562)$ (1,425,267)$

IRS Pub 590 actuarial tables

Discounted cash flow

Life expectancy of beneficiaries

Risk free rate of return

3.9 - 30.8 Years

1 - 3%

Fair Value at

Unobservable Inputs Used to Measure Level 3 Assets and Liabilities



June 30, 2013 and 2012

43


The University has processes in place to select the appropriate valuation technique and

unobservable inputs to perform Level 3 fair value measurements. These processes include

regular review of the inputs used in valuation. The University utilizes a third-party

investment manager to advise on reasonableness of inputs.

Fair Value Measurement of Assets on a Nonrecurring Basis

The University measures assets held for rent on a nonrecurring basis and records an

impairment charge to the extent the carrying value of the asset held for rent is greater than

the fair value, less any costs to sell. The fair value of the assets held for rent is based

primarily on Level 3 inputs including a sales comparison approach developed by analyzing

sales of similar properties using the most relevant units of comparison. The University also

measures intangible assets on a nonrecurring basis and records an impairment charge to the

extent the carrying value of the intangible asset is greater than the fair value. The fair value

of intangible assets is based primarily on Level 3 inputs including an estimate of expected

cash flow and other market considerations.

During the year ended June 30, 2013, management determined that the fair value of its

former Naples, Florida campus (currently included with land and buildings held for rent on

the statement of financial position) was less than its carrying value and recorded an

impairment charge of $3,102,222.

During the years ended June 30, 2013 and 2012, management determined that the fair value

of its radio station intangible asset was less than its carrying value and recorded impairment

charges of $2,400,000 and $650,000, respectively.

The following table summarizes the valuation methods and inputs used to determine fair

value at June 30, 2013 and 2012 for assets measured at fair value on a nonrecurring basis

using unobservable inputs (Level 3 inputs):

Significant Unobservable Range

June 30, 2013 June 30, 2012 Valuation Technique Inputs Used (Weighted Average)

Land and buildings held for

rent - Naples Campus 13,690,000$ N/A Third-party appraisal Sales comparison approach 13,690,000$

Intangible assets -

Radio station 2,000,000$ 4,400,000$ Third-party appraisal Discounted cash flow approach $1,962,000 - $2,027,000

Unobservable Inputs Used to Measure Nonrecurring Level 3 Assets

Fair Value at



June 30, 2013 and 2012

44


The University has processes in place to select the appropriate valuation technique and

unobservable inputs to perform Level 3 fair value measurements. These processes include

regular meetings of the board of trustees and management during which the above assets

(among others) are reviewed for impairment indicators. Upon identification of such

indicators, the University utilizes a third-party appraiser to assess the fair value of the

identified assets. If the appraisal report indicates that the current carrying value exceeds the

appraised fair value, an impairment of the asset is recorded.

Note 21 - Donor-restricted Endowments

Changes in Donor-restricted Endowments

Changes in donor-restricted endowments, during the years ended June 30, 2013 and 2012,

are described in the following tables:

Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2013

Unrestricted

Temporarily

Restricted

Permanently

Restricted Total

Endowment net assets - Beginning of year (27,818)$ 104,432$ 2,198,081$ 2,274,695$

Investment income 12,612 39,339 - 51,951

Net appreciation in market value - 86,755 - 86,755

Appropriation of endowment net assets

for expenditures - (16,630) - (16,630)

Release of restrictions by donor (Note 15) 15,206 - (600,000) (584,794)

Contributions received - - 5,000 5,000

Endowment net assets - End of year -$ 213,896$ 1,603,081$ 1,816,977$

Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 2012

Unrestricted

Temporarily

Restricted

Permanently

Restricted Total

Endowment net assets - Beginning of year -$ 172,409$ 2,168,081$ 2,340,490$

Investment loss (27,818) (37,040) - (64,858)

Net depreciation in market value - (17,285) - (17,285)

Appropriation of endowment net assets

for expenditures - (13,652) - (13,652)

Contributions received - - 30,000 30,000

Endowment net assets - End of year (27,818)$ 104,432$ 2,198,081$ 2,274,695$



June 30, 2013 and 2012

45

Note 21 - Donor-restricted Endowments (Continued)

Interpretation of Relevant Law

In Florida, the Uniform Prudent Management of Institutional Funds Act (UPMIFA) governs

the investment of and spending from true endowments. The act was signed into law

effective July 1, 2012 and the University has adopted this policy as of that date.

UPMIFA requires 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.

The University classifies as permanently restricted net assets (a) the original value of gifts

donated to the permanent endowment, (b) the original value of subsequent gifts to the

permanent endowment, and (c) accumulations to the permanent endowment made in

accordance with the direction of the applicable donor gift instrument at the time the

accumulation is added to the fund. The remaining portion of the donor-restricted

endowment fund that is not classified in permanently restricted net assets is classified as

temporarily restricted net assets until those amounts are appropriated for expenditure by

the University in a manner consistent with the standard of prudence prescribed by UPMIFA.

In accordance with UPMIFA, the University considers the following factors in making a

determination to appropriate or accumulate donor-restricted endowment funds:

(1) The duration and preservation of the fund

(2) The purposes of the University and the donor-restricted endowment fund

(3) General economic conditions

(4) The possible effect of inflation and deflation

(5) The expected total return from income and the appreciation of investments

(6) Other resources of the University

(7) The investment policies of the University

Funds with Deficiencies

The University has interpreted this act as requiring the preservation of the historical value of

the original gift as of the gift date of the donor-restricted endowment fund. Under this

interpretation, if the market value of an endowment drops below the historic gift value, the

endowment is considered to be underwater. The net depreciation of an underwater

endowment will reduce unrestricted net assets. Any future gains will be used to restore the

cumulative deficiency within unrestricted net assets. Once unrestricted net assets have

been fully restored, net appreciation will be recorded within either temporarily or

permanently restricted net assets, as required by the donor’s restriction.



June 30, 2013 and 2012

46

Note 21 - Donor-restricted Endowments (Continued)

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

University to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies

of this nature that are reported in unrestricted net assets were $0 and $27,818 as of June

30, 2013 and 2012, respectively. These deficiencies resulted from unfavorable market

fluctuations that occurred after the investment of permanently restricted contributions.

Return Objectives and Risk Parameters

The University has adopted a policy to ensure a total return (yield plus capital appreciation)

necessary to preserve and enhance the principal of the funds. Under this policy, as

approved by the board of trustees, the endowment assets are invested in a manner that is

intended to offset the effects of inflation as measured by the Consumer Price Index and to

increase the principal value of the assets in excess of established benchmarks. The

University expects its endowment funds, over time, to provide an average rate of return of

approximately 7 percent annually. Actual returns in any given year may vary from this

amount.

Strategies Employed for Achieving Objectives

To satisfy its long-term rate-of-return objectives, the University 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 University targets a

diversified 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

During the year ended June 30, 2010, the University revised its spending policy to authorize

the smaller of the endowment fund’s rolling 36-month average total annual return or

3 percent of the market value of the endowment fund determined as of the preceding June

30 (or the last business day of the fiscal year). If the market value of the endowment fund is

greater than the corpus of the endowment fund by 10 percent or more as of June 30, the

authorized spending rate may be as high as 5 percent of the market value of the endowment

fund. The three-year (or actual period of the fund’s existence, if shorter) rolling average

total annual return shall be determined annually for each endowment fund. Total annual

return for purposes of this spending policy shall mean the total annual dividends, interest,

and realized (or unrealized) gains and losses experienced by the endowment fund less

applicable investment manager’s fees. It is anticipated that the total annual return will

exceed the amount of authorized annual spending from each fund. To the extent that the

total annual return does exceed the annual spending allotment, the excess shall be

accumulated and carried forward on the endowment fund’s record.



June 30, 2013 and 2012

47

Note 22 - Restatement

During the year ended June 30, 2013, the University determined that the accounts of Ave

Maria Foundation for the Arts (AMFA) should be included with the consolidated financial

statements of the University. A prior period adjustment was therefore recorded to properly

consolidate the assets, liabilities, net assets, and results of operations for AMFA.

Changes to the consolidated statement of financial position and statement of activities and

changes in net assets, after consideration of discontinued operations as discussed in

Note 18, as of and for the year ended June 30, 2012 are detailed as follows:

Assets

Cash and cash equivalents 8,425,794$ 8,420,301$ 5,493$

Restricted cash 1,000,000 1,000,000 -

Receivables 1,429,312 1,516,566 (87,254)

Capital assets - Net 226,460,127 224,080,254 2,379,873

Other assets 115,102,477 115,102,477 -

Total assets 352,417,710$ 350,119,598$ 2,298,112$

Liabilities 74,487,343$ 74,487,343$ -$

Net Assets

Unrestricted 269,647,142 269,728,903 (81,761)

Temporarily restricted 6,085,144 3,705,271 2,379,873

Permanently restricted 2,198,081 2,198,081 -

Total net assets 277,930,367 275,632,255 2,298,112

Total liabilities and net assets 352,417,710$ 350,119,598$ 2,298,112$

Adjustment

Consolidated Statement of Financial Position as of June 30, 2012

As

Reported

As Previously

Presented



June 30, 2013 and 2012

48

Note 22 - Restatement (Continued)


Total operating revenue 31,070,292$ 31,070,292$ - $

Total operating expenses 32,160,268 32,149,748 10,520

Other changes in unrestricted net assets from

continuing operations (2,135,259) (2,135,259) - Forgiveness of intercompany debt - - -

Decrease in Unrestricted Net Assets from

Continuing Operations (3,225,235) (3,214,715) (10,520)

Increase in Unrestricted Net Assets from

Discontinued Operations 567,709 567,709 -

Net Decrease in Unrestricted Net Assets (2,657,526) (2,647,006) (10,520) Loss from operations of subsidiary - - -

Decrease in Temporarily Restricted Net Assets from

Continuing Operations (1,719,131) (1,719,131) -

Decrease in Temporarily Restricted Net Assets from

Discontinued Operations (25,200) (25,200) -

Net Decrease in Temporarily Restricted Net Assets (1,744,331) (1,744,331) -

Increase in Permanently Restricted Net Assets 30,000 30,000 -

Decrease in Net Assets (4,371,857) (4,361,337) (10,520)

Net Assets - Beginning of year 282,302,224 279,993,592 2,308,632

Net Assets - End of year 277,930,367$ 275,632,255$ 2,298,112$

For the Year Ended June 30, 2012

As

Reported

As Previously

Presented Adjustment

Consolidated Statement of Activities and Changes in Net Assets

49

Report on Internal Control Over Financial Reporting and on Compliance

and Other Matters Based on an Audit of Financial Statements

Performed in Accordance with Government Auditing Standards


To Management and the Board of Trustees


We have audited, 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 Ave Maria University, Inc. and Subsidiaries (the “University”), which comprise the

consolidated statement of financial position as of June 30, 2013 and the related consolidated

statements of activities and changes in net assets and cash flows for the year then ended, and

related notes to the financial statements, and have issued our report thereon dated November

25, 2013.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the University's

internal control over financial reporting (internal control) to determine the audit procedures that

are appropriate in the circumstances for the purpose of expressing our opinions on the financial

statements, but not for the purpose of expressing an opinion on the effectiveness of the

University's internal control. Accordingly, we do not express an opinion on the effectiveness of

the University's internal control.

Our consideration of internal control was for the limited purpose described in the first

paragraph of this section and was not designed to identify all deficiencies in internal control that

might be material weaknesses or significant deficiencies and therefore, material weaknesses or

significant deficiencies may exist that were not identified. However, as described in the

accompanying schedule of findings and questioned costs, we identified a certain deficiency in

internal control that we consider to be a material weakness and other deficiencies that we

consider to be significant deficiencies.

kim.partlo

Praxity

kim.partlo

Columbus

To Management and the Board of Trustees


50

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. We consider the deficiency described in the

accompanying schedule of findings and questioned costs as Finding 2013-001 to be a material

weakness. 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. We consider the deficiencies described in the accompanying

schedule of findings and questioned costs as Findings 2013-002 and 2013-003 to be significant

deficiencies.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the University’s consolidated financial

statements are free of 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 consolidated 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.

We also noted certain matters that we have reported to management of the University in a

separate letter dated November 25, 2013.

The University’s Responses to Findings

The University’s responses to the findings identified in our audit are described in the

accompanying schedule of findings and questioned costs. The University's responses were not

subjected to the auditing procedures applied in the audit of the consolidated financial statements

and, accordingly, we express no opinion on them.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and

compliance and the results of that testing, and not to provide an opinion on the effectiveness of

the entity's internal control or on compliance. This report is an integral part of an audit

performed in accordance with Government Auditing Standards in considering the entity's internal

control and compliance. Accordingly, this communication is not suitable for any other purpose.

Columbus, Ohio

November 25, 2013

kim.partlo

PM Sig

51

Report on Compliance for Each Major Federal and State Program;

Report on Internal Control Over Compliance




Report on Compliance for Each Major Federal and State Program

We have audited Ave Maria University, Inc. and Subsidiaries’ (the “University”) compliance with

the types of compliance requirements described in the U.S. Office of Management and Budget

(OMB) Circular A-133 Compliance Supplement, and the State of Florida's State Projects

Compliance Supplement, that could have a direct and material effect on each of its major federal

and state programs for the year ended June 30, 2013. The University’s major federal and state

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 each of its major federal and state programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for each of the University's major

federal and state 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; OMB

Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; Section 215.97,

Florida Statutes, and Chapter 10.650, Rules of the Florida Auditor General. Those standards,

OMB Circular A-133, Section 215.97, Florida Statutes, and Chapter 10.650, Rules of the Florida

Auditor General 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 or state program occurred. An

audit includes examining, on a test basis, evidence about the University's compliance with those

requirements and performing such other procedures as we considered necessary in the

circumstances.

kim.partlo

Praxity

kim.partlo

Columbus



52

We believe that our audit provides a reasonable basis for our opinion on compliance for each

major federal and state program. However, our audit does not provide a legal determination of

the University's compliance.

Opinion on Each Major Federal and State Program

In our opinion, the University complied, in all material respects, with the types of compliance

requirements referred to above that could have a direct and material effect on its major federal

and state programs for the year ended June 30, 2013.

Report on Internal Control Over Compliance

Management of the University 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 the University's internal control

over compliance with the types of requirements that could have a direct and material effect on

each major federal and state program in order to determine the auditing procedures that are

appropriate in the circumstances for the purpose of expressing an opinion on compliance for

each major federal and state program and to test and report on internal control over compliance

in accordance with OMB Circular A-133, Section 215.97, Florida Statutes, and Chapter 10.650,

Rules of the Florida Auditor General, but not for the purpose of expressing an opinion on the

effectiveness of internal control over compliance. Accordingly, we do not express an opinion on

the effectiveness of the University’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control

over compliance does not allow management or employees, in the normal course of performing

their assigned functions, to prevent or detect and correct noncompliance with a type of

compliance requirement of a federal program on a timely basis. A material weakness in internal

control over compliance is a deficiency, or a 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 and state 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 and state 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, and

therefore, material weaknesses or significant deficiencies may exist that were not identified. We

did not identify any deficiencies in internal control over compliance that we consider to be

material weaknesses. However, we identified certain deficiencies in internal control over

compliance, as described in the accompanying schedule of findings and questioned costs, as

Findings 2013-004 and 2013-005 that we consider to be significant deficiencies.



53

The University’s Responses to Findings

The University’s responses to the internal control over compliance findings identified in our audit

are described in the accompanying schedule of findings and questioned costs. The University’s

responses were not subjected to the auditing procedures applied in the audit of compliance and,

accordingly, we express no opinion on them.

Purpose of this Report

The purpose of this report on internal control over compliance is solely to describe the scope of

our testing of internal control over compliance and the results of that testing based on the

requirements of OMB Circular A-133, Section 215.97, Florida Statutes, and Chapter 10.650,

Rules of the Florida Auditor General. Accordingly, this report is not suitable for any other

purpose.

Columbus, Ohio

November 25, 2013

kim.partlo

PM Sig


See Notes to Schedule of Expenditures of

Federal Awards and State Financial Assistance. 54

Schedule of Expenditures of Federal Awards

and State Financial Assistance

Year Ended June 30, 2013

Federal Agency/Program Title

CFDA

Number

Grant

Number

Award

Amount

Federal

Expenditures

Federal Awards

Student Financial Assistance Cluster - U.S. Department of Education -

Direct programs:

Federal Supplemental Education Opportunity Grants 84.007 P007A128874 41,546$ 35,533$

Federal Work Study Program 84.033 P033A128874 59,383 35,808

Federal Pell Grant Program 84.063 P063P125744 2,618,052 2,256,581

Federal Direct Loan Program:

Federal Stafford - Subsidized 84.268 N/A N/A 2,522,020

Federal Stafford - Unsubsidized 84.268 N/A N/A 2,869,442

Federal PLUS Loan Program 84.268 N/A N/A 1,471,956

Total Federal Direct Loan Program 6,863,418

Total Student Financial Assistance Cluster 9,191,340

Total federal awards 9,191,340$

State Agency/Program Title

CSFA

Number

Appropriation

Category

Disbursement

Amount

State

Expenditures

State Awards

Student Financial Assistance Cluster - Florida Department of Education:

Florida Work Experience Project 48.053 110096 4,844$ 4,844$

Florida Postsecondary Student Assistance Grant 48.054 110096 9,764 9,764

Florida Bright Futures Scholarship Program 48.059 100373 344,250 334,350

Florida Resident Access Grant 48.064 104125 621,350 621,350

Total Student Financial Assistance Cluster 970,308

Total state awards 970,308$

Total federal and state awards 10,161,648$

* During the year ended June 30, 2013, the University has refunded $9,900 to the Florida Department of Education for

excess amounts received related to the Florida Bright Scholarship Program.


55

Notes to Schedule of Expenditures of Federal Awards



Note 1 - Basis of Presentation and Significant Accounting Policies

The accompanying schedule of expenditures of federal awards and state financial

assistance (the “Schedule”) includes the federal and state grant activity of Ave Maria

University, Inc. and Subsidiaries (the “University”) under programs of the federal

government and the State of Florida for the year ended June 30, 2013. Expenditures

reported on the Schedule are reported on the same basis of accounting as the

consolidated financial statements, although the basis for determining when federal and

state awards are expended is presented in accordance with the requirements of OMB

Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, Section

215.97, Florida Statutes, and Chapter 10.650, Rules of the Florida Auditor General. In

addition, expenditures reported on the Schedule are recognized following the cost

principles contained in OMB Circular A-21, Cost Principles for Educational Institutions,

wherein certain types of expenditures are not allowable or are limited as to

reimbursement. Therefore, some amounts presented in this Schedule may differ from

amounts presented in, or used in the preparation of, the basic consolidated financial

statements.

Because the Schedule presents only a selected portion of the operations of the

University, it is not intended to and does not present the consolidated financial position,

changes in net assets, or cash flows, if applicable, of the University.

Note 2 - State Program Information

The administration of each program is the responsibility of the Florida Department of

Education’s Office of Student Financial Assistance and the University. The following is a

brief description of each Florida Student Financial Assistance Program administered by

the student financial aid office for the year ended June 30, 2013:

Florida Academic Scholars Award Program (BFFAS) - BFFAS is a State of Florida

scholarship under the Florida Bright Futures Scholarship Program that provides certain

qualified, full-time undergraduate students with assistance in paying for costs of

education. BFFAS is available only to Florida residents attending eligible colleges and

universities located in the state of Florida.

Florida Medallion Scholars Award Program (BFFMS) - BFFMS is a State of Florida

scholarship under the Florida Bright Futures Scholarship Program that provides certain

qualified, first-time-in-college, full-time undergraduate students with assistance in paying

for costs of education. BFFMS is available only to Florida residents attending eligible

colleges and universities located in the state of Florida.


56




Note 2 - State Program Information (Continued)

Florida Postsecondary Student Assistance Grant (FSAG) - FSAG is a State of

Florida financial aid program that provides certain qualified, full-time undergraduate

students with assistance in paying for costs of education including tuition, fees, and living

expenses. FSAG is available only to Florida residents attending eligible colleges and

universities located in the state of Florida.

Florida Work Experience Project (FWEP) - FWEP is a State of Florida need-based

financial aid program that provides certain qualified students work experiences to

enhance and support their educational and career goals. Although this program is

administered by the State of Florida, it is a decentralized program, meaning each

respective institution determines the eligibility requirements, application procedures,

deadlines, and amounts awarded.

Florida Resident Access Grant (FRAG) - FRAG is a tuition assistance grant created by

the Florida legislature to increase opportunities for Floridians seeking a college degree,

strengthen the private higher education sector, and create savings for taxpayers by

reducing demand on the public systems. FRAG was created by the Legislature in 1979 as

a non-need-based program to provide tuition assistance to Florida’s undergraduates who

attend independent, nonprofit, SACS-accredited institutions in the state.

Note 3 - State Program Selection

In accordance with the requirements of the Florida Department of Education, only the

Bright Futures programs were required to be audited during the 2012-2013 award year.

In accordance with the requirements of Section 215.97, Florida Statutes and Chapter

10.650, Rules of the Florida Auditor General, programs are required to be tested when

identified as major. As noted on the schedule of findings and questioned costs, the Bright

Futures and Florida Resident Access Grant programs were identified as major programs

for the 2012-2013 award year and tested accordingly.


57


and State Financial Assistance (Continued)


Note 3 - State Program Selection (Continued)

A summary of program testing under the requirements of the Florida Department of

Education, Section 215.97 Florida Statutes, and Chapter 10.650, Rules of the Florida

Auditor General is as follows:

State

Program

Description of

Category

Number of

Students

Percent of

Population

Amount of

Awards

Percent of

Population

BFFAS Population 38 100% 119,700$ 100%

Tested 10 26% 30,800 26%

Findings 1 10% - -

BFFMS Population 99 100% 214,650$ 100%

Tested 25 25% 53,775 25%

Findings 1 4% - -

FSAG Population 16 100% 9,764$ 100%

Tested - - - -

Findings - - - -

FWEP Population 3 100% 4,844$ 100%

Tested - - - -

Findings - - - -

FRAG Population 309 100% 621,350$ 100%

Tested 50 16% 94,600 15%

Findings - - - -


58

Schedule of Findings and Questioned Costs


Section I - Summary of Auditor’s Results

Financial Statements

Type of auditor's report issued: Unmodified

Internal control over financial reporting:

• Material weakness(es) identified? X Yes No

• Significant deficiency(ies) identified that are

not considered to be material weaknesses? X Yes None reported

Noncompliance material to financial

statements noted? Yes X No

Federal and State Awards

Internal control over major federal programs:

• Material weakness(es) identified? Yes X No



Internal control over major state programs:

• Material weakness(es) identified? Yes X No



Type of auditor's report issued on compliance for major programs: Unmodified

Any audit findings disclosed that are required

to be reported in accordance with

Section 510(a) of Circular A-133 and/or

Section 215.97, Florida Statutes? X Yes No

Any items related to state financial assistance

disclosed in the management letter that are

required to be reported in accordance with

Chapter 10.656, Rules of the Auditor General? Yes X No

Identification of major programs:

CFDA/CSFA Numbers

84.007, 84.268,

84.033, 84.063

48.059

48.064 Florida Resident Access Grant

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

Federal $ 300,000

State $ 291,092

Auditee qualified as low-risk auditee? X Yes No

Name of Federal or State Program or Cluster

Federal Student Financial Aid Cluster

Florida Bright Futures Scholarship Program


59

Schedule of Findings and Questioned Costs (Continued)


Section II - Financial Statement Audit Findings

Finding 2013-001

Year Affected June 30, 2013

Finding Type Material weakness

Criteria

Condition

Context

Cause

Effect

Recommendation

Views of Responsible

Officials and Corrective

Action Plan

Management agrees with the recommendation and believes this was and

will remain an isolated incident. Procedures are now in place for both the

controller and the CFO to be contemporaneously informed about all

University activity that may relate to legal or financial activity.

Accounting standards require the University to consolidate a related entity

over which it has control through a majority voting interest. Standards also

require transactions to be recorded in the period the related activities

occur.

The University recorded a significant transaction in 2013 that was executed

in a prior period. Management determined the entity was not material to

the consolidated financial statements in the past.

During the year ended June 30, 2013, management identified a previous

transaction with a related entity was not recorded and should have been

recorded prior to June 30, 2011. This entity was not consolidated into the

University financial statements in prior periods due to management's

conclusion that its activities were insignificant. However, the inclusion of

the transaction causes this entity to be significant and require consolidation

in prior periods.

Information was not provided to the University controller to properly

record the activity and evaluate the entity for consolidation.

Temporarily restricted net assets for the years ended June 30, 2011 and

2012 were understated by $2,308,632 and $2,298,112, respectively.

Increase in temporarily restricted net assets for the year ended June 30,

2011 was understated by $2,287,068 and was overstated by $10,520 for

the year ended June 30, 2012.

We recommend increased communication amongst management to ensure

all financial transactions are properly identified and recorded within the

appropriate reporting period.


60



Section II - Financial Statement Audit Findings (Continued)

Finding 2013-002


Finding Type Significant deficiency

Criteria

Condition

Context

Cause

Effect

Recommendation



Action Plan

Management agrees with the recommendation and is in the process of

evaluating revised operating procedures, including the implementation of

specialized data processing software and cross training among business

office staff. Management believes this will ensure accurate loan balances and

improve internal control over this asset group.

Management is responsible for maintaining accurate records to support

financial statement balances.

The University could not provide independent support for certain individual

institutional loan balances.

During our audit procedures, student loan statements and amortization

schedules were requested to support the balances within the financial

statements. Loan statements could not be produced and amortization

schedules provided did not agree to accounting records.

Accurate information on institutional loans is not maintained outside of the

accounting function and reconciled to accounting records.

The University has no way to verify accounting records are accurate. The

absence of accurate records of student balances and payment activity could

result in misstatement of the ending loan balance and could alter

management's estimate of the allowance for doubtful accounts which is

based on prior collection experience.

We recommend that current information be maintained by the Bursar for

all student loan balance and activity. This information should be periodically

reconciled to accounting records.


61



Section II - Financial Statement Audit Findings (Continued)

Finding 2013-003



Criteria

Condition

Context

Cause

Effect

Recommendation



Action Plan

Management agrees with the recommendation and has been in the process

of evaluating and revising the business office's staffing, organizational

structure, and control procedures as they relate to the University's financial

leadership team's oversight of significant financial activity and reporting.

Management, with the support of the board, has identified this as a priority

and is working to ensure sufficient attention and resources are in place to

support this initiative.

Management is responsible for maintaining internal controls to prevent,

detect, and correct material misstatements in the financial statements.

There has been a lack of internal control review procedures for certain

account reconciliations and related accounting adjustments.

During the past three years, there has been significant turnover in the CFO

position which has resulted in a lack of review of significant account

reconciliations and related accounting adjustments.

Frequent turnover in the CFO position resulted in no independent review

of certain accounts in some cases.

The lack of review could result in significant errors in the financial

statements.

We recommend a second review of significant account reconciliations and

accounting adjustments be performed by another member of management

if there is a vacancy in the CFO position. The process of which accounts are

reviewed by the CFO should be evaluated and changed to ensure all

significant accounts are reviewed.


62



Section III - Federal Program Audit Findings

Finding 2013-004


Program Federal Direct Loan Program (CFDA 84.268)


Criteria

Condition

Questioned Costs None

Context

Cause

Effect

Recommendation



Action Plan

Per Chaper 3 of the 2012-2013 Federal Student Aid Handbook and

Chapter 1.2 of the National Student Loan Data System Enrollment

Reporting Guide, the University is required to confirm the accuracy of the

Student Status Change Report (SSCR) to NSLDS in order to report student

withdrawals and graduations in a timely manner.

The University did not fully reconcile the SSCR to its internal records,

resulting in the omission of three students who graduated in Spring 2013.

Of the 32 students selected for status change testing, three were never

reported to NSLDS as graduated due to their omission from the SSCR.

During the University's process to reconcile the SSCR to internal records,

three students were improperly omitted and thus not reported to NSLDS

as graduated.

Students with direct loans were not reported to NSLDS as having

graduated.

The University should institute a review and reconciliation of reports

submitted to NSLDS for accuracy in comparison to its internal records.

The University did reconcile the SSCR with internal records. These three

students had previously been reported as withdrawn on NSLDS. They

resumed their studies after 180 days and Stafford loans were processed.

Despite the fact that the loans were originated in COD and reported to

NSLDS, these students did not appear on the SSCR. The University has

implemented enrollment reporting through the National Student Loan

Clearinghouse which reports all students' enrollment status. The University

will reconcile the Clearinghouse file with the institutional enrollment

records to ensure accurate reporting of student status to NSLDS.


63



Section IV - State Program Audit Findings

Finding 2013-005


Program Bright Futures (CSFA 48.059)


Criteria

Condition

Questioned Costs The above condition resulted in a shortage of $400 of BFAS funding and

an excess of $300 of BFMS funding.

Context

Cause

Effect

Recommendation



Action Plan

Per Chapter 8.3, Section D, Paragraph 3 of the Florida Department of

Education's State Student Financial Aid Database Guide For

Postsecondary Institutions, the University is required to report a

qualifying student's credit hours per semester to the State for

determination of the award amount for which the student is eligible.

The University under-reported the number of credit hours for one of

10 students selected for testing of the Bright Futures Academic Scholars

Award Program (BFAS) and over-reported the number of credit hours

for one of 25 students selected for testing of the Bright Futures

Medallion Scholars Award Program (BFMS).

Of the students receiving state awards, two of the 35 students tested

for the Bright Futures Awards had the improper amount of credit hours

reported to the State.

When reviewing the academic transcripts for the students identified

during the reconciliation process, the institution incorrectly determined

the final number of hours enrolled for two students.

The net effect of the error resulted in the University having a $100

shortage in Bright Futures funds received from the State.

The University should institute a review process wherein reporting

errors would be caught internally prior to submission to the State.

We agree with the recommendation and have set up a review process

that will verify the amount and hours that have been reported to Bright

Futures. This process will be conducted prior to the end of each term.


64

Summary Schedule of Prior Audit Findings


Prior Year

Finding

Number

Prior Year Finding

Type

Program/

Cluster

Original Finding

Description Planned Corrective Action Status

2012-2 Noncompliance/

Significant deficiency

Bright Futures

(CSFA 48.059)

The University

incorrectly reported

cumulative GPAs after

the Spring 2012

semester.

Management has taken

corrective measures including

reconciling the GPA that was

reported for the Grade and

Hour Report with a report

from Power Campus which

reflects the actual GPA.

No related errors

were noted during

audit procedures for

the year ended June

30, 2013.

1

November 25, 2013

To the Finance and Audit Committee

of the Board of Trustees

Ave Maria University, Inc. and Subsidiary

5050 Ave Maria Boulevard, Suite 327

Ave Maria, FL 34142

Dear Committee Members:

We have audited the consolidated financial statements of Ave Maria University, Inc. and

Subsidiaries (the “University”) as of and for the year ended June 30, 2013 and have issued our

report thereon dated November 25, 2013. Professional standards require that we provide you

with the following information related to our audit which is divided into the following sections:

Section 1 - Required Communications with Those Charged with Governance

Section II - Other Recommendations and Related Information

Section I includes information that current auditing standards require independent auditors to

communicate to those individuals charged with governance. We will report this information

annually to the finance and audit committee of the board of trustees of Ave Maria University,

Inc. and Subsidiaries.

Section II presents recommendations related to internal control, procedures, and other matters

noted during our current year audit. These comments are offered in the interest of helping the

University in its efforts toward continuous improvement, not just in the areas of internal control

and accounting procedures, but also in operational or administrative efficiency and effectiveness.

We would like to take this opportunity to thank the University’s staff for the cooperation and

courtesy extended to us during our audit. Their assistance and professionalism are invaluable.

This report is intended solely for the use of the finance and audit committee of the board of

trustees, and management of Ave Maria University, Inc. and Subsidiaries and is not intended to

be and should not be used by anyone other than these specified parties.

We welcome any questions you may have regarding the following communications and we

would be willing to discuss any of these or other questions that you might have at your

convenience.

Very truly yours,

Plante & Moran, PLLC

Keith S. Martinez, CPA

Partner

kim.partlo

Praxity

kim.partlo

Columbus

To the Finance and Audit Committee November 25, 2013



2

Section I - Communications Required Under AU 260

Our Responsibility Under U.S. Generally Accepted Auditing Standards

As stated in our engagement letter dated August 21, 2013, our responsibility, as described by

professional standards, is to express an opinion about whether the consolidated financial

statements prepared by management with your oversight are fairly presented, in all material

respects, in conformity with U.S. generally accepted accounting principles. Our audit of the

consolidated financial statements does not relieve you or management of your responsibilities.

Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute,

assurance that the consolidated financial statements are free of material misstatement.

As part of our audit, we considered the internal control of Ave Maria University, Inc. and

Subsidiaries. Such considerations were solely for the purpose of determining our audit

procedures and not to provide any assurance concerning such internal control.

We are responsible for communicating significant matters related to the audit that are, in our

professional judgment, relevant to your responsibilities in overseeing the financial reporting

process. However, we are not required to design procedures specifically to identify such

matters.

Our audit of the University’s consolidated financial statements has also been conducted in

accordance with Government Auditing Standards, issued by the Comptroller General of the

United States. Under Government Auditing Standards, we are obligated to communicate certain

matters that come to our attention related to our audit to those responsible for the governance

of the University, including compliance with certain provisions of laws, regulations, contracts,

grant agreements, certain instances of error or fraud, illegal acts applicable to government

agencies, and significant deficiencies in internal control that we identify during our audit. Toward

this end, we issued a separate letter dated November 25, 2013 regarding our consideration of

the University’s internal control over financial reporting and on our tests of its compliance with

certain provisions of laws, regulations, contracts, and grant agreements.

Planned Scope and Timing of the Audit

We performed the audit according to the planned scope and timing previously communicated to

you in our meeting about planning matters on June 7, 2013.

Significant Audit Findings

Qualitative Aspects of Accounting Practices

Management is responsible for the selection and use of appropriate accounting policies. In

accordance with the terms of our engagement letter, we will advise management about the

appropriateness of accounting policies and their application. The significant accounting policies

used by the University are described in Note 1 to the consolidated financial statements.




3

During the year, the University adopted UPMIFA, which was signed into law in the state of

Florida effective July 1, 2012. UPMIFA replaced UMIFA in the state of Florida. The FASB has

issued Staff Position Paper (FSP) 117-1 which requires new note disclosures including the board

of trustees’ interpretation of state law, return objectives, spending rate policy, and treatment of

permanently restricted net assets, which are included in Note 21 of the University’s June 30,

2013 consolidated financial statements.

The University also adopted ASU No. 2011-04, Amendments to Achieve Common Fair Value

Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This update results in common

fair value measurement and disclosure requirements in GAAP and International Financial

Reporting Standards. The amendments in this update explain how to measure fair value. They

do not require additional fair value measurements and are not intended to establish valuation

standards or affect valuation practices outside of financial reporting. However, this update does

require expanded disclosure related to the nature and significance of inputs that are used in

estimating and measuring the fair value of financial instruments. The amendments in this update

are to be applied prospectively and are effective for annual reporting periods beginning after

December 15, 2011 (therefore, June 30, 2013 for the University). The new pronouncement did

not impact the consolidated statement of financial position or consolidated statement of

activities.

We noted no transactions entered into by the University during the year for which there is a lack

of authoritative guidance or consensus.

During 2013, the University recorded a contribution of a sculpture made prior to June 30, 2011

valued at approximately $2.4 million. The sculpture was donated to a not-for-profit organization

of which the University is the sole member. A prior period adjustment has been recorded

because of this donation, and the consolidated financial statements have been restated to include

the Ave Maria Foundation for the Arts as part of the consolidated group. See Note 22 for further

details regarding the impact on the consolidated financial statements.

Accounting estimates are an integral part of the financial statements prepared by management

and are based on management’s knowledge and experience about past and current events and

assumptions about future events. Certain accounting estimates are particularly sensitive because

of their significance to the consolidated financial statements and because of the possibility that

future events affecting them may differ significantly from those expected.

The most sensitive estimates affecting the consolidated financial statements were:

Allowance for student accounts receivable and loans receivable

Estimated fair value of the radio station intangible in accordance with ASC 820

Estimated fair value of assets held for sale and rent in accordance with ASC 820

Allowance for employee housing loans

Allowance for land notes receivable

Fair value of investments held




4

The allowance for doubtful accounts related to student loans, student receivables, and employee

loans was based on the age of the receivables, prior collection experience, and current

economic conditions. The estimated fair values of the radio station and assets held for sale and

rent were based on appraisals obtained from independent valuation experts, a discounted cash

flow model, or recent sale activity. We evaluated the key factors and assumptions used to

develop these estimates in determining that they are reasonable in relation to the consolidated

financial statements taken as a whole.

The disclosures in the consolidated financial statements are neutral, consistent, and clear.

Certain financial statement disclosures are particularly sensitive because of their significance to

financial statement users. The most sensitive disclosures affecting the consolidated financial

statements were:

Loans to employees to purchase housing within the town of Ave Maria as disclosed in

Note 3.

Recognition of pledges and related grant agreements as disclosed in Note 4.

Bonds issued to fund construction of facilities on the permanent campus as disclosed in

Note 9 including relevant terms of the bonds, letters of credit agreements, and interest rate

swap agreements.

Difficulties Encountered in Performing the Audit

We encountered no significant difficulties in dealing with management in performing and

completing our audit.

Disagreements with Management

For the purpose of this letter, professional standards define a disagreement with management as

a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction,

that could be significant to the consolidated financial statements or the auditor’s report.

We are pleased to report that no such disagreements arose during the course of our audit.

Corrected and Uncorrected Misstatements

Professional standards require us to accumulate all known and likely misstatements identified

during the audit, other than those that are trivial, and communicate them to the appropriate

level of management.

The attached schedule summarizes uncorrected misstatements of the consolidated financial

statements which were requested to be recorded. Management has determined that their

effects are immaterial, both individually and in the aggregate, to the consolidated financial

statements taken as a whole. In addition, none of the misstatements detected as a result of

audit procedures and corrected by management were material, either individually or in the

aggregate, to the consolidated financial statements taken as a whole.




5

Significant Findings or Issues

We generally discuss a variety of matters, including the application of accounting principles and

auditing standards, business conditions affecting the University, and business plans and strategies

that may affect the risks of material misstatement with management each year prior to retention

as the University’s auditors. However, these discussions occurred in the normal course of our

professional relationship and our responses were not a condition of our retention.

Management Representations

We have requested certain representations from management that are included in the

management representation letter dated November 25, 2013.

Management Consultations with Other Independent Accountants

In some cases, management may decide to consult with other accountants about auditing and

accounting matters, similar to obtaining a “second opinion” on certain situations. If a

consultation involves application of an accounting principle to the University’s consolidated

financial statements or a determination of the type of auditor’s opinion that may be expressed

on those statements, our professional standards require the consulting accountant to check with

us to determine that the consultant has all the relevant facts. To our knowledge, there were no

such consultations with other accountants.




6

Client: Ave Maria University, Inc. and Subsidiaries

Y/E: 6/30/2013

Ref. # Description of Misstatement

Current

Assets

Long-term

Assets

Current

Liabilities

Long-term

Liabilities Net Assets Revenue Expenses

Impact to Net

Assets

FACTUAL MISSTATEMENTS:

A1 None

JUDGMENTAL ADJUSTMENTS:

B1 To adjust the fair value of the Thul Real Estate to

management's estimate of market value as of June

30, 2013 (145,000)$ 145,000$ (145,000)$

B2 To record an accrual for estimated lease

payments due for radio station tower use as of

June 30, 2013 150,000$ 150,000 (150,000)

PROJECTED ADJUSTMENTS:

C1 None

-$ - - -$ -$ -$ - -

Total -$ (145,000)$ 150,000$ -$ -$ -$ 295,000$ (295,000)$

PASSED DISCLOSURES:

D1

The effect of misstatements and classification errors identified would be to increase (decrease) the reported

amounts in the financial statement categories identified below:

SUMMARY OF UNRECORDED POSSIBLE ADJUSTMENTS

The University has not included operations related to the subsequent sale of the Annex building with discontinued operations. Approximately $1,093,000 of assets

held for sale and $250,000 of rental income are included in continuing operations on the consolidated statement of financial position and statement of operations

and changes in net assets, respectively, at June 30, 2013.




7

Section II - Other Recommendations and Related Information

During our audit, we noted areas where we believe there are opportunities for the University to

further strengthen internal control or to increase operating efficiencies. Our observations on

those areas are presented for your consideration below:

Allowance for Doubtful Accounts

Management evaluates and adjusts the student accounts receivable and institutional loan

allowance for doubtful accounts annually. We suggest management review the allowances on a

quarterly basis and adjust the reserves accordingly to ensure accurate financial information is

maintained and provided to outside third parties and the board members.

Accounts Payable Support and Cut-off

While testing accounts payable, the accounting department was unable to provide an invoice that

was dated in the current fiscal year. Though the amount was not significant, the accounting

department should maintain supporting documentation and invoices for a reasonable period of

time to support the value of liabilities recorded. We also identified an invoice improperly

included in accounts payable at June 30, 2013 but related to the following fiscal year. We

recommend the University review their cut-off procedures to ensure transactions are recorded

in the correct reporting period.

Secondary Review of Expense Reimbursements

In response to prior audit recommendations, the University implemented a procedure for

secondary review of expense reimbursements. However, while sampling expense

reimbursement requests, we identified a secondary review was not performed and receipts

were not attached to support one of the selections subsequent to implementation of the new

procedure. We suggest that someone within the related employees' department, preferably

their direct supervisor, review and approve expense reimbursements before the funds are

disbursed. This review should be performed consistently.

Employee Compensation and Compensated Absences

Two years ago, the payroll department informed us they review reports created from Empower

and compare it to original data before processing payroll. We were unable to verify this process

as the human resources (HR) coordinator did not sign off that this task was completed. Based

upon discussion with the HR director and the HR specialist last year, they were reviewing their

procedures to further formalize the review process and planned to implement new procedures

in the fall or winter of 2011. During our internal control review procedures for this year’s audit,

it appears the updated procedures still have not been implemented. We also identified vacation

hours were improperly calculated for an employee during the year, resulting in a shortage of

hours accrued compared to the University’s policy. We suggest the procedures drafted in 2011

be implemented to improve the internal control structure surrounding the employee

compensation cycle.




8

Functional Allocation of Expenses

The University allocates operating, maintenance, and depreciation costs on a pro-rata basis

across all functional categories of expenses. We suggest management perform a comprehensive

analysis of the University's overhead costs in order to ensure indirect costs are allocated to the

specific functional categories using a more systematic and rational methodology. This allocation,

once finalized, should be performed whenever internally prepared consolidated financial

statements are provided to outside third parties.

Formal Bid Process

The University does not have a formal procurement policy. As the University continues to

expand and require additional services, a formal policy will assist the University in obtaining

competitive quotes for significant purchases, services, and projects.

Analysis of Investment Policy for UPMIFA Compliance

Florida signed UPMIFA into law and management has represented that the University has

adopted this new state law beginning with the year ended June 30, 2013 as we advised in prior

years. The University has not performed a formal analysis to determine whether the investment

policy complies with UPMIFA. We recommend a review of the investment policy be performed

and a formal conclusion reached and documented to support management’s representation.

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