Transcription
South Carolina StateEducation Assistance AuthorityReport on Financial StatementsFor the years ended June 30, 2020 and 2019
South Carolina State Education Assistance AuthorityContentsPageOffice of the State Auditor Transmittal Letter.1Independent Auditor's Report . 2‐3Management’s Discussion and Analysis . 4‐7Financial StatementsStatements of Net Position.8Statements of Revenues, Expenses and Changes in Net Position .9Statements of Cash Flows . 10‐11Notes to Financial Statements . 12‐27Supplementary InformationSchedule of Net Position by Fund . 28‐29Schedule of Revenues, Expenses and Changes in Net Position by Fund .30Schedule of Cash Flows by Fund . 31‐32Schedule of Organizational Data.33Independent Auditor's Report on Internal Control OverFinancial Reporting and on Compliance and Other MattersBased on an Audit of Financial Statements Performed inAccordance with Government Auditing Standards. 34‐35Schedule of Findings and Responses .36
October 1, 2020Members of the AuthoritySouth Carolina State Education Assistance AuthorityColumbia, South CarolinaThis report on the audit of the financial statements of the South Carolina State EducationAssistance Authority for the fiscal year ended June 30, 2020, was issued by Elliott Davis, LLC, CertifiedPublic Accountants, under contract with the South Carolina Office of the State Auditor.If you have any questions regarding this report, please let us know.Respectfullyy submitted,George L. Kennedy, III, CPAState AuditorGLKIII/sag
Independent Auditor's ReportMr. George L. Kennedy, III, CPAState AuditorSouth Carolina Office of the State AuditorColumbia, South CarolinaReport on the Financial StatementsWe have audited the accompanying financial statements of the South Carolina State Education AssistanceAuthority (the “Authority”), a component unit of the State of South Carolina, as of and for the years ended June 30,2020 and 2019, and the related notes to the financial statements, which collectively comprise the Authority’s basicfinancial statements as listed in the table of contents.Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordancewith 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 financialstatements that are free from material misstatement, whether due to fraud or error.Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audits. We conducted ouraudits in accordance with auditing standards generally accepted in the United States of America and the standardsapplicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General ofthe United States. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditor's judgment, including the assessment of therisks of material misstatement of the financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the entity's preparation and fair presentation ofthe financial statements in order to design audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, weexpress no such opinion. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of significant accounting estimates made by management, as well as evaluating the overallpresentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financialposition of the South Carolina State Education Assistance Authority as of June 30, 2020 and 2019, and the changesin its financial position and its cash flows for the years then ended in accordance with accounting principlesgenerally accepted in the United States of America.elliottdavis.com
Required Supplementary InformationAccounting principles generally accepted in the United States of America require that the management’sdiscussion and analysis, as listed in the table of contents, be presented to supplement the basic financialstatements. Such information, although not a part of the basic financial statements, is required by theGovernmental Accounting Standards Board who considers it to be an essential part of financial reporting forplacing the basic financial statements in an appropriate operational, economic, or historical context. We haveapplied certain limited procedures to the required supplementary information in accordance with auditingstandards generally accepted in the United States of America, which consisted of inquiries of management aboutthe methods of preparing the information and comparing the information for consistency with management'sresponses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit ofthe basic financial statements. We do not express an opinion or provide any assurance on the information becausethe limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.Other InformationOur audit was conducted for the purpose of forming an opinion on the financial statements that collectivelycomprise the Authority’s basic financial statements. The individual fund schedules and schedule of organizationaldata are presented for purposes of additional analysis and are not a required part of the basic financial statements.The individual fund schedules are the responsibility of management and were derived from and relate directly tothe underlying accounting and other records used to prepare the basic financial statements. Such information hasbeen subjected to the auditing procedures applied in the audit of the basic financial statements and certainadditional procedures, including comparing and reconciling such information directly to the underlying accountingand other records used to prepare the basic financial statements or to the basic financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States ofAmerica. In our opinion, the individual fund schedules are fairly stated, in all material respects, in relation to thebasic financial statements as a whole.The schedule of organizational data has not been subjected to the auditing procedures applied in the audit of thebasic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.Other Reporting Required by Government Auditing StandardsIn accordance with Government Auditing Standards, we have also issued our report dated October 1, 2020 on ourconsideration of the Authority's internal control over financial reporting and on our tests of its compliance withcertain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of thatreport is to describe the scope of our testing of internal control over financial reporting and compliance and theresults of that testing, and not to provide an opinion on internal control over financial reporting or on compliance.That report is an integral part of an audit performed in accordance with Government Auditing Standards inconsidering the Authority's internal control over financial reporting and compliance.Columbia, South CarolinaOctober 1, 20203
South Carolina State Education Assistance AuthorityManagement’s Discussion and AnalysisThe South Carolina State Education Assistance Authority (the “Authority”) was originally created to fill functionsto provide and guarantee financing for education loans for students and parents. As a provider of financing, theAuthority issued bonds to finance education loans. As a guarantor, the Authority processed loans submitted forguarantee, provided collection assistance for delinquent loans, paid claims for loans in default, collected loans onwhich default claims had been paid, and made appropriate responses to the United States Secretary of Education.As stipulated in the Health Care and Education Reconciliation Act (“HCERA”) of 2010, effective July 1, 2010, allfederal loan originations are required to be made through the federal Direct Loan Program. Therefore, theAuthority did not provide a guarantee for federal loans originated since July 1, 2010.As a result of the HCERA of 2010 and subsequent actions taken by the federal government which nationalized thefederally‐guaranteed student loan program, continuing guarantor operations under the guaranty agreementbetween the Authority and the United States Department of Education (“USDE”) would result in an economic lossto the Authority. Therefore on June 22, 2016, the State Fiscal Accountability Authority ("SFAA") initiated action toterminate the guaranty agreement between the Authority and USDE. Effective December 1, 2016, a USDEdesignated guaranty agency accepted the transfer of all of the Authority's outstanding guarantees and theAuthority's post‐claim portfolio. The Authority no longer serves as a guaranty agency for the USDE.As described above, the Authority was originally created to provide a means of making loans to students in orderto enable them to attend eligible institutions, as defined in the Higher Education Act. Such loan financing has beenconducted by the Authority through its Student Loan Finance Program which has been administered by the SouthCarolina Student Loan Corporation (“SCSLC”) since its inception.SCSLC and the Authority have entered into a loan agreement pursuant to terms in which the Authority has agreedto lend bond proceeds to SCSLC to enable SCSLC to make or acquire education loans. The obligation of SCSLC torepay the finance loans is evidenced by a promissory note of SCSLC and is secured by a pledge under the loanagreement.This section of the Authority’s annual financial report presents a discussion and analysis of the Authority’s financialperformance for the fiscal year ended June 30, 2020. Please read it in conjunction with the Authority’s Statementsof Net Position, Statements of Revenue, Expenses and Changes in Net Position, Statements of Cash Flows, and theNotes to Financial Statements, which follow this section.Financial Highlights:The Authority’s total assets at June 30, 2020 were approximately 176,932,000, which is a decrease ofapproximately 5,705,000 or 3% from June 30, 2019. The decrease in assets was primarily due to reductions ofapproximately 7,082,000 in finance loans receivable. The decrease in finance loans receivable reflectedprovisions of the loan agreement with SCSLC related to the Authority’s 2009 Palmetto Assistance Loan ("PAL")General Resolution. This decrease was offset by an increase of approximately 3,677,000 in cash and cashequivalents.4
South Carolina State Education Assistance AuthorityManagement’s Discussion and AnalysisFinancial Highlights, Continued:The Authority's operating revenues for the fiscal year ended June 30, 2020 were approximately 1,809,000,reflecting a decrease of approximately 892,000 or 33% from the fiscal year ended June 30, 2019. This decreasewas primarily attributed to the decrease in reimbursement of bond expense.The Authority's interest expense for the fiscal year ended June 30, 2020 was approximately 1,077,000, reflectinga decrease of approximately 395,000 or 27% from the fiscal year ended June 30, 2019. This reduction wasprimarily due to the normal payment activity on the outstanding bonds of the Authority during the fiscal yearended June 30, 2020.Operating expenses were approximately 765,000 for the fiscal year ended June 30, 2020, reflecting a decreaseof approximately 106,000 or 12% from the fiscal year ended June 30, 2019. This decrease was primarily attributedto the decrease in SCSLC for operating costs and loan fees.Overview of the Financial Statements:The Authority’s financial statements are prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP") as applied on the accrual basis. Under the accrual basis of GAAP, revenuesare recognized during the period in which they are earned and expenses are recognized during the period in whichthey are incurred. The three basic financial statements presented within the financial statements are as follows:Statements of Net Position ‐ This statement presents information regarding the Authority’s assets, liabilitiesand net position. Net position represents the total assets less the total liabilities. The Statements of NetPosition classifies assets and liabilities as current and long‐term and net position as restricted andunrestricted.Statements of Revenues, Expenses and Changes in Net Position ‐ This statement presents the Authority’soperating revenues, operating expenses, non‐operating income and expenses, and changes in net position forthe fiscal year.Statements of Cash Flows ‐ The Authority’s Statements of Cash Flows is presented on the direct method ofreporting, which reflects cash flows from operating, non‐capital financing, and investing activities.5
South Carolina State Education Assistance AuthorityManagement’s Discussion and AnalysisFinancial Analysis:The Authority’s total net position at June 30, 2020 was approximately 154,429,000, which is an increase ofapproximately 2,054,000 or 1% from June 30, 2019. Components of the Authority’s Statements of Net Positionas of June 30 were as follows:20202019Percentage /‐Current assetsLong‐term assetsTotal assets 110,646,633 111,480,94166,285,46171,155,647 176,932,094 182,636,588(0.8) %(6.8) %(3.1) %Current liabilitiesLong‐term liabilitiesTotal liabilities 1,969,109 14.2) %(26.6) %(25.6) 43 152,374,977 176,932,094 182,636,5881.9 %0.9 %1.4 %(3.1) %Net position:RestrictedUnrestrictedTotal net positionTotal liabilities and net positionComponents of the Statements of Revenues, Expenses and Changes in Net Position for these two fiscal years wereas follows:Operating revenues:Loan interest incomeTotal operating revenues202020191,808,880 1,808,8802,701,4562,701,456(33.0) %(33.0) 20,83083,266340,686870,6801,830,77621.5 %(14.0) %(10.3) %(12.8) %(12.1) %(43.0) 361,0272,054,0662,191,803152,374,977 150,183,174 154,429,043 152,374,97713.9 %(26.9) %179.9 %(6.3) %1.5 %1.4 % Operating expenses:General administrationExternal loan servicingBorrower incentivesOther feesTotal operating expensesOperating incomeNon‐operating income (expense):Investment incomeInterest expenseTotal non‐operating incomeChange in net positionBeginning net positionEnding net position6Percentage /‐
South Carolina State Education Assistance AuthorityManagement’s Discussion and AnalysisDebt Administration:The Authority funds student loan notes by issuing tax‐exempt bonds. The bonds must be approved by theAuthority and SCSLC’s Board of Directors prior to being issued. Tax‐exempt bonds also must receive an allocationof the State of South Carolina private activity volume ceiling or “cap”. In addition, the financings must comply withfederal statutes and with the rules and regulations of the United States Department of the Treasury.At June 30, 2020 and 2019, the Authority had 17,015,000 and 24,805,000 in principal amount of bondsoutstanding, respectively. Detailed information on the Authority’s debt is presented in Note 7 to the financialstatements.2020Student and finance loans receivableBonds outstanding2019 32,453,609 41,682,79817,015,00024,805,000Percentage /‐(22.1) %(31.4) %Economic Outlook:SCSLC made the decision to transfer the servicing of its loan portfolio to a third party sub‐servicer instead ofperforming the servicing function internally. The first conversion consisted of the Federal Family Education LoanProgram (“FFELP”) loans and was completed on August 19, 2016. SCSLC is the lender of these loans. The private loanconversion was completed during the fiscal year ended June 30, 2017. The student loans of the Authority areincluded in the loans transitioned to the sub‐servicer.As discussed further in the Reporting Entity section of Note 1 to the financial statements, the Authority transferredall of its outstanding guarantees and post‐claim portfolio to Educational Credit Management Corporation ("ECMC")effective December 1, 2016. As part of this transfer, the Authority agreed to reimburse ECMC up to 737,000 of thedefault aversion fee previously earned from USDE due to claims filed by the eligible lender. The reimbursement of 737,000 was agreed to be paid out over a sixty‐month period beginning December 1, 2016 through December 1,2021 and was scheduled to be paid quarterly out of the Agency Operating Fund. As of March 31, 2018, the Authorityhad been invoiced and paid the entirety of the 737,000 reimbursement to ECMC.7
South Carolina State Education Assistance AuthorityStatements of Net PositionAs of June 30, 2020 and 2019202020202019Current assetsCash and cash equivalentsCash and cash equivalents ‐ restrictedReceivables:Current portion of student loansCurrent portion of finance loansInterest due from borrowerDue from South Carolina Student Loan CorporationDue from servicersDue from United States Department of EducationAccrued interest receivablePrepaidsTotal current assetsLong‐term assetsReceivables:Student loans, less current portion and net ofallowance for loan loss of 19,092 in 2020 and 25,560 in 2019Finance loans, less current portionDue from South Carolina Student Loan CorporationTotal long‐term assetsTotal assets2019LiabilitiesAssets 30,499,01073,200,141 0616,489,14739,835,00866,285,461 7 182,636,588See Notes to Financial Statements8Curren
Carolina Student Loan Corporation (“SCSLC”) sinceits inception. SCSLCand the Authority have entered into a loan agreement pursuant to terms in which the Authority has agreed to lend bond proceeds to SCSLC to enable SCSLC to make or acquire edu
