Connected Campus

2.11.1 Financial Resources

 

The institution has a sound financial base and demonstrated financial stability to support the mission of the institution and the scope of its programs and services.

 

The member institution provides the following financial statements: (1) an institutional audit (or Standard Review Report issued in accordance with Statements on Standards for Accounting and Review Services issued by the AICPA for those institutions audited as part of a system-wide or statewide audit) and written institutional management letter for the most recent fiscal year prepared by an independent certified public accountant and/or an appropriate governmental auditing agency employing the appropriate audit (or Standard Review Report) guide; (2) a statement of financial position of unrestricted net assets, exclusive of plant assets and plant-related debt, which represents the change in unrestricted net assets attributable to operations for the most recent year; and (3) an annual budget that is preceded by sound planning, is subject to sound fiscal procedures, and is approved by the governing board.

 

Audit requirements for applicant institutions may be found in the Commission policy entitled “Accreditation Procedures for Applicant Institutions. 

 

_X_  Compliance           ___  Partial Compliance          ___  Non-Compliance

 

Narrative

 

Mid-America Baptist Theological Seminary (MABTS) has a sound financial base and demonstrates financial stability, which supports the instruction, research, and mission of the seminary and the scope of all programs and services. The institution lives within its financial means and gives evidence of sustainable financial behavior. Although the institution faces common financial challenges within the current economy, the school does not borrow to fulfill its day-to-day operations. All audited financial statements and reports are prepared in accordance with generally accepted accounting principles (FASB standards). The budget approval process is demonstrated, as well as the stability of the Unrestricted Net Assets Exclusive of Plant and Plant-Related Debt (UNAEP). The deficit represented in the UNAEP is explained, primarily through the poor market performance in investment income and the creation of infrastructure required for online programming in instructional expense. A healthy primary reserve continues to provide MABTS with more than adequate resources to expand needed programming and to weather economic downturns.

 

Financial Stability

 

The seminary is strengthened by the diversity of its sources of revenue. No single source of revenue comprises more than 35 percent of total revenues. As noted in figure 1, the largest portion of revenue is derived from draws against invested monies. The next greatest source is earnings from unrestricted contributions at 35 percent, and then from student tuition and fees at 23 percent. The seminary formed strategies related to the improvement of revenue sources, which involves increasing student tuition rates, cost controls limiting expenses, maintaining no long-term debt, and leveraging significant invested and endowed monies. 

 

Figure 1. Sources of Revenue, Fiscal Year 2014-15

 

Increase in Tuition. As demonstrated in table 1, the administration has increased tuition rates over the last six years and eliminated the ‘Tuition Guarantee’ that allowed students to remain at their initial hourly rate throughout their degree as long as they maintained an acceptable academic status. The tuition revenue for FYE 06-30-2014 was $1,149,530, a slight decrease from the previous year primarily due to students taking fewer hours. The tuition strategy halted a five-year decline in tuition revenues and provided the seminary with the largest tuition revenues in its 40-year history. By implementing these strategies, the institution has continued to achieve tuition revenues in excess of $1 million in each of the fiscal years since implementing this strategy and will continue to do so. The administration has committed to recommend an annual tuition increase of 10 to 15 percent for the next 10 years. A history of tuition rates and their related increases are reflected [1]. In the financial presentation [2] submitted to the trustees at the March 2015 bi-annual trustee meeting, the administration recommended a 10 percent increase in the hourly tuition rate from $176/hour to $195/hour, which was approved. In addition to increasing tuition rates, further efforts have been made to increase the number of students enrolling to the institution. The addition of the Bachelor of Arts in Christian Studies degree has assisted in increasing the number of students. These efforts have combined to increase overall tuition from $522,678 by November 30th, 2013 to $551,660 by November 30th, 2014. This is an increase of $29,982 for the first semester of the year. Tuition revenues again exceeded one million dollars to $1,079,901 in FYE 2015 and are expected to increase to $1,289,991 in FYE 2016. The increase is due, in part, to the tuition rate increase and to enrollment gains from additional tracks offered in worship and biblical counseling. 

 

Table 1. Historical Tuition Rates

           

Cost Controls and Debt Position

 

MABTS exercises cost controls within each academic and administrative department and enjoys a debt-free position, enabling the institution to live within its financial means.

 

Cost Controls. In addition to increasing revenues, cost control efforts have been made. The Academic Council restructured its degree schedules to offer fewer sections of class offerings with fuller classrooms. As an example, before these changes were implemented, three sections of the same courses in missiology were taught with 13 students in section 1, 8 students in section 2 and 3 students in section 3. By combining these three sections into one section, all 24 students were taught together in one section by one professor, eliminating the cost of paying two additional professors. The restructured schedule has helped achieve efficiencies and economies of scale regarding the use of classroom space, faculty assignments, and the need for additional adjunct salaries. These actions have made the seminary more efficient in the use of classroom space and instructional faculty. 

 

No Long-Term Debt. The institution is free of long-term debt, which enables the seminary to allocate funds to the core programs that other schools use to fund debt. This is a major part of the strategy for long-term financial stability. The donated monies over the years have allowed the institution to purchase and develop a modern campus, valued at $24,905,499 as of June 30, 2015 [3]. The campus was completed in 2006 and was paid off in 2008. This illustrates the strength of development efforts and the commitment of the donor-base to the seminary.

 

Financial Sustainability

 

The school’s invested monies are sufficient for day-to-day operations as reflected by the Composite Financial Index (CFI) and the Primary Reserve Ratio. MABTS’s Statements of Financial Position and Statements of Activities clarify the institution’s sound financial base and demonstrated financial stability.

 

Invested and Endowed Monies. As of June 30, 2015, the invested monies endowed or otherwise, totaled $11,548,737 [4]. This amount alone would fund the operating budget for the institution for two years without collecting tuition or donations. It is evidence of a strong donor-base for the institution that for every year, the amounts listed in the category ‘Gifts’ have exceeded $1.6 million [4]. This is not a weakness that limits the institution, but is a strength that continues to be a reliable funding resource.

           

Composite Financial Index (CFI). The accounting firm, Klynveld Peat Main Goerdeler (KPMG) developed the CFI that has been accepted as an indication of financial stability [5]. This index has been adopted by the National Association of College and University Business Officers (NACUBO) and the Department of Education as a critical Index of Financial Health. In general, it uses the Primary Reserve Ratio [6] along with the Net Operating Revenue Strength, the Return on Net Assets Strength, and the Viability Ratio Strength to shape an overall index. This resulting index uses a standard weighting system to determine a relative strength factor. A CFI of 3 or less would indicate a need for significant institutional action. On the CFI scale from 1 to 10, a score of 3 or above indicates that an institution has sufficient and adequately managed resources to fulfill its mission objectives. MABTS’s current CFI score is a 3.9 [5].

 

The institution shows financial stability measured by the CFI index [5]. The financial depth indicated by this measure has allowed for both (1) the implementation of tuition strategies, schedule changes, and additional programs by the administration and approved by the board of trustees, and, (2) the weathering of market uncertainties all institutions have faced over the past five years. The key factor in the CFI calculation is related to the Primary Reserve Ratio.

 

Primary Reserve Ratio. The following details the Primary Reserve Ratio for the institution [6]. The Primary Reserve Ratio measures the financial strength of the seminary by comparing expendable net assets to total expenses. It indicates how long MABTS can function using its expendable reserves without relying upon the funds provided from daily operations. Overall, it is expected that a ratio of .15 or less is inadequate to avoid short-term borrowing and it is advisable that this ratio be at least .4. The institution's current Primary Reserve Ration is 1.94.

 

The trend of this ratio indicates whether the seminary has increased its net worth in proportion to the growth in cost of operations. It would normally be expected that the growth of expendable net assets over time would keep pace with the growing cost of operating the seminary. If that does not occur, the ability of the institution to fund its operation during highly adverse times is diminished. The ratio is computed in the following way:

 

The numerator includes all unrestricted and temporarily restricted net assets, excluding investment in Property Plant and Equipment (net of depreciation) and temporarily restricted assets set aside to be spent on plant operations and labeled ‘Expendable Net Assets.’ The denominator includes all annual operating costs of the seminary including auxiliary operations, and excluding depreciation, labeled ‘Total Operating Expenses’ [6].

 

The Primary Reserve Ratio graph, which has remained above 190% for the last 10 years, reflects that the institution enjoys a very healthy position. Such a strong supply of funds allows the school to withstand market fluctuations. This strength also provides the seminary much needed time to make tuition corrections and continue to build enrollment.

 

Financial Behaviors. The recent Statements of Financial Position and Statements of Activities best illustrate the seminary’s sound financial base and demonstrate financial stability. As of 2006, the seminary’s total assets were $45M with only $2M in liabilities. Ten years later in 2015, total assets were $36.8M with only $434K in liabilities [7] and no long-term debt. Therefore, all unrestricted seminary revenues are available to fund the current operations of the school and are not used to finance spending from prior years. Although the institution does not normally use a line of credit for day-to-day operations, a decision was made to use a line of credit instead of drawing additional funds from invested monies during the 2014-15 year, as demonstrated in Note "D" of the 2014-15 annual audit [3].

 

Annual Audits

 

The seminary prepares its financial statements in accordance with generally accepted accounting principles. An independent auditor, Collins Thomas & Associates, PC, is currently the auditor selected by the Board of Trustees of the seminary. The audit reports for the fiscal years ending June 30, 2014 and June 30, 2015 are included in this report [3 and 8], and received positive opinions from the independent auditor.

 

Management Letters. The seminary receives a management letter as a part of the audit each fiscal year. These are provided to the Board of Trustees annually [9 and 10]. They are from an independent auditor who reported “the financial statements for these years conformed with accounting principles generally accepted in the United States of America” [9 and 10].

 

Budgeting Approval Process

 

The seminary employs a sound budget planning and development process which uses comprehensive fiscal procedures, takes a comprehensive approach, includes participation from all departments, and considers several projections and potential impacts. These include:

  • Proposed changes to tuition and fees
  • Enrollment projections
  • Estimated contributions
  • Estimated nondiscretionary institutional costs such as changes in utilities and other expenses
  • Strategic priorities defined by the Board of Trustees and the Executive Administration Committee (EAC)

The process begins in the fall of each academic year, and includes a number of steps involving various constituents. The Vice President for Finance and Operations (VPFO) meets with the finance sub-committee of the Board of Trustees to get initial direction for increasing or decreasing the budget. The EAC also provides input on strategic priorities for the upcoming budget. These are communicated to the budget directors for the seminary along with the budget request and budget justification templates to prepare their annual budget requests. The requests are closely aligned with the unit goals established for each budget area (see Comprehensive Standard 3.3.1). The budget directors submit the templates by January 15th. Both the detailed report and a summary report are then prepared for further review by the EAC. Once approved, the initial budget is then presented to the finance sub-committee of the Board of Trustees for their consideration and eventual approval. The finalized budget request is then prepared for presentation to the full board as they meet annually in March. Board approval of the budget will then go into effect for the following fiscal year, beginning on July 1. These budget development processes and schedules are followed each year. Summary documents of the seminary budget for fiscal years 2014 and 2015 are also provided for comparison in the supporting documentation [11 and 12]. The annual planning and approval process, combined with the seminary’s strong budget and expenditure control mechanisms, work together to ensure that spending remains within the budget scope.

 

Unrestricted Net Assets Exclusive of Plant and Plant-Related Debt (UNAEP)

 

An analysis of the institution’s UNAEP includes their unrestricted net assets, total net assets, unrestricted total revenue, and the unrestricted total expenses. This is reflected in both the Restatement of Net Assets without Plant and Plant Debt [4] and the Financial Worksheet for Private Institutions [7].

 

Unrestricted Net Assets. The Financial Worksheet for Private Institutions [7] summarizes the audited financial statements from 2006 to 2015 and provides ‘estimated’ figures for 2016-17. The top line of the table shows the ‘Unrestricted Net Assets’ by year. This number decreases in the amount of $7,181,321, from $39,896,317 in 2006 to $32,714,996 in 2015, which is 17 percent over the ten years of actual audited information reflected. UNAEP was $15,955,675 in 2006 when the long-term debt was paid off. In 2014, MABTS retired the long-term debt of Mid-America Student Housing, Inc. UNAEP for 2015 was $9,886,069 which is 38% over the ten year period [4]. The change in the seminary’s assets over these years of audited information reflects remarkable stability during some of the most difficult economic times for all institutions, especially non-profit institutions.

 

Total Net Assets. The Total Net Assets have remained stable, from $43,110,078 in 2006 to $36,351,754 in 2015 [7]. Over this period, the national and global economies have seen incredible and extensive volatility. While the economic factors impacted the institution, the resulting long-term influence of the impacts has been mitigated by a very low debt position and continued strength from the donor base over these years. 

 

Unrestricted Total Revenue, Gains, and Other Support. Further support for the strength of the ongoing donor base for the seminary is seen in the school’s revenues. In a year where the investments only earned $130,192, the Unrestricted Total Revenue, Gains, and Other Support still reflected $2,885,182 [7]. The average investment income for the past ten years has averaged $848,870 per year [4]. Even with the volatility of market and economic forces, the seminary had the requisite capital to expand programs and degree offerings for fall 2015 in order to meet future educational demands.

 

Unrestricted Total Expenses (UTE) and Deficit. This stability is seen also in the Unrestricted-Total Expenses line item [7] that was $4,938,703 in 2006 increased to $5,829,317 in 2015 which is a $890,614 increase over ten years. The high UTE was actually $6,083,701 in 2008. The Change in Unrestricted Net Assets exclusive of plant [4], shows a loss of ($1,819,884) for 2012 and ($2,052,902) in 2015. This is a result of poor performance of the investment income and not caused by excessive expenses. The Total Expenses for 2015 were $5,183,698 which is only $16,323 above the average Total Expenses for the ten years reflected [4]. Expenses increased only $60,515 from 2014 to 2015, or 1.18%, while investment income decreased 93% from $2,009,701 to $130,192. The seminary withstood this downturn due to the strong primary reserve of expendable net assets.

 

The above policies, strategies, and processes are reflected in the MABTS 2020 Business Plan [13] and have been developed and implemented and results are being achieved that continue to improve the institution’s financial core. The administration continues to evaluate and cut costs when appropriate without cutting into the quality of the programs offered. These actions along with the efforts to increase tuition rates and enrollment show that MABTS is stable and secure financially and will continue to grow in financial strength in the years to come.

 

Documentation

 

1. History of Tuition Rates

2. Financial Presentation

3. Financial Audit – For the year ending June 30, 2015

4. Restatement of Net Assets without plant and plant related debt

5. Composite Financial Ratio

6. Primary Reserve Ratio

7. Private Institutions Financial Worksheet

8. Financial Audit – For the year ending June 30, 2014

9. Management Letter – For the year ending June 30, 2014

10. Management Letter – For the year ending June 30, 2015

11. Annual Budget – For 2014-15

12. Annual Budget – For 2015-16

13. MABTS 2020 Business Plan 

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