Break Even Analysis

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GARDNER‐WEBB UNIVERSITY FINANCIAL STATEMENTS AND ACCOMPANYING INFORMATION As of and for the Years Ended June 30, 2016 and 2015 And Report of Independent Auditor

** Denotes audit committee members

Gardner‐Webb University Board of Trustees 2016 Officers and Membership Listing

Chairman .................................................................................................... Frank A. Stewart Vice Chairman .................................................................................... C. Neal Alexander, Jr. Secretary ...................................................................................................... Max J. Hamrick Treasurer ........................................................................................................ Lisa C. Tucker Immediate Past Chairman ...................................................................... Dennis R. Axelson Chair, Development .................................................................................. Franklin V. Beam Chair, Educational Affairs .......................................................................... Ronald R. Beane Chair, Financial Affairs ................................................................................. Max J. Hamrick Chair, Student Development .............................................................................. Tony Tench Chair, Intercollegiate Athletics ................................................................ Wesley W. Barkley Chair, Enrollment Management ................................................................... William K. Gary Chair, Divinity School ........................................................................ C. Lorance Henderson President ..................................................................................................... A. Frank Bonner Assistant Secretary ................................................................................. Benjamin C. Leslie Assistant Treasurer ...................................................................................... Mike W. Hardin C. Neal Alexander, Jr. Rodney B. Allison Candace J. Arey **Dennis R. Axelson Wesley W. Barkley Franklin V. Beam Ronald R. Beane W. Thomas Bell Ralph L. Bentley **David C. Brinkley Robert E. Cribb William K. Gary George R. Gilliam **Max J. Hamrick Ronald W. Hawkins C. Lorance Henderson Ryan D. Hendley J. Jackson Hunt William W. Leathers, III **Randall L. Marion

Sam H. McMahon, Jr. Thomas E. Philson James E. Robbins Tony M. Robbins

Carole Roberts-Carvajal David W. Royster, III

Bob D. Shepherd Frank A. Stewart

Anthony N. Strange **J. Linton Suttle, III

Tony Tench Lisa C. Tucker

Philip E. Turner Thomas L. Warren H. Gene Washburn

Thomas H. Watson, Jr. Christopher L. Welch

Don L. Yelton Robert W. Yelton

GARDNER‐WEBB UNIVERSITY TABLE OF CONTENTS

REPORT OF INDEPENDENT AUDITOR ................................................................................................. 1-2

FINANCIAL STATEMENTS Statements of Financial Position ......................................................................................................................... 3 Statements of Activities ........................................................................................................................................ 4 Statements of Cash Flows ................................................................................................................................... 5 Notes to Financial Statements ........................................................................................................................ 6-20

ACCOMPANYING INFORMATION Report of Independent Auditor 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 ............................................ 21-22 Report of Independent Auditor on Compliance for Each Major Federal Program and Report on Internal Control over Compliance Required by the Uniform Guidance ............................................................................................................ 23-24 Schedule of Findings and Questioned Costs ................................................................................................ 25-26 Schedule of Expenditures of Federal and State Awards ................................................................................... 27 Notes to Schedule of Expenditures of Federal and State Awards ..................................................................... 28

Report of Independent Auditor The Board of Trustees Gardner-Webb University Boiling Springs, North Carolina We have audited the accompanying financial statements of Gardner-Webb University, which comprise the statements of financial position as of June 30, 2016 and 2015, and the related statements of activities and cash flows for the years then ended, and the related notes to financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the University as of June 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

OTHER MATTERS Other Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The supplemental information included in the schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”) is presented for purposes of additional analysis and is not a required part of the 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 financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting, and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal and state awards is fairly stated in all material respects in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 31, 2016 on 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 and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University’s internal control over financial reporting and compliance.

Charlotte, North Carolina August 31, 2016

GARDNER‐WEBB UNIVERSITY STATEMENTS OF FINANCIAL POSITION JUNE 30, 2016 AND 2015

The accompanying notes to financial statements are an integral part of these statements. 3

2016 2015 ASSETS Cash and cash equivalents 20,780,372$ 19,544,163$ Restricted cash and cash equivalents 497,165 387,854 Contributions receivable (less allowance for doubtful accounts

of $56,324 in 2016 and $994 in 2015) 2,812,768 3,187,127 Notes and accounts receivable 1,723,506 2,934,000 Student accounts receivable (less allowance for doubtful accounts

of $858,147 in 2016 and $825,645 in 2015) 842,532 1,202,981 Student loans (less allowance for doubtful loans

of $775,000 in 2016 and $825,000 2015) 2,294,399 2,388,361 Accrued interest receivable 259,973 239,605 Prepaid expenses and other assets 1,253,144 1,128,397 Inventory 895,510 757,515 Investments 59,869,438 59,875,121 Real estate held for investment 2,038,539 1,460,539 Property, plant, and equipment (net) 63,839,461 66,356,459

Total Assets 157,106,807$ 159,462,122$

LIABILITIES AND NET ASSETS Accounts payable and accrued expenses 3,431,843$ 3,751,687$ Students' and other deposits 606,990 584,793 Deferred income 3,658,837 4,042,269 Construction cost payable 82,570 555,478 Annuities payable 43,240 44,972 Long-term debt and accrued interest payable 30,274,076 32,613,129 Refundable federal government advances 2,601,934 2,573,064 Due to other agencies 811,028 680,593

Total Liabilities 41,510,518 44,845,985

NET ASSETS Unrestricted 58,152,467 57,555,707 Temporarily restricted 17,885,718 20,200,397 Permanently restricted 39,558,104 36,860,033

Total Net Assets 115,596,289 114,616,137

Total Liabilities and Net Assets 157,106,807$ 159,462,122$

GARDNER‐WEBB UNIVERSITY STATEMENTS OF ACTIVITIES YEARS ENDED JUNE 30, 2016 AND 2015

The accompanying notes to financial statements are an integral part of these statements.

Temporarily Permanently

Unrestricted Restricted Restricted Total Operating Revenues:

Tuition and fees 69,129,768$ -$ -$ 69,129,768$ Less institutional tuition discounts (26,311,371) - - (26,311,371) Less funded tuition discounts (1,466,798) - - (1,466,798)

Net tuition and fees 41,351,599 - - 41,351,599 Auxiliary enterprises 15,609,072 - - 15,609,072 Federal grants for student aid - 440,826 - 440,826 Gifts and bequests 974,163 1,309,905 - 2,284,068 Investment return designated for

operations 410,804 2,213,855 - 2,624,659 Interest on loans receivable 240,488 - - 240,488 Other income 2,816,262 - - 2,816,262 Net assets released from restriction 4,033,815 (4,033,815) - -

Total Operating Revenues 65,436,203 (69,229) - 65,366,974

Operating Expenses: Instructional 27,594,453 - - 27,594,453 Academic support 2,715,348 - - 2,715,348 Student services 15,959,556 - - 15,959,556 Institutional support 10,193,340 - - 10,193,340 Fundraising 1,362,917 - - 1,362,917 Auxiliary enterprises 9,068,270 - - 9,068,270

Total Operating Expenses 66,893,884 - - 66,893,884

Change in Net Assets from Operations (1,457,681) (69,229) - (1,526,910)

Nonoperating Activities: Gifts and bequests 1,131,131 729,175 2,699,196 4,559,502 Loss on sale of real estate - - (1,125) (1,125) Net assets released from restriction 877,953 (877,953) - - Other nonoperating changes 400,999 (4,084) - 396,915 Investment return, net (355,642) (2,092,588) - (2,448,230)

Change in Net Assets from Nonoperating Activities 2,054,441 (2,245,450) 2,698,071 2,507,062

Total Change in Net Assets 596,760 (2,314,679) 2,698,071 980,152

Beginning net assets 57,555,707 20,200,397 36,860,033 114,616,137

Ending net assets 58,152,467$ 17,885,718$ 39,558,104$ 115,596,289$

Year Ended June 30, 2016

Temporarily Permanently

Unrestricted Restricted Restricted Total

Operating Revenues: Tuition and fees 66,572,885$ -$ -$ 66,572,885$ Less institutional tuition discounts (23,327,881) - - (23,327,881) Less funded tuition discounts (1,417,434) - - (1,417,434)

Net tuition and fees 41,827,570 - - 41,827,570 Auxiliary enterprises 15,392,289 - - 15,392,289 Federal grants for student aid - 417,576 - 417,576 Gifts and bequests 565,150 1,582,287 - 2,147,437 Investment return designated for

operations 363,753 2,242,937 - 2,606,690 Interest on loans receivable 272,541 - - 272,541 Other income 2,716,488 - - 2,716,488 Net assets released from restriction 4,044,968 (4,044,968) - -

Total Operating Revenues 65,182,759 197,832 - 65,380,591

Operating Expenses: Instructional 26,743,549 - - 26,743,549 Academic support 2,580,092 - - 2,580,092 Student services 16,012,757 - - 16,012,757 Institutional support 9,735,649 - - 9,735,649 Fundraising 1,078,100 - - 1,078,100 Auxiliary enterprises 9,063,006 - - 9,063,006

Total Operating Expenses 65,213,153 - - 65,213,153

Change in Net Assets from Operations (30,394) 197,832 - 167,438

Nonoperating Activities: Gifts and bequests 478,642 990,406 974,127 2,443,175 Federal grant - 950,000 - 950,000 Net assets released from restriction 1,663,380 (1,663,380) - - Other nonoperating changes 389,718 (10,024) 21,818 401,512 Investment return, net (243,140) (2,216,215) - (2,459,355)

Change in Net Assets from Nonoperating Activities 2,288,600 (1,949,213) 995,945 1,335,332

Total Change in Net Assets 2,258,206 (1,751,381) 995,945 1,502,770

Beginning net assets 55,297,501 21,951,778 35,864,088 113,113,367

Ending net assets 57,555,707$ 20,200,397$ 36,860,033$ 114,616,137$

Year Ended June 30, 2015

GARDNER‐WEBB UNIVERSITY STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 2016 AND 2015

The accompanying notes to financial statements are an integral part of these statements. 5

2016 2015 Cash flows from operating activities:

Change in net assets 980,152$ 1,502,770$ Adjustments to reconcile change in net assets to net cash from operating activities:

Depreciation 5,376,165 4,886,006 Amortization 21,422 21,422 Net unrealized and realized losses on investments 1,581,287 1,766,301 Gain on disposition of assets (97,543) (53,305) (Gain) loss on sale of real estate held for investment 1,125 (44,132) Present value adjustment to annuities payable 4,084 56,800 Provision for losses on accounts and contributions receivable 37,832 (100,278) Contributions restricted for permanent endowment (2,121,196) (974,127) Contributions restricted for capital improvements (729,175) (1,940,406) Contribution of real property restricted for permanent endowme (578,000) - Changes in operating assets and liabilities:

Restricted cash (109,311) 187,055 Receivables 1,662,035 (1,207,330) Inventories (137,995) 32,295 Contributions receivable 319,029 (438,922) Prepaid expenses and other assets (146,169) (364,811) Accounts payable and accrued expenses (319,844) 300,594 Students' and other deposits 22,197 (24,474) Deferred income (383,432) 507,235 Accrued interest payable (42,938) (41,375) Due to other agencies 130,435 79,452

Net cash from operating activities 5,470,160 4,150,770

Cash flows from investing activities: Proceeds from sale of investments 3,112,431 2,538,073 Purchase of investments (4,688,035) (2,651,090) Purchase of property, plant and equipment (3,336,891) (11,536,124) Proceeds from disposition of property, plant and equipment 101,234 93,079 Proceeds from sale of real estate held for investment - 180,836

Net cash from investing activities (4,811,261) (11,375,226)

Cash flows from financing activities: Restricted contributions 2,850,371 2,914,533 Repayment of long-term debt (2,296,115) (2,212,590) Proceeds from issuance of long-term debt - 6,763,176 Change in annuities payable (5,816) (79,492) Change in refundable federal government advances 28,870 (166,260)

Net cash from financing activities 577,310 7,219,367

Net change in cash and cash equivalents 1,236,209 (5,089) Cash and cash equivalents at beginning of year 19,544,163 19,549,252

Cash and cash equivalents at end of year 20,780,372$ 19,544,163$

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 1—Summary of significant accounting policies Nature of Operations - Gardner-Webb University (the “University”) is a North Carolina nonprofit corporation. The University is a fully accredited member of the Southern Association of Colleges and Schools Commission on Colleges and a member of North Carolina Independent Colleges and Universities. Basis of Presentation - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial statements report amounts separately by net asset classification. A summary of these classifications follows:

Unrestricted Net Assets - Net assets that are both undesignated and designated in nature. Undesignated net assets are those currently available for use in the day-to-day operation of the University and those resources invested in property, plant and equipment. Accumulated investment losses for specific endowment funds reduce unrestricted net assets until future earnings offset those losses.

Temporarily Restricted Net Assets - Net assets that are contributions and endowment investments subject to donor-imposed restrictions that may or will be met, either by actions of the University and/or the passage of time. When a restriction expires, that is when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statements of activities as net assets released from restrictions.

Permanently Restricted Net Assets - Net assets that are subject to donor-imposed stipulations that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all of, or part of, the income earned on related investments for general or specific purposes. Assets in certain annuities are permanently restricted because after the life of the annuitant is over, any assets remaining are transferred to an endowed scholarship.

Expenses are reported as decreases in unrestricted net assets. Expirations of donor-imposed stipulations that simultaneously increase one class of assets and decrease another are reported as reclassifications between the applicable classes of net assets. Income and gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulations or by law. Management Estimates - The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents - Cash and cash equivalents consist of demand deposits and liquid investments with original maturities of three months or less on deposit at banks in North Carolina and certificates of deposit that are available for early withdrawal without penalty. Receivables - Receivables consist primarily of contributions receivable and student accounts and loans receivable and are stated at cost less an allowance for doubtful accounts. Management’s determination of the allowance for doubtful accounts is based on an evaluation of the age of receivables, past experience, current economic conditions, and other risks inherent in the accounts receivable portfolio. Accounts are considered past due when contractual terms are not met and are written off when deemed uncollectible by management. Inventory - Bookstore inventory is valued at the lower of cost (first-in, first-out method) or market.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 1—Summary of significant accounting policies (continued) Investments - Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at fair value. Fair value is determined by reference to exchange or dealer-quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar investment securities. Alternative investments are carried at fair value based upon financial information provided by external investment partners. Because the alternative investments are not readily marketable, the estimated value is subject to uncertainty and, therefore, may differ significantly from the value that would have been used had a ready market for the investments existed. See Note 10 for a further discussion of fair values. Changes in fair value of securities are reflected as investment return in the accompanying statements of activities. Real Estate Held for Investment - Real estate held for investment is valued at cost or fair value at date of donation. If the cost is determined not to be recoverable, an impairment loss is recognized to write the cost down to fair value. Property, Plant, and Equipment, Net - Property, plant and equipment are stated at the cost of the assets if purchased or at the estimated fair value at the time of donation if contributed. Renovations and significant improvements to existing structures are capitalized. Fixtures and small equipment are expensed when purchased. Depreciation is recorded on the straight-line basis over the estimated useful life of the assets. The University capitalizes assets that have a useful life of more than one year and cost more than $1,000. Estimated useful lives by asset class are as follows:

Land and campus improvements 5 – 15 years Buildings 40 years Equipment 3 – 15 years Water, sewer, and electrical systems 20 years Stadium 20 years

Deferred Income and Revenue Recognition - Deferred income represents the portion of student tuition and fees for summer programs which have been billed as of June 30 of each year, but not earned, and deferred revenue from initial investments under the terms of food service management and cable television agreements. Revenues are earned when the University has performed the service agreed upon, generally based on the passage of time. Split-Interest Agreements - The University accepts gifts subject to split-interest agreements. These gifts may be in the form of annuities, charitable lead trusts, or charitable remainder trusts and they provide for the payment of distributions to the grantor or other designated beneficiaries over the designated beneficiary’s lifetime. At the end of the trust’s term, the remaining assets are available for the University’s use. At the time of receipt, a gift is recorded based upon the fair value of assets donated less any applicable liabilities. Liabilities include the present value of projected future distributions to the annuitant or trust beneficiary and are determined using appropriate discount rates (3% at June 30, 2016 and 4% at June 30, 2015). On an annual basis, the University revalues the liability for future payments to beneficiaries based on actuarial assumptions. Refundable Federal Government Advances - Advances from the federal government under the Perkins Loan Program are distributable to the Federal government upon liquidation of the funds and thus funds not distributed to the federal government are reflected as liabilities in the statements of financial position.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 1—Summary of significant accounting policies (continued) Income Taxes – The University is exempt from federal and state income taxation under the provisions of Section 501(c)(3) of the Internal Revenue Code (“IRC”). In accordance with IRC regulations, the University is taxed on unrelated business income, which consists of earnings from activities not related to the exempt purpose of the University. The University accounts for tax uncertainties based on a more likely than not recognition threshold whereby tax benefits are only recognized when the University believes that they have a greater than 50% likelihood of being sustained upon examination by taxing authorities. The University has evaluated all tax positions and determined that it has no uncertain income tax positions as of June 30, 2016 and 2015. Gifts and Bequests - Gifts received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Gifts of cash and other assets are reported as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a restriction expires, that is, when a stipulated time restriction ends or a purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Donations of property and equipment are recorded as support at their estimated fair value at the date of donation. Such donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Assets donated with explicit restrictions regarding their use are reported as restricted support. Absent donor stipulations regarding how long those donated assets must be maintained, the University reports expirations of donor restrictions when the donated or acquired assets are placed in service as instructed by the donor. The University reclassifies temporarily restricted net assets to unrestricted net assets at that time. Unconditional promises to give are recognized as revenues or gains in the period received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. In accordance with GAAP, the University recognizes contributions of assets held by others as income when the beneficial interest becomes known. The income is valued at the present value of estimated expected future cash flows. Operating Activities - Operating activities in the statements of activities reflect all transactions related to the core operations of the University. All other transactions, including activity related to endowment and other investments, gifts for capital projects or other long-term restricted purposes, and certain other non-recurring items are included as nonoperating activities. Functional Allocation of Expenses - The costs of providing the various programs and other activities of the University have been summarized on a functional basis in the statements of activities. Direct identifiable expenses are charged to programs and supporting services. Expenses related to more than one function are allocated to the various programs and supporting services based on space utilization and usage of debt proceeds. Concentrations of Credit Risk - The University grants credit to its students for tuition and fees and generally does not require collateral to support these receivables. The University continually monitors and evaluates its collection procedures to minimize potential credit risks associated with its accounts and notes receivable. The majority of students come from the southeast United States; however, the University attracts students from throughout the country and abroad.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 2—Restricted cash and cash equivalents The University places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (FDIC) covers $250,000 for substantially all depository accounts. The University regularly has amounts on deposit in excess of the insured limits. As of June 30, 2016, the University had approximately $18,361,918 which exceeds these insured amounts. Restricted cash and cash equivalents are restricted for Perkins Loans in the amounts of $497,165 and $387,854 as of June 30, 2016 and 2015, respectively. Note 3—Contributions receivable Contributions receivable consist of the following as of June 30:

2016 2015 Amounts due in: Less than one year $ 641,993 $ 610,736 One to five years 744,198 1,271,129 More than five years 2,909,385 3,210,325 4,295,576 5,092,190 Less: Net present value discount (3% for 2016 and 2015)

(1,426,484)

(1,904,069)

Allowance (56,324) (994)

Contributions receivable, net $ 2,812,768 $ 3,187,127 Contributions receivable includes $1,634,090 and $1,475,765 as of June 30, 2016 and 2015, respectively, for assets held by others for which the income earned by the assets is payable to the University in the future. Contributions receivable have the following restrictions as of June 30:

2016 2015 Endowment for programs and scholarships $ 1,158,642 $ 991,427 Building construction 796,761 922,693 Departmental programs and activities 857,365 1,273,007 Contributions receivable, net $ 2,812,768 $ 3,187,127

Note 4—Student loans Student loans receivable consist of the following as of June 30:

2016 2015 Perkins Student Loan Program $ 3,069,399 $ 3,213,361 Less: allowance for doubtful accounts (775,000) (825,000) Net student loans $ 2,294,399 $ 2,388,361

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 4—Student loans (continued) The University administers the Perkins Student Loan Program which has a 10-year repayment period, with an interest rate of 5%. In the event of termination of the program, the loan repayments would be distributed to the federal government and to the University on the basis of their relative contributions to the program. Federal advances under the Perkins Loan Program of $2,601,934 and $2,573,064 at June 30, 2016 and 2015, respectively, are reflected as a liability in the accompanying statements of financial position. The availability of funds for loans under the Perkins Federal Revolving Loan Program is dependent on reimbursements to the pool from repayments on outstanding loans. Outstanding loans cancelled under the program result in a reduction of the funds available for loan and a decrease in the liability to the government. Student loans represented 1.5% of total assets at June 30, 2016 and 2015. Student loans receivable consist of the following at June 30:

2016 2015 Past due: Less than 270 days $ 253,763 $ 270,316 Greater than 270 days but less than two years 117,994 168,082 Greater than two years but less than five years 192,153 198,550 Greater than five years 280,326 238,512

Total past due 844,236 875,460 Current 513,513 511,466 Not in repayment status 1,711,650 1,826,435 Allowance (775,000) (825,000)

Total student loans receivable $ 2,294,399 $ 2,388,361 Note 5—Prepaid expenses and other assets Prepaid expenses and other assets consist of the following as of June 30:

2016 2015 Capitalized loan fees $ 188,320 $ 188,320 Less accumulated amortization (95,156) (73,734)

93,164 114,586 Prepaid expenses 1,007,746 861,577 Collectibles and other assets 152,234 152,234

Total prepaid expenses and other assets $ 1,253,144 $ 1,128,397

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 6—Investments Investments are stated at fair value. The fair values are summarized as of June 30:

2016 2015 Money market funds $ 182,782 $ 518,701 Equity securities 6,362,706 7,269,633 Mutual funds - fixed income 18,408,161 22,578,437 Mutual funds - equities 21,483,643 25,397,278 Alternative investment 13,432,146 4,111,072

Total investments $ 59,869,438 $ 59,875,121 Management relies on various factors to estimate the fair value of its alternative investments. Management believes its processes and procedures for valuing investments are effective, and, that its estimate of value is reasonable. However, the factors used by management are subject to change in the near term, and, accordingly, investment values and performance can be affected. The effect of these changes could be material to the financial statements. For investments in entities that calculate net asset value or its equivalent whose fair value is not readily determinable, the following table provides information about the probability of investments being sold at amounts different from their net asset value per share:

2016

Fair Value

2015 Fair Value

Unfunded

Commitments

Redemption Frequency

Redemption Notice Period

OFI Institutional Senior Floating Rate Loan Fund, LLC(a)

$ 3,537,544 $ 4,111,072 $ - Funds trade daily

10 business days prior to a valuation date

AllianzGI Structured Alpha 1000 LLC(b)

3,404,772 - - Last business day of the Month

5th business day of the month

SIT Alpha III Bond Fund LTD(c)

6,489,830 - - Last day of the month

60 days

(a) This category invests in debt securities with an objective to seek as high a level of current income

and preservation of capital as is consistent with investing primarily in senior-floating rate loans and other debt securities. The mutual fund is invested 94% in corporate bonds.

(b) Structured Alpha is a strategy that pursues risk-controlled returns via the options market. Structured Alpha invests in US Equity Index options and options on volatility indexes. The strategy buys and sells puts and calls to create positions that are designed to generate gains at position expiration. The investment team is based in New York and has been managing options portfolios since September 2005.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 6—Investments (continued)

(c) The Fund’s investment objective is to maximize total return. The Fund seeks to achieve its objective by investing, in normal market conditions, in a diversified portfolio of the highest grade debt securities (U.S. government and agency securities, securities rated in the top rating category by one or more nationally recognized statistical rating organization and unrated securities deemed by the manager to be of similar credit quality), including obligations of the U.S. government, its agencies and instrumentalities, mortgage-related securities, commercial paper and other short-term debt obligations. The Fund may also invest in a short-term investment fund managed by the Fund’s custodian, repurchase agreements, and futures contracts (and options thereon).

The following schedules summarize the investment return and its classification in the statements of activities:

June 30, 2016

Unrestricted Temporarily

Restricted

Total Dividends and interest $ 394,936 $ 1,362,780 $ 1,757,716 Realized gain (loss) on investments reported at fair value

91,405

396,232

487,637

Unrealized gain (loss) on investments reported at fair value

(431,179)

(1,637,745)

(2,068,924)

Total investment return 55,162 121,267 176,429 Less investment return designated for operations

(410,804)

(2,213,855)

(2,624,659)

Investment return, nonoperating $ (355,642) $ (2,092,588) $ (2,448,230)

June 30, 2015

Unrestricted Temporarily

Restricted

Total Dividends and interest $ 1,331,565 $ 582,071 $ 1,913,636 Net realized gain (loss) on investments reported at fair value

24,574

(9,664)

14,910

Net unrealized loss on investments reported at fair value

(1,235,526)

(545,685)

(1,781,211)

Total investment return 120,613 26,722 147,335 Less investment return

designated for operations

(363,753)

(2,242,937)

(2,606,690)

Investment return, nonoperating $ (243,140) $ (2,216,215) $ (2,459,355)

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 7—Property, plant, and equipment Property, plant, and equipment consist of the following at June 30:

2016 2015

Land and improvements $ 11,122,156 $ 10,709,168

Building 79,844,047 75,125,778

Equipment 25,254,945 24,911,010

Water, sewer, and electrical system 1,562,285 1,562,285

Stadium 12,839,942 9,623,849

Construction-in-progress 175,555 6,759,931

Total property and equipment 130,798,930 128,692,021

Less accumulated depreciation (66,959,469) (62,335,562)

Property, plant, and equipment, net $ 63,839,461 $ 66,356,459

Depreciation expense amounted to $5,376,165 and $4,886,006 for years ended June 30, 2016 and 2015, respectively. Note 8—Defined contribution retirement plan The University participates in a defined contribution benefit plan covering substantially all faculty, administrators, clerical, and other full-time employees of the University. If an employee with at least one year of service contributes at least 4% of their total compensation to the Plan, the University will in turn contribute 8% of the participant’s total compensation. Benefit plan expense for the years ended June 30, 2016 and 2015 was $1,558,624 and $1,445,546, respectively. Note 9—Long-term debt A summary of the University’s long-term debt is as follows:

2016 2015 Bank loan, unsecured. Interest at the daily LIBOR rate plus 1.85% (2.30% and 2.13% at June 30, 2016 and 2015, respectively) due monthly starting November 1, 2014. Maximum borrowing capability of $7,000,000. Semi-annual principal payments of approximately $200,000 will commence on October 15, 2017, ending with a balloon payment of the remaining principal balance due on December 15, 2020. Bank loan bearing interest at 3.74%. The loan and respective interest expense are payable in semi-annual installments of $1,611,943 through December 15, 2020, ending with a balloon payment of the reaming principal. Proceeds from the debt were used to retire three series of Revenue Bonds issued and to fund specified construction projects. The loan is secured by future unrestricted revenues.

$ 6,763,176 23,079,317

$ 6,763,176 25,375,432

Subtotal Accrued interest

29,842,493 431,583

32,138,608 474,521

$ 30,274,076 $ 32,613,129

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 9—Long‐term debt (continued) The consolidated loan agreement contains certain financial and non-financial covenants, including requirements to maintain a certain debt service coverage ratio, liquidity ratio, leverage ratio and the continuity of the University’s operations. At June 30, 2016, management believes the University was in compliance with the covenants. During the years ended June 30, 2016 and 2015, interest paid was $1,059,598 and $1,071,879, respectively. Future minimum principal payments for notes payable are as follows:

2017 $ 2,382,829 2018 2,872,780 2019 2,966,127 2020 3,062,997 2021 18,557,760

$ 29,842,493 Note 10—Fair value measurements of assets and liabilities Assets recorded at fair value in the statements of financial position are categorized based on level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, Fair Value Measurements and Disclosures are as follows: Level 1: Financial instruments with unadjusted, quoted prices listed on active market exchanges for identical

investments as of the reporting date. The types of investments which would generally be included in Level 1 are listed equity securities and publicly traded mutual funds.

Level 2: Financial instruments valued using pricing inputs other than quoted prices in active markets, which

are either directly or indirectly observable as of the reporting date. Inputs include quoted prices for similar assets and liabilities in active markets, inputs that are derived from investment manager reporting or corroborated by an independent advisor and inputs obtained from comparison with benchmarks for similar assets for substantially the full term of the financial instrument. The types of investments included in Level 2 are corporate bonds.

Level 3: Financial instruments that are not actively traded on a market exchange and require using

significant unobservable inputs in determining fair value. The types of investments which would generally be included in Level 3 are common trust funds, hedge funds, general and limited partnership interests in corporate and private equity and real estate funds, and interest in pooled investments held by a third party. At June 30, 2016 and 2015, the University has no assets or liabilities subject to Level 3 measurements.

In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 10—Fair value measurements of assets and liabilities (continued) The following tables summarize the valuation of the University’s investments measured at fair value on a recurring basis as of June 30, 2016 and 2015, based on the level of input utilized to measure fair value:

Amounts Measured at

Fair Value Level 1 Level 2 Level 3 Investments:

Money Market Fund 182,782$ 182,782$ -$ -$

Equities:

Common stock - closely held 42,248 42,248 - -

Common stock 6,320,458 6,320,458 - -

Mutual Funds - Fixed Income:

Global 4,124,069 4,124,069 - -

Bond fund 14,284,092 14,284,092 - -

Mutal Funds - Equities:

Value 7,229,168 7,229,168 - -

Blended 4,042,090 3,966,196 75,894 -

Growth 1,819,535 1,819,535 - -

Convertibles 1,712,366 1,712,366 - -

Global real estate 2,545,861 2,545,861 - -

Emerging markets 4,134,623 4,121,418 13,205 -

Subtotal 46,437,292 46,348,193$ 89,099$ -$

Alternative Investments 13,432,146

Total investments 59,869,438$

Fair Value Measurements at June 30, 2016 Using:

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 10—Fair value measurements of assets and liabilities (continued)

Amounts Measured at

Fair Value Level 1 Level 2 Level 3 Investments:

Money Market fund 518,701$ 518,701$ -$ -$

Equities:

Common stock - closely held 109,617 109,617 - -

Common stock 7,160,016 7,160,016 - -

Mutual Funds - Fixed Income:

Emerging markets 488,395 488,395 - -

Global 5,399,759 5,399,759 - -

Bond fund 16,690,283 16,690,283 - -

Mutal Fund - Equities:

Value 7,150,939 7,150,939 - -

Blended 5,141,510 5,065,793 75,717 -

Growth 1,821,998 1,821,998 - -

Convertibles 2,960,027 2,960,027 - -

Global real estate 3,474,410 3,474,410 - -

Emerging markets 4,848,394 4,833,742 14,652 -

Subtotal 55,764,049 55,673,680$ 90,369$ -$

Alternative Investments 4,111,072

Total investments 59,875,121$

Fair Value Measurements at June 30, 2015 Using:

Note 11—Endowment funds The University’s endowment consists of 538 individual funds established for a variety of purposes and includes permanently restricted donor gifts as part of irrevocable trust and annuity gifts. The endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The Board of Trustees of the University has interpreted the Uniform Prudent Management of Institutional Funds Act (the “Act”) as requiring the preservation of the fair value of the original gift as of the gift date of the donor- restricted endowment funds absent explicit donor stipulation to the contrary. As a result of this interpretation, 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 the Act.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 11—Endowment funds (continued) In accordance with the Act, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowments 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, and 7. The investment policies of the University.

The University has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the University must hold in perpetuity or for a donor-specified period as well as board designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the total return of a benchmark composed of a blended benchmark of indexes weighted in the same proportion as each asset class weight in the actual portfolio, while assuming a moderate level of investment risk. The University expects its endowment funds, over three to five years, to provide an annual real rate of return (assuming a long-term inflation rate of 3%) which exceeds the ten-year average spending rate of the endowment. Actual returns in any given year may vary from this amount. The amount computed under the endowment spending policy of the investment pool is used in current operations for program and scholarship support. Unless economic conditions warrant otherwise, the University’s endowment spending rate is based on 5% of the pooled endowment funds as of the prior year-end as well as several pools whose funds are transferred based on actual expenditures such as Christian Service Organization, Freeman, and Andrews scholarships awarded to students. Accordingly, the University expects the current spending policy to allow its endowment to grow over the long term. Endowment net asset composition by type of fund for the investment portion of the endowment as of June 30, 2016 and 2015 is listed below. All endowment pledges receivable and noncash funds, which are not included below, are considered to be part of permanently restricted net assets. Endowment net assets consist of the following at June 30, 2016:

Unrestricted

Temporarily Restricted

Permanently Restricted

Total

Board-designated funds $ 6,966,880 $ - $ - $ 6,966,880 Donor-restricted funds - 14,914,926 37,673,494 52,588,420

Total funds $ 6,966,880 $ 14,914,926 $ 37,673,494 $ 59,555,300

Endowment net assets consist of the following at June 30, 2015:

Unrestricted

Temporarily Restricted

Permanently Restricted

Total

Board-designated funds $ 7,466,650 $ - $ - $ 7,466,650 Donor-restricted funds - 17,008,803 35,419,362 52,428,165

Total funds $ 7,466,650 $ 17,008,803 $ 35,419,362 $ 59,894,815

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 11—Endowment funds (continued) Changes in endowment net assets for the year ended June 30, 2016 and 2015:

Unrestricted Temporarily Restricted

Permanently Restricted

Total

Endowment net assets, July 1, 2014

$ 7,929,963

$ 19,225,682

$ 34,386,571

$ 61,542,216

Investment return: Investment income 1,267,588 582,071 - 1,849,659 Realized and unrealized losses (1,362,893) (556,013) - (1,918,906) Total investment return (95,305) 26,058 - (69,247) Contributions - - 910,058 910,058 Payments on prior year pledges - - 122,733 122,733 Amounts appropriated for expenditure

(368,008)

(2,242,937)

(2,610,945)

Endowment net assets, July 1, 2015

7,466,650

17,008,803

35,419,362

59,894,815

Investment return: Investment income 324,862 1,362,780 - 1,687,642 Realized and unrealized gains (462,154) (1,242,802) - (1,704,956 Total investment return (137,292) 119,978 - (17,314) Contributions - - 2,077,392 2,077,392 Payments on prior year pledges - - 176,740 176,740 Amounts appropriated for expenditure

(362,478)

(2,213,855)

(2,576,333)

Endowment net assets, June 30, 2016

$ 6,966,880

$ 14,914,926

$ 37,673,494

$ 59,555,300

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the University to retain as a fund of perpetual duration. There were no deficiencies at June 30, 2016 or 2015.

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 12—Net assets Temporarily restricted net assets consist of the following at June 30:

2016 2015 Gifts and other unexpended revenue available for fixed asset acquisitions

$ 1,174,163

$ 1,322,941

Endowment cumulative earnings available for scholarships and programs

14,914,926

17,008,803

Grant and contribution income available for programs

614,218

567,796

Contributions receivable for operations 1,182,411 1,300,857

$ 17,885,718 $ 20,200,397 Permanently restricted net assets consist of the following at June 30, 2016 and 2015:

2016 2015 Endowment investment funds: Scholarships $ 29,937,011 $ 27,721,995 Programs 6,723,569 6,692,089 General endowment 1,012,914 1,005,277 Noncash endowment funds: Scholarships 1,512,460 1,068,522 Programs 322,150 322,150 General endowment 50,000 50,000

$ 39,558,104 $ 36,860,033 Note 13—Operating leases The University leases a facility under an operating lease that expires in 2021. Rent expenses related to facility leases were $170,229 and $187,672 for the years ended June 30, 2016 and 2015, respectively. Future minimum lease payments are as follows:

2017 $ 184,056 2018 184,056 2019 184,056 2020 184,056 2021 168,718

Total minimum future rental payments $ 904,942

GARDNER‐WEBB UNIVERSITY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 AND 2015

Note 14—Related‐party transactions The University purchased vehicles and repair and maintenance costs from a dealership whose owner is a member of the University Board of Trustees totaling $46,530 and $81,822 during the years ended June 30, 2016 and 2015. In addition, during the years ended June 30, 2016 and 2015, the University purchased approximately $836,000 and $772,000, respectively, in insurance from a company owned partially by a trustee of the University. All transactions were in the ordinary course of doing business. Note 15—Contingencies Federal funded financial aid programs are subject to special audits. Such audits could result in claims against the resources of the University. No provision has been made for any liabilities that may arise from such audits since the amounts, if any, cannot be determined at this date. The University is partially self-insured with respect to its group health insurance plan. The liability for such self- insured portion is limited due to the specific and aggregate stop-loss provisions of the insured portion of the plan. Accrued expenses on the statements of financial position include $500,000 for the uninsured portion at June 30, 2016 and 2015. Note 16—Fair value of financial instruments The following methods and assumptions were used by the University in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. The estimates are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. These estimates may differ substantially from amounts that could be realized in an immediate sale or settlement of the instrument. Fair value approximates book value for the following financial instruments due to their short-term nature: cash and cash equivalents, accounts receivable, accrued interest receivable, accounts payable, accrued expenses, student deposits, refundable federal government advances, due to agencies, and accrued interest payable. The carrying amount of contributions receivable reported in the statements of financial position approximate fair value since contributions to be received after one year are recorded at the net present value and reduced by an allowance for uncollectible contributions. Fair values for marketable debt securities, equity securities, mutual funds and funds held in trust by others are based on quoted market prices. If a quoted market price is not available, fair value is estimated using market prices for similar securities. In the case of alternative investments, the fair value is based on the practical expedient which is the investment funds’ net asset value as provided by external investment partners. In addition, the carrying amounts for notes receivable, annuities payable and long-term debt approximate fair value since the interest rates for each of these instruments approximate market rates. Note 17—Subsequent events The University has evaluated subsequent events through August 31, 2016 in connection with the preparation of these financial statements, which is the date the financial statements were available to be issued.

ACCOMPANYING INFORMATION

Report of Independent Auditor 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

The Board of Trustees Gardner-Webb University Boiling Springs, North Carolina We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Gardner-Webb University (the “University”), which comprise the statement of financial position as of June 30, 2016, and the related statements of activities and cash flows for the year then ended, and the related notes to financial statements, and have issued our report thereon dated August 31, 2016. 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 opinion 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. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the University’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the University’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 University’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Charlotte, North Carolina August 31, 2016

Report of Independent Auditor on Compliance For Each Major Program and on Internal Control Over

Compliance Required by the Uniform Guidance The Board of Trustees Gardner-Webb University Boiling Springs, North Carolina Report on Compliance for Each Major Federal Program We have audited Gardner-Webb University’s (the “University”) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the University’s major federal program for the year ended June 30, 2016. The University’s major federal program is identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the University’s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the University’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the University’s compliance. Opinion on Each Major Federal 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 program for the year ended June 30, 2016.

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 program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with Uniform Guidance, 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 combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Charlotte, North Carolina August 31, 2016

GARDNER‐WEBB UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016

Section I. Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting:

 Material weakness identified? yes X no

 Significant deficiency identified? yes X none reported Noncompliance material to financial statements

noted? yes X no Federal Awards Internal control over major programs:

 Material weakness identified? yes X no

 Significant deficiency identified? yes X none reported 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 200.516 of Uniform Guidance? yes X no

Identification of major programs:

CFDA# Program Name Student Financial Assistance Cluster: 84.007 Federal Supplemental Educational Opportunity Grant Program 84.033 Federal Work-Study Program 84.038 Federal Perkins Loan Program 84.063 Federal Pell Grant Program 84.268 Federal Direct Student Loans

GARDNER‐WEBB UNIVERSITY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2016

Section I. Summary of Auditor's Results (continued)

Dollar threshold used to distinguish between Type A and Type B Programs $750,000

Auditee qualified as low-risk auditee? X yes no

Section II. Financial Statement Findings None reported for the year ended June 30, 2016.

Section III. Federal Award Findings and Questioned Costs None reported for the year ended June 30, 2016.

Section IV. Prior‐Year Findings There were no prior-year findings reported.

GARDNER‐WEBB UNIVERSITY SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED JUNE 30, 2016

See accompanying notes to schedule of expenditures of federal and state awards. 27

Grantor/Program Title

Federal CFDA

Number

Expenditures U.S. Department of Education

Student Financial Assistance Cluster Federal Supplemental Educational Opportunity Grant Program

84.007

$ 211,287

Federal Work-Study Program 84.033 376,486 Federal Perkins Loan Program 84.038 3,585,051 Federal Pell Grant Program 84.063 4,812,457 Federal Direct Student Loans 84.268 34,704,829 Total federal awards expended

$43,690,110

State of North Carolina

North Carolina State Education Assistance Authority Need-Based Scholarship Program

Veteran Scholarship Veteran Vocational Rehabilitation Vocational Rehabilitation Forgivable Education Loan for Service Tuition Assistance Program (National Guard)

Golden Leaf Total state awards expended

$ 4,007,431 19,500 143,719 160,851 775,000 300 45,000 $ 5,151,801

*Programs having compliance requirements that could have a direct and material effect on the University’s financial statements.

GARDNER‐WEBB UNIVERSITY NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED JUNE 30, 2016

Note 1—Basis of presentation The accompanying schedule of expenditures of federal and state awards includes the federal and state grant activity of Gardner-Webb University and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in, the preparation of the basic financial statements. Note 2—Summary of significant accounting policies Indirect Cost Rate - The University has elected not to use the 10% de minimis indirect cost rate as allowed under Uniform Guidance. Note 3—Federal Perkins Loan Programs The Federal Perkins Loan Program is administered directly by the University. Balances and transactions relating to this program are included in the University’s financial statements. The schedule of expenditures of federal and state awards under CFDA #84.038 includes current year loan advances to students amounting to $326,090. The balance of loans outstanding under the Federal Perkins Loan Program was $2,294,399 net of allowance for doubtful accounts of $775,000 at June 30, 2016. Cash on hand at June 30, 2016 under the Perkins Loan Program was $497,165. Note 4—Federal Direct Student Loan Program During the fiscal year ended June 30, 2016, the University processed $34,704,829 of new loans under the Federal Direct Student Loans program (CFDA #84.268). The University is responsible only for the performance of certain administrative duties with respect to the Federal Direct Student Loans program, and accordingly, these loans are not included on the University’s financial statements; furthermore, it is not practical to determine the balance of loans outstanding to students and former students of the University under these programs at June 30, 2016.