Inserts sent to In Box? Partner / Manager Schultz / Garvey Charge Code Date / Time In. Return this changed copy? Special Instructions:

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1 Submitted by / Extension Amrita Singh Partner / Manager Schultz / Garvey Charge Code Date / Time In Date / Time Needed Inserts sent to In Box? Return this changed copy? Special Instructions: C:\Users\smijares001\Documents\Engagements\USC\USC HRA A133\FY13\USC FY13 A133 Report_FINAL.docx University of Southern California Report on Audit of Consolidated Financial Statements and on Federal Awards Programs in Accordance with OMB Circular A-133 For the Location EIN University Park, Los Angeles Health Research Association, Los Angeles

2 Table of Contents Page(s) Independent Auditor s Report on Consolidated Financial Statements and Supplementary Schedule of Expenditures of Federal Awards Consolidated Financial Statements Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Independent Auditor s Schedule of Findings and Questioned Costs Summary of Status of Prior Year Findings Management s Views and Corrective Action Plan... 66

3 Independent Auditor s Report on Consolidated Financial Statements and Supplementary Schedule Expenditures of Awards To: The Board of Trustees of the University of Southern California Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statement, of the University of Southern California (the university ) and its subsidiaries, which comprise the consolidated balance sheet as of June 30, 2013, related consolidated statement of activities, and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the University of Southern California and its subsidiaries as of June 30, 2013, and the changes in its net assets and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. PricewaterhouseCoopers LLP, 601 South Figueroa Street, Los Angeles, CA T: (213) , F: (813) ,

4 Other Matters The prior year summarized comparative information has been derived from the university s 2012 financial statements, and in our report dated October 11, 2012, we expressed an unqualified opinion on those financial statements. Other Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards for the year ended June 30, 2013 is presented for purposes of additional analysis as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 9, 2013 on our consideration of University of Southern California 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 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 of Southern California's internal control over financial reporting and compliance. October 9, 2013

5 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT CONSOLIDATED BALANCE SHEET (in thousands) a b June 30 June Assets: 1 Cash and cash equivalents $451,625 $906, Accounts receivable, net 325, ,759 2 Notes receivable, net of allowance for doubtful 3 accounts, $6,081 (2013), $6,289 (2012) 84,914 84, Pledges receivable, net 519, , Investments 4,708,535 3,865, Inventories, prepaid expenses and other assets 161, , Property, plant and equipment, net 2,537,902 2,309, Total Assets $8,790,257 $8,091,244 8 Liabilities: 9 Accounts payable $228,326 $163, Accrued liabilities 342, , Refundable advances 17,365 18, Current portion of long-term debt 10,855 5, Deposits and deferred revenue 159, , Actuarial liability for annuities payable 148, , Federal student loan funds 67,706 67, Asset retirement obligations 104, , Capital lease obligation 59,102 59, Long-term debt 1,262,251 1,243, Other liabilities 4,433 9, Total Liabilities 2,405,398 2,294, Net Assets: 21 Unrestricted 2,908,437 2,636, Temporarily restricted 1,586,567 1,386, Permanently restricted 1,889,855 1,773, Total Net Assets 6,384,859 5,797, The accompanying notes are an integral part of this statement. 25 Total Liabilities and Net Assets $8,790,257 $8,091,

6 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT CONSOLIDATED STATEMENT OF ACTIVITIES (in thousands) Year Ended Year Ended June 30, 2013 June 30, 2012 a b c d e Temporarily Permanently Unrestricted Restricted Restricted Total Total Net Assets Net Assets Net Assets Net Assets Net Assets Revenues: 1 Student tuition and fees $1,488,276 $1,488,276 $1,365, Less: financial aid (413,465) (413,465) (388,803) 2 3 Net student tuition and fees 1,074,811 1,074, , Endowment income 65,707 $540 66,247 56, Investment and other income 11, ,926 12, Net appreciation (depreciation) in fair value of investments 108,170 $234,622 7, ,562 (60,394) 6 7 Government contracts and grants 313, , , Recovery of indirect costs 132, , , Gifts and pledges 332, , , , , Sales and service 28,201 28,201 28, Auxiliary enterprises 273, , , Health Care Services 961, , , Other 105, , , Present value adjustment to annuities payable (1,355) (6,560) (7,915) (2,545) Net assets released from restrictions / redesignations 136,613 (140,178) 3, Total Revenues 3,545, , ,094 3,861,467 3,233, Expenses: 17 Educational and general activities 2,144,565 2,144,565 2,078, Health care services 904, , , Depreciation and amortization 161, , , Interest on indebtedness 63,307 63,307 62, Total Expenses 3,273,784 3,273,784 3,165, Increase in Net Assets 271, , , ,683 68, Beginning Net Assets 2,636,597 1,386,818 1,773,761 5,797,176 5,728, Ending Net Assets $2,908,437 $1,586,567 $1,889,855 $6,384,859 $5,797, Nature of specific net assets: 25 Internally designated $37,355 $37,355 $58, Gift and departmental 602, , , Externally restricted $64,799 $35, , , Pledges 280, , , , Unexpended endowment income 189, , , Annuity and living trusts 43,653 78, , , True endowment and net appreciation 1,197,326 1,536,666 2,733,992 2,461, Funds functioning as endowment 1,134,363 1,134,363 1,027, Debt service funds 70,329 70,329 74, Invested in plant 875, , , $2,908,437 $1,586,567 $1,889,855 $6,384,859 $5,797, The accompanying notes are an integral part of this statement. 4

7 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) a b Year Ended Year Ended June 30, 2013 June 30, 2012 Cash Flows from Operating Activities: 1 Change in Net Assets $587,683 $68,318 1 Adjustments to reconcile change in net assets to net cash provided by operating activities: 2 Depreciation and amortization 161, , Loss on the disposal/sale of plant assets 452 2, In-kind receipt of securities, property, plant and equipment (39,652) (38,587) 4 5 Present value adjustment to annuities payable 7,273 2, Increase in accounts receivable (26,799) (24,771) 6 7 Increase in pledges receivable (156,652) (109,466) 7 8 Increase in inventories, prepaid expenses and other assets (7,560) (27,386) 8 9 Increase in accounts payable 49,950 5, Increase in accrued liabilities 5,548 86, (Decrease) increase in refundable advances (1,594) Increase in deposits and deferred revenue 6,455 21, Decrease in other liabilities (5,482) (2,462) Contributions restricted for property, plant and equipment and permanent investment (145,140) (125,882) Net realized gain on sale of investments (183,851) (111,804) Net unrealized (appreciation) depreciation in investments (166,784) 172, Net cash provided by operating activities 85,132 78, Cash Flows from Investing Activities: 18 Proceeds from note collections 12,193 12, Notes issued (12,777) (11,688) Proceeds from sale and maturity of investments 2,760,563 2,257, Purchase of investments (3,194,592) (2,524,284) Purchase of property, plant and equipment (371,979) (279,457) Net cash used in investing activities (806,592) (546,049) 23 Cash Flows from Financing Activities: Contributions restricted for permanent investment: 24 Endowment 152, , Plant 100,577 78, Trusts and other 3, Repayment of long-term debt (56,344) (4,140) Proceeds from issuance of long-term debt 71, , Increase (decrease) in federal student loan funds 296 (402) Investment gain on annuities payable 2,633 5, Payments on annuities payable (13,145) (13,108) Increase to annuities payable resulting from new gifts 6,230 6, Net cash provided by financing activities 266, , Net (decrease) increase in cash and cash equivalents (454,775) 17, Cash and cash equivalents at beginning of year 906, , Cash and cash equivalents at end of year $451,625 $906, The accompanying notes are an integral part of this statement. 5

8 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Notes to Consolidated Financial Statements Note 1. Significant accounting policies followed by the University of Southern California are set forth below: The University of Southern California is a not-for-profit, major private research university. The consolidated financial statements have been prepared on the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America and with the provisions of the Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) 958, Not-for-Profit Entities, which requires the university to classify its net assets into three categories according to donor-imposed restrictions or provisions of law: unrestricted, temporarily restricted, or permanently restricted. All material transactions between the university and its subsidiaries have been eliminated. The university is generally exempt from federal income taxes under the provisions of Internal Revenue Code Section 501 (c) (3). The university is also generally exempt from payment of California state income, gift, estate and inheritance taxes. Unrestricted net assets: Education and general: Education and general include the revenues and expenses associated with the principal educational mission of the university. Health care services: Health care services are reflective of the revenues and expenses associated with Keck Hospital of USC, USC Norris Cancer Hospital, the Professional Services Agreement with Los Angeles County and USC Care Medical Group, Inc., a primary care and multi-specialty physician practice corporation. Sponsored research and departmental activities: Sponsored research agreements recognize revenue as it is earned through expenditure in accordance with the agreement. Any funding received in advance of expenditure is recorded as refundable advances. Departmental net assets include gifts to the university and its various schools and departments. The university has determined that any donor-imposed restrictions of gifts for current or developing programs and activities are generally met within the operating cycle of the university and, therefore, the university s policy is to record these net assets as unrestricted. Internally designated net assets are those which have been appropriated by the Board of Trustees or designated by management. Unexpended plant and debt service funds: Unexpended plant and debt service net assets include gifts and income earned on unexpended balances for capital projects which are currently under construction and transfers from the operating budget to fund the debt service requirements for outstanding bonds, notes and mortgages payable. The university follows the policy of lifting the restrictions on contributions of cash or other assets received for the acquisition of long-lived assets when the restrictions are fulfilled or the assets are placed in service. Invested in plant: Invested in plant assets, including collections of works of art and historical treasures, are stated at cost or fair value at the date of gift, plus the estimated value of any associated legal retirement obligations, less accumulated depreciation, computed on a straight-line basis over the estimated useful or component lives of the assets (equipment and library books useful lives ranging from 4 to 10 years and buildings component lives ranging from 5 to 50 years). Equipment is removed from the records at the time of disposal. The university follows the policy of recording contributions of long-lived assets directly in invested in plant assets when the purpose or time restriction is met instead of recognizing the gift over the useful life of the asset. Long-term investment: Long-term investments include gifts and Board of Trustee designations to funds functioning as endowment, realized and unrealized gains and reinvested income (income earned in excess of the spending rule) on all endowment funds. Student loan: Student loan net assets include lending activity to students utilizing university resources designated for that purpose. Temporarily restricted net assets: Gifts for which donor imposed restrictions have not been met (primarily future capital projects), charitable remainder unitrusts, pooled income funds, gift annuities and pledges receivable for which the ultimate purpose of the proceeds is not permanently restricted are included in temporarily restricted net assets. Permanently restricted net assets: Gifts, charitable remainder unitrusts, pooled income funds, gift annuities and pledges receivable which require by donor restriction the investment of the corpus in perpetuity, net appreciation on true endowment and only the income be made available for program operations in accordance with donor restrictions and gifts which have been donor stipulated to provide loans to students are included in permanently restricted net assets. 6

9 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 1 (continued). Other accounting policies: Cash equivalents consist of highly liquid investments with original maturities of three months or less. The university has classified all cash and cash equivalents as Level I financial instruments. Investments are stated at fair value. Net appreciation (depreciation) in the fair value of investments, which consists of the realized gains or losses and the unrealized appreciation (depreciation) on those investments, is shown in the Consolidated Statement of Activities. Realized gains and losses upon the sale of investments are calculated using the specific identification method and trade date. Alternative investment holdings and certain other limited partnership interests are invested in both publicly traded and privately owned securities. The fair values of private investments are based on estimates and assumptions of the general partners or partnership valuation committees in the absence of readily determinable market values. Such valuations generally reflect discounts for illiquidity and consider variables such as financial performance of investments, recent sales prices of investments and other pertinent information. Inventories are valued at the lower of cost (first-in, first-out) or market. The university receives federal reimbursement for a portion of the costs of its facilities and equipment used in organized sponsored research. The Office of Management and Budget, Circular A-21, establishes principles for determining such reimbursable costs, requires conformity of the lives and methods used for federal cost reimbursement accounting and financial reporting purposes. The university s policies and procedures are in conformity with these principles. Student tuition and fees are recorded as revenues during the year the related academic services are rendered. Student tuition and fees received in advance of services to be rendered are recorded as deferred revenue. The university s split interest agreements with donors consist primarily of gift annuities, unitrusts, pooled income funds and life estates. For irrevocable agreements, assets contributed are included in the university s investments and stated at fair value. Contribution revenue is recognized at the date each trust is established after recording liabilities for the actuarially-determined present value of the estimated future payments to be made to the beneficiaries. The actuarial liability is discounted at an appropriate risk-adjusted rate at the inception of each agreement and the applicable actuarial mortality tables. Discount rates on split-interest agreements range from 3.0% to 9.5%. The liabilities are adjusted during the terms of the trusts for changes in the fair value of the assets, accretion of discounts, and other changes in the estimates of future benefits. The valuation followed generally accepted actuarial methods and was based on the requirements of FASB ASC 958. The Annuity 2000 Mortality Table and 1983 Individual Annuity Mortality Table for males and females were used in the valuations. For split interest agreements related to the State of Washington, the university holds a Certificate of Exemption issued by the State of Washington's Office of Insurance Commissioner to issue charitable gift annuities. The university has been in compliance with Revised Code of Washington (6) throughout the time period covered by the financial statements. The university has recorded conditional asset retirement obligations associated with the legally required removal and disposal of certain hazardous materials, primarily asbestos, present in our facilities. When an asset retirement obligation is identified, the university records the fair value of the obligation as a liability. The fair value of the obligation is also capitalized as property, plant and equipment and then amortized over the estimated remaining useful life of the associated asset. The fair value of the conditional asset retirement obligations was estimated using a probability weighted, discounted cash flow model. The present value of future estimated cash flows was calculated using the credit adjusted, interest rate applicable to the university in order to determine the fair value of the conditional asset retirement obligations. For the year ended June 30, 2013, the university recognized accretion expense related to the conditional asset retirement obligation of approximately $5,269,000. For the year ended June 30, 2013, the university settled asset retirement obligations of approximately $1,317,000. As of June 30, 2013, included in the Consolidated Balance Sheet is an asset retirement obligation of $104,841,000. Gifts from donors, including contributions receivable (unconditional promises to give), are recorded as revenues in the year received. Gifts are valued using quoted market prices, market prices for similar assets, independent appraisals, or by university management. Contributions receivable are reported at their discounted value using credit-adjusted borrowing rates and an allowance for amounts estimated to be uncollectible is provided. Donor-restricted gifts, which are received and either spent, or deemed spent, within the same year, are reported as unrestricted revenue. Gifts of long-lived assets with no donor-imposed time restrictions are reported as unrestricted revenue in the year received. Gifts restricted to the acquisition or construction of long-lived assets or subject to other time or purpose restrictions are reported as temporarily restricted revenue. The temporarily restricted net assets resulting from these gifts are released to unrestricted net assets when the donor-imposed restrictions are fulfilled or the assets are placed in service. Gifts received for endowment investment are held in perpetuity and recorded as permanently restricted revenue. 7

10 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 1 (continued). Health care services revenues included the net patient service revenues associated with the Keck Hospital of USC, USC Norris Cancer Hospital and USC Care Medical Group, Inc.. Net patient service revenue is reported as estimated net realizable amounts from patients, third party payors, government programs and other in the period in which services are provided. The majority of the healthcare services are rendered to patients with commercial or managed care insurance, or under the federal Medicare and California State Medi-Cal programs. Reimbursement from these various payors is based on a combination of prospectively determined rates, discounts from charges and historical costs. Amounts received under the Medicare program are subject to retroactive settlements based on review and final determination by program intermediaries or their agents. Provisions for contractual adjustments and retroactive settlements related to those payors are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as additional information becomes known or as final settlements are determined. Health care services revenues also includes the revenues associated with the professional services agreement with the County of Los Angeles. Allowances for doubtful accounts are based upon management s assessment of historical and expected net collections considering historical business and economic conditions. Periodically throughout the year management assesses the adequacy of the allowances for doubtful accounts based upon historical write-off experience. The results of this review are then used to make any modifications to the allowance for doubtful accounts. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 these estimates. The financial statements include certain prior-year summarized comparative information in total but not by net asset category. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the university s financial statements for the year ended June 30, 2012 from which the summarized financial information was derived. Certain reclassifications have been made to summarized financial information for comparative purposes. The university applies the provision of FASB ASC 820, Fair Value Measurements, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement data. The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the university for financial instruments measured at fair value on a recurring basis. The three levels of inputs are as follows: Level I - Quoted prices in active markets for identical assets or liabilities. Level II - Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities. Level III - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. A financial instrument s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 8

11 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 1 (continued). The university applies the authoritative guidance contained in FASB ASC , Fair Value Measurements and Disclosures, for estimating the fair value of investments in investment funds that have calculated Net Asset Value ( NAV ) per share in accordance with FASB ASC , Financial Services-Investment Companies (formerly the American Institute of Certified Public Accountants Audit and Accounting Guide, Investment Companies). According to this guidance, in circumstances in which NAV per share of an investment is not determinative of fair value, a reporting entity is permitted, to estimate the fair value of an investment in an investment fund using the NAV per share of the investment (or its equivalent) without further adjustment, if the NAV per share of the investment is determined in accordance with FASB ASC as of the reporting entity s measurement date. Accordingly, the university uses the NAV as reported by the money managers as a practical expedient, to determine the fair value of investments in investment funds which (a) do not have a readily determinable fair value and (b) either have the attributes of an investment fund or prepare their financial statements consistent with the measurement principles of an investment fund. At June 30, 2013, the fair value of all such investments in investment funds has been determined by using NAV as a practical expedient. Additionally, in accordance with Accounting Standards Update ( ASU ) , the university considers several additional factors in appropriately classifying the investment funds in the fair value hierarchy. An investment is generally classified as Level II if the university has the ability to withdraw its investment with the investment fund at NAV at the measurement date. An investment is generally classified as Level III if the university does not have the ability to withdraw its investment with the investment fund at NAV, such as investments in closed-end funds, side pockets, or funds with suspended withdrawals imposed. If the university cannot withdraw its investment with the investment funds at NAV when such investment is subject to lock-up or gate, or its withdrawal period does not coincide with the university s measurement date, the university considers the length of time until the investment will become redeemable in determining whether the fair value measurement of the investment should be classified as a Level II or Level III fair value measurement. In May 2011, the FASB issued ASU , which amends ASC Topic 820, Fair Value Measurement. The amended guidance changes the wording used to describe many requirements under GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB s intent about the application of existing fair value measurement requirements. The guidance provided in ASU is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The university adopted ASU , effective July 1, 2012, and such adoption did not have a material effect on the university's financial statements. In October 2012, the FASB issued ASU , Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows (a consensus of the FASB Emerging Issues Task Force), which amends the standards for preparing the statement of cash flows. The ASU requires a not-for-profit ( NFP ) to classify cash receipts from the sale of donated financial assets consistently with cash donations received if those cash receipts were from the sale of donated financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were converted nearly immediately to cash. The guidance provided in ASU is effective for interim and annual reporting periods beginning after June 15, The university has decided not to early adopt ASU

12 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 2. Accounts receivable (in thousands): U.S. Government $30,901 Student and other, net of allowance for doubtful accounts of $7,982 91,082 Patient care, net of allowance for doubtful accounts of $34, ,575 $325,558 Note 3. Investments (in thousands): Cost Fair Value Equities $1,184,678 $1,351,190 Fixed income securities 1,218,308 1,198,070 Alternative investments: Hedge funds 517, ,348 Private capital 1,139,317 1,105,164 Real estate and other 284, ,421 Assets held by other trustees 121, ,342 Total $4,465,369 $4,708,535 The following table summarizes the financial instruments carried at fair value as of June 30, 2013, by the ASC 820 valuation hierarchy defined above: Level I Level II Level III Total Investments: Equities $1,020,167 $267,542 $63,481 $1,351,190 Fixed income securities 214, ,660 10,259 1,198,070 Hedge funds 702, ,348 Private capital 1,105,164 1,105,164 Real estate and other 216, ,421 Assets held by other trustees 135, ,342 Total investments $1,234,318 $1,241,202 $2,233,015 $4,708,535 The following table summarizes the university s Level III reconciliation of investments for the year ended June 30, 2013: Balance at July 1, 2012 $2,053,036 Net realized gains 145,014 Net unrealized gains 77,932 Transfers in * 3 Purchases 329,768 Sales and settlements (372,738) Balance at June 30, 2013 $2,233,015 * Transfers were due to an increase or decrease in price transparency or the availability of dealer quotations at the end of each month. 10

13 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 3 (continued). The university uses the NAV to determine the fair value of all the underlying investments which (a) do not have a readily determinable fair value and (b) prepare their financial statements consistent with the measurement principles of an investment company or have the attributes of an investment company. The following table lists investments in other investment companies (in partnership format) by major category: Category of Investment Investment Strategy Fair Value Determined Using NAV Unfunded Commitments Remaining Life Redemption Terms Redemption Restrictions and Terms Redemption Restrictions and Terms in Place at Year End Assets Held By Other Funds Miscellaneous investments held outside USC where USC has no authority over the fund $135,342,000 Not Applicable Not Applicable Redemptions are not permitted during the life of the fund. Not Applicable Not Applicable Distressed Obligation Partnerships US and Non-US Distressed Debt Securities $63,550,000 $14,380,000 Approximately 4 Years Redemptions are not permitted during the life of the fund. Not Applicable Not Applicable Equity Funds US and Non-US Equity Securities $267,542,000 Not Applicable Open Ended Minimum Monthly None None Hedge Funds US and Non-US Investments in Relative Value, Event Driven, Long/Short, and Directional Strategies $702,348,000 $13,500, % of NAV has an open ended life, 1.4% of NAV will be liquidated on 1/31/14, and 0.2% of NAV will be liquidated on an undetermined basis. Ranges between monthly redemption with 90 days notice, quarterly redemption with up to 90 days notice, semiannual redemption with 60 days notice, and annual redemption with up to 180 days notice. 20% of NAV is locked up for 3 months, 47% of NAV is locked-up for 1 year, and 33% of NAV is locked-up for more than 1 year. None Natural Resources Partnerships US and Non-US Investments in Upstream, Midstream, and Downstream Natural Resources Investments $381,568,000 $96,428,000 Approximately 6 Years Redemptions are not permitted during the life of the fund. Not Applicable Not Applicable Other Funds US and Non-US Investments in Securities Other than Equity and Fixed Income $1,261,000 Not Applicable Open Ended Monthly None None Private Capital Partnerships US and Non-US Private Equity and Venture Capital Investments $660,046,000 $176,349,000 Approximately 4 Years Redemptions are not permitted during the life of the fund. Not Applicable Not Applicable Private Real Estate Partnerships US and Non-US Real Estate $180,052,000 $75,560,000 Approximately 4 Years Redemptions are not permitted during the life of the fund. Not Applicable Not Applicable Total $2,391,709,000 $376,217,000 11

14 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 4. Property, plant and equipment (in thousands): Land and improvements $145,295 Buildings and improvements 2,869,242 Buildings under capital leases 60,696 Equipment 541,954 Library books and collections 274,425 Construction-in-progress 310,432 4,202,044 Less: Accumulated depreciation 1,664,142 $2,537,902 Note 5. Bonds and note payable (in thousands): California Educational Facilities Authority (CEFA) Revenue Bonds and Notes: Interest % Maturity Series 2003B ,590 Premium 227 Series ,100 Premium 2,030 Series 2007A ,085 Premium 2,114 Series 2009A ,605 Discount (836) Series 2009B ,900 Premium 2,904 Series 2009C ,305 Premium 6,712 Series 2012A ,595 Premium 10,361 University of Southern California Bonds Series ,585 Discount (17) Series ,000 Discount (2,639) California Infrastructure Revenue Bonds USC (USC Soto Street Health Sciences) Series ,670 Premium 2,322 Note Payable ,493 1,273,106 Less: current portion of long-term debt 10,855 $1,262,251 Principal payment requirements relating to bonds and note payable, after giving effect to refunding, for the next five fiscal years are approximately: 2014 $10,855,000; 2015 $22,120,000; 2016 $8,515,000; 2017 $26,333,000; 2018 $1,400,000. Interest payments for fiscal year 2013 were $61,137,000. On April 6, 2009, a $100,000,000 revolving line of credit agreement was implemented with a bank. The credit agreement was amended on June 24, 2010 to increase the revolving line of credit to $200,000,000. On April 19, 2013, a third amendment was agreed to extend the maturity date to November 30, The line of credit accrues interest based on LIBOR and contains a fee on the unused portion of the line of credit. During the years ended June 30, 2013 and 2012, the university did not draw down on the line of credit. The line of credit contains certain restrictive covenants required in the agreement. 12

15 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 6. Financial aid is awarded to students based on need and merit. Financial aid does not include payments made to students for services rendered to the university. Financial aid for the year ended June 30, 2013 consists of the following (in thousands): Undergraduate Graduate Total Institutional scholarships $242,165 $106,953 $349,118 Endowed scholarships 24,195 10,686 34,881 External financial aid 20,439 9,027 29,466 $286,799 $126,666 $413,465 Note 7. Endowment net assets are subject to the restrictions of gift instruments requiring that the principal be invested in perpetuity and only the income and realized gains be utilized for current and future needs. Long-term investment net assets (funds functioning as endowment) have been established from restricted gifts whose restrictions have been met and unrestricted gifts which have been designated by the Board of Trustees or management for the same purpose as endowment. The university also has a beneficial interest in the net income earned from assets which are held and managed by other trustees. Endowment and long-term investment net assets functioning as endowment are summarized as follows (in thousands): Funds functioning Endowment as endowment Total Pooled $2,638,032 $1,058,686 $3,696,718 Non-pooled 95,960 75, ,637 $2,733,992 $1,134,363 $3,868,355 Pooled investments represent endowment and long-term investment net assets which have been commingled in a unitized pool (unit market value basis) for purposes of investment. The pool is comprised of cash and cash equivalents (4.09%), equities (42.32%), fixed income securities (7.74%), alternative investments (41.02%) and real estate and other investments (4.83%). Access to or liquidation from the pool is on the basis of the market value per unit on the preceding monthly valuation date. The unit market value at June 30, 2013 was $ The Board of Trustees has interpreted the Uniform Prudent Management of Institutional Funds Act ( UPMIFA ) as requiring the preservation of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the 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 in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the university considers various factors in making a determination to appropriate or accumulate endowment funds including: duration and preservation of the fund, economic conditions, effects of inflation or deflation, expected return on the funds and other economic resources of the university. Endowment net asset composition by type of fund as of June 30, 2013 (in thousands): Unrestricted Temporarily Restricted Permanently Restricted Total Donor-restricted endowment funds $1,197,326 $1,536,666 $2,733,992 Board-designated endowment funds $1,134,363 1,134,363 $1,134,363 $1,197,326 $1,536,666 $3,868,355 13

16 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 7 (continued). Changes in endowment net assets for the year ended June 30, 2013 (in thousands): Unrestricted Temporarily Restricted Permanently Restricted Total Endowment net assets at July 1, 2012 $1,027,846 $1,038,314 $1,422,773 $3,488,933 Investment return: Investment income 65, ,247 Net appreciation 110, , ,661 Total investment return 176, , ,908 Gifts and transfers 26, , ,492 Appropriation of endowment assets for expenditure (95,744) (69,234) (164,978) Endowment net assets at June 30, 2013 $1,134,363 $1,197,326 $1,536,666 $3,868,355 Endowments classified as permanently restricted net assets and temporarily restricted net assets are to be utilized for the following purposes: Permanently restricted net assets (in thousands): The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA: Restricted for scholarship support $370,669 Restricted for faculty support 367,292 Restricted for program support 798,705 Total endowment assets classified as permanently restricted net assets $1,536,666 Temporarily restricted net assets (in thousands): The portion of permanent endowment funds subject to a time restriction under UPMIFA: Restricted for scholarship support $288,334 Restricted for faculty support 402,348 Restricted for program support 506,644 Total endowment assets classified as temporarily restricted net assets $1,197,326 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the value of the initial and subsequent donor gift amounts (deficit). When donor endowment deficits exist, they are classified as a reduction of unrestricted net assets. Deficits of this nature reported in unrestricted net assets were $11,520,000 as of June 30, These deficits resulted from unfavorable market fluctuations that occurred shortly after the investment of newly established endowments, and authorized appropriation that was deemed prudent. The university has adopted endowment investment and spending policies that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of endowment assets. Under these policies, the return objective for the endowment assets, measured over a full market cycle, shall be to maximize the return against a blended index, based on the endowment s target allocation applied to the appropriate individual benchmarks. The university expects its endowment funds over time, to provide an average rate of return of approximately 8.0 % annually. Actual returns in any given year may vary from this amount. 14

17 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 7 (continued). To achieve its long-term rate of return objectives, the university relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized gains) and current yield (interest and dividends). The university targets a diversified asset allocation that places greater emphasis on equity-based investments to achieve its long-term objectives within prudent risk constraints. The university utilizes a spending rule for its pooled endowment. The spending rule determines the endowment income and realized gains to be distributed currently for spending with the provision that any amounts remaining after the distribution be transferred and reinvested in the endowment pool as funds functioning as endowment. For the 2013 fiscal year, the Board of Trustees approved current distribution of 100% of the prior year s payout, within a minimum of 4% and a maximum of 6% of the average market value for the previous 12 calendar quarters. Under the provisions of the spending rule, $25.42 was distributed to each time-weighted unit for a total spending rule allocation of $164,181,000. Investment income amounting to $10.05 per time-weighted unit was earned, totaling $64,910,000, and $99,271,000 was appropriated for current operations from cumulative gains of pooled investments. Endowment pool earnings allocated for spending in fiscal year 2013 represent 4.44% of the market value of the endowment pool at June 30, Note 8. At June 30, 2013, the university has adopted the required disclosures under ASU , Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. According to this guidance, the university is required to disclose the nature of credit risk inherent in the portfolio of financing receivables, its analysis and assessment in arriving at the allowance for credit losses (doubtful accounts), and the changes and reasons for those changes in the allowance for credit losses. Long-term financing receivables as of June 30, 2013 consist of the following (in thousands): Financing Receivables, at Gross June 30, 2013 Allowance for Doubtful Accounts Perkins loans $53,448 $ 53,448 University student loans 22,735 ($6,081) 16,654 Other student loans 14,812 14,812 Total student loans 90,995 ($6,081) 84,914 Faculty and other student loans 30,536 30,536 Total $ 121,531 ($6,081) $ 115,450 Management regularly assesses the adequacy of the allowance for credit losses by performing ongoing evaluations of the student loan portfolio, including such factors as the differing economic risks associated with each loan category, the financial condition of specific borrowers, the economic environment in which the borrowers operate, the level of delinquent loans, the value of any collateral and, where applicable, the existence of any guarantees or indemnifications. The university's Perkins receivable represents the amounts due from current and former students under the Federal Perkins Loan Program. Loans disbursed under the Federal Perkins Loan program are able to be assigned to the Federal Government in certain non-repayment situations. In these situations the Federal portion of the loan balance is guaranteed. Included in other loans are loans related to the Federal Health Professional Student Loan Program ( HPSL ) and Loans for Disadvantaged Students ( LDS ). Factors also considered by management when performing its assessment, in addition to general economic conditions and the other factors described above, included, but were not limited to, a detailed review of the aging of the student loan receivable detail and a review of the default rate by loan category in comparison to prior years. The level of the allowance is adjusted based on the results of management s analysis. It is the university's policy to write off a loan only when they are deemed to be uncollectible. The following table illustrates the aging analysis of receivables as of June 30, 2013 (in thousands): Net 1-60 Days Past Due Days Past Due > 91 Days Past Due Current Total Financing Receivables Perkins loans $1,784 $386 $6,789 $44,489 $ 53,448 University student loans ,027 11,856 22,735 Other student loans ,388 14,812 Total student loans 3, ,325 69,733 90,995 Faculty and other loans 30,536 30,536 Total $ 3,366 $ 571 $ 17,325 $ 100,269 $ 121,531 15

18 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 8 (continued). Considering the other factors already discussed herein, management considers the allowance for credit losses to be prudent and reasonable. Furthermore, the university s allowance is general in nature and is available to absorb losses from any loan category. Management believes that the allowance for credit losses at June 30, 2013 is adequate to absorb credit losses inherent in the portfolio as of that date. As part of the program to attract and retain exemplary faculty and senior staff, the university provides home mortgage financing assistance. Notes receivable amounting to $30,536,000 were outstanding as of June 30, 2013 and are collateralized by deeds of trust. No allowance for doubtful accounts has been recorded against these loans based on their collateralization and prior collection history. At June 30, 2013, there were no amounts past due under the faculty and staff loan program. Note 9. Unconditional promises are included in the consolidated financial statements as pledges receivable and revenue of the appropriate net asset category. Pledges are recorded after discounting using rates ranging from 1% to 6% to the present value of the future cash flows. Unconditional promises are expected to be realized in the following periods (in thousands): In one year or less $123,293 Between one year and five years 286,837 More than five years 249,675 Less: discount of $121,076 and allowance of $18,807 (139,883) $519,922 Pledges receivable at June 30, 2013 have the following restrictions (in thousands): Endowment for departmental programs and activities $234,467 Endowment for scholarship 4,623 Building construction 136,074 Departmental programs and activities 144,758 $519,922 Note 10. Executed contracts, grants, subcontracts and cooperative agreements for future sponsored research activity which are not reflected in the consolidated financial statements at June 30, 2013 are summarized as follows (in thousands): Current sponsored awards $450,181 Executed grants and contracts for future periods 525,117 $975,298 16

19 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 11. At June 30, 2013, the university had remaining commitments of approximately $376,217,000 with alternative investment managers and/or limited partnerships. Contractual commitments for educational plant amounted to approximately $146,328,000 at June 30, It is expected that the resources to satisfy these commitments will be provided from certain unexpended plant net assets, anticipated gifts and/or debt proceeds. During the year ended June 30, 2007, the university entered into an agreement with the County of Los Angeles to provide professional services at LAC+USC Medical Center. Under the terms of the agreement the contract automatically renews on an annual basis unless either party gives four years notice of the termination. No such notice has been provided by either party. Note 12. Retirement benefits for eligible employees are provided through the Teachers Insurance and Annuity Association and the College Retirement Equities Fund, The Vanguard Group, AIG SunAmerica, Fidelity Investments and Prudential Financial. Under these defined contribution plans, the university and plan participants make contributions to purchase individual, fixed or variable annuities equivalent to retirement benefits earned or to participate in a variety of mutual funds or commingled funds. The university makes a 5% non-elective contribution to all eligible employees and also matches dollar for dollar the first 5% of the employees contributions. Newly hired employees on or after January 1, 2012, will have the university non-elective contribution subject to a four year vesting schedule. Benefits commence upon termination or retirement and pre-retirement survivor death benefits are also provided. Charges to education and general activities expenses for the university s share of costs were approximately $122,129,000 during the year ended June 30, Retirement benefits for hospital employees covered under a collective bargaining agreement with the National Union of Healthcare Workers (NUHW) are provided by a defined contribution 401(k) plan through Fidelity investments. Until August 2011, the hospital employees covered under a collective bargaining agreement with CNA were also covered under this 401(k) plan. Under the defined contribution plan, participants make contributions to purchase a variety of mutual funds. The university makes its contribution following the end of the calendar year and matches 100% of the participants contributions up to 3% of eligible earnings providing the participant was employed on the last day of the calendar year. Effective May 2012, the university match contribution was increased to 4% for NUHW participants. In addition, the university makes a 1% retiree medical benefit contribution to all NUHW participants who were both employed on the last day of the calendar year and worked 1,500 hours in that calendar year. Effective July 2013, all employees of the USC Verdugo Hills Hospital are eligible to participate in the 401(k) plan. They will receive a discretionary employer match of up to 4% of eligible earnings. The university contribution is subject to a five year vesting schedule although previously credited years from before the acquisition have been carried over. Benefits commence at age 59 1/2, termination of employment, or retirement and pre-retirement survivor death benefits are also provided. Charges to education and general activities expenses for the university s share of costs were approximately $1,144,000 during the year ended June 30, Retirement benefits for non-exempt employees are provided through a noncontributory defined benefit pension plan. The following table sets forth the plan s funded status at June 30, 2013 (in thousands): Obligations and Plan Assets Change in Projected Benefit Obligation Benefit obligation at end of prior year $224,106 Interest cost 9,700 Actuarial loss (14,813) Benefits paid (6,762) Benefit obligation at end of year $212,231 Change in Plan Assets Fair value of plan assets at end of prior year $146,260 Actual return on plan assets 12,766 Benefits paid (6,762) Fair value of plan assets at end of year $152,264 Reconciliation of Funded Status Accumulated benefit obligation at end of year $212,231 Projected benefit obligation at end of year ($212,231) Fair value of plan assets at end of year 152,264 Funded status ($59,967) Components of Net Periodic Benefit Cost Interest cost $9,700 Expected return on plan assets (10,698) Amortization of net loss 7,766 Total benefit cost $6,768 Amounts recognized in the Statement of Financial Position Noncurrent liabilities ($59,967) Amounts not yet recognized as components of Net Periodic Benefit Cost Net loss $86,374 Changes in the net reduction to Unrestricted Net Assets Net gain ($16,882) Amortization of net loss (7,766) Total ($24,648) 17

20 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 12 (continued). The estimated net loss/(gain) and prior service cost for the USC Support Staff Retirement Plan that will be recognized as components of net periodic benefit cost over the next fiscal year are $5,822,000 and $0, respectively. The plan was amended to freeze benefit accruals for all remaining active union participants effective December 23, 2009, and to provide full vesting for those participants. No special accounting for curtailments, settlements or termination benefits was required during the year ended June 30, Assumptions Weighted-average assumptions used to determine net periodic benefit cost for year ended June 30: Discount rate 4.40% Expected return on plan assets 7.50% Rate of compensation increase N/A Weighted-average assumption used to determine net year-end benefit obligations at June 30: Discount rate 4.90% Rate of compensation increase N/A Plan Assets In managing the plan assets, our objective is to be a responsible fiduciary while minimizing financial risk. Plan assets include a diversified mix of fixed income securities and equity securities across a range of sectors and levels of capitalization to maximize the long term return for a prudent level of risk. In addition to producing a reasonable return, the investment strategy seeks to minimize the volatility in our expense and cash flow. The target allocation for pension benefit plan assets is 75% equity securities and 25% fixed income securities. As described in Note 1, the university uses a hierarchy to report invested assets, including the invested assets of the Plan. Following is a description of the valuation methodologies used for assets measured at fair value. Fair Value The Plan s interest in collective trusts is valued based on the net asset value information reported by the investment advisor. The fund is valued at the normal close of trading on the New York Stock Exchange every day the Exchange is open (a Business Day ). Equity securities are valued at the official closing price of, or the last reported sales price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined to be the most representative market, which may be either a securities exchange or the over-the-counter market. Short term investments are carried at market value. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. A summary of fair value measurements by level for investments measured at fair value on a recurring basis is as follows (in thousands): Collective Trust Funds: Level I Level II Level III Total Short-term investment fund $546 $546 Equity securities 113, ,081 Fixed income securities 38,637 38,637 Total $152,264 $152,264 18

21 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 12 (continued). Allocation of Assets The year-end asset allocation, which approximates the weighted-average allocation for the Plan assets as of June 30, 2013 and in comparison to target percentages for each asset category, is as follows: Target Asset Category June 30, 2013 at June 30, 2013 Short-term investment fund 0.3% 0% Equity securities 74.3% 75.0% Fixed income securities 25.4% 25.0% Total 100.0% 100.0% The portfolio is evaluated annually, or when the actual allocation percentages are plus or minus 2% of the stated target allocation percentages. Changes in policy may be indicated as a result of changing market conditions or anticipated changes in the pension plan s needs. Prohibited transactions include investment transactions prohibited by the Employee Retirement Income Security Act of 1974 and speculative investments including commodities or unregistered stock without specific prior approval by the Investment Committee. Contributions No contribution to the pension plan was required during the year ended June 30, The university may make discretionary contributions to its pension plan during the next fiscal year. This will be reassessed during the year. Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands): Fiscal Year Ending June 30, 2014 $7, $8, $9, $9, $10, $58,486 Note 13. The university is the lessee of various equipment and space under noncancelable operating and capital leases. Operating lease rental expense for the year ended June 30, 2013 was approximately $31,510,000. Space leases contained customary escalation clauses, which are included in annual aggregate minimum rentals. Future aggregate minimum rental payments under operating and capital leases are as follows (in thousands): Future minimum rental payments: Operating Capital 2014 $23,279 $3, ,177 3, ,524 3, ,023 3, ,735 4,000 Thereafter 138,243 81, , ,268 Less: Interest on capital leases (42,166) Total $232,981 $59,102 19

22 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 14. Expenses are presented by functional classification in accordance with the overall service mission of the university. Each functional classification displays all expenses related to the underlying operations by natural classification. Depreciation expense is allocated based on square footage occupancy. Interest expense on external debt is allocated to the functional categories which have benefited from the proceeds of the external debt. Plant operations and maintenance represents space related costs which are allocated to the functional categories directly and/or based on the square footage occupancy. Functional expense consists of the following (in thousands): Academic, Health Care and Student Services Support Services Fund Raising Activities Year Ended June 30, 2013 Compensation $1,296,003 $251,036 $25,028 $1,572,067 Fringe benefits 316,856 79,929 8, ,043 Operating expenses 651, ,738 13, ,759 Cost of goods sold 30,784 55,541 86,325 Travel 43,877 9, ,998 Allocations: Depreciation 121,356 39, ,285 Interest 17,364 45,943 63,307 Plant operations and maintenance 146,143 (147,050) 907 $2,624,180 $601,219 $48,385 $3,273,784 Note 15. The university is contingently liable as guarantor on certain obligations relating to equipment loans, student and parent loans, and various campus organizations. The university receives funding or reimbursement from governmental agencies for various activities, which are subject to audit. In addition, certain litigation has been filed against the university and in the opinion of university management, after consultation with legal counsel, the liability, if any, for the aforementioned matters will not have a material effect on the university s financial position. Note 16. The estimated fair value of the university s bonds, notes and mortgages payable was $1,339,872,000 at June 30, This fair value was estimated based upon the discounted amount of future cash outflows using the rates offered to the university for debt of the same remaining maturities. Determination of the fair value of notes receivable, which are primarily federally sponsored student loans with U.S. Government mandated interest rates and repayment terms and subject to significant restrictions as to their transfer or disposition, could not be made without incurring excessive costs. Note 17. Members of the Board of Trustees and senior management may, from time to time, be associated, either directly or indirectly, with companies doing business with the university. For senior management, the university requires annual disclosure of significant financial interest in entities doing business with the university. These annual disclosures cover both senior management and their immediate family members. When such relationships exist, measures are taken to appropriately manage the actual or perceived conflict in the best interests of the university. The university has a written conflict of interest policy that requires, among other things, that no member of the Board of Trustees can participate in any decision in which he or she or an immediate family member has a material financial interest. Each trustee is required to certify compliance with the conflict of interest policy on an annual basis and indicate whether the university does business with an entity in which a trustee has a material financial interest. When such relationships exist, measures are taken to mitigate any actual or perceived conflict, including requiring the recusal of the conflicted trustee and that such transactions be conducted at arm s length, for good and sufficient consideration, based on terms that are fair and reasonable to and for the benefit of the university, and in accordance with applicable conflict of interest laws. 20

23 UNIVERSITY OF SOUTHERN CALIFORNIA 2013 FINANCIAL REPORT Note 18. The university has performed an evaluation of subsequent events through October 9, 2013, which is the date the financial statements were issued. Subsequent to the fiscal year ended June 30, 2013, the university acquired USC Verdugo Hills Hospital (USC VHH) through its subsidiary, USC Verdugo Hills Hospital, LLC (USC VHH LLC). The primary operation of USC VHH IS a 158-bed acute care hospital located in Glendale, California. USC VHH LLC acquired certain assets and assumed certain liabilities in consideration of the USC VHH LLC discharging the outstanding indebtedness of USC VHH in an amount not to exceed $10,000,000. In addition USC VHH LLC has committed to making capital improvements to USC VHH in the amount of at least $30,000,000 over the next five years. The operations of USC Verdugo Hills Hospital, LLC will be included in the consolidated results of operations for the university for the year ended June 30, Subsequent to the fiscal year ended June 30, 2013, the university entered into a lease agreement with the Los Angeles Memorial Coliseum Commission (LAMCC) to assume the operations of the Los Angeles Memorial Coliseum and Los Angeles Memorial Sports Arena. The lease agreement with the LAMCC expires in 2033, or in 2054, if all options are exercised, at which time a second lease agreement with the California Science Center (CSC), an institution of the State of California, commences. The lease with the California Science Center expires in 2111, assuming all options are exercised. Under the terms of both lease agreements the university is required to make significant capital improvements to the property. 21

24 Schedule of Expenditures of Federal Awards Sponsor Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS Agency For International Development Agency For International Development 98.RDG $ 659,487 Total - Agency For International Development 659,487 Department of Agriculture National Institute of Food and Agriculture ,542 National Institute of Food and Agriculture ,827 Total - Department of Agriculture 468,369 Department of Commerce Department of Commerce 11.RDG 317,487 Economic Development Administration ,684 Minority Business Development Agency ,061 Minority Business Development Agency ,107 National Institute of Standards and Technology (NIST) ,550 National Oceanic and Atmospheric Administration (NOAA) ,033,206 National Oceanic and Atmospheric Administration (NOAA) ,552 Total - Department of Commerce 2,592,647 Department of Defense Advanced Research Projects Agency ,110,745 Department of Defense 12.RDC 53,360,748 Department of Defense 12.RDG 3,084,629 Department of the Air Force, Materiel Command ,598,817 Department of the Navy, Office of the Chief of Naval Researc ,523,972 National Security Agency ,143 National Security Agency ,100 Office of the Secretary of Defense ,507,378 Office of the Secretary of Defense ,123 U.S. Army Materiel Command ,068,488 U.S. Army Medical Command ,096,335 Total - Department of Defense 85,010,478 *See footnote 2. The accompanying notes are as integral part of this Schedule. 22

25 Schedule of Expenditures of Federal Awards Sponsor Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS (Continued) Department of Education Bilingual Education Professional Development ,404 Department of Education 84.RDG 758,807 Institute of Education Sciences ,911 Jacob K. Javits Gifted and Talented ,303 Office of Postsecondary Education ,063 Office of Postsecondary Education ,272 Office of Special Education and Rehabilitative Services ,543 Office of Special Education and Rehabilitative Services ,330 Total - Department of Education 3,253,633 Department of Energy Advanced Research Projects Agency - Energy ,635 Advanced Research Projects Agency - Energy - ARRA ,186 Conservation Research and Development - ARRA ,464 Defense Nuclear Nonproliferation Research ,332 Fossil Energy Research and Development ,843 Office of Science Financial Assistance Program ,613,963 Office of Science Financial Assistance Program - ARRA ,203,459 Office of Scientific and Technical Information ,738 Renewable Energy Research and Development - ARRA ,301 Total - Department of Energy 6,570,921 Department of Health and Human Services Agency for Healthcare Research and Quality ,752 Agency for Healthcare Research and Quality - ARRA ,591 Centers for Disease Control and Prevention ,070 Centers for Disease Control and Prevention ,804 Centers for Disease Control and Prevention ,430 Centers for Medicare and Medicaid Services ,716,384 Department Of Health And Human Services 93.RDC 4,480,801 Health Resources and Services Administration ,485 Health Resources and Services Administration ,844 Health Resources and Services Administration ,000 Health Resources and Services Administration ,470 *See footnote 2. The accompanying notes are as integral part of this Schedule. 23

26 Schedule of Expenditures of Federal Awards Sponsor Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS (Continued) Health Resources and Services Administration ,494 Health Resources and Services Administration ,759 Health Resources and Services Administration - ARRA ,163 National Insitute of Diabetes and Digestive and Kidney Diseases (435) National Institute of Health (82) National Institute of Health (40) National Institute on Alcohol Abuse and Alcoholism ,719 National Institutes of Health ,931,006 National Institutes of Health ,488,879 National Institutes of Health ,541,297 National Institutes of Health ,914,797 National Institutes of Health ,118 National Institutes of Health ,671,512 National Institutes of Health ,227 National Institutes of Health ,120,650 National Institutes of Health ,618 National Institutes of Health ,960,441 National Institutes of Health ,803 National Institutes of Health ,427,098 National Institutes of Health ,823 National Institutes of Health ,904,027 National Institutes of Health ,306,005 National Institutes of Health ,460 National Institutes of Health ,739,082 National Institutes of Health ,088,312 National Institutes of Health ,575,625 National Institutes of Health ,250,712 National Institutes of Health ,477,890 National Institutes of Health ,850,171 National Institutes of Health ,357,044 National Institutes of Health ,364 National Institutes of Health ,050 National Institutes of Health ,672,396 National Institutes of Health ,469,626 National Institutes of Health ,540,290 National Institutes of Health ,384,736 National Institutes of Health ,578,122 National Institutes of Health ,640,518 *See footnote 2. The accompanying notes are as integral part of this Schedule. 24

27 Schedule of Expenditures of Federal Awards Sponsor Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS (Continued) National Institutes of Health ,060,222 National Institutes of Health ,961,108 National Institutes of Health ,931,175 National Institutes of Health ,460,475 National Institutes of Health ,941,142 National Institutes of Health ,949 National Institutes of Health - ARRA (101) National Institutes of Health - ARRA ,204,551 Office of the Secretary ,076 Office of the Secretary - ARRA ,017,396 Substance Abuse and Mental Health Services Administration ,717 Total - Department of Health and Human Services 209,539,618 Department of Homeland Security Centers for Homeland Security ,716,094 Department Of Homeland Security 97.RDC 968,125 Earthquake Consortium ,859 Homeland Security-related Science, Technology, Engineering and Mathematics (HS STEM) Career Development Program ,622 Total - Department of Homeland Security 5,008,700 Department of the Interior Bureau of Reclamation ,862 Department Of The Interior 15.RDC 689,977 Department Of The Interior 15.RDG 51,574 U.S. Geological Survey ,894 U.S. Geological Survey ,430,288 U.S. Geological Survey ,981 Total - Department of the Interior 2,448,576 Department of Justice Civil Rights Division ,895 Department of Justice 16.RDG 710,265 National Institute of Justice ,613 Violence Against Women Office Total - Department of Justice 867,414 Department of State Bureau of Educational and Cultural Affairs ,459 *See footnote 2. The accompanying notes are as integral part of this Schedule. 25

28 Schedule of Expenditures of Federal Awards Sponsor Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS (Continued) Bureau of Near Eastern Affairs ,750 Office of the Coord. of U.S. Assistance to Europe and Eurasia ,193 Total - Department of State 619,402 Department of Transportation Department of Transportation 20.RDC 355,825 Department of Transportation 20.RDG 445,545 Federal Transit Administration (FTA) ,933 Rita Hydrogen ,401 Total - Department of Transportation 1,132,704 Department of Veterans Affairs Department Of Veterans Affairs 64.RDC 210,326 Department Of Veterans Affairs 64.RDG 74,058 VA Health Administration Center ,928 VA Health Administration Center (8,872) Total - Department of Veterans Affairs 279,440 Environmental Protection Agency Office of Research and Development (ORD) ,783 Total - Environmental Protection Agency 878,783 Federal Communications Commission Federal Communications Commission 32.RDC 48,637 Total - Federal Communications Commission 48,637 Institute For Museum and Library Conservation Project Support (IMLS) ,767 Total - Institute For Museum and Library 27,767 Institute of Museum and Library Services Laura Bush 21st Century Librarian Program ,779 Total - Institute of Museum and Library Services 152,779 Library of Congress Library of Congress 42.RDC 3,552 Total - Library Of Congress 3,552 *See footnote 2. The accompanying notes are as integral part of this Schedule. 26

29 Schedule of Expenditures of Federal Awards Sponsor Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS (Continued) National Aeronautics and Space Administration Cross Agency Support ,912 Exploration ,007 National Aeronautics And Space Administration ,871 National Aeronautics And Space Administration 43.RDC 868,118 National Aeronautics And Space Administration 43.RDG 375,050 Science ,450 Space Operations ,431 Total - National Aeronautics and Space Administration 2,195,839 National Archives and Records Administration National Historical Publications and Records Grants ,430 Total - National Archives and Records Administration 39,430 National Endowment for the Arts Promotion of the Arts-Grants to Organizations and Individuals ,123 Total - National Endowment for the Arts 19,123 National Endowment for the Humanities Promotion of the Humanities-Division of Preservation and Access ,368 Promotion of the Humanities-Office of Digital Humanities ,626 Promotion of the Humanities-Professional Development ,760 Promotion of the Humanities-Research ,257 Total - National Endowment for the Humanities 359,011 National Science Foundation Biological Sciences ,692,936 Computer and Information Science and Engineering ,598,567 Education and Human Resources ,172,956 Engineering Grants ,682,681 Geosciences ,264 Geosciences ,568,605 Mathematical and Physical Sciences ,851,900 National Science Foundation 47.RDG (4,296) Office of Cyberinfrastructure ,788,087 Office of International and Integrative Activities ,423 Polar Programs ,822 Social, Behavioral, and Economic Sciences ,803 *See footnote 2. The accompanying notes are as integral part of this Schedule. 27

30 Schedule of Expenditures of Federal Awards RESEARCH & DEVELOPMENT CLUSTER CFDA* Expenditures DIRECT AWARDS (Continued) Trans-NSF Recovery Act Reasearch Support - ARRA ,464,450 Total - National Science Foundation 38,109,198 Nuclear Regulatory Commission Nuclear Regulatory Commission 77.RDG 90,554 Total - Nuclear Regulatory Commission 90,554 Total Research & Development Cluster - Direct Awards $ 360,376,062 *See footnote 2. The accompanying notes are as integral part of this Schedule. 28

31 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS Agency For International Development Yale University R01 HL $ 6,448 Total - Agency For International Development 6,448 Corporation for National and Community Service Aids United A1HDC001 14,900 Total - Corporation for National and Community Service 14,900 Department of Agriculture BAE Systems Info. and Electronics Systems Int. Inc FA C ,096 California Cut Flower Commission 10.RDG University of Wisconsin, Madison ,671 Total - Department of Agriculture 56,791 Department of Commerce California Emergency Management Agency NA09NWS ,084 California Emergency Management Agency 11.RDG ,279 Oregon State University NA10OAR ,571 University of California, San Diego NA08OAR ,971 University of California, San Diego 11.RDG NA17RJ University of California, San Diego NA10OAR ,958 University of California, San Diego NA11NOS ,315 Total - Department of Commerce 370,202 Department Of Defense Advanced Cooling Technologies, Inc. 12.RDC W15P7T-12-C-A127 17,079 Aerospace Corporation 12.RDC FA C Agilent Technologies MDA Anthrotronix, Inc. 12.RDC W81XWH-11-C Anthrotronix, Inc. 12.RDC W31O4Q-12-C ,576 Army Research Laboratory 12.RDC W911NF ,234 BAE Systems Info. and Electronics Systems Int. Inc 12.RDC FA C ,951 BAE Systems Info. and Electronics Systems Int. Inc 12.RDC N C ,094 BAE Systems, Advanced Information 12.RDC HM C BBN Technologies 12.RDC W611NF-09-D ,079 BBN Technologies 12.RDC N C ,362 BBN Technologies 12.RDC HR C ,184,733 *See footnote 2. The accompanying notes are as integral part of this Schedule. 29

32 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) BBN Technologies 12.RDC FA C ,240 BBNT Solutions, LLC 12.RDC HR C California Institute of Technology 12.RDC N C ,410 California Institute of Technology HM BAA California Institute of Technology 12.RDC N C ,996 Cancer Prevention Institute of 12.RDG W81XWH ,653 CaridianBCT Biotechnologies, LLC 12.RDG W81XWH ,195 Carnegie Mellon University W911NF ,363 Carnegie Mellon University 12.RDC W911NF ,604 Carnegie Mellon University FA ,619 Children's Institute Inc. 12.RDC 5U79SM ,602 Children's Oncology Group W81XWH ,838 CODEX BioSolutions 12.RDC W81XWH-12-C ,252 Cogent Systems, Inc. 12.RDC W911NF-07-R ,258 Cornell University W81XWH (16) Cornell University W81XWH ,708 Dartmouth College/Neukom Institute N ,034 ERC Incorporated FA C ,941 Exogi, LLC 12.RDC W91CRB-10-C ,781 Fallbrook Union Elementary School HE ,920,987 Fetch Technologies, Inc F ,007 General Dynamics Information Technology 12.RDC N D ,914 General Technical Services, L.L.C. 12.RDC GS02T10CJC ,908 Geneva Foundation 12.RDC USAMRMC GENEVA 7,609 Georgia Institute of Technology W911NF ,610 Geosemble Technologies 12.RDC W31P4Q-09-C-0313 (1) Henry M. Jackson Foundation W81XWH ,075 House Ear Institute W81XWH ,784 HRL Laboratories, LLC 12.RDC HR001106C ,051 IBM Foundation 12.RDC HR C ,075 Indiana University 12.RDC N C ,480 Indiana University W911NF ,921 Inferlink Corporation 12.RDC W31P4Q-12-C ,018 Intelligent Automation Inc 12.RDC W81XWH-09-C ,969 International Business Machines 12.RDC W911NF-12-C ,931 International Business Machines 12.RDC W911NF-11-C ,643 International Business Machines 12.RDC FA ,373 International Computer Science Institute 12.RDC W911NF-12-C ,454 *See footnote 2. The accompanying notes are as integral part of this Schedule. 30

33 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Iris Technology 12.RDC N M ,370 Johns Hopkins University W81XWH ,995 Kitware, Inc HR C Language Weaver 12.RDC HR C ,561 Lawrence Berkeley Laboratory 12.RDC DE-AC02-05CH ,627 Lockheed Martin Corporation 12.RDC HSHQDC-10-C (299) Loma Linda University 12.RDC W81XWH ,043 Mahlet Consulting 12.RDC H C ,450 Massachusetts Institute of Technology N ,606 Massachusetts Institute of Technology FA C ,608 MDA Information Systems, Inc FA C ,408 Micro Analysis and Design 12.RDC W31P4Q-04-C-R Muscular Dystrophy Association 12.RDC DARPA TTO 117,436 Neuralgenix, LLC 12.RDC N C ,751 OptiSwitch Technology Corporation 12.RDC FA M Pennsylvania State University 12.RDC W911NF Perceptronics Solutions, Inc. 12.RDC FA C ,063 Perceptronics Solutions, Inc. 12.RDC W91WAW-09-C-0151 (1,983) Precision Therapeutics W81XWH ,445 Quanterion Solutions Incorporated 12.RDC FA D ,657 Quanterion Solutions Incorporated 12.RDC FA D ,944 Raytheon BBN Technologies 12.RDC N C ,707 Raytheon BBN Technologies 12.RDC HR C ,709 Raytheon Company 12.RDC N C ,585 Rensselaer Polytechnic Institute N ,498 Science Applications International 12.RDC AG-3142-C ,296 Science Applications International 12.RDC N C ,304 Shared Spectrum Corporation 12.RDC FA C ,424 Soar Technology, Inc. 12.RDC N C ,574 Soar Technology, Inc. 12.RDC N M ,026 Soar Technology, Inc. 12.RDC N M Soar Technology, Inc. 12.RDC N M ,992 Soar Technology, Inc W81XWH-09-C ,333 Soar Technology, Incorporated 12.RDC N C ,678 Sparta Inc. (Aerospace Vehicle Systems) 12.RDC HR C SRI International FA C ,477 SRI International FA D SRI International 12.RDC NBCHD *See footnote 2. The accompanying notes are as integral part of this Schedule. 31

34 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) SRI International NBCHD ,256 Stanford University FA ,757 Stanford University FA ,015 Stevens Institute of Technology 12.RDG H D ,993 Stevens Institute of Technology 12.RDC H D ,371 Stevens Institute of Technology 12.RDC H D ,418 TASC 12.RDC 10-C ,774 Texas A&M University N ,535 Toyon Research Corporation 12.RDC HQ C ,534 Trideum Corporation 12.RDC W91ZLK-10-C-0007 (407) United Technologies Research Center 12.RDC N C ,235 University of California, Berkeley W911NF ,005 University of California, Los Angeles N ,605 University of California, Los Angeles N C-0813 (1,336) University of California, Los Angeles 12.RDC N C ,746 University of California, Los Angeles FA ,394 University of Illinois at Urbana ,014 University of Michigan 12.RDC W15P7T-08-C-P409 (953) University of Michigan W81XWH ,480 University of Pennsylvania FA ,043 University of Pittsburgh 12.RDC N C ,541 University of Texas 12.RDC F C University of Utah FA ,720 University of Washington N Vanderbilt University N ,344 Virginia Tech 12.RDC FA86SO-13-C ,347 Wright State University FA ,728 Total - Department of Defense 15,101,993 Department Of Education Florida State University R305A ,806 LA Community College District P031C ,288 Los Amigos Research & Education H133B Los Angeles Unified School District U165A ,676 Los Angeles Unified School District - ARRA U396C ,587 University of California, Davis 84.RDC CN University of California, Los Angeles R305C ,588 *See footnote 2. The accompanying notes are as integral part of this Schedule. 32

35 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) University of Texas R305A ,118 University of Wisconsin, Madison R305A (10,122) University of Wisconsin, Milwaukee ,435 View Park Preparatory Accelerated 84.RDC (325) Total - Department of Education 739,007 Department Of Energy Argonne National Laboratory 81.RDC DE-AC02-06CH ,289 Caterpillar, Inc DE-FC26-01CH ,382 Lawrence Berkeley Laboratory 81.RDC DE-AC02-05CH ,870 Lawrence Livermore National Laboratory 81.RDC DE-AC52-07NA Los Alamos National Laboratory 81.RDC W-7405-ENG Los Angeles Department of Water & Power - ARRA DE-OE ,286,036 Media and Process Technology, Inc. 81.RDC DE-FG36-08GO Media and Process Technology, Inc. 81.RDC DE-FG36-05-GO National Council On Radiation Protection DE-SC ,519 National Renewable Energy Laboratory 81.RDC DE-AC36-08GO ,703 Princeton University DE-SC ,772 Sandia National Laboratories 81.RDC DE-AC04-94AL ,521,832 Southern California Edison - ARRA DE-OE ,772 Texas A&M University DE-SC ,000 University of Texas DE-FC52-08-NA ,038 University of Wisconsin, Madison DE-SC ,437 URS Group, Inc. 81.RDC DE-FE ,591 US-Pacific Northwest National Lab 81.RDC DE-AC05-76RL ,784 Total - Department of Energy 10,845,986 Department of Health and Human Services Advanced Medical Electronis Corporation R44AG (4,731) AgeneBio U01AG ,059 Albert Einstein College of Medicine R21DK A1 139,366 Albert Einstein College of Medicine R01AG ,183 American Cancer Society, Inc U01 CA ,018 American College of Radiology U01 CA ,007 American College of Radiology U01 CA ,512 American College of Radiology Imaging CA ,307 American College of Radiology Imaging U01CA ,404 American Institutes for Research 93.RDC TO 13 50,757 *See footnote 2. The accompanying notes are as integral part of this Schedule. 33

36 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Anergix, LLC R43 NS A1 (1,290) Applied Integrin Sciences, Inc R41CA A1 103,175 Arizona State University R01DK ,861 Association of American Medical Colleges U36/CCU Banner Sun Health Research Institute R01 AG ,435 Battelle Memorial Institute 93.RDC HHSD (2,143) Baylor College of Medicine R01 CA A1 17,922 Baylor College of Medicine R01CA ,852 Beckman Research Institute of the City of Hope U01CA ,305 Beckman Research Institute of the City of Hope U01 CA Beckman Research Institute of the City of Hope U01 CA (394) Beckman Research Institute of the City of Hope R01 DE ,018 Beckman Research Institute of the City of Hope R01CA ,274 Beckman Research Institute of the City of Hope R01CA ,325 Beckman Research Institute of the City of Hope UM1CA A1 20,518 Beckman Research Institute of the City of Hope R01 CA A2 432,396 Beckman Research Institute of the City of Hope R01 DE Beckman Research Institute of the City of Hope U01CA S1 143 BioReliance 93.RDC N02-CP (605) Boston University R01 DE (30,082) Brigham & Women's Hospital, Inc P01 GM ,582 Brigham & Women's Hospital, Inc P50 DE Brigham & Women's Hospital, Inc UM1AI ,076 Brigham & Women's Hospital, Inc. - ARRA RC2 HL ,539 California Department of Public Health U58DP ,145,984 California Department of Public Health U58DP ,989 California Department of Public Health 93.RDC ,812 California Institute of Technology P01CA A2 312,226 California Institute of Technology R01HD075605A 127,808 California State University Fullerton U54 CA ,315 California State University Fullerton U54CA ,876 Cancer Prevention Institute of California R01CA ,894 Cancer Prevention Institute of California R01CA ,740 Case Western Reserve University R01 CA ,223 Case Western Reserve University R01CA ,025 Cedars-Sinai Medical Center R01DE S1 38,808 Children's Hospital of Boston R01AI ,787 Children's Hospital of Los Angeles R01 CA A1 8,617 *See footnote 2. The accompanying notes are as integral part of this Schedule. 34

37 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Children's Hospital of Los Angeles R03DK ,149 Children's Hospital of Los Angeles R21NS ,525 Children's Hospital of Los Angeles P01CA ,822 Children's Hospital of Los Angeles R25DK ,585 Children's Hospital of Los Angeles K12 HD ,602 Children's Hospital of Los Angeles U54 HL ,332 Children's Hospital of Los Angeles P01CA (7,373) Children's Hospital of Los Angeles R01HD ,010 Children's Hospital of Los Angeles 93.RDG 8ULTR ,000 Children's Hospital of Los Angeles - ARRA RC2CA ,599 Children's Hospital of Philadelphia R01CA ,709 Children's Hospital of Philadelphia R01CA A1 9,873 Children's Hospital of Philadelphia R01 CA A2 4,525 Children's Institute Inc U79SM ,955 Children's Institute Inc. 93.RDC MH ,349 Cincinnati Children's Hospital Medical 93.RDC R01 HL Claremont Graduate School U01HL ,716 Claremont Graduate University R21 DK (3,098) Claremont Graduate University R01 DA A1 (18,240) Claremont Graduate University U01HL (3,609) Cleveland Clinic Foundation NS Cleveland Clinic Lerner College of Medicine P01NS ,151 Cleveland Clinic Lerner College of Medicine P01 NA ,711 Cold Spring Harbor Laboratory - ARRA RC2CA ,565 Cold Spring Harbor Laboratory - ARRA RC2HD ,572 Columbia University R01 EY ,771 Community Health Councils, Inc H75DP ,261 Community Health Councils, Inc U58DP (2) Community Health Councils, Inc. 93.RDC 1U58DP ,799 Community Health Councils, Inc U58DP ,623 Cooper Institute R01CA Cornell University U54CA ,203 County of Los Angeles (62) Dana-Farber Cancer Institute/HCC P50CA ,304 Dana-Farber Cancer Institute/HCC P50CA ,952 Doheny Eye Institute R01EY ,000 Downtown Women's Center CPIMP ,839 Duke University U01 DK ,338 *See footnote 2. The accompanying notes are as integral part of this Schedule. 35

38 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Duke University U19 AI (60,581) Duke University R01 NS ,401 Duke University Medical Center - ARRA R01 CA A1 (167) Emmes Corporation U01 CA (62) Emory University U01NS A1 157 Evanston Northwestern Healthcare HHSN C (30,393) Excell Therapeutic, Inc R43AI A2 19,774 Florida State University U0HD ,088 Florida State University U0HD ,653 Fred Hutchinson Cancer Center R21CA ,852 Fred Hutchinson Cancer Center R21CA A1 14,293 Fred Hutchinson Cancer Center R01CA ,180 Fred Hutchinson Cancer Center R01CA ,909 Fred Hutchinson Cancer Center R01CA ,543 Fred Hutchinson Cancer Center R21CA ,227 Fred Hutchinson Cancer Center R01CA A1 30,210 Fred Hutchinson Cancer Center R21 CA Georgetown University - ARRA U01AI S1 40,201 Georgia Health Sciences University U01A ,528 Geospace Research Inc R44CA Harvard Medical School R01 DC A1 51,339 Harvard Medical School - ARRA TR0001/01 143,820 Harvard School of Public Health U01 HD ,816 Harvard School of Public Health U01 HG ,954 Harvard School of Public Health U19 CA Harvard School of Public Health U19CA ,780 Harvard School of Public Health U19CA ,409 Harvard School of Public Health U01HG S1 320,328 Harvard School of Public Health U01HG ,778 Haskins Laboratories R01 DC ,031 Health Research, Inc R01 CA A2 (13,460) Health Research, Inc R01CA ,376 Howard University - Washington, DC P20 AA Indiana Latino Institute U85 DP Indiana Latino Institute U58DP Indiana University R01 HL ,908 Infinite Biomedical Technologies, LLC R43HD ,495 InnoScion LLC R41HL A2 6,871 *See footnote 2. The accompanying notes are as integral part of this Schedule. 36

39 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Institute for Community Research R01 DA ,591 Institute for Community Research R01 DA ,743 Intelligent Automation Inc 93.RDG 1R43LM ,792 Johns Hopkins University U10 EY ,228 Johns Hopkins University UM1AI ,040 Johns Hopkins University U01CA ,242 Johns Hopkins University R01CA A2 67,492 Johns Hopkins University R01 AG A1 153,813 Johns Hopkins University R01CA ,210 Johns Hopkins University R01 CA ,245 Johns Hopkins University R37 CA (246) Johns Hopkins University R37CA ,081 Johns Hopkins University - ARRA R01 AG S1 (3,050) Kaiser Foundation Hospitals, Inc R01 AG ,726 LA County Community and Senior Services 93.RDC AP ,149 LA County Community and Senior Services 93.RDC FCSP ,422 Legacy For Health R01CA A1 16,456 L-Nutra Inc. 93.RDC HHSN C 80,296 Los Angeles Biomedical Research H34MC Lovelace Respiratory Research Institute R01 CA A1 11,761 Lovelace Respiratory Research Institute R01 ES ,274 Loyola Marymount University R03HD A1 48,457 Massachusetts General Hospital U54 HL Massachusetts General Hospital R01 EB ,564 Massachusetts General Hospital R01EB ,608 Massachusetts General Hospital R01EB A1 97,797 Massachusetts General Hospital R01 MH ,070 Mayo Clinic R01AT ,661 Memorial Sloan Kettering R01CA ,760 Memorial Sloan Kettering R01CA ,678 Memorial Sloan Kettering R01 CA (8,724) Memorial Sloan Kettering R01 CA (45,842) Michigan State University R01CA ,110,518 Moffitt Cancer Center R01 CA ,384 Moffitt Cancer Center U19 CA Moffitt Cancer Center U19CA ,706 MRI Research Inc R44EY ,875 Mt. Sinai School of Medicine U01 HL ,362 *See footnote 2. The accompanying notes are as integral part of this Schedule. 37

40 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) National Institute of Arthritis & - ARRA RC1 HL (663) National Institutes of Health U01MH A1 6,868 Nationwide Children's Hospital R01DC ,387 Neumedicines, LLC 93.RDC HHSO C 37,596 North American Assn. of Central Cancer 93.RDC HHSN C 4,776 North Carolina State University R01EB ,245 Northeastern University R21HL ,975 Northeastern University R21HL A1 52,190 Northwestern University P20MH A1 145,674 Northwestern University R01 DE (5,968) Northwestern University R01DE ,102 Northwestern University R01CA ,074 Northwestern University - ARRA RC1 EY ,546 NUVIEW Radiopharmaceuticals Incorp R41HL ,287 Ohio State University R21OH ,158 Oklahoma Medical Research Foundation P01 AI ,907 Oklahoma Medical Research Foundation P01AI ,370 Oregon Health Science University R01 EY ,254 Oregon Health Science University R01EY ,601 Oregon Health Science University R01HL Oregon Health Science University R01 GM ,558 Oregon Health Science University R01GM ,371 Outcome Sciences, Inc HHSA ,576 Park Nicollet Institute R21CA A1 8 Premitec, Inc. - ARRA RC3 EY ,429 President and Fellows of Harvard College F32DK ,275 President and Fellows of Harvard College U01HD ,826 President and Fellows of Harvard College P01DK ,119 Public Health Institute U58 DP Public Health Institute U58DP (543) Public Health Institute U58DP (912) Rady Children's Hospital Research Center P30MH ,421 Rand Corporation R01NR ,417 Rand Corporation R01 HS ,456 Rand Corporation 93.RDC HHSA TO#4 (296) Rand Corporation R01AG ,104 Rand Corporation R03AG ,294 *See footnote 2. The accompanying notes are as integral part of this Schedule. 38

41 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Research Corporation - University of Hawaii - ARRA U01 HG S1 (2,813) Research Corporation - University of Hawaii - ARRA P01 CA ,366 Research Corporation - University of Hawaii- ARRA R01CA S1 22,575 Research Triangle Institute U01 HD ,593 Research Triangle Institute HHSM I 23,053 Research Triangle Institute 93.RDC HHSP WC 9,696 Rockefeller University 93.RDG 5U54RR ,582 Rockefeller University U54GM ,200 Roswell Park Cancer Institute R01 HL A1 25,728 Roswell Park Cancer Institute R01HL ,161 Roswell Park Cancer Institute P01CA ,068 Roswell Park Cancer Institute CA ,422 Roswell Park Cancer Institute P01CA A1 54,869 Rutgers, The State University of New Jersey U24 MH ,683 Rutgers, The State University of New Jersey U24MH ,401 Rutgers, The State University of New Jersey U24MH ,791 Rutgers, The State University of New Jersey U24MH ,197 Rutgers, The State University of New Jersey U01 HG (6,843) Rutgers, The State University of New Jersey U24MH ,283 Salk Institute For Biological Studies R01DC A1 33,511 Science Applications International 93.RDC HHSN E 90,415 Social & Scientific Systems, Inc UM1AI Social & Scientific Systems, Inc HHSN /2/3I 43,443 Social & Scientific Systems, Inc R01 HL (2,312) Social & Scientific Systems, Inc UM1AI ,962 Social & Scientific Systems, Inc U01 AI Social & Scientific Systems, Inc R01 HL ,750 Social & Scientific Systems, Inc UM1AI Social & Scientific Systems, Inc ,759 Social & Scientific Systems, Inc U01AI ,695 Southwest Oncology Group PO1 CA (1,534) Southwest Oncology Group U10CA ,755 Southwest Oncology Group U10CA ,030 Southwest Oncology Group U10CA ,429 Southwest Oncology Group UNKNOWN 205 St. Jude Children's Research Hospital U24 CA (114,670) St. Luke's-Roosevelt Institute for Health Sciences U10 EY A1 2,906 Stanford University U54HG ,804 *See footnote 2. The accompanying notes are as integral part of this Schedule. 39

42 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Stanford University U54HG S1 71,123 Stanford University U54 CA (459) State University of New York at Buffalo R01 DE ,405 State University of New York at Buffalo R01 ES ,541 The Forsyth Institute R01 DE A2 37,778 The Forsyth Institute R34DE ,885 The Forsyth Institute R34DE ,389 The Jackson Laboratory U41HG ,622 The Jackson Laboratory P41HG The Jackson Laboratory U41HG ,873 The Scripps Research Institute 93.RDG 5 U54 CA ,356 The Scripps Research Institute 93.RDG 5U54CA ,032 Therapeutic Systems Research R43AI ,285 Therapeutic Systems Research R43AI A1 81,447 Trustees of Columbia University in the city of NY - ARRA RC2 DE (19) University of Alabama U01NS ,135 University of Alabama at Birmingham N01-AI ,893 University of California, Berkeley R01ES ,727 University of California, Berkeley R01ES ,201 University of California, Berkeley R01 ES ,678 University of California, Berkeley R01CA ,541 University of California, Davis H79AE ,693 University of California, Davis U54CA S1 35,916 University of California, Davis 93.RDC HHSN C 4,049 University of California, Davis 93.RDC HHSN C (1,196) University of California, Davis R21ES ,363 University of California, Davis - ARRA R21MH University of California, Irvine R01 ES A2 77,234 University of California, Irvine R01AG (878) University of California, Irvine HD (1,200) University of California, Irvine U54 AI ,434 University of California, Irvine R01DC ,544 University of California, Irvine R01 DC A2 (38,276) University of California, Irvine EB ,879 University of California, Irvine U01 CA University of California, Los Angeles P01DA ,887 University of California, Los Angeles P30 MH (1,166) University of California, Los Angeles P50 DK ,252 *See footnote 2. The accompanying notes are as integral part of this Schedule. 40

43 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) University of California, Los Angeles P30 AG University of California, Los Angeles P50 HL ,305 University of California, Los Angeles P50 DK (471) University of California, Los Angeles P30 MH University of California, Los Angeles U01 MH ,798 University of California, Los Angeles P41EB ,899 University of California, Los Angeles U48DP ,514 University of California, Los Angeles P50HL ,740 University of California, Los Angeles P50HL ,984 University of California, Los Angeles P50HL ,917 University of California, Los Angeles P01 DE (42) University of California, Los Angeles P30 MH ,608 University of California, Los Angeles P01 HL ,545 University of California, Los Angeles P50 HL University of California, Los Angeles U01NS ,311 University of California, Los Angeles P41 RR ,610 University of California, Los Angeles U01NS ,240 University of California, Los Angeles P50DK ,556 University of California, Los Angeles P41 RR University of California, Los Angeles U54NS ,871 University of California, Los Angeles P01 HL (356) University of California, Los Angeles R03DA A1 63,565 University of California, Los Angeles R01NS ,725 University of California, Los Angeles R01MH ,240 University of California, Los Angeles U19 AI University of California, Los Angeles U01 NS A2 (4) University of California, Los Angeles R01 AA ,207 University of California, Los Angeles P41 RR ,582 University of California, Merced R01 ES (3,521) University of California, Riverside R01 AG (290) University of California, San Diego U01 AG ,045 University of California, San Diego R24 MH University of California, San Diego U01AG ,930 University of California, San Diego R01EY ,939 University of California, San Diego R01CE ,903 University of California, San Diego P30MH ,256 University of California, San Diego R01EY ,054 University of California, San Diego R01 EY ,084 *See footnote 2. The accompanying notes are as integral part of this Schedule. 41

44 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) University of California, San Diego R01MH A1 112,403 University of California, San Diego R01MH A1 52,722 University of California, San Diego R01HD ,609 University of California, San Diego U01AG ,836 University of California, San Diego - ARRA R01HS ,788 University of California, San Francisco R01 CE ,573 University of California, San Francisco R01MH ,384 University of California, San Francisco H4AHA (1) University of California, San Francisco R01 CA ,527 University of California, San Francisco R01 DK ,650 University of California, San Francisco U01ES ,827 University of California, San Francisco H4 AHA ,183 University of California, San Francisco H4 AHA ,231 University of California, San Francisco 93.RDC N01-AI ,749 University of California, San Francisco U01 NS ,524 University of California, San Francisco U01NS ,997 University of Chicago - ARRA RC2 HL ,644 University of Cincinnati U01NS ,303 University of Cincinnati R56 DK A2 40 University of Cincinnati U01 NS (455) University of Cincinnati U01NS ,300 University of Florida R01GM ,372 University of Hawaii at Honolulu P01CA ,504 University of Hawaii at Honolulu R01 CA University of Hawaii at Honolulu P01 CA (537) University of Hawaii at Honolulu UM1CA A1 1,300,384 University of Hawaii at Honolulu P01CA ,464 University of Hawaii at Honolulu P01 CA ,074 University of Hawaii at Manoa R01CA ,225 University of Illinois at Chicago U10EY ,170 University of Illinois at Chicago U10EY ,203 University of Illinois at Chicago R01 MH ,243 University of Kansas P01 GM ,537 University of Massachusetts R03 CA ,075 University of Medicine & Dentistry R01NS University of Medicine & Dentistry R01ES A1 30,109 University of Miami R01 DA S2 134,441 University of Miami P30DA ,017 *See footnote 2. The accompanying notes are as integral part of this Schedule. 42

45 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) University of Miami R01EB ,046 University of Miami P30DA A1 (5,374) University of Miami - ARRA R01 CA ,145 University of Miami - ARRA R01 HD ,819 University of Michigan U01 DK ,082 University of Michigan P01CA A1 117,613 University of Michigan U01AG ,041 University of Michigan U10CA ,200 University of Michigan U01DK ,635 University of Michigan U19CA (7,133) University of Michigan U10 CA University of Michigan R01AR ,371 University of Michigan U10 CA University of Michigan - ARRA RC4AG ,073 University of Michigan - ARRA R01CA ,629 University of Michigan - ARRA R01 CA ,270 University of Minnesota R01CA ,216 University of Minnesota R01 CA A2 95,290 University of Minnesota R01DK ,613 University of Minnesota P01HL ,574 University of Minnesota R01 DK ,928 University of Minnesota P01 HL (1,330) University of Minnesota R21NS S1 438 University of Minnesota P01 CA A1 256,735 University of Minnesota R21CA A1 21,693 University of North Carolina, Chapel R01 CA ,412 University of North Carolina, Chapel R01CA ,674 University of North Carolina, Chapel R01 CA A1 4,544 University of North Carolina, Chapel R01CA ,412 University of Pennsylvania U01DA ,921 University of Pennsylvania R01HG ,725 University of Pennsylvania U01CA ,522 University of Pennsylvania R01DE ,288 University of Pennsylvania U01DA (399) University of Pittsburgh RC1HL ,235 University of Rochester U01 NS (1,105) University of Rochester Medical Center R01 MH ,011 University of Rochester Medical Center R01ES ,669 *See footnote 2. The accompanying notes are as integral part of this Schedule. 43

46 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) University of South Florida UC4DK ,059 University of Tennessee - ARRA R21 AI (485) University of Texas K12HD ,582 University of Texas R13AG ,599 University of Texas U01HL S2 345,286 University of Texas K12HD ,284 University of Toledo U01 HL University of Utah U02GM ,188 University of Washington U01 AG ,918 University of Washington R01 AA A1 134,148 University of Washington R01 HL (21,221) University of Washington R01 HL ,720 University of Washington R01 HL ,668 University of Washington U01AG ,884 University of Wisconsin, Madison P01AG ,501 US BioTest 93.RDC HHSO C 395,091 Vanderbilt University Medical Center P50MH Vanderbilt University Medical Center R01 MH ,489 Vanderbilt University Medical Center P50 MH Vanderbilt University Medical Center P50MH ,548 Vanderbilt University Medical Center - ARRA R01 HS ,823 Vision y Compromiso 93.RDC HHSN U 30,915 Wake Forest University R01 DK A1 263,482 Washington University R01CA ,892 Westat, Inc. 93.RDC HHSN C 910,715 Westat, Inc. 93.RDC HHSN C 1,441,092 Western University of Health Sciences R01NS ,599 WinProbe Corporation R44 EB ,767 Yale University U01NS Yale University R01 EB ,238 Yale University U01NS ,098 Total - Department of Health and Human Services 33,575,804 Department of Homeland Security Applied Technology Council 97.RDC HSFEHQ-08-D ,497 California Emergency Management Agency EHRSA ,240 Rutgers, The State University of New Jersey ST-0061-CCII ,000 Rutgers, The State University of New Jersey ST-0061-CCII *See footnote 2. The accompanying notes are as integral part of this Schedule. 44

47 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Rutgers, The State University of New Jersey ST-0061-CCI ,172 Rutgers, The State University of New Jersey ST-0061-CC ,998 Rutgers, The State University of New Jersey ST-0061-CCI ,766 Systems Research and Application BPA ,446 Total - Department of Homeland Security 621,295 Department of Housing and Urban Development Los Angeles City-Community Development C ,246 Total - Department of Housing and Urban Development 3,246 Department Of Labor Odle Management Group LLC 17.RDC DOLJ09SA Total - Department of Labor 24 Department Of State University of California, Berkeley 19.RDC SA Total - Department Of State 3 Department of the Interior Chemehuevi Indian Tribe GTH51T ,804 Inferlink Corporation 15.RDC D12PC ,953 Santa Rosa Band of Cahuilla Indians GTJ54T ,898 SRI International 15.RDC D11PC ,979 Texas A&M University G08PC ,727 Total - Department of the Interior 808,361 Department of Transportation San Jose State University DTRT12-G-UTC21 6,158 Transportation Research Board 20.RDC DTFH61-08-H ,088 Transportation Research Board DTFH61-08-H ,284 Total - Department of Transportation 24,530 Environmental Protection Agency California Institute of Technology RD ,453 Health Effects Institute R ,727 Metropolitan Water District of Southern XP ,488 University of California, Los Angeles RD ,777 Total - Environmental Protection Agency 519,445 *See footnote 2. The accompanying notes are as integral part of this Schedule. 45

48 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) National Aeronautics And Space Administration Arizona State University HoneyBee Robotics Ltd. 43.RDG HHN09CE89C 27,048 Jet Propulsion Laboratory, California 43.RDC NMO ,140 Jet Propulsion Laboratory, California 43.RDC NM ,475 Jet Propulsion Laboratory, California 43.RDC NMO (26) Jet Propulsion Laboratory, California 43.RDC NMO ,060 Jet Propulsion Laboratory, California 43.RDC NMO ,521 Jet Propulsion Laboratory, California 43.RDC NMO (1) Jet Propulsion Laboratory, California 43.RDC NM ,850 Jet Propulsion Laboratory, California 43.RDC NMO ,563 Jet Propulsion Laboratory, California 43.RDC NMO ,021 Jet Propulsion Laboratory, California 43.RDC NNN12AA01C 11,797 Jet Propulsion Laboratory, California 43.RDC NNNN13D239T 57,588 Jet Propulsion Laboratory, California 43.RDC NMO ,177 Jet Propulsion Laboratory, California 43.RDC NM ,148 Jet Propulsion Laboratory, California Institute of Technology 43.RDC NNN12AA01C 410 Southwest Research Institute 43.RDG NAS ,159 Southwest Research Institute 43.RDC NNG05EC85C 38,591 Stanford University 43.RDC NAS ,424 The City College of New York NNX11AQ39G 136,301 The City College of New York NNX11A926A 23,999 University of California, San Diego 43.RDG UNKNOWN 8,778 University of Colorado NAS ,182 University of Michigan 43.RDC NNL11AA24C 97,889 University of Michigan 43.RDC NNX09AE91G 119,485 Washington University In St. Louis NNX12AD88G 15,470 Total - National Aeronautics and Space Administration 1,754,069 National Endowment for the Arts University of Texas at Arlington ,876 Total - National Endowment for the Arts 10,876 National Science Foundation Arizona State University ,592 Association for Institutional Research W911NF BBN Technologies CNS ,122 *See footnote 2. The accompanying notes are as integral part of this Schedule. 46

49 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) BBN Technologies - ARRA CNS ,180 California Institute of Technology ,441 Carnegie Mellon University CNS ,416 Chemat Technology Inc IIP ,520 Civilian Research and Development 47.RDC RUC KA Computing Research Association ,602 Consortium for Ocean Leadership,Inc OCE ,659 Corporation Education Network 47.RDG OCI ,453 Dartmouth College GEO ,318 Drexel University - ARRA CNS ,203 Indiana University OCI ,092 IQ Engines IIP ,810 Massachusetts Institute of Technology BCS ,880 National Ocean Sciences Bowl 47.RDC NA12SEC ,881 National Ocean Sciences Bowl NA07SEC New York University BCS ,968 Northwestern University - ARRA SES ,921 Purdue University CHE ,655 The Algebra Project, Inc DRL ,675 The Huntington Library SES ,363 University of Arizona EEC ,662 University of California, Berkeley DRL ,611 University of California, Berkeley ANI (91) University of California, Irvine ECS (51) University of California, Los Angeles CCR ,732 University of California, Riverside ,153 University of Maryland ,662 University of Michigan CCF ,171 University of Michigan CHE ,111 University of Minnesota CMMI ,196 University of New Hampshire CMMI ,134 University of Rochester IIS ,633 University of Washington OCE ,967 University of Washington DMR ,881 University of Wisconsin, Madison EFRI ,048 University of Wisconsin, Madison PHY ,888 University of Wisconsin, Madison ,693 *See footnote 2. The accompanying notes are as integral part of this Schedule. 47

50 Schedule of Expenditures of Federal Awards Sponsor Pass-Through Entity Current Year RESEARCH & DEVELOPMENT CLUSTER CFDA* Identifying Number Expenditures PASS-THROUGH FUNDS (Continued) Virginia Tech EAR ,040 Washington University OCE ,042 Total - National Science Foundation 2,497,696 Total Research & Development Cluster - Pass-Through Funds 66,950,676 Total Research and Development Cluster $ 427,326,738 *See footnote 2. The accompanying notes are as integral part of this Schedule. 48

51 Schedule of Expenditures of Federal Awards Sponsor Current Year CFDA* STUDENT FINANCIAL AID CLUSTER Expenditures Department of Education Office of Student Financial Assistance Programs Department of Education ,459 Federal Direct Student Loans ,322,958 Federal Pell Grant Program ,825,193 Federal Supplemental Educational Opportunity Grants ,709,751 Federal Work-Study Program ,256,394 Total - Office of Student Financial Assistance Programs $ 548,150,755 Department of Health and Human Services Health Resources and Services Administration Health Professions Student Loans, Including Primary Care Loans/Loans for Disadvantaged Students ,119 Scholarships for Health Professions Students from Disadvantaged Backgrounds ,406 Total - Department of Health and Human Services 40,525 Total - Student Financial Aid Cluster $ 548,191,280 *See footnote 2. The accompanying notes are as integral part of this Schedule. 49

52 Schedule of Expenditures of Federal Awards Sponsor Current Year OTHER PROGRAMS CFDA* Expenditures Direct Awards Economic Development Cluster Department of Commerce Economic Adjustment Assistance 249,350 Total - Economic Development Cluster 249, Head Start Department of Health and Human Services Early Head Start - ARRA (193) Head Start ,662,032 Total - Head Start 4,661,839 TRIO Cluster Department of Education TRIO - McNair Post-Baccalaureate Achievement ,894 TRIO - Talent Search (410) TRIO - Upward Bound ,453,394 Total - TRIO Cluster 2,684,878 Total Other Programs - Direct Awards $ 7,596,067 *See footnote 2. The accompanying notes are as integral part of this Schedule. 50

53 Schedule of Expenditures of Federal Awards Pass-Through Funds AmeriCorps Corporation for National and Community Service AmeriCorps - ARRA JS-SITE#9 $ 68,395 Total - AmeriCorps 68,395 Economic Development Cluster Department of Commerce Economic Adjustment Assistance ,645 Total - Economic Development Cluster 14,645 Block Grants for Prevention and Treatment of Substance Abuse Department of Health and Human Services Block Grants for Prevention and Treatment of Substance Abuse T ,516 Consolidated Health Centers (Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Public Housing Primary Care) H80CS ,544 Foster Care-Title IV-E ,588 Foster Care-Title IV-E ,752 Foster Care-Title IV-E CMS / ,489,166 Foster Care-Title IV-E ,387 2,407,893 Head Start CH0033 (342) HIV Emergency Relief Project Grants H89HA ,183 Total - Block Grants for Prevention and Treatment of Substance Abuse-Department of Health and Human Services 3,380,794 Homeland Security Grant Program Department of Homeland Security Homeland Security Grant Program GPD ,020 Total - Homeland Security Grant Program 74,020 Total Other Programs - Pass-Through Funds $ 3,537,854 Total Other Programs - Direct and Pass-Through Funds $ 11,133,921 TOTAL FEDERAL PROGRAMS $ 986,651,939 *See footnote 2. The accompanying notes are as integral part of this Schedule. 51

54 Notes to Schedule of Expenditures of Federal Awards 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards (the Schedule ) includes the Federal grant transactions of the University of Southern California (the university ) and Health Research Association, a wholly owned subsidiary of the University, recorded on the accrual basis of accounting. Subrecipients and Pass-through Funding Certain funds are passed through to subgrantee organizations by the university. Expenditures incurred by the subgrantees and reimbursed by the university are presented in the Schedule. The university is also the subrecipient of federal funds which are reported as expenditures and listed as federal pass-through funds. Negative Balances Amounts reflected as negative balances represent adjustments to prior periods. 2. CFDA Numbers Research and Development ("RD") programs included in the Schedule are presented by federal agency and major subdivision within the federal agency. Pass-through and partial pass-through awards have been presented by pass-through entity and federal identification number or sponsor's award number, when available. When federal identification numbers are not available, federal awards are presented by federal agency number and either RDA (Cooperative Agreement), RDG (Grant), RDC (Contract), or RDS (Subcontract) is utilized for the federal identification number. When the federal agency number is not available, 99 is used. Pass-through entity numbers or sponsor's award numbers that are not available are identified as unknown. 3. Facilities and Administration Rates The predetermined fixed rates for the year ended June 30, 2013 were based on fiscal year 2009 financial information and were reviewed by the Department of Health and Human Services for compliance with applicable cost principles (OMB Circular A-21). For the year ended June 30, 2013, the base Facilities and Administration (Indirect Cost) Rate for oncampus research was 64% of Modified Total Direct Cost ( MTDC ). Off-campus Facilities and Administration Rates were 26% for the Information Sciences Institute ("ISI"), Institute for Creative Technologies ("ICT") and all other off-campus projects. 4. Loan Advances The following schedule represents loans advanced by the university for the year ended June 30, 2013: Federal Perkins Loan Advances (CFDA ) $ 9,825,187 Health Professional Student Loan Advances (CFDA ) 1,778,911 Loans for Disadvantaged Students (CFDA ) 374,458 52

55 Notes to Schedule of Expenditures of Federal Awards 4. Loan Advances (Continued) The Federal Perkins, Health Professional Student Loan Program ( HPSL ) and Loans for Disadvantaged Students are administered directly by the university and balances and transactions relating to these programs are included in the university s consolidated financial statements. The balances of loans outstanding under the Federal Perkins, HPSL and Loans for Disadvantaged Students programs were $53,371,524, $13,279,364 and $1,532,821, respectively, as of June 30, The cancellations related to the Federal Perkins loan program as of June 30, 2013 was $1,138, Administrative Cost Allowance Received Under Loan Program During fiscal year , the university claimed $0 administrative cost allowance from the Federal Supplemental Education Opportunity Grant Program, $400,000 from the Federal Work Study Program, and $125,000 from the Federal Perkins Loan Program. 6. Subrecipient Pass-Throughs Of the federal expenditures presented in the Schedule, the University provided federal awards to subrecipients from the university's research and development cluster as follows: Program Title Amount Provided to Research and Development -- Pass-Throughs CFDA Subrecipients Agency For International Development Agency For International Development 98.RDG $ 167,800 Total - Agency For International Development 167,800 Department of Agriculture National Institute of Food and Agriculture ,900 Total - Department of Agriculture 111,900 Department of Commerce Minority Business Development Agency ,000 National Oceanic and Atmospheric Administration (NOAA) ,721 Total - Department of Commerce 149,721 Department Of Defense Advanced Research Projects Agency ,069 Department Of Defense 12.RDC 9,847,498 Department Of Defense 12.RDG 1,175,463 Department of the Air Force, Materiel Command ,733 Department of the Navy, Office of the Chief of Naval Research ,842,417 53

56 Notes to Schedule of Expenditures of Federal Awards 7. Subrecipient Pass-Throughs (Continued) Program Title Amount Provided to Research and Development -- Pass-Throughs CFDA Subrecipients Invitational Grants for Military-Connected Schools ,846 Office of the Secretary of Defense ,995 U.S. Army Materiel Command ,377 U.S. Army Medical Command ,917 Total - Department Of Defense 16,029,315 Department of Education Department Of Education ,816 Institute of Education Sciences ,900 Office of Postsecondary Education ,820 Office of Special Education and Rehabilitative Services ,732 Total - Department of Education 657,268 Department of Energy Advanced Research Projects Agency - Energy - ARRA ,510 Electricity Delivery and Energy Reliability, Research, Development and Analysis - ARRA ,676 Office of Science Financial Assistance Program ,838 Office of Science Financial Assistance Program - ARRA ,292 Total - Department of Energy 801,316 Department of Health and Human Services Administration for Children and Families ,870 Centers for Disease Control and Prevention ,152 Centers for Disease Control and Prevention ,468 Centers for Medicare and Medicaid Services ,544 Department Of Health And Human Services 93.RDC 271,329 Health Resources and Services Administration ,883 National Institute on Alcohol Abuse and Alcoholism ,038 National Institutes of Health ,329 National Institutes of Health ,568 National Institutes of Health ,770 National Institutes of Health ,644 National Institutes of Health ,766,840 National Institutes of Health ,065 National Institutes of Health ,581 National Institutes of Health ,616 National Institutes of Health ,000 National Institutes of Health ,398 National Institutes of Health ,537,664 54

57 Notes to Schedule of Expenditures of Federal Awards 7. Subrecipient Pass-Throughs (Continued) Program Title Amount Provided to Research and Development -- Pass-Throughs CFDA Subrecipients National Institutes of Health ,329,752 National Institutes of Health ,653,343 National Institutes of Health ,851 National Institutes of Health ,909 National Institutes of Health ,440 National Institutes of Health ,025,092 National Institutes of Health ,737 National Institutes of Health ,020 National Institutes of Health ,968 National Institutes of Health ,272 National Institutes of Health ,288 National Institutes of Health ,825 National Institutes of Health ,572,127 National Institutes of Health ,334,630 National Institutes of Health ,547 National Institutes of Health ,128 National Institutes of Health ,234,108 National Institutes of Health ,132,521 National Institutes of Health - ARRA ,560,198 Office of the Secretary ,228 Office of the Secretary - ARRA ,327 Substance Abuse and Mental Health Services Administration ,309 Total - Department of Health and Human Services 34,984,381 Department of Homeland Security Centers for Homeland Security ,835 Department Of Homeland Security 97.RDC 79,901 Homeland Security Grant Program ,200 Total - Department of Homeland Security 1,027,936 Department of State Bureau of Educational and Cultural Affairs ,000 Total - Department of State 50,000 55

58 Notes to Schedule of Expenditures of Federal Awards 7. Subrecipient Pass-Throughs (Continued) Program Title Amount Provided to Research and Development -- Pass-Throughs CFDA Subrecipients Department of the Interior Department Of The Interior 15.RDC 135,675 U.S. Geological Survey ,070 U.S. Geological Survey ,693 Total - Department of the Interior 1,052,439 Department Of Transportation Department Of Transportation 20.RDG 142,090 Rita Hydrogen ,004 Total - Department Of Transportation 167,093 Environmental Protection Agency Environmental Protection: Consolidated Research ,453 Office of Research and Development (ORD) ,695 Total - Environmental Protection Agency 618,148 Federal Communications Commission Federal Communications Commission 32.RDC 14,726 Total - Federal Communications Commission 14,726 Institute For Museum and Library Conservation Project Support (IMLS) ,277 Total - Institute For Museum and Library 39,277 National Aeronautics And Space Administration National Aeronautics And Space Administration 43.RDC 414,640 National Aeronautics And Space Administration 43.RDG 12,000 Science ,059 Total - National Aeronautics And Space Administration 561,700 National Endowment for the Humanities Promotion of the Humanities-Division of Preservation and Access ,867 Total - National Endowment for the Humanities 89,867 National Science Foundation Biological Sciences ,452 Computer and Information Science and Engineering ,599 Education and Human Resources ,959 Engineering Grants ,461,078 56

59 Notes to Schedule of Expenditures of Federal Awards 7. Subrecipient Pass-Throughs (Continued) Program Title Amount Provided to Research and Development -- Pass-Throughs CFDA Subrecipients Geosciences ,002,665 Office of Cyber Infrastructure ,586 Social, Behavioral, and Economic Sciences ,520 Trans-NSF Recovery Act Research Support - ARRA ,565 Total - National Science Foundation 6,583,424 Total Amount Provided to Subrecipients $ 63,106, Regulatory Updates During fiscal year 2013, the university determined that it had inadvertently over awarded loans and grants for certain nonstandard term programs over the academic years ended June 30, 2011, 2012 and The university notified the Department of Education ( DOE ) and has been working with the DOE to determine the appropriate resolution. In a letter provided to the DOE on October 14, 2013, the university communicated that it estimates that the portion of overpayment to students that will be collected, based upon peer default rates, is approximately $1 million and the university has taken corrective actions to ensure no additional overpayments are made. Although this is not material to the accompanying Schedule of Expenditures and Federal awards or the Student Financial Aid cluster ($548 million of Student Financial Aid disbursed during the year), the matter remains open with the DOE and final resolution has not been determined as of the release of this report. 57

60 Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards To: The Board of Trustees of the University of Southern California We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of the University of Southern California and its subsidiaries, which comprise the consolidated balance sheet as of June 30, 2013, and the related consolidated statement of activities and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated October 9, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered University of Southern California s internal control over financial reporting ( internal control ) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of University of Southern California's internal control. Accordingly, we do not express an opinion on the effectiveness of University of Southern California'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 of Southern California 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. PricewaterhouseCoopers LLP, 601 South Figueroa Street, Los Angeles, CA T: (213) , F: (813) ,

61 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. October 9, 2013

62 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 To: The Board of Trustees of the University of Southern California Report on Compliance for Each Major Federal Program We have audited the University of Southern California and its subsidiaries compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of University of Southern California s major federal programs for the year ended June 30, University of Southern California s major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the University of Southern California s major federal programs based on our audit of the types of compliance requirements referred to above. We did not audit the university s compliance with the requirements governing Student Loan Billing and Due Diligence in Collection compliance requirements specified by the Federal Perkins Loan Program ( Perkins Loan ), Student Status Confirmation Reports specified by the Federal Direct Loan Program ( FD Loan ) and described in the OMB Circular A-133 Compliance Supplement. Compliance with these requirements was audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to university s compliance with those requirements, is based solely on the report of the other auditors. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about University of Southern California s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the University of Southern California s compliance. Opinion on Each Major Federal Program In our opinion, the University of Southern California complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, PricewaterhouseCoopers LLP, 601 South Figueroa Street, Los Angeles, CA T: (213) , F: (813) ,

63 Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with OMB Circular A-133 and which is described in the accompanying schedule of findings and questioned costs as item Finding Our opinion on each major federal program is not modified with respect to these matters. University of Southern California's response to the noncompliance finding identified in our audit is described in the accompanying management s views and corrective action plan. University of Southern California's response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. Report on Internal Control Over Compliance Management of University of Southern California 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 University of Southern California 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 OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of University of Southern California's internal control over compliance. We did not consider internal control over compliance with the Student Loan Billing and Due Diligence in Collection compliance requirements specified by the Federal Perkins Loan Program, Student Status Confirmation Reports specified by the Federal Direct Loan Program and described in the OMB Circular A- 133 Compliance Supplement. Internal control over these compliance requirements was considered by the other auditors referred to above; and our report, insofar as it relates to the university's internal control over those compliance requirements, is based solely upon the reports of the other auditors. 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, we identified a deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item Finding that we consider to be a significant deficiency.

64 The university's response to the internal control over compliance findings identified in our audit is described in the accompanying management s views and corrective action plan. The university s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. February 14, 2014

65 Independent Auditors Schedule of Findings and Questioned Costs For the Section I Summary of Auditor s Results Financial Statements Type of auditor s report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? yes x _ no Significant deficiency(ies) identified that are not considered to be material weaknesses? yes x _ none reported Noncompliance material to the financial statements noted? yes x _ no Federal Awards Internal control over major programs: Material weakness(es) identified? yes x_ no Significant deficiency(ies) identified that are not considered to be material weaknesses? x_ yes none reported Type of auditor s report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A-133? Unmodified x_ yes no Identification of major programs: CFDA Number(s) Various Various Various Dollar threshold used to distinguish between type A and type B programs: Name of Federal Program or Cluster Research and Development Cluster Student Financial Aid Cluster TRIO Cluster $_3,000,000_ Auditee qualified as low-risk auditee? x_ yes no Section II Financial Statement Findings No matters are reportable. 63

66 Independent Auditors Schedule of Findings and Questioned Costs For the Section III Federal Award Findings and Questioned Costs - Federal Awarding Agency: Department of Education - Program names and specific award name: Federal Family Education Loan Program Stafford Loans (subsidized and unsubsidized), FFELP Graduate PLUS Loans, Direct Stafford Loans (subsidized and unsubsidized), Direct Graduate PLUS loans and TEACH Grants. - CFDA #: , , Award #: N/A - Award Years: Academic Years , and Citation 34 CFR section (a-h) Questioned Cost Reference letter dated October 4, 2013 to the Department of Education. Criteria Per 34 CFR section (a-h), an institution calculates the payment period and award amount based upon whether the program has a standard term or a non-standard term. Condition In December 2012, USC s Financial Aid Department identified overpayments of Title IV funds that affected six graduate degree programs as a result of the following: - Use of an incorrect academic calendar to award and disburse Title IV aid for four graduate programs; and - Use of a 30 week academic year for programs that were less than 30 weeks in length. Cause The overpayments were inadvertent and largely the result of inadequate communication among the relevant USC departments. Specifically: - The Financial Aid office was not involved in the curriculum approval process. - Graduate programs were set up with non-standard terms. - There were no controls in place to ensure the timely communication of non-standard terms between the respective Graduate program departments, Registrars Office and Financial Aid office. Effect Title IV funds were not calculated as required by federal guidelines. Certain Title IV funds were calculated using a standard term versus a nonstandard term resulting in an overpayment to over 1,000 students. The overpayments were communicated to the Department of Education as soon as the University identified the issues. Recommendation We recommend that management enhance controls to ensure that programs are in line with the standard terms outlined by the federal guidance. Specifically, the Financial Aid office should be involved in the curriculum approval process to ensure that the University is adhering to standard terms, or that immediate communication occurs when terms are not standard. Management s Views and Corrective Action Plan Management s response is reported in Management s Views and Corrective Action Plan and is considered part of this report. 64

67 Summary of Status of Prior Year Findings For the There are no findings from the prior years that require an update in this report. 65

68 Management s Views and Corrective Action Plan For the 66