INDEPENDENT AUDITORS’ REPORT
Table of Contents131620INDEPENDENT AUDITORS’ REPORTMANAGEMENT’S DISCUSSION AND ANALYSISFINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS54 SCHEDULES OF REQUIRED SUPPLEMENTARY INFORMATIONINSIDEBACK COVERBOARD OF REGENTS AND ADMINISTRATIVE OFFICERSUniversity FactsFISCAL YEAR 2019 FISCAL YEAR 2014 FISCAL YEAR 2009Academic Year2018–2019Academic Year2013–2014Academic Year2008–2009Autumn Enrollment 59,25253,07247,376Professional and Continuing Education– Course and Conference Registrations81,36175,41262,447Number of Degrees ,808 1,579,056 1,385,743 1,146,135STUDENTSFACULTY1FACULTY AND STAFF 2RESEARCH FUNDING – ALL SOURCES (in thousands of dollars)SELECTED REVENUES (in thousands of dollars)Net Patient Service and Other Medical-Related Revenues 2,933,682 2,042,029 1,035,731Gifts, Grants and Contracts1,643,1421,439,9321,149,083Tuition and Fees 41,052,222838,796458,061Auxiliary Enterprises and Other Revenues751,650556,191323,632State Appropriations (Operating)Investment Income SELECTED EXPENSES (in thousands of dollars)Medical-Related 3 2,457,318 1,831,649Instruction, Academic Support, and Student Services2,070,0771,515,4351,278,455Institutional Support and Physical Plant849,930733,194527,998Research and Public Service814,717807,863673,322Auxiliary Enterprises553,511285,561170,602 3,588,000 2,833,000 1,649,00027,32721,83618,036CONSOLIDATED ENDOWMENT FUND 5 (in thousands of dollars)SQUARE FOOTAGE 6 (in thousands of square feet)123456Prior to 2018, this number represents headcount for core faculty (Professorial, Instructional and Research).Starting in 2018, this number represents full time faculty from all campuses including the Medical Centers.Full time equivalents – restated (historically) using centralized data source and enterprise definitionsIncludes Valley Medical Center and Northwest Hospital in 2019 and 2014 onlyNet of scholarship allowances of 159.4 million in 2019, 139.8 million in 2014 and 82.8 million in 2009Stated at fair valueGross square footage, all campuses 778,583
KPMG LLPSuite 29001918 Eighth AvenueSeattle, WA 98101Independent Auditors’ ReportThe Board of RegentsUniversity of Washington:We have audited the accompanying financial statements of the business-type activities and the discretelypresented component unit of the University of Washington (the University), as of and for the years endedJune 30, 2019 and 2018, and the related notes to the financial statements, which collectively comprise theUniversity’s basic financial statements for the years then ended as listed in the table of contents.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordance with U.S. generally accepted accounting principles; this includes the design, implementation, andmaintenance of internal control relevant to the preparation and fair presentation of financial statements that arefree from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express opinions on these financial statements based on our audits. We conducted ouraudits in accordance with auditing standards generally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in thefinancial statements. The procedures selected depend on the auditors’ judgment, including the assessment ofthe risks of material misstatement of the financial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentationof the financial statements in order to design audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, weexpress no such opinion. An audit also includes evaluating the appropriateness of accounting policies used andthe reasonableness of significant accounting estimates made by management, as well as evaluating the overallpresentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouraudit opinions.OpinionsIn our opinion, the financial statements referred to above present fairly, in all material respects, the respectivefinancial position of the business-type activities and the discretely presented component unit of the University ofWashington as of June 30, 2019 and 2018, and the respective changes in financial position and, whereapplicable, cash flows thereof for the years then ended in accordance with U.S. generally accepted accountingprinciples.KPMG LLP is a Delaware limited liability partnership and the U.S. memberfirm of the KPMG network of independent member firms affiliated withKPMG International Cooperative (“KPMG International”), a Swiss entity.
Emphasis of MattersAs discussed in note 1 to the financial statements, the financial statements of the University of Washington, anagency of the state of Washington, are intended to present the financial position, the changes in financialposition, and where applicable, cash flows of only the respective portion of the governmental activities, thebusiness-type activities, each major fund, and the aggregate remaining fund information of the state ofWashington that are attributable to the transactions of the University of Washington and its discretely presentedcomponent unit. They do not purport to, and do not, present fairly the financial position of the state ofWashington as of June 30, 2019 and 2018, the changes in its financial position or, where applicable, its cashflows for the years then ended, in accordance with U.S. generally accepted accounting principles. Our opinionis not modified with respect to this matter.As discussed in note 1 to the financial statements, on July 1, 2017, the University adopted new accountingguidance requiring governments providing postemployment benefits other than pensions (OPEB) to employeesof state and local government employers to recognize the OPEB liability, as well as recognize most changes inthe OPEB liability within benefits expense. Our opinion is not modified with respect to this matter.As discussed in note 1 to the financial statements, on July 1, 2017, the University adopted new accountingguidance requiring governments receiving irrevocable split-interest agreements to recognize assets, liabilities,and deferred inflows of resources at the inception of the agreement. Our opinion is not modified with respect tothis matter.Other MattersRequired Supplementary InformationU.S. generally accepted accounting principles require that the management’s discussion and analysis onpages 3 through 15, and the schedules of required supplementary information on pages 54 through 56, bepresented to supplement the basic financial statements. Such information, although not a part of the basicfinancial statements, is required by the Governmental Accounting Standards Board who considers it to be anessential part of financial reporting for placing the basic financial statements in an appropriate operational,economic, or historical context. We have applied certain limited procedures to the required supplementaryinformation in accordance with auditing standards generally accepted in the United States of America, whichconsisted of inquiries of management about the methods of preparing the information and comparing theinformation for consistency with management’s responses to our inquiries, the basic financial statements, andother knowledge we obtained during our audit of the basic financial statements. We do not express an opinionor provide any assurance on the information because the limited procedures do not provide us with sufficientevidence to express an opinion or provide any assurance.Other InformationOur audits were conducted for the purpose of forming opinions on the financial statements that collectivelycomprise the University of Washington’s basic financial statements. The accompanying information under thetable of contents titled “University Facts” is presented for purposes of additional analysis and is not a requiredpart of the basic financial statements. This information has not been subjected to the auditing proceduresapplied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provideany assurance on it.Seattle, WashingtonOctober 25, 20192
MANAGEMENT’SDISCUSSION& ANALYSISUnaudited – see accompanying notes to financial statementsFINANCIAL REPORT 2019 / 3
MANAGEMENT’S DISCUSSION AND ANALYSISThe discussion and analysis below provides an overview of thefinancial position and activities of the University of Washington(“University”) for the fiscal years ended June 30, 2019 and2018, with comparative financial information for 2017. Thisdiscussion has been prepared by management, and since itincludes highly summarized data, should be read in conjunctionwith the financial statements and accompanying notes tofinancial statements that follow this section.Financial Highlights for Fiscal Year 2019The University recorded an increase in net position of 481 million in 2019. This was very similar to the increase of 490 million recorded in 2018. A decrease in the University’soperating loss of 108 million in 2019 was mostly offset bysimilar decreases in revenue from nonoperating sources. Theincrease in net position for 2018 was offset by a 1.7 billionnet position restatement due to the implementation ofGASB Statement No. 75, resulting in a total net decrease of 1.2 billion for the year. GASB Statement No. 75 changed theway the University reflects costs associated with other postemployment benefits (OPEB).Key Financial Results for Fiscal Years 2019, 2018 and 2017(in millions)Total operating revenuesTotal operating expensesOperating loss201920182017 5,485 5,172 4,8936,064 5,859 5,666(579) (687) (773)State appropriations379362342Gifts166167166Investment income340404442Other nonoperating revenues, net175244185481490362Increase in net positionNet position, beginning of year5,097 6,267 6,053Cumulative effect of accounting changes(described below):GASB 73 – UW SupplementalRetirement pension–GASB 75 – Other post-employment benefits– (1,660)GASB 81 – Split interest agreements–Net position, beginning of year as restatedNet position, end of year– (215)––675,097 4,607 5,905 5,578 5,097 6,267Operating RevenuesOperating revenues increased 313 million, or 6%, in 2019driven primarily by increases in revenue from patient servicesand student tuition. Net patient services revenue increased 127 million, or 6%, due to strong volumes and improvedcommercial payer mix. Revenue from student tuition andfees increased 62 million, or 6%, as a result of operating feeincreases together with growing student enrollment. Revenuegenerated from student housing and food services grew 22 million, or 16%, in 2019 reflecting an increase in rentablebed space and associated food sales from three new residencehalls that were placed in service during the past two fiscal years.Additionally, revenue from other auxiliary sources increased 57 million in 2019, primarily representing fees collected fromHarborview Medical Center to reimburse the University for thecost of strategic projects and shared operational departmentswhich were moved into a shared service model during the year.Operating ExpensesOperating expenses increased 205 million, or 4%, in 2019.An increase in costs associated with employee salaries of 143 million, primarily due to merit increases and a 1% increasein University FTE’s, was partially offset by a 71 million decreasein the cost of employee benefits, primarily due to favorablechanges in the actuarial assumptions used to calculate pensionand OPEB expense. Also contributing to higher operatingexpenses was an increase in the cost of supplies and materialsof 43 million primarily pertaining to patient services, anincrease of 40 million in the cost of purchased services, suchas consulting and contract labor, and an increase of 49 millionin other operating expenses, such as rent expense and claimscosts associated with the University’s self-insurance program.Nonoperating RevenuesRevenues from nonoperating and other sources, net of intereston capital related debt, decreased 117 million, or 10%, in 2019primarily due to a decrease in investment income of 65 millionand a decrease in capital gifts of 106 million. The decreasein capital gifts is primarily the result of an 85 million capitalgift received in 2018 from the Bill & Melinda Gates Foundationfor the University’s Population Health Initiative. The 2019decreases were partially offset by a 40 million increase in giftsto permanent endowments.Changes in Accounting StandardsThe University implemented GASB Statement No. 73,“Accounting and Financial Reporting for Pensions and RelatedAssets That Are Not Within the Scope of GASB Statement 68,and Amendments to Certain Provisions of GASB Statements67 and 68” during fiscal year 2017. This statement changedhow the University reports its obligation for retiree benefitsassociated with the University of Washington SupplementalRetirement Plan (UWSRP). With the adoption of GASBStatement No. 73, unrestricted net position was restated atJuly 1, 2016 by a decrease of 215 million for the differencebetween the beginning total pension liability and the amountpreviously reported as the UWSRP pension liability.The University implemented GASB Statement No. 75,“Accounting and Financial Reporting for PostemploymentBenefits Other Than Pensions” (OPEB) during fiscal year 2018.As a result of implementing Statement No. 75, the Universityrecognized its proportionate share of the state of Washington’sactuarially determined total OPEB liability, deferred inflowsof resources and deferred outflows of resources, and OPEBexpense. Prior to adopting this Statement the University’sfinancial statements did not reflect any OPEB liability orassociated deferred inflows or outflows, and reported OPEBexpense based on cash contributions paid to the OPEB planadministrator. In addition to the reporting changes describedabove, unrestricted net position was restated at July 1, 2017by a decrease of 1.7 billion. Financial results for fiscal years2018 and 2019 reflect application of the accounting changesrequired by Statement No. 75, but those changes were notUnaudited – see accompanying notes to financial statementsUNIVERSITY OF WASHINGTON/ 4
applied to fiscal year 2017 results due to the constraints ofavailable information from the Washington State Office of theState Actuary.The University also implemented GASB Statement No. 81,“Irrevocable Split-Interest Agreements” during fiscal year 2018.This Statement changed the way that governments reflectresources received pursuant to irrevocable split-interestagreements, both at inception and throughout the life of theassociated contract. Specifically, where the University hasa remainder interest in a trust that is also managed by theUniversity, revenues are no longer recognized when the assetis acquired and upon periodic revaluation, but are insteadrecorded as a deferred inflow of resources and recognizedat termination of the contract. This change resulted in therestatement of July 1, 2016 restricted nonexpendable netposition together with an increase in deferred inflows.Additionally, where the University has a lead interest in atrust that is not managed by the University, revenues are nowrecognized both when the asset is received or communicatedto the University, and upon periodic revaluation. These eventswere previously not reflected in the financial statements of theUniversity. This change also resulted in the restatement of July1, 2016 restricted nonexpendable net position, together withan increase in investments. The net impact of implementingthese accounting changes was an increase in beginningrestricted nonexpendable net position of 67 million. Allfiscal years presented in this management’s discussionand analysis reflect application of the accounting changesrequired by Statement No. 81. This is different than the BasicFinancial Statements following this section, which reflect theserestatements applied as of July 1, 2017.The University implemented GASB Statement No. 83, “CertainAsset Retirement Obligations” during fiscal year 2019. AnAsset Retirement Obligation (ARO) is a legally enforceableliability associated with the retirement of a tangible capitalasset. Governments that have legal obligations to performfuture tangible asset retirement activities are now requiredto recognize a liability and offsetting deferred outflow ofresources when these costs are incurred and are reasonablyestimable. The basis of the estimate is the current value ofthe future outlays expected to be incurred, and is adjustedannually for inflation and any changes in relevant factors. Thedeferral is recognized as expense in a systematic and rationalmanner over the life of the tangible capital asset. The liabilityis extinguished as retirement costs are paid. The University’s2015 Decommissioning Funding Plan, prepared in accordancewith Washington Administrative Code 246-235-075, estimateddisposal and clean-up costs related to all radioactive materialsused for research, clinical applications, and education and wasused as the basis for recording the initial ARO liability. Prior toadopting this Statement, the University’s financial statementsdid not reflect any ARO liability or associated deferred outflow,and reported costs associated with these retirement activitiesas expense at the time of asset disposal. Implementationof this Statement resulted in the recognition of a liability of 8 million, deferred outflow of 4 million and amortizationexpense of 4 million in fiscal year 2019.Using the Financial StatementsThe University’s financial statements are prepared in accordancewith GASB principles, which establish standards for externalfinancial reporting for public colleges and universities. GASBstandards require that financial statements be presented on aconsolidated basis in order to focus on the University as a whole.These financial statements include the following components: Independent Auditors’ Report presents an unmodified opinionprepared by our auditors, KPMG LLP. Statements of Net Position present the assets and deferredoutflows of resources, liabilities and deferred inflows ofresources, and net position of the University at a point intime (June 30, 2019 and 2018). Their purpose is to presenta financial snapshot of the University. This statement aidsthe reader in determining the assets available to continuethe University’s operations, how much the University owesto employees and vendors, whether the University has anydeferred outflows or inflows other than assets or liabilities,and provides a picture of net position and its availability forexpenditure by the University. Statements of Revenues, Expenses and Changes in NetPosition present the total revenues earned and expensesincurred by the University for operating, nonoperating andother related activities, during a period of time (the fiscal yearsended June 30, 2019 and 2018). Their purpose is to assess theUniversity’s operating and nonoperating activities. Statements of Cash Flows present cash receipts and paymentsof the University during a period of time (the fiscal yearsended June 30, 201
3 Includes Valley Medical Center and Northwest Hospital in 2019 and 2014 only 4 Net of scholarship allowances of 159.4 million in 2019, 139.8 million in 2014 and 82.8 million in 2009 5 Stated at fair value 6 Gross square footage, all campuses University Facts Table of Contents FISCAL YEAR 2019 Academic Year 2018–2019 FISCAL YEAR 2014 .
1 While we recognize that internal auditors also play an important role in detecting fraud, the focus of our study is on the effectiveness of external auditors. As such, we use the word “auditor” to refer to external auditors of the financial statements.
CERTIFICATES ISSUED BY EXTERNAL AUDITORS GUIDANCE NOTES FOR BENEFICIARIES AND AUDITORS . 2 Introduction These guidance notes have been compiled to guide research beneficiaries and external auditors in the preparation of Certificates on the Financial Statements and on the
through the educational qualification and professional certificates, and objectivity, . and quality factors and audit function as issued by internal and external auditors Institute of Standards consisted of independence, . sample was current external auditors and their number (23) auditors, and potential external auditors and their numbered .
bounds of engagement. Investigative independence: no legitimate source of information is closed to auditors, requiring that auditors have freedom to examine information that auditors themselves deem to be relevant. If auditors wish to examine budgets and forecast accounts, they should be allowed to do so.
Auditors are not effectively trained to detect or recognize fraud. One expert noted that fact patterns suggesting that fraud exists (i.e., fraud schemes) are unfamiliar to many auditors because they have not been trained in this area and because fraud is a rare event. Auditors' lack training in fraud detection methods or fraud investigation
REVISED GUIDE FOR REGISTERED AUDITORS: ACCESS TO WORKING PAPERS Page 5 of 53 This Revised Guide for Registered Auditors: Access to Working Papers (Revised Guide) deals with the circumstances in which registered auditors (auditors) or firms are requested or required to grant access to working papers that support an auditor's opinion, conclusion
safeguards employed by Austraclear is the use of external audi tors. Austraclear' s Internal Audit Department reports directly to its external auditors, KPMG Peat Marwick, who in turn report to Austraclear' s Independent Audit Committee. The external auditors also formally report to all Members (and their auditors) on a quarterly basis.
SUBJECT: 2020 Audit of the Board’s Financial Statements and Internal Control Over Financial Reporting This memorandum transmits the . Independent Auditors’ Report . and . Report on Compliance and Other Matters (Independent Auditors’ Reports), prepared by KPMG LLP, on the Board of Governors of the
