PUBLIC LIBRARYFINANCIAL MANAGEMENT GUIDE
SEPTEMBER 2019Prepared by Yeo & Yeo CPAs & Business Consultants
32019 PUBLIC LIBRARY FINANCIAL MANAGEMENT GUIDE
TABLE OF CONTENTS
Preface Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Chapter 1 Accounting for Libraries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chapter 2 AssetsandDeferredOutflowsofResources . . . . . . . . . . . . . . . . . . . . . 18
Chapter 3 LiabilitiesandDeferredInflowsofResources . . . . . . . . . . . . . . . . . . . . . 21
Chapter 4 Fund Balance / Net Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Chapter 5 RevenuesandExpenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Chapter 6 Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Chapter 7 FinancialReporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter 8 The Audit Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Chapter 9 GrantsandFederalAuditRequirements . . . . . . . . . . . . . . . . . . . . . . . . . 50
Chapter 10 Internal Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Chapter 11 StateCompliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Appendix 1 SampleInternalReporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Appendix 2 SampleExternalReporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Appendix 3 SamplePolicies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Appendix 4 SampleBudget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Appendix 5 SampleRequestforProposalofAuditServices . . . . . . . . . . . . . . . . . . . . 84
Appendix 6 SampleScheduleofExpendituresofFederalAwards(SEFA) . . . . . . . . . 88
Appendix 7 Internal Control Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Glossary GlossaryofTerms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
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PREFACEThePublicLibraryFinancialManagementGuideprovideslibrarydirectors,staff,andBoardmemberswithhelpfulinformationtoperformaccountingandfinancialmanagementfunctions.ThisGuideisintendedtoanswerfrequentlyaskedquestions,describecommonpracticesandprocesses,provideexamplesandsuggestedformatsforselectedfinancialreports,andhelpindividualsrecognizeissuesthatmayrequireoutside assistance .
Asummaryofbasicaccountingtopicsarefoundinthefirstfewchaptersandthendetailedexplanationsofvariousareasinlaterchapters.Further,anattempthasbeenmadetoarrangeeachchaptersuchthatsummaryinformationispresentedwithmoredetailedinformationandexhibitsfollowing.Attheendofeachchapterisalistofresourcesthatmaybeusedforfurtherreferenceorguidance.
ClickablelinksandbookmarksareprovidedthroughouttheGuidetoassistwithnavigationthroughout theentiredocument,whichisoptimizedforelectronicviewinganduse.Itcanalsobeprintedinitsentirety, if desired .
MostlibrarieswithintheStateofMichiganareatypeofgovernmentalentity,andthereforearerequiredtouseaspecializedformofaccountingwhichisdirectedbytheGovernmentalAccountingStandardsBoard(GASB).AlthoughthisGuidehasrelevantinformationforlibrariesofvarioustypesandsizes,themainfocusisongovernmentallibraries.ThisGuideprovidesbasicinformationandisahelpfultool,however,itisnotpossibletocovereveryanticipatedquestionaboutlibraryaccounting,budgeting,andfinancialreporting.Seekassistanceasneededfromyouraccountingandlegaladvisors.
This guide can also be found online at www.michigan.gov/librarymanuals .
About Yeo & Yeo CPAs & Business Consultants
Yeo&YeoCPAs&BusinessConsultantsisaleadingMichiganaccountingfirm.Since1923,Yeo&Yeo’steamofover200industry-specializedaccountantsandconsultantshaveprovidedclientswithforward-thinking,comprehensivesolutionsinaccounting,audit,tax,technology,andbusinessconsulting.Providingservicestogovernmentalentitiessuchaspubliclibrariesisanareaoffocusforthefirm,fromtraditionalaccountingandauditservicestoGASBrequirementsandinternalcontrols,Yeo&Yeocurrentlyservesover220governmentalclientsandperformsover100singleauditsannually.
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About the Authors
Alan D. Panter, CPA, CGFM | Principal
Alanspecializesinauditsandconsultingforstateandlocalgovernmententities,education,andnonprofitorganizations;auditsofemployeebenefitplans;singleauditsunder2CFR200;andinternalcontrolsandproceduresanalysis.Alanisamemberofthefirm’sGovernmentServicesGroupandisaregularpresenteratseminars,conferences,andtrainingeventsthroughoutMichiganaddressingtopicsthataffectgovernmentaudits,reporting,andbudgeting.AlanisbasedinYeo&Yeo’sAuburnHillsoffice.
Jamie L. Rivette, CPA, CGFM | Principal
Jamieleadsthefirm’sGovernmentServicesGroupwithspecializationinauditsofmunicipalities,localschooldistricts,nonprofitorganizations,andsingleauditsunder2CFR200.JamieservesontheGFOACertificateofAchievementforExcellenceinFinancialReporting(CAFR)ProgramSpecialReviewCommitteeandtheMichiganGovernmentalFinanceOfficersAssociationAccountingandAuditingStandardsCommittee.Sheregularlypresentsatseminars,conferences,andtrainingeventsthroughoutMichiganaddressingtopicsthataffectgovernmentaudits,reporting,andbudgeting.JamieisbasedinYeo&Yeo’sSaginawoffice.
Sandra G. Barrera, CPA | Senior Manager
Sandra’sexpertiseisinauditsofmunicipalities,localschooldistricts,colleges,andsingleauditsunder2CFR200,withaspecialtyinauditingtheFederalStudentAidgrantprograms.Sandraisaregularpresenteratseminars,conferences,andtrainingeventsaddressingtopicsthataffectgovernmentaudits,reporting,andbudgeting.SandraisbasedinYeo&Yeo’sAuburnHillsoffice.
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CHAPTER 1 – ACCOUNTING FOR LIBRARIES
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithasimplifiedintroductiontoaccountingprinciplesandfinancialreportingspecifictolibraries.Abriefoutlineofthechapterfollows:
Section 1 – Introduction to Library AccountingSection 2 –GovernmentalAccountingStandardsSection 3 – Basis of Accounting Section 4 – Fund Accounting Section 5 –TypesofAccountingTransactionsSection 6 –DoubleEntryAccountingandJournalEntriesSection 7 –AnnualFinancialStatementsSection 8 –AccountingSoftwareSection 9 –Resources
SECTION 1INTRODUCTION TO LIBRARY ACCOUNTING
LIBRARY TYPESFinancialmanagementandgovernanceoflibrarieswithintheStatevarydependingonhowaparticularlibrarywasestablished.Statelawsgovernhowlibrariesareorganized,levytaxes,issueandpayfordebt,qualifyforstate-sharedrevenue,andperformotherbusinessfunctions,soitisimportantthatthegoverningbodyandmanagementknowhowtheirlibrarywasestablished.RefertotheLibraryLawHandbook and the DistrictLibraryLawHandbookfromtheLibraryofMichiganfordetailedinformationconcerninglegalmattersforthespecifictypeoflibrary.
ThesixdifferenttypesofMichiganpubliclibrariesincludethefollowing:
• District
• City
• Township
• Village
• County
• School District
Additionally,therearethreedifferenttypesofCitylibrariesandtwodifferenttypesofTownshiplibraries:
City
• CityLibrary(createdbyCharter,Resolution,orOrdinance)underCity,Village,andTownshipLibrariesAct–PublicAct164of1877,section1(MCL 397 .201)
• CityLibraryunderCity,VillageandtownshipLibrariesAct–PublicAct164of1877,section10a(MCL 397 .210a)
• HomeRuleCityLibraryunderHomeRuleCityAct–PublicAct279of1909,section4e(MCL 117 .4e)
Township
• TownshipLibraryunderCityVillageandTownshiplibrariesAct–PublicAct164of1877,section10(MCL 397 .210)
• CharterTownshipLibraryunderTheCharterTownshipAct–PublicAct359of1947,section13a(MCL 42 .13a)
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Ifitisunknownhowalibrarywasestablished,pleasecontactthefollowingindividualsforfurtherguidance:
Clare Membiela [email protected] (517)335-8132
Kathy Webb [email protected] (517)335-1514
PURPOSE OF AN ACCOUNTING SYSTEMThepurposeofanaccountingsystemis(a)todisplaythatallapplicablelegalprovisionshavebeencompliedwith;(b)torepresentthefinancialpositionatagivenpointintime(Balance Sheet),and(c)topresenttheresultsoffinancialoperationsofaspecifiedperiodoftime(IncomeStatement).Anaccountingsystemisalsousedtoshowbothcurrentand historical data .
USERS OF LIBRARY FINANCIAL INFORMATION
• Taxpayers
• StateTreasurer/OversightBodies
• Administrative/Finance
• BondRatingAgencies
• Intergovernmental(Grantors)
• Contributors/Creditors
• Management
• Employees(andtheirunions)
FUNCTION OF ACCOUNTINGAccountingismulti-functional,andincludesgathering,recording,analyzing,andpresentingthefinancialinformationofthe Library .
Gather financial information
Financialinformationincludesrevenuereceivedandexpensespaid,generallyintheformoftransactionsandthedocumentationthatsupportsthem.Thissupportingdocumentationisalsoreferredtoassourcedocuments.SourcedocumentsaremaintainedbytheLibraryandallaccountingtransactionscanbetracedbacktothesedocuments.Gatheringofdocumentsprovidesamechanismtocollectinformationsoitcanbeapproved,summarized,andrecorded.
Record financial information
Financialinformationiscommonlyrecordedinageneral ledgerusingautomatedaccountingsoftware(i.e.,QuickBooks,BS&A,Sage,andothers).Itisrecommendedthatyourlibraryuseautomatedaccountingsoftware,thoughtheauthorsofthisguidedonotrecommendtheuseofQuickBooks.Ifforsomereasonyourlibrarycannotutilizeautomatedaccountingsoftware,entrieswillneedtoberecordedinamanualgeneralledger.ThemanualgeneralledgersshouldbemaintainedinMicrosoftExcel©orsimilarspreadsheetstoaidinsummarizationoftotalsandothercalculations.Manualledgersarenotrecommendedandtheuseofaccountingsoftwareisconsideredabestpractice.
Analyze financial information
Analysisoffinancialinformationiscriticaltodecisionmakers.Management,aswellasotherusers,interpretthefinancialdatainvariousformatsdependingonthetypeofdecisionbeingmade.Forinstance,alibrarymaywanttocompareitscashbalancetoprioryearsandthenwillinvestigate,oranalyze,therevenuesandexpenditurescomparativelytodeterminethecausefortheincreaseordecrease.AnotherexamplewouldbeiftheBoardanalyzedfinancialinformationtoexplorewaystoreducespecificcostsinthecurrentyearortoadoptbudgetedamountsforthefollowingyear.
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Present financial information
Financialdataissummarizedinaprescribedformatsothattheinformationisconsistentfromyeartoyearandcomparativetootherlibraries.ConsistentpresentationenablesusersofthefinancialstatementstomakeeffectiveandknowledgeabledecisionsregardingtheLibrary,eveniftheyhavenoothercontactwiththeLibrary’soperationsoremployees.
SECTION 2GOVERNMENTAL ACCOUNTING STANDARDSGovernmentalentities,includinglibraries,arefundamentallydifferentfromfor-profitbusinessesandthusboththeaccountingandfinancialreportingisdifferent.TheGovernmentalAccountingStandardsBoard(GASB)istheprimarystandard-settingbodyandisrecognizedastheofficialsourceofgenerallyacceptedaccountingprinciples(GAAP)forstateandlocalgovernmentalentities.
Inordertomeettheevolvingenvironmentandthechangingneedsoftheusersofgovernmentalfinancialreports,theGASBissuesstandardsandothercommunicationsthatresultinimprovedaccountingandfinancialreportinganddecision-usefulinformation.GASBstandardsandguidancecanbefoundontheirwebsiteatwww.gasb.org .
AccordingtotheGASB,theobjectiveofgovernmentalfinancialreportingshouldprovideinformationtoassistusersin(a)assessingaccountabilityand(b)makingeconomic,social,andpoliticaldecisions.Inordertomeettheseoverallobjectives,theGASBhasissuedthefollowingguidelinesregardingfinancialreporting:
ACCOUNTABILITYFinancialreportingshouldassistinfulfillingagovernment’sdutytobepubliclyaccountableandshouldenableuserstoassessthataccountability.Toaccomplishthisgoal,financialreportingshouldmeetthefollowingcriteria:
• Provideinformationtodeterminewhethercurrentyearrevenuewassufficienttopayforcurrentyearservices.
• Demonstratewhetherresourceswereobtainedandusedinaccordancewiththeentity’slegallyadoptedbudget;itshouldalsodemonstratecompliancewithotherfinancerelatedlegalorcontractualrequirements.
• Provideinformationtoassistusersinassessingtheserviceefforts,costsandaccomplishmentsofthegovernmentalentity.
DECISION-MAKINGFinancialreportingshouldassistusersinevaluatingtheoperatingresultsofthegovernmentalentityfortheyear.Toaccomplishthisobjective,financialreportingshouldalsomeetthesecriteria:
• Provideinformationaboutsourcesandusesoffinancialresources.
• Provideinformationabouthowthegovernmentalentityfinanceditsactivitiesandmetitscashrequirements.
• Provideinformationnecessarytodeterminewhethertheentity’sfinancialpositionimprovedordeterioratedasaresultoftheyear’soperations.
SECTION 3BASIS OF ACCOUNTINGAlibrary’sfinancialstatementscomprisedatageneratedbytheorganization’soperationsduringeachaccountingperiod.Anaccountingperiodisauniformlengthoftime(suchasayear)whichservesasabasisforreportingandanalyzingfinancialperformance.
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Basis of accountingreferstothetimingofwhenrevenuesandexpenditures/expensesarerecognized.Therearethreecommonbasesofaccountingmethods:cashbasis,modifiedaccrual,andfullaccrual.
CASH BASISThe cash basismethodissimilartoacheckbookmethodusedathomeandisgenerallythemostsimplemethod.Manysmallerlibrariesoperateonacashbasis.However,inorderforfinancialstatementstobeincompliancewithGAAP,themodifiedaccrualandfullaccrualaccountingmethodsmustbeused(discussionfollowsinnextsections).Normally,smallerlibrarieswilloperateduringtheyearonacashbasis,thenpostmodifiedaccrualandfullaccrualadjustmentsonlyatyear-end.
• Revenuesarerecordedwhencashisreceived.
• Expensesarerecordedwhencashispaid.
MODIFIED ACCRUAL BASIS InaccordancewithGAAP,themodifiedaccrualbasisofaccountingisrequiredforgovernmentalfunds(seefurtherdiscussioninSection4ofthischapterforadescriptionofgovernmentalfunds).Modifiedaccrualismostcommonlyusedforgovernmentalentities.Thefocusofthemodifiedaccrualbasisisoncurrentfinancialresources .
• Revenueisrecognizedwhenmeasurableandavailable.“Measurable”meanstheamountofthetransactioncanbereadilydeterminedand“available”meanscollectiblewithinthecurrentperiodorsoonenoughthereaftertobeusedtopayforcoststhathavebeenincurredinthecurrentperiod.Thelengthoftimegenerallyusedtodefine“available”forpurposesofrevenuerecognitioninthegovernmentalfundfinancialstatementsis60days.Revenuesgenerallyincludepropertytaxes,stateandfederalaid,andinterestrevenue.Acommontypeofrevenuethatisnotconsideredavailableandshouldnotberecordedasacurrentyearrevenuewouldbeagrantreimbursementthatisnotexpectedtobereceivedwithin60-daysaftertheendofthereportingperiod.
• Expendituresarerecordedwhenincurred,withafewexceptions.“Incurred”meanswhenthegoodsarereceivedortheservicesarerendered,notwhencashispaidnorwhenaninvoiceisreceived.
• Certainlong-termassetsandlong-termliabilitiesarenotrecorded,suchascapitalassetsanddebtobligations.
• Accruals(receivablesandpayables)arerecordedforitemsthatareconsideredearnedorincurred,butpaymenthasnotbeenreceivednormade.Accrualsarerecordedinbalancesheet-typeaccounts.
FULL ACCRUAL BASIS The full accrual basisofaccountingisrequiredforthegovernment-widefinancialstatements. After the accounting recordsoftheindividualfundshavebeencompletedonthemodifiedaccrualbasis,theLibrarywillthenalsopresentgovernment-widefinancialstatementsonthefullaccrualbasis.Thesegovernment-widestatementsarepartofthebasicfinancialstatementsinaccordancewithgovernmentalGAAP.Fullaccrualisthesamebasisthatfor-profitcompaniesuse.Thefocusoffullaccrualbasisisontotaleconomicresources,ratherthancurrentfinancialresources.
• RevenueisrecognizedwhenearnedandtheLibraryhastherighttocollect,regardlessofwhencashorpaymentisreceived.
• Expensesarerecordedwhenincurred,andareallocatedtotheperiodsbenefitted,regardlessofwhenpaymentismade.
• Accrualsarerecordedforitemsthatareconsideredearnedorincurred,butpaymenthasnotbeenreceivednormade.Accrualsarealsorecordedfornon-cashtypeactivitiessuchasaccumulateddepreciationanddeferrals.Accrualsarerecordedinbalance-sheettypeaccounts.
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SECTION 4FUND ACCOUNTINGAfundisaseparatelyidentifiableandindependentaccountingunitwithaself-balancingsetofaccounts.Inotherwords,thesumofdebitsandcreditswithineachfundequalzero.Eachfundiscreatedforthepurposeofcarryingonaspecifictypeofactivity.
TheGASBdefineswhichtypeoffundmustbeusedforcertaintypesofactivitiesandrecommendsthatthefewestfundsaspossiblebeused(GASBStatementNo.54).
Therearethreebroadclassificationsoffunds:governmentalfunds,proprietaryfunds,andfiduciaryfunds.Themostcommonclassificationoffundsusedbylibrariesarethegovernmentalfunds.
GOVERNMENTAL FUNDSGovernmentalfundtypesincludethegeneralfund,specialrevenuefunds,capitalprojectfunds,debtservicefunds,andpermanentfunds.Librarieswillalwaysuseageneralfundandoccasionallyaspecialrevenuefund.DebtserviceorcapitalprojectsfundswillbeusediftheLibraryhasadebtissuanceoralargecapitalproject.Apermanentfundwouldonlybeusedinraresituations.
General Fund
The general fundisthemainoperatingfundoftheLibraryandaccountsforallrevenueandexpendituresthatarenotrequiredtobeaccountedforelsewhere.Thisfundaccountsforthedailyrevenueandexpendituresnecessarytooperateandprovideservicesofalibrary.Inmanycases,thismaybetheonlyfundtheLibrarymaintains.Onlyonegeneralfundispermitted.
Special Revenue Funds
Specialrevenuefundsareusedtoaccountforandreporttheproceedsofspecificrestrictedorcommittedrevenuesourcesinwhichtheexpendituresareintendedtobeusedforspecificpurposes.Inmanycases,theuseofaseparatefundismandatorybecauseoflegalorregulatoryprovisions.Specialrevenuefundsmayincludededicatedaccountingforcertaintaxes,grants,ordonatedfundssothattheactivitywithinthefundisreadilyidentifiableandnotcomingledwithunrelatedorunapproveduses.
Capital Projects Funds
Capitalprojectsfundsareusedtoaccountforandreportfinancialresourcesthataretobeusedforcapitaloutlayexpenditures.Typically,thesefundsareestablishedtoidentifyexpendituresrelatedtoalargeconstructionproject ortotrackthemoneythathasbeensetasideforfuturecapitalneeds.Inmostcases,theuseofcapitalprojectsfundsisoptional.
Debt Service Funds
Debtservicefundsareusedtoaccountforandreportpaymentofprincipal,interestandexpensesinconnectionwithcertainlong-termdebt.Thesefundsarealsousedtoreportaccumulatedfinancialresourcesrelatedtofuturepaymentsofprincipalandinterest.Proceedsfrombondissuesorothertypesofdebtaretypicallyrecordedinthegeneralfundoracapitalprojectfund,dependingonthestipulationsofthedebtissuance.Debtservicefundscannotloanavailableresourcestootherfunds.LeftoverfundsafterabondissueispaidoffmustbeusedtopayfuturedebtorcanbetransferredtotheGeneralFundwithBoardapproval.
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Permanent Funds
Permanentfundsareusedtoaccountforandreportresourcesthatarerestrictedtotheextentthatonlyearnings,andnotprincipal,maybeusedforpurposesthatsupporttheLibrary’sprograms.AnexamplewouldbewhentheLibraryreceivesanendowmentwherebythedonormandatesthatthecorpusremainintact,buttheinterestearnedmaybeusedbytheLibrary.
PROPRIETARY FUNDSProprietaryfundtypesincludeenterprisefundsandinternalservicefunds.Thesetypesoffunds,alsocommonlyreferredtoasbusiness-typefunds,areusedforactivitiesthatareintendedtobeself-sustainingandfundedbyuserfees.Thesetypesoffundsarerarely,ifever,usedbylibraries.
FIDUCIARY FUNDSFiduciaryfundtypesincludepensiontrustfunds,investmenttrustfunds,private-purposetrustfunds,andcustodialfunds(formerlyknownasagencyfunds).
GASB84–Fiduciary Activities,effectiveforlibrarieswithfiscalyear-endsofDecember31,2019andlater,establishescriteriaforidentifyingfiduciaryactivities.
Activitiesthatmeetallofthefollowingattributesareaccountedforinfiduciaryfundsunderthenewstandardandaretobereportedassuch:
• AssetsareheldundercontroloftheLibrary.ControloftheassetsmeansiftheLibraryactuallyholdstheassets or has the ability to direct their use .
• TheactivityisnotsolelybasedontheLibrary’sownsourcerevenues.OwnsourcerevenuesarerevenuesgeneratedbytheLibraryitself,suchaspropertytaxesordonations.
• TheLibraryhasnoadministrativeinvolvementsuchasmonitoringrecipientsforcompliance,determiningeligibility,ordirectfinancialinvolvement.
ActivitiesthatdonotmeetthespecificcriteriaarereportedinotherfundsoftheLibrary,orpotentiallynotreportedat all .
GASB84definesthefourtypesoffiduciaryfundsasfollows:
Pension (and Other Employee Benefit) Trust Funds
Pension(andotheremployeebenefit)trustfundsareusedtoaccumulateresourcestofundpensionandotherpostemploymentbenefit(OPEB)planseitherasdefinedinGASBStatementNo.67and74,respectively,orinaqualifyingtrust.
Investment Trust Funds
Investmenttrustfundsareusedtoreporttheexternalportionofinvestmentpoolsheldinaqualifyingtrust.
Private Purpose Trust Funds
Privatepurposetrustfundsareusedtoaccountforfundsheldinaqualifyingtrustthatarenotrequiredtobereportedinpensionorinvestmenttrustfunds.Thesetypesoffundsareusedforspecificpurposes,suchasanendowment,thatwasoriginallydefinedbythepersonororganizationthatgavethefundstotheLibrary.
Custodial Funds
Custodialfundsareusedtoaccountforandreportfiduciaryactivitiesthatarenotrequiredtobereportedasanotherfiduciaryfundtype.ThistypeoffundwasalsoknownasanagencyfundpriortotheissuanceofGASB84.
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SECTION 5TYPES OF ACCOUNTING TRANSACTIONSThissectiondiscussesanddefinestheprimarytypesofaccountingtransactionsandrelatedrecordsthatareusedtoprovideanaccuratepictureofthefinancialpositionandoperatingresultsofalibrary.Thissectionalsoincludesinformationonhowmostaccountingtransactionsshouldbedocumented.However,thissectionisnotintendedtobeanall-inclusivelistingofaccountingdocumentation.
Themostcommontypesofaccountingtransactionsare:
• Cash Receipts
Cashreceipts(i.e.,fundraising,fines,feesforservices,etc.)shouldbesupportedbyaremittanceadvice,receipt,copyofcheck,orotherappropriatesupportingdocumentation.Alltransactionsshouldincludeatleastthefollowinginformation:
• Datethecashwasreceived
• Nameoftheperson/organizationgiving/payingthecash
• Purposeofthepayment(classification)
• Amountofcashreceived
• Cash Disbursements
Cash disbursements(i.e.,recurringandone-timeexpenses)shouldbesupportedbyaninvoiceandevidenceofreceiptofthegoodsorservices.Exceptforpettycashorcreditcardpurchases,alldisbursementsshouldbeintheformofacheckorelectronicpayment.Alltransactionsshouldincludeatleastthefollowinginformation:
• Dateofthedisbursement
• Nameofthepayee
• Checknumber
• Checkamount
• Purposeordescriptionofthedisbursement(classification)
Pettycashdisbursementsshouldbesupportedbyaninvoiceorreceiptandshouldonlybeusedforsmall,infrequentpurchasesonly.
CreditcardpurchasesshouldonlybemadeinaccordancewiththeLibrary’sadoptedcreditcardpolicyandshouldbesupportedbyreceiptsanddocumentationofthebusinesspurposeofeachtransaction.Note:PursuanttoMCL129.241et.seq.,Districtlibrariesmayobtainorusetheirowncreditcards,however,municipallibrariesmustobtaincreditcardsthroughtheirmunicipality.
• Accounts Receivable
ReceivablesarerevenuesthattheLibraryhasrecognized(earned)butnotyetcollected.Ataminimum,receivablesshouldbesupportedbythefollowinginformation:
• Duedateofthereceivable
• Nameoftheperson/organizationwhoowesthecash
• Purposeofthebilling(classification)
• Amountofcashexpected
AnexampleofthiswouldbeiftheLibrarybilledsomeoneforservicesorareimbursementisexpected.
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• Accounts Payable
PayablesareexpendituresthattheLibraryhasnotyetpaid.Theseshouldbesupportedbyatleastthefollowinginformation:
• Duedateofthedisbursement
• Nameofthepayee
• Amountofthedisbursement
• Descriptionofwhatthepaymentisfor(classification)
• Payroll
Payrollrecordsshouldincludetheemployee’sname,hoursworkedsupportedbyatimesheet(forhourlyemployees),grosspay,deductions,andnetpay.Totalsforapayrollperiodarepostedtoaccountssuchassalariesexpense,federalincometaxwithheld,andcash.
Payrollwillgenerallybeprocessedinyouraccountingsoftwareorbyathirdpartypayrollprovider.Theautomatedpayrollsystemwillgenerallyrecordthosetransactionsautomaticallyintothegeneralledger.Intheeventthatpayrollisprocessedbyathird-partyprovider,ajournalentrywouldhavetobeperformedinthegeneral ledger .
TYPES OF ACCOUNTSTokeeptheLibrary’sfinancialdataorganized,asystemisdevelopedthatclassifiestransactionsintogroupsofrecordscalledaccounts.Whenyouraccountingsystemissetup,thetypesoftransactionsmostlikelytobegeneratedbytheLibrary’sactivitiesareidentifiedandaccountnamesandnumbersarecreated.TheseaccountnamesandnumbersarereferredtoastheLibrary’schartofaccounts(seebelow).Withinthechartofaccounts,thebalancesheetaccountsarelistedfirst,followedbytheincomestatementaccounts.Inotherwords,theaccountsareorganizedasfollows:
Balance Sheet Accounts
• Assets
• DeferredOutflowsofResources
• Liabilities
• DeferredInflowsofResources
• Fund Balance/Net Position
Income Statement Accounts
• Revenues
• Expenditures/Expenses
CHART OF ACCOUNTSAchartofaccountsisanorganizedlistingofallaccountsusedbyalibrarytorecordfinancialinformationinitsgeneralledgerandconsistsofanaccountnumberanddescription.ThechartofaccountsistotheaccountingfunctionaswhattheDeweyDecimalSystemistoalibrary.Itprovidesafoundationforarrangingfinancialdataintousefulandorganizedinformation.Toprovidereliableandconsistentfinancialinformation,itisimperativethatthechartofaccountsbe simpleandfunctional.Accordingly,a“UniformChartofAccounts”hasbeendevelopedbytheStateofMichiganunderPublicAct2of1968,MCL141.421et.seq.,forallMichiganunitsofgovernmentincludingpubliclibraries.TheUniformChartofAccountswasmostrecentlyrevisedin2017.SeetheDepartmentofTreasurywebsitefortherevisedUniformChart of Accounts .
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GENERAL LEDGERThegeneralledgerconsistsofallaccountstheLibraryuses(chartofaccounts)andisusedtoorganizetheaccountingtransactions.Inanautomatedaccountingsystem,postedtransactionswillautomaticallyflowtothegeneralledger.Summarizedaccountbalancesandactivityaregeneratedfromthegeneralledgertocreateatrial balance .
Theaccuracyofthebalancesincertainaccountsshouldbeverifiedviareconciliation.Forexample,thebalanceinyouroperatingcashaccountshouldbereconciledtothecorrespondingbankstatementonamonthlybasis,andthebalancesinreceivablesandpayablesshouldagreewiththebalancesintheirrespectivereceivableandpayableagingreports .
SECTION 6DOUBLE ENTRY ACCOUNTING AND JOURNAL ENTRIES
DOUBLE ENTRY ACCOUNTINGThedoubleentryaccountingmethodrequiresatleastonedebitandonecredittobemadeforeachtransaction.Thedebitsandthecreditsmustequaleachotherintotalforeachtransaction.Thisiscalleda“balanced”transaction.
Generally,thefollowingtypesofaccountsareincreasedusingadebitanddecreasedusingacredit:
• Assets
• DeferredOutflowsofResources
• Expenditures/expenses
Generally,thefollowingtypesofaccountsareincreasedusingacreditanddecreasedusingadebit:
• Liabilities
• DeferredInflowsofResources
• Fund Balance/Net Position
• Revenues
JOURNAL ENTRIESJournalentriesareusedtorecordtransactionsthatdonotoriginateasacashreceipt,cashdisbursement,billing,orinvoice,ortocorrectapreviouslyrecordedtransaction.
Whenmakingjournalentriesitisvitaltoverifythatdebitsandcreditsequaleachother(i.e.theentryisinbalance),thattheentrywasmadeallinthesamefund,andeachlineoftheentrywaspostedonthesamedate.Iftheentrydoesnotbalance,isnotinthesamefund,ornotonthesamedate,anerrorwasmadeandneedstobefixed.Someaccountingsoftwareprogramsverifythatentriesarebalanced,whileothersdonot.
TheLibraryshouldmaintainsupportingdocumentationforalljournalentries,suchas:
• Date of entry
• Journalentryreferencenumber
• Accountnumbersaffected
• Accountnames
• Debitandcreditamounts
• Detailedexplanationofwhytheentrywasmade
• Identificationoftheindividualwhomadetheentry
• Approvalofthejournalentrybyanindividualotherthanwhopostedit
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Therearethreeprimarytypesofjournalentries:
• General Journal Entries
Generaljournalentriesareusedtoaccountforentriesthatarenon-recurringinnatureandarenotprocessedthroughareceiptingorinvoicingprocesswithintheaccountingsystem.Theycanalsobeusedtocorrectorreclassifyentriesthatwerepreviouslymadetoincorrectaccounts.Anexampleofthistypeofentrywouldbetorecordinterestearnedonabankaccount.
• Standard Journal Entries
Standardjournalentriesareusedtorecordrecurringentriesthataremadeatregularintervalsandtothesamegeneralledgeraccountnumber,butmayusedifferentamountseachtimetheyareentered.Anexampleofthistypeofentrywouldbetorecordpayrollaccrualsattheendofeachmonth.Inanautomatedaccountingsystem,thesetransactionscanoftenbesetuptopostautomatically.
• Reversing Journal Entries
Reversingjournalentriesareusedtoreversecertainstandardjournalentriesrecordedinthepriorperiod,ifapplicable.Thisisdonetoavoiddoublecountingcashreceiptsorcashdisbursementsinthefollowingperiod.Reversingentriesaremostoftenusedwithaccrual-typeadjustingentries.
Forexample,attheendofthefiscalyear,theLibrarywillrecordajournalentryfortheaccrualofwagesthatwerepaidsubsequenttoyear-endthatrelatedtothecurrentfiscalyear.Therefore,atyear-endtheLibrarywilldebittheexpenditure(i.e.,salaryexpense)andcreditaccruedwages(i.e.,salariespayable).Onthefirstdayofthenextfiscalyear,theLibrarywillreversethisjournalentrybydebitingsalariespayableandcreditingtheexpenditure.Whenemployeesareactuallypaid,thedebittoexpenseisoffsetbythecreditofthereversingentry,placingtheexpenseintothepriorperiod.
SECTION 7ANNUAL FINANCIAL STATEMENTSThe basic financialstatementsincludethe“balancesheet”,“incomestatement”(tousemorecommonterms),andthenotestothefinancialstatements.Forgovernmentalentities,thebasicfinancialstatementsarepresentedintwodifferentformats–Government-wideFinancialStatementsandFundFinancialStatements.
Belowisarecapofthesimilaritiesanddifferencesbetweenthetwotypesofstatements:
BASIC FINANCIAL STATEMENTSThebasicfinancialstatementsincludethe“balancesheet”,“incomestatement”(tousemorecommonterms),andthenotestothefinancialstatements.Forgovernmentalentities,thebasicfinancialstatementsarepresentedintwodifferentformats–Government-wideFinancialStatementsandFundFinancialStatements.
Belowisarecapofthesimilaritiesanddifferencesbetweenthetwotypesofstatements:
Government-wide Statements
• Full accrual basis of accounting
• Reportsongovernmental-typeactivitiesandbusiness-typeactivitiesintotal,notbyfund
• StatementofNetPosition(balancesheet)
• Includeslong-termassetssuchascapitalassetsandtherelatedaccumulateddepreciation
• Includeslong-termliabilitiessuchasdebt
• EquitybalanceisexpressedasNetPosition
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• StatementofActivities(incomestatement)
• Program-basedpresentationsuchthatexpendituresarematchedtorevenuesoftherespectiveprogramor function
• Generalrevenuesarepresentedseparatelyfromtheprogram-basedrevenues
Fund Financial Statements
• Modifiedaccrualbasisofaccountingforgovernmentalfunds
• Fullaccrualbasisofaccountingforproprietaryfunds
• Reportsbyfundandfundtype
• Balance Sheet
• Doesnotincludelong-termitemssuchascapitalassetsanddebt
• EquitybalanceisexpressedasFundBalance
• StatementofRevenues,Expenditures,andChangesinFundBalance(incomestatement)
TheNotestotheFinancialStatementsexplainingreaterdetailtheitemsthatareonthefaceofthefinancialstatements.Forinstance,thefaceofthefinancialstatementswillshowonelargeamountfordebtobligations,butthenotestothefinancialstatementswilldisplaywhichtypeofdebtobligationsmakeupthattotalwithascheduleoffuturerequiredpayments.
SUPPLEMENTARY INFORMATIONSupplementaryinformationincludestheManagement’sDiscussionandAnalysis,budgetarycomparisonschedules,pensionschedules,otherpostemploymentbenefitschedules,combiningstatements,andanyotherinformationsuchasdebtorcapitalassetschedulestheLibrarymayelecttoinclude.CertainsupplementaryinformationisrequiredinordertobeincompliancewithgovernmentalGAAP.
SECTION 8ACCOUNTING SOFTWAREThereareanumberoffactorstoconsiderwhenselectingaccountingsoftware.Thisistrueforbothlargeandsmalllibraryorganizations.Keystepsinvolvedinselectingaccountingsoftwareincludethefollowing:
• Assess Existing Resources
Determinecurrentresourcesintermsofsoftware,hardwareandfunding.
• Assess User Requirements
Surveyindividualsthatwillbeusingthesoftwaretodetermineneeds/desiresoverthenear-,medium-,andlong-term,volumesoftransactionsinthenear-andlong-term,andexpectationsconcerningthepotentialbenefitstobegainedfromuseofthesoftware.
• Identify Available Software
Identifyavailablesoftwarebysurveyingsimilarorganizations,readingarticlesandsoftwaredirectories,attendingtradeshows,orcontactingconsultants.Makeaninitialdeterminationofpotentialvendors.
• Evaluate Vendors
Forentryormid-level“off-the-shelf”softwarepackages,evaluationofvendorsmaybeaccomplishedbyidentifyingtheperceivedstrengthsandweaknessesofthedifferentpackagesbasedonresearchconducted
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beforemakingafinaldetermination.Forothersoftwarepackages,amoreformalselectionprocessmaybeundertaken.Thiscouldincludedevelopingdetailedsoftwarespecifications,solicitingbidsfrompotentialqualifiedbidders,evaluatingbidresponses,andattendingvendordemonstrationspriortomakingafinaldetermination.Factorstoevaluateinclude,butarenotlimitedtothefollowing:easeofuse,vendorknowledge,stabilityandsupport,flexibility,expandability,security,abilitytotrackneededinformation,andabilitytoaccessneededinformation.
• Implementation
Oncesoftwarehasbeenselectedandpurchased,astrategyshouldbedevelopedforhowtoimplementthesoftware.Establishdatesforaccomplishingspecifictasks.Regularlyreviewprogressofimplementation.Arule-of-thumbistorunboththeoldandnewsystems(runparallelsystems)foraperiodoftimetoensurethatabackupexistsifproblemsoccurwiththenewsystem.Thisistypicallytime-consumingand,therefore,shouldbetakenintoaccountwhenplanningtheimplementation.
SECTION 9RESOURCESLibraryofMichigan–FocusonEstablishmentIssues www.michigan.gov/libraryofmichigan/0,9327,7-381-88855_89735_89755-54452--,00.html
Michigan Public Library Trustee Manual www.michigan.gov/librarymanuals
FactsAboutGASB–Who,What,andWhy? www.gasb.org/jsp/GASB/Document_C/DocumentPage&cid=1176169156708
WhyGovernmentalAccountingandFinancialReportingIs–AndShouldBe–Different www.gasb.org/cs/ContentServer?c=Document_C&cid=1176169371273&d=&pagename= GASB%2FDocument_C%2FDocumentPage
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CHAPTER 2 – ASSETS AND DEFERRED OUTFLOWS OF RESOURCES
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithanunderstandingofcommonassetsanddeferredoutflowsofresourceslibrariesmayhave,aswellasrelatedpoliciesandrequirements.
Section 1 – AssetsSection 2 – DeferredOutflowsofResourcesSection 3 – RelatedPoliciesandRequirementsSection 4 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthisguide,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection3–Basis of AccountingandSection7–Annual Financial Statements .
SECTION 1ASSETSAssetsareresourcesthatalibrarypresentlyhasthecapacitytoutilizethatenablesittoprovideservices.Assetsareclassifiedascurrentornon-currentandarereportedinboththestatementofnetpositionandthegovernmentalfundbalancesheet
CURRENT ASSETSCurrentassetsarethoseassetsthataresoreadilyconvertibletocashorcashequivalentsthattheycanbeusedtosatisfylibraryobligationsduringthecourseoftheupcomingyear.Commoncurrentassetsinclude:
• Cash and cash equivalents:Cashonhandinadditiontomoneyinchecking,savings,moneymarkets,andcertificatesofdeposits(CDs)withoriginalmaturitiesof3monthsorless.
• Investments:CDswithmaturitiesgreaterthan3months,butlessthanoneyear,aswellasothertypesofinvestmentinstrumentssuchasbonds,securities,andotherobligationsoftheUnitedStatesoranagencyoftheUnitedStates,ormutualfunds . Public Act 20 of 1943, MCL 129.91et.seq.regulatestheavailabletypesofinvestments.
• Accounts receivable: Revenuethathasbeenearned,butnotyetcollected.
• Taxes receivable:Similartoaccountsreceivable,taxesreceivablerecognizestaxesthatwereearnedduringthecurrentperiodbutnotyetcollected.
• Due from other governments: Amountscollectedbyothergovernmentsonbehalfofthelibraryandhavebeenearnedbythelibrary,butnotyetreceived.Examplesincludestatesharedrevenueandgrantrevenue.
• Due from other funds:Transactionsthatoccurbetweendifferentfundsofalibrarywhenonefundpaysforanitemthatanotherfundbenefitsfrom,orwhenonefundprovidesservicestoanotherfund.Theseamountsmustberepaidbytheotherfunds.Correspondingly,thebenefittedfundmustrecordthesameamountina“duetootherfunds”account.Allduefromotherfunds(asset)andduetootherfunds(liability)accountsacrossallfundsofthelibrarymustequalzero.
• Prepaid expense:Whencashhasbeenpaidpriortotheexpensebeingincurred.Commonexamplesofrecognitionofaprepaidexpense(“prepaids”)istheprepaymentofliabilityinsurancethatiseffectiveforfuturedatesorpayingforbookspriortotakingpossessionofthem.
• Accrued interest receivable:Interestearnedoninvestments,butnotyetreceived.
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NON-CURRENT ASSETSNon-currentassetsarenotreadilyconvertibletocashorhaveausefullifeofmorethanoneyear.Commonnon-currentassetsinclude:
• Investments:Securities,CDs,bonds,etc.,withmaturitydatesofmorethanoneyear.
• Capital assets:Capitalassetsaretypicallyitemsthatexceedapre-defineddollar-valuethresholdwithausefullifeofmorethanoneyear.TheGovernmentFinanceOfficersAssociation(GFOA)recommendsa$5,000threshold,butthiscanbeadjustedupordownasneeded.Examplesofcapitalassetsincludeland,constructioninprogress,buildings,equipment,landimprovements,worksofart,collections,andvehicles.Capitalassetsarerecordedathistoricalcostandincludesancillarychargesthataredirectlyattributabletotheassetacquisition,suchasfreightandtransportationcharges.
Capitalassetsare“depreciated”overtheasset’susefullife.Inotherwords,depreciationrecordstheexpenseofthecapitalassetbyspreadingthecostofthecapitalassetovertheperiodsthatitbenefits.Inordertocalculateannualdepreciationexpense,thelibrarymustestimatewhattheusefullifeoftheitemis.Theusefullifeisgenerallyexpressedinanumberofyearsandshouldapproximatethelengthoftimetheassetwillbeinuse.Depreciationiscalculatedusingthestraight-linemethod,whichsimplydividesthecostbythenumberofyearstoarriveattheannualdepreciationexpenseamount.Theaccumulateddepreciationexpenseisalsorecorded as a contra-assetaccount.Capitalassets,accumulateddepreciation,anddepreciationexpenseareonlyrecordedonthegovernment-widefinancialstatements,notonfundfinancialstatements.
Librarieshavetheoptiontorecordbooks,periodicals,andotherlibrarymaterialsascapitalassetsortosimplyexpenseeachyear,dependingontheminimumcapitalizationthresholdthatissetbytheBoard.However,theGFOArecommends,asabestpractice,thatcapitalizationthresholdsshouldbeappliedtoindividualassets,notgroupsofassets,unlessdoingsoeliminatesanentireclassofassets,suchaslibrarybooks.Eithermethodisacceptable,butmustbeconsistentlyappliedeachyear.
RESTRICTED ASSETSSometimesalibraryreceivescash,orotheritemsofmonetaryvalue,thatmustbesetasideandusedforaspecificpurpose,primarilytofulfillregulatory,contractual,ordonorrequirements.Amountsthatarerestrictedarerequiredtobeseparatelyidentifiedassuch.Restrictedassetscanbeclassifiedascurrentornon-currentassets,dependingontheir nature .
SECTION 2DEFERRED OUTFLOWS OF RESOURCESDeferredoutflowsofresourcesareaconsumptionofresourcesthatareapplicabletoafutureperiod,andincludestransactionsthatdonotmeetthedefinitionofanasset.Deferredoutflowsofresourcesarereportedinaseparatesectionfollowingassetsinthestatementoffinancialpositionaswellasthegovernmentalfundbalancesheet.Someexamplesofdeferredoutflowsofresourcesare:deferredamountsresultingfrompensionandotherpostemploymentbenefitvaluations,ordeferredchargesrelatedtodebtrefunding.
SECTION 3RELATED POLICIES AND REQUIREMENTSTherearecertainBoardpoliciestheLibraryshouldadoptinassociationwiththeassetslistedabove.TheadoptionofformalpoliciesinthisareadefineshowtheLibraryintendstocomplywithcertainlegalrequirementsordefinefinancialbestpractices.Recommendedpoliciesincludethefollowing:
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INVESTMENT POLICYAsrequiredbyPublic Act 20 of 1943, MCL 129.95,thefollowingareminimumrequirements:
1 . Indicationofthepurpose,scope,andobjectives.Safetyoftheinvestments,diversification,liquidity,andreturnoninvestmentshouldalsobeaddressed.
2 . Delegationofauthoritytomakeinvestments.Inotherwords,whowillberesponsibleformaking investmentdecisions?
3 . Alistingofauthorizedinvestments.TheauthorizedinvestmentsmustcomplywithPublicAct20of1943,however,alibrarycanchoosetobemorerestrictivethanthePublicAct.
4 . Howthelibrarywillensurethesafekeepingandcustodyoftheinvestmentsandtheprudenceofinvestments.
Librarieshavedepositsandinvestmentsthataresubjecttovariousrisks.TheGovernmentalAccountingStandardsBoard(GASB)addressestheserisksthattheyidentifyascreditrisk,interestraterisk,andforeigncurrencyriskinGASBStatementNo.40–Deposit and Investment Risk Disclosures-anamendmentofGASBStatementNo.3.Librariesshouldincludeintheinvestmentpolicythetypeofriskstheyareexposedtoandhowtheriskswillbeaddressed.
CAPITAL ASSET POLICYEachlibraryshouldhaveapolicyindicatingthedollarthresholdwhenanitemthathasausefullifeofmorethanayearisconsideredacapitalassetaswellastheperiodoftimethateachtypeofcapitalassetisdepreciatedover.Purchasedcapitalassetsaretoberecordedathistoricalcostwhiledonatedcapitalassetsarerecordedattheestimatedfairmarketvalueoftheasset.
SECTION 4RESOURCESGASBPronouncements(Statements) www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391
Michigan Legislature Public Act Search Tool www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MclPASearch
MichiganCompiledLaws(MCL)SearchTool www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MCLBasicSearch
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CHAPTER 3 – LIABILITIES AND DEFERRED INFLOWS OF RESOURCES
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithanunderstandingofcommonliabilitiesanddeferredinflowsofresourceslibrariesmayhave,aswellasrelatedpoliciesandrequirements.
Section 1 – LiabilitiesSection 2 – DeferredInflowsofResourcesSection 3 –PensionandOtherPostemploymentBenefitsSection 4 – RelatedPoliciesandRequirementsSection 5 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethisChapterofthisguide,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection3-Basis of AccountingandSection7–Annual Financial Statements .
SECTION 1LIABILITIESLiabilitiesarepresentobligationsofresourcesthatthegovernmenthaslittleornodiscretiontoavoid.Generallytheseareamountsthatareowedtovendors,othergovernments,otherfunds,employees,debtholders,oramountsreceivedfromothersthathavenotyetbeenearned.Aneasywaytothinkaboutliabilitiesisifthelibraryweretocloseonagivenday,whatwouldthelibraryowe,andtowhom.Liabilitiesareclassifiedascurrentornon-currentandarereportedinboththestatementofnetpositionandthegovernmentalfundsbalancesheet.
CURRENT LIABILITIESCurrentliabilitiesareobligationsthatareduewithinoneyearofthelibrary’sfiscalyear-end.Commoncurrentliabilitiesinclude:
• Accounts payable:Goodsandservicespurchasedbythelibrarywherebythelibraryhastakenownershiporreceivedtheservice,buthasnotpaidforthegoodsorservices.ForexampleifaJune30year-endlibraryreceivedrepairservicesonJune15butdoesnotpayfortheservicesuntilJuly15.TheamountowedfortherepairserviceswouldberecordedasaccountspayableasofJune15(andontheJune30financialstatements)becausethatiswhenthelibrary“incurred”theexpense.
• Accrued payroll:Paymentsowedtoemployeesforworkperformed,butnotyetpaid.Forexample,theaccruedpayrollasofJune30wouldincludeallofthewagesthattheemployeeshaveearnedasofJune30,butwillnotbepaiduntilinJuly.Theemployer’sportionofFICA,unemploymenttaxes,workercompensationinsurance,andotherbenefitspertainingtothoseaccruedwagesshouldalsobeincludedasaccruedpayroll.
• Unearned revenue:Paymentsreceivedbythelibraryforgoodsorservicesthatthelibraryhasnotyetprovided.Forexample,ifthelibraryheldaneventthatrequiredticketstobepurchasedaheadoftime,themoneyreceivedfrompatronswouldbe“unearned”untilthelibraryheldtheevent,thusprovidingtheservice.
• Due to other governments:Amountspayabletoothergovernmentsforgoodsorservicesprovidedduringthecurrentfiscalyear.Thisissimilartoaccountspayablebuttheseamountsareduetoagovernmentinsteadofavendor.
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• Due to other funds:Transactionsthatoccurbetweendifferentfundsofalibrarywhenonefundbenefitsfromanitemthatanotherfundpaidfor,orwhenafundreceivesservicesfromanotherfund.Theseamountsmustberepaidtotheotherfunds.Correspondingly,thepayingorservicingfundmustrecordthesameamountina“duefromotherfunds”account.Allduetootherfunds(liabilities)andduefromotherfunds(assets)accountsacrossallfundsofthelibrarymustequalzero.
• Current Portion of Long-term debt:Theportionoflong-termdebtthatisduewithinoneyear.Thisamountispresentedonlyinthegovernment-widefinancialstatements.Seediscussionbelowregardinglong-termdebtunder“Non-CurrentLiabilities.”
• Compensated absences:Theamountofaccruedvacation,sick,orcomp-timeleavethatisestimatedtobepaidoutwithinthenextyear.Thisamountispresentedonlyinthegovernment-widefinancialstatements.Seediscussionbelowregardingcompensatedabsencesunder“Non-CurrentLiabilities.”
• Accrued interest payable:Interestexpensethathasbeenincurredonlong-termdebtforthecurrentyear,butnotpaidasofyet;andispresentedonlyinthegovernment-widefinancialstatements.
NON-CURRENT LIABILITIESNon-currentliabilitiesareobligationsthatarenotduetobesettledwithinoneyearandarepresentedonlyonthegovernment-widefinancialstatements(fullaccrualbasis),notthefundfinancialstatements(modifiedaccrualbasis).Commonnon-currentliabilitiesinclude:
• Long-term debt:Obligationsofthelibrarythathaveamaturitygreaterthan12months.Portionsthatareduewithin12monthsareclassifiedascurrentliabilities.Long-termdebtofalibrarymayconsistofitemssuchasleases,bonds,anticipationnotes,installmentpurchasecontracts,banknotes,aswellasmanyotherformsofborrowing.
• Compensated absences: AmountsowedtoemployeesunderBoardpolicyforunusedvacation,sick,orcomptime,alsoknownaspaidtimeoff.Thelibraryshouldonlyrecordthisliabilityiftheamountsarepayabletoemployeesontermination.Iftheseamountsnevergetpaidoutwhenanemployeeleaves,itisnotaliability.Indeterminingamountsthatarecurrentandnon-current,thelibraryshouldconsidertypicalusagebyemployeesduringtheyear,andconsiderifthereareretirementincentivesoranemployeewithalargebalancewillberetiringintheupcomingyear.
• Net pension liability:Obligationsofthelibraryforretirementbenefitstoemployeesusingadefinedbenefitplan.Thenetpensionliabilityisequaltothetotalpensionliabilitylessanyamountsthathavebeensetasidetofundthebenefits.Thenetpensionliabilityisgenerallycalculatedbyanactuary,unlessanalternativecalculationisperformedby the library . See further discussion in Section 3 .
• Net OPEB liability:Obligationsofthelibraryforpostemploymentbenefitsotherthanpensions(otherpostemploymentbenefitsorOPEB).Mostoftentheseotherpostemploymentbenefitsarehealth-carerelated.ThenetOPEBliabilityisequaltothetotalOPEBliabilitylessanyamountsthathavebeensetasidetofundthebenefits.ThenetOPEBliabilityisgenerallycalculatedbyanactuary,unlessanalternativecalculationisperformedbythelibrary . See further discussion in Section 3 .
SECTION 2DEFERRED INFLOWS OF RESOURCESDeferredinflowsofresourcesareacquisitionsofnetassetsbythegovernmentinoneperiodthatareapplicabletoafuturereportingperiod,andincludestransactionsthatdonotmeetthedefinitionofaliability.Deferredinflowsofresourcesarereportedinaseparatesectionfollowingliabilitiesinthestatementoffinancialpositionaswellasthegovernmentalfundbalancesheet.Someexamplesofdeferredinflowsofresourcesare:deferredamountsrelatingtopensionandOPEBplans,defeaseddebt,orgrantamountsreceivedinadvance(unavailablerevenue).
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SECTION 3PENSION AND OTHER POSTEMPLOYMENT BENEFITS
DEFINED BENEFIT PLANSManylibrariesprovidepensionandotherpostemploymentbenefits(OPEB)totheiremployeesandretireesthroughtheirparticipationindefined-benefitpensionandOPEBplans.Theobligationstoparticipateinthesetypesofplanscanbeeitherthroughunioncontractsordiscretionary.PensionandOPEBplanscantakeseveralforms.Theycanbedirectlyprovidedbythelibraryeitherthroughatrustoronapay-as-you-gobasis(OPEBonly,notpension),participationinanarrangementsponsoredthroughalarger(related)government,orwiththeMunicipalEmployeesRetirementSystem(MERS).SomeDistrictlibrariesthatwerespunofffromschooldistrictsalsoparticipateintheMichiganPublicSchoolEmployeesRetirementSystem(MPSERS).
Whenalibraryoffersthesetypesofbenefits,thereisaneedtoobtainperiodicactuarialvaluationsinordertoproperlymanagetheplansaswellastoprovidefinancialstatementdisclosureinformation.GASBStatements68(Pension)and75(OPEB)providetherelevantfinancialreportingrequirementsforthegovernment-widefinancialstatements–thefund-levelstatementsarenotaffected.GASB68and75areverycloselyrelatedstatements,withmanyoftherelevantrequirementsbeingthesameforboth.Therearealsoadditionalannualreportingrequirements(Form5572)inMichiganimposedbyPublicAct202of2017.
Actuarialvaluationsareestimatesoftheultimatepension/OPEBliabilityandannualfundingrequirementspreparedonthebasisofnumerousassumptionspertainingtoyourplanaswellasparticipantcensusdataprovidedbythelibrary.TheStateofMichiganhasuniformassumptionsthatarerequiredtobeusedforfinancialstatementandForm5572reportingpurposes,butthereisalsosomelatitudethatthelibraryhaswithregardtosettingactuarialassumptionsforinternalpurposesthataremoreapplicabletothespecificbenefitsbeingprovided.Forsmallerlibrariesandplans,thereisanalternativemeasurementcalculationthatcanbeusedinsteadofanactuarialvaluation.Actuariesandauditorscanbegood resources in this area .
ImplementationofGASBStatements68and75verylikelyrequiredlibrariestorecognizeanetpensionand/ornetOPEBliabilityontheStatementofNetPosition,totheextentthatdedicatedfundinglevelswerelessthan100%oftheactuarially-determinedliability.Iffundinglevelsareover100%ofthetotalpensionorOPEBliability,thelibrarywouldrecognizeanassetforthesurplus–howeverthisisnotacommonoccurrence.Theliabilityrecognizedforpension/OPEBiscalculatedbydeterminingthe“total”liability(fromtheactuarialreportoralternativecalculation)andsubtractingfromthatwhatdedicatedassetsareavailabletofundtheobligationgoingforwardtoarriveatthenetamountrecognized.
NetPensionandOPEBliabilitiesaremostlikelymeasured,ordetermined,asofthelibrary’sfiscalorcalendaryear-end,buttherearemanyplansthathavedifferentmeasurementdatesotherthanthefiscalorcalendaryear-end.Forexample,aJune30fiscalyear-endlibrarymayhaveapensionorOPEBplanthatismeasuredasofDecember31.ThisispermissibleperGASB68and75aslongasthemeasurementdateiswithinoneyearofthefiscalorcalendaryearusedforfinancialreportingpurposes.
NetpensionandOPEBliabilitiesalsoverylikelyhavedeferredamountsassociatedwiththemfromseveraldifferentsourcessuchas:
• Contributionsafterthemeasurementdate,ifdifferentfromfiscalorcalendaryear-end
• Excessordeficiencyofactualinvestmentearningsfromanticipated
• Changesinassumptions
• Differencesinactualexperiencefromanticipated
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Thesedeferredamountsarecalculatedeachyear(orreceivedfromtheactuary)andareamortizedintofuturepensionorOPEBexpensefortheannualfinancialstatements.Contributionsafterthemeasurementdatereducepension/OPEBexpenseinthecurrentperiod.Excessordeficientinvestmentearnings(actualearningsorlosscomparedtotheassumedrateofreturn)areamortizedoverfive(5)years.Deferredamountsrelatedtochangesinassumptionsordifferencesinexperienceareamortizedovertheaverageremainingservicelifeofactiveemployees.Independentauditorsoftenassistclientswiththelayeringandcalculationofthesedeferredamounts,butlibrariesshouldreviewthesecalculationscarefullyastheyareultimatelytheresponsibilityofmanagementandnottheauditors.Librariesshouldalsoensurethattheyhavedocumentationofthesecalculationsonhandsotheycanfullysupportallamountspresentedinthefinancialstatements.
Fundingarrangementsforthesebenefitsarevaried,dependingonwhattypeofplanisinplace.Somelibrarieshavededicatedtrustfundsthatareusedtofundbenefits.Trustfundsmustbeirrevocabletrusts,dedicatedtoprovidingpension/OPEBbenefits,andprotectedfromthegovernment’screditors.Pay-as-you-goplansarecommonforOPEBbenefits,thoughtheyarenotallowedinMichiganforpensions.Pay-as-you-goplansonlyfundcurrentbenefitsanddonotsetasideresourcesasthebenefitsareearnedbyemployeesthroughcurrentservice.WiththefundingandreportingrequirementsofPublicAct202of2017,truepay-as-you-goplanscanbeexpectedtodecreaseinnumbersinthefuture.MERSalsoassistsmanygovernmentswiththeirpensionandOPEBplansthroughtraditionalpensionsystemsandalsocustodialservicessuchastheRetireeHealthBenefitFundingVehicleandtheInvestmentServicesProgram.
DEFINED CONTRIBUTION PLANSInrecentyears,thesustainabilityofdefinedbenefitpensionandOPEBplanshascomeintoquestion,causinglibrariesandothergovernmentalunitstoprovidebenefitsusingdefinedcontributionplansfortheiremployeesandretirees.Definedcontributionplansoffertheemployerwithcostcertaintyinthenear-termwithrespecttorequiredfundinglevelsandhelptoavoidthelegacycostsassociatedwithmanydefinedbenefitplans.Fortheemployee,theseplanscanberolledoverfromoneemployer’splantoanother,offeringportabilityandflexibilitytoprovidebenefitsoverthelong-term.
DefinedcontributionpensionplansaresetupasInternalRevenueCode(IRC)section401(a),401(k),403(b),or257deferredcompensationplans.Employeescanoftencontributetotheirownretirementthroughsalarydeferralsandtheemployerwillgenerallymatchthesecontributionsatsomelevel.Employercontributionsareoftensubjecttovestingrequirements,sothatemployeeshavetoworkforapre-definedperiodoftimebeforetheemployercontributionsbecometheirstokeepinthecaseofterminationorretirement.
DefinedcontributionOPEBplansarebecomingmorepopular,especiallywiththepre-fundingrequirementsofcurrentservicecostrequiredbyPublicAct202of2017.Theseplansinvolvesettingasideamountsforindividualemployeesinmuchthesamewayasadefinedcontributionpensionplanwouldinvolve.Employeesmayormaynotbeallowedtocontributetotheplan.Thebenefitsareusuallysubjecttosimilarvestingrequirementsasthepensionsandcanberolledoverasemployeeschangejobs.
SECTION 4RELATED POLICIES AND REQUIREMENTSTherearecertainBoardpoliciesandrequirementsalibraryshouldhaveinassociationwiththeliabilitieslistedabove.Therecommendedpoliciesandrequirementsincludethefollowing:
LONG-TERM DEBT POLICYTherearedifferentlimitationsandrequirementsplacedonthelibrarydependingonthetypeoflibrary,asnoted:
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• District libraries –
• GovernedbyPublicAct265of1988,MCL397.281et.seq.
• Generalobligationunlimitedtaxbondsarenotallowedunlessapprovedbytheelectorsofthelibrarybyamajorityvote
• Bonds,loans,notesarelimitedto5%ofthestateequalizedvaluationofthelibrary’staxableproperty
• City/township/village libraries –GovernedbyPublic Act 164 of 1877,MCL397.201et.seq.
• Townshiplibrariesaresubjecttosamerequirementsastownships
• Township/village libraries –
• GovernedbyPublic Act 5 of 1917,MCL397.321et.seq.
• Bondsmustbeapprovedbyamajorityoftheelectors,subjecttotheRevisedMunicipalFinanceAct(PublicAct34of2001,MCL141.2101et.seq.)
• Bonds(orotherborrowings)maynotexceed1%oftheassessedvaluationofthetownshiporvillage
TheRevisedMunicipalFinanceActrequiresthatbeforealibrarycanissuecertaintypesofdebt,iteithermusthavequalifiedstatus(bysubmittingaqualifyingstatement)orapplytoTreasuryforpriorapprovalifqualifiedstatuswasdenied.TheDepartmentofTreasuryhasupto30businessdays,or6calendarweeks,toevaluateaprior-approvalapplication.The30businessdayreviewperiodbeginsonthedatethatTreasurydeemstheapplication“received,”asopposedtothedatetheapplicationisfiledwithTreasury.TheQualifyingStatementisavailableonlinethroughtheDepartmentofTreasuryandmustbesubmittedonline.
Thelibraryshouldhaveapolicydescribingitsdebtmanagementactivitiesandshouldaddressthescopeandpurposeofallowedborrowing(overallobjective),theintendeduseofdebt(whenappropriateandforwhatpurpose),typesofdebt,debtlimitations,andthedebtstructureandrepaymentterms.Thepurposeofthepolicyistoarticulatethelibrary’sgoalswithrespecttodebt,enhancetheBoard’sabilitytomakedecisions,anddemonstratethelibrary’sfiscalprudenceandresponsibilitytoitspatrons,taxpayers,andpotentiallenders.Debtpoliciesshouldalsoaddressfederal,state,andlocalregulations.
COMPENSATED ABSENCES POLICYEachlibraryshouldhaveapolicydescribingitscompensatedabsences(alsoknownaspaidtimeofforPTO)accrualmethodsandprocedures.Thisincludesidentifyinghowthistimeisearned,carriedoverfromyeartoyear,howitcanbeused,andifthereisapayoutuponleavingorretiring.Dependingonhowthelibraryisformed,thecounty,city,township,etc.,maydeterminethispolicyforthelibrary.
SECTION 5RESOURCESGovernmentalAccountingStandardsBoard(GASB)–StandardsandPronouncements www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391
GovernmentFinanceOfficersAssociation(GFOA)–DebtManagementPolicy www.gfoa.org/debt-management-policy
Michigan Legislature Public Act Search Tool www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MclPASearch
MichiganCompiledLaws(MCL)SearchTool www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MCLBasicSearch
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CHAPTER 4 - FUND BALANCE / NET POSITION
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithabasicunderstandingoffundbalanceandnetposition.Abriefoutlineofthechapterfollows:
Section 1 – Introduction to Fund Balance/Net PositionSection 2 –DeterminingAppropriateLevelsofFundBalanceSection 3 –EvaluatingLevelsofFundBalanceSection 4 –SpecialConsiderationsSection 5 –RelatedPoliciesSection 6 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethisChapterofthemanual,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection4–Fund Accounting,Chapter2–Assets and Deferred Outflows of Resources,andChapter3–Liabilities and Deferred Inflows of Resources .
SECTION 1INTRODUCTION TO FUND BALANCE/NET POSITION
DEFINITIONS
Fund Balance
Fund balanceisthedifferencebetweentotalassetsplusdeferredoutflowsofresourcesandtotalliabilitiesplusdeferredinflowsofresourcesofafund.Fundbalanceappliestothe“fundlevel”reportingofindividualgovernmentalfundsandusesthemodifiedaccrualbasisofaccounting.Fundbalancemeasurestheamountofavailableresourcestobudgetorspendinthefuture.
Net Position
Netpositionisthedifferencebetweentotalassetsplusdeferredoutflowsofresourcesandliabilitiesplusdeferredinflowsofresourcesofthegovernmentalentitytakenasawhole.Netpositionappliesto“government-wide”financialstatements.Thesestatementsutilizethefullaccrualbasisofaccounting.Netpositionmeasurestheextenttowhichthegovernment’staxpayershavepaidthecostofservicesprovidedtodate.
CATEGORIES
Fund Balance
Fundbalanceisclassifiedinfivecategoriesdependingontheconstraintsimposedupontheuseoftheresources(inorderofmostrestrictivetoleastrestrictive):
• Non-spendable –Certainassetsarenotavailableinaspendableform,suchasinventory,prepaidexpenses,andlong-termreceivableswhicharenotexpectedtobeconvertedtocashinthenearfuture.Italsoincludesfundsthatarelegallyorcontractuallyrequiredtoremainintactsuchasthecorpusofadonation,trust,orendowment.
• Restricted –Amountsthatarerequiredbyexternalpartiessuchasbycreditors,grantors,contributors,orlawsandregulationstobeusedforaspecificpurpose.
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• Committed –Amountsforaspecificpurposeandimposedbyaformal action of the library’s highest level of decision making authority(forexample,theBoard).Committedamountscannotbeusedforotherpurposesunlessthesameformalactionremovesorchangesthepurpose.
• Assigned –Amountsintendedforaspecificpurpose,butdoesnotmeetthecriteriaofrestrictedorcommittedbalances.Allpositiveremainingfundbalancesofgovernmentalfunds,otherthanthegeneralfund,arereportedhereaswell.Thelibraryshouldadoptapolicyindicatingwhoisauthorizedtoassignamountsforspecificpurposes,otherwisethisauthorityremainswiththegoverningbody.
• Unassigned –Theremainingfundbalanceofthegeneralfund,andnegativeremainingfundbalancesofallothergovernmentalfunds,aftersubtractingnon-spendable,restricted,committed,andassignedamounts.
Thelastthreecategoriesaretermedasunrestricted fund balancesbecausetheonlyconstraintonspendingisimposedbythelibraryitself.Thistermofunrestrictedfundbalanceisonlyusedindeterminingfundbalancecalculations,notforreportingpurposes.
Net Position
Netpositionofgovernmentwidefinancialreportsisclassifiedamongthreecategories:
• Net investment in capital assets –Thiscomponentconsistsofcapitalassets,netofaccumulateddepreciation,reducedbytheoutstandingbalancesofanydebtthatisattributabletothoseassets.Theportionofdebtattributabletounspentdebtproceedsandanylong-termobligationsnotrelatedtocapitalacquisitionsare not included in this calculation .
• Restricted –Restrictionsonnetpositiongenerallyrefertoconstraintsplacedonthelibrarybythirdpartiesorimposedbylawthroughconstitutionalprovisionsorenablinglegislation.
Majorcategoriesofrestrictionsshouldbedisclosedeitheronthefaceofthefinancialstatementsorinthenotestothefinancialstatements.
• Unrestricted –Unrestrictednetpositionistheremainingamountthatdoesnotmeetthedefinitionoftheothertwocategories.Unrestrictednetpositioncanbepositiveornegative.
Stabilizationamountsthatarenotrestrictedorcommittedforspecificpurposesarereportedasunassignedandunrestricted,butmaybedisclosedinthenotestothefinancialstatements.
SECTION 2DETERMINING APPROPRIATE LEVELS OF FUND BALANCEAdequatelevelsoffundbalanceareessentialtoensurebothcurrentandfuturefinancialneedsaremet,includingthemitigationofunexpectedrevenueshortfallsandunanticipatedexpenditures.Thefocusoffundbalanceistypicallyonthegeneralfundbecausethisiswhereoperatingactivitiesarerecorded.However,itisuptothediscretionofthelibrarytodetermineappropriatebalancelevelsforotherfundsaswell.
Theappropriateleveloffundbalancedependsonmanyfactorsandcircumstancesfortheparticularlibrary,andthereisnoonecorrectamountoffundbalanceforalllibraries.Thelibrary’sgoverningbodyandmanagementteamshoulddeterminetheappropriateminimumandmaximumamounteachyear.SeeChapter6–Budgeting for further discussion .
Eachlibraryshouldconsideritsparticularsituationandcircumstanceswhenevaluatingtheappropriatelevelof fund balance .
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Thelibrary’sdeterminationoftheappropriateamountoffundbalanceshouldbecompletedannuallyduringthebudgetingprocess.Eachlibraryneedstotakeintoconsiderationitsfiscalphilosophyandfutureplans,needs,orsituation,suchas:
• Plannedcapitalassetpurchases
• Paymentofcompensatedabsences(vacationandsicktimeduetoemployees)
• Contingent liabilities
• Lawsuits
• MichiganTaxTribunal(propertytaxvalueprotests)
• Potentialrevenuereductions
• Legal restrictions
• Advanceorunspentearmarkedtaxcollectionsorotherreceipts
• Grantsorcontributions(endowments)
• Workingcapitalneedsbasedonexpenditurepatterns
• Expectationsaboutfutureeconomicconditionsandgovernmentalrevenuesources,suchasstate sharedrevenue
SECTION 3EVALUATING LEVELS OF FUND BALANCEThetermfundbalanceisusedtodescribetheequitypositionofgovernmentalfunds,however,itisalsousedtodescribeameasurementoffinancialresourcesavailable,alsoknownasbudgetaryfundbalance.Budgetaryfundbalance(“fundbalance”)isusuallyexpressedasapercentage.Thecalculationisderivedfromtakingthechosenfundbalanceelementsanddividingthembytheselectedbase.Seediscussionsbelowregardingbudgetaryfundbalanceelementsandbases.
TheGovernmentFinanceOfficersAssociation(GFOA)recommendsthatgovernmentsmaintainanunrestrictedbudgetaryfundbalanceofatleasttwomonths(approximately17%)ofgeneralfundoperatingrevenuesorexpenditures.
Thissectionprovidesguidancefordeterminingtheappropriatefundbalancecalculationbasedonanindividuallibrary’sspecificneeds.
Fund Balance Element Used in Fund Balance Calculation (Numerator)Thecategoriesoffundbalancesusedinthefundbalancecalculationneedtobeassessedtodeterminewhichcategorieswillbeincluded.Fundbalanceelementsusedinthecalculationmaydependonthefollowingassessment ofadequacy:
• Non-spendable fund balanceisnotinspendableformandcannotbeusedtopayforcurrentoperations.Thisfundbalanceisnotrecommendedtobeusedinfundbalancecalculation.
• Restricted fund balanceisrestrictedbyoutsidepartiesandcannotbeusedforotherpurposes.Thisfundbalanceisnotrecommendedtobeusedinfundbalancecalculation.
• Committed fund balanceisanamountthatcanonlybeusedforaspecificpurposethatthegoverningboardofthelibraryimposedbyformalaction.Committedfundbalancecanberemovedorchangedbytakingthesametypeofactionthatthegoverningboardusedtocommitthoseamounts.Thisfundbalancemaybeusedin fund balance calculation .
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• Assigned fund balanceisintendedforaspecificpurpose,typicallydeterminedbymanagement,andcanbere-categorizedatmanagement’sdiscretion.Asaresult,assignedfundbalancecanbeusedtopayforcurrentoperationsifdeemednecessary.Thisfundbalancemaybeusedinfundbalancecalculation.
• Unassigned fund balance is fund balance that has not been assigned to other funds and that has not been restricted,committed,orassignedtospecificpurposes.Itisavailabletopayforcurrentoperations.Thisfundbalanceisalwaysusedinfundbalancecalculation.
Base Used in Fund Balance Calculation (Denominator)Thebaseusedinthefundbalancecalculationiseitherthegeneraloperatingrevenuesorthegeneraloperatingexpendituresofthelibrary.Thelibraryshouldchoosethebasethatisthemostcomparativefromyeartoyearanddependsonwhichismorestableandpredictablefromyeartoyear.Typically,themostusedbaseisgeneraloperatingexpendituresasthesearemorepredictableandcontrollable.
SECTION 4SPECIAL CONSIDERATIONS
FISCAL YEAR AND TAX YEARConsiderationshouldbegiventothelibrary’sfiscalyearinrelationtoitstaxcollectionperiod.Taxrevenuesarerecognizedintheperiodthattheyareintendedtobeusedin,whichissometimesdifferentfromtheyearthetaxislevied.Taxesleviedandnotcollectedinoneyearthatareforthefollowingyear’suseshouldbeclassifiedasareceivableanddeferredinflowsofresources.
FUND BALANCE DEFICITSTheGlennSteilStateRevenueSharingActof1971(1971PA140)requireslibrariestoformulateandfileadeficiteliminationplanintheeventanygovernmentalfundhasadeficitfundbalance.MichiganDepartmentofTreasuryNumberedLetter2016-1-“DeficitEliminationPlans”providesfurtherguidanceandclarifieswhenadeficiteliminationplanisrequiredandhowtodeterminetheamountofdeficittobeeliminated.Ifrequired,thedeficiteliminationplanandcertifiedresolutionsareuploadedonlineathttp://www.michigan.gov/MunicipalFinance .
SECTION 5RELATED POLICIES
FUND BALANCE POLICYLibrariesareencouragedtoestablishaformalfundbalancepolicyforthereportinganduseoffundbalances,aswellasfortheestablishedunrestrictedfundbalancepercentage.Thispolicyshouldprovidebroadguidanceandshouldbesetbytheappropriategoverningbodyofthelibrary.Thepolicyshouldaddressthefollowing:
• Thecircumstancesinwhichunrestrictednetposition/fundbalanceshouldbeappliedwhenexpensesareincurredforpurposesforwhichbothrestrictedandunrestrictedresourcesareavailable
• Whenmultipleclassificationsofnetpositionorfundbalanceareavailableforuse,themostconstrainedresourcesareappliedfirstandthenlessconstrainedresourcesastheyareneeded
■ NetPosition–restrictedwillbeusedfirst,thenunrestricted
■ FundBalance–restrictedorcommittedamountswouldbereducedfirst,followedbyassignedamounts,thenunassignedamounts
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• TheappropriatelevelofunrestrictedfundbalancetobemaintainedintheGeneralFund
• Expressedaseitheraminimumamountorarangebetweenamounts
• Fundbalanceelementsusedinthecalculation
• Basisofcalculation,suchasrevenuesorexpenditures
• Thepolicyforreplenishingdeficiencies
• Considerationshouldbegiventosource(s)offundingandthetimeperiodforreplenishmenttooccur
SeeanexamplefundbalancepolicyatAppendix3 .
SECTION 6RESOURCESGovernmentalAccountingStandardsBoard(GASB)StatementNo.34–BasicFinancialStatements–andManagement’sDiscussionandAnalysis–forStateandLocalGovernments www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176160029121&acceptedDisclaimer=true
GovernmentalAccountingStandardsBoard(GASB)StatementNo.54–FundBalanceReportingandGovernmentalFundTypeDefinitions www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176159972156&acceptedDisclaimer=true
GovernmentFinanceOfficersAssociation–FundBalanceGuidelinesfortheGeneralFund www.gfoa.org/fund-balance-guidelines-general-fund
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CHAPTER 5 – REVENUES AND EXPENDITURES
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithabasicunderstandingofthetypesofrevenuesandexpendituresapplicabletomostlibraries.
Section 1 –RevenuesSection 2 –ExpendituresSection 3 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthemanual,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection5–Types of Accounting Transactions .
SECTION 1REVENUESRevenuesarerequiredtobeclassifiedbymajorrevenuesource(type).Themajorrevenuesourceclassificationsaretaxes,licensesandpermits,intergovernmentalrevenues,chargesforservices,finesandforfeits,andmiscellaneous.Noteverylibrarywillhaverevenueineverycategory.Followingarehighlightsoftherevenuecategoriesthatarecommoninlibraries:
TAXESInmostcases,propertytaxesarethelibrary’slargestsourceofrevenue.Propertytaxrevenueissimplythetaxablevalueofthepropertylocatedwithinthelibrary’sserviceareamultipliedbythemillagerate.
Property tax revenue = Taxable Value X Millage Rate
Thetaxablevalueofapropertyisbasedontheassessedvalueofeachproperty.Theassessedvaluationissetby,andcanbeobtainedfrom,thelocalassessorandisroughly50%ofthefairmarketvalueoftheproperty,ortheamounttheownerwouldexpecttoreceiveifthepropertyweresold.However,thisvalueissubjecttoreviewaseverypropertyownerhastherighttochallengeincreasesinthisassessment.MoreinformationcanbefoundontheMichiganDepartmentofTreasury’swebsiteatwww.michigan.gov/taxes/ .
Realpropertyownedbyindividualsandbusinessesaregenerallysubjecttotaxation.However,propertyownedbypublicentities(federal,state,andlocalunitsofgovernment),religious,andnot-for-profitorganizationsareexempt.Mobilehomesthatresideintrailerparksareexemptsincetheyconstitutepersonalproperty,butrather,a“trailerparkfee”ofthreedollarspermonthispaidinlieuofpropertytaxes.
Themillagerateistheamountoftaxestobepaidperthousanddollarsoftaxablevalue,subjecttoseveralconstitutionalandstatutoryprovisions.
Localgovernmentshavemaximumoperatingmillageratesthatcanbeleviedwithoutvoterapproval.Themaximumrateissetbyeithercharterorstatelawdependingonthetypeofgovernment.Inadditiontothisoperatingmillage,extravotedmillageratesforlibraryoperationsordebtmaybeapprovedthroughaballotproposalprocess(i.e.,voterapproval).SeeMCL 397 .201 and 397 .210 .
Fordistrictlibraries,adistrict-wideoperatingtaxmaynotexceed4mills.Anyportionofthetotaldistrict-widetaxthatexceeds2millscannotbeauthorizedforaperiodexceeding20years.SeeMCL 397 .183 for additional restrictionsandauthorizationsthatapply.
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Additionally,fiftyvotersofacitymaypetitionforataxtobeleviedofupto2millstoestablishafreepubliclibrary.Uponmajorityoftaxpayerapprovalduringthevotingprocess,afreepubliclibrarywillbeformed.SeeMCL 397 .210a for further discussion .
AschooldistrictpubliclibrarymayhaveanestablishedtaxlevyinaccordancewithPublic Act 451 of 1976,MCL380.1451.Thissectionpermitsmillagesthatexistedasof1993tobelevieduntiltheyexpired.After1993nonewmillagescouldbeproposed.Schoolpubliclibrarieswhodonothaveanestablishedmillagepriorto1993,orthatthemillagehasexpired,receivefundingfromtheschoolsystemtheyareaffiliatedwith.
INTERGOVERNMENTAL REVENUEIntergovernmentalrevenuegenerallycomefromthreesources:thefederalgovernment,theStateofMichigan,andlocalmunicipalities.
Federalgovernment–Grantsthatarereceivedfromthefederalgovernmentcancomedirect,orthroughanothergrantingagencysuchastheStateoramunicipality.Theseothergrantingagenciesthatpassalongfederalgrantsarecalledpass-throughagencies.Grantsthatareconsideredfederal,regardlessofwhotheyarecomingfrom,aresubjecttotheOfficeofManagementandBudget(OMB)UniformGuidance.OMB’sUniformGuidancehasstrictrequirementsthatgranteesmustfollow.SeefurtherdiscussionoffederalgrantrequirementsinChapter9–Grants and Federal Audit Requirements.
StateofMichigan-PublicAct89of1977,MCL397.551et.seq.,StateAidtoPublicLibrariesAct,providesstateaidtolibraries.PubliclibrarystateaidisadministeredbytheLibraryofMichigan.TheLibraryofMichiganalsosetstheminimumstandardsandrequirementstobemetinordertoreceivethestateaid,aswellashowtheaidistobeused.Actual state aid received may vary as it is dependent upon appropriations.
• CooperativeLibraries(MCL397.563)
• 50centspercapitafortheirservedpopulation
• PublicLibraries(MCL397.566)
• 50centspercapitafortheirservedpopulation
• PublicLibrariesbelongingtoCooperativeLibraries
• o $10persquaremileiflessthan75peoplepersquaremile
• o Additional50centspercapitatopayforcooperativeservices
• CountyPublicLibrarieswithapopulationof50,000orless
• $4,800annuallytopayfordirector’ssalary
AdditionalinformationabouttheStateAidgrantrequirementscanbefoundontheLibraryofMichigan’swebsite .
Localmunicipalities–UnderMichiganConstitution,ArticleVIII,Section9,revenuefrompenalfinesaretobeusedtosupportpubliclibraries.RevenuefrompenalfinesarecollectedbycountytreasurersanddistributedtolocallibrariesbyAugust1ofeachyear.PenalfinesaregovernedbyPublicAct59of1964,MCL97.31et.seq.Apenalfineisassessedoncertaincriminalinfractions,civilinfractions,andsomelocalordinanceviolations.ForalistofFrequentlyAskedQuestionsaboutpenalfinespleasevisittheLibraryofMichigan’swebsite.
CHARGES FOR SERVICESChargesforservicesconsistoffeesfortheuseoflibraryservicesandmaterials.Thisincludescopyfees,rentalfees,usedbooksales,internetaccessfees,programfees,andnon-residentfees.Notalllibrarieswillchargeforeverythinglistedandsomelibrariesmayhavemoretypesofchargesdependingontheavailabilityofcertainresources.
FINES AND FORFEITURESLatefeesandreimbursementforlostlibrarymaterialsaregenerallyrecordedinthiscategoryofrevenue.
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INTEREST AND RENTSAnyinterestincomeearnedonbankaccountsisrecordedhere.Somelibrariesmayhavepublicspacesthatthegeneralpubliccanrenttouse.Thisrevenuewouldalsoberecordedhere.
DONATIONSCashandnon-cashdonationsreceivedfromdonorsarerecordedasrevenueinthisidentifiedcategory.
OTHERMiscellaneousrevenuethatdoesnotfitintoaclassificationlistedaboveisrecordedhere.Thiscategoryshouldbeusedinfrequently.
SECTION 2EXPENDITURESAtthefundlevel,expendituresareorganizedinthefollowingfunctions:
RECREATION AND CULTURALThemajorityofexpendituresforalibrarywillbeclassifiedandreportedasrecreationandculturalinthefinancialstatements.Withinthisfunctionthelibrarywillgroupexpendituresbyactivityofdepartment.Thefollowingareexamplesofaccountsforexpenditures:
• Personal Services –salariesandwages,perdiem,andfringebenefits
• Supplies –officesupplies,operatingsupplies,maintenancesupplies,andrepairsupplies
• Other Services and Charges –professionalandcontractualservices,communications,transportation,andprintingandpublishing
CAPITAL OUTLAYCapitalOutlayexpendituresresultfromtheacquisitionof,oradditionto,capitalassets.Theamountsintheseaccountsshouldagreewiththecapitalizationpolicyofthelibraryandoftenequaltheadditionstothegeneralcapitalassets records .
DEBT SERVICEDebtserviceexpendituresconsistofthelibrary’sprincipalandinterestpaidonanylong-termdebt.
SECTION 3RESOURCESLibrary of Michigan www.michigan.gov/libraryofmichigan/
StateofMichiganDepartmentofTreasury–PropertyTaxes www.michigan.gov/taxes/
State of Michigan Penal Fines and Public Libraries FAQs www.michigan.gov/documents/mde/lm_2010_PenalFinesandPublicLibrariesfinal_348778_7.pdf
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CHAPTER 6 – BUDGETING
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithabasicunderstandingofthebudgetingprocess.Abriefoutlineofthechapterfollows:
Section 1 –BudgetConceptsSection 2 – Budget ProcessSection 3 –LevelofBudgetaryControlSection 4 –BudgetRequirementsSection 5 –BudgetTimelineSection 6 – Budgetary BasisSection 7 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthemanual,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection3–Basis of AccountingandSection7–Annual Financial Statements.
SECTION 1BUDGET CONCEPTSThebudgetrepresentsanappropriationoffundswhichislegallyrequiredforgovernmentalexpenditures.Managementusesthebudgetasatooltomonitorrevenuesandexpendituresduringtheyearinordertomaintainanappropriateleveloffundbalance,andenablesmanagementtomeetthegoalsandexpectationsofthegoverningbody.Abudgetisalsousedtoassuretaxpayersthatthedirectorsandmanagementarebeingfiscallyprudentwithtaxpayerdollars.
UnderMichiganPublicAct621of1978,MCL141.421et.seq.,theBudgetAct,aresolutionadoptingaformalbudgetmustbeinplaceforeachfiscalyearbeforeagovernmentalunitmayexpendfundsintheGeneralFundorSpecialRevenueFunds.InadditiontomeetingStaterequirements,abudgetalsoensuresthatlibrariesestablishaplanofresourceallocationtomeetthegoalsandserviceexpectationsofthelibrary.Budgetsarenotrequiredforcapitalprojectanddebtservicefunds,however,theycanserveasusefulplanningtoolsforthesefundsaswell,anditisarecommendedpracticetoformallyadoptbudgetsforallfunds.
SECTION 2BUDGET PROCESSTheannualbudgetaryprocessinvolvesfourgenericphases:preparation,adoption,execution,andamendment.
PREPARATIONTheLibraryDirector,orotherdesignee,analyzespastfinancialdataforusefultrends.Theanalyticsareusedtodeterminetheapproximateamountofrevenuesthatthelibraryexpectstoreceiveandtheexpendituresitexpectstoexpendforoperationsandcapitalneeds.Otheritemstobeconsideredforinclusioninthebudgetareanticipatedprojectsorotherknownandanticipatedfactors.Forexample,managementreceivednoticethathealthinsurancerateswillincrease10%.Thisincreaseisanticipatedandwillneedtoberecognizedinthebudgetdocumentspreparedbymanagement.Thefollowingproceduresarerecommendedduringthepreparationphaseinorderfortimelyandcompleteinformationtobeincludedinthebudget:
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• Reviewandupdatethelong-termstrategicplan
• Determineshort-termgoalsandobjectives
• Estimaterevenueneedsandsubmittaxraterequest
• Updatepersonnelscheduleincludingaddedorlostpositions
• Updatepersonnelpayratescheduleincludinganyknownchangesinfringebenefitamounts
• Prepareorupdatethelong-termcapitalspendingplan
Thepreparedbudgetisthenpresentedtothegoverningbodyforreviewandadoption.
ADOPTIONThepreparedbudgetispresentedtothegoverningbodyinapublicmeetingasrequiredbyMichigan Public Act 267 of1976,MCL15.261et.seq.,theOpenMeetingsAct.Thegoverningbodyreviewsthepresentedbudget,requestsmodificationsasdeemednecessary,andgivesfinalapproval.Inmanycases,thegoverningbodydiscussesthebudgetduringaspecialmeetingbeforeofficiallyapprovingthebudgetinaregularmeetingofthebody.FinalapprovalofthebudgetisbyaformalresolutionofthegoverningBoard,wherebytheoriginalbudgetisadopted.
EXECUTIONOncetheoriginalbudgetisadoptedbyformalresolutionofthegoverningBoard,thebudgetisenteredintotheaccountingsystem’sgeneralledgerusingthesameaccountnumbersastheactualaccountingoftransactions.Basically,thebudgetisanothercolumninthegeneralledger.Thisprovidesasnap-shotview,peraccountorclassoftransaction,atanygiventimeintheaccountingsystem.Managementshouldcompareactualexpenditurestobudgetedexpendituresroutinelyinordertomonitorcurrentlevelsofspendingandtohelpmakedecisionsaboutnear-futurespending.
AMENDMENTSManagementshouldcompareactualrevenueandexpenditurestobudgetedamounts,atleastmonthly,todetermineifanyamendmentsarenecessarytothebudget.Actualexpendituresshouldneverexceedbudgetedexpenditures.Ifexpendituresneedtobemadethatarenotbudgetedfor,anamendmenttothebudgetisnecessary.Thisisdonebyaformalresolutionofthegoverningbody,similartotheadoptionprocess.IfactualexpendituresexceedbudgetedexpendituresintheGeneralorSpecialRevenueFunds,thelibraryisconsideredtobeoutofbudgetarycompliance.
SECTION 3LEVEL OF BUDGETARY CONTROLThelevelofbudgetarycontrolishowexpenditureaccountsaregroupedtogetherforcompliance.Thegoverningbodyappropriatesfundsatalevelofbudgetarycontroltheydefine.Differentfundscan,andoftendo,havedifferentlevelsofbudgetarycontrol.Commonlevelsofbudgetarycontrolareby:
• Lineitem–alineitembudgetcontrolsalibrary’sbudgetbyeachgeneralledgeraccount(nota recommendedpractice).
• Activity–anofficeordepartmenttowhichspecificexpendituresaretobeallocated(forexample,financedepartment,circulation,etc.).
• Fund–atotalbudgetforanindividualfund.Budgetingbyfundismostoftenusedforspecialrevenue,capitalproject,anddebtservicefunds.
Allthreelevelsareacceptablemethodsofbudgeting.Cautionshouldbeusedwhenusingthelineitembudgetasitwilllikelyrequiremultiplebudgetamendmentsduringtheyeartomaintaincompliancewiththebudget.Allthemethodsprovidemanagementandthegoverningbodywithaneffectivetooltohelpoperateandmanagethelibrary’sfinances.
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SECTION 4BUDGET REQUIREMENTSInordertocomplywiththeBudgetAct,certainrequirementsmustbemet.TheMichiganDepartmentofTreasury’sUniformBudgetManualforLocalUnitsofGovernmentinMichiganandotheradditionalinformationregardingtheBudgetActmaybeobtainedfromtheMichiganDepartmentofTreasury’swebsiteathttps://www.michigan.gov/treasury.ThefollowingbudgetrequirementsmustbefollowedinordertocomplywiththeBudgetAct:
• BudgetisadoptedforallGeneralandSpecialRevenueFunds,ataminimum(MCL141.436)
• Public hearing is held on the budget
• Thefollowinginformationisincludedinthebudgetdocumentforeachofthebudgetedfunds:
• Actualprioryear(bothrevenueandexpenditures)
• Estimateofcurrentyear(bothrevenueandexpenditures)
• Proposedbudget(bothrevenueandexpenditures)
• Amountsforcontingencies,ifappropriate
• Amountoffundbalance(deficit)accumulatedfromprioryearsandtheestimatedsurplusordeficitexpectedinthecurrentyear
• Anegativefundbalanceisnotbudgeted(beginningfundbalance,plusbudgetedrevenues,lessbudgetedexpenditures,doesnotequalanegativeamount)(MCL141.435and436)
• Allexpendituresareauthorizedinthebudget
• Theexpendituresareequaltoorlessthanamountsappropriated(MCL141.437and438)
• Thebudgethasbeenamendedtoallowexpendituresinexcessoftheoriginalappropriation
SECTION 5BUDGET TIMELINEEachlibraryneedstodeterminethetimelinethatworksbestforitssituation.Asmalllibrarymaynotneedasmuchtimeasalargerlibraryduetofactorssuchasmultiplelevelsofmanagement,quantityofcapitalprojectneeds,ornumberofpersonnelmatters.Thefollowingisanexampleofabudgettimeline:
TIMELINE PROCESS
7 months prior to year-end Library Director (or designee) begins process - set management team’s workshop sessions and submits data request to management team
6 months prior to year-end Budget requests are received from departments and analyzed by management team and an initial preliminary budget is formed
5 months prior to year-end Preliminary budget is prepared by management team and presented to Library Director
4 months prior to year-end Budget Committee or governing body meets in study session to review preliminary budget and make recommended changes, if necessary
2 months prior to year-end Public hearing and final changes proposed
Prior to beginning of fiscal year Governing body adopts budget by resolution (MCL 141.412)
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SECTION 6BUDGETARY BASISTheterm“basisofaccounting”isusedtodescribethetimingofrecognitionorwhentheeffectsoftransactionsoreventsshouldberecognized.Thebasisofaccountingusedforpurposesoffinancialreportingmustbeinaccordancewithgenerallyacceptedaccountingprinciples(GAAP).However,itisnotnecessaryforthesamebasisusedinpreparingthefinancialstatementsbeusedinpreparingthebudgetdocument.Forexample,governmentalfundsarerequiredtousethemodifiedaccrualbasisofaccountinginGAAPfinancialstatements,whereasthecashbasisofaccountingmaybeusedinthosesamefundsforbudgetarypurposes.Ifadifferentbasisisusedforbudgeting,thegovernmentisrequiredtoexplainthedifferencesbetweenthebasesused.
ForthoselibrariesusingabudgetarybasisofaccountingotherthanGAAP,somecommondifferencesareasfollows:
• ThetimingofrevenueandexpendituresmaybedifferentundertheGAAPbasisofaccountingthanunderthebudgetarybasisofaccounting.Forexample,inGAAPaccountingrevenuesarerecognizedingovernmentalfundsassoonastheyareboth“measurable”and“available”,howeverunderthebudgetarybasisofaccounting,thebudgetmaynotrecognizetherevenueuntilamountsareactuallyreceivedincash.
• Budgetaryrevenuesandexpendituresmayincludeitemsclassifiedas“otherfinancingsources”and“otherfinancinguses”undertheGAAPbasisofaccounting.
• Thegovernment’sbudgetdocumentmayhavemultiplefundsbudgetedseparatelythataregroupedtogetherasthegeneralfundfortheGAAPbasisfinancialstatements.
Itisrecommendedthatthebudgetdocumentclearlydefinethebasisofaccountingusedforbudgetarypurposes.Ifthebasisusedforbothbudgetaryandfinancialstatementaccountingarethesame,thisfactshouldbeclearlystated.Ifthebasisusedforthebudgetandthefinancialstatementaccountingaredifferent,themajordifferencesandsimilaritiesbetweenthetwomustbenoted.
AsamplebudgetcanbefoundatAppendix4 .
SECTION 7RESOURCESUniformBudgetManualforLocalUnitsofGovernment www.michigan.gov/documents/UniformBudgetManual_16634_7.pdf
The Budget Act www.legislature.mi.gov/doc.aspx?mcl-Act-2-of-1968
TheOpenMeetingsAct www.legislature.mi.gov/doc.aspx?mcl-act-267-of-1976
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CHAPTER 7 – FINANCIAL REPORTING
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovideageneraloverviewoffinancialreportingforinternalandexternalpurposes.Abriefoutlineofthechapterfollows:
Section 1 –ObjectivesofFinancialReportingSection 2 –InternalReportingSection 3 –ExternalReportingSection 4 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthisguide,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection3-Basis of Accounting,Section4–Fund Accounting,andSection7–Annual Financial Statements.
SECTION 1OBJECTIVES OF FINANCIAL REPORTINGFinancialstatementsaretheendproductoftheaccountingfunction.Theannualfinancialstatementsareoftenusedtocommunicatethelibrary’sactivities,operations,andprogramstodecisionmakers,lenders,governmentagencies,thegeneralpublic,andothersoutsidethelibrary.Financialstatementinformationneedstobewellorganized,timely,andrelevantinordertoprovidevaluetothereaders.
SECTION 2INTERNAL REPORTINGInternalreportingissummarizedfinancialinformationthatisusedbymanagementasameanstomakeinformedfinancialdecisions.FinancialreportsforinternalpurposescanbecreatedinanyformthatmanagementortheBoarddesires.Librariesshouldhaveformal,well-documentedinternalreportingprocessesandprocedures.Internalreportingbestpracticesofteninclude:
• Comparativemonthlyandannualfinancialstatements,includingbudgetandactualamounts,preparedonaconsistent basis
• Explanationofsignificantvariancesbetweenbudgetedandactualamounts
• PeriodicmeetingsbetweenmanagementandtheBoardtoreviewfinancialreports
See Appendix1forsampleinternalreports.
SECTION 3EXTERNAL REPORTINGExternalreportingissummarizedfinancialinformationthatisrequiredtobereportedtooutsidepartiessuchastheMichiganDepartmentofTreasury,taxpayers,creditors,andperhapsthefederalgovernment.AllgovernmentalentitiesinMichiganarerequiredtopreparefinancialstatementsinaccordancewithGenerallyAcceptedAccountingPrinciples(GAAP),aswellasotherspecializedreportsandformsthatmustbesubmittedannually.
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FINANCIAL REPORTING IN ACCORDANCE WITH GAAPThefollowingaretherequiredelementsofafinancialreportthatispreparedinaccordancewithGAAP:
Government-wide Financial Statements
Thegovernmentwidefinancialstatementsarepresentedusingthefullaccrualbasisofaccounting,similartothat ofabusinessornot-for-profitorganization.Thegovernment-widefinancialstatementsarecomprisedofthe followingstatements.
Statement of Net PositionAllassets,liabilities,anddeferredoutflow/inflowsarepresented.Assetsandliabilitiesthatarelong-terminnature,suchascapitalassetsandlong-termdebt,arepresentedinthesestatements.Thestatementincludesgovernmentalactivities(governmentalfunds)andbusiness-typeactivities(proprietaryfunds,whicharelesslikelyforalibrary).
See Appendix2foranexample.
Statement of ActivitiesThestatementofactivitiespresentsthedirectfunctionalexpensesofthelibraryandtheprogramandgeneralrevenuesthatsupportthem.Directexpensesarespecificallyassociatedwithaservice,program,ordepartmentandarethereforeclearlyidentifiabletoaparticularfunction.Programrevenuesareassociatedwithspecificfunctionsandincludechargesforservicesandgrantsandcontributionsthatarerestrictedtomeetingtheoperationalorcapitalrequirementsofthatfunction.Revenuesthatarenotrequiredtobepresentedasprogramrevenuesareclassifiedasgeneralrevenueandarereportedseparatefromthefunctions.Generalrevenueincludesalltaxes,interest,andunrestricted state aid .
See Appendix2foranexample.
Fund Financial Statements
Thefundfinancialstatementsarepresentedusingthemodifiedaccrualbasisofaccounting.Therefore,onlycurrentassetsandliabilitiesarepresented(nolong-termasset/liabilities)andthelibrarywillonlyrecognizerevenuesthatarecollectedwithinapre-definedavailabilityperiodwhichisgenerallysixty(60)daysafteryear-end.Majorfundsandtheaggregatebalancesofnonmajorfundsarepresentedinseparatecolumns.Also,separatefundfinancialstatementsarepresentedforgovernmentalfundandproprietaryfundgroupings.
MajorfundsincludethegeneralfundandallotherfundsthatmeetthecriteriasetforthbyGASBStatement No.34–Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments. Additionally,alibrarymayopttopresentaspecificfundasamajorfund.Allotherfundsnotmeetingthecriteria,oridentifiedbymanagement,areconsiderednonmajorfunds.
Thefundfinancialstatementsarecomprisedofthefollowingstatements:
Balance SheetCurrentassets,currentliabilities,andcertaindeferredoutflow/inflowsarepresented.
Reconciliation of Fund Balances of Governmental Funds to Net Position of Governmental ActivitiesThisreconciliationdescribesallentriesnecessarytoconvertgovernmentalaccountbalancesfromthefundbalancesheet(modifiedaccrualbasisofaccounting)tothegovernment-widestatementofnetposition(fullaccrualbasisofaccounting).Commonreconcilingitemswouldbetheadditionofcapitalassetsandlong-termdebtbalances.
Statement of Revenues, Expenditures, and Changes in Fund BalancesThisstatementpresentscurrentyearactivitiesresultingfromrevenues,expenditures,andotherfinancingsourcesanduses.Accountsthatareforoperatingpurposesofthelibraryareaccountedforintherevenuesandexpenditures
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sectionofthisstatement.Theotherfinancingsourcesandusessectionofthestatementgroupsaccountstogetherthatarenon-operationalinnature,suchasproceedsfromthesaleofassetsortransfers.
Reconciliation of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of ActivitiesThisreconciliationdescribesallentriesnecessarytoconvertcurrentyearoperatingresultsofgovernmentalfundsfromthemodifiedaccrualbasisofaccountingtofullaccrualbasisofaccounting.Examplesofreconcilingitemswouldbeamountspaidforacquiringcapitalassetsandamountspaidforprincipaloflong-termdebt.
Budgetary ComparisonsBudgetarycomparisonsmaybepresentedaspartofthebasicfinancialstatementsorasrequiredsupplementaryinformation(recommendedbytheGFOA).BudgetarycomparisonsarerequiredtobepresentedfortheGeneralFundandeachmajorSpecialRevenueFund.Thebudgetarycomparisonspresentboththeoriginalandfinalappropriatedbudgetsforthereportingperiodaswellasactualrevenues,expenditures,andfundbalances.
See Appendix2forexamples.
Notes to the Financial Statements
Notestofinancialstatementsareadditionalinformationthatexplainspecificitemsaswellasprovideamorecomprehensiveassessmentofthelibrary’sfinancialcondition.Thenotestofinancialstatementspresentbothquantitativeandnarrativeinformationthatisessentialtothefinancialstatementuser’sunderstanding.Therearetwotypesofrequirednotedisclosures:
• Descriptionoftheaccountingmethods,policies,andchoicesunderlyingtheamountsinthefinancialstatements
• Additionaldetailsabout,orexplanationsof,theamountsonthefaceofthefinancialstatements
Required Supplementary Information (RSI)
Budgetary Comparison SchedulesBudgetarycomparisonschedulescanoptionallybepresentedaspartofRSI.Thisisthemostcommonpresentation,however,asnotedabove,theGFOArecommendsthatbudgetarycomparisonsarepresentedaspartofthebasicfinancialstatements.
Management’s Discussion & Analysis (MD&A)TheMD&Aisanarrativeintroduction,overview,andanalysisofthefinancialstatementsthatispreparedbymanagementofthelibrary.Itexplainsthebasicfinancialstatementsandprovidescomparativedataanalysis.Thissectiongivesthelibrary’smanagementanopportunitytoexplainchangesinrevenueorexpendituresintermsthatageneralusercanunderstand,andprovidesdiscussionregardingchangesineconomicfactors,budgetvariances,andfutureplansandexpectations.
See Appendix2foranexample.
Other Supplementary Information (OSI)
OSIisotherinformationpresentedwiththefinancialstatements,suchastherequiredcombiningstatementsfortheaggregationofnonmajorfundsandotherschedulesthatthelibrarydeemsnecessary.
EXTERNAL REPORTING REQUIREMENTS
Audit and Financial Reporting to the State
MichiganPublicAct2of1968,MCL141.421et.seq.,asamended,requiresthateachgovernmentalunit’schief administrativeofficercreateanannualfinancialreportwhichshallbeuniformforalllocalunitsofthesameclass.
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Anelectroniccopyoftheannualfinancialreportisrequiredtobefiledwiththestatetreasurerwithinsix(6)monthsaftertheendofthefiscalyear.SeeMCL 141 .424.Inaddition,theActalsorequireseverylibraryservingapopulationof4,000ormoretohaveanannualaudit,andthoseservingunder4,000tohaveanauditatleasteveryotheryear.See MCL 141 .425.SeeChapter8–The Audit Process,formoreinformationregardingauditsandtheauditprocess.
Pension and OPEB Reporting to the State
PublicAct202of2017,MCL38.2801et.seq,requirespensionandretireehealthcarereportsforretirementsystemstobefiledelectronically,nolaterthansix(6)monthsafteryear-endusingForm5572.Foreachretirementplan,thelocalunitofgovernmentmustreporteachplan’sfundedratio(assets/liabilities),theactuariallydeterminedcontribution(ADC),aswellastheannualgovernmentalfundrevenuesforthefiscalyear.ThisinformationisusedbyMichiganDepartmentofTreasurytodetermineifthepensionand/orOPEBplansareinanunderfundedstatus.ThestateTreasurerhasalsoestablished,asrequiredbyPublicAct202of2017,certainuniformassumptionswhichallowforcomparisonofpensionandOPEBplansacrosstheState.Intheeventtheseassumptionsaredifferentthantheassumptionsintheactuarialvaluationusedforfundingpurposes,twosetsoffundedratiosandcontributionswillberequiredtobereportedtotheMichiganDepartmentofTreasury.Theformusedforreportingcanbefoundathttps://www.michigan.gov/treasury/0,4679,7-121-1751_2194_84499---,00.html.ThecompletedformissenttoLocalRetirementReporting@michigan.gov .
Federal Expenditure Reporting
Specificreportingtothefederalgovernmentisrequiredifasingleauditisperformed.Asingleauditisrequiredifthelibraryexpends$750,000ormoreinfederalassistance.SeeChapter9–Grants and Federal Audit Requirements.
OPTIONAL REPORTINGManylargergovernmentschoosetoissueaComprehensiveAnnualFinancialReport(CAFR).ACAFRisafinancialstatementthatgoesaboveandbeyondtheminimumfinancialreportingrequirementsofGAAPandprovidesadditionalinformationintendedtopromotetransparency.TheGovernmentFinanceOfficersAssociation(GFOA)setsthestandardsgoverningthecontentofaCAFR,submittedtotheCertificateofAchievementforExcellenceinFinancialReportingProgram(CAFRProgram),whichrecognizesindividualgovernmentsthathavemettheprogram’srequirements.ACAFRmustbeauditedbyanindependentauditorandcontainsthreesections:introductory,financial,andstatistical.Thefinancialsectionincludestheauditedfinancialstatements.ThereisnolegalrequirementtoissueaCAFRintheStateofMichigan.
SECTION 4RESOURCESGASB–StatementNo.34 www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391#gasbs50
MichiganDepartmentofTreasury–BulletinsforAuditGuidance www.michigan.gov/treasury/0,4679,7-121-1751_2194-171570--,00.html
MichiganDepartmentofTreasury–UniformReportingFormatBulletin www.michigan.gov/documents/uniformreportingformatmanual_20446_7.pdf
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CHAPTER 8 – THE AUDIT PROCESS
OBJECTIVE/SUMMARYSection 1 –DifferenceBetweenanAuditandAccountingSection 2 –AuditRequirementsSection 3 –TypesofAuditsandOtherAgreementsSection 4 –TypesofAuditOpinionsSection 5 –SelectionofIndependentAuditorSection 6 –PreparationforanAuditSection 7 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthisguide,theusershouldfirstreadChapter1–Accounting for Libraries, withparticularemphasisonSection7–Annual Financial Statements.
SECTION 1DIFFERENCE BETWEEN AN AUDIT AND ACCOUNTING
AUDITAn auditisasetofproceduresperformedtoexpressanopinionastowhetherthefinancialstatementsarepresentedfairlyandinconformitywithgenerallyacceptedaccountingprinciples.Acommonmisconceptionofanauditisthatitisperformedinordertosearchforandtofindfraud,ortofindanyandallmistakesmadebyabookkeeper.Auditsarenotdesignedtodetectfraud,thoughthepossibilityisconsidered,andanelementofmaterialityisusedwhichmeansthatscopesarehigherthanmanymayrealize.
AuditsareperformedinaccordancewithGenerallyAcceptedAuditingStandards(GAAS)andinvolveperformingprocedurestoobtainevidenceabouttheamountsanddisclosuresinthefinancialstatements.Auditevidenceincludesassessmentofinternalcontrols,evaluatingappropriatenessofaccountingpoliciesandestimates,aswellastestingofbalancesandsamplingofvarioustransactions.
Inadditiontosatisfyinglegalrequirements,auditsarealsobeneficialtoalibrarybecausetheyhelpmaintaintheconfidenceofinterestedpartiesrelatingtotheintegrityofthelibrary’srecord-keepingandfinancialreportingandaddcredibilitytothefiscalprudencyofthelibrary.Inaddition,duringthecourseoftheauditthelibrarymayobtainprofessionalguidanceinpreparingfinancialstatementsandadviceondevelopingandmaintainingstronginternalcontrols.Interestedpartiesinclude,butarenotlimitedto,citizens,taxpayers,creditors,stateandfederalgovernments,andlocalofficials.
ACCOUNTINGAccountingistheprocessofidentifying,recording,classifying,andreportinginformationoneconomiceventsinalogicalmannerforthepurposeofprovidingfinancialinformationfordecisionmaking,asdiscussedinthefirstfewchaptersofthisguide.
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SECTION 2AUDIT REQUIREMENTS
REQUIREMENTMichigan Public Act 2 of 1968,MCL141.421et.seq.,asamended,requiresthateachgovernmentalunitservingapopulationof4,000ormorehaveanannualaudit.Librariesservingapopulationofunder4,000musthaveanauditatleasteveryotheryear,however,annualauditsarestronglyrecommended.ReferspecificallytoMCL 141 .425.Non-governmentallibrariesmaybesubjecttoauditsasrequiredbygoverningbylawsorotherauthoritativedocuments.
LibrariesthatreceivefederalfundingmayalsorequireasingleauditinaccordancewiththeOMB’sUniformGuidance(2CFR200,subpartF).SeeChapter9–Grants and Federal Audit Requirements for further discussion .
DISTRIBUTIONAuditedfinancialstatementsforgovernmentlibrariesareconsideredpublicrecordsandaretobedistributeduponrequest.Otherdistributionsinclude:
• Libraryboardand/orauditcommittee-required
• StateofMichiganLocalAuditandFinanceDivisionoftheDepartmentofTreasury-required
• TheLibraryofMichigan–requiredifthelibraryreceivedanLSTAgrantthroughtheLibraryofMichiganandasingleauditisperformed
• FederalAuditClearinghouse–requiredifasingleauditisperformed
• PostedontheLibrary’swebsite–optional,butrecommended
SECTION 3TYPES OF AUDITS AND OTHER AGREEMENTS
FINANCIAL STATEMENT AUDITA financialstatementauditprovidesreasonableassurancethatthefinancialstatementspresentfairlythefinancialpositionandresultsofoperationsinconformitywithgenerallyacceptedaccountingprinciples.
Componentsofafinancialstatementauditincludethefollowing:
• Considerationofthelibrary’sinternalcontrols
• Examinationofevidencesupportingtheamountsanddisclosuresinthefinancialstatements
• Anopinionexpressedregardingwhetherthefinancialstatementsarefreeofmaterialmisstatement
SINGLE AUDIT
Asingleaudit,pertheSingleAuditAct,isrequiredwhenanentityexpends$750,000ormoreoffederalawardsinthereportingyear.SingleauditsareperformedundertheCodeofFederalRegulations(2CFR200),commonlyreferredtoastheUniformGuidance.MoredetaileddiscussionregardingsingleauditscanbefoundinChapter9–Grants and Federal Audit Requirements.
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Componentsofasingleauditincludethefollowing:
• Performanauditofthefinancialstatementsandscheduleofexpendituresoffederalawards(SEFA)inaccordancewithGovernmentAuditingStandards(GAS)asprescribedinthe“YellowBook”,issuedbytheGovernmentAccountabilityOffice.
• Determinewhetherthescheduleofexpendituresoffederalawardsispresentedfairlyinrelationtothefinancialstatementsasawhole.
• For“majorprograms”(determinedbytheauditorusingaprescribed,risk-basedapproach),obtainanunderstandingofinternalcontrolsrelatingtothecompliancerequirementsestablishedortheprogramandperformtestofcontrols.
• Expressanopiniononwhetherthelibraryhascompliedwithgrantagreementrequirements.
• Expressanopiniononcompliancewiththerequirementsofallmajorprogramsandreportontheinternalcontrolsoverthosecompliancerequirements.
FRAUD EXAMINATIONAnoptionaltypeofservicethatthelibrarymaywanttohaveperformedisafraudexamination.Thisistypicallyperformedwhenfraudhasoccurredorhasbeensuspected.AfraudexaminationisaspecializedserviceandtypicallyperformedbyeitheraCertifiedPublicAccountant(CPA)oraCertifiedFraudExaminer(CFE).
AGREED-UPON PROCEDURESAnotherservicethatalibrarymaywanttohaveperformedisanagreed-uponprocedure(AUP).Thisisnotanauditbecauseanopinionisnotprovidedbytheauditor,butratheritisaprocedure,orlistofprocedures,thatthelibraryrequeststobeexamined.Theproceduresareperformedandreportedonbytheengagedprofessional.CommonAUPsthatareperformedarereviewsofinternalcontrolsprocessesincludingcashcollectionpoints,purchasingprocedures,disbursementprocedures,orpayrolltesting.
SECTION 4TYPES OF AUDIT OPINIONSTheendresultoftheauditprocessistheopinionthatisexpressedbytheauditor.Therearefourdifferentopinionsthatcanbecommunicatedintheauditor’sreportbasedupontheauditevidenceobtained:
• Unmodified
• Qualified
• Adverse
• Disclaimer
Unmodified OpinionAnunmodifiedopinionisalsoknownasa“clean”opinion,itisthebestopinionthatcanbereceived,thehighestlevelofassuranceanauditorwillgive.Anunmodifiedopinionmeansthattheauditor’sreportwasnotmodifiedsuchasthequalified,adverse,ordisclaimerreportsdiscussedbelow.Anunmodifiedopiniondenotesthatthefinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionandtherespectivechangesinfinancialpositioninaccordancewithGenerallyAcceptedAccountingPrinciples(GAAP).
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Qualified OpinionAqualifiedopinionisexpressedbytheauditorwhenthereisamattersuchasanaccountingmethodthatdidnotfollowGAAPoralimitationinthescopeoftheaudit.Theauditor’sreportwillcontainaparagraphthatdescribesthereasonforthequalification.Theopinionstatesthat,exceptfortheeffectsofthematterstowhichthequalificationrelates,thefinancialstatementspresentfairlyinallmaterialrespectsinaccordancewithGAAP.
Adverse OpinionAnadverseopinionisthemostunfavorableopinionalibrarycanreceive.ThisopinionisreceivedwhenthefinancialstatementsarenotinaccordancewithGAAP,orotherprescribedandacceptedaccountingmethods,andaremisstated.Alibrarythatreceivesanadverseopinionwillberequiredtocorrectthefinancialstatementsandhavethemre-audited.
Disclaimer OpinionAdisclaimerofopiniondoesnotexpressanopiniononthefinancialstatements.Inotherwords,theauditordoesnothaveanadequatebasisforanopinionanddoesnotgiveassurancewhetherthefinancialstatementsarefairlystated.Thistypeofopiniongenerallyariseswhentheauditorisnotindependentofthelibraryorhasbeenunabletoobtainsufficientevidenceonwhichtobaseanopinion.
SECTION 5SELECTION OF INDEPENDENT AUDITORImportantelementsoftheauditprocessareunderstandingtheimportanceofhiringaqualityauditortoperformyourfinancialstatementaudit,evaluatingauditorqualifications,andperformingtheproposalprocessandselection.
ESTABLISHING AN AUDIT POLICYLibraryboardsshoulddevelopapolicyastothequalificationsthattheauditormusthave,howtheauditorwillbeselected,andhowoftenreassessmentoftheauditservicewilloccur.
Identifying Potential and Qualified Auditors
Auditorsofgovernmentalentities,suchaslibraries,areveryspecializedandarerequiredtofollowadditionalgovernmentalauditrequirementsandaddedtrainingrequirements.Governmentalauditorsgothroughapeerreviewprocesswherebytheauditorisauditedeverythreeyears.Aspartofthepolicy,itshouldbeestablishedthatthepeerreviewletterbeobtainedandthattheauditorreceivedareportgradeofpassontheirlastpeerreview.PeerreviewresultscanberequestedfromtheauditororobtainedontheAICPA’sPeerReviewPublicFileSearchwebsite.
Criteria for Selection
Thelibraryboardshouldincludeintheauditpolicyhowtheselectionprocesswilloccur.Priortothestartoftheselectionprocess,management,orthegoverningboard,shouldidentifyanddeveloppreliminarycriteria.Oftentimesagradingsheetisdevelopedwitheachidentifiedareahavingarangeofscoresthateachselectionparticipantcanevaluateandcomparepotentialauditorson.Selectionoftheauditorshouldbebasedonexperienceandprofessionaldevelopment,quality,independence,licensing,andthewillingnesstoservethelibrary.
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Criteriaforselectinganauditorshouldincludethefollowing:
• Experienceandprofessionaldevelopment
• Firmandstaffhaveexperienceauditinglibrariesandothergovernmentalentities
• Personalabilitiesofengagementstaff(perceivedabilitytorelateandworkwellwithlibrarystaff)
• Abilityofengagementstafftoaccessotherresourcesalibrarymayneed(specialists,consultants,referencematerials,etc.)
• Quality
• Thefirmiscommittedtoquality
• FirmprovidesitslatestPeerReview
• FirmisamemberoftheAICPA’sGovernmentalAuditQualityCenter(GAQC)whichrequiresahigherstandardofauditqualityintheirpoliciesandprocedures
• Obtainreferencesanddiscussauditor’swork
• Independence
• Auditorisindependentinappearanceandfact
• AuditorisindependentinaccordancewithGASifperformingaYellowBookorsingleaudit
• Licensing
• Auditororauditfirmislicensed in the State of Michigan
Reassessment of Audit Services
Anauditpolicymayalsoincluderequirementstoreassessauditservicesperiodically.ItiscommonforBoardstorequirethelibrarytorequestnewauditserviceproposalseverythreetofiveyears.ItisalsocommonforBoardstoallowmanagementtodetermineitssatisfactionwiththecurrentauditoronanannualbasis.Eitherway,itisrecommendedthattheauditpolicyprescribethemethodofreassessment.
METHODS FOR OBTAINING QUOTES FOR PROFESSIONAL SERVICESMethodsforobtainingquotesforprofessionalservices,includingaudits,varyamonglibraryorganizationsanddependontheprocurementpoliciescurrentlyinplaceassetbytheBoard.Manygovernmentandnot-for-profitorganizationsusearequestforproposal(RFP)processtoobtainquotes.
RFPs should contain the following
• Auditrequirements
• Periodcovered
• Contactpersonatlibrary
• Methodforquestionstobeansweredorinformationtobeobtained
• Requestqualificationsofauditfirm
• Requestqualificationsofstaffthatwillbeassignedtotheengagement
• Requestauditapproachthatwillbeused
• Requestforreferences
• Timingofservices
• Fees
See Appendix5forasampleofanauditRFPdocument.
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SECTION 6PREPARATION FOR AN AUDIT
HOW YOU CAN ASSISTFollowingareconsiderationsforpreparingforanaudit:
• Communicatethroughouttheyearwiththeauditorsregardingunusualordifficultaccountingissuesandlibraryactivities,ingeneral
• Implementandmaintainsoundinternalcontrolprocedures(refertoInternalControlschapter)
• Maintainappropriateaccountingandfinancialdocumentation
• Current trial balances
• Ongoing account analysis schedules
• Interfund transactions balance
• Balance sheet accounts agree to detail records
■ Bankreconciliations
■ Accountsreceivabledetail
■ Taxesreceivable
■ Accountspayabledetail
• Filingofinvoicesandotheraccountingrecords
• Maintain an audit trail
• Maintaincomprehensive“files”forkeyitems
■ Propertytaxes
■ Budgetadoption/amendments
■ Debtinformation
• Prepareconfirmationrequests
• Auditormustcontroltheprocessincludingmailingtheconfirmations
• Youcanfollowupwithphonecallsfornonresponses
• Prepareschedulesrequestedbyauditor
• Providesamplesselectedbytheauditor
• Preparefinancialstatements,unlessyouarecontractingwiththeindependentauditortodothis
TIMING OF AUDIT AND ASSISTANCEMeetordiscusswiththeauditpartnerormanagerin-chargebeforeyear-endregardingtheirauditapproach.
• Willaccountingsystemdocumentationbeupdatedbeforeyear-end?WilltheauditorsdothisoristhisdonebytheLibrary?
• Willtheytesttransactionsbeforeyear-end?
• Whatconfirmationscanbepreparedaheadoftime?
• Whataccountswilltheywanttoanalyze?
• Communicatewithauditorswhenbookswillbe“closed”(transactionshavebeenrecorded,adjustingjournalentrieshavebeenmadeandapreliminarytrialbalanceisavailable)
• Identifyapreliminarytimetableforauditstartandcompletiondates
• Communicaterulesregardinguseofphones,photocopies,internet,andfiles
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Beforetheauditorsarriveandbeforeyear-end:
• Provideworkspace
• Provideaccesstointernet
• Prepareconfirmationrequests
Afteryear-end:
• Agreebalancesheetsupportingdetailtogeneralledgerbalances
• Reviewgeneralledgerforunusualaccountbalancesandinvestigate
• Makeallminoradjustmentsbeforefinalizinggeneralledger
WhentheAuditorsarrive:
• Assignanindividualtobethepointofcontacttopullsamples,scandocuments,obtainadditionaldocumentationasrequested
Atthecompletionoftheaudit,meetanddiscusswiththeauditorstoobtaininformationregarding:
• Resultsoftheaudit
• Problemareas
• Journal entries
• Areasforimprovement
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SECTION 7RESOURCESStateofMichiganDepartmentofTreasuryAudit Manual for Local Units of Government in Michigan www.michigan.gov/documents/treasury/Audit_Manual_for_LUG_in_Michigan_383593_7.pdf
UniformGuidance2CFR200 www.ecfr.gov/cgi-bin/text-idx?SID=6fb1139656e7dfec062b17321085fc14&mc=true&tpl=/ecfrbrowse/Title02/2chapterII.tpl
AICPA Guide to Hiring a Quality Auditor www.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/qualityservicesdelivery/keepingup/downloadabledocuments/hiring-a-quality-auditor.pdf
AICPAGovernmentalAuditQualityCenter(GAQC)MemberSearch www.aicpa.org/interestareas/governmentalauditquality/membership/findamemberfirm.html
AICPA’sPeerReviewPublicFileSearch www.peerreview.aicpa.org/public_file_search.html
StateofMichiganLicensingandRegulatoryAffairsLicenseLookup www.lara.michigan.gov/colaLicVerify/lName.jsp
MichiganDepartmentofTreasury–LocalAuditandFinanceDocumentSearch https://treas-secure.state.mi.us/LAFDocSearch/
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CHAPTER 9 – GRANTS AND FEDERAL AUDIT REQUIREMENTS
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovideageneraloverviewofgrantsandfederalauditrequirementsrelatingtogrants.Abriefoutlineofthechapterfollows:
Section 1 –OverviewofGrantsSection 2 – Library of Michigan GrantsSection 3 –FederalAuditRequirements(SingleAudit)Section 4 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthisguide,theusershouldfirstreadChapter7–Financial Reporting.
SECTION 1OVERVIEW OF GRANTSGrantsareameansforthelibrarytoobtainrevenuewithoutlevyingadditionaltaxesorchargingextrafees.Generally,grantsarenon-repayableandarerestrictedforspecificpurposes.Thereareawidevarietyofactivitiesthatalibrarycanobtainagrantfor,suchasforoperations,capitalimprovements,andemergencyrecovery,tonameafew.
SOURCESGrantsmaycomefromseveralsourcessuchasafederal,state,orlocalgovernmentalagencies,orfromlocalnon-profitorfor-profitcompanies.Manygrantsoriginateatthefederalleveland“flow-thru”othergovernmentalagenciesandnon-profitcompanies.Itisimportantforalibrarytodeterminetheoriginalsourceofallgrantfundingitreceives.Thisplaysanimportantroleindeterminingwhetherornotthelibraryrequiresanauditofitsfederalgrants.Thisisalsoknownasasingle audit,andwillbediscussedfurtherinSection3ofthischapter.
APPLY FOR A GRANTMostgrantsrequireanapplicationorproposalinordertobeconsideredforagrant.Grantwritersarespecialistswhoarefamiliarwiththetypesofgrantsavailable,areknowledgeableofgrantresources,andexperiencedwiththeintricaciesofgrantapplications.Grantwritersarenotnecessary,normandatory,inordertoapplyforgrantssuccessfully.Thefederalgovernmentoffersfreetipsandtoolstohelpwritesuccessfulgrantapplicationsorproposalsat www.grants.gov .
ELIGIBILITYInordertoobtainagrant,thegranteemustmeeteligibilityrequirementsforthespecificgrant.Eachgrantcontainsdifferenteligibilityrequirementsthatthegrantordeemsappropriate.Grantsaretraditionallyneed-basedandmaybecompetitive,meaningotherentitiesareapplyingforthesamepoolofmoney.Examplesofeligibilityrequirementsthatalibrarycouldfacewhenapplyingforagrantmaybepopulationofareaserviced,typeoflibrary,ageofinfrastructure,orextentofdamageinthecaseofanaturaldisaster.
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RESTRICTIONSGrants,almostalways,arerestrictedforspecificpurposesbythegrantor.Granteesarerequiredtofollowthegrantcompliancerequirements.Alackofcompliancewithgrantrestrictionsmayresultinthelibraryhavingtorepayanygrantmoneyreceivedbacktothegrantor.Inadditiontothepurposerestrictions,grantsmayspecifyallowableandunallowablecostsassociatedwithit.Forinstance,alibrarymayobtainagranttoinstallLEDlightingwithspecificprovisionsastowhattypesofcostsareallowed.TheLEDlightbulbsmaybeanallowablecost,whilerentalofequipmentandstaffexpensesarenotallowed,perthegrantagreement.Therefore,onlythecostsoftheLEDlightbulbswouldbereimbursedbythegrantor.
MATCHINGFundsreceivedfromgrantsare“free”money,however,manytimestherearematchingrequirementsthatthegrantagreementmandates.Thismatchingrequirementisoftenapercentageofthetotalgrant.Forinstance,agrantagreementmaybewrittenasa$100,000totalgrant,withamatchingrequirementof20%.Thetotalamountofgrantassistancewouldbe$80,000andtheamountcontributedwithlibraryfundswouldbe$20,000.Thisgrantmayalsobereferredtoasan80/20grantforatotalof$100,000.Again,80%comesfromthegrantorand20%istobepaidwithlibraryfunds.
Othertimestheremaybeunallowablecoststhatcan’tbeavoidedinordertofulfilltherequirementsofthegrant.AnexampleofthisisintheexamplegivenaboveabouttheLEDlights.Therewasaneedtorentequipmentandpaystaff,thusbeingunavoidablecosts,butthecostsarenotallowedandwillnotbereimbursedwithgrantfunds.
Caution:Managementneedstoensurethatthelibraryhassufficientcashflowtopayforthematchingrequirementorunavoidablecosts.Remember:“freeisn’talwaysfree.”
REQUEST OF FUNDSThetypeofformtobeused,thetimingofrequests,andtheallowedmethodtoobtaingrantfundsareoutlinedbythegrantorinthegrantagreement.
Therearetwomethodsofobtainingthegrantfundswhicharetheadvancemethodandthereimbursementmethod.
The advancemethodallowsthegranteetorequestandobtaingrantfundspriortoincurringcosts.Theaccountingforadvancedfundsisadebittocashandacredittounearnedrevenueliability.Thefundsreceivedarenotrevenueuntil costs are incurred .
The reimbursementmethodisthemostoftenusedmethodofgrantfunding.Thismethodrequiresthelibrarytoincurcostsfirst,thenrequestreimbursement.Incurringcostssimplymeansthattheworkorservicewasperformed,itdoesnotmeanthatthecosthasbeenpaidfor.Sometimes,thegrantagreementrequiresinvoicesofthecoststobepresentedwiththerequestforreimbursement.Ifthegrantisafederalgrant,theinvoicemustbepaidforwithinthree(3)daysofreceivingreimbursement.Accountingfortheexpectedreimbursementwouldbeadebittoaccountsreceivableandacredittoeitherrevenueordeferredinflowsofresources,dependingonhowdelayedthereimbursementis.Ifthereimbursementiswithin60days,thecreditistorevenue.Ifthereimbursementisafter60days,thecreditistodeferredinflowsofresources.
SECTION 2LIBRARY OF MICHIGAN GRANTSTheLibraryofMichiganoffersarangeofgrantprogramstolibrarieswithintheState,dependingonfundingavailability.Dependingontheprogram,eligibleapplicantscanincludepubliclibraries,academiclibraries,schoollibrariesandstatewidelibraryserviceorganizations.
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FundingforLibraryofMichigangrantsisprovidedbytheInstituteofMuseumandLibraryServices(IMLS)throughtheMuseumandLibraryServicesActof2018,asectionofwhichisknownasLSTA(LibraryServices&TechnologyAct).
ForfurtherinformationonLibraryofMichigangrantsandLSTAfunding,aswellasothergrantopportunities,gotowww.michigan.gov/lsta,orcontacttheLibraryofMichiganstaffat(517)335-1516.
SECTION 3FEDERAL AUDIT REQUIREMENTS (SINGLE AUDIT)Alibrarythatexpendsmorethan$750,000offederalfundsduringitsfiscalyearrequiresanauditofitsfederalprograms,alsoknownasasingleaudit.TheSingleAuditActAmendmentsof1996(SingleAuditAct)requiresthissingleaudittobeperformedbyanindependentauditor,concurrentlywiththefinancialstatementaudit,hencetheterm“single”audit.Auditorswhoperformsingleauditsarehighlyspecializedintheareaandrequireadditionaltraining.Federalagenciesrelyonthesingleauditaspartoftheiradministrativeresponsibilitiesfordeterminingcompliancewiththerequirementsofthefederalaward.
TheSingleAuditActgivestheDirectoroftheOfficeofManagementandBudget(OMB),theauthoritytoestablishguidelinesandpoliciesonadministrationandauditsoffederalawards.ThisauthoritativesetofrulesandrequirementsforfederalawardsthattheOMBestablishedisTitle2CodeofFederalRegulation(CFR)Part200,UniformAdministrativeRequirements,CostPrinciples,andAuditRequirementsforFederalAwards(theUniformGuidance).FollowingUniformGuidanceismandatoryforallgovernmental-typelibrarieswhoreceivefederalawards.
Thefirststepindeterminingwhetherthelibraryneedsasingleauditistodeterminethebasisofallgrantsorawards.ManytimesagrantthatcomesthroughanothergovernmentalentitystemsfromtheFederalgovernment.SeveralkeyidentifierswhenreadingthegrantagreementisaCatalogofFederalDomesticAssistance(CFDA)numberorterminologystatingthatanauditinaccordancewith2CFR200mustbeconducted.Ifeitheroftheseitemsareintheagreementitisverylikelythatthisisafederalaward.Iftheseitemsarenotinthegrantagreement,itisrecommendedthatmanagementcontacttheawardingagencyandgetconfirmationthattheawardis,orisnot,federalandmaintainthedocumentationofsuch.
Thesecondstepindeterminingwhetherthelibraryneedsasingleauditistodeterminetheamountoffederalawarddollarsthathavebeenexpended.Expendedincludesamountsthathavebeenincurred,butnotyetpaid.Forexample,ifthelibrary’syear-endisJune30andamilliondollarprojectwasunderway,butonly80%completedasofJune30,whetherthe80%hasbeenpaidforornot,this$800,000wouldbeconsideredexpendedandasingleauditwould berequired.
AScheduleofExpendituresofFederalAwards(SEFA)isrequiredtobecompletedbythelibraryifitreceivesfederalawardsandasingleauditisrequired.However,bestpracticeistomaintainaSEFAduringtheyeartokeeptrackofgrantsandtoensurethatasingleauditisorisnotrequired.AnexampleofaSEFAcanbefoundinAppendix6.
Thesingleauditisarigorousauditofthefederalawardprocessandoneachmajorfederalprogram.Internalcontrolsandcompliancewithgrantrequirementsaretestedaspartofasingleaudit.Iftheauditordeterminesthatthelibraryhadanysignificantdeficienciesormaterialweaknessesininternalcontrols,orcompliancerequirementfindings,thelibrarymustformulateacorrectiveactionplanwhichaddresseshowthelibrarywillresolvetheissue(s)found.
Afterthesingleauditisperformed,aDataCollectionFormmustbesubmittedtotheFederalAuditClearinghousewithintheearlierof30daysafterreceiptoftheauditor’sreportorninemonthsaftertheendoftheauditperiod.Thelibraryisalsorequiredtosubmitacorrectiveactionplan,ifonewasrequired.
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SECTION 4RESOURCESFederal Grants www.grants.gov
Library of Michigan Grants www.michigan.gov/lsta
2CFR200 https://www.ecfr.gov/cgi-bin/text-idx?SID=1bc9d81a83e51f6d79cb5a9ed5220c27&mc=true&node=pt2.1.200&rgn=div5
Federal Audit Clearinghouse https://harvester.census.gov/facweb/Default.aspx
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CHAPTER 10 – INTERNAL CONTROLS
OBJECTIVE/SUMMARYThischapterdiscusseswhataninternalcontrolstructureisandidentifiesinternalcontrolobjectivesandcomponents.Thischapteralsoincludessomespecificcontrolproceduresforlibraries.ThereisaninternalcontrolquestionnaireatAppendix7thatcanbeusedtodeterminewhattypesofcontrolsarealreadyinplaceandwhatcontrolsmaybeneeded . It is important to note that due to the limited number of staff at many libraries it may be difficult and not cost-beneficial to implement some control procedures.
Section 1 – Introduction to Internal Controls Section 2 –InternalControlObjectives,Components,andPrinciplesSection 3 –InherentLimitationsofInternalControlsSection 4 –CommonIndicatorsofPotentialFraudorEmbezzlementSection 5 –OtherRelatedInternalControlPoliciesSection 6 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthisguide,theusershouldfirstreadChapter1–Accounting for Libraries,withparticularemphasisonSection5–Types of Accounting Transactions.
SECTION 1INTRODUCTION TO INTERNAL CONTROLSInternal controlsareasetofprocessesandprocedures,orchecksandbalances,thatareputinplacetohelpsafeguardtheassetsofthelibrary;achieveproperconductofbusiness;andensurefinancialintegrity.Stronginternalcontrolswillhelpkeepthelibraryincompliancewithlawsandregulations,promoteefficiency,andwillreducetheopportunityforfraudtooccur.TheBoardsetsthestandardsandofficialpoliciesforinternalcontrols,buttheultimateresponsibilityforgoodworkinginternalcontrolsrestswithmanagementinthedaytodayoperationsof the library .
Therearetwomainsourcesofinternalcontrolframeworksthatgovernmentalentitiesfollow.ThesearetheCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO)FrameworkandtheU.S.GovernmentAccountabilityOffice(GAO)–GreenBook.COSOismadeupofacommitteeofaccountingandfinanceorganizations,oneofwhichistheAICPA,andsetsinternalcontrolstandardsthataregenerallyacceptedbytheaccountingprofession.TheGreenBooksetsinternalcontrolstandardsforthefederalgovernment.ThisguidewillfocusontheCOSOFramework,however,theGreenBookisagoodresourceaswell.
COSOdefinesinternalcontrolas“aprocess,effectedbyanentity’sboardofdirectors,management,andotherpersonnel,designedtoprovidereasonableassuranceregardingtheachievementofobjectivesrelatingtooperations,reporting,andcompliance.”
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SECTION 2INTERNAL CONTROL OBJECTIVES, COMPONENTS, AND PRINCIPLES
OBJECTIVESTheCOSOFrameworkenablesorganizationstoeffectivelyandefficientlydevelopandmaintainsystemsofinternalcontrolthatcanenhancethelikelihoodofachievinganentity’sobjectivesandadapttochangesinthebusinessandoperatingenvironments.TheCOSOFrameworkisintendedtobea“principles-based”approachratherthanalistingordiscussionofrequiredorrecommendedinternalcontrols.
BasedonCOSO’sFramework,therearethreecategoriesofinternalcontrolobjectives:
• Operations-Relatestotheeffectivenessandefficiencyofthelibrary’soperation,includingoperationalandfinancialperformancegoals,andsafeguardingassetsagainstloss.
• Reporting-Pertainstointernalandexternalfinancialandnon-financialreporting.Thisincorporatesreliability,timeliness,transparency,orothertermsassetforthbyregulators.
• Compliance-Standardstoverifythelibraryconductstheiractivitiesinaccordancewithrelevantlaws and regulations .
COMPONENTSBasedonCOSO’sFramework,therearefiveintegratedcomponentsofinternalcontrol:
• ControlEnvironment
• RiskAssessment
• ControlActivities
• Information&Communication
• MonitoringActivities
Control Environment
Thecontrolenvironmentisasetofstandards,processes,andstructuresthatprovidethebasisforcarryingoutinternalcontrolacrossthelibrary.Thetoneissetatthetopbymanagementandtheboardofdirectors.Thistoneshouldincludetheimportanceofinternalcontrolandthestandardsthatareexpectedtobefollowedbyemployees.
Risk Assessment
Everylibraryfacesavarietyofrisksfromexternalandinternalsources.Riskisdefinedasthepossibilitythataneventwilloccurandadverselyaffecttheachievementofobjectives.Riskassessmentallowsthelibrarytoidentifyandassessrisksrelatedtothelibrary’sobjectives.Riskassessmentformsthebasisfordetermininghowriskswillbemanaged.
Managementshouldspecifyobjectiveswithincategoriesrelatingtooperations,reporting,andcompliancewithadequatetransparencytobeabletoidentifyandanalyzeriskstothoseobjectives.Riskassessmentalsorequiresmanagementtoconsidertheimpactofpossiblechangesintheexternalenvironmentaswellaschangeswithinthelibrary’sinternalstructure.
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Control Activities
Controlactivitiesarethosepoliciesandproceduresdevelopedbymanagementtohelpensurethatmanagement’sdirectivestomitigateriskstoachievetheirobjectivesarecarriedout.Controlactivitiesareperformedatalllevelsoftheentity,atvariousstageswithinbusinessprocesses,andoverthetechnologyenvironment.Thecontrolsmaybepreventativeordetectiveinnatureandmayincludearangeofmanualorautomatedactivitiessuchasauthorizationsandapprovals,verifications,reconciliations,andbusinessperformancereviews.Segregationofdutiesisusuallyincludedinthedevelopmentofcontrolsactivities.
Information and Communication
Informationisnecessaryforthelibrarytocarryoutinternalcontrolresponsibilitiestosupporttheachievementofitsobjectives.Managementobtainsorgeneratesandusesrelevantandqualityinformationfrombothinternalandexternalsourcestosupportthefunctioningofothercomponentsofinternalcontrol.Communicationistheprocessofproviding,sharing,andobtainingnecessaryinformation.Internalcommunicationisthemeansbywhichinformationisdisseminatedthroughouttheorganization,flowingup,down,andacrosstheentity.Itenablespersonneltoreceiveaclearmessagefromseniormanagementthatcontrolresponsibilitiesmustbetakenseriously.Externalcommunicationistwofold;itenablesinboundcommunicationofrelevantexternalinformation,anditprovidesinformationtoexternalpartiesinresponsetorequirementsandexpectations.
Monitoring Activities
Ongoingmonitoringisnecessarytodeterminethateachofthefivecomponentsofinternalcontrolarepresentandfunctioningproperly.Ongoingevaluations,builtintobusinessprocessesatdifferentlevelsoftheentity,providetimelyinformation.Separateevaluations,conductedperiodically,willvaryinscopeandfrequencydependingonassessmentofrisks,effectivenessofongoingevaluations,andothermanagementconsiderations.Findingsareevaluatedagainstcriteriaestablishedbyregulatorsormanagementandtheboardofdirectors,anddeficienciesarecommunicatedtomanagementandtheboardofdirectorsasappropriate.
PRINCIPLESTheCOSOFrameworksetsoutseventeenprinciplesrepresentingthefundamentalconceptsassociatedwitheachcomponent.Theprinciplessupportingthecomponentsofinternalcontrolsare:
Control Environment
1 . Thelibrarydemonstratesacommitmenttointegrityandethicalvalues.
2 . Theboardofdirectorsdemonstratesindependencefrommanagementandexercisesoversightofthedevelopmentandperformanceofinternalcontrol.
3 . Managementestablishes,withboardoversight,structures,reportinglines,andappropriateauthoritiesandresponsibilitiesinthepursuitofobjectives.
4 . Thelibrarydemonstratesacommitmenttoattract,develop,andretaincompetentindividualsinalignmentwithobjectives.
5 . Theorganizationholdsindividualsaccountablefortheirinternalcontrolresponsibilitiesinthepursuit ofobjectives.
Risk Assessment
6 . Thelibraryspecifiesobjectiveswithsufficientclaritytoenabletheidentificationandassessmentofrisksrelatingtoobjectives.
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7 . Thelibraryidentifiesriskstotheachievementofitsobjectivesacrosstheentityandanalyzesrisksasabasisfordetermininghowtherisksshouldbemanaged.
8 . Thelibraryconsidersthepotentialforfraudinassessingriskstotheachievementofobjectives.
9 . Thelibraryidentifiesandassesseschangesthatcouldsignificantlyimpactthesystemofinternalcontrol.
Control Activities
10 . Thelibraryselectsanddevelopscontrolactivitiesthatcontributetothemitigationofriskstotheachievementofobjectivestoacceptablelevels.
11 . Thelibraryselectsanddevelopsgeneralcontrolactivitiesovertechnologytosupporttheachievement ofobjectives.
12 . Thelibrarydeployscontrolactivitiesthroughpoliciesthatestablishwhatisexpectedandproceduresthatputpoliciesintoaction.
Information and Communication13 . Thelibraryobtainsorgeneratesandusesrelevant,qualityinformationtosupportthefunctioningof
internal control .
14 . Thelibraryinternallycommunicatesinformation,includingobjectivesandresponsibilitiesforinternalcontrol,necessarytosupportthefunctioningofinternalcontrol.
15 . Thelibrarycommunicateswithexternalpartiesregardingmattersaffectingthefunctioningof internal control .
Monitoring Activities
16 . Thelibraryselects,develops,andperformsongoingand/orseparateevaluationstoascertainwhetherthecomponentsofinternalcontrolarepresentandfunctioning.
17 . Thelibraryevaluatesandcommunicatesinternalcontroldeficienciesinatimelymannertothose partiesresponsiblefortakingcorrectiveaction,includingseniormanagementandtheboardofdirectors, asappropriate.
SECTION 3INHERENT LIMITATIONS OF INTERNAL CONTROLSInherentlimitationsoninternalcontrolsofalibraryareinevitable.Humanerror,deliberatecircumvention,andcost/benefitconsiderationsarefactorsthatmustbeconsideredwhenimplementingoranalyzingalibrary’sinternalcontrols.Thesizeandresourcesofagivenlibraryshouldalsobetakenintoconsideration.Largerlibrariesgenerallyhavegreaterresourceswhichcanbeusedtodevelopandimplementmoreeffectivecontrols.However,largerlibrariesgenerallyhaveaneedformorefool-proofcontrolsduetothenumberofemployees,transactionsandresourcestheymayberesponsiblefor.Becauseoftheinherentlimitationsofcontrols,itisimportantforlibrariestohavewrittendocumentationoftheirinternalcontrols.Thedocumentationcanbeinmanyforms,includingwrittennarratives,flowchartsandchecklists.Thisdocumentationprovidesemployeeswithclearprocedurestofollowwhenperformingvariousfunctionsandallowsforeasyfollowupandinvestigationinsituationsthatwarrantit.
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SECTION 4COMMON INDICATORS OF POTENTIAL FRAUD OR EMBEZZLEMENTFollowingareseveralcommonindicatorsofpotentialfraudorembezzlementatyourlibrary.Totheextentthesesituationsexist,furtherinvestigationisrecommended.
• Younoticelifestylechangesinanemployeethatopensthemail,accountsforcash,orsignschecks.
• Anemployee’slifestyleappearsinconsistentwiththeirincomelevel.
• Anemployeeisoverlynervousaboutauditsorregularlycallsinsickduringtheauditprocess.
• Anemployeewillnotsharedutiesandisoverlysensitivewiththeirworkspacesuchaskeepingdrawerslockedandnotallowingotherstoperformtheirjobwhileabsent.
• Anemployeethathandlescashorsignchecksdoesnottakeallowedvacations.
• Anemployeeworksexcessivelyonweekendsorafterbusinesshours.
• Anemployeeisexperiencingpersonalfinancialdifficulties.
• Noneofthelibrary’sformsordocumentsarepre-numbered.
• Pettycashismissing.
• Typosorspellingerrorsonbankstatementsorinvoices.
• Suddenandunexplainedoverdraftsareoccurringinthecheckingaccount.
• Duplicateorout-of-sequencechecknumbersareappearingonthebankstatement.
• Cancelledchecksreturnedfromthebankhaveadifferentfontorinkthannormal.
• Non-payrollchecksissuedtoemployees.
• Payeesoncancelledchecksdonotmatchentriesinthegeneralledger.
• Invoicesarebeingreceivedforgoodsorservicesnormallynotpurchasedbythelibrary.
• Invoicesarebeingreceivedthatarenotprepared/printedprofessionallyorlackdetailedinformation(e.g.,phoneorfaxnumber,invoicenumber,descriptionofgoods,etc.).
• Paymentsarebeingmadetounusualvendorsorinunusualamounts.
• Paymentstoregularvendorsarebeingmadeatunusualtimes.
• Duplicateorover-statedpaymentstovendorsinwhichanemployeehasanundisclosedownershiporfinancialinterestin.
• Creditmemosareexpectedorreceived,butthecashisnotdeposited.
• Unexpectedcorrespondenceisreceivedfromfederal,state,orlocalauthorities.
• Correspondenceisfoundhiddeninanemployee’sabsence.
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SECTION 5OTHER RELATED INTERNAL CONTROL POLICIESOtherrelatedinternalcontrolspoliciesthatarerecommendedinclude:
FRAUD RISK MANAGEMENT POLICYApolicyshouldbedevelopedandformallyimplementedthatistheappropriatesizeandcomplexityofthelibrary.Suchafraudriskmanagementpolicymayinvolveactivelysearchingforfraudulenttransactions,butshouldalsoinformmanagementandemployeesastothenatureoffraudandactionsexpectedtobetakeniffraudissuspected.Thiswouldincludepublishingadefinitionoffraud,astatementthatfraudwillnotbetoleratedwithinthelibrary,andinstructionsforreportingfraudwithinthechainofcommand.SeeAppendix3.3forSampleFraudRiskManagementPolicy.
WHISTLEBLOWER PROTECTION POLICYAwhistleblowerpolicyencouragesstaffandvolunteerstocomeforwardwithcredibleinformationonillegalpracticesorviolationsofadoptedpoliciesofthelibrary,itspecifiesthelibrarywillprotecttheindividualfromretaliation,andidentifiesthosestafforboardmembersoroutsidepartiestowhomsuchinformationcanbereported.SeeAppendix3.4forSampleWhistleblowerPolicy.
ANTI-THEFT POLICYStudieshaveproventhatemployeesarelesslikelytostealfromtheiremployersiftheemployeehandbookdirectlytellsthemnotto.
PERSONALLY IDENTIFIABLE INFORMATION (PII) POLICYPersonallyidentifiableinformation(PII)isinformationthatcanbeusedonitsown,orcombinedwithotherinformation,toidentify,trace,contact,orlocateaperson.Intoday’senvironmentwhereidentitytheftissuchaconcern,itisimportantthatlibrariesexerciseduecareinsafeguardingpersonalinformationofemployees,patrons,andBoardmembers.ExamplesofPIIare:
• Name
• Personalidentificationnumber
• Addressinformation
• Telephonenumbers
• Personal characteristics
• Personallyownedproperty
• Informationaboutanindividualthatislinkedorlinkabletoanyoftheabove.
PIIcanbeineitheranelectronicoraphysicalenvironment.Electronicenvironmentsincludesuchitemsaspersonalcomputers,networks,anddatabases.Physicalenvironmentsarethoseenvironmentsthataretangibleandshouldhavespecifiedlocationsandauthorizedaccesspoints.
Libraries,andallentities,haveamoralandethicalobligationtoprotectallPIIresidinginitsenvironment.Atthelibrarylevel,thisprotectionisimportantbecauseifPIIiscompromised,thiscouldpotentiallycauselossofrecords,lossofpublictrust,legalliability,andremediationcosts.Atthepatronlevel,ifPIIiscompromiseditcouldcauseidentitytheft,embarrassment,andevenblackmailbyothers.LibrariescanapplysafeguardsfortheprotectionofPIIbycreatingpoliciesandprocedures.Inaddition,theLibraryPrivacyAct,PublicAct455of1982,MCL397.1,includesspecificprohibitionsonthesharingofcertaininformation.
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Belowarerecommendationsrelatingtotheassessment,development,andimplementationofaPIIpolicy:
• IdentifyallPIIresidinginthelibrary’senvironments,bothelectronicallyandphysically.
• Minimizetheuse,collection,andretentionofPII
• Reviewcurrentholdingsforrelevance
• Reduceholdingstothatwhichisminimallynecessary
• Developascheduleforperiodicreviewofholdings
• EstablishaplantoeliminateunnecessarycollectionanduseofPII
• Categorizeenvironmentsandinformationbyimpactlevel
• Notallenvironmentsarecreatedequal
• Quantityofrecordsmaintained
• Sensitivityofinformationheld
• Contextofinformationheld
• Access and location of records
• Applysafeguards
• Conduct training
• De-identifyPII
• Controlaccesstophysicallocations
• Control access to electronic records
• Enforceaccesscontrol
• Applytransmissionconfidentialitybyrequiringencryptioninanelectronicenvironment
• IncidentResponsePlan
• Adequateinsurancecoverage
• Whenandhowemployeesarenotified
• Howwilltheincidentbereportedpublicly
• Remedialservices
SECTION 6RESOURCESCommitteeofSponsoringOrganizationsoftheTreadwayCommission(COSO) www.coso.org
GAO–TheGreenBook www.gao.gov/greenbook
AssociationofCertifiedFraudExaminers www.acfe.com
U.S.DepartmentofCommerce,NationalInstituteofStandardsandTechnology(NIST)Guide to Protecting the Confidentiality of Personally Identifiable Information (PII) csrc.nist.gov/publications/detail/sp/800-122/final
GovernmentalFinanceOfficers’Association–BestPracticesandPolicies www.gfoa.org/best-practices
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CHAPTER 11 – STATE COMPLIANCE
OBJECTIVE/SUMMARYThepurposeofthischapteristoprovidethereaderwithanoverviewoffinancialcompliancerequirementsapplicabletolibrariesthataremandatedbytheStateofMichigan.Abriefoutlineofthechapterfollows
Section 1 –ReportingRequirementsSection 2 –PolicyRequirementsSection 3 –OtherRequirementsSection 4 –ComplianceChecklistSection 5 –Resources
LEARNING PREREQUISITESInordertoeffectivelyusethischapterofthisguide,theusershouldbefamiliarwithChapter1–Accounting for Libraries,withspecificemphasisonSection5–Types of Accounting Transactions;Chapter6–Budgeting;and Chapter7–Financial Reporting .
SECTION 1REPORTING REQUIREMENTSInadditiontogovernmentalaccountingrequirements,asprescribedbytheGovernmentalAccountingStandardsBoard,andrecommendedbestpractices,theMichiganlegislatureimposesadditionalcompliancerequirementsthatalibrarymustadheretowhichdirectlyrelatetofinancialmanagement.
AUDITING PROCEDURES REPORTAsdescribedinChapter7–Financial Reporting,thelibraryisrequiredtoelectronicallysubmititsauditedfinancialstatementswithin6monthsofthelibrary’sfiscalyear-endinaccordancewithMichiganPublicAct2of1968,MCL141 .427 .ThisrequirementisperformedinconjunctionwiththefilingoftheannualAuditingProceduresReport(APR),Form496,whichisalsoduetotheTreasurywithin6monthsafterthelibrary’sfiscalyear-end.TheAPRiscompletedbythelibrary’sauditor,andtheauditedfinancialstatementsareincludedinthissubmission.Inadditiontoreportingfinancialinformation,alargeelementoftheAPRistestimonyfromtheauditorregardingthelibrary’sadherencewithvariousStatecompliancerequirements.
RETIREMENT SYSTEM ANNUAL REPORTPublicAct202of2017,MCL38.2801et.seq,requirespensionandretireehealthcarereportsforretirementsystemstobefiledelectronically,nolaterthansixmonthsafteryear-endusingForm5572.SeeChapter7–Financial Reporting,fordetaileddiscussion.
MUNICIPAL FINANCE QUALIFYING STATEMENTAlibrarythatwishestoborrowmoneyorissuesecurities(i.e.bonds)mustcomplywithPublicAct34of2001,MCL 141 .2101et.seq.,theRevisedMunicipalFinanceAct.CertainborrowingsarenotsubjecttothisAct,includingcontractsforthepurchaseofrealorpersonalproperty.Priortotheissuanceofsuchdebt,alibrarymustsubmitaMunicipalFinanceQualifyingStatement,Form5047,totheMichiganDepartmentofTreasuryandobtainapproval.OnceaQualifyingStatementLetterisreceivedfromtheTreasury,nofurtherapprovalisrequireduntil30daysafterthenextqualifyingstatementisdue.AnnualQualifyingStatementsaredueeachyear,within6monthsofyear-end,accompaniedwiththeannualauditreport.
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DEFICIT ELIMINATION PLANInaccordancewiththeGlennSteilStateRevenueSharingActof1971,PublicAct140of1971,MCL141.901et.seq.,ifthelibraryendsitsfiscalyearwithanyfundinadeficitcondition,thegoverningbodymustdevelopandfileadeficiteliminationplan,alongwiththecertifiedresolution,totheDepartmentofTreasury.Plansandcertifiedresolutionsmustbeuploadedonlineatwww.michigan.gov/MunicipalFinance,clickonthe“DeficitEliminationPlanUpload”link.Theplanmaybefiledassoonas24hoursfollowingthesubmissionoftheAuditingProceduresReporttoTreasury.ItistheTreasury’sexpectationthatlibrariesrequiredtosubmitaplanwilldosoinanexpeditiousmanner.
Thecalculationtodetermineadeficitisdifferentforgovernmentalfundsthanitisforproprietary,fiduciary,anddiscretelypresentedcomponentunitfunds.ThespecificcalculationsforthevariousfundscanbefoundintheMichiganDepartmentofTreasuryDeficitEliminationPlanGuidance.ItisimportanttonotethatanegativenetpositionofgovernmentalactivitiesisnotadeficitasdefinedbyTreasury.Therearenoreportingrequirementsapplicableshouldthisexistatyourlibrary.
SECTION 2POLICY REQUIREMENTSThefollowingpoliciesarerequiredbyMichiganstatestatute:
ELECTRONIC TRANSACTIONS POLICYEverylibraryisrequiredtohaveanelectronictransactionspolicyifitpaysbillselectronically,inaccordancewithPublicAct738of2002,MCL124.301et.seq.Thegoverningbodyisrequiredtoadopt,byresolution,awrittenpolicyforelectronictransactions(oftencalled“ACH”transactions,referringtotheautomatedclearinghouseusedtoprocesselectronicpayments)thatincludesthefollowingrequirements:
• Thattheofficeroremployeedesignatedisresponsibleforthelibrary’sACHagreements,includingpaymentapproval,accounting,reporting,andcomplianceoversightoftheACHpolicy.
• Thatthedesignatedofficeroremployeeisresponsibleforsubmittingtothegoverningboarddocumentationdetailingthegoodsorservicespurchased,thecostofthegoodsorservices,thedateofthepayment,andthedepartmentlevelsservicedbythepayment.Thismaybecontainedinthegeneralledgersoftwareorinaseparatereport
• AsystemofinternalaccountingcontrolstomonitortheuseofACHtransactions.
• TheapprovalofACHinvoicespriortopayment.
• Anyothermattersthegoverningbodydeemsnecessary.
CREDIT CARD PURCHASES POLICYIfthelibraryusescreditcardsthatareusedforpurchasinggoodorservices,thelibraryisrequiredtohaveapolicyinaccordancewithPublicAct266of1995,MCL129.241et.seq.Municipallibrariesmaynothavecreditcardsunlessissuedbythemunicipality(seeChapter1,section5forfurtherdiscussion).Thegoverningbodyisrequiredtoadopt,byresolution,awrittenpolicythatincludesthefollowingrequirements:
• Thattheofficeroremployeedesignatedisresponsibleforthecreditcardissuance,accounting,monitoring,andretrieval,andgeneralcomplianceoversight.
• Thatthecreditcardmaybeusedonlybyanofficeroremployeeofthelibraryforgoodsorservicesforofficialbusinessofthelibrary.Thepolicymaylimitthespecificbusinessforwhichthecreditcardmaybeused.
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• Thattheofficeroremployeeusingthecreditcardshallsubmitdocumentationthatdetailsthegoodsorservicespurchased,thecost,thedateofthepurchase,andthepurposeforwhichpurchased.
• Thattheofficeroremployeewhoisissuedacreditcardisresponsibleforitsprotectionandcustodyandshallimmediatelynotifythelibraryifthecreditcardislostorstolen.
• Thattheofficeroremployeewhoisissuedacreditcardshallreturnthecreditcardupontheterminationofserviceinofficeoremploymentwiththelibrary.
• Asystemofinternalaccountingcontrolstomonitortheuseofcreditcardsissuedbythelibrary.
• Theapprovalofcreditcardinvoicesbeforepayment.
• Thatthebalance,includinginterestdue,shallbepaidwithin60daysoftheinitialstatementdate.
• Disciplinarymeasuresfortheunauthorizeduseofacreditcard,consistentwithlaws.
• Anyothermattersthegoverningbodydeemsnecessary.
Note:InaccordancewithMCL129.241et.seq.,Districtlibrariesmayobtainandusetheirowncreditcards,however,municipallibrariesarerequiredtoobtaincreditcardsthroughthemunicipality,
CREDIT CARD RECEIPTS POLICYIfpaymentsbycreditcard,debitcard,orotherfinancialtransactiondevicesareaccepted,thelibraryisrequiredtohaveapolicyinplaceinaccordancewithPublicAct280of1995,MCL129.221et.seq.Thegoverningboardshalladopt,byresolution,acreditcardreceiptspolicythatincludesthefollowing:
• Thetypesoffinancialtransactiondevicesthatmaybeaccepted,andshallcomplywiththelibrary’sresolutionforthedepositofpublicmoney.
• Thetypesoffeesforwhichcreditcardpaymentswillbeaccepted.
INVESTMENT POLICYAllMichiganlibrariesarerequiredtoadoptaformalinvestmentpolicythatmeetstheminimumrequirementsofPublicAct20of1943,MCL129.95.DetailsoftheminimumrequirementsofthepolicyandfurtherdiscussioncanbefoundinChapter2–Assets and Deferred Outflows of Resources,ofthisguide.
SECTION 3OTHER REQUIREMENTSVariousstatecompliancerequirementshavebeendiscussedthroughoutotherchaptersofthisguide,suchasthemandateoftheuseofauniformchartofaccounts(seeChapter1)andbudgetaryrequirements(seeChapter6).Statelegislaturealsorequireslibrariestothefollowingcompliancerequirements.
RECORD RETENTIONUnderPublicAct470of2016,MCL399.811 and PublicAct328of1931,MCL750.491,governmentagenciesmustkeepofficialbooksandrecordsinaccordancewiththeprovisionsofanapprovedRetentionandDisposalSchedule.TheMichiganDepartmentofTechnology,ManagementandBudgetoffersinstructionsandlinkstotheappropriateretentionanddisposalscheduleatStateofMichiganRecordsRetention.RecordscannotbedestroyedunlesstheirdisposalisauthorizedbyanapprovedRetentionandDisposalSchedule.Furthermore,emailisconsideredanofficialdocumentthatfallswithintheprovisionsoftheState’srecordandretentionrules.AlibrarymayadoptitsownrecordretentionanddisposalplanandsubmititforapprovalbytheRecordsManagementService.Michigan’sRecordsManagementServices(RMS)providesassistancetolibrariesforthemanagementofrecordsandinformation.
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TAX EXEMPT PURCHASESTheGeneralSalesTaxActandMichiganSalesandUseTaxAdministrativeRule,providesthatgovernmentalandnot-for-profitlibrarypurchasesarenotsubjecttosalesandusetax.MichiganDepartmentofTreasuryRevenueAdministrativeBulletin2002-15describessalesandusetaxexemptionclaimprocedures.Typically,alibrarywillprovideitsvendorswithacertificateofexemptionatthetimeofpurchase.
UNCLAIMED PROPERTYLibrariesoftenhavecash,orotheritems,thatareunclaimedbyitsrightfulowner.Themostcommonformofunclaimedpropertyarechecksthatthelibraryhasissued,butremainoutstanding.Unclaimedpropertycanbeeithertangibleorintangibleproperty.Michigan’sUnclaimedPropertyprogramisgovernedbytheMichiganUniformUnclaimedPropertyAct(PublicAct29of1995,asamended),andeverylibraryshouldhaveproceduresinplacesoastobeincompliance.EverylibraryholdingunclaimedpropertybelongingtosomeonewhoselastknownaddressisinMichiganmustreport.Unclaimedpropertyneedstogothrougha“dormancyperiod”beforeitisconsideredofficiallyunclaimed.Thedormancyperiodformostpropertytypesisnowthreeyears,exceptwagesandcommissionswhichisoneyear.Forexample,unclaimedpropertyreachingtheendofitsdormancyperiodasofMarch31,20XXmustbereportedandremittedtotheStateonorbeforeJuly1ofthesameyear.Librariesthathavenounclaimedpropertyarenotrequiredtofileazero/negativereport,butarestronglyencouragedtodosotoestablishafilinghistoryandensurecompliancewiththeAct.MoreinformationcanbefoundintheManualforReportingUnclaimedProperty .
SECTION 4COMPLIANCE CHECKLISTThechecklistbelowmaybeausefultoolforensuringthatthelibraryremainsincompliancewithStaterequirements:
YES NO
Are all unassigned fund balances and unrestricted net assets positive amounts (fund financial statements only)?
If not, was a deficit elimination plan filed?
Were all expenditures within authorized budget amounts?
Are the accounting records maintained in accordance with the Uniform Accounting Procedures Manual, Chart of Accounts, and other requirements of the Department of Treasury?
At a minimum, this would include:
• Detailed receipts journal
• Detailed disbursements journal, and
• Cash balance journal which includes all funds
Has the library adopted a budget for the general fund and each special revenue fund prior to the beginning of the fiscal year?
Was a public hearing held prior to the final passage of a budget?
Was the final budget amendment done prior to the fiscal year-end?
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YES NO
Has restricted or debt retirement funds been funded and used for proper purposes?
Improper purposes include:
• Comingling of debt retirement funds
• Interfund borrowing from debt retirement funds
• Transfer of excess debt retirement funds to the operating fund if municipal securities are outstanding
If the library borrowed money, issued bonds, or issued notes, have the procedures required by the Municipal Finance Act or the Revised Municipal Finance Act been adhered to?
If the library has outstanding bonds, has the annual Municipal Finance Qualifying Statement been filed?
Are investments in accordance with Public Act 20 of 1943, MCL 129.91 ?
SECTION 5RESOURCESMichiganDepartmentofTreasuryDeficitEliminationPlanGuidance www.michigan.gov/documents/treasury/NumberedLetter2016-1_529007_7.pdf
RecordRetention–DispositionofPublicRecords www.michigan.gov/dtmb/0,5552,7-358-82548_21738_31550-56141--,00.html
RecordRetention–GeneralSchedulesforLocalGovernment www.michigan.gov/dtmb/0,5552,7-358-82548_21738_31548-56101--,00.html
RecordRetentionSchedule–GeneralSchedule#17–PublicLibraries www.michigan.gov/documents/dtmb/RMS_GS17_640201_7.pdf
ManualforReportingUnclaimedProperty www.michigan.gov/documents/2013i_2598_7.pdf
MichiganDepartmentofTreasury–UnclaimedProperty unclaimedproperty.michigan.gov/
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APPENDIX 1.1
Sample Library
BUDGET VS. ACTUAL
As of December 31, 20XX
November 2013 Budget$ Over (Under)
Budget% of Budget
REVENUES
Property Taxes $58,000 $80,000 $(22,000) 73%
Penal Fines 15,000 40,000 (25,000) 38%
Grants 7,500 8,000 (500) 94%
Other 5,100 7,500 (2,400) 68%
TOTAL REVENUES $85,600 $135,500 $(49,900) 63%
EXPENDITURES
Personal Services $39,000 $80,000 $(41,000) 49%
Building Operations 5,700 10,000 (4,300) 57%
Collection 1,000 3,000 (2,000) 33%
Capital Outlay 1,500 2,500 (1,000) 60%
Other Operating 2,900 5,000 (2,100) 58%
TOTAL EXPENDITURES $50,100 $100,500 $(50,400) 50%
NET INCOME $35,500 $35,000 $500 101%
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APPENDIX 1.2
Sample Library
BALANCE SHEET
As of December 31, 20XX
General Fund
ASSETS
Cash and Cash Equivalents $384,000
Investments 232,000
Accounts Receivable 30,000
Due from Other Governments 40,000
Prepaids 2,000
TOTAL ASSETS $688,000
LIABILITIES & FUND BALANCE
Liabilities
Accounts Payable $210,000
Accrued Payroll 2,500
Due to Other Governments 5,000
Total Liabilities $217,500
Fund Balance
Restricted for capital improvement $ 25,000
Unassigned 445,500
Total Fund Balance $470,500
TOTAL LIABILITIES & FUND BALANCE $688,000
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APPENDIX 1.3
Sample Library
PROFIT AND LOSS
January 20XX through December 20XX
YTD
REVENUES
Property Taxes $58,000
Penal Fines 15,000
Grants 7,500
Other 5,100
TOTAL REVENUES $85,600
EXPENDITURES
Personal Services $39,000
Building Operations 5,700
Collection 1,000
Capital Outlay 1,500
Other Operating 2,900
TOTAL EXPENDITURES $50,100
NET INCOME $35,500
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APPENDIX 2.1
Sample Library
STATEMENT OF NET POSTION
December 20XX
Governmental Activities
ASSETS
Current Assets
Cash $809,522
Investments 969,486
Prepaid expenses 7,154
Assets held by foundation 84,268
Accounts receivable 863
Due from other governmental units 92,153
Total current Assets $1,963,446
Noncurrent assets
Capital assets, net of accumulated depreciation $2,176,341
Total Current Assets $4,139,787
LIABILITIES
Current Liabilities
Accounts payable $62,676
Accrued liabilities 9,527
Accrued interest payable 4,593
Compensated absences 10,383
Total current liabilities $ 212,179
Noncurrent liabilities
Noncurrent portion of long term debt $555,000
Total Liabilities $767,179
NET POSITION
Net investment in capital assets $1,496,341
Restricted 344,775
Unrestricted 1,531,492
TOTAL NET POSITION $3,372,608
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APPENDIX 2.2
Sample Library
STATEMENT OF ACTIVITIES
Year Ended December 20XX
Program Revenues Net (Expense)
Functions/Programs ExpensesCharges for
Services
Operating Grants and
Contributions
Revenues and Changes in Net
Position
Governmental activities
Recreation and cultural $725,306 $22,486 $48,210 $(654,610)
Interest on long-term debt 31,204 - - (31,204)
TOTAL REVENUES $756,510 $22,486 $48,210 $(685,814)
General Revenues
Property taxes $721,981
State aid 8,346
Penal fines 92,153
Investment earnings 13,987
Miscellaneous 2,398
TOTAL GENERAL REVENUES $838,865
CHANGE IN NET POSITION $153,051
NET POSITION, BEGINNING OF YEAR $3,219,557
NET POSITION, END OF YEAR $3,372,608
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APPENDIX 2.3
Sample Library
Government Funds
BALANCE SHEET
December 20XX
GeneralDebt
Service
Nonmajor Governmental
FundsTotal
ASSETS
Cash
Investments $809,522 $ - $ - $809,522
Prepaids 704,386 184,256 80,844 969,486
Assets held by foundation 7,154 - - 7,154
Accounts receivable - - 84,268 84,268
Due from other governmental units 863 - - 863
TOTAL ASSETS $1,614,078 $184,256 $165,112 $1,963,446
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable $62,676 $62,676
Accrued liabilities 9,527 9,527
TOTAL LIABILITIES $72,203 $72,203
FUND BALANCES
Nonspendable $ 7,154 $ - $54,579 $62,676
Restricted - 184,256 110,533 $62,676
Committed 251,043 - - $62,676
Assigned 150,000 - -
Unassigned 1,133,678 - - $62,676
TOTAL LIABILITIES $1,541,875 $184,256 $165,112 $1,891,243
TOTAL LIABILITIES AND FUND BALANCES $1,963,446
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APPENDIX 2.4
Sample Library
Government Funds
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES
Year Ended December, 31 20XX
GeneralDebt
Service
Nonmajor Governmental
FundsTotal
REVENUES
Property Taxes $565,048 $156,933 $ - $721,981
Intergovernmental 105,336 - - 105,336
Fines and forfeits 22,434 - - 22,434
Interest 3,661 972 154 4,787
Net Increase in fair value of investments - - 9,200 9,200
Other
Miscellaneous 2,398 - - 2,398
Contributions 42,073 - 1,300 43,373
TOTAL REVENUES $741,002 $157,905 $10,654 $909,561
EXPENDITURES
Current
Recreation and cultural $665,494 $ - $800 $666,294
Debt service - 156,933 - 156,933
TOTAL EXPENDITURES $665,494 $156,933 $800 $823,227
NET CHANGE IN FUND BALANCES 75,508 972 9854 86,334
Fund balances, beginning of year 1,466,367 183,284 155,258 62,676
FUND BALANCES, END OF YEAR $1,541,875 $184,256 $165,112 $1,891,243
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APPENDIX 2.5
Sample Library
Government Funds
BUDGETARY COMPARISION SCHEDULE
Year Ended December, 31 20XX
Budget Amounts Variance with Final Budget
Positive (Negative)
Original Final Actual
REVENUES
Property Taxes $585,279 $585,279 $565,048 $(20,231)
Intergovernmental 80,000 80,000 105,336 25,336
Fines and forfeits 20,000 20,000 22,434 2,434
Interest 3,500 3,500 3,661 161
Charges for services 100 100 52 (48)
Other
Miscellaneous - 2,398 2,398 -
Contributions 13,950 13,950 42,073 28,123
TOTAL REVENUES $702,829 $705,227 $741,002 $35,775
EXPENDITURES
Current
Recreation and cultural
Personnel $356,200 $306,799 $295,017 $11,782
Supplies 22,500 22,500 16,729 5,771
Building operations 117,400 179,400 166,165 13,235
Services 34,900 53,450 48,272 5,178
Cooperative services 29,000 29,000 20,484 8,516
Programming 8,500 8,500 7,984 516
Materials 80,000 81,918 80,932 986
Technology 13,800 13,800 12,955 845
Other 12,800 22,800 16,956 5,844
TOTAL EXPENDITURES $678,100 $718,167 $665,494 $72,203
NET CHANGE IN FUND BALANCES 24,729 (12,940) 75,508 88,448
Fund balances, beginning of year 1,466,367 1,466,367 1,466,367 -
FUND BALANCES, END OF YEAR $1,491,096 $1,453,427 $1,541,875 $1,963,446
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APPENDIX 3.1
Sample Investment PolicyPurpose:Aninvestmentpolicyshouldstatethereasonitisestablished.
It is the policy of __________ to invest its funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow needs of the __________ and comply with all state statutes governing the investment of public funds.
Scope:Aninvestmentpolicyshouldstatethefundstowhichthepolicyapplies.
This investment policy applies to all financial assets of the __________ . These assets are accounted for in the various funds of the ___________and include the general fund, special revenue funds, debt service funds, capital project funds, enterprise funds, internal service funds, trust and agency funds and any new fund established by the __________ .
Objectives:safety,diversification,liquidity,andreturnoninvestment
The primary objectives, in priority order, or the ___________’s investment activities shall be:
Safety—Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to insure the preservation of capital in the overall portfolio.
Diversification—The investments will be diversified by security type and institution in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.
Liquidity—The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated.
Return on Investment—The investment portfolio shall be designed with the objective of obtaining a rate of return throughout the budgetary and economic cycles, taking into account the investment risk constraints and the cash flow characteristics of the portfolio.
Delegation of Authority to Make Investments
Authority to manage the investment program is derived from the following: (Insert the board resolutions designating depositories, appropriate state statutes. Management responsibility for the investment program is hereby delegated to the ___________ , who shall establish written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, delivery vs payment, investment accounting, repurchase agreements, wire transfer agreements, collateral/depository agreements and banking service contracts. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the (title of the designated official) __________ . The (title of the designated official) __________ shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities or subordinate officials.
List of authorized investments--if mutual funds are authorized, a statement indicating whether the authorization is limited to securities whose intention is to maintain a net asset value of $1.00 per share or also include securities whose net asset value per share may fluctuate on a periodic basis.
The __________ is limited to investments authorized by Public Act 20 of 1943, as amended, and may invest in the following: (List the investments authorized by Act 20 which the governing body wants to allow the local unit’s funds to be invested in)
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Safekeeping and Custody:Thisprovisionwillprovidecomfortthatthesecuritiesarephysicallysafe.
All security transactions, including collateral for repurchase agreements and financial institution deposits, entered into by the ___________ shall be on a cash (or delivery vs payment) basis. Securities may be held by a third party custodian designated by the treasurer and evidenced by safekeeping receipts as determined by the treasurer.
Prudence
Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.
APPENDIX 3.2
Sample Capital Asset PolicyPurpose:ThispolicyisbeingestablishedtoestablishcriteriaforthecapitalizationofvarioustypesoffixedortangibleassetstomeettheprovisionsofGovernmentalAccountingStandardsBoardNo.34(GASB34).
Definitions: Capitalizeditemsarefurniture,equipment,improvements,buildings,orotherassets,whichhavealifeexpectancyofmorethanayear,andwhenpurchasedhaveanindividualpriceinexcessof __________ dollars ($________ ).CapitalizeditemswillalsoincludetheLibrary’scollectionofbooksthathavealifeexpectancyofmorethanayear,regardlessofprice.
Non-capitalizedequipmentisdefinedasequipmentorassets,purchasedoracquired,withavalueofless than ___________dollars($________).Non-capitalitemsareexpensedsuchasofficesupplies,suchasfolders,envelopes,stamps,paper,pencilstape,staplersandsimilaritems.
AssetsaredefinedasanyitemsofvalueacquiredbytheLibrary.Thiscouldincludeland,buildings,artworks,historicalmaterials,oranythingelseofsignificantmonetaryvalue.ThisdoesnotincludecollectionsoftheLibrary[oramendtosaythatitdoes].
Tangible assetsaredefinedasanythingwhichcanbeperceivedbyoneormoreofthesenses.
Library collections,andalladditionstothatcollection,ofgovernmentalentitiesarenotrequiredtobecapitalizedwhetherdonatedorpurchasedthatmeetcertainconditions.However,inaccordancewithrecommendedbestpracticesoftheGovernmentFinanceOfficersAssociation,theLibraryconsidersthatbynotcapitalizingthecollectionofbookswouldbeanomissionofanentireclassofassets.Therefore,theLibraryhasoptedtocapitalizeitscollectionofbooks.
Circulating library materialsarenotcapitalizedbecausetheyfailtomeetthelibrary’susefullifecriteria.
Policies:Thelibrarywillestablishanaccountingorrecord-keepingsystemthatidentifiesallassetssubjecttoGASB34.Therecordswillbeupdatedannuallyandmadeavailabletotheauditors.
Depreciationwillberecordedusingthestraight-linedepreciationmethodovertheusefullifeoftheasset.Allcapitalizedassetswillbelistedwiththeirdescription,dateofacquisition,acquisitioncost,usefullife,andresidualorsalvagevalue.
Incaseswherenopurchasepricecanbeobtained(historicaltreasures,worksofart,andothersimilarvaluables),avalueandusefullifewillbeassignedby_______________orhis/herdesignee.Thisvalueshallbetheestimatedfairmarketvalue.Everyattempt,withinreason,willbemadetodeterminetheactualvalueoftheiteminquestion,beforethevalueisrecorded.
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APPENDIX 3.3
Sample Fraud Risk Management Policy
1. Organizational Code of ConductThelibrary,itsemployees,BoardofTrusteesandvolunteersmust,atalltimes,complywithallapplicablelawsandregulations.TheLibrarywillnotcondoneactivitieswhichachieveresultsbasedonunethicalbusinesspractices,orthroughviolationofthelaw.Thelibrarydoesnotpermitanyactivitythatfailstostandtheclosestpossiblepublicscrutiny.Accordingly,employees,trusteesandvolunteersmustensurethattheiractionscannotbeinterpretedasbeinginanyway,inbreachofthelawsandregulationsgoverningtheLibrary’soperation.
Employeesandvolunteersuncertainabouttheapplicationorinterpretationofanylegalrequirementsshould referthemattertotheLibraryDirector,who,ifnecessary,shouldseektheadviceoftheBoardofTrusteesorthe library’sattorney.
2. General ConductThelibraryexpectsitsemployees,trusteesandvolunteerstoconductthemselvesinaprofessionaland businesslikemanner.
3. Conflicts of InterestEmployeesandtrusteeswillperformtheirdutiesconscientiously,honestly,andinaccordancewiththebestinterestsoftheLibrary.Neitheremployeesnortrusteesmayusetheirpositionortheknowledgegainedasaresultoftheirpositionforprivateorpersonaladvantageortoobtainfinancialgain.
Specifically,intheeventthatatrusteerecognizesanactualorpotentialconflictofinterest,thetrusteeisexpectedtodisclosetotheboardanyfinancialorpersonalbeneficialinterest,directorindirect,andabstainvoluntarilyfromdiscussionorvotingonanyissuethatraisessuchconflictofinterest.Ifanymemberoftheboardperceivesapossibleconflictofinterestpositionforanyothertrustee,thepossibleconflictshouldbebroughttotheattentionoftheboardandtheboardasawholeshoulddeterminewhethertheissuerepresentsaconflictofinterest.
4. Outside Activities, Employment, and DirectorshipsAllemployeesandtrusteesshareaseriousresponsibilityfortheLibrary’sgoodpublicrelations,especiallyatthecommunitylevel.Theirreadinesstohelpwithreligious,charitable,educational,andcivicactivitiesbringscredittotheLibraryandisencouraged.However,employeesandtrusteesmustavoidacquiringanybusinessinterestorparticipatinginanyactivityoutsidethelibrarythatwould,orwouldappearto:
• Createanexcessivedemandupontheirtimeandattention,thusdeprivingtheLibraryoftheirbesteffortsonthejob
• Createaconflictofinterest-anobligation,interest,ordistraction-thatmayinterferewiththeindependentexerciseofjudgmentintheLibrary’sbestinterest
5. Relationships with Clients and SuppliersEmployeesandtrusteesshouldavoidinvestinginoracquiringafinancialinterestfortheirprivateaccountsinanybusinessorganizationthathasacontractualrelationshipwiththeLibraryorthatprovidesgoods,services,orbothtotheLibrary,ifsuchinvestmentsorinterestcouldinfluenceorcreatetheimpressionofinfluencingtheirdecisionsintheperformanceoftheirdutiesonbehalfoftheLibrary.
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6. Gifts, Entertainment, and FavorsEmployeesandtrusteesmustnotacceptentertainment,giftsorpersonalfavorsthatcould,inanyway,influence,orappeartoinfluence,businessdecisionsinfavorofanyperson,business,ororganizationwithwhomorwithwhichtheLibraryhas,orislikelytohave,businessdealings.
7. Kickbacks and Secret CommissionsWithregardtotheLibrary’sbusinessactivities,employeesandtrusteesmaynotreceivepaymentorcompensationofanykind.Inparticular,theLibrarystrictlyprohibitstheacceptanceofkickbacksandsecretcommissionsfromsuppliersorothers.Anybreachofthisrulewillresultinimmediateterminationandprosecutiontothefullestextentofthelaw.
8. The Library Funds and AssetsEmployeesandtrusteeswhohaveaccesstotheLibraryfundsinanyformoramountmustfollowtheprescribedproceduresforrecording,handling,andprotectingthemoney.TheLibraryimposesstrictstandardstopreventfraud,theft,ordishonesty.Ifanindividualbecomesawareofanyevidenceoffraudortheft,aFraud,TheftandCorruptionDisclosureFormshouldbefiledsothattheLibrarycanpromptlyinvestigatethematter.
Whenanemployeeortrusteepositionrequiresexpendinglibraryfundsorincurringreimbursablepersonalexpenses,thatindividualmustusegoodjudgmentontheLibrary’sbehalftoensurethatgoodvalueisreceivedfor theexpenditure.
TheLibraryfundsandassetsareforLibrarypurposesonly.FormoreinformationaboutwhatareconsideredLibraryfundsandassetspleasereviewSection4,Chapter23“LimitsofMunicipalExpenditures”intheMichiganMunicipalLeague’sHandbookforMunicipalOfficialsavailabeonlineathttp://www.mml.org/resources/publications/ebooks/index.html#hmo .
9. Records and CommunicationsAccurateandreliablerecordsofmanykindsarenecessarytomeettheLibrary’slegalandfinancialobligationsandtomanagetheaffairsoftheLibrary.TheLibrary’sbooksandrecordsmustreflectallbusinesstransactionsinanaccurateandtimelymanner.Employeesandtrusteesresponsibleforaccountingandrecordkeepingmustfullydiscloseandrecordallassetsandliabilities,andmustexercisediligenceinenforcingtheserequirements.
Employeesandtrusteesmustnotmakeorengageinanyfalserecordorcommunicationofanykind,whetherinternalorexternal,includingbutnotlimitedto:
• Falseexpense,attendance,production,financial,orsimilarreportsandstatements
• Falseadvertising,deceptivemarketingpractices,orothermisleadingrepresentations
10. Dealing with Outside People and OrganizationsEmployeesandtrusteesmusttakecaretoseparatetheirpersonalrolesfromtheirlibrarypositionswhencommunicatingonmattersnotinvolvinglibrarybusiness.EmployeesandtrusteesmustnotuseLibraryidentification,stationery,supplies,andequipmentforpersonalorpoliticalmatters.
TheLibraryshouldhaveapolicythatidentifiesaspokesperson.ThespokespersoncouldbetheLibraryDirector,adesignatedstaffperson,oratrustee.NootheremployeeshouldspeakfortheLibrary,unlessspecificallyauthorizedtodoso;andshouldreferallcommunicationmatterstothedesignatedperson.
Whendealingwithanyoneoutsidethelibrary,includingpublicofficials,employeesandtrusteesmusttakecarenottocompromisetheintegrityordamagethereputationoftheLibrary,oranyoutsideindividual,business,orgovernmentalbody.
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Trusteesmustrememberthatallauthorityisvestedinthefullboardandnotwithindividualboardmembers.Allboardmembersareexpectedtosupportthemajoritydecisionoftheboard,regardlessofhowtheypersonallyvotedonthematter.
11. Prompt CommunicationsInallmattersrelevanttopatrons,suppliers,governmentofficials,thepublicandotherswithinthelibrary,employeesandtrusteesmustmakeeveryefforttoachievecomplete,accurateandtimelycommunications-respondingpromptlyandcourteouslytoallproperrequestsforinformationandtoallcomplaints.
12. Privacy and ConfidentialityWhenhandlingfinancialandpersonalinformationaboutpatronsorotherswithwhomtheLibraryhasdealings,employeesandtrusteesshouldobservethefollowingprinciples:
• Collect,use,andretainonlythepersonalinformationnecessaryforlibrarybusiness
• Protectthephysicalsecurityofthisinformationatalltimes,andretaininformationonlyforaslongasnecessaryorasrequiredbylaw,includingtheLibraryPrivacyAct
Limitinternalaccesstopersonalinformationtothosewithalegitimatebusinessorlegalreasonforseekingthatinformation,andonlyusepersonalinformationforthepurposesforwhichitwasoriginallyintended.
APPENDIX 3.4
Sample Whistleblower PolicyTheLibraryiscommittedtothehigheststandardsofopenness,honesty,andaccountability.Inconsiderationofthatcommitment,thelibraryexpectsemployeesandotherswithseriousconcernsaboutanyaspectofthelibrary’songoingoperationstocomeforwardandvoicethoseconcerns.ThisWhistle-BlowingPolicyisintendedtoencourageandenableemployeestoraiseseriousconcernswithinthelibrary,withoutfearofretaliation.
EmployeesareoftenthefirsttorealizethattheremaybesomethingseriouslywrongwithintheLibrary.However,theymayrefrainfromexpressingtheirconcernsbecausetheyfeelspeakingupwouldbedisloyaltotheircolleagues.Theymayalsofearharassmentorvictimization.
1. Scope
Thispolicyaimsto:
• Provideavenuesforemployeestoraiseconcernsandreceivefeedbackonanyactiontaken
• Reassureemployeesthattheywillbeprotectedfromretaliationorvictimizationforprovidinginformationingood faith
• Informemployeeshowtotakethematterfurther,iftheyaredissatisfiedwiththeresponse
ThisWhistle-BlowingPolicyisintendedtocoverconcernsofanyemployeeorofanyindividualcloselyinvolvedintheoperationsoftheLibrary.Theseconcernsmaybeaboutsomethingthat:
• Isunlawful
• Violatesthelibrary’sstatedpolicies
• Fallsbelowestablishedstandardsofpractice
• Representsimproperconduct
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2. Safeguards
Thelibraryrecognizesthatthedecisiontoreportaconcerncanbeadifficultonetomake,possiblybecauseofthefearofretaliationfromthoseresponsibleforthemisconduct.
Thelibrarywillnottolerateharassmentorvictimizationandwilltakeactiontoprotectthosewhoraiseaconcerningood faith .
Everyeffortwillbemadetoprotectanindividual’sidentityiftheyreportaconcernanddonotwanttheirnamedisclosed.Theinvestigationprocess,however,mayrevealthesourceoftheinformation,and/orastatementbytheindividualmayberequiredaspartoftheevidence.
Individualsareencouragedtoputtheirnamestoallegations.Concernsexpressedanonymouslyaremuchlesspowerful,buttheymaybeconsideredatthediscretionofthelibrary.Inexercisingthisdiscretion,thefactorstobeconsideredinclude:
• The seriousness of the issues raised
• The credibility of the concern
• Thelikelihoodofconfirmingtheallegationsfromattributablesources
Ifanallegationismadeingoodfaith,butisnotcorroboratedbytheinvestigation,noactionwillbetakenagainsttheoriginatoroftheallegation.Ifindividualsmakemaliciousallegations,disciplinaryactionmaybeconsideredagainst thatindividual.
3. Raising a Concern
Forlessseriousissues,employeesshouldnormallyraiseconcernswiththeLibraryDirector.Ingeneral,however,theWhistle-BlowingPolicyshouldbeappliedforpotentiallymoreseriousandsensitiveissues.ThefirststepistoapproachtheLibraryDirector.IfthesubjectoftheallegationhappenstobetheLibraryDirector,thentheExecutiveCommitteeoftheBoardofTrusteesshouldbecontacted.Inallcases,aninitialinvestigationwilldeterminewhetherornotafullinvestigationisrequired.
Concernsshouldbereportedinwritingusingthe·Fraud,TheftandCorruptionDisclosureForm(attached).Theseformscanbeobtained,confidentially,fromtheLibraryDirectororanymemberoftheBoardofTrustees.Thebackgroundandhistoryoftheissue,togetherwithpertinentdates,shouldbeincludedontheform.Includeasmuchdetailaspossible,includingthereasonwhytheindividualsuspectsfraud,theft,orcorruption.Theearliertheconcernisreported,theeasieritistoinvestigateandtakeaction.Althoughemployeesarenotexpectedtoprovethetruthofanallegation,theywillneedtodemonstratethattherearesufficientgroundsforconcern.
4. How the Complaint Will Be Handled
Theactiontakenbythelibrarywilldependonthenatureoftheconcern.Themattersraisedmaybeinvestigatedinternallyand/orreportedtothepolice.
Theamountofcontactbetweentheinvestigatorandtheoriginatorofthecomplaintwilldependonthenatureoftheissuesraised,thepotentialdifficultiesinvolved,andtheclarityoftheinformationprovided.Thelibrarywilltakestepstominimizeanydifficultiesthattheoriginatorofthecomplaintmayexperienceasaresultoftheirconcern.
Allegationswillbeaddressedasfollowsdependingonthenatureoftheallegation:
• AninternalinvestigationbytheLibraryDirector,theExecutiveCommitteeoftheBoardofTrustees,oranexternalauditor
• Referralofcriminalmatterstothepolice
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Thecomplainantwillreceive,withinten(10)workingdaysofaconcernbeingreceived,writtencommunication:
• Acknowledgingthattheconcernhasbeenreceived
• Indicatinghowthematterwillbehandled
• Givinganestimateofhowlongitwilltaketoprovideafinalresponse
• Tellingthemthestatusoftheinitialinvestigation
• Tellingthemifanyfurtherinvestigationwilltakeplace,andifnot,why
Theinvestigationwillbeplannedwithconsiderationtothefollowing:
• Resourcesrequiredtoinvestigatetheallegation
• Legalstatusoftheallegation(e.g.,theftorbreachofprocedure)
• Internaldisciplinaryprocedures
• Levelofevidencerequired
• Protectionofdataanddocumentsrequired;incompliancewiththeLibraryPrivacyAct
• Minimizationoftheeffectonemployeesandothers
• Recoveryoflostfundsandminimizingthepotentialforfurtherloss
• Reviewofanyimprovementsrequiredtopreventre-occurrence
TheLibraryappreciatesthatindividualswhoreporttheallegedfraud,theft,orcorruptionneedtobeassuredthatthematterhasbeenproperlyaddressed.Thus,whereappropriate,andsubjecttolegalconstraints,theywillreceiveinformationabouttheoutcomeofanyinvestigation.
Iftheallegationoffraud,theft,orcorruptiondirectlyimpactsanotherorganization,thehighestrankingofficeratthatorganizationwillbeinformed.
APPENDIX 3.5
Sample Fund Balance PolicyPurpose.ThefollowingpolicyhasbeenadoptedbytheBoardofTrusteesinordertoaddresstheimplicationsofGovernmentalAccountingStandardsBoard(“GASB”)StatementNo.54,Fund Balance Reporting and Governmental Fund Definitions.ThepolicyiscreatedinconsiderationofunanticipatedeventsthatcouldadverselyaffectthefinancialconditionoftheLibraryandjeopardizethecontinuationofnecessarypublicservices.ThispolicywillensurethattheLibrarymaintainsadequatefundbalancesandreservesinorderto:
a.Providesufficientcashflowfordailyfinancialneeds,
b.Secureandmaintaininvestmentgradebondratings,
c.Offsetsignificanteconomicdownturnsorrevenueshortfalls,and
d.Providefundsforunforeseenexpendituresrelatedtoemergencies
ThispolicyandtheprocedurespromulgatedunderitsupersedeallpreviousregulationsregardingtheLibrary’sfundbalanceandreservepolicies.
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Fundtypedefinitions.ThefollowingdefinitionswillbeusedinreportingactivityingovernmentalfundsacrosstheLibrary.TheLibrarymayormaynotreportallfundtypesinanygivenreportingperiod,basedonactualcircumstancesandactivity.
The general fundisusedtoaccountforallfinancialresourcesnotaccountedforandreportedin another fund .
Special revenue fundsareusedtoaccountandreporttheproceedsofspecificrevenuesourcesthatarerestrictedorcommittedtoexpenditureforspecificpurposesotherthandebtserviceorcapitalprojects.
Debt service fundsareusedtoaccountforallfinancialresourcesrestricted,committedorassignedtoexpenditureforprincipalandinterest.
Capital projects fundsareusedtoaccountforallfinancialresourcesrestricted,committedorassignedtoexpenditurefortheacquisitionorconstructionofcapitalassets.
Permanent fundsareusedtoaccountforresourcesrestrictedtotheextentthatonlyearnings,andnotprincipal,maybeusedforpurposesthatsupporttheLibrary’spurposes.
Fundbalancereportingingovernmentalfunds.FundbalancewillbereportedingovernmentalfundsunderthefollowingcategoriesusingthedefinitionsprovidedbyGASBStatementNo.54:
Nonspendable fund balance
Definition—includesamountsthatcannotbespentbecausetheyareeither(a)notinspendableformor(b)legallyorcontractuallyrequiredtobemaintainedin-tact.
Classification—Nonspendableamountswillbedeterminedbeforeallotherclassificationsandconsistofthefollowingitems(asapplicableinanygivenfiscalyear):
• TheLibrarywillmaintainafundbalanceequaltothebalanceofanylong-termoutstandingbalancesduefromothers(includingotherfundsoftheLibrary).
• TheLibrarywillmaintainafundbalanceequaltothevalueofinventorybalancesandprepaiditems(totheextentthatsuchbalancesarenotoffsetwithliabilitiesandactuallyresultinfundbalance).
• TheLibrarywillmaintainafundbalanceequaltothecorpus(principal)ofanypermanentfundsthatarelegallyorcontractuallyrequiredtobemaintainedin-tact.
• TheLibrarywillmaintainafundbalanceequaltothebalanceofanylandorothernonfinancialassetsheld for sale .
Restricted fund balance
Definition—includesamountsthatcanbespentonlyforthespecificpurposesstipulatedbytheconstitution,externalresourceproviders,orthroughenablinglegislation.
Committed fund balance
Definition—includesamountsthatcanbeusedonlyforthespecificpurposesdeterminedbyaformalactionoftheLibrary’shighestlevelofdecision-makingauthority(i.e.,theBoardofTrustees).
AuthoritytoCommit—CommitmentswillonlybeusedforspecificpurposespursuanttoaformalactionoftheBoardofTrustees.Amajorityvoteisrequiredtoapproveacommitmentandatwo-thirdsmajorityvoteisrequiredtoremoveacommitment.
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Assigned fund balance
Definition—includesamountsintendedtobeusedbytheLibraryforspecificpurposesbutdonotmeetthecriteriatobeclassifiedasrestrictedorcommitted.Ingovernmentalfundsotherthanthegeneralfund,assignedfundbalancerepresentstheremainingamountthatisnotrestrictedorcommitted.
AuthoritytoAssign—TheBoardofTrusteesdelegatestothe[CommitteeorAdministrator]orhis/her/theirdesigneetheauthoritytoassignamountstobeusedforspecificpurposes.Suchassignmentscannotexceedtheavailable(spendable,unrestricted,uncommitted)fundbalanceinanyparticularfund.
Unassigned fund balance
Definition-includestheresidualclassificationfortheLibrary’sgeneralfundandincludesallspendableamountsnotcontainedintheotherclassifications.Inotherfunds,theunassignedclassificationshouldbeusedonlytoreportadeficitbalancefromoverspendingforspecificpurposesforwhichamountshadbeenrestricted,committed,orassigned.
Operationalguidelines.Thefollowingguidelinesaddresstheclassificationanduseoffundbalanceingovernmentalfunds:
Classifying fund balance amounts —Fundbalanceclassificationsdepictthenatureofthenetresourcesthatarereportedinagovernmentalfund.Anindividualgovernmentalfundmayincludenonspendableresourcesandamountsthatarerestricted,committed,orassigned,oranycombinationofthoseclassifications.Thegeneralfundmayalsoincludeanunassignedamount.
Encumbrance reporting —Encumberingamountsforspecificpurposesforwhichresourceshavealreadybeenrestricted,committed,orassignedshouldnotresultinseparatedisplayofencumberedamounts.Encumberedamountsforspecificpurposesforwhichamountshavenotbeenpreviouslyrestricted,committedorassigned,willbeclassifiedascommittedorassigned,asappropriate,basedonthedefinitionsandcriteriasetforthinGASBStatementNo.54.
Prioritization of fund balance use —Whenanexpenditureisincurredforpurposesforwhichbothrestrictedandunrestricted(committed,assigned,orunassigned)amountsareavailable,itshallbethepolicyoftheLibrarytoconsiderrestrictedamountstohavebeenreducedfirst.Whenanexpenditureisincurredforpurposesforwhichamountsinanyoftheunrestrictedfundbalanceclassificationscouldbeused,itshallbethepolicyoftheLibrarythatcommittedamountswouldbereducedfirst,followedbyassignedamountsandthenunassignedamounts.
Minimum unassigned fund balance —TheLibrarywillmaintainanunrestrictedfundbalanceintheGeneralFundrangingfrom[20]percentto[30]percentofcurrentyeargeneraloperatingexpenditures.Thisminimumfundbalanceistoprotectagainstcashflowshortfallsrelatedtotimingofprojectedrevenuereceiptsandtomaintainabudgetstabilizationcommitment.Unrestrictedfundbalances,forthepurposeofthisfundbalancerecalculation,willincludeunassignedandassignedfundbalances.
Replenishingdeficiencies—whenfundbalancefallsbelowtheminimum[20]percentrange,theLibrarywillreplenishshortages/deficienciesusingthebudgetstrategiesandtimeframesdescribedbelow.
ThefollowingbudgetarystrategiesshallbeutilizedbytheLibrarytoreplenishfundingdeficiencies:
• TheLibrarywillreducerecurringexpenditurestoeliminateanystructuraldeficitor,
• TheLibrarywillincreaserevenuesorpursueotherfundingsources,or,
• Somecombinationofthetwooptionsabove.
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Minimumfundbalancedeficienciesshallbereplenishedwithinthefollowingtimeperiods:
• Deficiencyresultinginaminimumfundbalancebetween[15]percentand[20]percentshallbereplenishedoveraperiodnottoexceedoneyear.
• Deficiencyresultinginaminimumfundbalancebetween[10]percentand[15]percentshallbereplenishedoveraperiodnottoexceedthreeyears.
• Deficiencyresultinginaminimumfundbalanceoflessthan[10]percentshallbereplenishedoveraperiodnottoexceedfiveyears.
Surplusfundbalance-ShouldunrestrictedfundbalanceoftheGeneralFundeverexceedthemaximum[30]percentrange,theLibrarywillconsidersuchfundbalancesurplusesforone-timeexpendituresthatarenonrecurringinnatureandwhichwillnotrequireadditionalfutureexpenseoutlaysformaintenance,additionalstaffing,orotherrecurringexpenditures.
Implementationandreview.UponadoptionofthispolicytheBoardofTrusteesauthorizesthe[Administrator/Department]toestablishanystandardsandprocedureswhichmaybenecessaryforitsimplementation.The[Administrator/Department]shallreviewthispolicyatleastannuallyandmakeanyrecommendationsforchangestothe Board of Trustees .
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APPENDIX 4.1
Sample Library
GENERAL FUND – BUDGET
Year Ended December 31, 20XX
Account Number Account Description Prior Year Actual
Estimate of Current Year
Proposed Budget
REVENUES
271-738-403 Property taxes $200,000 $210,000 $212,000
271-738-566 State aid 12,000 12,000 13,000
271-738-606 Contractual fees 9,000 10,000 10,000
271-738-607 Other fees 3,000 3,000 3,000
271-738-609 Book rental fees 1,000 1,000 1,000
271-738-613 Photocopy fees 500 400 400
Include remaining revenue line item descriptions and figures in a similar manner.
TOTAL REVENUES $273,000 $280,000 $280,000
EXPENDITURES
271-738-702 Salary & wages $150,000 $156,000 $161,000
271-738-715 Fringe benefits 28,000 32,000 34,000
271-738-716 Medical/dental 6,000 7,000 8,000
271-738-717 Life insurance/disability 3,000 4,000 4,000
271-738-718 Retirement 8,000 9,000 10,000
271-738-720 FICA & Medicare 11,000 12,000 12,000
271-738-725 Supplies 8,000 11,000 11,000
271-738-727 Office supplies 1,000 1,000 1,500
271-738-728 Library supplies 3,000 6,000 6,500
271-738-729 Building supplies 1,000 1,000 1,000
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Account Number Account Description Prior Year Actual
Estimate of Current Year
Proposed Budget
EXPENDITURES Continued
271-738-730 Postage 1,500 2,000 2,000
271-738-732 Janitorial supplies 2,000 1,000 1,000
271-738-740 Library materials 35,000 42,000 42,000
271-738-741 Adult books 11,000 13,000 13,000
271-738-742 Juvenile books 3,000 5,000 4,000
271-738-744 Adult A-V 4,000 5,000 6,000
271-738-745 Juv A-V 4,000 4,000 3,000
271-738-747 Subscriptions 12,000 15,000 13,000
271-738-748 Book rental 1,000 - -
271-738-801 Prof & cont 13,000 12,000 14,000
271-738-808 Online info 12,000 11,000 11,000
271-738-809 Programming - 1,000 1,000
271-738-810 Other professional - - 500
271-738-812 Legal - - 500
271-738-814 Membership/dues 500 500 500
271-738-815 Staff inservice 500 500 500
Include remaining revenue line item descriptions and figures in a similar manner.
TOTAL EXPENDITURES $272,000 $285,000 $285,000
TOTAL EXCESS (DEFICIT) OF REVENUES OVER EXPENDITURES
$1,000 $(5,000) $(5,000)
BEGINNING FUND BALANCE $1,300,000 $1,301,000 $1,301,000
PROJECTED FUND BALANCE $1,301,000 $1,296,000 $1,296,000
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APPENDIX 5.1
SAMPLE REQUEST FOR PROPOSAL AUDIT SERVICES
NOTICE OF PROPOSAL The[NameofLibrary]isissuingthisrequestforproposal(RFP)forthefinancialauditoftheLibrary’sfinancialstatements,andifnecessary,anauditinaccordancewiththeSingleAuditAct.ThecontactpersonregardingthisRFPis[Name]andcanbereachedat[phonenumber,emailaddress].TheresponseduedateforthisRFPis[dateandtime].Anyproposalsreceivedafterthistimewillnotbeconsidered.Wearerequesting[number]ofcopiesofyourproposalinasealedenvelope.Theenvelopeshouldclearlyindicateitisaproposalforauditservices.Theauditperiodundercontractisfortheyear(s)ended[date(s)]andmaybeextendedatthediscretionofLibrary.
AUDITING STANDARDS YourexaminationwillbeconductedinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica,and,ifaSingleAuditisrequiredyourexaminationwillbeconductedinaccordancewithgovernmentalauditstandardsissuedbytheComptrolleroftheUnitedStatesandstandardscontainedinOMB’sUniformGuidance.
MANDATORY QUALIFICATIONS OF THE AUDITOR Thefollowinginformationmustbeaffirmedintheproposalresponse:
1 . TheproposerisproperlylicensedforpublicpracticeasaCertifiedPublicAccountant.
2 . TheproposermeetstheindependencerequirementsoftheStandardsforAuditofGovernmentalOrganizations,Programs,Activities,andFunctionspublishedbytheU.S.GeneralAccountingOffice.
3 . Theproposerdoesnothavearecordofsubstandardauditwork.Pleasedisclosethecontrolsyourfirmhasinplacetoensurequalitystandardshavebeenmet.Also,disclosewhetheryourfirmissubjecttoanexternalqualitycontrolreviewprocess.
MONITORING Toensurethequalityoftheaudit,theLibrarymayrequest,fromtimetotime,areportontheprogressoftheaudit.Inaddition,priortocompletionofthefieldwork,anauditexitconferencewillbeheldtodiscusstheresultsof the audit .
TIME REQUIREMENTS TheLibraryshallreceiveallproposalresponsesby[dateandtime].Weanticipatethesuccessfulbidderwillbenotifiedby[date,time,anddeliverymethodsuchasmailoremail].
WORKING PAPERS Theworkingpapersshallberetainedforatleastthreeyears.TheworkingpaperswillbeavailableforexaminationbyauthorizedrepresentativesoftheStateofMichigan,and,ifrequiredthecognizantfederalauditagencyandtheGeneralAccountingOffice.
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RIGHT TO REJECT TheLibraryreservestherighttorejectanyandallproposalssubmittedandtorequestadditionalinformationfromallproposers.Anycontractawardedwillbemadetotheindependentauditorwho,basedonevaluationofallresponses,applyingallcriteriaandoralinterviewsifnecessary,isdeterminedtobethebestqualifiedtodotheaudit.
NUMBER OF COPIES OF AUDITOR’S REPORTS TheauditorshallfurnishtheLibrary[number]ofcopiesofallrequiredreports.Inaddition,theauditorshallfurnishtherequestednumberofcopiestoeachfederalandstateagency,asapplicable.
CONTRACTUAL ARRANGEMENTS Invoicesforservicewillbepaidwhenreceived.ThetotalamounttobeinvoicedshallnotexceedtheamountofthebidunlessotherarrangementshavebeennegotiatedwiththeLibraryfirst.Thecostofauditsforsubsequentyearswillbenegotiatedeachyear.TheLibraryreservestherighttoterminatethecontractforauditatanytime.
METHOD OF EVALUATING PROPOSALS Proposalswillbeevaluatedwithastrictemphasisonquality.Attributes,whichwillbeanalyzed,include:
Evaluation Worksheet
1 . NumberofgovernmentalentitiesauditedbyofficeofCPAfirmproposing.
2 . Firmgovernmentalresourcesavailable.
3 . Involvementingovernmentalactivityandorganizations.
4 . Trainingofpersonnelingovernmental(andfederalgrant)auditing.
5 . Qualityofstaffincludedinassignment.
6 . Referenceresponses.
7 . Internalqualitycontrolproceduresandexternalqualitycontrolreview.
Aftertechnicalqualitieshavebeenevaluated,costandotherconsiderationswillbeevaluated.Theproposingauditfirmshouldindicatethecostoftheauditforthefirstyearandtherangeoraveragecostperhourforauditservices.Onceallfactorshavebeenevaluated,theauditfirmwhoismostqualifiedandreasonableincostwillbeselected.
FORMAT OF THE RFP RESPONSEItissuggestedtheRFPresponsebeformattedasfollows:
Title Page
TheresponseshouldidentifytheRFPsubjectandthenameoftheindependentauditor,localaddress,telephonenumber,name,andtitleofcontactpersonanddateofsubmission.Theperiodwhichtheproposaliseffectiveshouldalso be disclosed .
Table of Contents
Thetableofcontentsoftheproposalshouldincludeaclearandcompletedidentificationofthematerialssubmittedbysectionandpagenumber.
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Letter of Transmittal
Theletteroftransmittalshouldcontainthefollowinginformation:
• Abriefunderstandingoftheauditservicetobeperformed.
• Apositivecommitmenttoperformtheservicetimely.
• Thenamesofpersonsauthorizedtorepresenttheproposer,theirtitle,addressandtelephonenumber. Thismaybeimportantifdifferentfromtheindividualwhosignsthetransmittalletter.
PROFILE OF THE INDEPENDENT AUDITOR Theproposersarerequestedtoprovideaprofileofgeneralbackgroundinformation.Thisshouldinclude:
1 . Theorganizationandsizeoftheproposer,whetheritislocal,regional,national,orinternational inoperations.
2 . Thelocationoftheofficefromwhichtheworkistobedoneandthenumberofprofessionalstaffbystafflevelemployedatthatoffice.
3 . Adescriptionoftherangeofactivitiesperformedbythelocalofficesuchasauditing,accounting,taxservice,ormanagementservices.
4 . Astatementontheproposer’sstaffcapabilitytoauditfederalprograms,includingthenumberandclassificationsofpersonnelskilledinfederalprogramauditingwhowillworkintheaudit,ifrequiredto.
5 . Apositivestatementthatthefollowingmandatorycriteriaaresatisfied:
a. Anaffirmationthattheproposerisproperlylicensedforpracticeasacertifiedpublicaccountant.
b. Anaffirmationthattheproposerdoesnothavearecordofsubstandardwork.
SUMMARY OF THE PROPOSER’S QUALIFICATIONS1 . Identifytheauditmanagers,fieldsupervisors,andotherstaffwhowillworkontheaudit,includingstaff
fromotherthanthelocaloffice.Resumesincludingrelevantexperienceandcontinuingeducationforauditorin-chargeuptotheindividualwithfinalresponsibilityfortheengagementshouldbeincluded.(Theresumesmaybeincludedasanappendix.)
2 . Describetherecentlocalandregionalofficeauditingexperiencesimilartothetypeofauditrequestedandgivethenamesandtelephonenumbersofclientofficialsresponsibleforthreeoftheauditslisted.
3 . Otherauditorswhoareparticipatingintheauditarealsorequiredtoprovidesimilarinformation.
PROPOSER’S APPROACH TO THE EXAMINATION Submitaworkplantoaccomplishthescopeoftheaudit.Theworkplanshouldincludetimeestimatesforeachsignificantsegmentoftheworkandthestaffleveltobeassigned.Wherepossible,individualstaffmembersshouldbenamedandtheirtitlesprovided.Theplanneduseofspecialistsshouldbespecified.
Theauditworkplanshouldcompletelycoverwhatauditworkwillbeaccomplishedtoallowtheauditortorender:
1 . Areportonthestudyandevaluationandreportoninternalcontrolsystems.
2 . Reportingontheorganization’scontrolsystemtoassurecomplianceandwhethertheorganizationhascompliedwithlawsandregulationsthatmayhaveaneffectoneachmajorfederalassistanceprogram.
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Theauditworkplanshoulddemonstratetheauditor’sunderstandingoftheauditrequirementsofasingleauditasspecifiedinUniformGuidanceandtheaudittestsandprocedurestobeappliedincompletingtheauditplan.
TIME REQUIREMENTS Ifnotalreadyadequatelycoveredintheletteroftransmittal,theresponseshoulddetailinformationonwhentheauditfirmplanstodeliverthefinalreports.
COMPENSATION Provideanot-to-exceedcostofservicesbeingofferedforthefirstyearoftheengagementandtherangeoraveragecostperhourofauditservices.
ADDITIONAL DATA Provideanyadditionaldatatheproposerfeelsmaybehelpfulintheselectionprocess.
APPENDIX 5.2
AUDIT PROPOSAL EVALUATION
PRIOR AUDITING EXPERIENCE (0-25)
Numberofmunicipalities/librariescurrentlybeingauditedbyofficewhich willhandleaudit(Considergovernmentalunitssimilarinsize) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
Othergovernmentalexperience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
REFERENCE RESPONSES (0-25)
Aretheyhappywithfirm?
Dotheymeetdeadlines?
Istheirstaffknowledgeableinmunicipalaccountingandauditing?
Dotheyhavelowstaffturnoveronyouraudit?
Istheauditpartnerinvolved?
QUALIFICATIONS (0-30)
Involvementinmunicipalactivities-organizations,technicalcommittees,etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
Municipalexperienceofstaffassignedtoaudit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
PROPOSED FEE (0-20)
Lowestfee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20)
Feeofspecificfirm
NOTE - The above suggested allocation of points should be modified based on items your library feels are most important
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Sample Library
SAMPLE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Year Ended December 31, 20XX
Federal Grantor Pass Through Grantor Program Title Grant Number
Federal CFDA
NumberGrant
Number
Approved Grant
Number
Accrued (Deferred) Revenue
December 31, 20XX
Current Year Receipts
Current Year Expenditures Adjustments
Accrued (Deferred) Revenue
December 31, 20XX
Transferred to Subrecipient
Institute of Museum and Library Services
Passed through Michigan Department of Education
Future Ready with the Library 45 313 . XXXXXX $500,000 $ - $400,000 $500,000 $ - $100,000 $ -
National Leadership Grant 45 312 . XXXXXX 250,000 - 50,000 250,000 - 200,000 -
Total Institute of Museum and Library Services
- 450,000 750,000 - 300,000 -
U.S. Department of State
Federal Assistance Award 45 024 . XXXXXX 30,000 5,000 5,000 10,000 - 10,000 -
Total U.S. Department of State 5,000 5,000 10,000 - 10,000 -
TOTAL FEDERAL AWARDS $5000 $455,000 $760,000 $ - $310,000 $ -
APPENDIX 6
chart continued on next page
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Sample Library
SAMPLE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Year Ended December 31, 20XX
Federal Grantor Pass Through Grantor Program Title Grant Number
Federal CFDA
NumberGrant
Number
Approved Grant
Number
Accrued (Deferred) Revenue
December 31, 20XX
Accrued (Deferred) Revenue
Current Year Current December 31, Transferred to Receipts Year Expenditures Adjustments 20XX Subrecipient
$400,000 $500,000 $- $100,000 $-
50,000 250,000 - 200,000 -
450,000 750,000 - 300,000 -
5,000 10,000 - 10,000 -
5,000 10,000 - 10,000 -
$455,000 $760,000 $ - $310,000 $ -
InstituteofMuseumandLibraryServices
PassedthroughMichiganDepartmentofEducation
FutureReadywiththeLibrary 45 .313 XXXXXX $500,000 $-
NationalLeadershipGrant 45 .312 XXXXXX 250,000 -
TotalInstituteofMuseumand LibraryServices
-
U.S.DepartmentofState
FederalAssistanceAward 45 .024 XXXXXX 30,000 5,000
TotalU.S.DepartmentofState 5,000
TOTAL FEDERAL AWARDS $5000
Appendix 6 chart continued
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APPENDIX 7
INTERNAL CONTROL QUESTIONNAIRETheaccompanyingquestionnairecanbeusedasatooltoidentifyareaswhereinternalcontrolsareweakorcouldbeimproved.Any“No”answerisindicativeofapotentialinternalcontrolweakness.Considerationshouldbegiventochangingexistingprocedures,wherepracticalandcostbeneficial,sothata“yes”answercanbegiventothequestion.Itispossiblethata“yes”answerstillcannotbegiven.Thisisoftenthecaseforsmalllibrariesthatmayonlyhaveoneindividualtoperformfinancialfunctions.Ifa“yes”answerstillcannotbegiven,consultwithyourCPAtoensurethatsufficientoffsettingfactorsexist.
ANSWER
Yes No
I. CASH RECEIPTS
1 . Is the mail opened by someone other than the library’s bookkeeper (e.g. the Library Director)?
2 . Are receipts recorded by cash registers or other mechanical devices?
3 . If not, is a separate cash drawer used that is kept locked when unattended?
4 . Are each day’s receipts deposited in the bank intact and without delay?
5 . Does someone other than the bookkeeper (e.g. the Library Director) take the deposits to the bank?
6 . When branch libraries make collections, are such collections deposited in a bank account subject to withdrawal only by the main library?
7 . Are rents, taxes, interest, and similar revenues adequately controlled in such manner that their nonreceipt would be noted and investigated?
8 . Are receipts required to be given to patrons when cash is received?
9 . Are receipts prenumbered and accounted for by someone other than the clerk issuing the receipts?
II. CASH DISBURSEMENTS
1 . Are all disbursements, except from petty cash, made by check?
2 . Are all checks prenumbered?
3 . Are voided checks properly defaced or mutilated and held available for subsequent inspection?
4 . Are checks required to be countersigned by the treasurer or a board member?
5 . Is the signing of checks in advance prohibited?
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ANSWER
Yes No
6 . Is the library bookkeeper prohibited from signing checks?
7 . Is the practice of drawing checks to “cash” or “bearer” prohibited?
8 . If not, are checks so drawn limited to payrolls and/or petty cash reimbursement?
9 . Are the bank accounts reconciled monthly?
10 . Is the sequence of check numbers accounted for when reconciling the bank accounts?
11 . Is the practice of examining paid checks for date, name, cancellation, and endorsement followed by the employee reconciling the bank accounts?
12 . Are the invoices or other supporting documents presented together with the checks submitted for signatures?
13 . Do the signers review invoices for propriety and appropriateness of account assigned and compare check amounts to invoices before signing checks?
14 . If signature stamps are used, are the stamps safeguarded in a controlled location?
15 . Are blank checks safeguarded in a controlled location with limited access?
16 . Are the supporting documents cancelled with a “paid” stamp or other mark so as to prevent their use for duplicate payment?
III. PETTY CASH
1 . Is an imprest petty cash (i.e., fixed amount of cash) account system in use?
2 . Is the responsibility for the petty cash account vested in one person only?
3 . Is the petty cash account kept separate from daily cash receipts?
4 . Is disbursement of daily cash receipts prohibited?
5 . Has a maximum amount for individual payments from the petty cash account been established?
6 . Are payees required to sign petty cash vouchers for all disbursements?
7 . Is adequate approval required for petty cash advances to employees?
8 . Is the cashing of personal checks and IOUs prohibited?
9 . Is petty cash in a controlled location that is only accessible by authorized individuals?
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ANSWER
Yes No
10 . a. Are vouchers and supporting documents (invoices and receipts) checked by a person other than the keeper of petty cash at the time the petty cash account is reimbursed?
b. Does that employee verify the unexpended balance of the petty cash account?
11 . Are the amounts of the vouchers spelled out in words as well as written in numerals?
12 . Are petty cash vouchers marked “paid” so as to preclude their reuse?
13 . Are checks for reimbursement made out to the order of the petty cash custodian rather than to “cash”?
14 . Is the petty cash account checked at reasonable intervals by surprise counts made by an employee independent of the custodian of the account?
IV. INVESTMENTS
1 . Are securities kept in a safe deposit vault in the name of the library?
2 . If not, are they kept in safekeeping by an independent person?
3 . Is a record kept by the bookkeeper of each security, including certificate numbers?
4 . Are securities periodically inspected and reconciled with the records by an employee other than the bookkeeper?
5 . Are purchases and sales of securities authorized by the board, a board committee, or an officer?
6 . Are satisfactory records kept to ensure the proper and prompt receipt of income on securities owned?
7 . Has an investment policy been adopted by the board and have all financial brokers, bankers and trustees agreed in writing to comply with the policy?
8 . Are the provisions of the investment policy being followed?
9 . Are securities reviewed periodically to ensure only current Board Members or employees are authorized signers?
V. PURCHASES AND EXPENSE/EXPENDITURES
1 . Is the budget reviewed before ordering goods?
2 . Are vendors’ invoices recorded in the accounts payable journal immediately upon receipt?
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ANSWER
Yes No
3 . Are the invoices checked: a. Against purchase orders?
b. Against receiving reports (as to quantity and condition)?
4 . Are invoices approved for payment by a responsible official?
5 . Is there a definite responsibility for the checking of invoices as to: a. Prices and credit terms?
b. Clerical accuracy?
c. Freight charges or allowances?
6 . Is a designated employee made responsible for the determination of the proper account distribution of invoices (pursuant to an established accounting policy) to general ledger accounts?
7 . Are the vouchers, supporting invoices, and account distributions reviewed and initialed by an employee other than the bookkeeper before payment is authorized?
8 . Is a listing of outstanding accounts payable balanced monthly with the general ledger account?
9 . Are statements received from vendors regularly checked by the bookkeeper against the open accounts payable listing?
10 . Is a postage meter used for outgoing mail?
VI. PAYROLL
Becausethereisawiderangeoflibrarysizesandawiderangeofnumberofemployeesatlibraries,itisdifficulttodevelopgenericinternalcontrolguidelinesforpayroll.However,thefollowingconceptsconcerningpayrollwouldapplyforalllibraries:
• Employeesshouldbepaidonlyforthosehoursworked
• Employeesshouldbepaidatthecorrectrateofpay
Librariesshouldensurethatanappropriateofficial(boardmember,librarydirector,departmenthead,orotherassignedpersonoutsideofthehumanresourcefunction)performsthefollowing:
• Reviewofpayratestoensurethattheratepaidistheapprovedrate
• Reviewofeachpayrolltoensurethatonlycurrentemployeesarebeingpaid
• Reviewofeachpayrolltoensurethatallemployeesarerecognizedandtherearenoghostemployees
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GLOSSARY OF TERMSAccountAccountsareusedtoaccumulatesimilaraccountingtransactionsandcompleteatotal,eithercumulativeorforagivenperiodoftime.Forexample,SalariesandWagesExpenses-LibraryPersonnelisanaccountusedtocollectthepayrollcostofthelibrarypersonnel.
Accounting Accountingistheprocessofidentifying,recording,classifying,andreportinginformationoneconomiceventsinalogicalmannerforthepurposeofprovidingfinancialinformationfordecisionmaking.
Accounts Payable and Accrued Liabilities Short-termliabilityaccountsreflectingamountsduetoindividualsororganizationsforgoodsandservicespurchasedbyalibrary.
Accounts Receivable Assetaccountreflectingamountsduefromindividualsororganizationsforgoodsandservicesfurnishedbya library .
Accrual Basis Amethodofaccountingwherebyrevenueisrecordedwhenearned(regardlessofwhenreceived) andexpensesarerecorded whenincurred.
Advance MethodWhengrantfundsarerequestedorreceivedpriortotheincurrenceofgrant costs .
Aging ReportsAreportlistingeachcustomer’soutstanding balance for accounts receivableoramountduetovendorsforaccountspayablesortedbydaysoutstanding/pastdue.Thesearetypicallysortedincolumnssuchas:Current,1-30days,31-60days,61-90days91-120days,and120+days.Thereportallowsthereadertoseewhichcustomersarebehindinmeetingtheagreedupontermsforaccountsreceivableorwhatisstillowedtovendor’sforaccountspayable.
American Institute of Certified Public Accountants (AICPA) Theworld’slargestmemberassociationrepresentingtheaccountingprofession.TheysetethicalstandardsfortheprofessionandU.S.auditingstandardsforprivatecompanies,nonprofitorganizations,federal,state,andlocalgovernments.
Annual Report Afinancialreportprepared annuallythatincludesalibrary’sfinancialstatements.
Asset Somethingofvalueownedbyalibrary.
Audit Anauditisasetofproceduresperformedtoexpressanopinionastowhetherthefinancialstatementspresentthefinancialinformationfairly,inallmaterialrespects,inconformitywithgenerallyacceptedaccountingprinciples.
Audit Trail Abilitytofollowthroughtheaccountingsystemacompleteset ofaccountingrecordssupporting a transaction .
Auditor’s Report Astatementbytheauditordescribingthescopeoftheaudit,auditingstandardsappliedintheexamination,andsettingforththeauditor’sopinionon1)thefairnessofpresentationofthefinancialstatementsand/or2)the library’scompliancewithlaws and regulations .
Balance Sheet Thefinancialstatementdisclosingassets,liabilities,andfundbalanceofalibraryataspecifieddateinconformitywithgenerallyacceptedaccountingprinciples.
Basis of Accounting Atermwhichreferstowhenrevenueandexpendituresandtherelatedassetsandliabilitiesarerecognizedintheaccountsandreportedinthefinancialstatements.Specifically,itrelatestothetimingofthemeasurementsmade,regardlessofthenatureofthemeasurement.Commonlyusedbasesofaccountingarecash,modified-accrual,andaccrual.
Bond Awrittenpromisetopayaspecifiedsumofmoney(calledthefacevalueorprincipalamount),atadateordatesinthefuture,calledthematuritydate(s),togetherwithperiodicinterestatanagreeduponrate.Thedifferencebetweenanoteand a bond is that the latter is issued foralongerperiodandrequiresgreaterlegalformality.
Bonds Payable Thefacevalueofbondsissuedandunpaidatanygivenpointintime.
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Budget Abudgetisaplanoffinancialoperationsembodyinganestimateofproposedexpendituresforagivenperiodandthemeansoffinancingthem.IntheStateofMichigan,allGeneralandSpecialRevenueFundsarerequiredbylawtobebudgetedannually.
Capital Assets Long-livedassetsobtainedorcontrolledasaresultofpasttransactions,events,orcircumstances.Capitalassetsincludebuildings,furniture,equipment,improvements,andland.
Capital Expenditures Expendituresresultinginthepurchaseoforadditiontoagovernmentallibrary’scapitalassets.
Capitalization Policy Thecriteria(i.e.,dollarcut-off)usedbyalibrarytodeterminewhichpurchasesshouldbereportedascapitalassets.
Capital Projects Fund A fund used to account for developmentofcapitalfacilities,suchas an addition to a building .
Cash Basis Abasisofaccountingunderwhichtransactionsarerecognizedonlywhencashisreceivedordisbursed.
Cashier Anindividualresponsibleforcollecting cash usually at the circulationdeskofalibrary.
Certificate of Deposit Adepositinstrumentissuedbyabankthatusuallypaysinterest.Maturitiesrangefromafewweekstoseveralyears.Interestratesaresetbycompetitiveforcesinthemarketplace.
Certified Public Accountant (CPA) Anaccountantwhohasmetallthestatutoryandlicensingrequirementsofagivenstateforuseofthatdesignation.AllU.S.statesrequireaccountants,ataminimum,tocompletesuccessfullyauniformnationalexaminationbeforebeingallowedtodesignatethemselves as CPAs .
Check Awrittenordertoabanktopayondemandaspecifiedsumofmoneytoanamedpayeeoutofmoneyondeposittothecreditofthemaker.
Chief Administrative OfficerTheofficialthatisgrantedtohavegeneraladministrativecontroloftheorganizationthatmayexpendfundsoftheorganization.
ClassificationThetypeofaccountwithinthechartof accounts that a transaction is assigned.Forexample,anelectricexpenseis“classified”asautilityexpenseandrecordedinautilityexpenseaccountcode.
Commercial Paper Short-termobligationswithmaturitiesrangingfrom2to270daysissuedbybanks,corporations,andotherborrowerstoinvestorswithtemporarilyidlecash.Suchinstrumentsareunsecuredandusuallydiscounted,althoughsomeareinterest-bearing.
Compliance Audit Anauditforcompliancewithapplicablelawsandregulations.
Component Unit Acomponentunitisalegallyseparateorganizationforwhichtheprimarygovernmentisfinanciallyaccountable.Inaddition,componentunitscanbeotherorganizationsforwhichthenatureandsignificanceoftheirrelationshipwithaprimarygovernmentaresuchthatexclusionwouldcausethereportingentity’sfinancialstatementstobemisleadingorincomplete.
Confirmation Processbywhichanauditorsubmitsrequeststobanksandotherentitiestoindependentlyverifycash,investment,receivable,debt,andotherbalancesreflectedonagovernmentunit’sfinancialrecords.
Contingent Liability Itemsthatmaybecomeliabilitiesasaresultofconditionsundeterminedatagivendate,suchasguarantees,pendinglawsuits,judgmentsunderappeal,unsettleddisputedclaims,unfilledpurchaseorders,anduncompletedcontracts.Contingentliabilitiesshouldbedisclosedwithinthefinancialstatementnoteswhenthereisareasonablepossibilityalossmayhavebeenincurred.
Contra Asset AccountAn asset account that holds a credit (negative)balanceinthegeneralledger and is used to decrease the balance of another asset account . Thesetypesofaccountsarealsoreferred to as offset accounts . Accumulateddepreciationisthemostcommonlyfoundexampleofacontra asset account .
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Current Financial Resources Currentfinancialresourcesisamodifiedaccrualconcept,inwhichagovernmentalfundfocusesprimarilyonthesources,uses,andbalancesofcurrentlyavailableindividualfundsand has a budgetary orientation . “Financialresources”referstoassetsthatarespendable,i.e.,cashorclaimstocash;“current”referstoresourcesthatwillbeconvertedtocashwithinashortperiod(30to60days),orclaimsagainstthelibrary’sresources(i.e.,liabilities)thatarenormallyliquidatedwithinashorttimeperiod.
Debt Anobligationresultingfromtheborrowingofmoneyorfromthepurchaseofgoodsandservices.Debts of libraries usually include bondsandnotes,andinstallmentpurchaseagreements.
Debt Proceeds Theamountofmoneyreceiveduponissuingdebt.Debtproceedswilltypicallydifferfromthedebtprincipalamountduetobankfees,etc.
Debt Service Fund Afundusedforannualpaymentofprincipal,interest,andexpensesinconnectionwithcertainlong-termdebt.
Deferred Inflow of ResourcesAcquisitionofresourcesthatareapplicabletofuturereportingperiodsthatwillbereportedinaseparatesection after liabilities . Often referred toas“deferredinflows.”
Deferred Outflow of ResourcesAconsumptionofresourcesthatareapplicabletoafutureperiodthatwillbereportedinaseparatesectionfollowingassets.Oftenreferredtoas“deferredoutflows.’
DeficitAnexcessoftheliabilitiesofafundoveritsassets.
DepreciationAnallocationofexpenseswhichspreadsthecostofacapitalassetoveritsusefullife,thusexpensingthecostovertheperiodsthatarebenefitted.Theaccumulationofdepreciationexpenseovertimeisheldinan“accumulateddepreciation”accountwhichisacontra asset account .
DisbursementsPaymentsincashorbycheck.
Due from Other Funds An asset account used to indicate amountsowedtoaparticularfundby another fund for goods sold or servicesrendered.
Due to Other Funds Aliabilityaccountreflectingamountsowedbyaparticularfundtoanotherfundforgoodssoldorservicesrendered.
Encumbrances Commitmentsrelatedtounperformedcontractsforgoodsorservices(e.g.,purchaseorders,executedcontracts,etc.).Usedinbudgeting,encumbrancesarenotGAAPexpendituresorliabilities,butrepresenttheestimatedamountofexpendituresultimatelytoresultwhenunperformedcontractsinprocessarecompletedorpurchaseordersarefilled.
Endowment Fund/Permanent Endowment Afundusedbyalibraryinwhichadonorhasdirectedthattheprincipalistobemaintainedandonlytheincomefromtheinvestmentofthefundmaybeexpended.
Enterprise FundAself-supportingfundthatprovidesgoodsorservicestothepublicforafee.
Entry Therecordofafinancialtransactionin the accounting records .
Expenditures Amodified-accrualtermusedbygovernmentallibrariestodescribereductionsinnetfinancialresources.Expendituresincludecurrentoperatingexpensesrequiringtheuseofnetcurrentassets,debtservice,andcapitaloutlays.
Expenses Anaccrualbasistermusedtodescribetheconsumptionofgoodsorservices.Thiswouldincludedepreciation,butdoesnotincludepaymentsoflong-termdebtorpurchasesofcapitalassets.
Extraordinary item Extraordinaryitemsaretransactionsorothereventsthatareboth“unusualinnature”and“infrequentinoccurrence”.Theseareshownseparatelyinthefinancialstatementsandexplanatorynotedisclosuresalsorequired.
Financial Accounting Standards Board (FASB)Adesignatedorganizationintheprivatesectorwhoestablishesstandardsoffinancialaccountingthatgovernsthepreparationoffinancialreportsbynongovernmentalorganizations.ThosestandardsareofficiallyrecognizedasauthoritativebytheSecuritiesandExchangeCommission(SEC)andthe AmericanInstituteofCertifiedPublic Accountants .
Financial Statement Audit Auditingproceduressufficienttoprovidereasonableassuranceaboutwhetherfinancialstatementspresentfairlythefinancialpositionandresultsoflibraryoperationsinconformitywithgenerallyacceptedaccountingprinciples.
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Financial Statements Financialstatementsareacollectionofreportsaboutthelibrary’sfinancialresultsandcondition.Theyincludefootnotes,necessaryforthefairpresentationofthefinancialpositionandresultsofoperationsofalibrary.TheminimumrequirementtobeinconformitywithGAAPincludesabalancesheetandastatementofrevenueandexpenditures.Abudgetarycomparisonstatementisalsorequiredforgovernmentallibraries,unlessabudgetarycomparisonscheduleispresentedasRSI.
Fiscal Period Atwelve-monthperiodforwhichtheannualoperatingbudgetrelatestoandattheendofwhichalibraryreportsitsfinancialpositionandtheresultsofitsoperations.
Fund Anindependentfiscalandaccountingentitywithaself-balancingsetofaccounts recording cash and/or otherresourcestogetherwithallrelatedliabilities,obligations,reservesandequitiesthataresegregatedforthepurposeofcarryingonspecificactivitiesorattainingcertainobjectivesinaccordancewithspecificregulations,restrictionsorlimitations.
Fund Balance Thedifferencebetweenassetsplusdeferredoutflowsofresourcesandliabilitiesplusdeferredinflowsofresourcesofagovernmentalfund.
Fund Type Anyoneofseveralcategoriesintowhichallfundsareclassified.Thefundtypesare:general,specialrevenue,debtservice,capitalprojects,andfiduciaryforgovernmentallibraries.
General Fund Thefundusedbygovernmentallibrariestoaccountformostfinancialresources,exceptthoserequiredtobe accounted for in another fund .
General Journal Ajournalinwhicharerecordedallentries not recorded in subsidiary ledgerssuchascashreceiptorcashdisbursementjournals.Thistermismostlyapplicabletomanualaccountingsystems.
General Ledger A record containing the accounts neededtoreflectthefinancialpositionandtheresultsofoperationsofalibrary.Indouble-entrybookkeeping,thedebitsandcredits in the general ledger are equal(i.e.,thedebitbalancesequalthecreditbalances).
Generally Accepted Accounting Principles (GAAP) Uniformminimumstandardsandguidelinesforfinancialaccountingandreporting.Theygoverntheformandcontentofthefinancialstatementsofanentity.GAAPencompassestheconventions,rulesandproceduresnecessarytodefineacceptedaccountingpracticeataparticulartime.Theyincludenotonly broad guidelines of general application,butalsodetailedpracticesandprocedures.GAAPprovidesastandardbywhichtomeasurefinancialpresentations.TheprimaryauthoritativebodyontheapplicationofGAAPtonot-for-profitlibrariesistheFASBandtogovernmentallibrariesistheGASB.
Generally Accepted Auditing Standards (GAAS) Standards established by the AmericanInstituteofCertifiedPublicAccountants(AICPA)fortheconductandreportingoffinancialaudits . These standards set forth the objectivesoftheauditandestablishmeasuresthatcanbeappliedtojudgethequalityofitsperformance.
Government Audit Standards (GAS) StandardsestablishedbytheU.S.GovernmentAccountabilityOffice(GAO)initspublicationGovernment Auditing Standards(“YellowBook”)fortheconductandreportingoffinancialandcomplianceaudits.
Governmental Accounting Standards Board (GASB) Theauthoritativeaccountingandfinancialreportingstandard-settingbodyforgovernmentalentities.
Governmental Accounting Standards Board Statement AstatementissuedbytheGASBspecifyingtheaccountingprinciplesandpracticestobeusedbygovernmentalentitiesforfinancialreportingortoaccountforaparticularfinancialtransaction.
Governmental FundsGovernmentalfundsareusedtoaccountformosttypicalgovernmentalfunctionsfocusingontheacquisition,use,andbalancesofalibrary’sexpendablefinancialresources and the related current liabilities . The accounting for governmentalfundshasabudgetorientation using the current financialresourcesmeasurementfocusandthemodifiedaccrualbasisofaccounting.Therearefivetypesofgovernmentalfunds:General,SpecialRevenue,DebtService,CapitalProjects,andPermanentFunds.
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Government Wide Financial Statements Government-widefinancialstatementsarepreparedusingthetotaleconomicresourcesmeasurementfocusandthe full accrual basis of accounting . Asaresult,theyreportalloftheassets,liabilities,revenues,expenses,and gains and losses of the entire governmentalunit.
Grants Contributions of cash or other assets fromagovernmentornot-for-profitentitytobeusedorexpendedforaspecifiedpurpose,activity,orfacility.
Independent Audit AfinancialstatementauditperformedbyaCertifiedPublicAccountant(CPA)orCPAfirm.TheCPAand/orfirmisrequiredtomaintainindependenceinfactandinappearancewhileperformingtheseattestservices.
Independent Auditor AnauditormeetingtheindependencecriteriasetforthinGAAS and/or GAS . In order to maintainindependence,anauditorcannotbeanemployeeofthelibraryoramemberofthelibrary’sboardormanagement.Theindependentauditorcannotmakemanagementdecisions on behalf of the library .
Internal Controls Policiesandproceduresestablishedtoprovidereasonableassurancethatspecificorganizationobjectiveswill beachieved.
Investment Pool Acombinationofresourcesforacommonpurposeorbenefit.Forexample,abankpoolsthefundsofitscustomers,givingthemanopportunitytoshareinaportfolioofferinggreaterdiversificationandthehopeofabetterreturnontheirmoneythantheycould getindividually.
Investments Mostcommonly,securities held to generate interest and dividendrevenue
Ledger Agroupofaccountsinwhicharerecordedthefinancialtransactionsofthe library . See General Ledger and Subsidiary Ledger .
Liabilities Amountsowedtoothers.
Long-term Debt Anydebtwhichmatures(i.e.,isdue)inmorethanoneyearfromthedateof issuance .
Major Funds AconceptcreatedbyGASBStatementnumber34inordertofocusthefinancialreportingonfundsthatrepresentasignificantportionofagovernment’sactivities.Thedeterminationofwhatconstitutesamajorfundisbasedonamathematicalformula.TheGeneralFundofagovernmentisalwaysreportedasamajorfund.Additionally,governmentsmaychoosetoreportasmajorfundsthatdonotmeetthemathematicalcriteriaiftheybelievethattheyareimportanttofinancialstatementusers.
Major Program MajorprogramsarefederalprogramsselectedforspecifictestingbytheauditorasprescribedbyUniformGuidance(2CFR200).Theyaregenerallythelargestand/orriskiestfederalprogramsoftheentity.Auditorsselectatleastonemajorprogramaspartofeachsingleaudit.
Management’s Discussion and Analysis (MD&A) MD&Aisarequiredpartoftheauditedfinancialstatementsthatintroducesthebasicfinancialstatementsandprovidesanoverviewofthefinancialactivities.
Measurement Focus and Basis of Accounting Theterm“measurementfocus”isusedtodifferentiate‘what’accountantsattempttomeasureandreportinafund’soperatingstatement.“Basisofaccounting”referstothe‘when’itemsaremeasured.
Modified Accrual Basis The accrual basis of accounting adaptedtothegovernmentalfund-typemeasurementfocus.Revenueisrecordedwhencollectedorcollectiblesoonenoughtobeusedtopaycurrentliabilities(referredtoas“available”).“Available”generallymeanscollectiblewithin30to60days.Expendituresarerecordedwhenincurred(i.e.,whenthegoodsarereceivedortheservicesrendered),notwhencashispaidorwhenaninvoiceisreceived.
Mutual Fund Fundoperatedbyaninvestmentcompanythatraisesmoneyfromshareholdersandinvestsitinstocks,bonds,options,commodities,ormoneymarketsecurities.Thesefundsofferinvestorstheadvantagesofdiversificationandprofessionalmanagement.Thereistypicallyanominalfeechargedthatisbasedontheamountofassetsheldinthefund.
Net OPEB LiabilityAnaccumulationofactuariallydeterminedamountsthatestimatethe future obligation of the library forpostemploymentbenefitsotherthanpensionstoemployees.
Net Pension LiabilityAnaccumulationofactuariallydeterminedamountsthatestimatethe future obligation of the library for retirementbenefitstoemployees.
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Net PositionThedifferencebetweenassetsplusdeferredoutflowsofresourcesandliabilitiesplusdeferredinflowsofresourcesinthegovernment-widefinancialstatements.
Notes Payable Ingeneral,anunconditionalwrittenpromisesignedbythemakertopayacertainsumofmoneyondemandoratafixedordeterminabletimeeither to the bearer or to the order ofapersondesignatedtherein.
Notes to the Financial Statements ThenarrativedisclosuresrequiredforfairpresentationofthefinancialstatementsofalibraryinconformitywithGAAP.Thenotesareaseparatesectionoftheannualreportandnotincludedonthefaceofthefinancialstatementsthemselves.
Operating Transfers Boardauthorized(budgeted)transfersfromafundreceivingrevenuetothefundthroughwhichtheresourcesaretobeexpended.
Other Financing Sources Foragovernmentallibrarylong-termdebtproceeds,proceedsfromthesaleofcapitalassets,andoperatingtransfersin.Suchamountsareclassifiedseparatelyfromrevenueontheoperatingstatement.
Other Financing Uses Operatingtransfersoutforagovernmentallibrary.Suchamountsareclassifiedseparatelyfromexpendituresonthegovernmentallibraryoperatingstatement.
Permanent Fund AfundtypecreatedbyGASBStatementnumber34thatareusedtoreportresourcesthatarelegallyrestrictedtotheextentthatonlyearnings,andnotprincipal,maybeusedforpurposesthatsupportthereportinggovernment’sprograms.
Petty Cash Cashtomakechangeortopaysmallobligationsforwhichtheissuanceofaformalcheckwouldbetooexpensiveandtime-consuming.Pettycashaccountsaresometimesreferredtoaspettycashfunds.However,theyarenot“funds”inthesenseofnot-for-profitorgovernmentalaccountingindividualfunds.Pettycashaccountsshouldbereportedasassetsinthefundofownership.
Pledge Apromisetomakeacontributiontoalibraryinanamountandformstipulated.
Prepaid Expense Anassetaccountrepresentingpaymentinadvanceofthereceiptofgoodsandservices(e.g.,prepaidrentandunexpiredinsurancepremiums);commonlyreferredtoassimplya“prepaid”.
Principal Inthecontextofdebt,thefaceamountborrowedandpayableonstateddatesofmaturity.
Proprietary FundsProprietaryfundsareusedtoaccountforanentity’songoingorganizationsandactivitiesthataresimilartothoseoftenfoundintheprivatesector.Thesefundsareconsideredself-supportinginthattheservicesrenderedbythemaregenerallyfinancedthroughuserchargesoronacostreimbursementbasis.Proprietaryfundsusetheeconomicresourcesmeasurementfocusandtheaccrualbasisofaccounting.Therearetwotypesofproprietaryfunds:enterprisefundsandinternalservicefunds.
Purchase Order Adocumentauthorizingthedeliveryofspecifiedmerchandiseortherenderingofcertainservicesandrelatedobligationtopayforthem.
Receipts Cashorchecksreceived.
Reimbursement MethodWhengrantfundsarerequestedforreimbursementafterthecostshavebeen incurred .
Register Arecordfortheconsecutiveentryofacertainclassoftransactions,withpropernotationofalltherequireddetails(i.e.,acashdisbursementjournalisalsosometimescalledacheckregister).
Remittance AdviceAlistingsentfromacustomertotheirsupplier(generallyaccompanyingacheck),informingthesupplierwhichinvoice(s)havebeenpaid.Theadvicemaycontainelementssuchastheinvoicenumberandinvoiceamount,amongothers.Althoughtheyareoptional,theyeasetheprocessofmatchinginvoicesandpaymentsfortheapplierandareconsideredausefulservice.
Repurchase Agreement Investmentagreementbetweenasellerandabuyer,usuallyforU.S.Governmentsecurities,wherebythe seller sells securities and agrees torepurchasethematanagreeduponpriceand,usually,atastatedtime.Fortheinvestor,thisisanopportunitytoinvestcashfor acustomizedperiodoftime.It isshort-termandsaferasa securedinvestment.
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Required Supplementary Information (RSI) AsrequiredbyvariousGASBstandards,RSIprovidesadditionalinformationthatisnecessaryforusersoffinancialreportstoevaluatecertainfinancialaspectsofagovernmentalunit’soperation.
Revenue Increases in the assets of a library other than through the issuance of debt or incurrence of a liability .
Salaries and Wages Payable Aliabilityaccountreflectingsalariesandwagesearnedbyemployeesbutnot due until a later date .
Securities A negotiable or nonnegotiable instrumentthatsignifiesanownershipinterest,orrighttoanownershipinterest or creditor status .
Schedule of Expenditures of Federal Awards Schedule included in a Single Audit reportthatlistsfederalprograminformation,includingprogramname,federalidentificationinformation,expenditures,andawardamounts.
Short-Term Debt Debtwithamaturityofoneyearorless after the date of issuance .
Single Audit Anauditofanorganization’sfederalgrantprogramsasrequiredbytheSingleAuditActperformedinaccordancewithUniformGuidance(2CFR200).Asingleauditisrequiredwhenannualfederalexpendituresexceed$750,000inthefiscalyearofthelibrary.
Special Items Specialitemsaresignificanttransactionsorothereventswithinthecontrolofmanagementthatareeither“unusualinnature”or“infrequentinoccurrence”.
Special Revenue Fund SpecialRevenueFundsareusedtoaccountfortheproceedsofearmarkedrevenueorfinancingactivitiesrequiringseparateaccounting because of legal or regulatoryprovisions.
Statement of Activities TheStatementofActivitiesisdesignedtoreporttheresultsofthegovernment’soperations(changesinnetposition).TheStatementofActivitiesispresentedusingthefullaccrual basis of accounting .
Statement of Revenues, Expenditures, and Changes in Fund Balance Thefinancialstatementthatisthegovernmentallibrary’sGAAPoperatingstatement.Itpresentsincreases(revenuesandotherfinancingsources)anddecreases(expendituresandotherfinancinguses)inanentity’snetcurrentassets.
Statement of Net Position TheStatementofNetPositiondisplaysalloftheassets,liabilities,anddeferredoutflow/inflowsofresourcesapplicabletothelibrary.TheStatementofNetPositionreportsthecomponentsandbalancesofthegovernment’sneteconomicresourcesatyearendthatcanbeusedtoprovidefutureservices.TheStatementofNetPositionispresentedusingthefullaccrual basis of accounting .
Subsidiary Ledger Alistingofsimilartransactionssuchascashreceiptsorcashdisbursements,thesumofwhichwillequalthebalanceoftherelatedcontrol account .
Total Economic Resources Totaleconomicresourcesisafullaccrualconceptwhereagovernmentreportsitsfinancialconditionandresultsofoperationsonafullaccrualbasisofaccounting.Theconceptappliestothegovernmentwidefinancialstatementsandincludesallassetsandliabilities,bothcurrentandnon-current.
Trial Balance Asummarizedlistofbalancesandactivityforeachuniqueaccountataspecificpointintimethatisderivedfromthegeneralledger.Thetrialbalancewillalwayssumtozero,debitswillequalcredits,ifdouble-entryaccountingwasusedcorrectly.
Trustee Afiduciarythatholdspropertyonbehalf of another .
Unearned RevenuePaymentthathasbeenreceivedbut has not yet been earned . For example,thelibraryreceivesapaymentinadvanceforaneventthatistooccurnextmonth.Unearnedrevenueisclassifiedasaliabilityonthefinancialstatementsuntilithas been earned . Once it has been earned,itthenbecomesrevenue.
Unrestricted Fund BalanceUnrestrictedfundbalanceisnotanofficialcategoryoffundbalance,however,itisusedasageneraltermwhencalculatingapercentageof fund balance and includes committed,assigned,andunassignedfund balances .
Voucher Awrittendocumentthatevidencestheproprietyoftransactionsandusually indicates the accounts in whichtheyarerecorded.
702W.KalamazooSt.,LansingMI48915www.michigan.gov/librarymanuals