library of michigan financial management guide...financial management and governance of libraries...

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

4 2019 PUBLIC LIBRARY FINANCIAL MANAGEMENT GUIDE

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.

https://www.michigan.gov/librarymanuals


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.


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)

https://www.michigan.gov/documents/libraryofmichigan/LM_2013_MI_Library_Laws_Handbook_423082_7.pdf

https://www.michigan.gov/documents/mde/LM_Michigan_District_Library_Law_329703_7.pdf

http://legislature.mi.gov/doc.aspx?mcl-397-201

http://legislature.mi.gov/doc.aspx?mcl-397-210a

http://legislature.mi.gov/doc.aspx?mcl-117-4e




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.

mailto:[email protected]



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.

http://www.gasb.org/


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.


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.


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.


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.


• 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 .

http://legislature.mi.gov/doc.aspx?mcl-act-2-of-1968

http://www.michigan.gov/documents/uniformchart_24524_7.PDF

http://www.michigan.gov/documents/uniformchart_24524_7.PDF


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


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


• 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


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

https://www.michigan.gov/libraryofmichigan/0,9327,7-381-88855_89735_89755-54452--,00.html


https://www.gasb.org/jsp/GASB/Document_C/DocumentPage&cid=1176169156708

http://www.gasb.org/cs/ContentServer?c=Document_C&cid=1176169371273&d=&pagename=GASB%2FDocument_C%2FDocumentPage

http://www.gasb.org/cs/ContentServer?c=Document_C&cid=1176169371273&d=&pagename=GASB%2FDocument_C%2FDocumentPage


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.



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:


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


www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391

www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MclPASearch

www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MCLBasicSearch


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.


• 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).


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


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:


• 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

http://www.legislature.mi.gov/(S(swoxrd45cqmx5k55fndpw545))/mileg.aspx?page=GetMCLDocument&objectname=mcl-Act-164-of-1877



http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391

http://www.gfoa.org/debt-management-policy

http://www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MclPASearch

http://www.legislature.mi.gov/(S(3etqhe2ggmojjypexck4oby4))/mileg.aspx?page=MCLBasicSearch


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.


• 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 .


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 .


• 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

http://www.michigan.gov/documents/treasury/NumberedLetter2014-1_454879_7.pdf


http://www.michigan.gov/MunicipalFinance


• 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

http://www.gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176160029121&acceptedDisclaimer=true

https://gasb.org/jsp/GASB/Document_C/DocumentPage?cid=1176159972156&acceptedDisclaimer=true

http://www.gfoa.org/fund-balance-guidelines-general-fund


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.

http://www.michigan.gov/taxes/

http://www.legislature.mi.gov/(S(2nem4u55rmy3od45btngrj55))/mileg.aspx?page=GetMCLDocument&objectname=mcl-397-201

http://www.legislature.mi.gov/(S(ttqsnv45u0i3xdbubftpx355))/mileg.aspx?page=GetMCLDocument&objectname=mcl-397-210

http://www.legislature.mi.gov/(S(k2ojsai3tw1v5lzrqwysaxak))/mileg.aspx?page=GetMCLDocument&objectname=mcl-397-183


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.

http://www.legislature.mi.gov/(S(55tvtya145g1gw31j0mw2iji))/mileg.aspx?page=GetMCLDocument&objectname=mcl-397-210a


https://www.michigan.gov/libraryofmichigan

http://www.legislature.mi.gov/(S(2gkjyj451dfar345lngdariz))/mileg.aspx?page=getobject&objectname=mcl-Act-59-of-1964&query=on&highlight=penal%20AND%20fines%20AND%20public%20AND%20libraries

http://www.michigan.gov/documents/mde/lm_2010_PenalFinesandPublicLibrariesfinal_348778_7.pdf



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

http://www.michigan.gov/libraryofmichigan/

http://www.michigan.gov/taxes/



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:

http://www.legislature.mi.gov/documents/mcl/pdf/mcl-act-2-of-1968.pdf


• 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.

http://www.legislature.mi.gov/(S(giwos14fccev5o3yr4teieso))/mileg.aspx?page=MCLPASearchhttp://www.legislature.mi.gov/(S(giwos14fccev5o3yr4teieso))/mileg.aspx?page=MCLPASearch

http://www.legislature.mi.gov/(S(giwos14fccev5o3yr4teieso))/mileg.aspx?page=MCLPASearchhttp://www.legislature.mi.gov/(S(giwos14fccev5o3yr4teieso))/mileg.aspx?page=MCLPASearch


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)

https://www.michigan.gov/treasury

https://www.michigan.gov/treasury


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

http://www.michigan.gov/documents/UniformBudgetManual_16634_7.pdf

http://www.legislature.mi.gov/doc.aspx?mcl-Act-2-of-1968

http://www.legislature.mi.gov/doc.aspx?mcl-act-267-of-1976


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.


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 .


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


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.


Other Supplementary Information (OSI)

OSIisotherinformationpresentedwiththefinancialstatements,suchastherequiredcombiningstatementsfortheaggregationofnonmajorfundsandotherschedulesthatthelibrarydeemsnecessary.

EXTERNAL REPORTING REQUIREMENTS

Audit and Financial Reporting to the State

MichiganPublicAct2of1968,MCL141.421et.seq.,asamended,requiresthateachgovernmentalunit’schief administrativeofficercreateanannualfinancialreportwhichshallbeuniformforalllocalunitsofthesameclass.

http://www.legislature.mi.gov/(S(giwos14fccev5o3yr4teieso))/mileg.aspx?page=shortlinkdisplay&docname=mcl-act-2-of-1968http://legislature.mi.gov/doc.aspx?mcl-act-2-of-1968


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


http://www.legislature.mi.gov/(S(z15ftdy5pzri24igwusfuc45))/mileg.aspx?page=getObject&objectName=mcl-141-425


https://www.michigan.gov/documents/treasury/Uniform_Assumption_Memo_signed_639123_7.pdf

https://www.michigan.gov/treasury/0,4679,7-121-1751_2194_84499---,00.html


http://www.gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176160042391#gasbs50

http://www.michigan.gov/treasury/0,4679,7-121-1751_2194-171570--,00.html

https://www.michigan.gov/documents/uniformreportingformatmanual_20446_7.pdf


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.


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.

http://www.legislature.mi.gov/(S(tmoulfzyrsy3eeeicf5vr055))/mileg.aspx?page=GetObject&objectname=mcl-Act-2-of-1968

http://www.legislature.mi.gov/(S(xigrx0453xddr1bmlopb1dz2))/mileg.aspx?page=getObject&objectName=mcl-141-425


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).


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.

http://peerreview.aicpa.org/public_file_search.html


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.

https://www.lara.michigan.gov/colaLicVerify/


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


Beforetheauditorsarriveandbeforeyear-end:

• Provideworkspace

• Provideaccesstointernet

• Prepareconfirmationrequests

Afteryear-end:

• Agreebalancesheetsupportingdetailtogeneralledgerbalances

• Reviewgeneralledgerforunusualaccountbalancesandinvestigate

• Makeallminoradjustmentsbeforefinalizinggeneralledger

WhentheAuditorsarrive:

• Assignanindividualtobethepointofcontacttopullsamples,scandocuments,obtainadditionaldocumentationasrequested

Atthecompletionoftheaudit,meetanddiscusswiththeauditorstoobtaininformationregarding:

• Resultsoftheaudit

• Problemareas

• Journal entries

• Areasforimprovement


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/

https://www.michigan.gov/documents/treasury/Audit_Manual_for_LUG_in_Michigan_383593_7.pdf

http://www.ecfr.gov/cgi-bin/text-idx?SID=6fb1139656e7dfec062b17321085fc14&mc=true&tpl=/ecfrbrowse/Title02/2chapterII.tpl

http://www.ecfr.gov/cgi-bin/text-idx?SID=6fb1139656e7dfec062b17321085fc14&mc=true&tpl=/ecfrbrowse/Title02/2chapterII.tpl

http://www.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/qualityservicesdelivery/keepingup/downloadabledocuments/hiring-a-quality-auditor.pdf

http://www.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/qualityservicesdelivery/keepingup/downloadabledocuments/hiring-a-quality-auditor.pdf

http://www.aicpa.org/interestareas/governmentalauditquality/membership/findamemberfirm.html

https://peerreview.aicpa.org/public_file_search.html

https://www.lara.michigan.gov/colaLicVerify/lName.jsp

https://treas-secure.state.mi.us/LAFDocSearch/


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.

http://www.grants.gov/


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.


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.

http://www.michigan.gov/lsta


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

http://www.grants.gov/

http://www.michigan.gov/lsta

https://www.ecfr.gov/cgi-bin/text-idx?SID=1bc9d81a83e51f6d79cb5a9ed5220c27&mc=true&node=pt2.1.200&rgn=div5

https://www.ecfr.gov/cgi-bin/text-idx?SID=1bc9d81a83e51f6d79cb5a9ed5220c27&mc=true&node=pt2.1.200&rgn=div5

https://harvester.census.gov/facweb/Default.aspx


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.”


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.


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.


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.


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.


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.


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

http://www.coso.org/

http://www.gao.gov/greenbook

http://www.acfe.com/

https://csrc.nist.gov/publications/detail/sp/800-122/final

http://www.gfoa.org/best-practices


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.







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.

http://www.michigan.gov/MunicipalFinance

https://www.michigan.gov/documents/treasury/NumberedLetter2016-1_529007_7.pdf




• 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.





https://www.michigan.gov/dtmb/0,5552,7-358-82548_21738_31548-56101--,00.html

https://www.michigan.gov/dtmb/0,5552,7-358-82548_21738---,00.html

https://www.michigan.gov/dtmb/0,5552,7-358-82548_21738---,00.html


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?

http://www.michigan.gov/documents/RAB2002-15_96132_7.pdf

http://www.michigan.gov/documents/RAB2002-15_96132_7.pdf

http://www.legislature.mi.gov/(S(s0vnuo45tlcy022kge4dy045))/mileg.aspx?page=getObject&objectname=mcl-act-29-of-1995

http://www.michigan.gov/documents/2013i_2598_7.pdf


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/



http://www.michigan.gov/dtmb/0,5552,7-358-82548_21738_31550-56141--,00.html

http://www.michigan.gov/dtmb/0,5552,7-358-82548_21738_31548-56101--,00.html

http://www.michigan.gov/documents/dtmb/RMS_GS17_640201_7.pdf

http://www.michigan.gov/documents/2013i_2598_7.pdf

https://unclaimedproperty.michigan.gov/


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%


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


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


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


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


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


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


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


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)


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.


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.


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.

http://www.mml.org/resources/publications/ebooks/index.html#hmo


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


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


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.


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.


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.


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 .


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


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


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.


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.


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.


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


Sample Library

SAMPLE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


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


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


Sample Library

SAMPLE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Federal Grantor Pass Through Grantor Program Title Grant Number

Federal CFDA

NumberGrant

Number

Approved Grant

Number


December 31, 20XX


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


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?


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?


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?


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


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.


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 .


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.


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.


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.


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.


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.

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library of michigan financial management guide...financial management and governance of libraries...

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