NORTHFIELD TOWNSHIP AREA LIBRARY

Transcription

1 Report on Audit of Financial Statements For the Year Ended June 30, 2016

2 LIBRARY DIRECTOR Zaley Nelson LIBRARY BOARD Jack Hinkley Meg Minnich Margaret Neblock Karen Neigebauer Sandy Purrington LIBRARY AUDITORS Pfeffer, Hanniford & Palka Certified Public Accountants

3 TABLE OF CONTENTS PAGE NUMBER INDEPENDENT AUDITORS' REPORT MANAGEMENT DISCUSSION AND ANALYSIS 7 BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS Statement of Net Position 12 Statement of Activities 13 FUND FINANCIAL STATEMENTS General Fund Balance Sheet 15 Reconciliation of Balance Sheet of Governmental Funds to the Statement of Net Position 16 Statement of Revenues, Expenditures and Changes in Fund Balance 17 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 18 NOTES TO FINANCIAL STATEMENTS 20 REQUIRED SUPPLEMENTARY INFORMATION Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual 29 SUPPLEMENTARY INFORMATION COMBINING FINANCIAL STATEMENTS Combining Balance Sheet - All Funds Included in General Fund GASB 54 Consolidation 32 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - All Funds Included in General Fund GASB 54 Consolidation 33 INDIVIDUAL FUNDS GENERAL FUND (PRE GASB 54 RESTATEMENT) Balance Sheet 36 Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 37 Statement of Expenditures - Budget and Actual 38 CAPITAL OUTLAY FUND (PRE GASB 54 RESTATEMENT) Balance Sheet 40 Statement of Revenues, Expenditures, and Changes in Fund Balance 41

4 INDEPENDENT AUDITORS' REPORT November 1, 2016 To the Honorable Library Board of Trustees Northfield Township Area Library 125 Barker Road Whitmore Lake, Michigan We have audited the accompanying financial statements of the governmental activities, and the aggregate remaining fund information, including the related notes to the financial statements, of the Northfield Township Area Library, Michigan, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Northfield Township Area Library s basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

5 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, and the aggregate remaining fund information of the Northfield Township Area Library, Michigan, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison information on pages 7-9 and 29 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Northfield Township Area Library, Michigan s basic financial statements. The combining and individual fund financial statements, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. PFEFFER, HANNIFORD & PALKA Certified Public Accountants

6 MANAGEMENT DISCUSSION AND ANALYSIS

7 Management Discussion and Analysis June 30, 2016 Within this section of the Northfield Township Area Library s annual financial report, the Library s management is providing a narrative discussion and analysis of the financial activities of the Library for the fiscal year ended June 30, This narrative discusses and analyzes the activity within the context of the accompanying financial statements and disclosures following this section. The discussion focuses on the Library s primary government and, unless otherwise noted, component units reported separately from the primary government are not included. Overview of the Financial Statements Management s Discussion and Analysis introduces the Library s basic financial statements. The basic financial statements include government-wide financial statements, fund financial statements, and notes to the financial statements. The Library also includes in this report additional information to supplement the basic financial statements. Government-Wide Financial Statements The Library s annual reports include two government-wide financial statements. These statements provide both long-term and short-term information about the Library s overall status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and elimination or reclassification of internal activities. The first of these government-wide statements is the Statement of Net Position. This is the government-wide statement of position presenting information that includes all the Library s assets and liabilities, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Library as a whole is improving or deteriorating. Evaluation of the overall health of the Library may extend to various non-financial factors as well. The second government-wide statement is the Statement of Activities which reports how the Library s net position changed during the current fiscal year. The design of this statement is to show the financial reliance of the Library s distinct activities or functions on the revenues generated by the Library. Fund Financial Statements A fund is an accountability unit used to maintain control over resources segregated for specific activities or objectives. The Library uses funds to ensure and demonstrate compliance with finance-related laws and regulations. The Library reports only one fund, which is the General Fund. Governmental funds are reported in the financial statements and encompass essentially the same functions as governmental activities in the government-wide financial statements except with a different focus on the financial activity. These statements report short-term fiscal accountability focusing on the use of spendable resources and balances of these resources available at the end of the year. They are useful in evaluating annual financing requirements of governmental programs and the commitment of spendable resources for the near-term. Since the focus of the government-wide financial statements includes a long-term view, a reconciliation of these fund balances has been completed to detail its relation to net position. Notes to the financial statements The accompanying notes to the financial statements provide information essential to a full understanding of both the government-wide and fund financial statements. 7

8 Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. Other supplementary information includes detail by fund for receivables, payables, transfers, and payments within the reporting entity. Financial Analysis of the Library as a Whole The Library s net position at the end of the fiscal year was $1,799,638. This is an increase of $99,830 over last year s net position of $1,699,808. This increase is due to an increase in assets acquired, decrease in expenses and an increase in property taxes collected. The following tables provide a summary of the Library s financial activities and changes in net position: Summary of Net Position Governmental Activities June 30, 2016 June 30, 2015 Current and other assets $ 576,283 $ 1,263,527 Capital assets, net 1,404, ,829 Total assets 1,981,055 1,766,356 Current liabilities 115,054 5,642 Non-current liabilities 66,363 60,906 Total liabilities 181,417 66,548 Net position: Invested in capital assets, net of related debt 1,369, ,257 Unrestricted 430,224 1,235,551 Total net position $ 1,799,638 $ 1,699,808 Summary of Changes in Net Position Governmental Activities June 30, 2016 June 30, 2015 Revenues: Program revenues Charges, operating grants, and contributions $ 107,432 $ 102,767 General revenues Property taxes 419, ,366 Other income (expenses) (1,940) 21,899 Total revenues 524, ,032 Total expenses 424, ,458 Changes in net position 99, ,574 Beginning net position 1,699,808 1,581,234 Ending net position $ 1,799,638 $ 1,699,808 8

9 Financial Analysis of the Library s Funds On the modified accrual basis the General Fund s fund balance decreased by $796,656 for the year ended June 30, This is due to an increase in the expenses for capital outlay due to the construction of the new library addition. General Fund Budgetary Highlights The Library adopted its budget prior to the beginning of the fiscal year ended June 30, During the year the budget was amended to reflect changes in estimated revenues and expenditures during the fiscal year. The amendments made during the year were generally minor, and were intended to bring the budget closer to economic reality. However, the fund balance increase at year end was higher than that budgeted due to higher than expected revenue received during the year. Capital Asset and Debt Administration The Library had capital acquisitions during the current fiscal year of $924,434 for the construction of the Library addition. Depreciation expense allocated to governmental activities totaled $22,491. At the end of the fiscal year, the Library owed the Township $35,358 on a land contract it had entered into several years earlier. Each year, the Library pays $3,214 to retire the debt. This year, as in prior years, the Library made its annual payment leaving, 11 years of payments remaining. The annual payment is principal only; the Library pays no interest on this loan. Economic Conditions and Future Activities Due to an upturn of the economy in the area, the Library anticipates that its revenues will remain relatively steady in the near term. Contracting the Authority s Financial Management This report is designed to provide a general overview of the Library s financial position and to comply with finance-related regulations. If you have any further questions about this report or require additional information, please contact the Northfield Township Area Library, 125 Barker Road, Whitmore Lake, Michigan

10 BASIC FINANCIAL STATEMENTS

11 GOVERNMENT-WIDE FINANCIAL STATEMENTS

12 STATEMENT OF NET POSITION JUNE 30, 2016 Governmental Activities CURRENT ASSETS Cash $ 537,594 Taxes receivable 1,440 Receivable - other 27,403 Prepaid expenses 9,846 Total current assets $ 576,283 CAPITAL ASSETS Non-depreciable 211,803 Depreciable, net of accumulated depreciation 1,192,969 Total capital assets - net of depreciation 1,404,772 Total assets 1,981,055 LIABILITIES Accounts payable 115,054 Accrued compensated absences 31,005 Noncurrent liabilities: Due within one year 3,214 Due beyond one year 32,144 Total liabilities 181,417 NET POSITION Investment in capital assets, net of related debt 1,369,414 Unrestricted 430,224 Total net position $ 1,799,638 See accompanying notes to the basic financial statements 12

13 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Net (Expense) Revenue and Changes in Program Revenues Net Assets Operating Charges for Grants and Governmental Functions/Programs Expenses Services Contributions Activities Governmental Activities Library $ (424,731) $ 103,108 $ 4,324 $ (317,299) General revenues Taxes, levied for general purpose 419,069 State aid 5,746 Interest income 5,174 Realized loss on sale of investments (12,860) Total general revenues 417,129 Change in net position 99,830 Net position at beginning of year 1,699,808 Net position at end of year $ 1,799,638 See accompanying notes to the basic financial statements. 13

14 FUND FINANCIAL STATEMENTS

15 GENERAL FUND BALANCE SHEET JUNE 30, 2016 CURRENT ASSETS Cash $ 537,594 Taxes receivable 1,440 Receivable - other 27,403 Prepaid expenditures 9,846 Total current assets $ 576,283 LIABILITIES Accrued expenditures $ 115,054 FUND BALANCE Nonspendable - prepaid items $ 9,846 Committed - capital improvement 89,376 Unassigned 362,007 Total fund balance 461,229 Total liabilities and fund balance $ 576,283 See accompanying notes to the basic financial statements. 15

16 GENERAL FUND RECONCILIATION OF BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2016 Total fund balance per balance sheet $ 461,229 Amounts reported for governmental activities in the Statement of Net Position is different because: Capital assets used in governmental activities are not financial resources and therefore, are not reported in the funds. Historical cost $ 1,732,872 Depreciation (328,100) Net book value 1,404,772 Some liabilities are not due and payable in the current period and therefore are not reported in the funds. These include: Contracts payable (35,358) Accrued compensated absences (31,005) Total (66,363) Net position of governmental activities $ 1,799,638 See accompanying notes to the basic financial statements. 16

17 GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR JUNE 30, 2016 REVENUES Property taxes $ 419,069 Penal fines 97,943 State library aid 5,746 Interest income 5,174 Miscellaneous charges for services 5,165 Realized loss on sale of investments (12,860) Contributions 4,324 Total revenues 524,561 EXPENDITURES Current: Library operations 384,162 Capital outlay 933,841 Debt service: Principal 3,214 Total expenditures 1,321,217 Net change in fund balance (796,656) FUND BALANCE, JULY 1, ,257,885 FUND BALANCE, JUNE 30, 2016 $ 461,229 See accompanying notes to the basic financial statements. 17

18 GENERAL FUND RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 Net change in fund balances - governmental funds $ (796,656) Amounts reported for governmental activities in the Statement of Activities are different because: Accrued absences for vacation and sick time for the employees is recorded on the Statement of Net Position. Accrued balance at June 30, 2016 $ (31,005) Accrued balance at July 1, ,334 Total (8,671) Governmental funds report capital outlay as expenditures. However, in the Statement of Activities the cost of those assets are allocated over their useful lives as depreciation expense. The amount by which capital outlay exceeded depreciation is as follows: Capital outlay 924,434 Depreciation (22,491) Total 901,943 Repayment of contracts payable is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. Repayment of contacts payable 3,214 Change in net position of governmental activities $ 99,830 See accompanying notes to the basic financial statements 18

19 NOTES TO FINANCIAL STATEMENTS

20 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY The financial statements of the Library contain all the Library funds that are controlled by or dependent on the Library's executive or legislative branches. The reporting entity is the Northfield Township Area Library. The Library is governed by an elected Library Board. As required by generally accepted accounting principles, these financial statements present the Library as the primary government. Governmental Fund General Fund - The Library's General Fund, the only fund, accounts for the proceeds of specific revenue sources (special tax millage) through a general fund. It also accounts for the general operations of the Library through the general fund. In accordance with generally accepted accounting principles and Governmental Accounting Standards Board (GASB) Statement No. 39 The Financial Reporting Entity, these financial statements present all activities of the Library. There are no component units of the Library using the criteria established by the GASB for determining the reporting entity. No fiduciary funds exist for the Library. B. BASIC FINANCIAL STATEMENTS In accordance with GASB Standards, the basic financial statements include both government-wide and fund financial statements. The government-wide financial statements (Statement of Net Position and Statement of Activities) report on the Library as a whole. All activities are reported in the government-wide financial statements using the economic resources measurement focus and the accrual basis of accounting, which includes long-term assets and receivables as well as long-term debt and obligations. The government-wide financial statements focus more on the sustainability of the Library as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The government-wide Statement of Net Position reports all financial and capital resources of the Library. It is displayed in a format of assets less liabilities equals net position, with the assets and liabilities shown in order of their relative liquidity. 20

21 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The government-wide Statement of Activities demonstrates the degree to which both direct and indirect expenses of the various functions and programs of the Library are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or identifiable activity. Indirect expenses for administrative overhead are allocated among the functions and activities using a full cost allocation approach and are presented separately to enhance comparability of direct expenses between governments that allocate direct expenses and those that do not. Program revenues include: 1) charges to customers or users who purchase, use or directly benefit from goods, services or privileges provided by a particular function or program and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes, unrestricted investment income and other revenues not identifiable with particular functions or programs are included as general revenues. The general revenues support the net costs of the functions and programs not covered by program revenues. Also, included as part of the basic financial statements are fund financial statements for governmental funds even though the latter are excluded from the government-wide financial statements. C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING The governmental fund financial statements are prepared on a current financial resources measurement focus and modified accrual basis of accounting. To conform to the modified accrual basis of accounting, certain modifications must be made to the accrual method. These modifications are outlined below: 1. Revenue is recorded when it becomes both measurable and available (received within 60 days after year-end). Revenue considered susceptible to accrual includes: property taxes, sales and use taxes, transient occupancy taxes, licenses, fees and permits, intergovernmental revenues (including motor vehicle license fees), charges for services, fines, forfeits and penalties, and interest. 2. Expenditures are recorded when the related fund liability is incurred. Principal and interest on general longterm debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. 3. Disbursement for the purchase of capital assets providing future benefits are considered expenditures. Any bond proceeds are reported as another financing source. 4. When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed. With this measurement focus, operating statements present increases and decreases in net current assets and unreserved fund balance as a measure of available spendable resources. This is the traditional basis of accounting for governmental funds and also is the manner in which these funds are normally budgeted. This presentation is deemed most appropriate to: 1) demonstrate legal and covenant compliance, 2) demonstrate the sources and uses of liquid resources, and 3) demonstrate how the Library s actual revenues and expenditures conform to the annual budget. Since the governmental funds financial statements are presented on a different basis than the governmental activities column of the government-wide financial statements, a reconciliation is provided immediately following each fund statement. These reconciliations briefly explain the adjustments necessary to transform the fund financial statements into the governmental activities column of the government-wide financial statements. 21

22 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued D. CAPITAL ASSETS Under GASB Statement No. 34, all capital assets are recorded and depreciated in the government-wide financial statements. No long-term capital assets or depreciation are shown in the governmental funds financial statements. Capital assets are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than one year. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at the estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. E. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. F. BUDGETS An annual operating budget on the modified accrual basis of accounting consistent with accounting principles generally accepted in the United States of America is formally adopted for the General Fund. The budget can be amended by approval from the Library s Board. If necessary, budget amendments can be presented to the Board at the regular meetings. The budget amounts shown in the financial statements are the final authorized amounts as revised during the year. All annual appropriations lapse at the fiscal year end. Actual expenditures did not exceed budgeted expenditures for the year ending June 30, G. PROPERTY TAXES Property tax revenues are recognized in the fiscal year for which the taxes are levied. These taxes are due on February 14, with the final collection date of February 28. Property taxes are levied on December 1 each year. These taxes become liens on the property at that date. The delinquent real property taxes of the Northfield Township Area Library are purchased by Washtenaw County. The county sold tax notes, the proceeds of which were used to pay the Library for these property taxes. The 2015 adjusted taxable value of the Library totaled $328,981,868. The Library levied mills in 2015 for general operating purposes. No amounts were deemed as uncollectible. 22

23 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued H. RISK MANAGEMENT The Library is exposed to various risks of loss pertaining to property loss, torts, errors and omissions, and employee injuries (workers compensation), as well as medical benefits provided to employees. The Library has purchased commercial insurance for these claims. Settled claims related to the commercial insurance have not exceeded the amount of insurance coverage. I. ACCRUED COMPENSATED ABSENCES The Library has recorded a liability for compensated absences of its full-time employees in the government-wide financial statements only. The policies regarding compensated absences are outlined in the Library s Rules of Employment. The total liability at June 30, 2016 is $31,005. J. FUND EQUITY Governmental fund equity is classified as fund balance. Fund balance is further classified as nonspendable, restricted, committed, assigned, or unassigned. Nonspendable fund balance cannot be spent because of its form. Restricted fund balance has limitations imposed by creditors, grantors, or contributors or by enabling legislation or constitutional provisions. Committed fund balance is a limitation imposed by the Library Board through approval of resolutions. Assigned fund balances is a limitation imposed by a designee of the Library Board. Unassigned fund balance in the General Fund is the net resources in excess of what can be properly classified in one of the above four categories. Negative unassigned fund balance in other governmental funds represents excess expenditures incurred over the amounts restricted, committed, or assigned to those purposes. When both restricted and unrestricted fund balances are available for use, it is the Library s policy to use restricted fund balance first, then unrestricted fund balance. Furthermore, committed fund balances are reduced first, followed by assigned amounts, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications can be used. K. RESTRICTED NET POSITION For the government-wide financial statements, net position are reported as restricted when constraints placed on net position is either: (1) Externally imposed by creditors (such as debt covenants), grantors, contributors, or laws or regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation. 23

24 NOTE 2 - CAPITAL ASSETS NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 Capital asset activity for the year ended June 30, 2016 was as follows: Balance Balance July 1, 2015 Additions Deletions Re-classifications June 30, 2016 Capital assets not being depreciated: Land $ 211,803 $ $ $ $ 211,803 Construction in progress 60, ,775 (967,655) Total cost - nondepreciable 272, ,775 (967,655) 211,803 Capital assets being depreciated: Buildings and improvements 507, ,655 1,474,804 Equipment and software 28,606 17,659 46,265 Total cost - depreciable 535, ,314 1,521,069 Accumulated depreciation: Buildings and improvements (280,341) (18,564) (298,905) Equipment and software (25,268) (3,927) (29,195) Total accumulated depreciation (305,609) (22,491) (328,100) Capital assets being depreciated, net 230, ,823 1,192,969 Governmental activities capital assets, net $ 502,829 $ 1,869,598 $ $ (967,655) $ 1,404,772 Depreciation expense is being recorded solely for Library services. The Library utilizes the straight line method to depreciate capital assets over their estimated useful lives. Net book value at June 30, 2016 $ 1,404,772 Contract payable - building (35,358) Investment in capital assets, net of related debt $ 1,369,414 24

25 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 3 - LONG TERM LIABILITIES The following is a summary of the long-term liability transactions of the Library for the year ended June 30, 2016: Balance Balance Due within July 1, 2015 Additions Deletions June 30, 2016 one year Governmental Activities: Land contract payable $ 38,572 $ $ 3,214 $ 35,358 $ 3,214 Compensated absences 22,334 8,671 31,005 Total long-term liabilities $ 60,906 $ 8,671 $ 3,214 $ 66,363 $ 3,214 Land Contract - In a prior year the Library purchased real estate from Northfield Township under a land contract type purchase arrangement. The agreement between the parties bears no interest and is payable in equal annual installments of $3,214 until it matures in Compensated absences - For governmental activities the compensated absences obligation will be paid from the general fund as such qualified employee absences occur. Large deletion occurred in current year due to the departure of various personnel. Future maturities on the long-term liabilities are as follows: Year Ended June 30, 2017 $ 3, , , , , , ,216 $ 35,358 25

26 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 4 - PENSION PLAN - DEFINED CONTRIBUTION PLAN The Library participates with Northfield Township s defined contribution plan. No separate information could be identified related to library personnel participating in the plan. The defined contribution plan of Northfield Township is a fully insured plan funded by both employer (2/3) and employee (1/3) contributions. An employee may make voluntary contributions of up to 10% of his/her annual compensation. All participants are vested 100% immediately. A participant includes all full-time employees as of the beginning of the anniversary date or June 1st of each year. The annual contributions are based on the following formula: Employer contributes 10% of wages Employee contributes 5% of wages Annual contribution to pension plan 15% of wages The plan name is "Group Pension Plan" #GN through John Hancock Financial. A summary of the plan's activity for the period July 1, 2015 to June 30, 2016, is as follows: Balance in guaranteed account July 1, 2015 $ 1,945,162 Current year contributions Township portion $ 77,262 Employee portion 38,631 Total contributions 115,893 Withdrawls (424,573) Administration fees (11,373) Net Gain/(Loss) (14,739) Balance in guaranteed account June 30, 2016 $ 1,610,370 Interest has been credited to June 30, A contribution of $12,448 was made by the Library in the fiscal year ended June 30, Total Library payroll was $211,361, for the fiscal year ended June 30,

27 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2016 NOTE 5 - DEPOSITS WITH FINANCIAL INSTITUTIONS AND INVESTMENTS Michigan Compiled Laws, Section , authorizes the Library to deposit and invest in the accounts of Federally insured banks, credit unions, and savings and loan associations; bonds, securities and other direct obligations of the United States, or any agency or instrumentality of the United States; United States government or Federal agency obligation repurchase agreements; bankers' acceptance of United States banks; commercial paper rated by two standard rating agencies within the two highest classifications, which mature not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivisions which are rated investment grade; and mutual funds composed of investment vehicles which are legal for direct investment by local units of government in Michigan. Financial institutions eligible for deposit of public funds must maintain an office in Michigan. The deposits are in accordance with statutory authority. As of June 30, 2016 deposits and investments consist of the following: Deposits Checking accounts $ 532,403 Total deposits $ 532,403 The carrying amount of deposits is stated at $537,594 as of June 30, The difference between the carrying amounts and amounts mentioned above stem from outstanding items of $5,191. Custodial Credit Risk Deposits - This is the risk that in the event of a bank failure, the Library will not be able to recover its deposits. The Library does not have a deposit policy for custodial credit risk. The Library evaluates each financial institution with which it deposits funds and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories. As of June 30, 2016, deposits were exposed to custodial credit risk as follows: Insured by FDIC $ 250,000 Uninsured and uncollateralized 282,403 $ 532,403 According to the FDIC, government accounts are insured up to $250,000 for all demand deposit accounts and up to $250,000 for the combined total of all time and savings accounts (including NOW accounts). 27

28 REQUIRED SUPPLEMENTARY INFORMATION

29 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 Variance with Final Budget Budgets Favorable Original Final Actual (Unfavorable) REVENUES Taxes $ $ $ 419,069 $ Penal fines 97,943 State library aid 5,746 Interest 5,174 Realized loss on sale of investments (12,860) Charges for services 3,790 Contributions 4,324 Miscellaneous 1,375 Total revenues 522, , ,561 1,926 EXPENDITURES 1,617,809 1,433,299 1,321, ,082 Net changes in fund balances (1,095,174) (910,664) (796,656) 114,008 FUND BALANCE, JULY 1, ,257,885 1,257,885 1,257,885 FUND BALANCE, JUNE 30, 2016 $ 162,711 $ 347,221 $ 461,229 $ 114,008 29

30 SUPPLEMENTARY INFORMATION

31 COMBINING FINANCIAL STATEMENTS

32 COMBINING BALANCE SHEET ALL FUNDS INCLUDED IN GENERAL FUND GASB 54 CONSOLIDATION JUNE 30, 2016 General Fund Capital Totals Prior to Improvement Restated Consolidation Fund General Fund ASSETS Cash $ 342,148 $ 195,446 $ 537,594 Taxes receivable 1,440 1,440 Receivable - other 27,403 27,403 Prepaid expenditures 9,846 9,846 Total assets $ 380,837 $ 195,446 $ 576,283 LIABILITIES Accrued expenses $ 8,984 $ 106,070 $ 115,054 FUND BALANCES Nonspendable - prepaid items 9,846 9,846 Committed - capital improvement 89,376 89,376 Unassigned 362, ,007 Total fund balances 371,853 89, ,229 Total liabilities and fund balances $ 380,837 $ 195,446 $ 576,283 32

33 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES ALL FUNDS INCLUDED IN GENERAL FUND GASB 54 CONSOLIDATION FOR THE YEAR ENDED JUNE 30, 2016 General Fund Capital Totals Prior to Improvement Restated Consolidation Fund Eliminations General Fund REVENUES Taxes $ 419,069 $ $ $ 419,069 Penal fines 97,943 97,943 State library aid 5,746 5,746 Interest 5,174 5,174 Charges for services 3,790 3,790 Contributions 1,673 2,651 4,324 Realized loss on sale of investments (12,860) (12,860) Miscellaneous 1,375 1,375 Total revenues 529,596 (5,035) 524,561 EXPENDITURES Current: General government 384, ,162 Capital outlay: Building 933, ,841 Debt service: Principal 3,214 3,214 Total expenditures 387, ,841 1,321,217 Excess of revenues over (under) expenditures 142,220 (938,876) (796,656) OTHER FINANCING SOURCES (USES) Transfers in 180,000 (180,000) Transfers (out) (180,000) 180,000 Total other financing sources (uses) (180,000) 180,000 Net changes in fund balances (37,780) (758,876) (796,656) FUND BALANCE, JULY 1, , ,252 1,257,885 FUND BALANCE, JUNE 30, 2016 $ 371,853 $ 89,376 $ $ 461,229 33

34 INDIVIDUAL FUNDS

35 GENERAL FUND (PRE GASB 54 RESTATEMENT) This supplementary information shows the General Fund prior to the implementation of GASB 54, and as such does not present the results on the basis of generally accepted accounting principles but is presented solely for supplemental information.

36 GENERAL FUND (PRE GASB 54 RESTATEMENT) BALANCE SHEET JUNE 30, 2016 ASSETS Cash $ 342,148 Receivable Taxes 1,440 Other 27,403 Prepaid expenditures 9,846 Total assets $ 380,837 LIABILITIES Accounts payable $ 8,984 FUND BALANCE Nonspendable - prepaid 9,846 Unassigned 362,007 Total fund balance 371,853 Total liabilities and fund balance $ 380,837 This supplementary information shows the General Fund prior to the implementation of GASB 54, and as such does not represent the results of generally accepted accounting principles but is presented solely for supplemental information. 36

37 GENERAL FUND (PRE GASB 54 RESTATEMENT) STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 Variance Amended Favorable Budget Actual (Unfavorable) REVENUES Taxes $ 420,135 $ 419,069 $ (1,066) Penal fines 88,600 97,943 9,343 State library aid 3,000 5,746 2,746 Charges for services 4,400 3,790 (610) Contributions 1,000 1, Interest income 5,000 (5,000) Miscellaneous 500 1, Total revenues 522, ,596 6,961 EXPENDITURES 426, ,376 39,423 Excess of revenues over (under) expenditures 95, ,220 46,384 OTHER FINANACING SOURCES (USES) Transfers (out) (180,000) (180,000) Total other financing sources (uses) (180,000) (180,000) Net change in fund balance (84,164) (37,780) 46,384 FUND BALANCE, JULY 1, , ,633 FUND BALANCE, JUNE 30, 2016 $ 325,469 $ 371,853 $ 46,384 This supplementary information shows the General Fund prior to the implementation of GASB 54, and as such does not represent the results on the basis of generally accepted accounting principles but is presented solely for supplemental information. 37

38 GENERAL FUND (PRE GASB 54 RESTATEMENT) STATEMENT OF EXPENDITURES - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 Variance Amended Favorable Budget Actual (Unfavorable) EXPENDITURES Salaries $ $ 211,361 $ Payroll taxes 16,431 Pension 12,448 Health/life insurance 24,317 Books 27,325 Administration fee 11,060 Insurance and bonds - general liability 6,769 Membership and dues 397 Miscellaneous 808 Office equipment rental 3,104 Office supplies 13,068 Operating services 9,088 Postage and delivery 387 Printing and publications 1,537 Professional services 5,834 Repairs and maintenance 23,462 Tax tribunal chargebacks 650 Telephone 5,737 Training 393 Utilities 5,948 Fuel and mileage 930 Computer costs 3,108 Loan - principal 3,214 $ 426,799 $ 387,376 $ 39,423 This supplementary information shows the General Fund prior to the implementation of GASB 54, and as such does not represent the results on the basis of generally accepted accounting principles but is presented solely for supplemental information. 38

39 CAPITAL OUTLAY FUND (PRE GASB 54 RESTATEMENT) This supplementary information shows the General Fund prior to the implementation of GASB 54, and as such does not present the results on the basis of generally accepted accounting principles but is presented solely for supplemental information.

40 CAPITAL OUTLAY FUND (PRE GASB 54 RESTATEMENT) BALANCE SHEET JUNE 30, 2016 ASSETS Cash $ 195,446 LIABILITIES Accrued expenses $ 106,070 FUND BALANCE 89,376 Total liabilites and fund balance $ 195,446 This supplementary information shows the Capital Outlay Fund prior to the implementation of GASB 54, and as such does not represent the results on the basis of generally accepted accounting principles but is presented solely for supplemental information. 40

41 CAPITAL OUTLAY FUND (PRE GASB 54 RESTATEMENT) STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2016 Amended Budget Actual REVENUES Interest income $ $ 5,174 $ Realized gain (loss) on sale of investments (12,860) Contributions 2,651 Total revenues (5,035) (5,035) EXPENDITURES Construction costs 1,006, ,841 72,659 Excess of revenues over (under) expenditures (1,006,500) (938,876) 67,624 OTHER FINANCING SOURCES (USES) Transfer in 180, ,000 Net change in fund balance (826,500) (758,876) 67,624 FUND BALANCE, JULY 1, , ,252 Variance Favorable (Unfavorable) FUND BALANCE, JUNE 30, 2016 $ 21,752 $ 89,376 $ 67,624 This supplementary information shows the Capital Outlay Fund prior to the implementation of GASB 54, and as such does not represent the results on the basis of generally accepted accounting principles but is presented solely for supplemental information. 41

42 November 1, 2016 Library Board Northfield Township Area Library 125 Barker Road Whitmore Lake, MI Dear Honorable Library Board: In planning and performing our audit of the financial statements of the Northfield Township Area Library as of and for the year ended June 30, 2016, in accordance with auditing standards generally accepted in the United States of America, we considered the Northfield Township Area Library s internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Library s internal control. Accordingly, we do not express an opinion on the effectiveness of the Library s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and therefore there can be no assurance that all such deficiencies have been identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be material weaknesses. A deficiency in internal control exists when the design or operation of control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the following deficiencies in the Northfield Township Area Library s internal control to be material weaknesses: 1. Establish Control over the Financial Reporting Process - Management is responsible for establishing and maintaining internal controls, including monitoring, and for the fair presentation in the financial statements of financial position, results of operations, and cash flows, including the notes to financial statements, in conformity with U.S. generally accepted accounting principles. At times, management may choose to outsource certain accounting functions due to cost or training considerations. Such accounting functions and service providers must be governed by the control policies and procedures of the Library. Management is as responsible for outsourced functions performed by a service provider as it would be if your personnel performed such functions.

43 Northfield Township Area Library Page 2 Specifically, management is responsible for management decisions and functions: for designating an individual with suitable skill, knowledge, or experience to oversee any outsourced services; and for evaluating the adequacy and results of those services and accepting responsibility for them. As part of the audit, management requested us to prepare a draft of your financial statements, including the related notes to the financial statements. The absence of management or any other staff member, or contractor working for the Library preparing the financial statements is considered a material weakness because the potential exists that a material misstatement of the financial statements could occur and not be prevented or detected by Northfield Township Area Library 's internal control. However, management did review, approve, and accepted responsibility for those financial statements prior to their issuance. The existence of significant deficiencies or material weaknesses may already be known to management and may represent a conscious decision by management or those charged with governance to accept that degree of risk because of cost or other considerations. Management is responsible for making decisions concerning costs and the related benefits. We are responsible to communicate significant deficiencies and material weaknesses in accordance with professional standards regardless of management's decisions. Response By Management Management believes the benefit of hiring additional personnel with the qualified experience to draft the financial statements does not outweigh the costs. Management has decided to maintain the current practice of requesting the auditing firm to draft the financial statements. Management has read, reviewed, understands, and takes responsibility of the financial statements. 2. Segregate Accounting Duties - A good system of internal control provides for a proper segregation of the accounting functions. The Library does not have the proper segregation of duties over cash receipts and disbursements. Proper segregation is not always possible in a small organization, but limited segregation to the extent possible can and should be implemented to reduce the risk of errors or fraud. We recommend that management review the current assignment of accounting functions. Where possible, duties should be segregated to reduce the risk or errors or fraud. Response By Management Management has reviewed and continues to review the current assignment of accounting functions. Management understands the importance of segregating accounting duties in order to reduce the risk of errors or fraud. However, because of limited staff and funds it is difficult to segregate duties to the extent which would be considered the perfect segregation. Management does not believe the benefits of hiring additional staff at this point in time would outweigh the costs of the additional staff. Auditors' Remarks These material weaknesses are very common for organizations like Northfield Township Area Library due to its smallness in size and reduced staff. It would be very difficult for Northfield Township Area Library to overcome these weaknesses without spending a great deal of time and money to make the appropriate corrections based on the impact on pension & insurance obligations.

44 Northfield Township Area Library Page 3 OTHER MATTERS We came across some other matters which we feel should be reported to you that are not considered material weaknesses or significant deficiencies. Employee Benefit Plans: The Library has a Flex Savings Plan and Health Reimbursement Account for employees. Although the Board did approve opening the related bank accounts for these plan funds, there was no direct Board approval for choosing these plans. Also an addendum to the Employee Policy Manual should be created. Stale Checks: The Library has several stale checks from prior years on their bank reconciliation. We recommend the Library decides whether to void and re-issue these checks. Receipts: The Library collects cash often times without creating receipts for records. Actual receipts with a copy should be created with each transaction so there is physical backup for the cash transactions. Conclusion Thank you for your assistance and hospitality toward our firm while conducting the audit of the Northfield Township Area Library. If you should have any questions, comments or concerns please do not hesitate to call us. This report is intended solely for the information and use of the Library Board and management of the Northfield Township Area Library and is not intended to be and should not be used by anyone other than the specified parties. PFEFFER, HANNIFORD & PALKA Certified Public Accountants