Illinois Heartland Library System

Transcription

1 Illinois Heartland Library System Edwardsville, Illinois Financial Statements and Supplementary Information For the Year Ended June 30, 2012

2 CONTENTS Independent Auditors Report Management s Discussion and Analysis BASIC FINANCIAL STATEMENTS Government Wide Financial Statements Statement of Net Assets (Exhibit A)...13 Statement of Activities (Exhibit B)...14 Fund Financial Statements Balance Sheet Governmental Funds (Exhibit C)...15 Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Assets (Exhibit C-1)...16 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds (Exhibit D)...17 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds to the Statement of Activities (Exhibit D-1)...18 Statement of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual: General Fund (Exhibit E)...19 WebJunction Fund Special Revenue Fund (Exhibit F)...20 Statement of Net Assets Proprietary Fund (Exhibit G)...21

3 Statement of Revenues, Expenses, and Changes in Net Assets Proprietary Fund (Exhibit H)...22 Statement of Cash Flows Proprietary Fund (Exhibit I)...23 Statement of Fiduciary Net Assets Fiduciary Fund (Exhibit J)...24 Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress (Unaudited)...41 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Combining Financial Statements Governmental Funds Combining Balance Sheet - Non-Major Special Revenue Funds (Schedule 1)...42 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances - Non-Major Special Revenue Funds (Schedule 2)...43 Individual Fund Financial Statements Governmental Funds Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual: General Fund (Schedule 3)...44 Special Revenue Funds WebJunction Fund (Schedule 4)...45 Illinois Machine Sub-Lending - Carterville Fund (Schedule 5)...46

4 CMC Grant Fund (Schedule 6)...47 Plinkit Project Fund (Schedule 7)...48 Videoconferencing Fund (Schedule 8)...49 OCLC Grant Fund (Schedule 9)...50 Info Eyes/SOS Fund (Schedule 10)...51 Marc of Quality Grant Fund (Schedule 11)...52 Delivery Van Grant Fund (Schedule 12)...53 Cataloging Services Fund (Schedule 13)...54 Lincoln Trail Libraries Foundation Fund (Schedule 14)...55 Capital Project Fund Capital Projects Fund (Schedule 15)...56 Combining Financial Statements Proprietary Sub-Funds Combining Schedule of Net Assets - Computer Development Fund All Sub-Funds (Schedule 16)...57 Combining Schedule of Revenues, Expenses, and Changes in Net Assets Computer Development Fund - All Sub-Funds (Schedule 17)...58

5 2507 South Neil St. Champaign, Illinois Phone Fax INDEPENDENT AUDITORS REPORT Board of Directors Illinois Heartland Library System Edwardsville, Illinois We have audited the accompanying financial statements of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Illinois Heartland Library System (the System), as of and for the year ended June 30, 2012, which collectively comprise the System s basic financial statements as listed in the table of contents. These financial statements are the responsibility of Illinois Heartland Library System s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Illinois Heartland Library System as of June 30, 2012, the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and Major Special Revenue Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and schedule of funding progress on pages 3 through 12 and page 41, respectively, be presented to supplement the basic financial statements. Such CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

6 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Illinois Heartland Library System s financial statements as a whole. The combining schedules and individual major and non-major fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual major and non-major financial statements (Schedules 1 through 17) are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. September 25,

7 ILLIOIS HEARTLAND LIBRARY SYSTEM MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2012 Illinois Heartland Library System s Management Discussion and Analysis (MD&A) provides a narrative overview and analysis of the financial activities of the Illinois Heartland Library System (System) for the fiscal year which ended June 30, The MD&A is designed to: Assist in focusing on significant financial issues; Provide an overview of the Library System s financial activities; Identify any material deviations from the financial plan (approved budget); and Identify issues and/or concerns for each individual Library System fund. Information presented in the audit must be considered in conjunction with additional information furnished in the System s financial statements and other supplementary information. Because the Illinois Heartland Library System is a new organization, the Management s Discussion and Analysis for FY 2012 will not provide comparative analysis with FY 2011 financial information. Such analysis will again be provided in the FY 2013 audit. Background The Illinois Heartland Library System (IHLS) is a corporation of the State of Illinois created through a merger on July 1, 2011 of four regional library systems in central and southern Illinois: the Lewis & Clark Library System, Lincoln Trail Libraries System, Rolling Prairie Library System and the Shawnee Library System which each dissolved effective June 30, Library systems have been a part of the library landscape in Illinois for nearly five decades. Following the enacting legislation in 1965 there were 18 Illinois library systems. Prior to the July 2011 IHLS merger, there were nine regional library systems. (The remaining five merged at the same time to create the Reaching Across Illinois Library System.) Library systems are funded primarily by a grant administered by the Illinois State Library, which is a division of the Illinois Secretary of State. The Library System Area & Per Capita Grant formula is based on $ per square mile and $ per person. The demographic information from the 2010 Census was used to calculate the FY 2012 funding level, and indicated a total population served of 2,248,634, and a 28,368 square mile service area. Funds received for the Area & Per Capita Grant are utilized by the System to provide services to member libraries and to pay for the basic administration of the organization. In July, 2011, 586 libraries of various types participated as members of the System: 41 academic, 230 public, 259 school and 56 special libraries. The service area comprises 58 counties in central and southern Illinois. Services are focused on supporting resource sharing (through library materials delivery, library automation services, and cataloging), and supporting Talking Book services in the state through the Illinois Machine Sub-Lending Agency

8 A legally established Board of Directors governs the operation of the System. The Board (consisting of fifteen Board members) is elected from the member libraries. Eight members must be members of the governing board of public libraries. Additionally, seven Board members must represent: An academic library (1 Director) A public library (2 Directors) A school library (3 Directors) A special library (1 Director) As an organization, the Illinois Heartland Library System is guided by its mission statement and vision. The mission statement of the System is: The Illinois Heartland Library System is a community of multitype libraries developing partnerships and sharing resources in pursuit of excellent service. The System s vision is: We envision a future where all libraries & information partners collaborate to provide accessible & innovative services. The System s basic financial statements contained in this report are comprised of three components: Government-wide Financial Statements, Fund Financial Statements, and Notes to the Financial Statements. Government-wide Financial Statements The Government-wide financial statements distinguish functions of the System that are principally supported by grants and intergovernmental revenues from other functions that are intended to recover all or a significant portion of their costs through user fees and charges. The only core service provided with costs recovered through fees is the Local Library System Automation Program (or LLSAP). Information regarding the LLSAP is found under the Proprietary Fund - Computer Development Fund sections of the Audit Report. The first two documents in the audit section titled, Basic Financial Statements, contain information that summarizes financial activity for all funds used to support the Library System s programs and projects. Page 13 contains the Statement of Net Assets which presents information on all of the System s assets and liabilities as of June 30, The Statement of Activities, found on page 14, reflects the change in Net Assets and FY 2012 Year End Net Assets for all IHLS programs and activities. All changes in Net Assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenue and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g. grant receivables and accounts payable)

9 Fund Financial Statements Financial information for the System is reported by fund. Each fund is a separate accounting entity created to segregate specific activities and to ensure and demonstrate compliance with finance-related legal requirements. The System has three types of funds Governmental, Proprietary, and Fiduciary. Governmental Funds There were several governmental funds represented in the FY 2012 System financial reports and audit. The General Fund contains the financial information for the general administration and operation of the System, and the provision of core services (with the exception of automation and bibliographic access). A Capital Projects Fund was created to ensure there are dedicated funds to be used for the purchase and/or replacement of capital items and for the major repair of facilities. A major project, WebJunction Illinois, is also included. WebJunction Illinois is part of an online learning community under the umbrella of OCLC s Webjunction.org. Illinois is one of 18 states who work together to provide informational resources and courses to library staff, volunteers, trustees, and students through online articles and postings, blogs, community forums, course offerings, and webinars. IHLS is the fiscal agent and manages this project. WebJunction is funded by the Illinois State Library using federal LSTA grants and has been funded for over five years. The funding for WebJunction Illinois overlaps fiscal years. The detail of Other Governmental Funds can be found in the Non-Major Special Revenue Funds Section of the report (pages 42-55). Each of these funds was for a specific project undertaken by the System. Some of the more significant grants (and funds) include: The Statewide Cataloging Maintenance Center (CMC) Grant provided funding for the System to do original cataloging of library materials and bibliographic database clean up for Illinois libraries and library consortia at a reduced cost. The System has participated in this project for nearly a decade. Illinois Machine Sub-Lending Program is part of the Talking Book and Braille Library. This program provides books, magazines, movie, etc. to anyone in Illinois who is unable to comfortably read standard print due to a temporary or permanent visual or physical disability. The Machine Sub-Lending Program is responsible for the distribution, training, and repair of the machines used by those Illinois residents who participate in the Talking Brook and Braille program

10 Other programs include the Plinkit Project, OCLC Billing, a Video Conferencing Grant, and the Delivery Van Grant, just to name a few. Proprietary Funds The System maintained four proprietary funds (combined into one Computer Development Fund) in this report. Financial information presented in the Computer Development Fund is for the Local Library System Automation Programs (LLSAPs). The LLSAPs were four consortiums totaling about 298 agencies (utilizing about 429 library buildings). Each library participated in one of the shared integrated library automation systems. Staff from these libraries also received technical and other support as well as training from IHLS. The basic proprietary fund financial statements can be found on pages of this report. The fees collected for this service support out-of-pocket expenditures (including direct staff and their benefits). Fiduciary Fund IHLS has one Fiduciary fund, The OCLC Fund. IHLS bills libraries throughout the State for ILLINET OCLC services. These funds are then held in trust and are paid to OCLC. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided. The Notes to the Financial Statements can be found on pages of this report. Other Information In addition to the basic financial statements and accompanying notes, this report presents certain required supplementary information concerning the System s progress in funding its obligation to provide pension benefits to its employees. Required supplementary information for the pension obligation can be found on page 41. The other supplementary schedules contain combined financial information and budget to actual comparison for non-major funds. Other supplementary information can be found on pages of this report. Government-Wide Financial Analysis Over time, Net Assets may serve as a useful indicator of a government s financial position. IHLS s Assets exceeded Liabilities by $9,613,346 at the close of FY The largest portion the IHLS s Net Assets (54 percent) is Cash and Cash Equivalents which is used as working capital, necessitated because of delays in the receipt the Area and Per Capita funds

11 The following table reflects the condensed Statement of Net Assets: Summary of Net Assets Fiscal Year Ended June 30, 2012 Governmental Business-Type Capital Assets Activities Activities Total Current and Other Assets $4,837,556 $3,119,733 $ 7,957,289 Capital Assets $2,023,478 $ 38,819 $ 2,062,297 Total Assets $6,861,034 $3,158,552 $10,019,586 Long-Term Liabilities $ 77,203 $ 24,959 $ 102,162 Other Liabilities $ 274,684 $ 29,394 $ 304,078 Total Liabilities $ 351,887 $ 54,353 $ 406,240 Net Assets Invested in Capital Assets $2,023,478 $ 38,819 $ 2,062,297 Restricted $ 22,487 $ 0 $ 22,487 Unrestricted $4,463,182 $3,065,380 $ 7,528,562 Total Net Assets $6,509,147 $3,104,199 $ 9,613,346 Long-Term Liabilities represents the value of earned but unused vacation accumulated by employees as of June 30, Restricted Assets are the remaining fund balances for the Illinois Machine Sub-Lending Program, the OCLC Grant, and InfoEyes/SOS Program which must be used by those programs only

12 The following table is a summary of the Statement of Activities for the year ending June 30, 2012: Governmental Business-Type Activities Activities Total Revenues: Program Revenues: Charges for Services $ 33,835 $1,560,772 $1,594,607 Operating Grants & Contributions $4,257,774 $ 0 $4,257,774 Capital Grants & Contributions $ 160,848 $ 0 $ 160,848 General Revenues: Reimbursements $ 119,971 $ 0 $ 119,971 Investment Income $ 6,459 $ 7,002 $ 13,461 Other $ 27,639 $ 0 $ 27,639 Total Revenue $4,606,526 $1,567,774 $6,174,300 Expenses: Operating $3,611,154 $1,541,170 $5,152,324 Change in Net Assets $ 995,372 $ 26,604 $1,021,976 Net Assets Transferred from Legacy Systems $5,513,775 $3,077,595 $8,591,370 Ending Net Assets $6,509,147 $3,104,199 $9,613,

13 This Statement reflects a change in Net Assets of $1,021,976. This is an 11.9% increase. This increase is the result of concerted efforts to reduce expenses and preserve available cash. Governmental Activities Revenue by Source The following pie chart depicts total revenue by percentage. This is a typical distribution of Revenue for a multi-type library system: Business Type Activities IHLS s business-type activity is the LLSAP. As reported on the Statement of Revenues, Expenses and Changes in Net Assets (page 22), Fees for Services continued to represent almost 100% of all Revenues. Financial Analysis of the Government s Funds As noted earlier, the System uses fund accounting to demonstrate and ensure compliance with finance-related legal and grant requirements. As is indicated on page 15, as of June 30, 2012, the System s governmental funds reported a combined ending fund balance of $4,562,

14 General Fund The following table compares the budget to actual expenditures for the General Fund. The System used its approved amended budget: Fiscal Year Ended June 30, 2012 Original Final Budget Budget Actual Revenues: Area and Per Capita Grants $3,444,195 $3,364,429 $3,364,429 Investment Income $ 0 $ 0 $ 6,348 Miscellaneous $ 86,543 $ 86,543 $ 140,588 Total Revenues $3,530,738 $3,450,972 $3,511,365 Expenditures: Personnel $2,093,528 $2,093,528 $1,885,153 Other Operating Expenditures $ 884,830 $ 801,464 $ 601,604 Capital Outlays $ 255,000 $ 255,000 $ 61,140 Total Expenditures $3,233,358 $3,149,992 $2,547,897 Excess of Revenue Over Expenditures $ 297,380 $ 300,980 $ 963,468 Disposal of Assets $ 0 $ 0 $ 17,644 Net Change in Fund Balance $ 297,380 $ 300,980 $ 981,112 The IHLS developed a budget which was officially amended. This budget was based on the priority areas identified by the Illinois State Library and the FY 2012 goals contained in the IHLS Strategic Plan. The budget must be approved by the IHLS Board and the Illinois State Library. IHLS staff uses the budget to guide the operations throughout the fiscal year

15 Through prudent management and a separate grant from the Illinois State Library to assist in the procurement of replacement delivery vans, IHLS was able to significantly increase its fund balance. This balance will be used as working capital and to repay the Capital Fund for funds previously borrowed. With recent activities at the State level regarding the reduction in funding and the delay in payments, the need to use reserve funds will continue through FY 2013 and beyond. WebJunction Fund Personnel continue to be the largest expense for this project. Contractual Services primarily are the fees paid to OCLC, which hosts the WebJunction website. Additional expenses are for the use of several web-based meeting rooms. Over the life of the project Total Revenue will equal Total Expenses. Capital Projects Fund IHLS has aging buildings, equipment and vehicles. A facility study is underway which will be instrumental in developing a multi-year capital improvement program. Funds from the Capital Projects Fund will be used to support these projects. Capital Assets The table below shows the value of IHLS Capital Assets at June 30, 2012: Governmental Business-Type Capital Assets Activities Activities Total Land $ 595,254 $ 0 $ 595,254 Building & Improvements $1,129,304 $ 0 $1,129,304 Equip, Furniture & Fixtures, $ 16,270 $ 0 $ 16,270 Computer Hardware & Software $ 54,594 $ 38,819 $ 93,413 Vehicles $ 228,056 $ 0 $ 228,056 Total Capital Assets $2,023,478 $ 38,819 $2,062,297 Capital Assets for the System include the purchases of items with a minimum per unit cost of $5,000. During FY 2012, ten delivery vans were replaced and servers were purchased. Additionally, IHLS committed to purchase Polaris, a new integrated library automation system, at a cost of about $887,000. This expense will be incurred during FY

16 Discussions of Currently Known Facts, Decisions, or Conditions The development of the FY 2012 budget used a modified zero-based budget process. Administrative staff from the four soon-to-be-merged regional library systems participated in developing the budget. Careful consideration was given to the core service priorities as expressed by the Illinois Secretary of State and the Illinois State Library. Primary funding for the Governmental activities is the annual System Area & Per Capita Grant from the Illinois State Library, which is supported by the Illinois General Revenue Fund and the Live and Learn Fund. Other revenue sources used for the Proprietary activities include the fees collected to support the operation of the four Local Library System Automation Projects (LLSAPs), which provide services to four consortia representing 298 libraries. Additionally, the System continues to collect fees from organizations that lease or rent the System s training/meeting labs/rooms in one or more locations. Near the midpoint of the fiscal year, the System was notified of a reduction in the System Area & Per Capita Grant funding for the year. Federal Census figures from 2010 revealed a slight reduction in population served. A reduction of $79, adjusted the FY2012 grant to $3,364, An amended annual budget reflecting the small decrease was developed and approved. To complicate the situation, the System experienced significant delays in the receipt of its funding, as did the predecessor organizations. At the end of the fiscal year, Illinois Heartland Library System was still awaiting receipt of $1,461,371 for its FY 2012 System Area and Per Capita funding. In recent years, the cash flow crisis in the State of Illinois has forced organizations such as the System to manage their budgets while being keenly mindful of cash positions. A more prudent business model will continue to guide policies and financial decisions, providing a more sustainable model. As IHLS moves into FY 2013, it will continue to balance staying within the priority areas established by the Illinois State Library, providing quality service based on identified member needs, and remaining fiscally responsible (knowing the financial realities of available funding). Requests for Information This financial report is designed to provide a general review of the Illinois Heartland Library System for all those with an interest in the System s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Illinois Heartland Library System, Edwardsville Office, 6725 Goshen Road, Edwardsville, IL

17 Exhibit A ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Net Assets June 30, 2012 Governmental Business-Type Activities Activities Total ASSETS Current Assets: Cash and Cash Equivalents $ 2,686,148 $ 2,538,669 $ 5,224,817 Investments 395, , ,489 Internal Balances 170,391 (170,391) - Grants Receivable 1,577,225-1,577,225 Accounts Receivable 2, , ,373 Prepaid Expenses 5, , ,385 Total Current Assets 4,837,556 3,119,733 7,957,289 Capital Assets: Not Being Depreciated 595, ,254 Being Depreciated - Net of Accumulated Depreciation 1,428,224 38,819 1,467,043 Total Assets 6,861,034 3,158,552 10,019,586 LIABILITIES Current Liabilities: Accounts Payable 100,169 11, ,958 Accrued Expenses 75,075 17,605 92,680 Deferred Revenue 99,440-99,440 Total Current Liabilities 274,684 29, ,078 Long-Term Liabilities: Compensated Absences Payable 77,203 24, ,162 Total Liabilities 351,887 54, ,240 NET ASSETS Invested in Capital Assets 2,023,478 38,819 2,062,297 Restricted Grant Expenditures 22,487-22,487 Unrestricted 4,463,182 3,065,380 7,528,562 Total Net Assets $ 6,509,147 $ 3,104,199 $ 9,613,346 See Accompanying Notes

18 Exhibit B ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Activities For the Year Ended June 30, 2012 Program Revenues Charges Operating Capital Net (Expense)/Revenue for Grants and Grants and Governmental Business-Type Expenses Services Contributions Contributions Activities Activities Total Functions/Programs Governmental Activities: General Library Services $ 3,611,154 $ 33,835 $ 4,257,774 $ 160,848 $ 841,303 $ - $ 841,303 Business-Type Activities: Computer Development 1,541,170 1,560, ,602 19, $ 5,152,324 $ 1,594,607 $ 4,257,774 $ 160, ,303 19, ,905 General Revenues: Reimbursements 119, ,971 Investment Income 6,459 7,002 13,461 Miscellaneous 10,795-10,795 Disposal of Capital Assets 16,844-16,844 Total General Revenues 154,069 7, ,071 Change in Net Assets 995,372 26,604 1,021,976 Net Assets - Beginning of Year - Transferred from the Merged Entities 5,513,775 3,077,595 8,591,370 Net Assets - End of Year $ 6,509,147 $ 3,104,199 $ 9,613,346 See Accompanying Notes

19 Exhibit C ILLINOIS HEARTLAND LIBRARY SYSTEM Balance Sheet Governmental Funds June 30, 2012 Major Funds Capital Non-Major Total General WebJunction Projects Governmental Governmental Fund Fund Fund Funds Funds ASSETS Cash and Cash Equivalents $ 2,270,980 $ - $ 191,482 $ 223,686 $ 2,686,148 Investments 395, ,082 Due from Other Funds 273, , ,260 Grants Receivable 1,461, , ,577,225 Accounts Receivable 2, ,767 Prepaid Expenses 5, ,943 Total Assets $ 4,409,922 $ 115,854 $ 728,963 $ 223,686 $ 5,478,425 LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 87,871 $ 6,134 $ - $ 6,164 $ 100,169 Due to Other Funds 537, , ,869 Accrued Expenses 64,183 6,332-4,560 75,075 Deferred Revenue ,440 99,440 Total Liabilities 689, , , ,553 Fund Balances: Restricted ,487 22,487 Committed ,951 24, ,843 Assigned ,012 66, ,155 Unassigned 3,720, ,720,387 Total Fund Balances 3,720, , ,522 4,562,872 Total Liabilities and Fund Balances $ 4,409,922 $ 115,854 $ 728,963 $ 223,686 $ 5,478,425 See Accompanying Notes

20 Exhibit C-1 ILLINOIS HEARTLAND LIBRARY SYSTEM Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Assets June 30, 2012 Total Fund Balance, Governmental Funds $ 4,562,872 Capital Assets, Net of Depreciation Used in Governmental Activities 2,023,478 Accrued Compensated Absences Related to Governmental Activities (77,203) Net Assets of Governmental Activities $ 6,509,147 See Accompanying Notes

21 Exhibit D ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2012 Revenues State Grants: Major Fund Capital Non-Major Total General WebJunction Projects Governmental Governmental Fund Fund Fund Funds Funds Area and Per Capita $ 3,364,429 $ - $ - $ - $ 3,364,429 Illinois State Library - 165, ,336 1,054,193 Fees for Services and Material 10, ,513 33,835 Reimbursements 119, ,971 Investment Income 6, ,459 Other Revenue 10, ,795 Total Revenues 3,511, , ,349 4,589,682 Expenditures Current: General Library Services: Personnel Service 1,885, , ,435 2,562,925 Contractual Services 167,403 58, , ,592 Supplies and Materials 434,201 5,485-12, ,735 Capital Outlay 61, , ,663 Total Expenditures 2,547, , ,161 3,645,915 Excess (Deficiency) of Revenues Over (Under) Expenditures 963, (19,812) 943,767 Other Financing Sources (Uses) Disposal of Capital Assets 17, ,644 Net Change in Fund Balances 981, (19,812) 961,411 Fund Balances - Beginning of Year - Transferred from the Merged Entities 2,739, , ,334 3,601,461 Fund Balances - End of Year $ 3,720,387 $ - $ 728,963 $ 113,522 $ 4,562,872 See Accompanying Notes

22 Exhibit D-1 ILLINOIS HEARTLAND LIBRARY SYSTEM Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds to the Statement of Activities For the Year Ended June 30, 2012 Net Change in Fund Balances, Total Governmental Funds $ 961,411 Remove Expenditures for Capital Assets 238,663 Include Depreciation Expense (141,480) Reduce Income from Sale of Capital Assets (800) Accrued Compensated Absences Payable Change from Beginning of Year (62,422) Change in Net Assets of Governmental Activities $ 995,372 See Accompanying Notes

23 Exhibit E ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2012 Revenues State Grants: Variance Budget (Actual - Original Final Actual Final Budget) Area and Per Capita $ 3,444,195 $ 3,364,429 $ 3,364,429 $ - Illinois State Library Fees for Services and Material 84,543 84,543 10,322 (74,221) Reimbursements , ,971 Investment Income - - 6,348 6,348 Other Revenue 2,000 2,000 10,295 8,295 Total Revenues 3,530,738 3,450,972 3,511,365 60,393 Expenditures Current: General Library Services: Personnel Service 2,093,528 2,093,528 1,885,153 (208,375) Contractual Services 200, , ,403 (33,260) Supplies and Materials 684, , ,201 (246,366) Capital Outlay 255, ,234 61,140 (114,094) Total Expenditures 3,233,358 3,149,992 2,547,897 (602,095) Excess (Deficiency) of Revenues Over (Under) Expenditures 297, , , ,488 Other Financing Sources (Uses) Disposal of Capital Assets ,644 17,644 Net Change in Fund Balance $ 297,380 $ 300, ,112 $ 680,132 Fund Balance - Beginning of Year - Transferred from the Merged Entities 2,739,275 Fund Balance - End of Year $ 3,720,387 See Accompanying Notes

24 Exhibit F ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual WebJunction - Special Revenue Fund For the Year Ended June 30, 2012 Revenues State Grants: Variance Budget (Actual - Original Final Actual Final Budget) Area and Per Capita $ - $ - $ - $ - Illinois State Library 168, , ,857 (99,395) Fees for Services and Material Reimbursements Investment Income Other Revenue Total Revenues 168, , ,857 (99,395) Expenditures Current: General Library Services: Personnel Service 138, , ,337 (81,823) Contractual Services 26,250 70,500 58,035 (12,465) Supplies and Materials 4,300 10,592 5,485 (5,107) Capital Outlay Total Expenditures 168, , ,857 (99,395) Net Change in Fund Balance $ - $ - - $ - Fund Balance - Beginning of Year - Transferred from the Merged Entities - Fund Balance - End of Year $ - See Accompanying Notes

25 Exhibit G ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Net Assets Proprietary Fund June 30, 2012 ASSETS Current Assets: Enterprise Fund Computer Development Fund Cash and Cash Equivalents $ 2,538,669 Investments 540,407 Due from Other Funds 4,549 Accounts Receivable 102,606 Prepaid Expenses 108,442 Total Current Assets 3,294,673 Capital Assets: Depreciable Capital Assets 1,725,889 Accumulated Depreciation (1,687,070) Total Capital Assets 38,819 Total Assets 3,333,492 LIABILITIES Current Liabilities Accounts Payable 11,789 Due to Other Funds 174,940 Accrued Expenses 17,605 Total Current Liabilities 204,334 Long-Term Liabilities: Compensated Absences Payable 24,959 Total Liabilities 229,293 NET ASSETS Invested in Capital Assets 38,819 Unrestricted 3,065,380 Total Net Assets $ 3,104,199 See Accompanying Notes

26 Exhibit H ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Revenues, Expenses, and Changes in Net Assets Proprietary Fund For the Year Ended June 30, 2012 Enterprise Fund Computer Development Fund Operating Revenues Charges for Services: $ 1,560,772 Operating Expenses Personnel Services 911,541 Contractual Services 583,556 Supplies and Materials 25,625 Depreciation 20,448 Total Operating Expenses 1,541,170 Operating Income (Loss) 19,602 Non-Operating Revenues (Expenses) Investment Income 7,002 Net Change in Net Assets 26,604 Net Assets - Beginning of Year - Transferred from the Merged Entities 3,077,595 Net Assets - End of Year $ 3,104,199 See Accompanying Notes

27 Exhibit I ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Cash Flows Proprietary Fund For the Year Ended June 30, 2012 Enterprise Fund Computer Development Fund Cash Flows from Operating Activities Receipts from Customers $ 1,463,791 Payments to Vendors (897,342) Payments to Employees (580,181) Net Cash Provided by (Used in) Operating Activities (13,732) Cash Flows from Noncapital Financing Activities (Increase) Decrease in Due from Other Funds 1,276 Increase (Decrease) in Due to Other Funds 144,823 Net Cash Provided by (Used in) Noncapital Financing Activities 146,099 Cash Flows from Investing Activities Investment Income 7,002 Purchase of Investments, Net (5,012) Net Cash Provided by (Used in) Investment Activities 1,990 Net Increase (Decrease) in Cash and Cash Equivalents 134,357 Cash and Cash Equivalents, July 1, Transferred from the Merged Entities 2,404,312 Cash and Cash Equivalents, June 30, 2012 $ 2,538,669 Cash Flows from Operating Activities Operating Income (Loss) $ 19,602 Adjustment to Reconcile Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Depreciation 20,448 (Increase) Decrease in Assets: Inventory 8,171 Accounts Receivable (90,841) Prepaid Expenses 11,135 Increase (Decrease) in Liabilities: Accounts Payable (10,519) Deferred Revenue (6,140) Accrued Expenses 34,412 Net Cash Provided by (Used in) Operating Activities $ (13,732) See Accompanying Notes

28 Exhibit J ILLINOIS HEARTLAND LIBRARY SYSTEM Statement of Fiduciary Net Assets Fiduciary Fund June 30, 2012 ASSETS OCLC - Agency Fund Current Assets: Cash and Cash Equivalents $ 2,490,068 LIABILITIES Current Liabilities: Due To Other Agencies 2,490,068 NET ASSETS $ - See Accompanying Notes

29 ILLINOIS HEARTLAND LIBRARY SYSTEM Notes to Financial Statements June 30, Summary of Significant Accounting Policies The financial statements of the Illinois Heartland Library System (the System) are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Government Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments. GAAP includes all relevant GASB pronouncements plus other sources of accounting and financial reporting guidance noted in GASB Statement 55, The Hierarchy of GAAP for State and Local Governments. Governments are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989 (when applicable) that do not conflict with or contradict GASB pronouncements. In the government-wide financial statements and fund financial statements for the proprietary fund, FASB pronouncements and Accounting Principles Board (APB) opinions issued after November 30, 1989 are not applied. a. Financial Reporting Entity The Illinois Heartland Library System was created July 1, 2011 by the merger of four regional library systems in southern and central Illinois. The System provides delivery, automation (online catalog software), and talking book services to the libraries of southern and parts of central Illinois, as well as certain grant program services, such as the Catalog Maintenance Center and WebJunction Illinois, to libraries throughout Illinois. The System is governed by a fifteen member Board of Directors selected from among the System s member organizations. The July 1, 2011 net assets and fund balances presented in these financial statements are the combined amounts from June 30, 2011 for the four merged library systems. The definition of what constitutes the entity of the Illinois Heartland Library System is based on the guidelines set forth in GASB Statement Number 14. The primary government of the System consists of the funds presented herein as governmental funds, a proprietary fund, and a fiduciary fund. According to GASB Statement No. 14, a legally separate organization should be included as a component unit of the primary organization if the primary government is financially accountable for the organization. Financial accountability is determined as follows: 1. The organization is fiscally dependent on the primary government

30 2. The primary government appoints a voting majority of the organization s governing body and: It is able to impose its will on the organization The organization provides financial benefits or imposes financial burdens on the primary government Based on the operational and financial criteria noted above, the System does not have a component unit that should be reported as part of the reporting entity. Related organizations for which the Directors appoint a voting majority of the governing body, but for which the System is not financially accountable, are not included in the reporting entity. Jointly governed organizations are those for which the System does not have an ongoing financial interest or responsibility. Jointly governed organizations are not included in the reporting entity. b. Basic Financial Statements Government-Wide Financial Statements The Statement of Net Assets and Statement of Activities display information about the System as a whole. They include all funds of the System, except the fiduciary fund. The Statement of Net Assets and the Statement of Activities include the governmental activities and business-type activities. Governmental activities generally are financed through intergovernmental revenues and other non-exchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. Internal balances and activities within the System s funds are eliminated in the government-wide financial statements. Transactions between the governmental and business-type activities are not eliminated. The government-wide financial statements are reported using the economic resources measurement focus and accrual basis of accounting (as described in Note 1.c). Fund Financial Statements Fund financial statements of the System are organized into funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that constitutes its assets,

31 liabilities, fund equity, revenues, and expenditures/expenses. The System s funds are organized into three categories: governmental, proprietary, and fiduciary funds. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the System or meets the following criteria: 1. Total assets, liabilities, revenues, or expenditures/expenses of that individual fund are at least 10 percent of the corresponding total for all funds of that category or type. 2. Total assets, liabilities, revenues, or expenditures/expenses of the individual fund are at least 5 percent of the corresponding total for all funds combined. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting (as described in Note 1.c.). The proprietary and fiduciary fund financial statements are reported on the accrual basis of accounting (as described in Note 1.c.). The fund types of the System are described below: Governmental Funds The focus of the governmental funds measurement (in the fund financial statements) is upon determination of financial position and changes in financial position (sources, uses, and balances of financial resources) rather than upon net income. The following is a description of the governmental funds of the System: General Fund - The General Fund is the primary operating fund of the System and is always classified as a major fund. It is used to account for all activities except automation and bibliographic access and those activities legally or administratively required to be accounted for in other funds. Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of the specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. The reporting entity of the System includes the following special revenue funds: Major Special Revenue Fund WebJunction Fund Grants from the Illinois State Library finance this fund, which acts as the fiscal agent for the WebJunction Illinois website. WebJunction Fund is considered major by the System s management due to qualitative factors rather than as the result of meeting the 10 and 5 percent tests noted above

32 Non-Major Special Revenue Funds The System s non-major special revenue funds include: Illinois Machine Sub- Lending Carterville Fund, CMC Grant Fund, Plinkit Project Fund, Videoconferencing Grant Fund, OCLC Grant Fund, InfoEyes/SOS Fund, Marc of Quality Grant Fund, Delivery Van Grant Fund, Cataloging Services Fund, and Lincoln Trail Libraries Foundation Fund. Capital Projects Funds Capital Projects Funds are used to account for and report financials resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets other than those financed by Proprietary Funds. The reporting entity includes one capital projects fund, the Capital Projects Fund, a major governmental fund. Proprietary Fund Enterprise Fund An Enterprise Fund is used to account for business-like activities provided to the general public or outside entities. The measurement of financial activity focuses on net income measurement similar to the private sector. The reporting entity includes the following enterprise fund that is reported as a major fund: Computer Development Fund Accounts for all activities related to an automated library database system that provides widespread library accessibility services to a system of member libraries. Fiduciary Funds Fiduciary funds are used to report assets held by the System in a trustee or agency capacity for others and therefore cannot be used to support the System s own programs. The System has one fiduciary fund, the OCLC Agency Fund, which is used to account for funds held in trust for the ILLINET OCLC. c. Basis of Accounting Accrual Governmental activities and business-type activities in the government-wide financial statements and the enterprise fund financial statements are presented on the accrual basis of accounting. Revenue is recognized when earned and expenses are recognized when incurred. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met

33 Modified Accrual The governmental fund financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenue is recognized when it becomes both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The System considers receipts within 60 days of year-end to be available. Expenditures generally are recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term debt, if any, is recognized when payment is due. d. Cash and Cash Equivalents Cash and cash equivalents includes deposits at financial institutions, short-term investments with original maturities at issuance of three months or less, and funds held in money market mutual funds at depository banks. e. Investments Under Illinois law (30 ILCS 235/2), the System may invest excess funds in interest bearing deposits at federally insured banks and savings and loans, commercial paper, short term discount obligations of the Federal National Mortgage Association, and securities issued by the U.S. Treasury or other federal agencies. Investments consist of certificates of deposit and are held at cost. f. Receivables Receivables are reported at the estimated net realizable amounts from third-party payers and others for services rendered. Receivables are stated at the amount management expects to collect on outstanding balances. The System s allowance for doubtful receivables at June 30, 2012 was $0. g. Interfund Balances Receivables and payables between funds are reported as due from and due to other funds, respectively. Amounts not expected to be repaid within a reasonable time are considered interfund transfers. In governmental funds, amounts due from other funds expected to be repaid within a reasonable time, but beyond one year from June 30, 2012, as well as other long-term receivables are offset by non-spendable fund balance because they do not represent expendable, available financial resources. h. Prepaid Expenditures/Expenses Prepaid expenditures/expenses such as for insurance or service contracts are deferred and expended/expensed over the term when the services are received

34 i. Capital Assets Capital assets purchased for use in governmental activities are recorded as expenditures in governmental fund financial statements at the time of purchase. Capital assets of governmental activities are reported in the government-wide financial statements offset by accumulated depreciation. Capital assets are valued at actual or estimated historical cost while donated capital assets are valued at their fair market value on the date donated. Capital assets are defined as assets with initial, individual costs over $5,000 and an estimated useful life in excess of two years. Depreciation is calculated on all assets other than land and assets that appreciate in value using the straight-line method with the following estimated useful lives: Years Buildings and Improvements 30 Equipment and Other 7 Furniture and Fixtures 8 Computers 5 Vehicles 10 The System has no intangible assets subject to capitalization. j. Restricted Net Assets Assets that are not available to finance general operations of the System are reported as restricted on the statement of net assets. The System s policy is to apply restricted resources first when an expense is incurred for a purpose for which restricted and unrestricted net assets are available. k. Fund Balance The components of fund balance indicate the extent to which there are constraints on the specific purposes for which amounts in the fund can be spent. The fund balance classifications are as follows: Non-Spendable Amounts that cannot be spent either because they are not in a spendable form or because they are legally or contractually required to be maintained intact Restricted Amounts that can be spent only for specific purposes because of the System s Charter, state or federal laws, or externally imposed conditions by grantors or creditors Committed Amounts that can be used only for specific purposes determined by a formal action or resolution by the System s Board of Directors