COMMUNITY DISTRICT LIBRARY CORUNNA, MICHIGAN FINANCIAL STATEMENTS JUNE 30, 2011

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1 CORUNNA, MICHIGAN FINANCIAL STATEMENTS JUNE 30, 2011

2 CORUNNA, MICHIGAN BOARD OF TRUSTEES JUNE 30, 2011 Geraldine Hagadon Kathy Pavlica Position Open Ann Dingens Julie Chrisinske Dan Lauterbur Debra Newman John Sedlock Chairperson Vice-Chair Treasurer Secretary Trustee Trustee Trustee Trustee

3 TABLE OF CONTENTS JUNE 30, 2011 Independent Auditor's Report 1-2 Management's Discussion and Analysis 3-6 Basic Financial Statements Government-wide Financial Statements Statement of Net Assets 7 Statement of Activities 8 Fund Financial Statements Balance Sheet - Governmental Fund 9 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 10 Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Fund 11 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance with Statement of Activities 12 Notes to Financial Statements Required Supplementary Information Budgetary Comparison Schedule - General Fund 22

4 INDEPENDENT AUDITOR'S REPORT To the Board of Trustees Community District Library Corunna, Michigan We have audited the accompanying financial statements of the governmental activities and the major fund of Community District Library as of and for the year ended June 30, 2011, which collectively comprise the Library's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Community District Library'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 the 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 and the major fund of Community District Library as of June 30, 2011, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis and budgetary comparison information, as identified in the table of contents, are not required parts of the basis financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 1

5 As discussed in Note F, during the year the Library implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund-type Definitions. As a result of this implementation, fund balance classifications in the governmental fund financial statements have been changed to reflect the five new classifications under GASB Statement No. 54. Demis and Wenzlick, P.C. Certified Public Accountants September 23,

6 MANAGEMENT'S DISCUSSION AND ANALYSIS The discussion and analysis of financial performance provides an overview of the Library's financial activities for the fiscal year ended June 30, 2011 and also provides a comparison with the financial activities of the prior fiscal year. Please read it in conjunction with the Library's financial statements immediately following this section. Financial Highlights As discussed in further detail in this discussion and analysis, the following represents the most significant financial highlights for the year ended June 30, 2011: The assets of the Library exceeded its liabilities at the end of the most recent fiscal year by $602,658 (net assets) at the government-wide level. The Library's total net assets decreased by $19,060 as a result of current year activity. This figure has been adjusted to recognize depreciation expense and to remove capital outlay expenditures that are included at the fund level. Unreserved Fund Balance decreased as a result of expenditures exceeding revenues in the current year at the fund level by $27,691. Using this Annual Report This annual report consists of a series of financial statements. The statement of net assets and the statement of activities provide information about the activities of Community District Library as a whole and present a longer-term view of the Library's finances. This longer-term view uses the accrual basis of accounting and measures the cost of providing services during the current year. The fund financial statements present a short-term view; they tell us how the taxpayers' resources were spent during the year, as well as how much is available for future spending. Fund financial statements also report the operations of Community District Library in more detail than the government-wide financial statements by providing information about the Library's fund. 3

7 MANAGEMENT'S DISCUSSION AND ANALYSIS The Library as a Whole The following table shows, in a condensed format, the net assets as of June 30, 2011 and 2010: June 30, 2011 June 30, 2010 Assets Current and Other Assets $ 463,240 $ 480,044 Capital Assets 154, ,430 Total Assets 618, ,474 Liabilities Current Liabilities 15,492 13,755 Net Assets Invested in Capital Assets 154, ,430 Restricted 10,523 1,373 Unrestricted 437, ,916 Total Net Assets $ 602,658 $ 621,719 The Library's total net assets were $600,178 at June 30, Unrestricted net assets (the part of net assets that can be used to finance day-to-day operations) were $437,225 at the end of the fiscal year. Restricted net assets for memorial fund were $553 and prepaid expenses were $9,970. The net assets invested in capital assets were $154,910. The following table shows the changes in net assets during the current year and the prior year: June 30, 2011 June 30, 2010 Revenues Program Revenue: Charges for Services $ 18,643 $ 18,560 Operating Grants and Contributions 1,562 General Revenue: Property Taxes 335, ,384 State Aid - Unrestricted 14,225 5,044 Local 23,243 Penal Fines 80,737 74,480 Interest 3,969 6,785 Miscellaneous 18,670 6,274 Total Revenues 495, ,089 Program Expenses Recreation and Culture 505, ,726 Change in Net Assets (9,907) (28,637) Prior Period Adjustment (9,153) Total Change in Net Assets $ (19,060) $ (28,637) 4

8 MANAGEMENT'S DISCUSSION AND ANALYSIS Governmental Activities The Library's governmental revenues totaled $495,106 with the greatest revenue source being property taxes levied by the district. Property taxes make up approximately 68 percent of total governmental revenue. The Library incurred expenses of $504,493 during the year. As a special purpose government, all of the governmental expenses incurred are associated with the library service function. The Library's Fund The analysis of the Library's major fund begins on page 9, following the government-wide financial statements. The fund financial statements provide detailed information about the specific fund, not Community District Library as a whole. The Community District Library's Board of Trustees may create funds to help manage money for specific purposes as well as to show accountability of certain activities. The Library's only fund for the fiscal year ended June 30, 2011 was the General Fund. The General Fund pays for the Library's governmental services. The sole service provided during the fiscal year was library services, which incurred expenditures of $504,493 for the fiscal year. Capital Assets and Debt Administration At the end of the fiscal year, the Library has $154,910 invested in equipment, furniture, and books (net of accumulated depreciation). The main capital assets added were $57,371 in materials and books, etc. which were added to the collection. No debt was issued during the fiscal year. The Library had no indebtedness at June 30, Budgetary Highlights The Library amended the budget to adjust for various events that occurred during the year. The main item adjusted in the amended budget was salaries and wages, fringe benefits, supplies, contracted services, insurance, communications, marketing, utilities, memberships and dues, transportation and training, and repairs and maintenance expenses. Next Year's Millage Rate A four-year, 0.5 operating millage was renewed on August 5, For fiscal year 2010/2011 the estimated revenue was $336,373 and actual was $335,619. The Shiawassee County Equalization Department projects $327,186 in revenue for fiscal year 2011/2012. Actual revenue may vary due to tax capture by local Downtown Development Authorities. 5

9 MANAGEMENT'S DISCUSSION AND ANALYSIS Contacting the Library's Management This financial report is intended to provide our citizens, taxpayers, and library users with a general overview of the Library's finances and demonstrate the Library's accountability for the money it receives. If you have questions about this report or need additional information, we welcome you to contact the Library Director, 210 E. Corunna Ave., Corunna, MI 48817, (989) , jschu@mycdl.org. 6

10 BASIC FINANCIAL STATEMENTS

11 STATEMENT OF NET ASSETS JUNE 30, 2011 Primary Government Governmental Activities ASSETS Current Assets Cash & Cash Equivalents $ 306,226 Cash & Cash Equivalents - Restricted 553 Investments 110,626 Due From Other Governmental Units 35,865 Prepaids 9,970 Total Current Assets 463,240 Noncurrent Assets Capital Assets, Net of Depreciation 154,910 Total Noncurrent Assets 154,910 Total Assets $ 618,150 LIABILITIES Current Liabilities Accounts Payable $ 4,668 Accrued Wages 10,824 Total Current Liabilities 15,492 NET ASSETS Invested in Capital Assets, Net of Related Debt 154,910 Restricted - Prepaids 9,970 - Memorial Fund Account 553 Unrestricted 437,225 Total Net Assets $ 602,658 The accompanying notes are an integral part of the financial statements. 7

12 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Functions/Programs Primary Government Governmental Activities: Expenses Charges for Services Program Revenues Operating Grants and Contributions Capital Grants and Contributions Net (Expense) Revenue Primary Government Governmental Activities Recreation and Culture $ 505,013 $ 18,643 $ -- $ -- $ (486,370) Total Governmental Activities $ 505,013 $ 18,643 $ -- $ -- (486,370) General Purpose Revenues: Revenues Taxes 335,619 State 14,225 Local 23,243 Penal Fines 80,737 Miscellaneous 18,670 Interest 3,969 Total General Revenues 476,463 Change in Net Assets (9,907) Net Assets at Beginning of Period 621,718 Prior Period Adjustment (9,153) Net Assets at End of Period $ 602,658 The accompanying notes are an integral part of the financial statements. 8

13 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2011 General Fund ASSETS Cash & Cash Equivalents $ 306,226 Cash & Cash Equivalents - Restricted 553 Investments 110,626 Due From Other Governmental Units 35,865 Prepaids 9,970 Total Assets $ 463,240 LIABILITIES Accounts Payable $ 4,668 Accrued Wages 10,824 Total Liabilities 15,492 FUND BALANCE Nonspendable-Prepaids 9,970 Restricted - Memorial Fund Account 553 Committed Assigned Unassigned 437,225 Total Fund Balance 447,748 Total Liabilities and Fund Balance $ 463,240 The accompanying notes are an integral part of the financial statements. 9

14 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2011 Total Fund Balance - Governmental Funds $ 447,748 Fixed assets are capitalized in the Statement of Net Assets and depreciated in the Statement of Activities. These are expensed when acquired in the Statement of Revenues, Expenditures, and Changes in Fund Balance. 154,910 Total Net Assets - Governmental Funds $ 602,658 The accompanying notes are an integral part of the financial statements. 10

15 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2011 General Fund Revenues Taxes $ 335,619 Intergovernmental State 14,225 Local 23,243 Penal Fines 80,737 Fines & Fees 18,643 Interest 3,969 Miscellaneous 18,670 Total Revenues 495,106 Expenditures Recreation and Culture 502,704 Capital Outlay 1,789 Total Expenditures 504,493 Net Change in Fund Balance (9,387) Fund Balance at Beginning of Period 466,288 Prior Period Adjustment (9,153) Fund Balance at End of Period $ 447,748 The accompanying notes are an integral part of the financial statements. 11

16 RECONCILIATION OF GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE WITH STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Total Net Change in Fund Balances - Governmental Funds $ (18,540) Fixed Assets are expensed as capital outlay in governmental fund statements and capitalized as fixed assets in the Statement of Net Assets. 57,371 Depreciation expense reflected in the entity wide statements, not reflected in the governmental funds statements. (57,891) Changes in Net Assets - Governmental Funds $ (19,060) The accompanying notes are an integral part of the financial statements. 12

17 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Community District Library (the Library) is a District Library formed to pursuant to the District Library Establishment Act (1989 Public Act 24) through agreements between the Cities of Corunna and Perry and the Townships of Burns, Caledonia, Hazelton, Perry, Shiawassee, and Venice. The Library has a separate tax millage and governing board. Public Act 24 defines the Library's legal status as "an Authority under Section 6 of Article IX of the State Constitution of 1963" thereby classifying the Library as a Michigan Municipal Corporation. The local municipalities within the Library's boundaries collect and distribute property taxes that are levied by the Library. The Library has no stockholders and all monies received are to be used for certain specified purposes in accordance with the by-laws of the Library. The governing body of the Library is a board which is comprised of seven (7) members appointed in accordance with the provisions of the District Library Establishment Act (MCL ). The Community District Library's goal is to provide materials and services, which will furnish opportunities for educational, informational, recreational, and cultural needs for the community. The Library's more significant accounting policies are described below. The financial statements of the Library have been prepared in accordance with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and reporting principles. The Library's more significant accounting policies are described below. 1. Reporting Entity As required by accounting principles generally accepted in the United States of America; GASB Statement No. 14, The Financial Reporting Entity (as amended by GASB Statement No. 39); and Statement on Michigan Governmental Accounting and Auditing No. 5, these financial statements present the financial activities of the Community District Library. The Library has no activities that would be classified as component units. 2. Basis of Presentation GOVERNMENT-WIDE FINANCIAL STATEMENTS The statement of net assets and the statement of activities (the government-wide statements) present information for the Library as a whole. 13

18 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The statement of activities presents the direct functional expenses of the Library and the program revenues that support them. Direct expenses are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. Program revenues are associated with specific functions and include charges to recipients for goods or services and grants and contributions that are restricted to meeting the operational or capital requirements of that function. Revenues that are not required to be presented as program revenues are general revenues. This includes all taxes, interest, and unrestricted State aid payments and other general revenues and shows how governmental functions are either self-financing or supported by the general revenues of the Library. FUND FINANCIAL STATEMENTS The fund financial statements present the Library's only fund. The General Fund is the general operating fund of the Library and is considered a major fund. It is used to account for all financial resources. General Fund activities are financed by revenue from general property taxes, penal fines, and other sources. 3. Measurement Focus The government-wide financial statements are presented using the economic resources measurement focus, similar to that used by business enterprises or not-for-profit organizations. Because another measurement focus is used in the governmental fund financial statements, reconciliations to the government-wide statements are provided that explain the differences in detail. All governmental funds are presented using the current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. 4. Basis of Accounting Basis of accounting refers to the timing under which transactions are recognized for financial reporting purposes. Governmental fund financial statements use the modified accrual basis of accounting. The government-wide financial statements are prepared using the accrual basis of accounting. Under the accrual basis of accounting, revenue is recorded in the period in which it is earned and expenses are recorded when incurred, regardless of the timing of related cash flows. Property tax revenue is recognized in the fiscal year for which it is levied. Revenues for grants, entitlements, and donations are recognized when all eligibility requirements imposed by the provider have been met. Unearned revenue is recorded when resources are received by the Library before it has legal claim to them, such as when grant monies are received prior to the incurrence of qualified expenditures. 14

19 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The length of time used for "available" for purposes of revenue recognition in the governmental fund financial statements is 60 days. Revenues susceptible to accrual include property taxes, state aid, and interest revenue. Other revenues are not susceptible to accrual because generally they are not measurable until received in cash. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt which are recorded when due. If/when both restricted and unrestricted resources are available for use, it is the Library's policy to use restricted resources first, then unrestricted resources as they are needed. 5. Cash, Cash Equivalents, and Investments Cash and cash equivalents consist of checking and money market accounts and cash on hand. A portion of the cash and cash equivalents are classified as restricted cash because their use is limited. The General Fund's restriction is related to the memorial fund. The memorial fund is generated from the Perry branch and used for specific programs, events, and designated collections. Investments include certificates of deposit with an original maturity greater than 90 days from the date of purchase. All investments are stated at market value. 6. Due from Other Governmental Units Due from other governmental units consist of penal fines and other amounts due from other governmental units. 7. Property Taxes The participating City and Townships levy and collect property taxes for the Library. As the Library tax is collected it is remitted by the City and Township Treasurers. At March 1 each year the City and Townships settle their delinquent taxes with the County Treasurer and the unpaid real property tax is remitted to the Library by the County Treasurer in Shiawassee County. Delinquent personal property taxes are retained by the Treasurers for subsequent collection. The voters approved a levy of 0.5 mills for general operations. 15

20 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 8. Capital Assets Capital assets include equipment and furniture and collections and are recorded (net of accumulated depreciation, if applicable) in the government-wide financial statements under the governmental activities column. Capital assets are those with an initial individual cost of $1,000 or more and an estimated useful life of more than two years. Capital assets are not recorded in the governmental fund. Instead, capital acquisition and construction are reflected as expenditures in the governmental fund and the related assets are reported in the government-wide financial statements. All purchased capital assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated capital assets are valued at their estimated fair market value on the date received. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Depreciation is computed using the straight-line method over the following useful lives: Equipment and Furniture 3-5 years Collections 5 years 9. Comparative Data Comparative data for the prior year has not been presented in the accompanying financial statements since the inclusion of comparative data would make the statements unduly complex and difficult to read. NOTE B - CASH, CASH EQUIVALENTS, AND INVESTMENTS In accordance with Michigan Compiled Laws, the Community District Library is authorized to invest in the following investment vehicles: 1. Bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States. 2. Certificates of deposit, savings accounts, deposit accounts, or depository receipts of a State or nationally chartered bank or a State or Federally chartered savings and loan association, savings bank, or credit union whose deposits are insured by an agency of the United States government and which maintains a principal office located in this State under the laws of the State or the United States, but only if the bank, savings and loan association, or credit union is eligible to be a depository of surplus funds belonging to the State under Section 5 or 6 of Act No. 105 of the Public Acts of 1855, as amended, being Section and of the Michigan Compiled Laws. 3. Commercial paper rated at the time of purchase within the three (3) highest classifications established by not less than two (2) standard rating services and which matures not more than 270 days after the date of purchase. 16

21 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE B - CASH, CASH EQUIVALENTS, AND INVESTMENTS (CONTINUED) 4. The United States government or Federal agency obligations repurchase agreements. 5. Bankers acceptances of United States banks. 6. Mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan. Federal Deposit Insurance Corporation (FDIC) regulations provide that deposits of governmental units are to be separately insured up to $250,000 for interest-bearing savings deposits in an insured bank and up to $250,000 for interest-bearing demand deposits at participating FDIC insured institutions. FDIC insurance coverage through its Transaction Account Guarantee (TAG) Program provides unlimited insurance on non-interest bearing transaction accounts and low-interest bearing (i.e., no higher than 0.50 percent through June 30, 2010 and 0.25 percent after July 1, 2010) NOW accounts. This program is scheduled to end December 31, 2010, unless extended by the FDIC. Furthermore, if specific deposits are regulated by statute or bond indenture, these deposits are to be separately insured up to $250,000. For the purpose of these rules the term "savings deposits" includes NOW accounts, money market deposit accounts, and other interest-bearing checking accounts. Beginning December 31, 2010, through December 31, 2012, deposits held in non-interest bearing transaction accounts will have unlimited coverage at all FDIC insured institutions. Deposits of the Library are at federally insured banks located in the State of Michigan with all accounts maintained in the name of the Community District Library. As of June 30, 2011, the carrying amount and bank balances for each type of bank account are as follows: Account Type Carrying Amount Bank Balance Checking and Money Market $ 306,564 $ 307,975 Certificates of Deposit 110, ,626 $ 417,190 $ 418,601 As of June 30, 2011, the Library's deposits were insured by the FDIC in the amount of $418,601. The cash and cash equivalents captions in the basic financial statements includes $215 in imprest cash. Interest Rate Risk The Library will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operating funds primarily in shorter-term securities, liquid asset funds, money market mutual funds, or similar investment pools and limiting the average maturity in accordance with the Library's cash requirements. 17

22 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE B - CASH, CASH EQUIVALENTS, AND INVESTMENTS (CONTINUED) Concentration of Credit Risk The Library will minimize concentration of credit risk, which is the risk of loss attributed to the magnitude of the Library's investment in a single issuer, by diversifying the investment portfolio by security type to ensure that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. Custodial Credit Risk The Library will minimize custodial credit risk, which is the risk of loss due to the failure of the security issuer or backer by limiting investments in certain types of investments to a prime or better rating issued by nationally recognized statistical rating organizations (NRSRO's) and pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the Library will do business. As of June 30, 2011, the cash and cash equivalents and investments referred to above have been reported in either the cash and cash equivalents or investments captions in the basic financial statements in the following categories: Governmental Activities Cash and Cash Equivalents $ 306,226 Cash and Cash Equivalents - Restricted 553 Investments 110,626 $ 417,405 Due to significantly higher cash flow at certain periods during the year, the amount the Library held as cash and cash equivalents increased significantly. As a result, the amount of uninsured and uncollateralized cash and cash equivalents were substantially higher at these peak periods than at yearend. 18

23 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE C - CAPITAL ASSETS Capital asset activity for the year ended June 30, 2011, was as follows: Balance 07/01/10 Additions Disposals Balance 06/30/11 Primary Government: Governmental Activities: Equipment and Furniture $ 40,738 $ $ $ 40,738 Collections 546,673 57, ,044 Total at Historical Cost 587,411 57, ,782 Less Accumulated Depreciation for: Equipment and Furniture (24,897) (4,268) (29,165) Collections (407,084) (53,623) (460,707) Total Accumulated Depreciation (431,981) (57,891) (489,872) Capital Assets, Net $ 155,430 $ (520) $ $ 154,910 Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: Recreation and Culture $ 57,891 $ 57,891 NOTE D - OPERATING LEASE OBLIGATION The Library Administrative office has moved to new location as of September 1, The Library has entered into a three-year, non-cancelable lease with the City of Corunna for the Administration offices located in Corunna. Rental payments related to this lease is $9,600 annually through August 31, Future minimum lease payments on the lease are as follows: Year Ending June 30, 2012 $ 9, ,600 Total $ 11,200 Rental expense for the year ended June 30, 2011 was $9,

24 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE E - RISK MANAGEMENT The Library is exposed to various risks of loss for liability, property, employee dishonesty, workers' compensation, and employer's liability for which the Library carries commercial insurance. NOTE F DETAILS OF FUND BALANCE CATEGORIES AND CLASSIFICATIONS In February 2009, the GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The objective of this Statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Under this standard, the fund balance classifications of reserved, designated and unreserved will be replaced with five new classifications: nonspendable, restricted, committed, assigned and unassigned. Nonspendable Assets that are not available in a spendable form such as inventory, prepaid expenditures, and long-term receivables to be converted to cash in the near term. It also includes funds that are legally or contractually required to be maintained intact such as the corpus of a permanent fund or foundation. Restricted Amounts that are required by external parties to be used for a specific purpose. Constraints are externally imposed by creditors, grantors, contributors or laws, regulations or enabling legislation. Committed Amounts constrained on use imposed by formal action of the government s highest level of decision making authority (i.e., Board, Council, etc.). Assigned Amounts intended to be used for specific purposes. This is determined by the governing body, the budget or finance committee or a delegated municipality official. Unassigned All other resources; the remaining fund balance after nonspendable, restrictions, commitments, and assignments. This class only occurs in the General Fund, except for cases of negative fund balances. Negative Fund Balances are always reported as Unassigned, no matter which fund the deficit occurs in. Fund Balance Classification Policies and Procedures For committed fund balance, Community District Library s highest level of decision-making authority is the Library Board of Trustees. The formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution by the Library Board of Trustees. For assigned fund balance, the Library Board is authorized to assign amounts to a specific purpose. The authorization policy is a full vote and approval by the Library Board of Trustees. 20

25 NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2011 NOTE F DETAILS OF FUND BALANCE CATEGORIES AND CLASSIFICATIONS (CONTINUED) For the classification of fund balance amounts, the Library s policy is to spend restricted amounts first, then unrestricted amounts when both restricted and unrestricted amounts are available. Similarly, the Library s policy is to spend committed amounts first, then assigned amounts, and finally unassigned amounts when any of those unrestricted fund balance classifications could be used. The following are the various fund balance classifications as of June 30, 2011: Fund Balance Nonspendable: Prepaids $ 9,970 Restricted: Memorial Fund Account 553 Unassigned 437,225 Total Fund Balance $ 447,748 NOTE G EXCESS OF EXPENDITURES OVER APPROPRIATIONS IN BUDGETARY FUNDS P.A. 621 of 1978, Section 18 (a) as amended, provides that a local unit shall not incur expenditures in excess of the amount appropriated. During the year, the Library incurred expenditures in excess of the amount appropriated as follows: General Fund: Appropriation Actual Variance Salaries & Wages $ 292,068 $ 295,550 $ 3,482 Insurance 7,000 9,724 2,724 Materials 52,000 57,371 5,371 Office Supplies 8,500 9, Co-Op Service 5,200 7,493 2,293 Contracted Services-Other 12,040 16,368 4,328 Telecommunications 8,700 8, Memberships & Dues 13,600 19,248 5,648 Bank Fees NOTE H PRIOR PERIOD ADJUSTMENT The prior period adjustment of $9,153 is due to the responses to the confirmation letters for the Delinquent Taxes Receivable balance due at June 30,

26 REQUIRED SUPPLEMENTARY INFORMATION

27 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2011 Budgeted Amounts Variance Original Final Actual Favorable (Unfavorable) Final to Actual Revenues Taxes $ 336,608 $ 336,373 $ 335,619 $ (754) State 13,000 13,000 14,225 1,225 Local 27,360 27,360 23,243 (4,117) Penal Fines 75,000 75,000 80,737 5,737 Fines & Fees 17,200 17,200 18,643 1,443 Interest 7,000 7,000 3,969 (3,031) Miscellaneous 6,000 17,000 18,670 1,670 Total Revenues 482, , ,106 2,173 Expenditures Salaries & Wages 292, , ,550 (3,482) Fringe Benefits 39,800 39,513 35,679 3,834 Lease 9,600 9,600 9,600 Equipment Rental 12,000 12,000 9,084 2,916 Marketing 3,000 3,000 2, Insurance 6,300 7,000 9,724 (2,724) Postage 2,500 2,500 1, Materials 52,000 52,000 57,371 (5,371) Office Supplies 7,000 8,500 9,348 (848) Repairs & Maintenance 1, Co-Op Service 4,200 5,200 7,493 (2,293) Audit 3,600 3,820 3, Fiscal Agent 6,900 6,900 6, Contracted Services - Other ,040 16,368 (4,328) Attorney Fees 3,000 2, ,492 Telecommunications 8,700 8,700 8,904 (204) Memberships & Dues 15,600 13,600 19,248 (5,648) Professional Development 3,200 1, ,181 Mileage/Travel/Lodging 6,000 6,000 5, Capital Outlay 1,000 2,000 1, Technology 4,000 4,000 3, Bank Fees (127) Total Expenditures 482, , ,493 (11,560) Excess (Deficiency) of Revenues Over Expenditures (9,387) (9,387) Fund Balance at Beginning of Period 466, , ,288 Prior Period Adjustment (9,153) (9,153) Fund Balance at End of Period 466, , ,748 (18,540) 22

28 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS To the Board of Trustees Community District Library 210 E. Corunna Avenue Corunna, Michigan In planning and performing our audit of the governmental activities and the major fund of Community District Library (the Library) as of and for the year ended June 30, 2011, in accordance with auditing standards generally accepted in the United States of America, we considered the Library's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions 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 deficiencies, significant deficiencies, or material weaknesses have been identified. In addition, because of inherent limitations in internal control, including the possibility of management override of controls, misstatements due to error or fraud may occur and not be detected by such controls. However, as discussed below, we identified certain deficiencies in internal control that we consider to be significant. MATERIAL WEAKNESS A deficiency in internal control exists when the design or operation of a 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 did identify deficiencies in internal control that we consider to be material weakness, as defined above.

29 MATERIAL JOURNAL ENTRIES PROPOSED BY AUDITORS Material journal entries for the proper recognition of various accruals were proposed by the auditors. These misstatements were not detected by the Library's internal control over financial reporting. Management is responsible for establishing, maintaining, and monitoring internal controls, and for the fair presentation in the financial statements of financial position, results of operations, and cash flows (when applicable), including the notes to the financial statements, in conformity with U.S. generally accepted accounting principles. The auditor cannot be a part of internal controls. A similar issue was noted and reported in the audit comments last year. We recommend that the Library take steps to ensure that material journal entries are not necessary at the time future audit analysis is performed. SIGNIFICANT DEFICIENCIES A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the following in the Library's internal control to be significant deficiencies. PREPARATION OF FINANCIAL STATEMENTS Statement on Auditing Standards No. 115 titled Communicating Internal Control Related Matters Identified in an Audit requires us to communicate when a client requires assistance in the preparation of financial statements and the related footnotes that are required in accordance with accounting principles generally accepted in the United States of America. Throughout the year the Library prepares monthly financial reporting and the annual audited financial statements for the year ended June 30, 2011 for the Library required audit adjustments. The staff at the Library does understand substantially all of the information included in the financial statements, and as such are able to take responsibility for the content. We are communicating these circumstances as required by professional standards, and do not see a need for any change in the situation at this time. COMPLIANCE WITH OTHER MATTERS As part of obtaining reasonable assurance about whether the Library's financial statements are free of material misstatements, we performed tests of its compliance with certain provisions of laws, regulations, standards, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclose the following instances of noncompliance, and other matters. PAYROLL Employee longevity bonus payments are considered wages and must be processed through the payroll system. We recommend information for this be provided to the payroll service provider to be included in gross wages.

30 BUDGETS As noted in the financial statements, some of the activities of the Library exceeded the amounts appropriated. Public Act 621 of 1978, Section 18 (a) as amended, provides that the Library adopt formal budgets for all applicable General and Special Revenue Funds, and shall not incur expenditures in excess of the amounts appropriated. Also, the Public Act requires amendments to be performed prior to incurring additional expenditures. The Act further provides that total estimated expenditures shall not exceed estimated revenues, including any available unappropriated surplus (i.e., fund balance). We recommend the Library monitor expenditures against adopted budgets and make appropriate budge amendments as needed in the future. This report is intended solely for the information and use of management, and Members of the Board of Trustees of Community District Library and others within the organization, and is not intended to be and should not be used by anyone other than these specified parties. We wish to thank the staff for the outstanding assistance in the conducting of the audit. Demis and Wenzlick, P.C. Certified Public Accountants September 23, 2011