MEMORANDUM
To: Winnefox Library System Board of Trustees
From: Richard W. Bowman
Date: July 18, 2005
Subject: 2004 Winnefox Audit
In the letter from Virchow, Krause, to the Winnefox Board of Trustees, a few issues were raised.
First, with regards to our non compliance with GASB 34, etal. In the past, I have recommended and Mr. Nichols has concurred, that implementation would not provide more meaningful information to the readers of our financial reports, considering the added expense of that implementation. One of the major requirements of GASB 34 is the capitalization and the depreciation of major assets. For example, there has been much discussion of whether library collections should be considered a capital asset. If they are, and if a library's collection budget were $100,000; you then would not list the entire year's expenditure of $100,000. The current year's expense would be 1/5, or $20,000 along with 20% of each of the previous four years total amount spent.
Another requirement of GASB 34 calls for a management discussion and analysis summarizing what has occurred from a financial standpoint for the year. We do this partially at the time that the budget is presented and then again at year end close out. In addition, the System would have to issue two new statements - the statement of net assets and the statement of activities. These statements would look at the System as a whole (no fund distinction) and be prepared on the full accrual basis of accounting similar to a commercial or nonprofit enterprise. Any interfund activity would be eliminated. The statement of net assets would include all the property and equipment of the System as well as any pension liability and liability for accrued vacation and sick leave. The System would have to go back and develop property and equipment records to accomplish this since under the accounting standards we had been following all such assets were expensed in the year acquired. The statement of activity would reflect depreciation expense on our capitalized fixed assets.
Because we have not implemented these changes, we have received an "Adverse Opinion". This adverse opinion is primarily of interest to lenders, ie. bond markets. If this causes problems for the System, we can implement these standards at any time.
The next item, Significant Audit Adjustments has to do with our setting up the county automation grants as a payable, rather than carrying any year end balance over to the next year and reallocating those carryover funds. This issue has been raised since we started this procedure in 1998. I would suggest that we continue with the status quo, because it allows the System to easily keep an accurate tracking of these multi year grants.
VirchowKrause & company
Board of Trustees
Winnefox Library System
Professional standards require that we provide you with the following information related to our audit for the year ended December 31, 2004.
OUR RESPONSIBILITY UNDER GENERALLY ACCEPTED AUDITING STANDARDS
Our audit was conducted in
accordance with auditing standards generally accepted in the
be detected by us.
SIGNIFICANT ACCOUNTING POLICIES
Management has the
responsibility for selection and use of appropriate accounting policies. The
significant accounting policies used in the preparation of the System's
financial statements are discussed in Note 1 to the financial statements. No
new accounting policies were adopted and the application of existing policies
was not changed during 2004. However, as discussed in Note 1B the System did
not adopt a new accounting standard that was issued by the Governmental
Accounting Standards Board. This new standard was effective January 1, 2004. We
had discussed this new standard in previous letters to the Board. Consequently,
the financial statements are not presented in accordance with generally
accepted accounting principles. We
noted no transactions entered into by the System during the year that were both
significant and unusual, or transactions for which there is a lack of
authoritative guidance or consensus.
ACCOUNTING ESTIMA TES
Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. We are not aware of any particularly sensitive accounting estimates used by management in its financial statement process.
SIGNIFICANT AUDIT A DJUS TMENTS
For purposes of this letter, professional standards define a significant audit adjustment as a proposed correction of the financial statements that, in our judgment, may not have been detected except through our auditing procedures. These adjustments may include those proposed by us but not recorded by the System that could potentially cause future financial statements to be materially misstated, even though we have concluded that such adjustments are not material to the current financial statements. The adjustments that we proposed and that are included in the financial statements are available from the business manager.
In 1998, the System began
classifying unexpended member libraries' amounts as accounts payable and
recording the related expenditure to better match the budgeted amounts. This is
a good budgeting tool, but for financial statements prepared under accounting
principles generally accepted in the
Prepaid rent of $25,000 is being amortized over a period of time longer than the life of the applicable lease. This audit adjustment was not entered on the System's books. Management believes the effects of the uncorrected financial statement misstatement is immaterial, both individually and in the aggregate, to the general purpose financial statements as a whole.
DISAGREEMENTS WITH MANAGEMENT
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during our audit.
CONSULTATIONS WITH OTHER ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the System's financial statements or a determination of the type of auditors' opinion that may be expressed on those statements, the consulting accountant is required by professional standards to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no +such consultations with other accountants during the past year.
ISSUES DISCUSSED PRIOR TO THIS YEAR'S AUDIT
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to performing the audit. These discussions occurred in the normal course of our professional relationship and our responses were not a condition to the services performed as your auditor.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE A UDIT
We encountered no difficulties in dealing with management in performing our audit.
This report is intended solely for the information and use of the management and Board of Winnefox Library System and is not intended to be, and should not be, used by anyone other than the specified parties. If you should have any questions concerning our comments, please feel free to contact us. We would like to take this opportunity to extend our thanks and appreciation for the courtesies and assistance offered by all the staff of the Winnefox Library System during the audit.
Virchow, Krause & Company, LLP
April 20, 2005
WINNEFOX LIBRARY SYSTEM
FINANCIAL STATEMENTS
With Independent Auditors’ Report
December 31, 2004
WINNEFOX LIBRARY SYSTEM
TABLE OF CONTENTS
Independent Auditors'
Report Page
General Purpose Financial Statements
Combined Balance Sheet - All Fund Types and Account Group 2-3
Combined Statement of
Revenues, Expenditures and
Changes in Fund Balances - Governmental Fund Types 4
Combined Statement of
Revenues and Expenditures -
Budget and Actual - Governmental Fund Types 5-6
Notes to General Purpose
Financial Statements 7-13
Supplemental Information
Independent Auditors'
Report on Supplemental Information 14
Combining Balance Sheet - Special Revenue Funds 15
Combining Statement of
Revenues, Expenditures and
Changes in Fund Balances - Special Revenue Funds 16
VirchowKrause & Company
INDEPENDENT AUDITORS' REPORT
Board of Trustees
Winnefox Library System
We have audited the accompanying general purpose financial statements of Winnefox Library System (the "System") as of and for the year ended December 31, 2004, as identified in the accompanying table of contents. These general purpose financial statements are the responsibility of the System's Board of Trustees and management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit.
We conducted our audit in
accordance with auditing standards generally accepted in the
Management has not
presented government-wide financial statements to display the financial
position and changes in financial position of its governmental activities and
major funds. Accounting principles generally accepted in the
In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Winnefox Library System as of December 31, 2004, or the changes in its financial position for the year then ended.
Virchow, Krause & Company, LLP
April 20, 2005
WINNEFOX LIBRARY SYSTEM
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant of the Winnefox Library System's (the System) accounting policies are described below.
A. REPORTING ENTITY - In
1972 the Wisconsin Legislature passed legislation enabling the establishment of
public library systems. The Winnefox Library System was established in 1977.
The System, a federation of the thirty public libraries in
This report includes all of
the funds and account groups (except fixed assets per Note 1.E. of the System. The
reporting entity for the System consists of (a) the primary government,
(^organizations for which the primary government is financially accountable,
and (c) other organizations for which the nature and significance of their
relationship with the primary government are such that their exclusion would
cause the reporting entity's financial statements to be misleading or
incomplete. A legally separate organization should be reported as a component
unit if the elected_officials of the primary
government are financially accountable to the organization. The primary
government is financially accountable if it appoints a voting majority of the
organization's governing body and (1) it is able to impose its will on that
organization or (2)
there is a potential for the organization to provide specific financial
benefits to or burdens on the primary government. The primary government may be
financially accountable if an organization is fiscally dependent on the primary
government. A legally separate, tax exempt organization should be reported as a
component unit of a reporting entity if all of the following criteria are met:
(1) the economic resources received or held by the separate organization are
entirely or almost entirely for the direct benefit of the primary government,
its component units, or its constituents; (2) the primary government is
entitled to, or has the ability to otherwise access, a majority of the economic
resources received or held by the separate organizations; (3) the economic
resources received or held by an individual organization that the specific primary
government, or its component units, is entitled to, or has the ability to
otherwise access, are significant to that primary government. This report does
not contain any component units.
B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS-In December 1998, the Governmental Accounting Standards Board (GASB) issued Statement No. 33 - Accounting and Financial Reporting for Nonexchange Transactions (GASB 33). In June 1999, GASB issued Statement No. 34 Bas/'c Financial Statements - and Management's Discussion and Analysis - for State and Local Governments (GASB 34). In June 2001, GASB issued Statement No. 37 Bas/'c Financial Statements - and Management's Discussion and Analysis - For State and Local Governments - Omnibus, (GASB 37), and Statement No. 38 Certain Financial Statement Note Disclosures.
Statements No. 34 and 37, among many other changes, add two new "government-wide" financial statements as basic financial statements required for all governmental units. The statement of net assets and the statement of activities are the two new required statements. Both statements must be prepared on the full accrual basis, including recording fixed assets at original cost as well as charging depreciation to the operating statement. GASB No. 34 also requires the System to prepare an explanation of the System's financial results for the year, which is entitled, "Management's Discussion and Analysis". Finally, significant changes to the note disclosures are also required under these new rules.
The management of the System made the decision not to implement these standards, which were effective January 1, 2004.
WINNEFOX LIBRARY SYSTEM
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
C. FUND ACCOUNTING -The accounts of the System are organized on the basis of funds and an account group. A fund is a separate accounting entity with a self-balancing set of accounts. An account group, on the other hand, is a financial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available financial resources. Account groups measure only financial position and not results of operations.
The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures. System resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the general purpose financial statements in this report, as follows:
GOVERNMENTAL FUNDS
General Fund - The general fund is the operating fund of the System. It is used to account for all financial resources of the System except those required to be accounted for in other funds.
Special Revenue Funds - Special revenue funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. The System accounts for its Winnefox Automated Library Services (WALS) and Winnefox Cooperative Technical Services (WCTS) funds in special revenue funds.
D. TOTAL COLUMNS AND COMPARATIVE DATA ON
COMBINED STATEMENTS - The total columns on the combined financial statements
are captioned "Memorandum Only" to indicate that they are presented
only to facilitate financial analysis. Data in these columns do not present
financial position or results of
operations in conformity with accounting principles generally accepted in the
Comparative total data for
the prior year have been presented in the accompanying general purpose financial
statements in order to provide an understanding of changes in the System's
financial position and operations and are not intended to present all
information necessary for a fair presentation in accordance with accounting
principles generally accepted in the
WINNEFOX LIBRARY SYSTEM
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
December 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
E. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING - The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a 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. General fixed assets are reflected as expenditures in governmental funds. General fixed assets have not been aggregated for reporting in a fixed assets account group. Long-term obligations that are not expected to be financed from expendable available financial resources are reported in the general long-term obligations account group, rather than as fund liabilities.
The governmental funds are accounted for on a modified accrual basis of accounting. Under this basis of accounting, transactions are recorded in the following manner:
• Revenue is recognized when it becomes both measurable and available (susceptible to accrual). Available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. With the exception of state aids received for the following fiscal year, all revenues are considered susceptible to accrual.
• Expenditures are generally recognized when the related fund liability is incurred. Exceptions to this general rule include compensated absences and unfunded pension amounts which are not to be liquidated from expendable and available resources.
F. BUDGETARY ACCOUNTING - An operating budget is adopted each year for the general and special revenue funds. Budgetary expenditure control is exercised at the natural (object) level, as presented in the combined financial statements. Reported budget amounts are as originally adopted or as amended by the Board of Trustees. Encumbrance accounting is not employed.
G. PREPAID EXPENDITURES - Prepaid expenditures represent payments made by the System for which benefits extend beyond December 31. Prepaid expenditures at December 31, 2004 relates to prepaid rent. A fund balance reserve for prepaid expenditures has been recognized to signify that a portion of fund balance is not available for other subsequent expenditures.
H. FUND BALANCE CLASSIFICATION - Reserved fund balance indicates that portion of fund balance not appropriable for expenditures or legally segregated for specific purposes.
I. COMPENSATED ABSENCES - The System's policy allows employees to earn varying amounts of vacation and sick pay for each year employed. Upon retirement or termination of employment, the employees are entitled to the full amount of their unused accrued vacation pay in cash. Upon retirement or death the employee is entitled to payment for one-half (50%) of accumulated sick leave, up to a maximum of 600 hours. Benefits that require payment in future fiscal years though related to services previously rendered are recorded as a liability in the governmental funds to the extent they would be liquidated with expendable available resources. The remainder of the liability is recorded in the general long-term obligations account group. The liability includes gross pay as well as related payroll taxes and retirement plan contributions.
J. STATE AND COUNTY AIDS - State and county aids are recognized as revenue in the entitlement year, provided they are available. Federal and state aids for reimbursable programs are recognized as receivable in the year related program expenditures are incurred, and as revenue when available. Aids received prior to meeting revenue recognition criteria are recorded as deferred revenue.
WINNEFOX LIBRARY SYSTEM
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
December 31, 2004
NOTE 2 - CASH AND INVESTMENTS
Under Wisconsin Statutes, the System is legally restricted to certain types of investments for any of its funds not immediately needed, including the following:
1. Time deposits in any credit union, bank, savings bank, trust company or savings and loan association that is authorized to transact business in this state if the time deposits mature in not more than three years.
2. Bonds or securities issued or guaranteed as to principal and interest by the federal government, or by a commission, board or other instrumentality of the federal government.
3. Bonds or securities of any county, city, drainage district, technical college district, local exposition or professional baseball park district, University of Wisconsin Hospitals and Clinics Authority, village, town or school district of this state.
4. Any security which
matures or which may be tendered for purchase at the option of the holder
within not more than seven years of the date on which it is acquired, if that
security has a rating which is the highest or second highest rating category
assigned by any of the nationally recognized rating agencies, or if that
security is senior to, or on a parity with, a security of the same issuer which
has such a rating.
5. Securities of an open-end management investment company or investment trust (mutual fund), subject to various conditions and investment options.
6. The State of
7. Repurchase agreements with public depositories, if the agreement is secured by federal bonds or securities.
DEPOSITS
At December 31, 2004, the carrying amount of the System's deposits is $130,281 and the bank balance is $488,800. The difference between these balances represents outstanding checks and deposits in transit. Of the bank balance, $230,706 is covered by federal depository insurance (FDIC) and $255,094 was uninsured and uncollateralized. Interest bearing bank deposits are stated at cost, which approximates fair value. Additional protection in case of losses caused by failure of public depositories is provided by the State Deposit Guarantee Fund. The Fund provides additional coverage in each financial institution of $400,000 above the applicable insurance coverage provided by the FDIC. However, although the Fund had reserves available at December 31, 2004, the future availability of resources to cover the losses cannot be projected because provisions of the 1985 Wisconsin Act 25 provide that the amount in the Fund will be used to repay public depositors for losses until the appropriation is exhausted, at which time the Fund will be abolished.
INVESTMENTS
At December 31, 2004, the
System's investments consist entirely of $1,515,685 with the Local Government Investment
Pool (LGIP). The LGIP is part of the State Investment Fund (SIF) and is managed
by the State of
operates under the statutory authority of Wisconsin Chapter 25. The SIF reports
the fair value of its underlying investments annually. Participants in the LGIP
have the right to withdraw their funds in total on one day's notice. At
December 31, 2004, the fair market value of the System's position in the LGIP
is substantially the
same as the carrying value (cost).
WINNEFOX LIBRARY SYSTEM
NOTES TO GENERAL PURPOSE FINANCIAL STATEMENTS
December 31, 2004
NOTE 2 - CASH AND INVESTMENTS (cont.)
The System's investments in
the LGIP cannot be classified by credit risk since they are not evidenced by securities
that exist in physical or book entry form. However, investments in the LGIP are
covered under a surety bond issued by Financial Security Assurance, Inc. The
bond insures against losses arising from principal defaults on substantially
all types of securities acquired by the pool except
NOTE 3 - FUNDING SOURCES
The System received
approximately 82% of its funding from the State of
NOTE 4 - EMPLOYEES' RETIREMENT SYSTEM
All eligible Winnefox Library System employees participate in the Wisconsin Retirement System (WRS), a cost-sharing multiple-employer defined benefit public employee retirement system. All permanent employees expected to work over 600 hours a year are eligible to participate in the WRS. Covered employees in the General category are required by statute to contribute 5.6% of their salary to the plan. Winnefox Library System makes these contributions to the plan on behalf of employees and is required to contribute an actuarially determined amount necessary to fund the remaining projected cost of future benefits.
The payroll for Winnefox Library System employees covered by the WRS for the year ended December 31, 2004 was $616,516; the employer's total payroll was $637,533. The total required contribution for the year ended December 31, 2004 was $64,734 or 10.5 % of covered payroll. Of this amount, 100% was contributed for the current year. Total contributions for the years ended December 31, 2003 and 2002 were $62,533 and $63,739 respectively, equal to the required contributions for each year.
Employees who retire at or
after age 65 are entitled to receive a retirement benefit. Employees may retire at age 55 and receive actuarially
reduced benefits. The factors influencing the benefit are (1) final average earnings,
(2) years of creditable service, and (3) a formula factor. Final
average earnings is the average of the
employee's three highest years earnings. Employees terminating covered
employment before becoming eligible for a retirement benefit may withdraw their
contributions and, by doing so, forfeit all rights to any subsequent benefit.
For employees beginning participation on or after January 1,1990
and no longer actively employed on or after April 24, 1998, creditable service
in each of five years is required for eligibility for a retirement annuity.
Participants employed prior to 1990 and on or after April 24,1998
are immediately vested.
In 2004, Winnefox Library System paid off its unfunded pension liability with the Wisconsin Retirement System. The amount was $49,734.
The WRS also provides death
and disability benefits for employees. Eligibility for and the amount of
benefits is determined under Chapter 40 of Wisconsin Statutes. The WRS issues
an annual financial report which may be obtained by writing to the Department
of Employee Trust Funds,
SUPPLEMENTAL INFORMATION
VirchowKrause & Company
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTAL INFORMATION
Board of Trustees
Winnefox Library System
Our report
on our audit of the general propose financial statements of Winnefox
Library System for 2004 appears on page 1. That audit was conducted for the
purpose of forming an opinion on the general purpose financial statements taken
as a whole. The supplemental information listed in the table of contents is presented
for purposes of additional analysis and is not a required part of the general
purpose financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the general purpose financial
statements. For reasons stated in the third paragraph of our report on page 1,
we expressed an opinion that the financial statements of Winnefox Library
System do not present fairly in conformity with accounting principles generally
accepted in the
and the changes in financial position. Therefore, we do not express an opinion
on the following supplemental information.
Virchow, Krause & Company, LLP
April 20, 2005
