Like other public entities (such as townships and schools), Indiana public libraries are subject to regular financial audits, typically every three to five years. During the audit examination process, the Indiana State Board of Accounts (SBOA) applies a prescribed process where an auditor works in conjunction with the library’s director, treasurer and bookkeeper (if applicable) to review the library’s financial records and practices.

In the past, auditors would physically visit the public library and sift through paper and electronic physical records, which could take weeks. In recent years, the State Board of Accounts has been able to harness available reporting technology to complete part of the audit remotely using information the library has already reported via the Indiana Gateway for Government Units. If reports have been submitted correctly and regularly, this can greatly reduce the time needed for an audit.

As legislation and SBOA procedures are updated, financial best practices and audit requirements can also change over the years. Recent changes within the past decade involve a requirement that libraries must have internal controls in place. Internal controls are a set of rules and procedures involved in money handling. Some controls are specified by SBOA and others are set locally, based on the library’s staffing and cash handling model. All staff who handle money, from desk staff who collect fines and copier coins, to the library’s director who handles the library’s banking and budget, are required to complete training and follow their library’s procedures to prevent any instances of fraud or misappropriation.

Another recent change is that Indiana libraries are required to track all capital assets – items the library owns that meet a certain cost threshold. These may include land and structures possessed by the library, equipment or vehicles (like bookmobiles). Even the books in a library’s collection, as a total, are considered a capital asset, and when completing the annual financial report, a library is responsible for estimating the value of their collection as a whole and any depreciation or additions that may have occurred within the previous year. The purpose of reporting on capital assets is to make sure these most costly things are examined and reported annually.

At the completion of an audit, libraries receive a written report either confirming there were no exceptions found (a “clean” audit), or a report listing any exceptions (issues) that need to be addressed. Libraries have a chance to provide a written response explaining any issues or any corrective actions already taken. Subsequent audits will monitor for any previous exceptions. Copies of audits are also sent to the Indiana State Library’s Library Development Office for review. Most audits contain no issues or only a few minor exceptions, but this audit process has occasionally uncovered cases of fraud and mismanagement of public funds which were followed up on accordingly.

A library is responsible for the cost of their own audit. Libraries are assessed an hourly rate and the amount billed by SBOA is deducted from a future tax draw (as approximately 90% of Indiana public library funding comes directly from taxes). Good recordkeeping and reporting can help reduce the time spent and amount assessed for the audit, but some libraries are structurally more complex than others depending on number of locations, staff, complexity of their funds accounting, financials, etc. Additionally, some libraries have disputed that their audit process was inordinately lengthy or complex despite their best efforts.

All library audits are a public record and most recent audits may be viewed on the State Board of Accounts website.

This blog post was written by Jen Clifton, Library Development Office and Professional Development Office director.