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Library Acquisitions: Practice & Theory, Vol. 18, No. 3, pp. 341-350, 1994 Copyright 0 1994 Elsevier Science Ltd Printed in the USA. All rights reserved
0364-6408/94 $6.00 + .OO
0364-6408(94)EOO18-P
ALA MID WINTER 1994 ALCTS AUTOMATED ACQUISITIONS DISCUSSION GROUP
THE AUDIT TRAIL AND AUTOMATED ACQUISITIONS: SEARCHING FOR ROAD SIGNS
ACCOMMODATING INSTITUTIONAL AUDIT REQUIREMENTS WITHIN A LIBERAL ARTS COLLEGE INTEGRATED LIBRARY SYSTEM
MARTIN GORDON
Acquisitions Librarian
Franklin and Marshall College
P.O. Box 3003
Lancaster, PA 17604-3003
Abstract-By using an electronic spreadsheet in tandem with accounts payable activities in the fund-level-specific acquisitions module of an integrated library system (ILS), a library can assure itself of meeting institutional audit requirements. This additional step of T-ledger “journal” monitoring at the payee level does not involve a great deal of time when compared with the frustration of audit trail reconstruction relying solely on the limited sorting and proprietary data output capabilities of the ILS. In addition, true reconciliation with the institution’s Busi- ness Office reports through use of this dual methodology provides the library with an accurate as well as timely cash-balance figure at the close of progressive report periods. It also enables budget-expenditure progress to be measured against previ- ous calendar or fiscal year periods for either a random or cumulative average history.
Keywords-Audit, Spreadsheet, Reconciliation, Budget, Fiscal.
INTRODUCTION
An accounts payable framework for a liberal arts college library’s acquisitions program should insure that the allocation profile within various disciplines, departments, and programs
341
342 M. GORDON
for any fiscal year can be mirrored in the actual expenditure of funds. If this is neglected, there is no chance of reactions positively to adjustments in curricular, faculty, and student needs. Without this, the library would also be ignoring any conceptual growth models that the insti- tution as a whole has for the library’s future. A proper framework will be that upon which the filtering of purchases is conducted in a manner that minimizes entropy as well as reactions to the “squeaky wheel always getting the most oil.”
However, from a purely administrative point of view, there still exists the need to address debits, deposit payments, credits, and other accounts-payable activities that compose the line- item audit trail of any organization’s fiscal-year history. This latter requirement is a given in today’s world of higher education at both public and private institutions [I]. The entire mate- rials budget in the library is merely one of many such programs that must be brought to a close each June 30th. The complexity of collection management from this perspective is simply not the auditor’s concern. And while, perhaps, on the surface, this tension appears irreconcilable, it behooves us as information managers to strive to keep the programmatic value of finan- cial accountability in our professional advance into the next miflennium [2].
The library finds itself juggling microcosmic collection building while at the same time satis- fying business office and auditor requirements for near zero-balance year-end conclusions. The concurrent efforts to these ends are called reconciliation. They have been both helped and hindered by the integrated library system (ILS) environment, which has become the standard for data management since the mid 1980s. Accounts payable efforts often strike acquisitions librarians as similar to attempting to land an orbiting space shuttle on a helicopter pad. One spends the majority of the fiscal year with the accelerator pressed to the floor, and then a rela- tively short time in reverse throttle, with flaps down and one’s foot riding the brake.
At Franklin and Marshall College, we concluded fiscal year 1992-1993 within a postaudit balance of approximately $1,165 (or far less than 1% of the three library materials budget allo- cations). This was accomplished by combining the line-item accounts information from the DRA* acquisitions module (Data Research Associates, St. Louis, MO) with an Excel? audit spreadsheet run on a Macintosh computer [3]. With these tools we have been able to provide a “reckoning” of account status on any given workday’s close with our actual cash balances on record with the “Bank’‘-our Business Office.
DRA FUND-NESTING STRUCTURE
It may be helpful at this point to portray briefly the flexibility of DRA’s fund-level account- ing (depicted in Figure 1) as a tool that we have employed to accomplish budgetary manage- ment of planned collection growth as described by our allocation formula. Controlling the expenditures for over one hundred areas of academic endeavors can be accomplished by the persistent placement of each incoming accession’s encumbrance at the appropriate fund level. Such hierarchy of fund accounting is a time-honored method through which both overall growth goals as well as flexible midyear adjustments can be made.
The first and highest level of budget categories enables us to total materials and preserva- tions applications in summary fashion as required by the Business Office. Thus this single- character code provides for cost cumuIations of the three major materials-budget divisions, those being books and standing orders, subscription services, and preservation. At this
*DRA is a trademark of Data Research Associates, St. Louic, MO.
?‘Microsoft Excel is a registered trademark of the Microsoft Corporation, Redmortd, WA.
Institutional Audit Requirements 343
3- This is a 14009 (Library) - 5203 (Book) fund
FA- . ..to be used by FACULTY . . . .
HU- . ..in the HUMANITIES...
ART - . ..within the ART department...
MONO . ..to firm order MONOGRAPHS
Figure 1. Example of DRA acquisition’s system fund nesting levels.
summary level we can see where we might be at any given moment in comparison with a previ- ous year’s expenditures, or against any other time-line gauge including a cumulated average. Anderson succinctly describes the value of this activity in her recent study of library payment:
Review of the reports can indicate historical patterns of expenditure and . assist in projecting future patterns of fiscal activity [4].
Next, or “one flight down,” we concentrate upon the group within the college community with whom expenditures are associated. This two-character code provides an almost infinite number of possibilities, although at the present we have chosen to designate just three catego- ries - faculty, librarians, and administration. Here again, we can see in a summary fashion
exactly what group holds the initiative over particular segments of the total allocation. At the third level, we begin to involve more closely the curriculum and support programs
of the College, employing a two-letter code to describe the traditional tri-part union of the humanities and fine arts, the social sciences, and the natural and life sciences. In addition, we have provided for general expenditures and administrative costs such as postage.
It is not until the fourth level that department/programs of the College as well as individ- ual endeavors surface. This level is the most expansive of all five, and often we will sort budgetary reports (shown in Figure 2) on this mnemonic, three-character code so that we can provide an alphabetical index of what we are trying to accomplish each year. The codes reflect the College’s course designations for the 30-odd departments and programs at Franklin and Marshall College, or the first three letters in a librarian’s or teaching-faculty member’s last name. This level also provides the ability to establish funds in midyear, reducing, for exam- ple, a contingency-fund allocation for new-course grants with a simultaneous creation of a fund in the humanities to monitor additions to the collections that will support a new course in that area. DRA allows for single transfers of this nature.
Finally, we have a four-letter code level that describes the physical nature of the acquisi- tion or expenditure, such as commercial binding, various media, etc. This level enables us to compute the average unit cost per material type.
Each and every purchased addition to the collection is funneled through this five-level filter so that it is charged to the area that most closely benefits from its addition to the collection.
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Institutional Audit Requirements 345
And each and every such addition is a component of a purchase order or other acquisitions authorization. Since we prefer to order either direct from the line item’s source or with a vendor, based upon the item’s publishing characteristics, the fund charged for the item has no bearing upon the payee. Yet it is upon these 2,800 odd multiline purchase orders gener- ated in any given 1Zmonth period and the invoices, credits, and adjustments that they gener- ate, that we must, as a College department, fiscally account for ourselves.
DRA does not permit accounts payable data manipulation except under the standard categories: bill upon receipt, deposit payment, or proforma payment. Amounts are escrowed, encumbered, and paid on the item-level basis, and invoices, credit memos, etc., represent the selected vendor or payee’s charges based upon whatever purchase orders or authorizations that they have used to construct a shipment.
EXCEL RECONCILIATION/AUDIT TRAIL
As each invoice, credit memo or other transaction is transacted in the DRA system, a corol- lary procedure has been inserted within our accounts-payable process in order to provide for reconciliation with our Business Office statements. A simple journals entry (within a T-balance ledger as described by many in the literature) [5] is made using three Microsoft Excel spread- sheets (one for each of our materials budgets). The Business Office statements are issued campuswide on a monthly basis to department managers, and on a more frequent basis when requested toward the close of each fiscal year. They are analogous to a bank statement that
must be reconciled with your checkbook. It is through this additional step that we have been able to accurately determine where we stand at any give moment, as well as provide an audit- trail history referencing each individual invoice, credit memo deposit or proforma payment that, upon acceptance by our Business Office, causes ascending or descending movement in our cash balances. We recognize that keying this data multiple times provided the opportu- nity for keying errors that could be avoided by direct electronic interface between a more facile DRA environment and POISE* (the Business Office’s accounts payable environment). Such relationships exist elsewhere at other academic institutions [6].
The crux of our inability to perform direct accounts payable reconciliation within our ILS acquisitions module lies in the inherent and legitimate proprietary nature of that program’s accounting functions. Its programs have been written to encumber, disencumber, and pay indi- vidual purchase-order line items employing the fund levels described earlier. DRA’s version 2.2 continues to develop sophisticated flexibility in these areas. For example, it allows both invoice and credit-memo construction as well as receipt and/or payment without their coun- terparts. But, it still denies library staff the ability to define payment as merely approval (which is actually the case) and ipso facto, the existence of an outside agency such as the Busi- ness Office, as the final arbiter of when and how much actually is being moved within the cash balance. For example, since we cannot know the exact date that our Business Office will release funds for major agent-advanced payment on renewal invoices for subscription items,
we cannot calculate the percentage discount of the renewal invoices that will actually be paid and/or received. We, therefore, follow the Bob Cratchit approach of passing the payee level document through the standard T-level journal ledger whose success has been predicated upon the timeliness of entry following DRA processing as well as the timing of submission to our Business Office for the actual payment.
POISE is a trademark of CampusAmerica, Knoxville, TN.
346 M. GORDON
THE TWO WORKING TOGETHER
When processing a typical shipment of incoming firm-order monographs, the items are first arranged in invoice order. The original order slip or other authorization is placed with the books at this time, each bearing the purchase-order number, which usually is replicated on the invoice itself. Each item is located among the DRA system’s open line items. The actual book is compared to the on-order record in the system for acceptability as well as for physi- cal condition. The item is then invoiced. This step disencumbers the original cost (including anticipated discount) from the particular five level fund that supports the order. It also simul- taneously expends the net cost as cited on the invoice to that fund (or any other that may be substituted for the original fund in part or whole). Shipping, handling, etc., if cited as a sepa- rate line item, are treated in a similar fashion as a separate, additional charge for the last item on the invoice. At this point, various purchase orders may have been completed and (if all line items are accepted), the purchase order(s) are closed.
Near the end of the working day, the invoice processed as described above as well as all other accounts payable transactions will be logged in an electronic spreadsheet using T-ledger bookkeeping. As Figure 3 indicates, this ledger is not based on the DRA funds but rather on the transactions from a gross accounts-payable perspective. Each line entry represents one payee accounts-payable document or disbursement authorization showing the payee’s name and reference number and the date of the document. The date of entry and the total net-due amount for each document are entered in the Date Approved and Amount Approved columns, respectively. The latter should equal the sum of all fund-specific line items entered during the receipt process on DRA, as well as associated costs such as shipping. In other words, it is equated to DRA’s “amount paid.”
The date-paid column (referring to the Business Office’s action on Excel) is left blank at this point. In order for progressive reconciliation to occur throughout the fiscal year, entries in this column must reflect the date of a Business Office report so that all “paid” financial activ- ities are locked into a period of time between the report upon which they appear and the date of the previous report. This date is entered as each line item appears on a Business Office report and is verified against the spreadsheet. It is at this time as well that the amount (corrected if necessary) is moved from the Amount Approved column into the Amount Paid column. Both the approved and cash-balance columns adjust themselves automatically through the Excel spreadsheet’s calculation process. This automatic calculation process prevents annoying time lags after each operator entry, particularly for the large spreadsheets operating toward the end of any fiscal year.
A final column entitled Notes provides space for accounts-payable staff members in the Library to make notations that have to do with Business Office adjustments that are antici- pated or any other pertinent information about the line item. It also is an excellent means through which both adjacent fiscal years (the year preceding the active fiscal year and the year that will be immediately subsequent) can be factored. For example, outstanding credits are not always “paid” in a particular fiscal year because there may be no counterbalancing debit. With this system, the amount approved can be “rolled over” into the next fiscal year’s spread- sheet. Of course, it is the Business Office’s prerogative to do this or not.
AUDIT REQUIREMENTS
This overview of both the ILS acquisitions procedures and the Excel spreadsheet ledger activity enables us to see exactly how the library has been able to meet our institution’s audit
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requirements while still operating in an automated environment of line-item receipt. Although auditing requirements at Franklin and Marshall College for all departments have not changed in scope or intent, they have become more structured in recent years. As a nonprofit institu- tion of higher education, the College is both legally and ethically committed to a zero-profit budget and approaches that end with great discipline. Department managers are those indi- viduals who have signatory power over full five-digit-prefix accounts (such as the College Librarian), and their ability to operate within the fixed dollar-amounts of their budgets is a critical area of their endeavors, regardless of the programs they administer. They are held accountable for all expenditures that they either make or approve by proxy such as through the Library’s Acquisitions Department. This accountability is the same standard of which G. Stevenson Smith speaks when he notes,
A budget. is a plan for allocating resources to the mission objectives of a library. Its major
purpose is to ensure actual spending levels do not exceed appropriations [7].
Thus accounts payable activity, including reconciliation, is not some mysterious, mechanis- tic function that one does in technical services because we have “always done it.” On the contrary, it should be looked upon as a constructive safeguard through which adherence to the programmatic vision of the library can be monitored as well as providing the institution itself the historical audit trail that it requires.
There are three basic institutional requirements for audit and accounting procedures that the partnership of our ILS accounts-payable procedures and Excel spreadsheet ledger addresses:
1. that all goods and services be received in the fiscal year that bears the cost of their
payment; 2. that all payment vehicles (invoices, disbursement vouchers, etc.) have total net amounts
due that can be equalled by the sum of distinct, identifiable parts shown on their mani-
fests; and 3. that all such goods and services be relevant in substance, scope, and educational purpose
to the budget line against which they were expended.
As previously mentioned, encumbered orders may continue to be outstanding from one fiscal year to the next, however, their net-due amounts must be expended in the same fiscal year that the College takes possession of the goods or services being billed. Therefore, we pay increasingly closer attention to the timing of ILS accounts-payable receipt with the correspond- ing approval and submission for payment of invoices for incoming materials as we draw closer and closer to the June 30th year-end closure of accounts. Actually, the Business Office creates a buffer of up to seven or eight work days before that date. We can anticipate, for example, being advised that by Wednesday, June 22, 1994 (at noon) any and all invoices, etc. for which materials have been received must be approved and in the hands of the Business Office staff. This shortening of the fiscal year provides the Acquisitions Department staff with a hiatus of activity that creates a clear demarcation between one fiscal year and the next and allows activ- ity such as fund rollover to take place without the possibility that encumbrances will be lost in the shuffle. By not “receiving” (i.e., opening and signing for materials during this period), we can control the closure of both the ILS funds for the fiscal year as well as align our Excel spreadsheet ledger parallel to the closing Business Office reports.
The final Business Office report is issued in three stages (creatively dated June 30, 3 lst, and 32nd, respectively). Adjustments made within the latter two reports are also made by adjust-
Institutional Audit Requirements 349
ing placement and amounts within the Excel spreadsheet itself. Often journal entries (JEs) and voucher charges (VCs) will be found by the library’s accounts payable staff on the June 31st and June 32nd reports as means by which the Business Office credits one of our materials budget lines for payee actions such as checks issued in lieu of credit memos.
To meet the second auditing requirement, DRA acquisitions version 2.2 now provides a summary-level command that is issued immediately before paying on the ILS system that assists the accounts payable staff in the Library to check that all items listed by the invoice actually were properly received. That is to say, that they were disencumbered, expended, and now appear on the Library’s catalog as received rather than on order. At this point the Library has an electronic track mark of having taken possession of the line item and, if ever asked to do so, can reconstruct each invoice based upon all of its line items.
This latter capability enables us, through the use of the ILS purchase-order construct, to produce direct line-item descriptions of all net-due charges that compose each accounts- payable document submitted for payment to our Business Office. This complies to the nth degree with auditing requirements that funds be expended for purposes for which they were allocated. If need be, we can readily produce full-level MARC bibliographic descriptions of all items and services purchased, either by invoice or by supplier.
CLOSER TIES
However, not until our ILS environment recognizes the coexistence of an academic insti- tution’s Business Office as a complete, separate functionary in the accounts-payable processes, will total reliance on the ILS environment for accurate, timely, and flexible audit accounting be feasible. This recognition will have to be more than just a nominal one-one that, for example, just produces cumulative reports. It will need to:
1. permit both debit and credit manipulation from an “approved” to a “truly paid” status; 2. recognize the uniqueness of the institution’s needs through the allowance of data correc-
tion through direct input or computation; and 3. embrace wholeheartedly the pioneering efforts of vendor data-management enhance-
ments [8], specifically the use of direct computer-to-computer interface (EDI). ED1 means “the exchange of routine business transactions in computer-processable format” [9].
CONCLUSION
There is no doubt that it is feasible to run the DRA acquisitions subsystem in tandem with
the Excel spreadsheet to document accurate case depletion and accounts-payable audit activ- ities. We have shown that a substantial line-item acquisition process can be reconciled with third-party actual-payment authority through diligent and persistent adherence to the two-step process of receipt/payment approval coupled with an invoice/credit-memo stage.
What also should be evident is that, by definition, this process is highly subject to error, and that it is open to criticism of being labor-intensive as well as redundant. This only furthers the conclusion that direct communication to the Business Office via the ILS acquisitions system is an area for vendor and utility ED1 development. It will be only through such a process that the Library can achieve true functional integration of accounts-payable activity within any particular ILS while not sacrificing institutional audit requirements.
350 M. GORDON
NOTES
1. Cargill, Jennifer. “Waiting for the Auditor: Some Interim Advice,” Wilson Library Bulletin 62 (Sept. 1987), 45-47. 2. Hawks, Carol Pitts. “Collection Assessment and Acquisition Budgets: Highlights of a Conference,” Library Acqui-
sitions: Practice & Theory 16 (Winter 1992). 431-437.
3. The author wishes to acknowledge the ground-laying efforts of Robert A. Siever, Associate Librarian for Collec-
tion Management, Franklin and Marshall College, in the development of both rhe fund nesting hierarchy as well
as the T-ledger spreadsheet journals described here.
4. Anderson, Marcia L. “The Cost of Payment: Library Invoice Payment Operations, ” in Operational Costs in Acqui- sifions, ed. James R. Coffey. New York: Haworth Press, 1991, p. 94.
5. Kruger, Betsy. “Basic Acquisitions Accounting, ” in Understanding the Business of Library Acquisitions, ed. Karen
A. Schmidt. Chicago: American Library Association, 1990.
6. Bazirjian, Rosann. “The Accounting Office Interface: Syracuse University,” Library Acquisifions: Practice & Theory 16 (Winter 1992). 393-403.
I. Smith, G. Stevenson. Managerial Accounting for Libraries and Other Non-Profit Organizations. Chicago: Amer-
ican Library Association, 1991, p. 55.
8. Schwartz, Frederick E. “The EDI Horizon: Implementing an ANSI Xl2 Pilot Project at the Faxon Company,”
Serials Librarian 19 (1991). 39-57. 9. Davis, Susan A. “ED1 and the Library: A Preconference on Electronic Data Interchange Standards for the Acqui-
sitions of Library Materials,” Serials Review 19 (1993): 92.
