FINANCIAL MANAGEMENT IN THE SMALL PUBLIC LIBRARY

ABLE: Administering Better Libraries -- Educate

Module #2

TWO THOUGHTS

“Oh, don’t bother me,” said the Duchess, “I never could abide figures.”

-- Lewis Carroll, Alice’s Adventures in Wonderland

We are responsible public managers. -- Sandra Nelson, Planning for Results

WHAT WE’RE GOING TO DO:

Part I – THE FINANCIAL CYCLE: plan, budget, operate, report financial procedures and controls

Part II – POLITICS, ISSUES, AND PROBLEMSgetting money, cutting budgets, reducing expenses, bargaining units, various problems of dysfunction

THE FINANCIAL CYCLE

1. Plan: whatcha gonna do?2. Budget: the year’s plan,

expressed in $$3. Operate: put the plan into action,

day by day4. Report: monthly reports on how

you’re doing, and an audit to wrap up

LONG-RANGE PLAN

1. Begin the budget process with a review of the library’s long-range plan.

2. The staff and Board working together should set specific goals for the year, drawn from the plan.

3. The budget will need to consider on-going operating costs as well as support for changes identified in the goal-setting process.

WHOSE JOB IS THIS?

The manager and treasurer draft the budget together.

The finance committee may review the draft.

The draft reflects the Board’s decisions in goal setting.

The Board reviews, amends, and adopts the budget by resolution.

BUDGET

1. Review and analyze the prior year’s income and costs.

2. Estimate next year’s income and costs.3. Identify and put dollars on income or costs

which may result from new initiatives drawn from the library’s plan.

4. Compute some percents and ratios to help you compare this year’s draft with the past and with other libraries like yours.

TIME TO ROLL UP THE SHIRTSLEEVES!

Budget structure: the chart of accounts Income estimates Expense estimates What happens to the materials budget Some calculations and comparisons

ESTIMATING INCOME

Allocation from the Town

Booksale

OTHER SOURCES OF INCOME

Friends

Grants

Endowments

Foundations

ESTIMATING EXPENSES

Fuel oil

Medical insurance

Salaries

Library materials

BUDGETING FOR A NEW ACTIVITY

Pick a project from your goals and make a budget for it.

List the resources you will need and identify the ones which are new costs.

Is there any offsetting income?

AFTER YOU FINISH YOUR DRAFT

Do a few calculations and compare them to prior years:

Percentage increase over last year Salaries as a percentage of the budget Materials as a percentage of the

budget

LOOKING FOR COMPARISON DATA??

Ask your System if they prepare comparative data – many do

Public Library Peer Comparison Tool

http://nces.ed.gov/surveys/libraries/

compare/index.asp?LibraryTypes=public

ACCOUNTING 101

Fund accounting

Cash accounting versus accrual accounting

Net assets (the fund balance)

Cash flow and cash flow management

GASB and FASB

Governmental Accounting Standards Board – municipal libraries

Financial Accounting Standards Board –

nonprofits, including association libraries

Only your accountant cares, but you need to know they’re around!

FUND ACCOUNTING

For example: Operating fund Grant funds Building fund Endowment fund

FUND: DO GOODERS CLUB GRANT

Gift received $1,000

Book bill paid 250

Book bill paid 100

Book bill paid 150

Balance remaining $ 500

CASH ACCOUNTINGACCRUAL ACCOUNTING

The Do Gooders Club grant:

bill paid $250

bill paid $100

bill paid $150

End of story – you have $500 left to spend, right?

ACCRUAL ACCOUNTING

Do Gooders Club grant:

bill paid $250

bill paid $100

bill paid $150

BOOKS ON ORDER: $350

NET ASSETS, a.k.a.THE FUND BALANCE

TOTAL ASSETS – TOTAL LIABILITIES

=

NET ASSETS

Each fund will have its own fund balance and added together, those balances provide the net assets of the library

CASH FLOW

How do you know you will have enough money to pay your bills in any given month?

Cash flow and managing cash flow are about time: when are you getting your money and when will you spend it?

BUDGET VS. ACTUALMARCH

Take a look at March:

Copier: 100% vs. 25%

Insurance: 25% vs. 25%

Heat: 45% vs. 25%

Is this OK or is it bankruptcy?

Only your flow chart knows!!

LET’S REVIEW --

So far we’ve talked about: Planning Budgeting Operating

Now we’ll do reports and financial procedures.

FINANCIAL REPORTING

Think of it as a cycle: The Budget tells you what you’re going

to do – it forecasts. Monthly Reports tell you how you’re

doing – they are snapshots of the present.

The Audit looks back to tell you how you did.

FINANCIAL REPORTS

Prepared monthly Show opening balance, transactions, and

ending balance for each fund Show actual versus budget for the month

and the year-to-date. Include a balance sheet for an overall

picture of the library’s finances. Include notes to comment or explain items

as needed.

THE AUDIT

An annual evaluation of the library’s financial records and procedures.

Vital to our responsibility of public accountability.

Brings professional expertise and advice to the increasingly complex world of financial management.

DO WE NEED ONE?

The short answer is, YES!! The longer answer is, for a very small

library, a professionally conducted CPA’s audit is expensive.

Where’s the cut-off? What are the alternatives?

YOU NEED A CERTIFIED AUDIT IF:

If you take in $25,000 or more annually and therefore:

You are required to file an IRS Form 990 tax return.

ALTERNATIVES TO THE CERTIFIED AUDIT

Ask an accountant for a review rather than a certified audit.

Appoint an audit committee of Board members

Find qualified community members who will check the library’s books on a volunteer basis.

OK, WHAT’S AN AUDIT GOING TO TELL ME?

Net assets versus last year and other financial information.

Statement of opinion: is the library’s financial work carried out in accordance with generally accepted accounting principles?

Management letter: areas of financial management which could be improved.

MISCELLANEOUS STUFF

Need tax exempt status? Looking for an Employers Identification

Number? Or NYS sales tax exemption? Not registered and chartered yet?

THE LIBRARY’SFINANCIAL YEAR

Using Teaching Aid # 13, you will make a calendar showing the library’s entire financial year.

FUND-RAISING

Government appropriations Friends of the Library Direct mail Solicitation of big donors State and Federal grants Private grants

TWO THINGS TO REMEMBER

Libraries are government functions and most of their operating funds should come from governmental units.

The most important thing to do about fund-raising is to ASK. Too much time can be spent planning and strategizing when what is needed is some pavement pounding.

DOING THE BOOKKEEPING!

Many libraries use software packages like QuickBooks.

The smallest libraries might just set their books up in Excel.

FINANCIAL PROCEDURES

Goal setting: manager recommends, Board reviews and revises; adopts by resolution

Budget development: manager and treasurer draft, reflecting Board’s direction.

Finance committee (all Boards should have one) reviews, revises.

Board adopts budget by resolution

FINANCIAL PROCEDURES:PAYING BILLS

1. Authorization to purchase goods

2. Receipt of goods

3. Approve payment

4. Write the check

5. Sign the check

6. File the records

VOUCHERS

The voucher authorizes payment. It shows:

Who is being paid How much Charged to what account Signature or initials of authorizing

individual

CHECKS

The library manager approves most bills and prepares checks for treasurer’s signature.

Checks above a certain amount of money may require two signatures.

Checks should be paid on a regular schedule, generally twice a month.

A check may be written outside that schedule if payment deadlines require.

PAYROLL

Payroll is complex and if filings are not done in a timely manner, the penalties are expensive.

Use a payroll service such as Paychex or ADP, or be sure your payroll software is updated annually to reflect current tax law.

A payroll service will insure that payroll taxes are paid on time.

DOCUMENTATION OF PAYROLL EXPENSES

Time sheets are the basis of payroll documentation and all paychecks should be prepared from them.

The library needs to be able to establish the person, date, and times worked.

This is necessary for accurate handling of workers compensation claims, Human Rights Commission investigations, and so forth.

Time sheets also keep track of sick and annual leave balances.

They should be signed and dated by the employee and by the person approving the payroll and kept for five years.

BANK ACCOUNTS

Keep a file of the current signature cards and be sure they are changed every time signers change.

Open additional accounts in separate banks as needed to keep deposited amounts within the FDIC insurance limit.

Banks will bid on banking services: ask them for a free safe deposit box, or a sweep account, or free checking for employees . . . See what they will do for you.

BEST PRACTICES FOR FINANCIAL PROCEDURES

The library manager attends all Board meetings

The manager is involved in budget preparation and reporting

Enough people can sign on the bank accounts so that the required number of signatures always is available to sign payroll and other deadline expenses.

BEST PRACTICES, con’t.

The library’s financial records are kept in the library, not on the treasurer’s dining room table, nor in the treasurer’s computer.

This applies to all business records.

FINANCIAL CONTROLS FOR THE SMALL LIBRARY

How can you protect your library from theft or fraud?

Separate financial duties as much as you can.

If the manager prepares the checks, then the treasurer should do the bank reconciliations.

MORE CONTROLS

Use the voucher system vigorously. It provides 4 points of approval for every expenditure.

Use consecutively numbered checks, purchase orders, and vouchers.

Keep unused checks locked up at all times.

STILL MORE CONTROLS ….

Use second signatures on large checks.

Have written financial policies and procedures and follow them.

Establish a by-laws clause about self-dealing and profiting from library operations.

AND FINALLY . . . .

Periodic review of financial controls by the finance committee

Annual scrutiny of financial controls by the auditor

ASSUME NOTHING

BEST PRACTICES FOR FINANCIAL CONTROLS

Each check is signed and supporting documentation reviewed by someone other than the check preparer.

The library’s financial records are kept in the library.

Blank checks are kept locked up and no checks are written out of number sequence.

Copies of the audit are mailed by the auditor directly to the Board President and executive committee.

HOW PEOPLE STEAL MONEY

Because the bad news is that sometimes they do.

They steal cash receipts from fines or fund-raisers.

They write checks to library vendors like the phone company, but for their own bills.

They falsify financial reports and audits. They make side deals with vendors.

WHAT YOU CAN DO

Be sure that: the Board understands the financial reports

and the library’s financial situation. both Board and staff understand and are

following all policies and procedures. people doing financial work take scheduled

vacations during which their part of the work is performed by someone else.

ASSUME NOTHING!

PART ONE IS OVER!!

You have learned many technical aspects of financial management.

Now it is time for the rubber to meet the road: Part Two consists of things that can happen on your way to a happy audit.

PART TWO -- POLITICS, ISSUES, AND PROBLEMS

The technical part is easy.

The challenge lies in

the people and problems

we encounter along the way.

THE POLITICS OF GETTING MONEY

Unreasonable attacks from opponents Politics within the legislative body

which affect the library adversely Large controversial issues which are

not the library’s Lack of media support or outright

hostility ISSUE MANAGEMENT!

CUTTING THE BUDGET

Have clear goals and work to keep them alive.

If you don’t mean it, don’t threaten it. Quit whining! Provide leadership to the staff.

REDUCING EXPENSES

Be sure that your expenses are as low as possible:

Ask for bids Use state contracts

www.ogs.state.ny.us Take advantage of group buying

through the local Chamber of Commerce, NYLA, etc.

BARGAINING UNITS, SALARIES AND BENEFITS

Responsibility of the Board to pay appropriate salaries to staff

Tailor a benefits package to meet the needs of a sole employee

Union negotiations

TRAIN WRECKS

The Board shuts the manager out. The treasurer is not available to the

Board or manager The Board won’t do politics The town thinks it controls its library

fund and what the library can spend the money on

Trustee micromanagement

ABLE

FINANCIAL MANAGEMENT

IN THE SMALL PUBLIC LIBRARY

THE END!