FINANCIAL MANAGEMENT IN THE SMALL PUBLIC LIBRARY

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FINANCIAL MANAGEMENT IN THE SMALL PUBLIC LIBRARY

• ABLE Administering Better
• Libraries -- Educate
• Module 2

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TWO THOUGHTS

• Oh, dont bother me, said the Duchess, I never
  could abide figures.
• -- Lewis Carroll, Alices Adventures in
  Wonderland
• We are responsible public managers.
• -- Sandra Nelson, Planning for Results

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WHAT WERE GOING TO DO

• Part I THE FINANCIAL CYCLE
• plan, budget, operate, report
• financial procedures and controls
• Part II POLITICS, ISSUES, AND PROBLEMS
• getting money, cutting budgets, reducing
  expenses, bargaining units, various problems of
  dysfunction

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THE FINANCIAL CYCLE

1. Plan whatcha gonna do?
2. Budget the years plan, expressed in
3. Operate put the plan into action, day by day
4. Report monthly reports on how youre doing, and
   an audit to wrap up

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LONG-RANGE PLAN

1. Begin the budget process with a review of the
   librarys 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.

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WHOSE JOB IS THIS?

• The manager and treasurer draft the budget
  together.
• The finance committee may review the draft.
• The draft reflects the Boards decisions in goal
  setting.
• The Board reviews, amends, and adopts the budget
  by resolution.

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BUDGET

1. Review and analyze the prior years income and
   costs.
2. Estimate next years income and costs.
3. Identify and put dollars on income or costs which
   may result from new initiatives drawn from the
   librarys plan.
4. Compute some percents and ratios to help you
   compare this years draft with the past and with
   other libraries like yours.

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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

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ESTIMATING INCOME

• Allocation from the Town
• Booksale

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OTHER SOURCES OF INCOME

• Friends
• Grants
• Endowments
• Foundations

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ESTIMATING EXPENSES

• Fuel oil
• Medical insurance
• Salaries
• Library materials

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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?

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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

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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?LibraryTypespublic

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ACCOUNTING 101

• Fund accounting
• Cash accounting versus accrual accounting
• Net assets (the fund balance)
• Cash flow and cash flow management

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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
  theyre around!

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FUND ACCOUNTING

• For example
• Operating fund
• Grant funds
• Building fund
• Endowment fund

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FUND DO GOODERS CLUB GRANT

• Gift received 1,000
• Book bill paid 250
• Book bill paid 100
• Book bill paid 150
• Balance remaining 500

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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?

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ACCRUAL ACCOUNTING

• Do Gooders Club grant
• bill paid 250
• bill paid 100
• bill paid 150
• BOOKS ON ORDER 350

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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

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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?

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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!!

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LETS REVIEW --

• So far weve talked about
• Planning
• Budgeting
• Operating
• Now well do reports and financial procedures.

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FINANCIAL REPORTING

• Think of it as a cycle
• The Budget tells you what youre going to do it
  forecasts.
• Monthly Reports tell you how youre doing they
  are snapshots of the present.
• The Audit looks back to tell you how you did.

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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 librarys finances.
• Include notes to comment or explain items as
  needed.

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THE AUDIT

• An annual evaluation of the librarys financial
  records and procedures.
• Vital to our responsibility of public
  accountability.
• Brings professional expertise and advice to the
  increasingly complex world of financial
  management.

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DO WE NEED ONE?

• The short answer is, YES!!
• The longer answer is, for a very small library, a
  professionally conducted CPAs audit is
  expensive.
• Wheres the cut-off?
• What are the alternatives?

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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.

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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 librarys books on a volunteer basis.

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OK, WHATS AN AUDIT GOING TO TELL ME?

• Net assets versus last year and other financial
  information.
• Statement of opinion is the librarys financial
  work carried out in accordance with generally
  accepted accounting principles?
• Management letter areas of financial management
  which could be improved.

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MISCELLANEOUS STUFF

• Need tax exempt status?
• Looking for an Employers Identification Number?
• Or NYS sales tax exemption?
• Not registered and chartered yet?

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THE LIBRARYSFINANCIAL YEAR

• Using Teaching Aid 13, you will make a calendar
  showing the librarys entire financial year.

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FUND-RAISING

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

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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.

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DOING THE BOOKKEEPING!

• Many libraries use software packages like
  QuickBooks.
• The smallest libraries might just set their books
  up in Excel.

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FINANCIAL PROCEDURES

• Goal setting manager recommends, Board reviews
  and revises adopts by resolution
• Budget development manager and treasurer draft,
  reflecting Boards direction.
• Finance committee (all Boards should have one)
  reviews, revises.
• Board adopts budget by resolution

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FINANCIAL PROCEDURESPAYING 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

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VOUCHERS

• The voucher authorizes payment.
• It shows
• Who is being paid
• How much
• Charged to what account
• Signature or initials of authorizing individual

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CHECKS

• The library manager approves most bills and
  prepares checks for treasurers 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.

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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.

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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.

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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.

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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.

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BEST PRACTICES, cont.

• The librarys financial records are kept in the
  library, not on the treasurers dining room
  table, nor in the treasurers computer.
• This applies to all business records.

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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.

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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.

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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.

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AND FINALLY . . . .

• Periodic review of financial controls by the
  finance committee
• Annual scrutiny of financial controls by the
  auditor
• ASSUME NOTHING

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BEST PRACTICES FOR FINANCIAL CONTROLS

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

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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.

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WHAT YOU CAN DO

• Be sure that
• the Board understands the financial reports and
  the librarys 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!

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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.

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PART TWO -- POLITICS, ISSUES, AND PROBLEMS

• The technical part is easy.
• The challenge lies in
• the people and problems
• we encounter along the way.

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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
  librarys
• Lack of media support or outright hostility
• ISSUE MANAGEMENT!

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CUTTING THE BUDGET

• Have clear goals and work to keep them alive.
• If you dont mean it, dont threaten it.
• Quit whining!
• Provide leadership to the staff.

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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.

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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

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TRAIN WRECKS

• The Board shuts the manager out.
• The treasurer is not available to the Board or
  manager
• The Board wont do politics
• The town thinks it controls its library fund and
  what the library can spend the money on
• Trustee micromanagement

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ABLE

• FINANCIAL MANAGEMENT
• IN THE SMALL PUBLIC LIBRARY
• THE END!