Financial Statements

What to Look for in Financial Statements

Every month library trustees should receive a copy of the library's monthly financial statement. The statement should include information about:

  • Monthly and yearly income
  • Monthly and yearly expenditures
  • Cash on hand

Are there yearly patterns of income?

For example, districts which get money directly from a levy can expect to have high tax income figures immediately after taxes are collected – typically in January and July. If this money doesn't show up, the board should find out why.

Are there yearly patterns of expenditures?

Typically, utility bills will be higher in the winter, for example. Many major publishers put out many important new books in the spring or fall. So book expenditures may be higher at those times of year. If the library purchases its magazines through a jobber, that large bill will come due once a year and may make the materials expenditures for that month look unusually high.

Are interest rates the library has been receiving going up or down?

According to the Public Depository Law (IC 57-101 through 57-145 http://www.legislature.idaho.gov/idstat/Title57/T57CH1.htm), governmental entities are allowed to keep their funds only in certain specified kinds of financial institutions and accounts. This law should be read carefully before investing any funds held by the library.

The question of interest and investments is usually more important to the district library, because they typically have more control over their funds than do city libraries. The city library board, however, should be aware of how the city is investing its funds, and the amount of interest that is being collected on the library account. If possible, the city library should ask the city council to return this interest to the library.

Where the library has direct control of funds, it is vitally important that interest rates be watched. The library may want to put its “idle funds" into longer term investments if interest rates are falling. If they are rising, it may want to keep its funds in more liquid kinds of deposits. Careful investment procedures can ensure that the library receives significant extra income through interest on its accounts.
State Treasurers Fund. One important option for investments is the State Treasurer's Local Government Investment Pool. This investment option gives relatively high interest rates combined with liquidity. For more information, contact the State Treasurer's Office, http://sto.idaho.gov/Services/LGIP/

Comparison of Budgeted Figures and Actual Amounts

Each month, the percentage of money remaining in each item of the budget should be figured. Assuming a fairly even pattern of income and expenditures, the same percentage of money should be remaining as the percentage of time left in the year. For example, if the library has budgeted $108,000 for salaries, after the first month of the fiscal year, $9,000 should have been spent and $99,000 (92%) should be left. Where income or expenditures run on an uneven pattern, of course, these patterns must be taken into account.

Here are some questions that should be asked in comparing actual figures with budgeted amounts:

Is the library receiving the income it expected?

If income is low, the board needs to:

  • investigate why the income is less than expected, and
  • if necessary, make adjustments in the budget for expenditures to reflect the actual amount available

If income is higher than expected, the board needs to

  • decide how this "windfall" will be used, and
  • determine whether this surplus is a one-time dividend or if it should be included on the income side of the next year's budget

In a few cases, the board may also have to decide whether the present budget should be re-opened so the extra money can be used in the present fiscal year.

Are expenditures what were expected?

Unusually high expenditures compared to budgeted figures need to be explained by the library director, and, if necessary, the board needs to make corrections in the budget to offset these unexpected expenditures.

Low expenditures also need to be explained. For example, if the book budget is being under spent, why is this happening? There may not be enough staff time to do book selection or processing, for instance. If this is the case, the board may want to move some funds into the staff budget.

Unusual income, expenditures, or interest rates

Are there any strings attached to unusual income?

Often large gifts are not really "free." They may come with conditions which will not be good for the library in the long run. For example, if the library is required to set aside room or shelving for a special collection in order to receive money for the collection, does the library have the room to do this? Will it still have the room five, ten, or twenty years from now?

Has the board set adequate expenditure guidelines for the staff?

An unusually large non-regular expenditure made without board knowledge may indicate that the board has failed to set adequate guidelines. The board may, for example, want to be consulted before any non-regular expenditure exceeding a certain amount of money or certain percentage of the budget takes place. This amount usually varies depending on the library's budget.

Is the library's cash-on-hand held in such a way that is secure and yet earning the highest possible interest?

District library boards that keep more than $1,000 cash on hand have the responsibility to keep their money in accounts, in compliance with the Public Depository Law (Idaho Code Section 57, Chapter 1 http://www.legislature.idaho.gov/idstat/Title57/T57CH1.htm). Typically, this can be done by checking the interest rates offered by two or more financial institutions whose accounts are federally insured and which exist within the district. The district should normally deposit its accounts with the institution offering the highest interest rates.

City boards will usually not have direct control over their funds because they will be held by the city. It is the board's responsibility, however, to ensure that the library account is treated fairly by the city, and an arrangement should be made with the city regarding the interest collected on the library funds.

What to look for in library bills

Should the library board look at the bills themselves?

Typically, it is easier for the board to work with a list of bills, rather than the bills themselves. The list should show the vendor from whom the bill has been received, a brief one or two word description of what the bill is for, the amount of the bill, and the check number for the check that will be used to pay the bill. Many libraries list their bills in alphabetical order by vendor name. A sample listing follows:

Check no. Vendor Amount
9123 Baker and Taylor (books) $553.29
9124 Banker's Life (Insurance) $50.00
9125 Brodart (shelving) $690.45

While the board will not usually need to look at the bills themselves, the bills should be available for the board to examine if they feel the need.

Look for the unusual.

Most library bills are routine, and to ask questions about each bill would be impractical and time consuming. It is the board's responsibility, however, to ask questions about any bill that does not appear to be routine. For example, if a very large, unexpected bill appears, the board should find out what it is about. Similarly, the board may want to know more about a bill from an unusual vendor.

Look for required expenditures.

By law, the library is required to make payments for income tax withholding, social security and workers' compensation. Board members should ask how often these payments are required and check to make sure they are being done.

Payments to staff or board member.

Unusual payments made to staff or board members should be explained at the meeting. For example, if the library is reimbursing a librarian for travel to a workshop, that payment should be explained. Putting this kind of explanation in the minutes ensures there will be no appearance of staff or board members misusing library funds.