Communities like to think of the public library as the “free library,” but no library is free. The money needed for purchasing materials, paying salaries, maintaining facilities, continuing technology upgrades, participating in statewide resource sharing efforts, paying the telephone bill, and so on must come from somewhere. One of the most important board functions, therefore, is the systematic budgeting for, raising of, and accounting for the library’s funds.
Financial Statements
What to Look for in Financial Statements
Before each board meeting, library trustees receive a copy of the library’s monthly financial statement, which includes information regarding:
- Monthly and yearly income
- Monthly and yearly expenditures
- Cash on hand
Are there yearly patterns of income?
For example, library districts that get monthly income 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 does not show up, the board’s job is to find out why.
Are there yearly patterns of expenditures?
Typically, utility bills will be higher in the winter. Many major publishers release important new books in the spring or fall, so book expenditures may be higher at those times of the year. If the library purchases its magazines through a jobber or wholesaler, that large bill will be 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 Idaho’s Public Depository Law (chapter 1, title 57, Idaho Code), 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, has a duty to be aware of how the city is investing its funds, and the amount of interest that is being collected on the library’s account. It is the library board’s responsibility to request that the city council return this interest to the library.
Where the library has direct control of funds, it is important that interest rates be monitored. The library may wish to put its “idle funds” into longer term investments if interest rates are falling. If rates are rising, the library may decide 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 Treasurer’s 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.
Comparison of Budgeted Figures and Actual Amounts
Each month, the percentage of money remaining in each item of the budget is to be recalculated. 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, these patterns are, of course, to be taken into account.
Here are some questions to ask when comparing actual figures with budgeted amounts:
Is the library receiving the income it expected?
If income is low, the board:
- investigates why the income is less than expected, and
- if necessary, makes adjustments in the budget for expenditures to reflect the actual amount available.
If income is higher than expected, the board:
- decides how this “windfall” will be used, and
- determines 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 reopened 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 library’s materials budget is being underspent, 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 wish to move some funds into the staffing budget.
Unusual income, expenditures, or interest rates?
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 board that keep more than $1,000 cash on hand have the responsibility to keep their money in accounts, in compliance with Idaho’s Public Depository Law (chapter 1, title 57, Idaho Code).
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 board will usually not have direct control over their funds because they are held by the city treasurer unless otherwise provided by city ordinance. 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
Does the library board look at the actual bills?
Typically, it is easier for the board to work with a list of bills, rather than the bills themselves. The list shows 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 (for district libraries) 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 are to be made available for the board to examine if they feel the need.
Looking 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 has a duty to find out the reason. Similarly, the board may want to know more about a bill from an unusual vendor. A library that makes credit card purchases can create a coded list with each credit card bill to indicate the nature of the expense and the line item(s) affected.
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 are to be explained at the meeting. For example, if the library is reimbursing a librarian for travel to a workshop, that payment requires an explanation. Putting this kind of explanation in the minutes ensures there will be no appearance of misuse of funds on the part of library staff or board members.
Financial Statement Sample – Income
The income portion of the financial statement gives a clear picture of the sources from which the library expects to receive income. The sources listed here are typical income sources, but the list is not exhaustive. For example, some libraries may have special annual fundraising activities, such as rummage sales or auctions. Such annual events may receive an entry of their own on the financial statement.
| Source | Budget | Month Received | Year Received | % Received | Not Received |
|---|---|---|---|---|---|
| Property Tax | |||||
| Sales Tax | |||||
| Gifts | |||||
| Grants | |||||
| E-Rate | |||||
| Education Opportunity Resource (EOR) | |||||
| Merchandise Sales | |||||
| Book Sales | |||||
| Interest | |||||
| Total |
For each source, a budgeted amount is estimated at the time that the board makes out the annual budget for the library. This figure will be placed in the “Budget” column.
The next column, “Month Received,” shows the amount received in the past month from each income source.
The “% Received” column is figured by dividing the figures in “Year Received” column by the “Budget” figures. This column provides a quick check on how actual income is doing against the projected income of the budget for each source. For example, if six months into the fiscal year, the library has already achieved 75 percent of its budgeted figure merchandise sales, it probably means the budget underestimated the amount of income that would be derived from this source. A note of caution, however, is that most income sources do not pay evenly across the year. It may be that the library is used more between October and March than it is between April and September. If this is the case, it would be expected that income from merchandise sales would also be higher during these months. Thus, the 75 percent figure may represent a typical yearly pattern of income collection from merchandise sales, rather than “windfall” income.
The last column, “Unreceived,” shows the budgeted amount not yet received by the library. The figure is derived by subtracting the “Year Received” figure for each source from the “Budget” figures. Again, figures in this column provide a quick check for the board as to how the actual income compares to the expected income from each source.
Financial Statement Sample – Expenditures
As with the sample income statement, the sample expenditures sheet lists some typical expenses for a small library. The list is not exhaustive, and some of the expenses will not apply to all libraries. For example, the “Treasurer’s Bond” and “Election Expenses” listed under the “Other” category applies only to district libraries.
Adding a column for target percentage would also be helpful to compare with the Percent Remaining column.
Similarly, the way the expenditures are categorized is just one of many ways that expenditures might be listed. In larger libraries, for example, expenditures may be listed by “program.” In this type of listing, expenses might be listed under such categories as “Adult Services,” “Children’s Services,” “Technical Services,” “Bookmobiles,” and “Administration.”
| Items | Budget | Month Expended | Year Expended | Remaining | % Remaining |
|---|---|---|---|---|---|
| Personnel | |||||
| Salaries | |||||
| FICA | |||||
| Pension | |||||
| Insurance | |||||
| Worker’s Comp. | |||||
| Continuing Education | |||||
| Travel | |||||
| Materials | |||||
| Books | |||||
| eBooks | |||||
| Magazines | |||||
| eMagazines | |||||
| Subscription Databases | |||||
| DVDs | |||||
| Music CDs | |||||
| Processing | |||||
| Building | |||||
| Heat | |||||
| Electricity | |||||
| Natural Gas | |||||
| Supplies | |||||
| Repairs | |||||
| Insurance | |||||
| Technology | |||||
| Maintenance | |||||
| Upgrades | |||||
| Software | |||||
| Subscription | |||||
| Other | |||||
| Equipment | |||||
| Library Supplies | |||||
| Office Supplies | |||||
| Board Expenses | |||||
| Treasurer’s Bonds | |||||
| Programs | |||||
| Election Expenses | |||||
| Legal Expenses | |||||
| Total |
The “Budget,” “Month Expended,” and “Year Expended” columns in the expenditures sheet correspond to the first three columns in the Income portion of the report. “Budget” shows how much the library expected to spend; “Month Expended”, the amount expended this month; and “Year Expended”, how much has been spent over the entire fiscal year.
The “Remaining” column shows how much the library can spend on each category and still remain within the budget. It is figured by subtracting the figures in the “Year Expended” column from the “Budget” column. The “% Remaining” column is figured by dividing the budgeted figures into the amounts remaining for each expenditure item. Like the “% Received” in the Income report, this figure provides the board with a quick check of how actual expenditures are running against the expected expenditures listed in the budget.
Bookkeeping
Idaho law gives the library board exclusive control of the library’s expenditures. This is not only a right, but also a responsibility. Although it is the library’s director who has the authority to purchase library materials, supplies, and other necessary goods and services, the library’s board has a duty to be aware of all purchases and to monitor the budget throughout the year.
In order to do this, the board establishes a bookkeeping system that includes the following features:
- A monthly listing of all bills to be paid. The library’s bills can only be paid with the approval of the board. It is best if the full board approves all bills before payment. This, of course, requires at least a monthly board meeting.
- City libraries: Idaho Code §§ 33-2607(6), 33-2609, and 33-2610
- District libraries: Idaho Code §§ 33-2720(1)(e)
- A monthly statement that shows:
- The income for the month by income sources, along with total monthly income
- The cumulative income for the year by income source along with total yearly income
- A list of library accounts, including checking and savings accounts, certificates of deposits, and investments, with the amounts of money contained in each and their annual rates of interest
- Cash on hand
- The expenditures for the month by budget expenditure category along with total monthly expenditures
- The cumulative expenditures for the year by budget expenditure category along with total expenditures for the year.
- A procedure for having the library’s financial records independently audited or reviewed as required by state and federal law. More information is available at I.C. § 64-450(b).