Finance

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.

Budgeting

While we tend to think of budgeting simply as the allocation of available money, it is more useful to consider it as a planning process. The library’s strategic plan spells out where the library hopes to go over a period of years. The budget states what the library wants to do this year and addresses the very practical issue of costs.

Because the library board has the legal responsibility for setting the budget, and because the library director and staff have the most knowledge of the day-to-day operations of the library, it is important that both the board and the staff be involved in the budgeting process.

The budgeting process should involve the following steps:

1. Definition of Goals and Activities. At this point the staff and board think about reasonable goals and activities for the upcoming year without regard to cost. If the library has a strategic plan, its plan for the specific year is consulted. Other problems or opportunities that have arisen are considered. This “dreaming” phase of the budgeting process results in a list of potential activities for the next year.
2. Information Gathering. In this page of the process, information on the potential costs of maintaining services and reaching new goals is gathered. This is done in a number of different ways. The current year’s expenses are examined, the rate of inflation is considered, and new equipment or services are priced by checking catalogs or contacting service providers. By the end of this process, the staff and board will have obtained cost estimates for achieving the library’s defined activities.
3. Estimating Potential Income. During this stage, which often overlaps the Information-Gathering step, estimates are made of potential income. These include taxes, gifts, grants, revenue from the sale of non-resident library cards¹¹, and any other possible sources of funding for the library¹².
4. Comparing Costs and Income. At this stage, the costs of achieving goals and activities are compared with the library’s potential income. If income exceeds costs, all the goals and activities can be kept. More typically, the costs exceed the potential income, so the process goes to the next step.
5. Adjusting Goals and Activities. This is the hardest part of the budgeting process because the library board and staff must decide what goals and activities are more or less important than others. Some may have to be deleted altogether from the year’s budget or may have to be scaled back. This is ideally done through a negotiation process with all concerned. Goals and activities that cannot be included fully in the present year can, of course, be reconsidered with the next year’s budget process.
6. Presenting the Budget. Once the budget has been written, it needs to be written out in a form that shows estimates of both income and expenditures.
   • City library boards then need to present this document to the city council for final approval. For more information, see:
     • I.C. § 2607(5)
     • I.C. § 2609
   • District libraries must have a budget hearing that is open to the public. In both cases, board members should be able to explain in some detail the income and costs show in the budget. For more information, see:
     • I.C. § 33-2725

A good budget cannot be written the day before it is due. A full budget process is not something that is completed in just one board meeting. It is bets to start thinking about the budget early in the spring, so plenty of time can be spent in both the Goals and Activities Definition and Information Gathering phases. The more time that can be spent on the budget, the more useful it is likely to be.

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 which get monthly 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 book 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 jobber¹³, 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 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 fund, 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 budget¹⁴.

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 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:

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’ compensation¹⁵. 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.

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.”

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.

Funding

Once the library’s budget has been approved, it is then the board’s responsibility to ensure that adequate income is available to fund the budget. In the case of levied funds, this means monitoring income derived from taxes and discussing any discrepancies between the levied amount and the collected amount with the appropriate city or county officials.

If the board has established a budget with the assumption that non-tax revenue will be available, it is responsible for developing a program to gain these funds. In some cases, this may mean designing a sophisticated fund-raising program; in other cases, it may mean participating in less formal money-raising activities.

While public libraries in Idaho are funded primarily at the local level, it is important for board members to realize that public funding for library services provided by the state and federal government can also have important direct and indirect impacts on the local library’s services. Local board members can play a vital role in the legislative process. For this reason, another important function of board members is to represent their library’s interest as these issues are raised.

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:

1. 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)
2. 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.
3. 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).

Finance

Sees that complete and accurate records concerning finances, personnel, property inventory, and annual reports are on file at the library.