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FINANCIAL MANAGEMENT IN THE SMALL PUBLIC LIBRARY

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

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FINANCIAL MANAGEMENT IN THE SMALL PUBLIC LIBRARY

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  1. FINANCIAL MANAGEMENT IN THE SMALL PUBLIC LIBRARY ABLE: Administering Better Libraries -- Educate Module #2

  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

  3. WHAT WE’RE 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

  4. THE FINANCIAL CYCLE • Plan: whatcha gonna do? • Budget: the year’s plan, expressed in $$ • Operate: put the plan into action, day by day • Report: monthly reports on how you’re doing, and an audit to wrap up

  5. LONG-RANGE PLAN • Begin the budget process with a review of the library’s long-range plan. • The staff and Board working together should set specific goals for the year, drawn from the plan. • The budget will need to consider on-going operating costs as well as support for changes identified in the goal-setting process.

  6. 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.

  7. BUDGET • Review and analyze the prior year’s income and costs. • Estimate next year’s income and costs. • Identify and put dollars on income or costs which may result from new initiatives drawn from the library’s plan. • Compute some percents and ratios to help you compare this year’s draft with the past and with other libraries like yours.

  8. 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

  9. ESTIMATING INCOME • Allocation from the Town • Booksale

  10. OTHER SOURCES OF INCOME • Friends • Grants • Endowments • Foundations

  11. ESTIMATING EXPENSES • Fuel oil • Medical insurance • Salaries • Library materials

  12. 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?

  13. 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

  14. 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

  15. ACCOUNTING 101 • Fund accounting • Cash accounting versus accrual accounting • Net assets (the fund balance) • Cash flow and cash flow management

  16. 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!

  17. FUND ACCOUNTING For example: • Operating fund • Grant funds • Building fund • Endowment fund

  18. FUND: DO GOODERS CLUB GRANT Gift received $1,000 Book bill paid 250 Book bill paid 100 Book bill paid 150 Balance remaining $ 500

  19. 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?

  20. ACCRUAL ACCOUNTING Do Gooders Club grant: bill paid $250 bill paid $100 bill paid $150 BOOKS ON ORDER: $350

  21. 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

  22. 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?

  23. 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!!

  24. LET’S REVIEW -- So far we’ve talked about: • Planning • Budgeting • Operating Now we’ll do reports and financial procedures.

  25. 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.

  26. 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.

  27. 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.

  28. 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?

  29. 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.

  30. 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.

  31. 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.

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

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

  34. FUND-RAISING • Government appropriations • Friends of the Library • Direct mail • Solicitation of big donors • State and Federal grants • Private grants

  35. 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.

  36. DOING THE BOOKKEEPING! • Many libraries use software packages like QuickBooks. • The smallest libraries might just set their books up in Excel.

  37. 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

  38. FINANCIAL PROCEDURES:PAYING BILLS • Authorization to purchase goods • Receipt of goods • Approve payment • Write the check • Sign the check • File the records

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

  40. 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.

  41. 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.

  42. 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.

  43. 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.

  44. 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.

  45. 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.

  46. 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.

  47. 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.

  48. 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.

  49. AND FINALLY . . . . • Periodic review of financial controls by the finance committee • Annual scrutiny of financial controls by the auditor ASSUME NOTHING

  50. 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.

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