Public Library Financial Oversight

Budgets

Public library boards are legally responsible for the library's finances and financial management. As custodians of public funds, trustees must be accountable in their management of the library's money. All too often library boards fail to live up to their duty to secure adequate funding for the library's service program and to exercise appropriate fiduciary oversight. The library’s annual operating budget is required to be easily accessible to the public and posted on the library’s website. (Education Department Regulations (8 NYCRR) § 90.2). Handbook for Library Trustees of New York State, page 50

The Budget Process:

• All libraries chartered by NYS are required to prepare and adopt a written annual budget.
• Budget development is primarily the responsibility of library management and trustees.
• The budget should be developed based on the mission, priorities, and long-range plan of the library.
• Before presenting the budget to the board it should be thoughtfully reviewed by the Board President, Treasurer, Director, and Finance Committee.
• The final budget must be approved by the board prior to submittal to the electorate or funding authority.

A budget is a flexible document, not a rigid rulebook. Plans and circumstances will change during a fiscal year, and the board has both the authority and the responsibility to revise the budget to accommodate new situations. Handbook for Library Trustees of New York State, page 51

Fund Accounting

Depending on the library, there may have more than one accounting fund. When creating funds, libraries need to take care to comply with all applicable laws and restrictions.

• Operating Fund: Day-to-day income and expenses are received and disbursed. This is typically the fund that almost all receipts pass and is the primary fund for the library's annual budget.
• Capital Fund: Separate account established by the board for a special one-time, usually high-cost activity such as construction, renovation, or major equipment purchases. Often end-of-year surplus from the operating fund is transferred into the capital fund for future use.
• Endowment Fund: Exists independent of the operating fund and whose purpose is to generate supplemental revenue for the library. Often funds are designated for specific purposes.
• Undesignated Fund or Fund Balance: It is common for a library to maintain this type of fund to meet the cash flow requirements of the organization prior to the receipt of taxes.
• Other Fund Accounts: The Library board may establish other special-purpose funds for accounting and planning purposes. All transfers of funds from different accounts are accomplished through a formal board motion at an open meeting.

Each fund must be defined in the library's Reserve Funds policy (PLS Assigned Reserves Policy), identified in the library's annual audit, and its purpose understood by every trustee. There is no limit to the amount of funds carried in reserve, however, recent State Comptroller's audits have questions "extraordinary" reserves such as amounts in excess of the library's annual budget. Local governments, voters, and donors give to the library to spend; they are paying for a service.

Auditing and Controlling Funds

Under New York State law, the board of trustees has sole authority over the expenditure of funds appropriated for library purposes. The board therefore, must have a method in place for the review and approval of all expenditures. Handbook for Library Trustees of New York State, page 52

• Trustees should receive a monthly financial statement prepared or approved by the library treasurer showing receipts, expenditures, and a comparison with the budget.
• All expenditures must be approved by the library board either prior to the expenditure or for such items s petty cash, recurring utilities or subscriptions, soon thereafter.
• Your library should have a policy governing these transactions (PLS Payment of Bills Policy).
• All trustees are encouraged to exercise due diligence in the payment of claims.
• Bills must be available for trustee review at board meetings at which they are approved.
• Boards should have an annual external audit by an independent certified public accountant (CPA).

Reporting:

• All libraries are required to submit a financial report as part of their Annual Report to the New York State Library.
• All Public Libraries are required to submit an Annual Update Document (AUD) to the Office of the State Comptroller
• All Association Libraries registered as a 501©3 with the IRS should submit Form 990 to the IRS annually.

Procurement

Public library boards, in addition to compliance with New York State competitive bidding statutes, are required to adopt a written procurement policy and procedures governing all purchases of goods and services; even those that are not subject to competitive bidding, in accordance with New York State General Municipal Law. Soliciting competition through competitive bids, requests for proposals, written and/or verbal prices quotes is considered an effective process by the State Comptroller. www.osc.state.ny.us/localgov/pubs/lgmg/seekingcompetition.pdf. Association libraries are also encouraged to follow such responsible practices. Handbook for Library Trustees of New York State, page 53

• PLS Procurement Policy
• Geneva Public Library Bidding and Procurement Policy
• NYS Seeking Competition in Procurement

New York State Comptroller's Audits

The Office of the State Comptroller (OSC) has the right to audit the finances and internal financial control practices of public libraries. They may also audit association libraries, but only in the area of tax cap compliance. All public libraries should prepare for an eventual audit from OSC. Handbook for Library Trustees of New York State, page 53

OSC's Recommended Best Practices for Internal Controls:

• The claims audit process: Does the board review and approve every bill?
• Cash handling procedures: Are there viable segregation of duties procedures in place?
• Purchasing/procurement policy: Are there written procedures in place even for purchases under the threshold for bidding under NYS General Municipal Law?
• Credit card policy: Who may use credit cards for what specific purposes?
• IT security and policy: Is your business and banking data safe?

Guidance from OSC on all five of these areas is available through their Local Government Management Guide modules:

• The Practice of Internal Controls
• Improving the Effectiveness of Your Claims Auditing Process
• Information Technology Governance
• Seeking Competition in Procurement
• Investing and Protecting Public Funds

For additional findings in OSC Audits of Libraries - OSC Audits of NYS Public Libraries.pdf

Library Funding

Adequate funding is not the job of the library director. It is the library board who is accountable to the local community for obtaining sufficient funding to provide appropriate public library services; both for the present and well into the future.Handbook for Library Trustees of New York State, page 54

Funding Sources:

• Tax Monies
  • Education Law § 259 - Library taxes and funding
  • Chapter 414 of the laws of 1995 in New York State
• Municipal Appropriations
• Supplemental Funding
  • Grants
  • Gifts, donations, and bequests
  • Fundraising campaigns
  • Fines and fees
  • Investments

The Role of the Public Library Treasurer

The Treasurer (Many public libraries must appoint an independent Treasurer who is not a member of the Board. See chapter on Board Organization.) shall be the disbursing officer of the Board and shall perform such duties as generally devolve upon the office. In the absence or inability of the Treasurer, his/her duties shall be performed by such other members of the Board as the Board may designate. Handbook for Library Trustees of New York State, page 92

Though there have been recent efforts to clarify the role of the "Treasurer" in New York State public libraries much confusion still exists. Information on this page and in the Trustee Handbook is discussed as "best practice." To determine you specific situation it is best to consult with your library attorney and independent auditor.

The office of Treasurer varies greatly depending on the library's legal structure:

• School District Libraries: Must appoint (hire) an independent Treasurer who is not a member of the board. This person is an independent officer and reports to the board. They are responsible for the receipt and disbursement of tax monies after board approval.
• Special Legislative District Libraries: The same as above, but should refer to their enabling legislation for clarification.
• Municipal Libraries: That exercise their right under Education Law § 259 (1) (a) to request their tax appropriations be paid over to the library are strongly advised to appoint an independent Treasurer. In the case of municipal libraries where tax funds are held, and invoices are paid by the municipality, the Treasurer of the municipality serves in this capacity.
• Association Libraries: Are not governed by these restrictions and may appoint a trustee as Treasurer to oversee the receipt and disbursement of library funds, report to the board and otherwise fulfill the duties of Treasurer.”

Facilities Planning

Proper maintenance of the existing library is essential if the board is to fulfill its responsibilities to the community. Preventative maintenance for major systems, such as the heating/ventilation/air conditioning system (HVAC), can extend their life and prevent catastrophic or unexpected failure. Handbook for Library Trustees of New York State, page 65

As your libraries largest asset, boards should pay careful attention to the financial impacts of the library facility and plan for future expenditures appropriately.

Facility Plan Outline.docx

Resources

• Public Library Finance and the Trustee’s Fiduciary Responsibilities by Jerry Nichols
• List of Recommended Financial Control Policies.pdf
• HATS Sample Budget Handout.pdf
• System Policies Page