Handbook for Library Trustees of New York State

cover, print version of Trustees Handbook

Budgets and Finance

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)

The Budget Process

Every public and association library, regardless of size, is required to prepare and adopt a written annual budget. In larger libraries, budget preparation is primarily the responsibility of library management. The board of trustees defines the library's mission and approves a plan of service and the director translates that mission and plan into programs with specific costs that form the basis for a draft budget. The best budgets are developed in relationship to the library’s long range and strategic planning process and include projections for future years. 

During its development, the budget draft should be reviewed and scrutinized by the president, the library treasurer/finance officer and/or the board finance committee, depending on local practice. The final budget draft should be the product of careful review and discussion by a number of people even before it is presented to the full board. The entire board should review and discuss the library’s budget.  The final budget must be approved by the board prior to submittal to the electorate or funding authority.

Directors must be full partners in the budget development process in libraries of all sizes. As the manager of the library, the director has an important perspective on the library's programs, services, and costs that trustees do not. Smaller libraries may also seek assistance from their public library system.

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.

Fund Accounting

Depending on its circumstances, and in compliance with the NYS Comptroller's guidelines, the library may have more than one accounting fund. The operating fund is the account from which the library’s day-to-day income and expenses are received and disbursed and is usually the account through which almost all receipts pass. This is the primary fund for the library’s annual budget.

A capital fund is a separate account established for special one-time, unusual and usually high-cost activities 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.

A library may also have an endowment fund, which exists independent of the operating fund and whose purpose is to generate supplemental revenue for the library. Often such funds are designated for specific purposes.

Library boards may establish other special purpose funds for accounting and planning purposes. Monies may be transferred into and out of such funds only with formal board approval at an open meeting. It is common for the library to maintain an “undesignated” fund, or “fund balance,” to meet the cash flow requirements of the organization prior to the receipt of taxes. 

Each fund must be defined in the library's Reserve Funds policy, identified in the library’s annual audit and its purpose understood by every trustee.  There is no limit to such reserve funds in law or regulation, but recent State Comptroller’s audits have questioned extraordinary reserves (i.e. in excess of the library’s annual budget).

Having acquired funds from a local government, community taxpayers or other sources, the board has an obligation to spend the money! Although a reserve fund is prudent and appropriate, the library should not hoard excessive amounts of money as a hedge against the proverbial rainy day. There should be justification, based in reality, for all reserve funds. Local governments, voters, and donors do not give or appropriate money to the library so the board can put it away in a safe place. They are buying service from the library!

Audit and Control of 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. All 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 of library funds must be approved by the library board either prior to the expenditure or, for such items as petty cash, recurring utilities or subscriptions, soon thereafter.  Each library should have a policy governing such transactions.

In recent years library boards have been criticized by the State Comptroller for insufficient oversight of library expenditures.  Specifically boards are instructed to establish a “claims auditing” procedure where one or more trustees are assigned to review the monthly bills and make a recommendation to the full board for payment.  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 should questions arise.

All libraries are required to submit a financial report as part of their Annual Report to the New York State Library. In addition, all public libraries are required to submit an Annual Update Document (AUD) to the Office of the State Comptroller and all association libraries registered as a 501(c)(3) with the IRS should submit Form 990 to the Internal Revenue Service.

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. SEE: Seeking Competition in Procurement. Association libraries are also encouraged to follow such responsible practices.

External Audits

Boards should authorize annual external audits by an independent certified public accountant (CPA) in order to assure that the financial management and control system is functioning properly. While the board may be concerned about the cost of an external audit by a CPA, it is important to remember that these funds belong to the community and deserve professional oversight.

The purpose of an audit is to certify the accuracy of the library's financial statements.  The auditor is testing the financial control system for reliability. The audit is an opportunity to verify and confirm the library's proper financial management and to learn from outside financial professionals. Several years of independent audits are often required when libraries seek to borrow funds or seek the issuance of municipal bonds for capital projects. 

Though not required by law, libraries are strongly advised to conform to the highest accounting standards recommended by the Governmental Accounting Standards Board in their management of public funds.

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. A review of recent audits of public libraries by OSC revealed five areas that were commonly deficient. Each library board should ensure library policy, procedures and practices are in alignment with OSC’s recommended best practices for internal controls, particularly in the areas of:

  • 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:

OSC's Local Government Management Guide (LGMG) series

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.  Public libraries demonstrate a community’s commitment to a better tomorrow, and it is the trustees’ responsibility to assure that their library will be a strong and viable institution for their children and grandchildren. A public library is a public service and secure, reliable public funding is the most appropriate way to pay for it. A public library is not a charity!

Today’s increasing regulation, public scrutiny and technological changes must be met with farsighted and unselfish vision that recognizes these realities and plans for the future.  Good stewardship means solid financial planning for the future.

This may mean significantly restructuring library services, or even pursuing a new legal structure to obtain stable tax support, on your own or in cooperation with neighboring libraries. Ultimately, the board must assume the responsibility for tomorrow’s community library. 

In addition to tax monies, public libraries seek out funds from a variety of other sources. These include government and foundation grants, gifts and bequests, fundraising campaigns, fines, fees and investments. All of these sources can provide important added dollars for the library's budget, but they should always be considered supplemental to tax support. The public library system can provide information on grants and other complementary funding sources available.  To rely on donations for critical operational expenses such as salaries, building maintenance and utilities is inviting a crisis for the library. 

Libraries finding themselves unable to provide the library resources their community deserves are well advised to investigate alternative models for funding library service as demonstrated by the Board of Regents endorsed public library district model.

Property Tax Cap

Libraries of all types that have their own board of trustees and have a public vote on their tax levy are subject to the Local Government section of the NYS Property Tax Cap law. This legislation went into effect in 2011 and is designed to limit property tax increases to 2%, or the Consumer Price Index (CPI), whichever is less. Each year your library must file an online form with the Office of the State Comptroller (OSC) to indicate your compliance with the particulars of the law. In the course of the board’s budget deliberations, you may determine that your library may be justified in asking for more than the tax cap amount. To accomplish this the board must pass a tax cap override resolution prior to the public vote on the library’s tax levy. This resolution must receive an affirmative vote by 60% of the library trustees. The public vote must then pass by a simple majority to approve the levy amount. More information from OSC

Investment of Funds

Because public library trustees act as custodians of public funds, they are subject to very tight restrictions on eligible investments. As the State Comptroller recommends:

"The primary objectives of the library's investment activities should be, in priority order, 1) to conform to all applicable federal, state and other legal requirements (legal), 2) to adequately safeguard principal (safety), 3) to provide sufficient liquidity to meet all operating requirements (liquidity) and 4) to obtain a reasonable rate of return (yield.)" SEE: Investing and Protecting Public Funds

Under General Municipal Law and subsequent court rulings, all funds (including privately raised moneys) under the control of a municipal, school district, or special legislative district library must be invested in the following limited number of financial vehicles:

  • Time deposit accounts or certificates of deposit in commercial banks and trust companies located and authorized to do business in New York State;
  • Obligations made by the United States of America or guaranteed by the United States of America;
  • In limited circumstances, obligations of municipalities and other municipal corporations.

Except for gifts given to the library as a true trust, even privately acquired funds are subject to these investment limitations for public libraries. Under certain circumstances, and with the express permission of the State Comptroller, gifts of stock may be held until a fiscally appropriate time for sale.  Some public libraries have partnered with regional “community foundations” to allow the foundation to accept significant donations on behalf of the library and to invest them in a diversified manner.  It is critical to develop this relationship before such a donation is made and to review such an arrangement with the library’s legal and financial advisors. SEE: Council on Foundations Community Foundation Locator

Association libraries are not subject to General Municipal Law and therefore have more flexibility and discretion in their investments. However, it is strongly recommended that public funds under the management of an association library board be invested only as described above. Private funds should be subject to a sound investment policy. The board must always understand its accountability to all those who support the library, in whatever fashion.

Capital Projects

When the time comes for a major expansion or renovation, public and association libraries generally seek public approval to borrow the necessary funds from a financial institution or to issue municipal bonds through an authorized agency such as a school district, Community Development Corporation or the Dormitory Authority of the State of New York (DASNY). Libraries are not authorized under state law to issue municipal obligations on their own. Such financing is quite complex. Professional legal and financial assistance is strongly recommended.

Other sources of funding for capital projects for public libraries, and the primary sources for association libraries, can include a traditional capital campaign, requests for funding through your state legislators and the State Aid for Library Construction Program administered through your public library system. Association library boards, as private not-for-profit corporations, are permitted to engage in fundraising activities for the benefit of the library in their capacity as board members.  Of course, the library director must be an important part of your fundraising team.

Public library boards generally take care to separate private fundraising efforts (such as direct personal solicitations, as opposed to seeking grants from foundations or government agencies) from normal library operations and board activities since there are restrictions on the appropriate use of public funds.  Many boards entrust the fundraising role to Library Friends and/or Foundations. Of course, trustees are private citizens too and may certainly work to raise money for the library as individuals. Please refer to the chapter on Library Friends and Foundations later in this Handbook.

Resources:

Related Policies and Documents:

  • Audit/Review Schedule
  • Claims Audit Process
  • Credit Card
  • Disposition of Surplus Property
  • Fundraising/Gift
  • Investments
  • Inventory/Fixed Assets
  • Online Banking/ Wire Transfers
  • Petty Cash
  • Purchasing/Procurement
  • Reserve Funds
  • Travel and Conference

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Last Updated: August 10, 2018