Library Budgets & Accounting. Models of Operation for Libraries. Models of Operation for Libraries 5/31/2017. Ted Nellesen.

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1 Library Budgets & Accounting Ted Nellesen Department of Management Marlys Gaston Auditor of State May 31, 2017 Models of Operation for Libraries CITY COUNCIL CITY ADMIN City without a Library Board City Council has full control over the operations of the library Will be managed by the City Administrator/City Manager Hiring of Staff Setting of Priorities Budgeting LIBRARY STAFF Models of Operation for Libraries City with a Library Board City Council has full control over the appropriation budgeted for the library CITY COUNCIL Library Board manages the operation of the library (depending on ordinance) Hiring of Staff Setting of Priorities Budgeting the appropriation CITY ADMIN 1 LIBRARY BOARD LIBRARY STAFF 1

2 Powers of a Library Board Some powers normally reserved for the City Council can be given to a Library Board Accept gifts, devises, and bequests to library May be able to set budget and oversee purchasing for library Subject to powers granted by establishing ordinance May be allowed to hire the library director and evaluate performance Subject to powers granted by establishing ordinance Budgeting No Library Board Library budget submitted to council as part of city budget City Council City budget may is ask passed, for library gets department exactly what is asked presentations for, and everyone and request is happy forever. revisions City Admin staff formulates budget request for the next fiscal year with input from Library staff Budgeting Library Board City Council considers Library Board Request with the full city budget City Council approves budget request or approves a different funding number City Admin adds budget request to full city budget and submits to City Council City Council and Library Board negotiate on the request Library Board and Library staff work together to form budget request 2

3 Budgeting Library Board City Council considers Library Board Request with the full city budget City Council approves budget request or approves a different funding number Library Board City Council and Library Board gets all requested Library Board adjusts the line funding and negotiate on the item budget to throws a party request reflect the new using no public budget number funds, as that is that the City wildly Council wisely inappropriate chose Money and possibly Library Board and Library staff work together to form budget isn t happiness request illegal Library Board Budgeting Library Boards may receive the power to budget and purchase via establishing ordinance Board would need to create and oversee a full line item budget for the library each year Amount of expenditure limit (appropriation) is still considered and approved by City Council Any changes to expenditure total must be requested from the City Council, as it may require an amendment to the city budget Budgeting - City Budget Process City Council is responsible for budget creation and approval each year Budget must be approved by resolution and submitted to County by March 15 th (COI ) Must contain revenues and expenditures for all city operations (COI & ) City Council is responsible for amending the certified city budget prior to going over the budgeted expenditures (COI & ARC 545.2) Library Board is an administrative agency of the City, and must be included in the full city budget (COI 392.1) 3

4 Budgeting City Budget Docs Budgeting City Budget Docs 12 4

5 Budgeting General Fund Support Public libraries are typically supported with General Levy dollars Portion of the city s $8.10 per $1,000 taxable valuation and/or the Support Public Library Levy FY cities budgeted payments totaling almost $102M FY cities budgeted library support totaling almost $127M 13 Library Budget Data 14 Library Budget Data 15 5

6 Budgeting Library Support Levy Cities can also use the Support of Public Library levy (COI (20)) Must be approved by referendum If voted in, it must be used FY cities using levy $3,616,135 in budgeted levy revenue FY cities using levy $4,753,337 in budgeted levy revenue 16 Budgeting Library Support Levy 17 FY17 Library Levy Cities by County

7 Budgeting Mandatory Support COI Commencing July 1, 1977, each city within its corporate boundaries and each county within the unincorporated area of the county shall levy a tax of at least six and three-fourths cents per thousand dollars of assessed value on the taxable property or at least the monetary equivalent thereof when all or a portion of the funds are obtained from a source other than taxation, for the purpose of providing financial support to the public library which provides library services within the respective jurisdictions. 19 Budgeting Mandatory Support Possibly not a mandatory as previously thought /WL July 14,1977 If a city has no library and is not receiving services from outside the city, no payment of $ would be mandatory A city could formally request that services not be given to their citizens, thus removing their requirement to pay Still mandatory if no formal declination of services has been given 20 Accounting for Library Funds 7

8 City and Library Financial Responsibilities Library Board: Specific responsibilities should be set out in the ordinance establishing the Library Board City Council Final responsibility for actions and decisions of the Library Board and for City financial practices Establishes the powers and duties of the Library Board via City ordinance Establishes operational policies for all departments and Boards 22 City and Library Financial Responsibilities Chapter of the Code of Iowa: A city shall keep accounts which show an accurate and detailed statement of all public funds collected, received, or expended for any city purpose, by any city officer, employee, or other person, and which show the receipt, use, and disposition of all city property. 23 City and Library Financial Responsibilities All funds collected by a City, City officer or City department are public funds and are subject to public funds criteria Taxes, fees, state grants, donations/gifts, bequests Regardless of whether the City Clerk performs the accounting function and maintains the financial records or the Library does their own accounting functions for one or more accounts the City is responsible for budgeting and reporting the financial information 24 8

9 City and Library Financial Responsibilities The City must include Library activity in: The annual budget which is approved by the City Council and submitted to the Department of Management The Annual Financial Report, submitted to the State Auditor s Office Monthly financial information/reports Library activity is subject to annual audit or City examination, as applicable 25 How Are Library Funds Accounted for in the City s Records? Budgeted and reported as part of the General Fund of the City Part of the Culture and Recreation function The City can separately account for special Library funds - donations, gifts, bequests, trusts, grants as: A separate sub-fund of the General Fund or A Special Revenue Fund only if majority of resources are restricted use If principal must remain intact (i.e. not spendable), Permanent Fund 26 Other Accounting Issues Disbursements: Approval - Once the Library Board approves the Library bills, the bills should be presented to the City Council for approval Publication - Library bills should be published as required by Chapter (6) of the Code of Iowa Receipts: City must also publish a summary of receipts, including Library receipts 27 9

10 Other Accounting Issues Carry-over of unused funds: Legally, funds that remain in a department budget at the end of a fiscal year are required to revert to the City s General Fund With the exception of donations/bequests for a specific purpose City Council can adopt a resolution to allow the Library to carry these funds over to the next fiscal year Maintaining the Library funds in a sub-fund of the General Fund would facilitate this 28 Separately Maintained Accounts AOS encourages all records and financial activity be maintained in the City Clerk s office Provides the best achievable internal controls If in the Library s control, typically no segregation of duties If separate bank account(s) are maintained by a City Library, the funds are accounted for by the City in the same manner as discussed above 29 Separately Maintained Accounts If the Library has separate account(s) for certain activity, the Library Board must ensure an adequate accounting system is established/maintained to: Accumulate the necessary information Retain supporting documentation Prepare accurate and timely (monthly) financial reports for the Board and the City Provide for adequate internal controls

11 Separately Maintained Accounts Investments: Must follow Chapters 12B and 12C of the Code of Iowa specify how funds may be invested If Library performs their own investment activities, will need to follow the City s investment policy or adopt their own in accordance with Chapter 12B.10B of the Code of Iowa Must ensure investments earn the minimum required interest rate as determined by the State Rate Setting Committee Managing Petty Cash Accounts 32 Petty Cash Accounts Should be approved by the City Council or Library Board at an established amount City Council or Library Board polices should address: Maximum amount of the petty cash fund Types of allowable disbursements from the fund Dollar limits on what may be purchased with the fund Method and frequency of replenishment The authorized custodian

12 Petty Cash Accounts Allowable disbursements include minor expenses such as postage, car washes and urgently needed office or other supplies Should be maintained on an imprest basis: Petty cash vouchers/invoices plus cash always come back to the established amount Petty cash fund should not be co-mingled with other receipts Receipts (i.e., copy fees, reimbursements, fines, etc.) should be deposited at the bank, not placed in the petty cash fund 34 Petty Cash Accounts Petty cash funds should not be used to cash checks Petty cash funds should not be used to circumvent the normal disbursement approval process or for any disbursement more appropriate to the normal disbursement process Petty Cash Fund Process Authorized custodian disburses the cash Voucher is placed in the petty cash fund showing the amount disbursed, to whom, date and purpose both parties initial/date Original receipt/invoice for the purchase should be attached to the voucher, as applicable Petty cash fund should be balanced monthly by an independent person to ensure cash plus vouchers/invoices equal the established amount Replenish petty cash to established amount

13 Petty Cash Fund Process Replenish petty cash to established amount Write check to the bank for the exact amount of the vouchers/invoices so petty cash will again equal the established amount Replenishment check should be included in the list of bills for approval support is the vouchers/invoices totaling the amount of the check Council should approve the replenishment payment Disbursement is recorded in the general ledger coded based on the purposes of the various petty cash vouchers/invoices Obtain cash from the bank and place in the petty cash fund 37 Fiduciary responsibilities and public purpose criteria Fiduciary Responsibilities Duty to the public Entrusted with public resources Duty to ensure the resources are properly managed and accounted for and good internal controls are in place to safeguard assets Tone at the Top Starts with setting the right Tone at the Top Set by leadership Good or bad, tone from the top trickles down to employees Tone of integrity, honesty, full disclosure, due professional care Creating a culture of doing the right thing, all the time 39 13

14 Who Said... The same prudence which in private life would forbid paying our own money for unexplained projects forbids it in the dispensation of the public moneys. Thomas Jefferson 40 Public Purpose Criteria Public funds may only be spent for public benefit Constitution of the State of Iowa Article III, Section 31 no public money or property shall be appropriated for local or private purposes Court cases and Attorney General Opinions 41 Potentially Questionable Disbursements Holiday parties Flowers, gifts, monetary contribution for funerals, memorials, births, etc Refreshments Meals or snacks during meetings Retirement or other gifts Clothing/apparel Contributions/donations Library Foundation Friends of the Library 42 14

15 Library Foundations/Friends of the Library Should be organized as legally separate entities 504A or 501c3 non-profit If not legally separate part of the City Library and all activity should be accounted for and reported as such If legally separate: Activity should be clearly distinguished and separate from the City Library Do not co-mingle the activity 43 Issues to consider To whom checks are written or donations/bequests are given matters! City of Anywhere or City of Anywhere Library Belongs to the City Must remain in control of City Use is subject to public funds criteria City of Library Foundation/Friends of the Library. (assuming a legally separate organization) Belongs to the legally separate organization Use is subject to by-laws and/or IRS rules 44 Issues to consider How a fund raiser is advertised matters! City of Anywhere Library Belongs to the City Must remain in control of City Use is subject to public funds criteria City of Anywhere Library Foundation/Friends of the Library. Belongs to the legally separate organization Use is subject to by-laws and/or IRS rules 45 15

16 Other Issues to consider A government cannot gives funds over to nonprofit for their control If given to government, fall under public funds criteria for investment and use 46 Again The Constitution of the State of Iowa prohibits governmental bodies from making a gift (or turning public funds over) to a private non-profit corporation. Article III, Section 31 of the Constitution of the State of Iowa states, no public money or property shall be appropriated for local, or private purposes, unless such appropriation, compensation, or claim, be allowed by two thirds of the members elected to each branch of the general assembly. 47 Attorney General Advice " I do not believe that a city library board may simply donate funds received from private donors to a private non-profit organization to use and invest as the non-profit organization sees fit. Unless the library board retains the ability to oversee expenditures and to demand return of the funds in the event that future trustees do not agree with that delegation of control over the funds, the transaction violates the public purpose and non-delegation principles discussed above. Further, even if safeguards are put in place to assure ongoing oversight and control, I believe that the funds continue to be public funds, subject to the deposit and investment standards contained in Code sections 12B and 12C (of the Code of Iowa) and that the funds must be earmarked and spent for the purpose for which the gift was given. A 28E agreement may provide a vehicle to facilitate joint public and private influence over the use of gifts received by a governmental body, by incorporating ongoing public oversight and accountability to the joint undertaking." 48 16

17 Example Recommendation City Gave Funds to Library Foundation A 28E agreement, as described in the advice letter, does not exist. We are not aware of any statutory authority for the Library Board and/or City to relinquish its fiduciary responsibility over the public funds trust account to a separate non-profit organization. The City of Anywhere Library Board of Directors, through its action to give these public funds to the Foundation has put these public funds at risk since the Library Board of Directors and the Foundation have not invested and accounted for the proceeds from the Bequest, including all income derived from the investment of the Bequest, as required by Chapter 12B.10(5) of the Code of Iowa and Chapter of the Code of Iowa. The City should recover the remaining proceeds of the Bequest held by the Foundation, including all income derived from the investment of the Bequest from the time it was remitted to the Foundation. In addition, the City should require an immediate accounting for these public funds from the date of the gift. 49 QUESTIONS? Ted Nellesen Iowa Department of Management Local Government Budgets ted.nellesen@iowa.gov Marlys Gaston Auditor of State Director marlys.gaston@auditor.state.ia.us