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AE 14: Managing the Library's Money

This Administrative Essential covers:

  • Approval of library expenditures
  • Financial record-keeping/statements/reports
  • Gifts and donations
  • Sales tax
  • Annual report
  • Audit
  • Sample Trust/Gift Fund Report

Approval of library expenditures

Wisconsin law gives the library board exclusive control over the expenditure of library funds. It is the board's responsibility to review expenditures each month and approve them before the bills are paid.

43.58(2) The library board shall audit and approve all vouchers for the expenditures of the public library and forward the vouchers or schedules covering the same, setting forth the names of claimants, the amounts of each claim and the purpose for which expended, to the appropriate municipal or county financial officer or, in the case of a school district, the school district clerk, with a statement thereon, signed by the library board secretary or other designee of the library board, that the expenditure has been incurred and that the library board has audited and approved the bill. The municipal, county or school district governing body shall then pay the bill as others are paid.

Although the board-approved budget and policies should delegate authority to the director and staff to make purchases of library materials and for regular operation of the library, the board has the responsibility to review all purchases and monitor the budget during the course of the budget year.

Bills should not be paid until approved by the library board. This would suggest that, in order for the bills to be paid in a timely manner, the library board must meet each month. An exception is permitted for regular wages or salary or other recurring payments (such as utility bills, lease payments, and maintenance contract fees), which may be paid and then audited and approved by the library board at its next regular meeting. [Wis Stats 43.58(2)(b)]

When auditing expenditures for approval, the library board does not need to review the individual bills, although the actual bills should be available for inspection if there is a question about the expenditure. The list of bills should include the date of the invoice, the account number for the expenditure, the vendor, a brief explanation of the materials or services purchased, and the amount to be paid. A sample schedule follows this chapter.

The municipal clerk, treasurer, or financial officer may be able to generate such a list of bills with the municipal accounting system, but be careful that the invoices are submitted and entered in an encumbrance, but are not released for payment until the clerk, treasurer or financial officer receives formal authorization from the library board. You may wish to maintain a parallel system for entering and tracking expenditures to be used for comparison with the municipal system. This may be done with a basic spreadsheet program, or with off-the-shelf accounting software.

The following basic library financial procedures are listed in Trustee Essential 9:

  1. The library board approves the annual budget and any budget adjustments necessary during the year.
  2. The library director is delegated authority to make purchases within the budget and according to board-approved purchasing policies.
  3. The library director is responsible for preparing vouchers for all expenditures, a monthly list of all library expenditures, and a monthly financial statement.
  4. At the monthly board meeting, the library board audits and approves payment of the expenditures, and reviews and approves the financial statement.
  5. The board secretary, or other designee of the board, signs the vouchers and they are forwarded to the municipal clerk for payment.
  6. Expenditures approved by the board for payment out of any library-held trust/gift fund accounts are made by the board treasurer or other designee of the board. It is recommended that board policy or bylaws require two signatures (one being the board treasurer or president) for any payment or withdrawal from a library-held account.

Financial record-keeping/statements/reports

In order for the board to efficiently consider the library's overall budget status, the library director should submit a monthly financial statement that shows:

  • A list of revenue (income) received during the prior month, as well as the total monthly and year-to-date income.
  • Total funds available and anticipated receipts.
  • A list of bills to be approved for the month (see above), sorted by budget categories.
  • Accumulated expenditures for the year by expenditure category and total expenditures for the year.
  • A list of all library accounts and their balances, including the library fund with the municipality, as well as any trust accounts the library maintains.

For any funds in library custody, it is important that a library adopt financial practices and controls that meet municipal audit requirements. Libraries holding substantial funds should have an investment policy approved by the library board. 

Gifts and donations

Wisconsin library law provides that library boards have exclusive control of all funds collected, donated, or appropriated for the library fund. [Wis. Stats 43.58(1)] Expenditures of funds held by the municipality for library purposes are made as approved by the library board, with actual disbursements made by the municipal treasurer. However, library boards can maintain both control and custody of gift and donation funds under certain conditions. Wisconsin Statutes s. 43.58 (7) provide three alternatives for the handling of gift, bequest, devise, or endowment funds provided to the library:

  1. The library board may transfer the funds to the treasurer of the municipality or county that established the library.
  2. The library board may deposit the funds with a public depository (a bank, credit union or savings and loan in Wisconsin, or the Local Government Investment Pool). A library board resolution must designate one or more public depositories to be used for these funds.
  3. The library board may entrust the funds to a financial secretary (a library board member elected annually by the library board to serve in this capacity) who may invest the funds as permitted under s. 66.0603 (1m) or 112.10 (4); or may delegate investment authority for the gift, bequest, devise, or endowment as permitted under s. 66.0603 (2) or 112.10 (5).
  4. The library board may pay or transfer the donation, bequest, or endowment to a charitable organization described in section 501 (c)(3) of the Internal Revenue Code whose purpose is providing financial or material support to the public library. Examples of such organizations might include the library's Friends group or foundation.

A financial secretary must be bonded for at least the value of the funds or property held. The financial secretary must also make at least annual reports to the library board showing in detail the amount, investment, income, and disbursements from any funds held. An annual report on all the library's donation and trust funds must be attached to the annual report provided to the municipality and the Division for Libraries and Technology.

Sales tax

While sales to public libraries are exempt from the sales tax, sales by public libraries generally are not exempt from sales tax. Most public library sales, including sales of photocopies and computer printout charges, are subject to the Wisconsin sales tax and any applicable county or stadium sales taxes. Other library sales, such as sales of withdrawn books, used equipment, and used furniture, are also subject to the sales tax, as are library rentals, such as the rental of best-selling books and videos. Wisconsin Administrative Code section Tax 11.05 details the sales tax rules for state and local government agencies. Public libraries fall under the same general rules that apply to other state and local government agencies.

Library fines, including charges for materials that are not returned and charges for a duplicate library card, are specifically exempt from the sales tax. Also exempt are photocopy and records search charges made in response to an official public records request.

To simplify the collection of sales taxes, libraries (and other organizations) do not need to add sales tax onto their taxable sales and charges-they can consider sales tax as part of the price charged. However, to do this, customers must be notified by a sign, or receipts should be provided clearly stated that "prices include sales tax." If the prices include sales tax, taxes due are calculated not on total receipts, but on the receipts before taxes (for example, if total receipts are $1000 including taxes, and the applicable sales tax rate is 5%, taxes are due not on the full $1000, but instead on $1000 divided by 1.05, or $952.38). When libraries submit funds from sales, fines, fees, etc. to their municipality, they should carefully indicate the funds that are taxable and the funds that are non-taxable.

Any organization making sales subject to the sales tax must have a seller's permit from the Wisconsin Department of Revenue (DOR). The library should track sales so that required returns can be filed with the DOR along with sales tax payments. If a municipality, or any of its sub-units (including the library), makes taxable sales, the municipality must handle the necessary filing and tax submission under its seller's permit.

Friends of the Library groups often conduct book sales and other sales as fundraisers. These sales may be exempt from the sales tax if they meet certain tests. Sales by non-profit organizations on less than 20 days per year or having total taxable receipts of less than $15,000 per year are exempt "occasional sales" if the sales event does not involve an admission charge and paid entertainment, and the organization does not have and is not required to have a seller's permit for other purposes. A public library may also qualify for the "occasional sales" exemption if it meets the same tests as part of the municipality.

If a library contracts with a private vendor who owns and has control over the photocopy machines in the library, the vendor, rather than the library, is responsible for collecting sales tax. The same would be true for pay phones or vending machines owned and controlled by a private vendor.

Some organizations believe that if they call payments "donations," they can avoid the obligation to collect sales tax. To qualify as a donation, a payment must be totally voluntary, with no restrictions imposed on customers who do not pay the stated or suggested amount. For example, if a library requests a $.10 donation per computer printout, the library cannot place any restriction on computer printouts made by people who do not make the donation. The DOR looks at the facts surrounding requests for donations to determine whether they are truly voluntary donations, or, instead, sales subject to the sales tax.

Annual report

Each year the library is required to submit a report on its activities to the Division for Libraries and Technology and its municipal or county governing body.

43.58(6)(a) Within 60 days after the conclusion of the fiscal year of the municipality or county in which the public library is located, the library board shall make a report to the division and to its governing body. The report shall state the condition of the library board's trust and the various sums of money received for the use of the public library during the year, specifying separately the amounts received from appropriations, from the income of trust funds, from rentals and other revenues of the public library and from other sources. The report shall state separately the condition of the permanent trust funds in the library board's control, shall state in detail the disbursements on account of the public library during that fiscal year and shall contain an estimate of the needs of the public library for the next succeeding fiscal year.

(b) The report to the division shall include data concerning library materials, facilities, personnel, operations and such other information as the division requests.

The report collects information to establish

  • the certification status of the library director;
  • the municipal appropriation for the library, used to determine that the library meets or exceeds minimal levels to qualify for library system membership;
  • the relative amount of service to municipal residents and library users from outside the community;
  • revenues and expenditures for the previous year (this information can be used to determine cost for services if the library must submit a statement to the county clerk for county payment for library services under s. 43.12).

Besides reporting information required by Wisconsin law, the annual report also collects data to be submitted to the National Center for Education Statistics for the Library Statistics Program. The Center, located within the U.S. Department of Education and the Institute of Education Sciences, is the primary federal entity for collecting and analyzing data related to education. Information gathered for the annual report is also used to prepare the Wisconsin Public Library Standards. Finally, the annual report serves as the basis for the Wisconsin Public Library Directory, and provides the Division with a list and contact information for the library board.

The annual report filing information is distributed to public libraries through the library systems by the Division each January. Library directors must gather the necessary information on library finances, circulation, programs, services, personnel, and technology, to enter into the online report form. The report, along with the Public Library Assurance of Compliance with System Membership Requirements, must be approved by the library board and signed by the president of the library board and the library director before being submitted to the Division via the library system. A separate "statement concerning public library system effectiveness" is prepared, approved by the board, and submitted directly to the Division.

It also is important that the library annual report include attachments detailing the status and activity of any and all trust funds held by the library, as required under Wisconsin Statutes s. 43.58(7)(d): "The treasurer or financial secretary shall make an annual report to the library board showing in detail the amount, investment, income and disbursements from the trust funds in his or her charge." The report must show the activities any gift funds or donations that the library holds. The report should also show donations, gift funds, or trust funds held by the municipality on behalf of the library or entrusted in a public depository (e.g., a bank or savings and loan facility). A sample Trust/Gift Fund Report follows this chapter.

Audit

In most communities, public library financial records should be audited along with all other records maintained by the municipality or county that serves as the library's fiscal agent. Funds controlled directly by the library board, such as gift funds or endowments, should be audited annually by the municipality, county, or an outside auditor. If the municipality does not audit the library's financial records, the library board could request that they do so, or the board could budget for an outside auditor to conduct an annual audit of the library account. The library board should examine audit reports and carefully follow any audit recommendations.

For any funds in library custody, it is important that a library adopt financial practices and controls that meet municipal audit requirements. Libraries holding substantial funds should have an investment policy approved by the library board. 

Sources of additional information

Smith, G. Stevenson, Accounting for Librarians and Other Not-for-Profit Managers. 2nd ed.
Chicago, American Library Association, 1999.

Explains fund accounting to people without bookkeeping backgrounds. Includes chapters on major fund groups. May be more information than necessary for small libraries whose municipalities maintain accounts.

Ohio Public Library Accounting Handbook, 5th edition Ohio Library Council, 2014.  http://olc.org/resources/publications/

National library statistics available through IMLS: http://harvester.census.gov/imls/publib.asp

Wisconsin Public Library Standards: https://dpi.wi.gov/pld/boards-directors/library-standards

UW Extension Fact Sheet Number 17: "Financial Management in Local Government: Frequently Used Terms," May 2001
http://www.uwex.edu/lgc/program/pdf/fact17.pdf

Wisconsin Public Library Statistics: https://dpi.wi.gov/pld/data-reports/service-data

Instructions and Forms for the Wisconsin Public Library Annual Report: https://dpi.wi.gov/pld/data-reports/annual-report

Sample Public Library Monthly Schedule of Bills

Date Account Vendor Invoice # Description Amount
10/5 Children's books Book Vendor, Inc. 1086 new children's books from reviews $433.40
10/5 YA Books Book Vendor, Inc. 1086 new young adult titles from reviews $103.52
10/5 Adult fiction Book Vendor, Inc. 1086 new adult titles from reviews $577.78
10/7 Replacements Book Vendor, Inc. 1098 Replacement books $47.50
10/15 Gas & Electric Central Power 847521 Service 9/10-10/10 $875.50
10/15 Wages/Salaries Sally Director   First half October salary $1500.00
10/15 Wages/Salaries Jim Clerk   First half October wages $823.00
10/15 FICA     FICA withholdings first half October $177.71
10/17 Continuing Ed WLA Association   Registration for annual conference, meals $210.00
10/18 Office Supply Nibs Supplies 938203 Copier paper, toner, printer ribbons, other supply $398.28
10/20 Telephone Tincan Telecom 03827 Billing 9/113-10/12 $175.34
10/20 Contracted Services J&E Cleaning 932 October cleaning charges $778.00
10/22 Periodicals Sample Tribune   Paper delivery October-December $325.00
        Total: $6425.03

 

Sample Public Library Financial Statement

 

Income/Revenues          
Income Source Budget Amount Month Received Year Received Not Received % Received
to date
Explanation
APPROPRIATION $179,500   $179,500   100%  
LSTA GRANT $2500 $790 $1200 $510 80% Via library system
COUNTY PAYMENT $85,300     $85,300 0%  
COPIER/PRINTING $1800 $315 $925 $875 51%  
ROOM RENTAL $450 $25 $220 $230 49%  
GIFTS, DONATIONS $1500 $75 $800 $700 53%  
SYSTEM PAYMENTS $750 $300 $750 $0 100% Aid, SLP
TRANSFERS $2500     $2500 0% From fund balance
OTHER REVENUES $300 $25 $155 $145 52% rebate
Total: $274,600 $1530 $183,550 $90,260 67%  
Expenditures Budget Expended
this month
Expended
this year
Balance Percent
Expended
Explanation
Personnel            
WAGES/SALARIES            
FICA            
WISCONSIN RETIREMENT            
INSURANCE            
CONTINUING EDUCATION            
Subtotal:            
Building            
GAS & ELECTRIC UTILITIES            
TELEPHONE            
WATER & SEWER UTILITIES            
CONTRACTED SERVICES            
Subtotal:            
Materials            
BOOKS            
PERIODICALS            
AUDIO RECORDINGS            
VIDEO RECORDINGS            
ELECTRONIC RESOURCES            
PROCESSING            
Subtotal:            
Other            
AUTOMATION SYSTEM RENTAL            
OFFICE SUPPLIES            
PUBLIC NOTICES, POSTAGE            
EQUIPMENT            
EQUIPMENT MAINTENANCE            
BUILDING MAINTENANCE            
Subtotal:            
Total:            

 

Sample Library Trust/Gift Fund Report

 

Note: A public library may maintain custody of gifts, donations, bequests, devises, or endowments. (See Trustee Essential #9 for details.) The library's annual report must show the amount and investment of and income and disbursements from any funds held by the library board.

Date   1-Jan Beginning Balance Deposits (New Donations) Interest Earned Expeditures Balance
  Anytown National Bank          
  CD #123456          
1-Jan   $ 5,000       $ 5,000
30-Dec       $ 300   $ 5,300
             
             
             
             
  Anytown National Bank