1. Library Financial Management For Mortenson Associates September 9, 2008 Bob Burger, Professor Emeritus, Ph.D., CPA University of Illinois Library Adapted from a presentation by Terry L. Weech Graduate School of Library and Information Sciences University of Illinois, Urbana-Champaign and Richard Schnuer, Finance Director City of Champaign, Illinois, USA

2. Outline Overview Financial and Managerial Accountability Budgeting Capital Projects Revenue (taxes, fund raising, grants, etc.)

3. Overview Definition of Financial Management The Planning, Directing, and Monitoring of income and expenses to achieve service goals The Reporting and Evaluation of the Outcomes and Results

4. RELATIONSHIP TO OVERALL MANAGEMENT POSDCORB –Planning –Organizing –Staffing –Directing –Coordinating –Reporting –Budgeting

5. Context of Financial Accountability and Managerial Accountability Professional –Discipline –Reputation Legal –Audits –Laws Ethical –Personal –Cultural

6. Role of Financial and Managerial Accountability, Continued What is the level of Accountability in your organizational setting? Who is responsible? Does Accountability vary with type of library? Does Accountability change over time in the same library? Can you control what you are responsible for?

7. Role of Financial and Managerial Accountability, Continued Who evaluates your financial and managerial performance? –Government Officials? –Superiors in your organization? –Colleagues and Staff? –Public? –Other? What happens when/if you are held accountable?

8. Financial Documentation Terminology Financial Documentation Terminology Account Number: A number assigned to indicate a specific account in a series of accounts. Allocation: Money available for spending by a specific department or organization Audit Trail: The path of original documents by which financial transactions may be traced. Purchase Orders, Requisitions, Vouchers, Invoices, etc. are the documents that comprise the Audit Trail. Balance: The difference between expenditures and allocations in an account Cash Flow: The tracing of income and expenditures from the deposit of funds until expenditure Encumber: To set aside or commit funds for a specific purpose, such as a book order, until they can be officially expended Voucher: A document showing authority to make a purchase. Purchase Order: An official commitment to purchase goods or services at a stated price. Invoice: Description of goods or services and showing cost

9. BUDGETING Differences between Accounting and Budgeting:  Accounting is Accountability ‒ The Audit Trail ‒ The Income ‒ The Expenditures ‒ The Cash Flow

10. BUDGETING Differences between Accounting and Budgeting:  Budgeting is Planning ‒ Mission: What you need to do ‒ Goals: What you hope to do ‒ Objectives: What you can measure you have done. ‒ How well you have done it ‒ What you will do next

11. The Budget Process Cyclical Activity Processes Vary Two Critical Systems ýFiscal Management ýPerformance Measurement

12. The Budget Process Drafting the Budget (service goals in monetary terms) –Who does this? –How is it reviewed? Presenting the Budget –Who Presents? –Who receives the Presentation? Budget Approval Implementing the Budget Evaluating Results

13. Types of Budgets Line Item (or Object) Budget ‒ Focus on Accountability ‒ Usually by department or division Function (Program) Budget ‒ Focus on program inputs Performance Budget ‒ Focus on outcomes

14. Types of Budgeting Systems Incremental (traditional) PPBS (Planning Programming Budgeting System) –Includes components of both Program and Performance Budgets ZBB (Zero Based Budgeting System) –Assumes justifying all programs each budget year –Decision Packages to be used if programs are eliminated Responsibility Based Budgeting System –Budget determined by resources unit brings to the organization –Budget control at unit level, not central organization level

15. Newer Budget Models Focus on Performance Different methods used

16. Newer Budget Models Recent Trends Benchmarking Standardizing Performance Measures (ICCMA Project) Service Efforts and Service Accomplishments - SESA’s Activity Based Costing - ABC Performance Budgeting

17. EXAMPLES OF RESPONSIBILITY BASED BUDGETING SYSTEMS Responsibility Based Budgeting System UIUC: http://www.provost.uiuc.edu/communication/01/Comm01.pdfhttp://www.provost.uiuc.edu/communication/01/Comm01.pdf Information Technology in University Management in Central and Eastern Europe Today by Peter Mederly and Pavol Mederly. http://leep.lis.uiuc.edu/seworkspace/weech/405/ CMR9822.pdf http://leep.lis.uiuc.edu/seworkspace/weech/405/ CMR9822.pdf

18. Capital Improvement Planning Definitions Capital Project Capital Improvement Plan (CIP) Advantages Financial Planning for large costs Lead time to implement projects Project Coordination CIP Cycle

19. Revenue Policies Numerous Sources Guiding Principals – accountability – equity – efficiency – revenue stability – but: some objectives mutually exclusive

20. Revenue Sources for Libraries Taxes Investment Tuition and/or User Fees Overdue Fines Grants Contracts For Profit Activities Fund Raising –Gifts –Sales

21. Revenue Sources outside United States What revenue sources fund your library? How much do you know about these sources? What factors affect these sources?

22. SOURCES OF TAX REVENUE (FOR GOVERNMENT SUPPORTED ORGANIZATIONS) National State/Province Local

23. TYPES OF TAXES (FOR GOVERNMENT SUPPORTED ORGANIZATIONS) Income Sales Value Added (VAT) Excise (Gasoline, Boats, Automobiles) Real Property Personal Property Intangible Property (Royalties, Stocks, Bonds) Other?

24. Other Income Sources Investments –endowments and gifts –investment of operating funds Tuition and/or User Fees –overdue fines –lost book charges –user charges for reserves or computer access Cost Recovery (similar to fees, but based not on increasing income, but meeting costs)

25. Other Income Sources, Continued. Fund Raising –Gifts  Capital Gifts  Operating Fund Gifts  Endowments  Deferred Gifts –Memorials Book Plates Furniture Rooms Staff (endowed professorship/librarians, study centers) Other –Book Sales, Bake Sales, Gift Shop –Carnivals, Fund Raising Dinners, etc.

26. Grants and Contracts Grant: To request funds for a project you propose. Contract : Request funds to undertake a project proposed by the funding organization. Sources –Government –Private

27. Grants and Contracts, Continued Procedures  RFP (Request for Proposal)  Letter of Transmittal  Problem Statement  Program Objectives  Program activities and Personnel  Timetable  Evaluation Plan  Budget  Ability to Sustain Program  Dissemination of Results

28. Revenue Forecasting Approaches Qualitative Statistical (e.g., trends) Causal Considerations Availability Stability Drivers

29. Financial Management QUESTIONS? COMMENTS? Thank you for your interest and attention! Bob Burger rburger@illinois.edu