Handbook for Library Trustees of New York State (2023 Edition)

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, Boards fail to live up to their duty to secure adequate, sustainable 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).

Every public and association library, regardless of size, is required to prepare and adopt a written annual budget. Budget preparation is primarily the responsibility of the Library Director. The Board defines the library's mission and approves a plan of service, and the Library 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 Treasurer/Finance Officer and the Board’s 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 submission to the electorate or funding authority. 

Library Directors lead the budget development process for the library. As the administrator of the library, the Director has an important perspective on the library's programs, services, and costs that trustees do not. Libraries may also seek assistance from their public library system during the budget process.

The Board reviews the budget, provides assistance, and asks questions based on the Library Director’s recommendations. The Board ensures that the budget can help the library fulfill its mission, seeking additional funding if necessary. Ultimately, the Board approves the budget. 

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.
 

Public libraries (school district, municipal and special/consolidated legislative districts) fall under the auspices of the Office of the State Comptroller (OSC). In accordance with the OSC Accounting and Reporting Manual the library may establish more than one accounting fund for specific purposes. While association libraries are not governed by OSC accounting principles, they are well advised to follow such guidelines as well.

The operating, or general 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 through. This is the primary fund for the library’s annual budget. As noted above, however, even the best budgets are planning tools and subject to change due to unexpected circumstances. In that event, Boards are advised to transfer funds between budget lines, or from other funds, as per their budget amendment policy and procedures as necessary to meet their revised needs.  This should be done prior to over expending a particular budget line, or in advance of anticipated expenditures.

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 the end-of-year surplus from the operating fund is transferred into the capital fund for future use. To justify the amount transferred to this fund, the Board’s reserve funds policy should be tied to a regularly updated, board-approved facility plan. 

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. Endowment funds held by public libraries must adhere to the investment protocols found in General Municipal Law, discussed in more detail below. 

Boards may establish other special purpose funds for accounting and planning purposes, such as accumulated sick and vacation benefits, unemployment claims, and post-employment benefits. 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. While there is no limit to amounts held in such reserve funds in law or regulation, the amounts should be clearly justifiable. Recent OSC audits have questioned extraordinary reserves (i.e., in excess of the library’s annual budget) and therefore your Board must be able to justify amounts set aside for specific purposes. Monies may be transferred into and out of such funds only with formal board approval at an open meeting.

Having acquired funds from a local government, community taxpayers or other sources, the Board has an obligation to spend the money! Amounts to be placed in reserve funds should be included in the annual budget. Although reserve funds are 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, laid out in the Board-approved policy for all reserve funds. Local governments, voters, and donors do not provide funds to the library so the Board can put it away in a safe place without cause. They are investing in services from the library that should be delivered.

Under New York State law, the Board 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 Treasurer, showing receipts, expenditures, and a comparison with the budget. All expenditures of library funds must be approved by the 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 Boards have been frequently criticized by the OSC for insufficient oversight of library expenditures. Specifically, Boards are instructed to establish a “claims auditing” procedure where one or more trustees are assigned to thoroughly review and sign off on 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)/Annual Financial Report (AFR) to the OSC and all association libraries registered as a 501(c)(3) with the IRS should submit Form 990 to the Internal Revenue Service. 

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

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, and written and/or verbal price quotes is considered an effective process by the OSC which has established guidelines for effective procurement practices, see the Resources section at the end of this chapter for relevant links. Association libraries are also encouraged to follow such responsible practices.

Boards should authorize annual external audits by an independent Certified Public Accountant (CPA) in order to ensure 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. It is an acceptable and best practice to budget for an external audit. 

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 the issuance of municipal bonds for capital projects and are occasionally called for in a grant application.  

As noted above, all types of libraries are strongly advised to conform to the highest accounting standards recommended by the Governmental Accounting Standards Board (GASB) in their management of public funds.

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 property tax cap compliance. All public libraries should prepare for an eventual audit from the OSC. A review of recent audits of public libraries by the OSC revealed five areas that were commonly deficient. Each Board should ensure library policy, procedures and practices are in alignment with the OSC’s recommended best practices for internal controls, particularly in the areas of:

• Claims audit process:  Does the board review and approve every bill?
• Cash handling procedures: Are there appropriate 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 and for what specific purposes?
• IT security and policy: Is your library exercising adequate password management practices to keep 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
• Management's Responsibility for Internal Controls
• Improving the Effectiveness of Your Claims Auditing Process
• Information Technology Governance
• Seeking Competition in Procurement
• Investing and Protecting Public Funds

Securing adequate, sustainable funding is primarily the job of the Board. The trustees are accountable to the local community and responsible for obtaining sufficient funding to provide appropriate public library services; both for the present and well into the future. As in all endeavors at the library, the Library Director has an important role to play as well in the careful management of the library's finances and accurate projections for financial planning purposes. Public libraries demonstrate a community’s commitment to a better tomorrow, and it is the trustees’ responsibility to ensure 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, and consistent public funding that is voter-directed 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 a 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 responsibility for tomorrow’s community library.  

Multi-year financial planning can be a vital tool as your Board sets long-term priorities and works toward goals, rather than making choices based on the needs and fiscal realities of the moment. This exercise can help a board see the impact of their fiscal decisions over time and avoid sudden deficits or unreasonable requests to taxpayers for increased funding. There is no doubt that costs have been outpacing revenue for New York’s libraries. Without fiscal planning for the future, trustees can jeopardize reserve funds, erode public trust, and compromise quality library service, including good stewardship of the library facility and the ability to retain the quality staff your community deserves.  

For Boards that are planning a major expansion project, a concurrent activity will entail designing an operations budget that will be able to meet the demands of a larger library facility. Addressing the anticipated increased operational costs for staff and utilities will need to be considered and planned for before the library has its grand opening ceremony. 

In addition to tax monies, public library revenue may be diversified with a variety of other sources. These sources can include investments, Payments in Lieu of Taxes (PILOT), government and foundation grants, gifts and bequests, and fees. 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 mission-critical operational expenses such as salaries, building maintenance and utilities is inviting a crisis for the library.  

Boards that choose to rely on fundraising campaigns, either as an annual appeal to supplement the operating budget or as a component of a capital campaign, should be well aware of any legal restrictions on trustee involvement in the process.

No public funds should be spent on fundraising efforts. Public funds are intended to produce public services. Therefore, both public and association library Boards must be careful in approaching Board-led fundraising activities to ensure no public funds, including staff time underwritten with public funds, are utilized in these efforts. 

To rely on donations for mission-critical operational expenses such as salaries, building maintenance and utilities is inviting a crisis for the library. Boards should work to identify projects that would be well addressed through fundraising efforts and defer them to the Library Friends or Foundation to lead fundraising efforts. 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.

A Library Trustee's fiduciary responsibility requires that a library secure adequate funding to provide the library resources their community deserves. If a library requires additional funding to provide these services, the Library Board should use the library district model endorsed by the Board of Regents or seek other sustainable public funding sources. Focusing the Board's attention on these sustainable funding sources rather than unpredictable fundraising activities is the best way to ensure the library's long-term success. For more information on this topic, please visit the State Library’s “Public Library District Toolkit: Strategies to Assure your Library’s Legal and Financial Stability”.  

Libraries of all types that have their own Board and have a public vote on their tax levy are subject to the Local Government section of the New York State 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. A sample resolution is available in the Resources list at the end of this chapter. The public vote must then pass by a simple majority to approve the levy amount. 

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

"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.)" 

For more information 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/consolidated legislative district library may only 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; and/or
• 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 OSC, gifts of stock may be held until a fiscally appropriate time for sale. Some public libraries have partnered with regional “community foundations” that have established investment programs to allow the foundation to accept significant donations on behalf of the library and to invest them in a more 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. Locate your local or regional Community Foundation.

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, board-approved investment policy. The Board must always understand its accountability to all those who support the library, in whatever fashion.

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 necessary.

Other sources of funding for capital projects for libraries can include a traditional capital campaign, requests for funding through your state legislators and the State Aid for Library Construction Program, which is administered through your public library system. Association library boards often will form a capital campaign committee to conduct fundraising for capital projects given their lack of access to financial instruments conducive to bonding for large capital projects. Members of that campaign team can, and likely will need to, include members of the community willing to do this work to avoid overburdening library trustees who already have their hands full with governance oversight. Of course, the Library Director must be an important part of your fundraising team in these cases.

Transparency and accountability in the use of public, governmental, and private funds to operate and improve the library for the community are of the utmost importance. This chapter is designed to empower you to know where to focus your energy, where to turn for help and to ensure you know that you absolutely should have professionals such as a CPA involved to ensure your Board is professional in its approach to the library’s finances.

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