Fiscal management is how an organization obtains and uses their funds in order to operate. One major part of this is creating a budget. A budget is an expenditure plan that involves using available funds over a given period of time, usually one fiscal year. For libraries, the main components of the budget are the operational budget, what is needed to run the library building, the personnel budget, what is needed to pay the library staff, and the materials or acquisitions budget, what is needed to grow the library collection. Major components of the materials budget include equipment, technological infrastructure, conservation and preservation expenses, vendor service charges, catalog cards (if the library still uses card catalogs), shipping and handling fees, institutional membership fees and shared digital repository fees.
In libraries, budgeting may be done in a variety of ways. Some of these are the zero-based budget, program or performance-based budget, the formula-based budget, the historical budget and the line-item budget.
The zero-based budget literally means starting from zero every year and calculating a new budget from scratch.
The program or performance-based budget is based on the plans and objectives set by the library each year as well as current ongoing library programs.
Formula-based budgets are calculated based off of a formula provided by an accrediting body or professional standards. It is not widely used because the inflexible nature of plugging values into a formula means that if some variable changes then the formula must be reworked.
Historical budgets start with the previous year's budget and determines which expenditure category needs to be incremented or decremented. For this type of budget it is of the utmost importance to provide accurate estimates for budget requests, which is done using funding projections for current levels of purchasing.
Line-item budgets are simply based on the calculated spending in each category of expenditure. It may be combined with historical budgets in order to have a basis for calculating spending in each category.
Sources of library funding may come from library fees, or come from an organization or from endowments or donations. However, one problem that libraries encounter with funds coming from outside sources is difficulty establishing credibility with possible outside sources of funding. These sources of funding do not realize that Consumer Price Index numbers do not apply to library materials. In essence, sources of funding may not realize that "cheaper alternatives" to some library materials do not exist. Competition between similar products does not happen, as different library collection materials contain different information and thus all have their own unique value. As a result producers are not motivated to keep their prices competitive and as such are above the CPI rate.
Instead of the CPI, the ALA's Library Materials Price Index (LMPI) Editorial Board of the Association for Library Collections and Technical Services division has created the "Prices of U.S. and Foreign Published Materials". The difficulty with these indexes lies in finding up to date information.
For publications from foreign libraries must also take into account shipping prices and unpredictable exchange rates that can greatly change from the time between proposing a budget, receiving the funding and being able to purchase the foreign materials. Another difficulty lies in comparing the different methods of procuring foreign items and choosing the best one. These difficulties are often felt in Philippine libraries, especially those whose collections consist mainly of books in English.
It is most common to allocate the budget funds into different categories based on the priorities of the library or its governing organization. Other ways of allocating funds include based on supply and demand factors, or formula allocation; based on previous fund allocation schemes, or historical allocation; based on format of library material, the format allocation method; based on expenditure category, category allocation method; and based on impulse, the impulse allocation method.
In general the largest amount, around half, of the libraries budget goes towards paying it's employees. The rest of the budget goes towards collections, operations and contingencies for the future. Fund allocation for the collection portion is usually based on past practices, changes in publication rates, unit cost and inflation rates, levels of demand and usage of materials.
One fiscal management activity that is unique to libraries is encumbering. Encumbering involves noting the price of individual library materials to be acquired and setting aside the necessary funds for it. Encumbering is different from simply noting down the cost of the library material since when the acquisition team picks out the material there is no way for them to know either the discounts the library may get from the publisher, or the shipping and handling fees that may be associated with getting that library material. Since multiple orders stack up daily and funds only become unencumbered once all the materials arrive and are actually paid for, the end result is that neither the acquisitions department nor the selectors know the precise balance except on the first and last day of the fiscal year. It is the job of the bookkeeper or accounting manager of the library to have some rough idea of the state of the library's funds.
Fiscal management and budgeting is essential for libraries because for libraries to operate they need money. These funds must be allocated in alignment with the principles of the library and its governing body, otherwise they could get taken away. In order to prove that these funds were used for their intended purpose the financial records of the library must be kept organized. To this extent, and audit is performed by an organization outside of the library.
An audit is the process of checking that financial records are accurate and follow accounting practices. It usually involves checking whether purchases were authorized, received properly and paid for appropriately and also making recommendations for how the process can be improved.
Types of audit include financial records audits, which are performed annually; operational audits, which check that the organization's procedures are being followed; performance audits, which check that the employees are doing their jobs correctly; and compliance audits, which check that the organization is complying with standards set by a higher body -- usually to continue being able to use funding granted by that body.
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