Financial Management

UNIT 12 BUDGET PREPARATION

Structure
12.0 Objectives
12.1 Introduction
12.2 Preparation of Library Budget
12.2.1 Contents of a Budget Document
12.2.2 Principles of Budget Making
12.2.3 Justifying the Budget Request
12.2.4 Approval of the Budget
12.2.5 Notification of the Budget of the Library
12.2.6 Budget Excess
12.3 Use of Funds, Financial Control and Accounting
12 .3.1 Allocation of Funds
12.3.2 Encumbering Funds
12.3.3 Financial Control
12.3.4 Fund Accounting
12.3.5 Financial Records
12.3.6 Financial Audit
12.4 Summary
12.5 Answers to Self Check Exercises
12.6 Keywords
12.7 References and Further Reading

12.0 OBJECTIVES
You already know that library budget serves as an instrument of control,
communication, coordination, evaluation and motivation. Studying this Unit will
enable you to prepare an outline of a library budget and maintain accounts using
appropriate records conforming to audit requirements.

After reading this Unit, you will be able:

• explain the process of budget preparation;
• highlight contents of budget document;
• justify budget;
• describe budgetary control process; and
• discuss the use of funds, financial control ,accounting and auditing.

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 Budget Preparation
12.1 INTRODUCTION
In the preceding Unit of this Block, you have learnt about the budgeting techniques
and principles in general and certain standards and norms for preparation of
budget. This Unit deals with the important phase of financial management,
namely, budgeting, financial control and accounting. Library being expenditure
oriented institution, the central aspect of financial management is the budget,
which is a statement of income and expenditure, providing guidance in spending
the appropriated funds through a period of time. In this Unit, we shall study the
basic features of a library budget.

Preparation of library budget is a major responsibility of the librarian and her/his

staff. The budget in fact, is a reflection of the current and future activities,
programmes and plans of the library. It has to be prepared with the cooperation
of all senior members of the staff and within the framework of rules, procedures
and guiding principles. It is necessary to justify expenditure on every item,
particularly when more funds are to be earmarked for any running activity or
proposed new programme. Accounting, as a means of recording library
expenditure, as per established rules and procedures and maintenance of necessary
financial records in conformity with audit requirements are very important.

As described earlier, budget is a road map for the delivery of library services in
the subsequent years and provides a fiscal foundation for library operations. It
involves details of each activity and considering cost factor involved in each
activity together with future growth and promises of library services.

12.2 PREPARATION OF LIBRARY BUDGET

Library budget preparation is not just the responsibility of librarian but it is the
responsibility of everybody involved in running the library. Inputs need to freely
flow from bottom most line and front end soldiers to unit/section heads and
from section heads to librarian. Budget preparation has to follow certain budget
calendar, guidelines, characteristics and costing inputs. Budget should have clarity,
accuracy, consistency and comprehensiveness. In other words, there should not
be any ambiguity in projection and no vagueness in cost and other estimates
used. Budget is a good comparative assessment device and hence, it should reflect
consistency with what happened in the past. Above all budget should provide a
total/complete picture of all fiscal activities of the library.

Even though budget activity in libraries is oversimplified as an annual affair, in

the strict sense budget work should take place throughout the year. Activities in
the budget calendar deals during beginning and mid of the year (often, financial
year is from 1st April to 31st March of the succeeding year). While reviewing
annual report and previous years data takes place at the very beginning of the
year to ascertain trends, patterns and changes, the mid-year peak activity includes
review of expenditure and revenues to determine whether the current budget is
on track. Usually a new Budget Estimates (BE) for the next year and a Revised
Estimate (RE) for the current year (i.e., RE of previously estimated BE) are
prepared once in a year around mid of the year so that the same is reviewed,
adjusted and finally approved by the authorities well before completion of the
financial year.
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Financial Management Budget activity of the library presupposes the type of budgetary technique adopted
by the parent organisation. Even though there are several budget types like
Program Budgeting, PPBS and Zero-Based Budgeting, it is the traditional Line
Item Budgeting is widely used in reality. Similarly, the financial year (FY)
followed by the parent organisation has to be invariably followed by the library.
In addition, several guidelines of the organisation in consultation with finance
and accounts department have to be followed. Generally the Accounts Department
of the parent organisation parallely maintains broad accounts relating to library
as part of total accounts of the organisation. Accounting of sanctioned budget
along with gifts, donations, earnings, special funds, etc., if any, are maintained
by library with greater details than that maintained in accounts department to
monitor how funds are used. It is a good practice to periodically reconcile the
library accounts with that of finance/accounts department of the parent
organisation.

It is necessary that the library professionals have clear understanding of budgetary

terms like revenue item, expenditure item, foreign exchange, operating cost,
capital cost, etc. Operating activities recur regularly and can be anticipated from
year to year whereas capital activities occur irregularly and require special fund
raising efforts. Normally, new or remodeled library building, major upgrades of
technology, purchase of expensive equipment or furnishings fall under capital
activities. It is very important that operating and capital activities are kept
separately in the budget. All revenues should be broken down by the source of
funding and expenditures are usually grouped in categories with similar products
or services tied together.

Another important set of guidelines to be followed while preparing budget of

library is whether expansion or growth is desired. If so rate and areas of growth
have to be kept in mind. It is necessary to have inputs and guidelines from the
authorities, library committee or board, finance committee, etc. Some of the
broad guidelines/ indicators usually set by authorities are steady state, controlled
growth, selected growth, overall reduction and selective reductions. ‘Steady state’
is a case of cost to continue and it assumes no changes in the budget or allows
only an increase for inflation. On the other hand, ‘controlled growth’ guideline
establishes a determined percentage for the total increase in expenditures.
‘Selected growth’ tries to establish targeted or permitted increases with no
personnel but wage and other expenditure increases for existing personnel are
taken care. An ‘overall reductions’ guideline sets a percentage for total decrease
in expenditures of the library. Another possibility is to have ‘selective reductions’
guideline specifying targets for specific decreases in expenditure. It is also possible
that management provide a unique combination of guidelines and the same need
to be kept in view while preparing budget for the library.

The process of preparing budget begins with considering what the library hope
to accomplish in the next year. It is necessary to have current long-range plan in
mind with necessary adjustments/revision made to update it. An important aspect
in budget preparation, in recent years, is to note the current and new factors like
developments in ICT, resource sharing, networking, consortia, etc. affecting the
library. The overall current economic condition of the parent organisation and in
the country has also to be kept in view while preparing the budget for library.

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Budget estimates depend much on what users require. Hence, it is necessary to Budget Preparation
document library service needs of users and the library activities necessary to
meet those needs. Head of library should widely invite suggestions from library
staff on possible new services, additional material and personnel required for
‘new services’.

The total financial resources required has to be determined taking into consideration
estimated approximate increase for regular budget items, expected revenues,
increase in cost, increase in usage, the need for new services, change in number
and composition of user community, etc. However, any anticipated resource
constraints have to be spelled out how inadequate resources are likely to affect
goals of the library.

After drafting the library budget (both BE and RE) each item is reviewed with
Finance Committee, Library Committee/Board/Director before submitting for
approval. The required funds are secured once the budget document is approved
with or without modifications. Occasionally, budget document may need changes
during the budget year due to unexpected developments.

The preparation of the budget is the responsibility of the chief librarian who also
has the responsibility for allocating and administering funds within the overall
activities and services of the library. This responsibility can be delegated to the
next level, i.e., department or section heads, but the overall coordination and
accountability still rests with the chief librarian. Adequate discussion should
take place between the chief librarian and her/his section heads. When the
information needed for making the estimates for the library budget has been
assembled the next step is the preparation of the budget itself. Preparation of a
budget takes substantial time and efforts. Generally during the middle of the
current financial year, Budget Estimates (BE) for the next financial year and
Revised Estimates (RE) for the current financial year are called for by the office
concerned. Estimates are prepared on the basis of past experience, present
demands and future expectations of requirements. The estimates should take
into account the actual expenditure of previous financial year, spillovers, if any,
amount spent up to the date of preparation of the budget during current financial
year, foreign exchange requirements (if any), advance commitments to be made
for the next financial year, capital items, etc. No set of rules can be given for
preparing this statement, but the librarian should bear in mind the impact of
inflation on cost of books, periodicals, binding, and other supplies. The increase
in enrolment, the probable need for annual salary increases at least comparable
to those of the past five years and the possible impact of new technological
developments on library economy and efficiency are some of the factors to be
kept in mind. Head of the library has to discuss the budget proposal with the
section or department heads before the final consolidation. Budget requirements
are filled up in a proforma approved by the institution. The proforma commonly
used for a historical budget in academic libraries is of two types: i) Schedule of
expenditure on pay and allowances of staff ii) Schedule of expenditure on all
other items. The above-mentioned two schedules of expenditure usually are made
under the following heads.
Schedule of expenditure on staff salaries:
It is usually prepared under the following heads:

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Financial Management 1) Serial number
2) Designation of staff member
3) Pay scale
4) Basic pay on 1st April
5) Total for twelve months
6) Date of increment
7) Rate of increment
8) Total amount of increment (rate x months)
9) Dearness pay rate and amount
10) Dearness allowance rate and amount
11) House rent rate and amount
12) Contribution to GPF/CPF rate and amount
13) Any other honorarium rate and amount
14) Interim relief rate and amount
15) Total of amount of columns 5, 8 to 14

Schedule of expenditure on all items:

This contains, inter alia, the following heads:
• Establishment
• Salaries
• Allowances
• Contribution to provident fund, gratuity
• Other recurring expenditure
• Binding
• Stationery
• Postage
• Contingency
• Books, periodicals and back sets
• Other non-recurring expenditure
• Construction or expansion of library building
• Maintenance of library building
• Purchase or repair of furniture
• Equipment
• Employing additional staff for specific time and purpose, such as processing
of books needed for special purposes
• Special collections
As mentioned earlier, all the above items are to be shown in four types, viz.
actual expenditure for the last year, estimated expenditure for the current year,
revised financial estimates for the current year, and estimated expenditure for
46 the next year. Thus, the budget provides a linkage between three years.
12.2.1 Contents of a Budget Document Budget Preparation

The budget document is an official document, seen or circulated to several

administrative and financial officials of the parent organisation. Hence, it should
be self-contained with regard to the activities and services of the library, self-
explanatory, well organised and neatly presented. Every item of expenditure with
reference to its past allocation and enhanced current requirements must be clearly
stated with justification for the extra funds.
The format of contents of a budget document is given below:
• Title page indicating the budget estimates for the year...
• Contents
• Executive summary
• A synopsis of the budget
• Budget at a glance
Part I Goals and objectives of the library in brief together with activities
and accomplishments of the previous year
• Anticipated activities and proposed targets for the budgeted year
• Future perspectives
Part II Budgetary estimates: a total view
• Estimates by items on separate page
• Salaries and allowances
• Books and journals
• Library, documentation and information services
• Equipment
• Stationery, postage, etc.
• Building maintenance
• Contingencies
• Miscellaneous

12.2.2 Principles of Budget Making

The budgets of different libraries vary considerably. Nevertheless, there are some
elements which are essential and common for different library budgets. They
may be reduced to a few guiding principles and applied in the preparation of any
library budget. Some of these guidelines are discussed below.

The librarian should be invited by the authorities to submit the library budget.
The librarian in turn must consult her/his departmental heads about book funds,
and the library staff members about personnel and other administrative costs.
The final choice of what goes into the budget and how much to ask for should
rest with the librarian.

The librarian should request sufficient funds in each head of the budget to support
a sound programme of library development. It is very important to calculate the
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Financial Management expenditure by anticipating income, inflation rate, foreign exchange rates, salary
increases, insurance rate, public utility charges, etc. as well as time-delay.

The budget should be prepared and submitted in time. This facilitates recruitment
of additional staff, ordering of materials, etc. in a proper way.

The academic library budget should represent library planning in terms of

educational goals and not be simply a “crisis” operation in which urgent current
needs are hastily converted into Rupee estimates to meet a budget deadline.
Planning to meet educational goals implies that the library will take into account
proposed new curricular changes, the impact of new courses on library books
and personnel, the effect of price increases in binding and like.

The budget should be reasonably flexible in its execution. Classification of the

budget categories should enable the library to check its financial records easily
against the periodic balance statements.

Some important sources of finance for a library or information centre, as discussed

in Unit 10, include (i) regular grants from parent organisation and/or governments,
(ii) adhoc grants or subsidies (iii) fines, fees and services charges. Important
heads of expenditure of information centre or library (as explained earlier) are
(i) collection building and updating (books, jounals, reports, etc.) (ii) binding
and other maintenance costs, (iii) furniture and equipment, (iv) building, (v)
salaries and wages (vi) stationery, postage, etc.

Depending on the size of library or information centre and nature of its parent
organisation the complexity of budget and budgetary control system may vary
from a simple fairly fixed (constant) voted grant of budget from parent
organisation for books, journals and other reading materials to a most complex
situation where grants are received from parent institution and other agencies in
addition to certain revenues earned. These sources of finance may have several
restrictions in their deployment. Allocation has to be done to all heads as explained
above and by type of material (i.e., books, journals, reports, etc.), subjects, or by
departments, etc. An “effective budgeting can display endless variety” in terms
of material (Newton, 1981). The budgeting method used by a library or
information centre is normally decided by the parent institution.

Self Check Exercise

Note: i) Write your answer in the space given below.
ii) Check your answer with the answers given at the end of this Unit.
1) State the contents of a budget document.
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12.2.3 Justifying the Budget Request Budget Preparation

The chief executives of the parent organisation often take the final decision about
library budget. The officials who are responsible for providing library funds will
quite naturally want to know why the funds are required. They will consider
critically the merits of the library request in relation to those of other departments
or agencies and the total financial resources at their disposal. It is probable that
funds will not be sufficient to meet all the requirements in full and that budget
allocations may be affected accordingly. The library budget request should state
separately and clearly the purposes for which funds are requested and explain
why additional funds may be required in certain categories. The supportive
documentation and justification for the budget has to be developed through out
the year. Justification for the library’s budget will already have been made if the
arguments for services have been well presented in detailed and timely reports
throughout the year. In other words, budget preparation should not become once-
a-year crisis. As stated earlier, it is also necessary to understand the ‘politics’ of
the budget process and build up effective rapport with the key members of the
team or committee.

Sometimes the librarian may think it expedient to present an inflated budget,

considering the fact that the authorities usually sanction less than what is asked
for. This is not a good practice. Padding the budget is not only ethically
questionable, but also unwise and inadvisable because it is difficult to justify
amounts in excess of proven needs. The librarian is also a part of the college,
university or such other parent bodies and, as such, must realise that there are
many demands and constraints on the limited resources in majority of institutions.
The librarian should neither minimize the requirements of the library, nor be
unduly discouraged if the library committee or finance committee is unable to
give all that he asks for because of other pressing and urgent requirements of the
parent institution. The best that can be done is to present an honest picture of the
cost of running a library, in terms of material needed and of services expected
for the clientele. After making an honest budget, the budget request must be
accompanied by a free, clear, and forceful argument proving the need for the
amount asked. Remember that there is no better way of sowing suspicion in the
minds of usually hard-headed finance authorities than presenting an unrealistically
inflated budget.

While preparing the budget you should remind yourself that, regardless of other
values it may have, the budget document must be easily understood and so
convincing in its arguments that the appropriating authority will be persuaded to
accept it and provide the necessary funds. To produce such a document, you
should use all the techniques and supporting data that are available with you.

12.2.4 Approval of the Budget

The librarian presents the budget to the library committee or any other authority
for discussion and approval. The library budget, with the approval and
recommendations of the committee, is sent to the university office or any
appropriate office to be incorporated in the total university or organisation budget.
The Executive Council/ Syndicate of the university passes the entire university
budget. The visiting committee of the University Grants Commission assesses
plan requirements of the university library. The visiting committee visits the
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Financial Management library and discusses the library requirements with the librarian. The approved
recommendations are consolidated and submitted for sanction to the University
Grants Commission.

In a college, usually the principal of the college approves the library budget,
after taking into account the requirements and opinions of the heads of different
teaching departments, and the requirements in different subject areas. In public
and special libraries, similar procedures are there to get the budget approved and
sanctioned by appropriate authorities.

12.2.5 Notification of the Budget to the Library

When the budget is passed, the same is communicated to the library. This includes
both plan and non-plan budget. The university authorities in consultation with
the State Government approve plan budget wherever necessary (especially when
matching grant is involved). After the budget notification, the university librarian
informs the different academic departments regarding the budget allocations.
These allocations, in fact, are funds in the names of different departments placed
at the disposal of the university librarian. Money is spent by the librarian on
items recommended by the heads of the departments. The library committee
does the subject-wise allocations for books and periodicals. This is purely an
internal arrangement of the library after the passing of the budget. If there are
differences of opinion on allocations to different subjects, they are usually
adjusted, erased and balanced by the library committee.

12.2.6 Budget Excess

Bill or library commitments which exceed the sanctioned budget, if any, for the
library are usually adjusted in two ways, i.e., (i) by adjustment of the excess
amount in next year’s budget and/ or (ii) by additional allocation subject to
approval by the authorities. However, it has been observed in practice, that the
second alternative is not only theoretical but also a doubtful and remote possibility.
Budget excess adversely affects on the attitudes and awareness of the management
towards the library.

Self Check Exercise

Note: i) Write your answer in the space given below.
ii) Check your answer with the answers given at the end of this Unit.
2) If there is excess in library spending beyond the budgeted allotment, state
the methods of adjusting the excess.
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 Budget Preparation
12.3 USE OF FUNDS, FINANCIAL CONTROL AND
ACCOUNTING
Most of the practitioners are much concerned and are more serious about the
phase of actual use of funds, accounting, auditing and financial control. This
phase in itself involves allocation of funds as envisaged in the budget,
encumbering funds under each head, fund accounting and financial audit. Let us
briefly discuss some of these aspects in this section.

12.3.1 Allocation of Funds

Allocation of funds might have been based on past practices and performance,
differential publication rate and inflation rate, level of demand, actual use and
the total programme of the library or information centre. Actual allocation could
be by departments/units, by subjects, by type of material, by users, by language
or by format. Such an allocation of funds provides better control and more
effective way to monitor funds and has best chance to achieve fair balance in
development of programmes and services. However, a rigid allocation, particularly
for collection development, may lead to difficulty in transferring fund from one
account to another and consequently under spending may occur in some cases
when the other heads starve for funds. In addition to such ineffectiveness,
approval, blanket and standing order plans as well as development of reference,
general and special collections may not fit into any heads. Further, matching the
needs and monies available becomes complicated, time consuming and it may
be difficult to develop models even after massive efforts. However, it may be
noted that such formal allocation of funds may not be necessary in a small libraries.

12.3.2 Encumbering Funds

The most difficult task in budgetary control process in libraries and information
centres is encumbering funds. Encumbering funds is a complex process that
allows one to set aside monies to pay for ordered items. The process of
encumbering funds is difficult and complicated for various reasons. Firstly, it is
common that there will be other under spending and/ or overspending in some
heads. Secondly, there are some uncertainties about supplies (delayed supplies
and non-supplies). Libraries make several orders for documents under many
heads in a given financial year and supplies are received continuously at no
fixed intervals. Generally there is no automatic cancellation of non-supplied or
unbilled orders and hence no disencumbering done automatically. It is very
common that prices, discounts and handling charges of documents as well as
exchange rates for foreign currencies keep changing frequently causing variation
in the value of funds encumbered. Lastly, moving ‘monies’ back and forth by
encumbering and disencumbering in a manual system can lead to errors.

12.3.3 Financial Control

It is already stated earlier that budget is a tracking device to measure progress,
highlight variations from the plan and show the need for corrective actions to
put the operation back on track. Nobody has the luxury of working without
financial restrictions. Nobody gets money without justifying its requirements.
Above all, one should be prepared to face both sudden windfalls as well as severe
cuts in budgets. Budgetary control system is an example of a system (particularly,
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Financial Management the monetary and evaluation techniques of systems analysis) as well as a widely
recognised control function of the management.

Budgetary control is one of the oldest and transitional control techniques used
by managers. Budgetary control is the process of comparing what was planned
with what has been accomplished during the budget period. It is not a past-
oriented or post-action control but a future-oriented control system. It is not a
post-mortem type assessment but a continuous examination of the progress made
and comparing it with the cost standards and time lapsed so that the manager is
able to make adjustments in operation on a day-to-day, week-to-week, or month-
to-month basis for rest of the period of the budget.

As budget is only a futuristic plan, how far the actual operations of the library or
information centre have, conformed to the budgeted programme will be known
only after completion of the budget period (i.e., financial year). Knowing post-
facto how much deviation or under spending or ineffective utilisation of resources
has taken place is like discussing the ways of avoiding accident after the accident
has occurred. Hence, continuously monitoring the operations to examine how
the operations are carried out, whether there are any deviations, the causes for
deviations and ways to rectify deviations within a week or a month will be of
immense help. Though budget is prepared once in a year, the budgetary control
process is a day-to-day, week-to-week, fortnight-to-fortnight, month-to-month
and quarterly-to-quarterly activity for a check of all revenues and expenditures
budgeted and stated before hand.

The three basic steps in the control process are: establishing standards, comparing
results with standards and taking corrective action. Preparation of budget is
nothing but establishing cost standard. This process begins with top management
setting goals and objectives and the lower level managers developing budgets
for their units and the same successively reviewed and integrated at each higher
level. Unlike profit-oriented organisations where budget for marketing expenses
can influence the amount of revenue, the service-oriented and not-for-profit
organisations should have different kind of simple matching of revenues and
expenses.

Statements relating to commitments and actual expenditure should be regularly

checked and continuously reviewed to control the budget. In the actual practice
of budgetary control system, operating statements have to be prepared for each
of the budget centres (or heads or items) involved. These statements should form
part of the management information system (MIS) used to control the performance
of library or information centre against the budget plan. A good budgetary control
system should follow the theory of ‘management by exception’ and focus its
attention on matters that are adverse or that show an unusual variance in addition
to providing full details of budget statements.

In practice, it may be suffice to have monthly reporting in the beginning of

financial year and changing the periodicity to fortnightly during later part of the
year. However, the unit heads my have data on daily or weekly basis throughout
the year to facilitate operational control and the same need not be sent to head of
the library or information centre. Appendix 1 exhibits a simple proforma operating
statement for budgetary control.

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Self Check Exercise Budget Preparation

Note: i) Write your answer in the space given below.

ii) Check your answer with the answers given at the end of this Unit.
3) Why do we need a budgetary control system?
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12.3.4 Fund Accounting

Accounting means a systematic maintenance of the income and expenditure flow
on records. A properly conducted accounting system is a basic prerequisite of
efficient financial administration. Its main purpose is to ensure that the library
funds are spent correctly, properly and within limits. It also helps in planning the
future budgets and for making special studies. In other words, the purpose of
fund or financial accounting for not-for-profit organisation is to assure proper
use of monies provided and to make it possible to track expenditure.

The major part of the fund in a library is operating fund. For fund accounting
purpose operating fund can be divided into restricted fund and unrestricted fund.
Unrestricted fund allows flexibility in use for purposes other than that specified
where as restricted fund cannot be used for other purposes.

The cardinal principle of fund accounting is that every financial transaction is

charged to some account and a record consists of what the transaction involved.
Fund accounting system allows for verification of all the transactions and provide
accurate report. Proper fund accounting by allowing one to know how much
money is spent, how much is left and how is encumbered or committed aids
budgetary control process and enables continuous checking and reviewing of
the situation and examination of the need for reallocation or reappropriation of
funds. It makes clear to the spender how much amount s/he has spent and how
much is left, so that there is neither under-spending nor over-spending. It helps
the administration to remain alert against misappropriations and maladjustments.
Before setting up a book keeping system, the librarian should result the finance
section to determine the procedure of accounting so as to serve best their mutual
purposes.

12.3.5 Financial Records

All institutions that want to survive must meet certain standards of business
organisations and the library is no exception to the general rule. Its financial
records, like its budget should be set up in accordance with the main accounting
procedures of the parent office. It is no longer considered a good practice to
maintain a separate library account, handled directly by the librarian. In most
institutions, all library payments are made through a central office. The finance
section of the organisation maintains the library account while the library
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Financial Management maintains the records of detailed accounts including outstanding orders, bills
forwarded, etc.

As stated earlier, the main purpose of library accounting is to keep expenditures

within the budget. In addition, accounting helps in the preparation of the annual
report and budget, provide the factual monetary basis for making decisions, assist
the departments in making a wise and systematic use of fund and provide
information for library reports, studies and surveys.

Most of the libraries keep their financial records according to a single-entry

system. Though certain amount of diversity is found in the maintenance of
financial records in different libraries, one main point to be kept in mind is that
these records should be the simplest possible, consistent with efficiency and
should permit rapid and convenient checking against office ledgers. Some of the
records libraries normally maintain are explained below.

a) Cash Book: The cash book is a record in which details of daily cash
transactions regarding income and expenditure of an institution are entered.
But in many libraries, the librarian does not maintain a cashbook, because
the financial transactions generally take place through the accounts/
administrative office, and not directly through the librarian. However, the
libraries which take some amount towards contingency expenditure do
maintain a record in the form of cashbook. The specimen of cashbook of a
library is as under.

Receipts Expenditure

Date Parti- No. & Head of Amount Date Parti- No. & Head of Amount
account Rs. Ps.
culars Date of account Rs. Ps. culars Date of
voucher to be voucher to be
credited credited

Total Total

b) Ledger: A ledger is a book in which the budget provision or income is

given at the top and expenditure on all items and subjects is entered one
after the other. The specimen of a ledger is as under:
Name of the library : Year:
Budget provision : Rs. Head:

S.No. Name Bill Amount Amount Progres- No. of Subject Signa-

of No. & passed sive Books ture of
vendor Date for total librarian
payment

1 2 3 4 5 6 7 8 9
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c) Allocation Register or Allotment Registers: In allocation register Budget Preparation
expenditure head-wise and subject-wise accounts are maintained. Separate
financial records are maintained in the library for books, periodicals, binding,
stationery, contingency, postage, etc. under approved budget heads. It helps
us in knowing, at any point of time, how much money under what head and
on which subject is spent or committed/ encumbered and how much balance
remains to be spent. Technically speaking, though ledger and allocation
register are two different records, their purposes are the same. The specimen
of an allocation register is as under:
Name of library: Year:
Head of demand: Provision of amount allotted: Rs.

S.No Name Bill Amount Amount Progres- Bal- No. of Sub- Sign Sign of
of No. & passed sive ance books ject of in librarian
vendor date total charge

1 2 3 4 5 6 7 8 9 10 11

d) General invoice register or bill register

The specimen of bill register is as under.

Name of library: Year:

S.No Bill Name of Amount Sign of Sign of Remarks

No. & firm librarian bill
Date receiver

1 2 3 4 5 6 7

In this register the serial number given in column one are termed as the
voucher number of this bill. The office copy of each bill is arranged in serial
number in separate file after the same has been processed and paid for. This
arrangement helps the library staff in finding out any information regarding
any item at any time as the voucher number of the bill links it to all registers
in library sections and relevant records.

e) Monthly Expenditure Statement: This statement helps the operator of each

head of expenditure to know the latest position of the grant at the end of
every month. A specimen of the monthly expenditure statement is as under:

Name of library: Year:

Allocation: Rs.
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Financial Management
Month Expenditure Cumulative Balance Sign Remarks
expenditure

April
May etc.

f) Salary Bill Register: The salary bill register of the library staff is a detailed
document of the salaries during a particularly year. It contains information
relating to salary and deductions of library staff. In this register all the entries
are made by the accounts section except the leave record of the library staff,
which is filled in by the librarian.

g) Record of Petty Cash: In general, petty cash accounts are handled in two
ways: (i) Turning fine and replacement monies into petty cash directly, (ii)
Fine and replacement monies are collected directly by the accounts office
and this amount is made available to the library in the form of petty cash. In
some cases, separate amount is drawn and used as petty cash and fine being
a revenue cannot be used by the library.

h) Equipment Record or History Card: Another useful record for the library
is a card file of major equipment. This should be made in duplicate, one
copy to be kept in the main administrative office and the other in the library’s
files. It should indicate the name of the item, the date of purchase, the cost,
and such information as serial numbers (e.g. PCs). This record facilitates
equipment purchasing and replacement, makes possible a more considered
judgment in placing replacement orders or in deciding repair versus
replacement, and also provides an accurate inventory for insurance and other
purposes. Many problems of legacy accounting system are solved in
automated accounting system.

Self Check Exercise

Note: i) Write your answers in the space given below.
ii) Check your answers with the answers given at the end of this Unit.
4) State the reasons for keeping financial records.
......................................................................................................................
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5) Give the headings of an invoice register.
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12.3.6 Financial Audit Budget Preparation

Lastly, financial audit part of the process enables meticulous but sample scrutiny
of financial transactions to have proper control over irregular, inappropriate and
wasteful expenditures. Auditing is a scrutiny of the financial transactions of
government and semi government bodies. It is deemed necessary from the
authority’s point of view for their satisfaction.

Libraries and information centres normally have post-audit by external/central/

statutory auditors, who usually look into loss of reading materials, irregularities
in procurement processes and outstanding advance payments and supplies. Even
though two types of audit systems are prevalent in their country, government
departments and libraries generally follow post-audit. Post-audit means that the
drawing and disbursing officer prepares the bills, signs them and sends them to
the treasury/ bank/ principal for payment. The drawing and disbursing officer is
responsible for the correctness of the bills. The officer or the librarian must satisfy
herself/himself fully before signing the bill. In post-audit system, only random
audit is resorted to, after the financial year comes to a close. Every item is not
checked, but some months are selected at random. Payment items occurring during
these selected months are thoroughly and minutely verified. Mistakes, if any, are
pointed out. The person concerned is advised and warned to be cautious in future.

Pre-audit system is generally followed in autonomous bodies in which the audit

is under local fund account. In case of pre-audit, no item can be passed for payment
unless it has been first audited. Pre-audit system reduces the responsibility of the
drawing/disbursing officer in the sense that all the necessary verifications such
as checking of items, accessioning of items, charging of approved rates,
correctness of calculations, debiting to proper head of account, etc. have already
been done by the audit section in advance. Here instead of the drawing officer,
the auditors satisfy themselves before the bills are passed for payment. Auditing
is carried out both by internal audit team as well as external/statutory audit team.
The problem of correcting and noting for future do not arise in pre-audit
procedures. This simplifies matters somewhat and reduces the auditing
responsibility of the librarian.

Self Check Exercise

Note: i) Write your answer in the space given below.
ii) Check your answer with the answers given at the end of this Unit.
6) State why auditing is necessary in libraries?
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Financial Management
12.4 SUMMARY
This Unit has explained how to prepare budget with typical contents of a budget
document and few helpful guidelines for preparing budgets. The contents of the
budget document, principles of budget making, justification for expenditure,
getting approval for the budget and handling budget excesses and other usual
budget formalities are also explained in this Unit.

Issues relating to allocation of funds, encumbering of funds and fund accounting

as a preparation to proper use of funds and control of budget are discussed.
While budget is a financial statement which provides details of the proposed
revenues and their utilisation for expenditure for a specific period, the budgetary
control is the process of comparing what was ‘planned with what has been
accomplished during the period. Libraries and information centres have certain
peculiarities as service-oriented and not-for-profit organisations and hence
implementation of budgeting and budgetary control system in such institutions
is more difficult than in profit-oriented organisations. Budget and budgetary
control system have many merits like use of Rupee as a common denominator,
dealing directly with efficiency of the organisation, stimulating good management
practices, detecting deviations, suggesting corrective actions, facilitating
centralized control and availing collective wisdom of people involved.

The final aspect of financial management is that of keeping accurate records of

money spent, and remaining balance. There are standard procedures and rules
for maintaining different types of records of expenditure, which are described
with examples. Library expenditure is subject to audit to ensure that the
expenditure has been according to norms, rules and procedures.

12.5 ANSWERS TO SELF CHECK EXERCISES

1) The contents of a budget document, besides the title page and contents,
includes the following: budget at a glance; goals and objectives of the library
in brief; activities and accomplishments of the previous year; activities and
proposed targets of the budgeted year; detailed statement of expenditure
estimated for the budgeted year along with the past year, on all the activities
or items of expenditure.

2) Excess expenditure beyond the estimated expenditure is adjusted in the

following ways:
i) The excess amount is shifted to the next year’s budget, subject to the
approval of the financial and administrative authorities
ii) Making a special request for funds for the extra expenditure, subject to
the approval of the financial and administrative authorities.
3) Budget is a futuristic plan. Actual performance may or may not conform to
the budget due to various reasons. Instead of knowing whether actual
performance varied from the budgeted target after the budget period, it is
better to periodically monitor and know the deviations from the set budget
so that wherever possible necessary adjustments can be effected during the
subsequent periods to make actual performance to become close to budgeted
targets. It is exactly for this purpose a budgetary control system is needed.
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4) Financial records are necessary as they serve the following purposes: Budget Preparation

i) Help in the preparation of the annual report and the budget of the
following year,
ii) Provide factual monetary basis for making decisions on books,
periodicals and other expenditures;
iii) Assist the departments, in case of universities, in making a wise and
systematic use of their book fund allotment;
iv) Provide information for annual reports, studies and surveys.
5) Generally invoice register has the following headings; Serial Number; Bill
Number and date; Name of Firm; Amount; Signature of the Librarian;
Signature of bill receiver; Remarks.

6) Audit is necessary in libraries to check whether the allotted budgetary funds

are spent according to financial procedures, rules and norms. It seeks to
control irregular, inappropriate and wasteful expenditure. Every
administrative and financial authority consults audit reports in order to satisfy
themselves that the allocated funds have been spent properly and lawfully
invariably.

12.6 KEYWORDS
Accounting : A systematic maintenance of income and
expenditure flow on records. It is a
systematic process of identifying,
recording, measuring, classifying,
verifying, summarising, interpreting and
communicating financial information.
Accounting provides information on the
(i) resources available to a firm, (ii)
he means employed to finance those
resources, and (iii) the results achieved
through their use

Audit in relation to Accounting : Systematic examination and verification

of a firm’s books of account, transaction
records, other relevant documents, and
physical inspection of inventory by
qualified accountants (called auditors).

Auditing : Official examination of accounts and

scrutiny of financial transactions of a
government or non-government body/
institution.

Budget : A financial and/or quantitative statement

prepared and approved prior to a defined
period of time of the policy to be pursued
during that period for the purpose of
attaining a given objective.

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Financial Management Budget Centre : A section of the organisation or the
undertaking defined for the purpose of
budgetary control.

Cost Centre : A location, person or item of equipment,

or a group of these connected with an
undertaking in relation to which costs
may be ascertained and used for the
purposes of cost control or product
costing.

Cost-Analysis (Analysis of : Knowledge of the reaction of individual

Cost Behaviour) costs (i.e., fixed, variable and semi-
variable costs) and expenses to changes
in the volume of activity. Cost analysis
helps (i) planning the amount of costs to
be incurred in future periods (ii)
estimating profits from future activities;
and (iii) determining whether costs have
been adequately controlled by those
responsible for their incurrence.

Financial Estimation : Estimating the amount of money required

for running services of an institution.

Financial Forecasting : It is a forecast of the expected financial

position and the results of operations and
cash flows based on expected conditions.
It involves a systematic projection of
expected actions of management in terms
of financial statements, budgets, etc.
using past records, funds flow
behaviours, financial ratios and expected
economic conditions in the industry and
the firm.

Financial Records : Documents which keep track of library

expenditure i.e., cash book, ledger, salary
bill register, allocation register, etc.

Flexible Budget : A budget that recognises the difference

in behaviour pattern of fixed and variable
costs and which is designed to change in
relation to the level of activity actually
attained.

Library Expenditure : Money spent by a library on different

heads such as purchase of reading
materials, salaries and allowances,
stationary, postage, furniture, equipment,
etc.

Non-plan Grants : Regular budgeted grants given every year.

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Non-recurring Expenditure : Expenditure that do not repeat every year Budget Preparation
(e.g. building, equipment, machinery,
etc.).
Operating Statement : A summary of the operating costs (and,
where appropriate, of the revenues and
profit margins) of the whole or part of
the activities of an enterprise for a given
period.
Plan Grants : Funds made available on projects that go
under annual plans, five-year plans, etc.
Profit Centre : A form of responsibility centre in which
a manger is held responsible for both
revenues and costs, and hence for the
resultant level of profit.
Prospective Pricing : Setting price prior to the performance of
the service is called prospective pricing.
Recurring Expenditure : Expenditure that repeats every year e.g.
books, journals, staff salaries, etc.
Responsibility Centre : A personalised group of cost centres
under the control of a ‘responsible’
individual.
Restricted Funds : Restricted funds do not allow flexibility
in use of funds. Like grants for specific
purposes, restricted funds cannot be used
for purposes other than that specified.
Grants or donations that require that
the funds be used in a specific way or for
a specific purpose. They can be considered
a contract between the donating party
and the receiving party. Restricted funds
are often associated with non-profit
organisations, since a donation might be
made to the organisation for a specific
use only. If the funds are used for
something other than what was
stipulated, the organization could
be required to pay the funds back. For
example, a restricted funds gift to a
university could indicate that the funds
only be used for scholarships in a
specific department.
Single Entry : Entries showing only expenditure.
Single Entry Bookkeeping : An accounting method in which
transactions are recorded as a single
entry, rather than as both a debit and
a credit as in double-entry bookkeeping.
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Financial Management Unit Cost : Expenditure incurred in producing
one unit of a good or service, computed
usually as average cost. Cost of a single
unit of operation, e.g. cost of cataloguing
a single book.

Unrestricted Funds : Unrestricted funds allow flexibility in use

of funds and reallocation of funds from
one head to another.

12.7 REFERENCES AND FURTHER READING

Anthony, Robert N., and John Dearden. Management Control Systems: Text and
Cases. Illinois: Richard D. Irwin Inc., 1976.Print.

Broyles, Jack, et.al. eds. Financial Management Handbook. 2 ed. England: Gower,
1983. Print.

Bryson, Jo. Effective Library and Information Centre Management. England:

Gower, 1990. Print.

Cheek, Logan M. Zero-base Budgeting Comes of Age: What it is and What it

Takes to Make it Work. New York: AMACOM, 1977. Print.

Evans, G . Edward. Management Techniques for Libraries. New York: Academic

Press, 1976. Print

Mittal, R. L. Library Administration: Theory and Practices. 5th ed. Delhi:

Metropolitan Book Co., 1984. Print

Mookerjee, S.K., and B. Sengupta. Library Organisation and Library

Administration. Calcutta: World Press, 1977. Print.

Moore, Russell F., ed. AMA Management Handbook. New York: AMA, 1970.
Print.

Newton, Jack B. “Budgeting for supervisors”. Mali, Paul, ed. Management

Handbook: Operating Guidelines, Techniques and Practices. New York: John
Wiley and Sons, 1981.1313-28.Print.

Price, Parton P. “Budgeting and Financial Control” .Kent, Allen and Lancour,
Harold, eds. Encyclopaedia of Library and Information Science. Vol. 3. New
York: Marcel Dekker, 1970. 430-41. Print.

Pyhrr, Peter A. Zero-base Budgeting: a Practical Management Tool for Evaluating

Expenses. New York: John Wiley and Sons, 1973. Print.

Sridhar, M. S. “Are Demands Forecasting Techniques Applicable to Libraries”.

Library Herald 23.2 and 3(1984): 84-89. Print.

--- . “Is Cost Benefit Analysis Applicable to Journal-Use in a Special Library?”

The Serials Librarian 15.1/2. (1988): 137-153. Print.

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--- . “Ratio Analysis Technique: a Tool for Assessing the Health of a Library”. Budget Preparation
Proceeding of the twelfth IASLIC National Seninar on Financial Management
of Library and Information Centres IASLIC National Seminar, 28-31 December
1986. Calcutta: IASLIC, 1986. 137-46. Print.

Tripathi, P.C., and P.N.Reddy. Principles of Management. 2ed. New Delhi: Tata
McGraw Hill, 1991. Print.

University Grants Commission, Library Committee. University and College

Libraries. New Delhi: UGC, 1965. Print.

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