The document is presented in two parts. Part I deals with the context in which the budget is developed and implemented: ALA mission, history and policy framework, as well as the multiplicity of member and staff contributors to the process. Part II provides an overview of the budget development process and timeline, guidelines for effective budget development and review, and links or references to sources of more detailed information.
ALA was founded in 1876 "for the purpose of promoting the library interests of the country, and increasing reciprocity of intelligence and good will among librarians and all interested in library economy and bibliographical studies…." The ALA exists today to "provide leadership for the development, promotion and improvement of library and information services and the profession of librarianship in order to enhance learning and ensure access to information for all."
To realize its mission, ALA defines priorities in six areas: diversity, intellectual freedom, equity of access, literacy, education and continuous learning, and advocacy.
ALA is a non-profit association, incorporated under the laws of the Commonwealth of Massachusetts, and tax-exempt under section 501( c)(3) of the U .S. Internal Revenue Code. A broad range of federal, state and local laws affect ALA -- as an association, an employer, a publisher and a conference sponsor. (See ALA Legal Guidelines.)
An association is fundamentally about people -- people who have come together to achieve collectively something they could not achieve (or could not achieve and sustain as well) individually. ALA, therefore, focuses both on its social mission -- "the development, promotion, and improvement of library services..." and on the members who support and enable that mission.
Being a "non-profit" organization does not mean that ALA cannot earn a profit. It does mean that ALA cannot have shareholders with whom to share the profits. All profits -- or excess of revenue over expenses -- earned by the Association, its membership divisions, or round tables, remain within the Association, to support its mission and provide products and services for members.
ALA's tax-exempt status allows it to earn specific types of income without paying federal income tax. Most importantly, ALA does not pay federal income tax on dues received from its members, on subscriptions to its journals, on registration for its conferences and institutes, and on other "mission-related" income. ALA does pay federal income tax (called Unrelated Business Income Tax or UBIT) on other types of income, such as advertising in its journals. Because of the complexity of tax law, managers are urged to consult with senior staff and legal counsel if questions arise.
ALA's specific tax-exempt status also restrains its activities in specific areas. For that reason, at the 2002 ALA Midwinter Meeting, the ALA Council voted to establish a separate organization to "promote the mutual professional interests of librarians and other library workers," including certification and advocacy for better salaries -- activities in which a 501(c)(3) organization may only engage to an "insubstantial" extent. The ALA-APA is incorporated in the State of Illinois and received tax-exempt status under section 501(c)(6) of the U.S. Internal Revenue Code. Members of the ALA-APA Council and Board of Directors are those individuals concurrently serving as members of the ALA Council and Executive Board. Members of the ALA-APA Budget Analysis & Review Committee are those individuals concurrently serving as members of the ALA BARC. (See American Library Association-Allied Professional Association.)
Within the legal structure, ALA's Constitution, Bylaws and Policy Manual also affect the way in which the ALA budget -- and those of its various components -- are developed, approved and overseen. Associations are expected to follow their own constitution, bylaws and policies. Decisions of members and staff -- practice -- occur within the framework of law and policy. (See ALA Bylaws IX.1; ALA policy 5.2, 6.3, 6.4.1, 8.1 - 8.5.)
From its formation, ALA membership has been open to "…any person, library, or other organization interested in library service and librarianship…upon payment of the dues provided for in the Bylaws." While ALA membership includes personal members (in several dues categories), organizational and corporate members, in governance structure and practice ALA is an individual or personal member organization. Participation in the governance of the association, through voting or service on ALA committees and boards, requires personal membership.
ALA has proven itself a resilient organization over a long period of time. ALA has maintained and built membership across a broadly diverse range of specializations and interests. In opting, repeatedly, for membership breath and inclusion in support of its mission, ALA has created a complex structure of multiple membership divisions within a single legal entity, providing significant programmatic breadth and flexibility within a single organization. (See ALA policy 6.4.1.)
Fulfilling ALA's mission requires advocacy and public awareness. It also requires that the Association help its members develop their individual capacities. This structure also allows ALA to focus on broad, fundamental mission-driven areas -- such as intellectual freedom and legislative advocacy -- while divisions and other specialized groups within the Association focus on the unique concerns of specific segments of the profession.
Each of ALA's eleven divisions is focused on a type of library or type of library service. Each division has a Board of Directors, elected by members and responsible to the ALA Council, a set of goals and objectives established by its members, an Executive Director and other personnel, and responsibility for generating revenue to support staff and carry out its program. The complex programmatic and financial relationship between ALA and its divisions is articulated in policy, commonly called the "Operating Agreement." (See ALA Constitution Article IV; ALA Bylaws Article VI; ALA policy 6.4.1.)
Still other specialized interests, not within the purview of any single division, are addressed through membership round tables. Round tables have elected officers. They do not have staff, but do have an assigned ALA staff liaison, typically within an ALA office. (See ALA Constitution Article IV; ALA Bylaws Article VII; ALA Policy 6.3; Round Table Handbook.)
Relationship of ALA divisions and round tables to ALA
Members of ALA divisions and round tables must first belong to ALA. Division and round table dues are additional to, not included in, basic ALA dues. Approximately 67% of ALA members belong to at least one Division or Round Table. This is clear evidence of the high value that members attach to the programs and services they provide and to the strong sense of identity with a specific professional community. (See ALA Handbook of Organization.)
Since 1975-76, when ALA dues structure was changed, personal members have selected and paid separate dues for division and round table memberships, in addition to their ALA membership. Prior to that change, divisions received an allocation from the ALA general funds and were dependent on that allocation to provide programs and services. Beginning in 1976, the amount of division funding has (generally) been determined by their annual revenues from dues, subscriptions and other activities, as well as the unexpended balance (net asset balance) from the previous year.
Policy 6.4.1, Policies of the American Library Association in Relation to its Membership Divisions (a.k.a. "Operating Agreement"), approved in its latest form by the ALA Council in 1989, defines a complex set of programmatic and financial relations within a single legal entity. Section I and II lay out both philosophy and values. Sections III-XI detail planning, budget, operational and financial relationships. (See ALA Policy 6.4.1.)
Governance: ALA Council & Executive Board
The governing body of the Association is the ALA Council, which includes 185 members, including 100 at-large councilors, as well as councilors representing ALA divisions (8), round tables (12) -- one for each round table including at least 1% of ALA personal members and one "collective" representative for the small round tables) and chapters (53), and the ALA Executive Board. The ALA Executive Board is responsible for the management of the Association, within the policy framework established by Council. The ALA Executive Board includes 3 officers -- president, president-elect and treasurer, as well as the immediate past president -- all elected by the ALA membership -- and eight Board members elected by the Council from among the membership of the Council. The ALA Executive Director is the Secretary of Council. The ALA Executive Board delegates the day-to-day management of the Association to the ALA Executive Director. (See ALA Constitution, Bylaws, Policy Manual.)
ALA has 50 chapters. While chapters are represented in the ALA Council, ALA chapters (unlike the chapters of some other national associations) may admit members who are not ALA members. The percentage of ALA membership within chapters ranges from 35% to 75%. Only one organization within a state can be recognized as an ALA chapter; however, many states include multiple associations. In particular, school library media specialists are frequently members of state associations other than the ALA chapter. Many ALA membership divisions have chapters or affiliates. As with ALA chapters, their members are not required to first be members of the ALA -- and membership overlap percentages vary widely. This network of state-level associations, including ALA chapters and ALA Division chapters and affiliates, provides critical "reach" for messages and initiatives.
The mission of the Association is supported through 38 committees, and 5 joint committees with other organizations, along with their various subcommittees and other working groups. ALA committees are considered committees of the Association or committees of the Council, distinguishing their method of appointment. Member oversight of the budget is provided through the ALA Budget Analysis and Review Committee -- BARC. BARC is charged to "review the proposed budget, as forwarded by the ALA Executive Board, in the context of the ALA strategic plan, annual priorities and budget assumptions; to review the financial performance of the Association and the budget impact of potential actions of ALA Council; to make budget recommendations to the ALA Executive Board and to report to Council regarding budget analysis and process."
Organizational complexity provides rich programmatic variety and also gives rise to various mechanisms -- both formal and informal -- for sharing information and coordinating action. The most common "formal" mechanism within ALA is the assembly -- "a body of individuals or representatives from ALA units and committees that shares information or acts as a resource to an ALA Committee." The Planning and Budget Assembly, charged to "assist the ALA Executive Board and the Budget Analysis and Review Committee...." includes one representative of each division, each round table, each ALA committee, and 10 ALA councilors (5 at-large, 5 chapter). Division, round table and committee representatives are designated annually by the group being represented. Council representatives are elected by the Council for 2-year, staggered, terms, which may not extend beyond their regular term on Council. PBA is specifically charged "to study the planning and budget documents submitted by the ALA Executive Board, raise questions concerning them, and offer suggestions to the ALA Executive Board and Budget Analysis and Review Committee." (See ALA Handbook of Organization.)
Informal coordination: DIVPRES & RTCC
Two additional mechanisms are of particular note: (a) The Division Presidents Breakfast brings together the presidents (current, incoming, immediate past) of the ALA Divisions, along with ALA, as well as Division Councilors, individuals appointed "collectively" by the Division Presidents, and executive staff. DIVPRES convenes twice a year, at the ALA Midwinter Meeting and ALA Annual Conference. (b) The Round Table Coordinating Committee includes two representatives (typically the current and incoming president/chair, of each round table. The RTCC meets twice annually, at the ALA Midwinter Meeting and Annual Conference. These venues provide opportunities to discuss budgetary and other issues of mutual concern.
Informal coordination: BARC & Board Liaisons
Finally, additional coordination and communication are provided through a complex of "liaison" relationships. Members of the ALA Budget Analysis and Review Committee (BARC) each have liaison assignments to various ALA divisions, round tables and offices. Members of the ALA Executive Board each have liaison assignments -- stretching out to cover ALA divisions, round tables and committees. The "liaison" relationships are informal relationships designed to facilitate effective, timely communication. (See Attachment 1: Liaison Relationships -- Current.)
Connected but outside: Affiliates
ALA also has a range of affiliate organizations, typically other national library-based or library-related associations. ALA affiliate status is conferred by the ALA Council on application of the external association and following review of its mission and bylaws. Affiliates are not represented in ALA Council. Like chapters, they admit people who are not ALA members. Affiliate organizations are frequently "partners" in legislative advocacy and other initiatives.
Understanding the mission and structure of the Association and its components is helpful when looking at the budget and the processes through which is it developed and administered. Member leaders and staff within ALA, its Divisions and Round Tables are pulled by competing priorities and forces: ALA's overall mission and the programs and services of membership Divisions and Round Tables; prudent controls and freedom to innovate; high quality programs/services and reasonable product/service costs to members; investment in new products and services and reserves for a secure tomorrow.
The American Library Association is headquartered in Chicago. Additionally, there is an office in Washington, DC, housing government relations and information technology policy functions. CHOICE magazine, a publication of the Association of College and Research Libraries (a division of the ALA) has offices in Middletown [CT]. The ALA currently has a total staff of approximately 280. "All ALA personnel are responsible to the ALA Executive Director, and through the Executive Director to the entire membership. Unlike other ALA personnel, Division Executive Directors are also responsible to Division Boards and through those Boards to the memberships of their respective Divisions." (See ALA policy 6.4.1, VII.)
ALA Executive Director
The ALA Constitution establishes the ALA Council as the governing body of the Association. The Executive Board is authorized to "act for Council in the administration of established policies and programs." The Executive Board is also the body "…which manages within this context the affairs of the Association, but shall delegate management of the day-to-day operations to the Association's Executive Director." The ALA Executive Director is appointed by the Executive Board and serves at its pleasure. The ALA Executive Director is an officer of the Association, along with the ALA president, vice-president/president-elect, and treasurer. The ALA Executive Director is the secretary of Council and does not vote. The ALA president and president-elect are officers of Council; the presiding officer votes only in case of a tie. (See ALA Constitution, Article VII, Sec. 3 and Article VIII, Sec. 2.; ALA Bylaws, Article IV, Sec. 1 ( c) ; ALA policy 6.4.1, 8.1.4, 8.1.5, 9.1, 10.5.)
The ALA Executive Director is "in charge of headquarters and its personnel" and carries out "…the activities provided for the in budget," as well as "…such other duties as may be assigned to the office." (See ALA Constitution, Article VIII, Sec. 3.)
Current departmental structure
Headquarters operations are currently managed through six departments: (1) Executive -- ALA Standing Committees, Executive Board, Executive Office, Development Office, ALA Awards and Human Resources. (2) Member Programs and Services -- ALA Divisions, Conference Services, Information Technology & Telecommunications Services, and the Offices for Human Resource Development & Recruitment, Literacy & Outreach Services, Intellectual Freedom, Accreditation, and Diversity. (3) Washington Office -- WO operations, Office for Government Relations, Office for Information Technology Policy.
(4) Communications and Member Relations -- ALA Library, Member & Customer Services, ALA Public Programs, Public Information Office, International Relations Office, Chapter Relations Office, ALA Membership Development, and Offices for Research, and Library Advocacy. (5) Finance and Support -- Staff Support Services, Distribution Center, Reprographics Center, Building Maintenance, Accounting, Planning & Budgeting (6) ALA Publishing -- Booklist/Booklinks/Booklist Online, ALA Editions, ALA Graphics, American Libraries, TechSource, Production Services.
"The executive director delegates authority within ALA headquarters to ALA's department heads, who, in carrying out their assigned duties, are called upon to use ALA's name and, in that name, to commit the Association to programs, activities, and binding agreements." (See ALA policy 9.1.)
"ALA offices address broad interests and issues of concern to the profession and the Association. The offices are diverse in their purposes but generally focus on issues that span most or all types of libraries, types of interests, and constituencies within the Association and the profession. They serve the entire association membership. Offices provide issue-related information, resources, training, support services, advocacy and professional tools to libraries, library workers, educators, prospective and current students, and the general public. They usually have an associated advisory or standing committee and subcommittees through which members may participate and through which publications, programs, and other activities are offered...." (See ALA Handbook of Organization, 2007-2008.)
In addition to the ALA Offices and support units, Headquarters operations include two major business units: ALA Conference Services and ALA Publishing. The mission and operations of the Association are supported through dues, net revenues from ALA Conferences (Annual Conference, Midwinter Meeting) and ALA Publishing, grants and interest. (See Financial Data.)
To support its mission, the American Library Association, along with its membership divisions and round tables, must raise the revenue needed to support its mission and the programs and services desired by its members today -- and to develop the resources to support its mission in the future and to provide programs and services that members will need tomorrow. Like other associations, ALA, along with its membership divisions and round tables, does this by seeking to generate a reasonable excess of revenues over expenses. These profits -- or net revenues -- support investment in the future of the Association and its members.
A number of accounting principles inform ALA's financial actions and discussions. Among them are the following (See ALA Financial Terms):
When we discuss ALA finances, we are usually talking about transactions that can be measured in financial terms. This does not mean that those are the only significant transactions -- just the only ones we measure in financial terms. It is important to recognize that there are many other types of interactions between parts of a complex Association.
Accounting principles are generally conservative. We do not, therefore, recognize revenue for a future event, e.g., a conference, until it actually occurs, i.e., until we are sure nothing will prevent it from happening. (But, at the same time, it must be recognized when it occurs -- not later.) Likewise, when a member pays a one-year membership or subscription, those monies are recognized one month or issue at a time; remaining revenues are deferred and represent a potential liability -- monies that would have to be returned should the promised service or product not be delivered. Expenses are generally recognized when they are incurred. This is often referred to as "accrual accounting" (vs. "cash accounting").
Assets (e.g. real estate, owned -- not leased -- hardware) are recorded at acquisition cost, not current market value. The acquisition cost -- or capital expense -- is represented in the operating budget by depreciation, which captures some portion of the "replacement" cost of the asset on an annual basis, for a defined number of years. ALA's depreciation convention is to apply one-half of one-year's depreciation the first and last year and a full year in each intervening year. Different products are depreciated over different periods of time. So, for instance, purchased desktop computers are depreciated over 3 years; a $3,000 desktop would show up as depreciation in 4 consecutive fiscal years, at $500 in year 1, $1000 in year 2, $1,000 in year 3, and $500 in year 4. Different types of capital purchases are depreciated over different numbers of years, but the formula remains the same.
While ALA is a single legal entity with one bank account, its monies are divided into several "funds," each set aside for specific purposes. Stemming from both law and policy, budgets for these "funds" may be managed differently. Indeed, the term itself -- "fund" -- may mean quite different things, depending on the context in which it is used. It is important to note, however, that there is only one legal "entity" and a single balance sheet. (See ALA Financial Information.)
Internally within ALA, the term "fund" is used to describe three segments of the Operating Fund -- the General Fund (ALA's administration, offices and business units), the Division Fund (including all 11 divisions) and the Round Table Fund (including all 17 Round Tables) -- as well as the Plant Fund (Headquarters Building, Huron Plaza & Washington Office Operations, Furniture & Equipment, Capital), Long-Term Investment Fund (unrestricted, temporarily restricted, permanently restricted), Grants and Awards (government, non-government). (See ALA Fund Chart.)
Long-term investment fund
The long-term investment (LTI) fund (often called the endowment) protects and grows the principal, assets and investment resources in order to support current and future Association needs, including scholarships, awards and unique programs. Long-term investment funds may be restricted, temporarily restricted or unrestricted, based on the conditions of the donation. The ALA Future Fund is the ALA Unrestricted Long-Term Investment Fund (formerly called the Board-Designated Endowment). Use of endowment funds is governed by ALA policy 8.5.1. Oversight on the investment of ALA endowments is provided by the Endowment Trustees, who are appointed by the ALA Executive Board. In general, the investment strategy seeks to balance long-term growth and short-term income. (See ALA policy 8.5, 8.5.1.)
ALA Divisions and Round Tables may transfer monies from their net asset balances (see p.10) to the Long Term Investment Fund. Such transfers are governed by an ALA Operating Procedure. Divisions and Round Tables transferring monies into the LTI should have established 4-6 months of reserves in their Net Asset Balance. The transfer should be a part of the Division's or Round Table's approved Annual Budget. Because of the potential impact on the Association in lost interest, transfers of $50,000 or more must be reviewed by BARC as part of a 3-year financial plan and requested two years prior to execution. Division and Round Table LTI funds support scholarships, awards and other special purposes. Withdrawals from the LTI are governed by both policy 8.5.1 and the ALA Operating Procedures. (See Operational Practice.)
LTI - spending accounts
Net Asset Balances remaining in the Long Term Investment Fund spending accounts (remaining balance net of fees/expenses) are reviewed by budget managers at the end of each fiscal year. If the budget manager anticipates using all or some portion of the interest/dividend in the foreseeable future, that amount may be transferred to the operating fund net asset balance and carried into the new fiscal year. If no such plans are communicated, funds will be automatically transferred to the principal (vs. spending) account balance.
Net asset balance
The net asset balance is the accumulated revenues minus expenses for ongoing operations. The net asset balance is treated differently within different ALA "funds" -- based on Association policy. The Association (the "General Fund") receives interest on those net asset balances, regardless of which part of the Association (General Fund, Division, Round Table) generated the revenue.
Within the structure defined by the Operating Agreement, ALA Divisions retain use of their net assets ("fund balance") and may budget a portion of their net asset balance in the operating budget. The ability to cumulate and budget a portion of the net asset balance in their operating budgets allows the ALA Divisions to budget for multi-year events (i.e., the two-year national conference cycle) and to invest in new products and services which, in turn, support membership growth across the Association. (See ALA Policy 6.4.1.)
Round Tables likewise retain use of their net asset balance and may budget a portion of their net asset balance in the operating budget to support programs. Round Tables may not budget expenses greater than revenue; if annual expenses exceed revenues, a portion of the accumulated net revenues from previous years (the net asset balance) is budgeted or "drawn down" to make up the difference. (See Round Table Coordinating Assembly.)
General fund units
Within the overall ALA "fund" structure, the General Fund includes those portions of the Operating Budget other than the division and round table budgets. This includes the budgets for all administrative and business units of ALA, as well as the ALA offices, such as the ALA Washington Office and the Office for Intellectual Freedom, charged with supporting key components of ALA's mission. The individual General Fund budgetary units do not retain any net asset balance and do not budget any portion of any ALA net asset balance in their annual operating budget. Overall, the General Fund budgets to zero on an annual basis. By practice, 25% of any General Fund net asset balance at year end will go to the "Board designated reserve" and the remainder will be held in a general reserve. The General Fund recognizes in its budgets the interest on the net asset balance, regardless of the "fund" through which that revenue was generated.
Within ALA, as in other organizations, "overhead" includes those ongoing expenses of operating the organization -- including such things as physical plant, administration, technology, and other expenses associated with association-wide programs that benefit all members and libraries, such as the Washington Office, Office for Intellectual Freedom, Office for Diversity. Within ALA, allocation of both direct and indirect costs to Divisions is defined within the Operating Agreement. (See Indirect Cost Calculation and Process and Indirect Cost Allocation & Recovery.)
There are several steps in calculating the ALA overhead or indirect cost rate: (1) [Total] ALA expenses are allocated across all units and activities. (2) Allocation methodologies (e.g., HR expenses are allocated based on FTEs/unit, building costs by assigned square footage) are updated and applied. (3) The direct/indirect costs incurred by each "indirect cost center" are determined. (4) Indirect costs are allocated to the indirect cost formula as required by the Operating Agreement. The indirect cost rate is based on actual costs and is, therefore, recalculated annually, to reflect changes in actual costs. Note that there is a 2 year lag, e.g. the indirect cost rate for fy2009 is calculated in fy2008, based on costs incurred in fy2007. Over time, this has the effect of maintaining a reasonable relationship between actual costs and the indirect cost rate; in any given year, it may rise or fall, based on particular circumstances.
The ALA [Overall] Composite [Overhead] Rate is the average of the indirect cost rates (Indirect Cost/Revenue) for Conferences (ALA Midwinter Meeting and Annual Conference), Graphics, Publishing, American Libraries). That rate is applied at 100% to gross revenues generated by ALA Conferences, Graphics, Publishing (ALA Editions and Booklist) and American Libraries.
Overhead is allocated to ALA Divisions on non-dues revenue only. (Note that this is also true in the ALA General Fund.) Overhead is allocated to Divisions at 100% of the ALA composite rate for registration fees (excluding web-based events, which are charged at 50% of the composite rate), exhibit space and meal functions (except separately-ticketed events). Overhead is allocated to Divisions at 50% of the ALA composite rate on net sales of materials, advertising in subscriptions that are not perqs of membership, non-ALA royalties, web-based continuing education, and other miscellaneous fees. No overhead is allocated to donations or ALA royalties. (See ALA Policy 6.4.1.)
Overhead is allocated to Round Tables as a fee based on total dues income (10% of dues revenue). (See ALA Policy 6.3.)
All overhead expenses are incurred within the ALA General Fund. Only approximately 23% of overhead attributable to the Divisions is recovered in the General Fund; the remainder represents an Association contribution to the development of strong programs and services for members through the Divisions.
Some services are provided at direct cost to ALA Divisions, based on consumption. These include such things as printing and duplicating, postage, and subscription processing services. In some cases, the costs of activities are shared by the ALA Divisions and General Fund, e.g. the cost of the Division Leadership Program. (See ALA Policy 6.4.1.)
Some services are provided to ALA Round Tables at direct cost, based on consumption. These include such things as printing and duplicating, postage, and subscription processing services. (See ALA Policy 6.3; Round Table Handbook.)
The ALA Council approves the "annual estimate of income" (total Association), which includes "the unexpended balance remaining from the previous year plus anticipated revenues for the next budget year," along with the budget objectives. In practice, the budget priorities (key action areas) are approved by the ALA Council at the Midwinter Meeting and the annual estimate of income at the Annual Conference. (See ALA Bylaws IX, Sec. 1.)
ALA Executive Board
The ALA Executive Board reports annually to the membership on revenues and expenses, current fiscal status and the audit. This report is customarily presented by the ALA Treasurer. The ALA Executive Board approves the "budgetary ceiling" for the General Fund, Division Fund, Round Table Fund, Plant Fund, Grants and Awards, as well as transfers to and from the Long-Term Investment Fund -- and for the total ALA. (See ALA Bylaws IX, Sec. 2.)
The ALA Executive Board also approves requests for new personnel, salary increases for ALA staff (including Division staff), conference registration rates for the ALA Midwinter Meeting and Annual Conference.
ALA division boards of directors
The Boards of Directors of the ALA Divisions individually approve the proposed budget for the division, including any proposed transfer of funds to the Long-Term Investment Fund.
ALA round table executive committees
The Executive Committees or Boards of the ALA Round Tables individually approve the proposed budget for the round table, including any proposed transfer of funds to the Long-Term Investment Fund. (See ALA policy 6.3.)
ALA Budget Analysis & Review Committee (BARC)
The ALA Budget Analysis and Review Committee provides advice to the Executive Board and recommends approval of the various budgetary ceilings (as well as new FTEs and transfers to the Long-Term Investment Fund) to the Executive Board. BARC and the ALA Executive Board receive regular updates on the current status of the budget. BARC ensures compliance of budgets with ALA policy. By policy, BARC reports twice yearly at the ALA Council/Board/Membership Information Session, scheduled prior to Council I. Historically, BARC has used these reports to comment on financial issues and concerns and raise issues related to the current and future financial health of the Association. Twice yearly, BARC meets with representatives of the ALA Divisions, as required by ALA policy 6.4.1; the stated purpose is to monitor the status of the Operating Agreement and resolve any issues that may arise. (See ALA policy 6.4.1.)
ALA Executive Director
Responsibility for the day-to-day administration of the Association is delegated by the ALA Executive Board to the ALA Executive Director. Responsibility for the day-to-day administration of the budgets of individual divisions, ALA business or administrative units or offices is delegated to the manager of that unit, under the general oversight of the appropriate ALA department head and appropriate member bodies, e.g. Division Board of Directors and/or Finance Committee, RT Executive Committee and/or Treasurer. The Chief Financial Officer and Budget Director are responsible for coordinating the actual preparation and monitoring of the overall ALA budget.
The ALA Senior Management Group (ALA Executive Director; Senior Associate Executive Director, Associate Executive Director for Finance, Communications & Member Relations, Publishing, Washington Office; Division Executive Director -- currently rotated between AASL, ACRL, PLA; Director, ALA Information Technology and Telecommunications; and, Director, Human Resources) assists the Executive Director in preparing the preliminary budget submitted to the ALA Executive Board. They review monthly financial reports and recommend adjustments as necessary.
ALA unit managers
ALA Unit Managers -- including Division Executive Directors and Directors of ALA offices and ALA business units, in consultation with appropriate member groups, develop preliminary budgets, review those budgets with the ALA Senior Management Group, review monthly financial results and may recommend changes as necessary.
Budgetary planning calendar
At any given point, staff and member leaders may be looking at prior year results (FY1), monitoring current year budget implementation (FY2), and developing the budget for the next fiscal year (FY3). Three budgets are in play -- each at different points in their life cycle. This complex budget development, implementation and review calendar is presented in Attachment E. (See Budget Development, Implementation & Review Calendar.)
Development of the Annual Budget Guidelines is coordinated by the ALA Budget Office, reviewed by ALA's Management and distributed to managers in late fall. (See Annual Budget Guidelines.)
The Annual Budget Guidelines currently include several major components: (1) Economic Environment Scan, (2) Business and Operational Goals, as well as broad strategies, (3) a series of attachments (electronic templates for various sections of the budget), (4) detailed instructions, and (5) a calendar including deadlines for submission of various parts of the budget package.
To facilitate completion of the budget package, ALA Planning and Budget also distributes to each manager a series of files including trend data showing year-by-year changes in various revenue and expense lines for that budget over a multi-year period, as well as other key data (e.g. following year depreciation amount, based on the current capital budget), and a series of worksheets which serve as "templates" for budget preparation. Where possible, common formulas are embedded in the worksheets, to simplify preparation.
Net asset balance transfers
Both Division executive directors and Office directors with liaison responsibilities to Round Tables develop any endowment transfer requests in accordance with the management practices related to transfer of funds from net asset balance to Long Term Investment. (See Operational practice: Transfers to LTI.)
Additional staffing may be requested as part of the proposed budget. In addition to data supporting their request, budget managers also supply information reflective of the organizational interrelationships, e.g. amount of additional space required (if any), related capital budget requests, and additional Midwinter Meeting/Annual Conference attendance requests, if any. Given the complex interrelationships between different parts of the ALA budget, approval of an FTE does not necessarily carry with it approval of additional expenses (e.g., ALA funding for Midwinter/Annual Conference participation).
Capital budget & deprecation
ALA budget managers also submit capital budget requests with their budget package. While the capital budget is separate from the operating budget, it is reflected in the operating budget through depreciation. Depreciation is a recognition that capital assets (e.g., printers) get "used up" and must be replaced. The amount being "used up" each year is an expense in the operating budget. The length of the time over which a capital item is depreciated may vary, depending on the assumed life of the particular asset. ALA uses a modified version of straight-line depreciation: 50% of the one-year expense is reflected in both the first and last year of depreciation; 100% of the one-year expense in each other year of the "life" of the asset. So, for instance, a $4,000 item depreciated over 5 years would impact 6 budgets at $400 each in years 1 and 6, and $800 each in years 2-5.
Strategic initiatives and growth fund proposals
As part of the Strategic Plan implementation, Ahead to 2010 Initiative funds have been made available. The Ahead to 2010 funding plan calls for $250,000 to be made available each year for these projects, based on a competitive review of proposals developed by ALA units.
Ahead to 2010 projects are intended to be one time capacity-building projects that advance the goals and objectives of the ALA strategic plan. Any ALA unit or group of units may develop a proposal for a 2010 initiative project. Proposals are funded, based on (1) their relevance to the goals and objectives of the strategic plan; (2) their cost effectiveness; and, (3) the degree to which they promote collaboration among ALA units ( Goal 6, Organizational Effectiveness, Objective 4: Increase and improve communication, cooperation and collaboration throughout the association, its divisions and round tables.)
Growth Fund projects are also made available on an annual basis to support the development of new revenue sources and "businesses" within the association. In 2008, $100,000 was made available for growth fund projects. Growth fund projects are funded based on a plan that shows a significant financial return on the growth fund investment (ROI), and that "capitalizes" an ongoing new revenue-producing program or service."
Key indicators of financial trends include such things as: (a) membership statistics, (b) revenue -- and net revenue -- trends, ( c) changes in net asset balance, (d) performance results of prior budgets. External trend data that affects internal trends -- e.g. paper costs, travel costs -- must also be considered in developing a budget. Close attention to trend data is critical in budget development and may indicate areas where there should be serious reevaluation or redesign in products, services and programs.
Future year impacts
In many cases, current year budget additions have significant future year implications. Capital budget items will be depreciated over multiple years -- with year 2 at 100% rather than 50%. Salary/benefits expenses for additional staff carry forward into future years -- typically with increases in both salary and in benefits costs. Likewise, new initiatives and programs may have substantial future year implications. Both current and future year implications must be considered.
Collaboration and control
Associations involve complex interrelationships between member-driven, volunteer-supported program and service development and delivery -- and the needs of an ongoing operation for approvals, prudent fiscal controls, and accountability. Leaders and staff seek to accomodate this inherent conflict in a couple of ways: (a) To the extent they are (financially) able, some divisions will allocate funds to an "opportunity" line, i.e., will budget a fixed amount for opportunities that may -- or may not -- arise during the fiscal year. (b) The budgets of many business units include revenue from and/or expenses for services, events and products that are planned -- but must be completed through an often-intricate blend of staff and member efforts. There may also be sequences of interrelated activities. (c) Acknowledging these uncertainties, managers provide regular (monthly) budget updates including brief, timely, clear information on status of their projects and budget (actual vs. planned) and, as early as possible, projections of probable year-end outcome.
Development and risk
In support of its mission -- both today and in the future -- and to meet the changing needs of successive generations of members, the Association and its component parts necessarily invest in the development of new products and services. This involves risk. There is also risk associated with ongoing products and services. For instance, a range of factors from strikes to weather to fuel prices will affect conference performance. Managers and member leaders engaged in the development of budgets seek to make prudent allowances for the most likely risks -- by purchasing insurance (e.g. cancellation insurance), by building some allowance for risk into their budget, and other means. Risk factors -- particularly risk factors for new ventures (new products/services) and for ongoing products/services in a changing environment -- will receive particular scrutiny in the budget development, review and implementation processes.
There is ongoing tension between the need to allow for risk and the need to create realistic budget goals within an interrelated budget. For instance, the budgeted overhead recovery is based on budgeted revenues.
Organizing the budget: Projects
ALA's budget is organized into funds, then budgetary units, then projects. This facilitates both understanding and managing a complex budget. It also makes it easier for budget managers to see what is actually "happening" -- since its serves to highlight the expenses and revenues relevant to, for instance, a particular publishing or continuing education product or service. Most budgetary units have an "admin" (0000) project as a "holder" for those expenses (and sometimes revenues) that do not fit into a specific project. Projects may be individual services or products -- e.g. a particular publication, a particular institute or symposium -- or a related group of activities -- e.g. governance. Most budget managers seek to define projects narrowly enough to make them useful in assessing success -- without defining so many different projects that effective management becomes impossible. In some cases -- usually as a result of growth -- it becomes necessary to "split" a project. In that case (in order to preserve as much historical trend data as possible), working with the ALA Budget Office is critical.
Organizing the budget: Chart of accounts
Projects are used to break down the budget for ease and clarity in managing and to better match resources and revenue in order to evaluate ROI. Treating like revenues and expenses in the same way, with consistent terminology, across a complex organization makes it possible for ALA to "roll up" the revenues and expenses -- across the Association -- to understand the total revenues and expenses. The current chart of accounts is available on the ALA Knowledge Management system and from ALA Finance. For instance, revenue from sales of books will be budgeted in a 4100 (Sales/Books) line in the particular unit and, possibly, in a specific project. All expenses related to outside (contract) design services will be budgeted in a 5405 (Design Service - Outside) in a particular unit and, possibly, in a specific project. (See Chart of Accounts.)
While the Chart of Accounts appears daunting initially, it is useful to note that accounts are "clustered" in a useful fashion. For instance, all travel-related expense lines are in the 5210-5219 range; conference-related expense lines are in the 5300-5350 range; publishing-related lines in the 5400-5499 range, and so forth.
Implementation and ongoing management of the budget are as important as its initial development. Developing a clear, well-documented, well-understood budget is the basis for good budget implementation.
Monthly budget allocation
Prior to the start of each fiscal year, budget managers are asked to "allocate" or spread their budget across the calendar. Some revenues, such as dues, and some expenses, such as salary and benefits, will occur -- usually in approximately equal amounts -- in each month. Other revenues and expenses may occur semi-annually, quarterly, bi-monthly or on a non-standard schedule. Allocating both revenues and expenses -- as accurately as possible -- across the fiscal year enables the budget manager to see more quickly and more clearly when a certain revenue or expense line is trending off-budget. Diligence in allocating the budget is likely to reduce the number of timing-related variances -- and make the monthly financial performance reports more useful to budget managers seeking to spot problems early when corrective action can be taken.
The process of booking or recording revenues and expenses for each month is necessarily cut off at a defined point. Transactions tracked in several ALA systems -- in the association management (membership) system, in payroll, in the accounting system, and through external contracts -- are all brought together at the "close." There is an approximately 3 week time period currently required to bring together information from diverse sources, run basic accounting procedures and checks, and generate reports. So, the financial report (monthly performance report) is typically available both Association-wide and for each budget unit of the Association on approximately the 21st of the following month. Note that because of the overlap with the audit of the previous year's financials, the initial monthly performance report for the new fiscal year is typically delayed until approximately the end of the 1st quarter (November).
Ongoing evaluation and adjustment
From time-to-time, in any organization, a need will arise to address a significant financial concern (which may also be a programmatic concern). Over ALA's history, some products have been developed, funded and implemented -- and have not been economically successful. Services have been launched which were too costly for the perceived benefit and were, subsequently, eliminated. Units have expanded too quickly and had to reduce staff. In each of these situations, budget managers, working with member leaders, have (a) identified appropriate alternatives, (b) worked through a decision process that was appropriate to the unit (division, office, business unit, etc.) and issue, and (c) worked with the appropriate ALA administrative unit(s) to resolve the issue.
While both budget managers and members work hard at making the best possible decisions for the Association, it is not ultimately possible to be "right" all the time and still maintain the entrepreneurial outlook essential to future growth. Similarly, it is not possible to optimize every process for every participant every time -- making compromise essential.
Because it is critical to recognize when corrective action may be necessary, it is important that budget managers (a) have clear terms of "success," (b) monitor trends carefully -- including, but not limited to, monthly financial reports, ( c) understand the environment(s) in which a particular product/service may be embedded, (d) communicate regularly with both appropriate member leaders and other ALA managers -- including, but not limited to, monthly financial reports.
Adding new projects
ALA budget units may develop new projects after a budget has been approved. It is possible to add new projects mid-year. The ALA Budget Office can assist with this.
ALA budget managers may need to reallocate funds within their budget during the course of a fiscal year. Note that within ALA policy (8.1.4) the ALA Executive Director "is authorized to overspend line amounts in the General Funds Budget but not in excess of the total General Funds budgeted figure. The Executive Director may not incur any salary commitment in excess of the current year's commitments."
Budget managers receive Monthly [Financial] Performance Reports approximately 3 weeks after the close of the month. The Monthly Performance Report shows a manager (a) a comparison of the past month to the performance during the same month last year, (b) actual revenue/expense status at this point in the year -- compared to the projected (anticipated) state at this point in the year, (c) percentage of revenues gained or expenses incurred, relative to the budgeted total, and (d) overhead and taxes. (Again, note that the first performance report for the new fiscal year is typically received near the end of the first quarter.)
Budget managers provide brief monthly evaluative commentary related to the Monthly Performance Reports. In every case, budget managers are looking at multiple perspectives: (a) What does the monthly financial report say about the status of a specific project. Is any action indicated? (b) What does the monthly financial report say about the condition of the budget unit? (c) Are there significant (more than 10%) variances in budget performance? (Note: In some situations, it may be prudent for a manager to flag and report on variances less than 10%. For instance, a 5% variance in a major revenue or expense line may warrant specific commentary -- where a similar variance on a minor expense line may not be seen as significant.) (d) What aspects of the performance in this unit affect the overall Association? For instance, are trends surfacing that may be relevant to other managers? Is overhead contribution to the General Fund going to be significantly lower than anticipated -- which may require balancing action elsewhere?
Additionally, budget managers are checking for obvious errors -- e.g., posting of revenues or expenses to the wrong project -- and work with ALA Finance or others as appropriate to correct them.
Commentary prepared for the Midwinter and Annual Conference review by BARC should include year-end performance projections, based on analysis of data available at that time. All monthly performance reports in the final quarter should include year-end projections. Year-end projections are critical and should be developed as early as possible to provide the maximum opportunity for any corrective action that may be necessary.
Commentary from individual budget managers is aggregated into departmental and ALA-wide reports. These monthly commentaries are read by budget managers, by BARC, by the ALA Executive Board. Individual budget managers may also prepare unit-specific budget reports for their budget/finance committees and Boards of Directors.
In some cases, budget managers will need to review other reports, as well as the monthly financial report, to gain a good understanding of performance. This is particularly true in looking at membership (dues) performance, where managers will need to look at the membership reports (both monthly and year-to-date) and the dues revenue figures in the monthly financial report.
Careful review of the monthly financial reports will help budget managers see the financial "early warning signs" -- which may signal concerns in other, programmatic, areas. (1) Budget units that retain net assets should be concerned when the net asset balance falls below 25% of the annual operating expenses. Similarly, consistent erosion of the net asset balance over time -- even if it is not below 25% of the annual operating budget -- may also be a cause for concern. (2) For units showing dues revenue, the absence of growth may signal concern -- and a negative trend in dues revenue should be a clear cause for concern. (3) For any unit providing products and services, project expenses greater than revenues are a cause for concern. While there are revenue neutral or even net-expense projects and services, there should be clarity as to the mission-basis for such products and services and as to the offsetting revenues elsewhere.
Finally, by the mid-point in the fiscal year, and sooner where appropriate, budget managers will begin to provide projections on year-end budget status or performance. These will become increasingly detailed (with a higher level of accuracy) by the fourth quarter. This is a critical step if the overall Association is to be able to make the mid-year adjustments essential to a satisfactory outcome.