1. 1 American Library Association ALA Finances 101 Financial Handout Operating Agreement, Indirect Costs and Budget Guidelines

2. 2 Operating Agreement History/Background – why is it needed? Relationship between the General Fund and the Divisions (Policy 6.4.1) – see attached Composite rate formula Services provided at no charge Services provided as a direct charge Non-overhead assessed revenues Overhead assessed revenues

3. 3 Operating Agreement Relationship

4. 4 OPERATING AGREEMENT HIGHLIGHTS Created over a two year period in the late 1980’s. Adopted in 1989 with a five year phase in period. Defines the relationship between divisions and core (administrative) structure of ALA. Reviewed annually at the Division/BARC Leadership meeting. Preamble: - Statement of purpose and values outlines the unique structure of ALA ie “one association with indivisible assets and a single set of uniform procedures.” - Home of 11 Divisions and other units, “The nature of the relationship among the ALA units is a dynamic one, demanding collaboration and a willingness to work together.” Defines the financial responsibility between ALA and the Divisions.

5. 5 OPERATING AGREEMENT HIGHLIGHTS The agreement provides a cooperative framework in which questions of organizational relationship can be addressed and resolved. Guiding Principles - Shared values of unity, diversity, authority (delegated to individual Divisions) autonomy and collaboration/cooperation. - Divisions assume financial responsibility for staff and programs, including some indirect costs for Division activities and services provided by ALA. continued - ALA will provide general administrative, financial, membership, publishing services to the Divisions.

6. 6 OPERATING AGREEMENT SERVICES FUNDED BY THE GENERAL FUND AT NO DIRECT CHARGE TO DIVISIONS Publishing - Rights and Permissions, copyright services and other specialized services. Finance/Accounting - Preparation of monthly budget reports, management of annual budgeting cycle, planning/budgeting support, credit & collections and annual audit. OIF, Washington Office/OITP/OGR, OLOS, HRDR, OR, Executive Office, Diversity Office, Governance and IRO

7. 7 OPERATING AGREEMENT DETERMINED OVERHEAD CHARGES Overhead will not be assessed on revenues from: Division Dues Division Donations Interest Income Earned by Divisions ALA Royalties to Divisions Travel Expense Reimbursement from Outside Organizations Separately-Ticketed Events at Conference (Tours and Meal Functions) Advertising in Publications Provided to Division Members as part of Membership

8. 8 OVERHEAD CALCULATIONS Overhead is charged on non-dues revenue generating activities ie. registration fees, exhibit space, meal functions (except separately ticketed events, net sales of materials, subscriptions, advertising other than those provided as part of membership) small miscellaneous fees and royalties. Some assessments are at 100% of the ALA composite rate Registration fees, exhibit space and meal functions. Remainder are assessed at 50%--Net sales of Materials, Subscriptions Advertising Except in Publications provided as part of division Membership, Other Miscellaneous Fees.

9. 9 OPERATING AGREEMENT SERVICES CHARGE AT ACTUAL COST STAFF SUPPORT SERVICES : Specialized Data Processing*, Equipment Maintenance for Equipment Purchased by Divisions over which the Division Exercises Sole Use and Control, Printing and Duplication*, Certain Telephone Services*, Postage for Special Mailings* PUBLISHING: Subscription and Order Billing Services, Central Production Unit Services, Marketing Services * As Defined in the Operational Practices

10. 10 OPERATING AGREEMENT HIGHLIGHTS Management Practices continued - Interpretations of the Operating Agreement that guide the application of the Agreement. Provides for flexibility when new initiatives are proposed or services developed. - Planners recognized that to support the diversity of needs and services within ALA and to membership and recognizing that Small Divisions do not have a sufficient membership base, the operating agreement provides for a supplement to support Small Divisions. Small Division Support

11. 11 INDIRECT COST RATE FORMULA Indirect Costs Conferences + Graphics + Publishing + American Libraries = = Revenues Conferences + Graphics + Publishing + American Libraries Rate

12. 12 VIII. Indirect Costs and Study Fact sheet Formula Allocation methods Process Division results Indirect cost rate history Divisions – Ten things to know and love

13. 13 INDIRECT COST RATE FORMULA Indirect Costs Conferences + Graphics + Publishing + American Libraries = = Revenues Conferences + Graphics + Publishing + American Libraries Rate

14. 14 Allocation Methods Sherri Vanyek ITTS # of phone lines, # of PC’s, # of phones, # of financial transactions Cynthia Vivian Human Resources Table of Positions ie # of Full Time Equivalent Employees Cathleen Bourdon Communications Membership Statistics Al Campanio Staff Support Assigned Square Footage in Building/Maintenance Mark Gould PIO Allocation of PIO Usage Karen Muller Library Allocation of Library Usage

15. 15 Four Step Process Four Step Process (Flow Chart on Next Slide) Allocate total ALA expenses across all units & activities Update allocation methodologies & apply to indirect cost centers Determine direct/indirect cost incurred by indirect cost centers (16) after methodology applied – See excel Human Resources example and excel “fully direct/indirect” sheets Allocate indirect costs to indirect cost formula as required by Operating Agreement – Excel Formula detail sheet and Page 22

16. 16 Flow Chart Human Resources Total direct expenses captured across all units HR = $587,863 Direct/Indirect costs for support units allocated to all units Indirect cost allocated to support units based on methodologies I/D + D = $587,863 + $111,507 = $699,370 Composite indirect cost rate determined 22.6% See excel worksheet “expense allocation” See excel worksheet “fully allocated direct indirect costs” See excel worksheet “sample indirect cost center” HR allocated based on FTE’s See excel worksheet “formula detail”

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18. 18 General Fund Support to Divisions 2006

19. 19 DIVISIONS INDIRECT COSTS 2006

20. 20 DIVISIONS INDIRECT COSTS 2006

21. 21 INDIRECT COST SUMMARY 2002 - 2006 FY06 FY05 FY04 FY03 FY02 $16,449,000 15,026,000 15,420,000 14,094,000 15,865,000 $4,619,000 4,287,000 4,680,000 4,447,000 4,784,000 28.1% 28.5% 30.3% 31.8% 30.2% $1,676,000 950,000 1,359,000 801,000 1,169,000 $142,000 136,000 240,000 230,000 $3,086,000 3,473,000 3,566,000 3,876,000 3,845,000 Total Indirect Costs Division Indirect Costs % of Total Total Indirect Costs Paid Small Division Support Net General Fund Support

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23. 23 INDIRECT COST RATE HISTORY StudyRateBudget Year Applied 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 22.6% 21.5% 21.8% 18.8% 20.3% 19.6% 18.9% 18.5% 18.0% 16.5% 16.7% 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998