Friends of the Library

This sounds like a lovely service to both the library and community, so I am going to make this answer as positive as possible.

First, it is clear from the question that the instructor (a “community member”) is not a library employee. So, they are either doing this as a volunteer or as an independent contractor.

Either way, before we delve into the financial/tax/deduction questions, I have to say this:

If the instructor is a volunteer, because yoga can involve some risk in injury, it is wise to have a letter in place confirming the terms of the volunteer service. That letter would address logistics, how the class is promoted, liability considerations (“hold harmless,” indemnification, insurance), and address the financial considerations (the donation arrangement).

If the instructor is an independent contractor who is getting paid to offer the class, it is wise to have a letter in place confirming the terms of the independent contractor service. That letter would address when/where the class takes place, how the class is promoted, liability considerations (“hold harmless,” indemnification, insurance), and finances (the donation arrangement).

For any library (and Friends), although incidents of injury are rare, because of the potential cost, addressing these “liability considerations” is critical. As it so happens, they can be addressed in the same letter that addresses the financial aspects.

Okay, now we can discuss the financial aspects.

The good news is that the member is 100% right: Perhaps a simple solution would be to re-word how this is done…

Exactly.

We won’t go over wording for all the combinations,[1] we’ll just deal with this scenario: a free, donation-accepting class conducted by a volunteer, with the donations turned over to the library, to be turned over to the Friends.

The issue here, of course, is: what is the donated income from the class—a direct donation to the Friends (held briefly by the library) or direct payment to the instructor?

This distinction is important.

If money paid by the attendees is a direct donation to the Friends, the instructor cannot claim a deduction for it (since it was never their income, it was only ever a donation).

If, on the other hand, the money paid by the attendees is a direct payment to the instructor, it can then be a donation from the instructor and to the Library/Friends.[2] That shouldn’t be a problem, unless the income is not declared.[3]

There is no scenario where the donations collected can become the value of the service that was volunteered, and thus the credit is for “in-kind” services. The IRS doesn’t work that way.[4]

The issue presented here is not rare or esoteric. In fact, it is so common, the IRS has a fancy name for it: the “assignment of income doctrine,” which basically says that if you earn money and immediately give it away, it is still taxable income. 

To clear this up, the member’s “re-wording” suggestion is spot-on. However, before changing the publicity, it would be good to focus on the arrangement, so there is clarity between the instructor, the library, and the Friends. After that, the advertisements can be updated to fit the agreement.

Where can you get such a letter? It is best for a final version to be reviewed by your lawyer, but as it turns out, we occasionally get questions about yoga here. So, two places to start are Live streaming a chair yoga program and Liability Waivers for Library Fitness Programs.

In closing: Yoga is a beautiful activity and a library hosting it is providing a valuable community resource; the law and the IRS should never get in its way. With a careful arrangement, that can happen.

Thank you for a thoughtful question!

 

There is a large array of insurance coverage a not-for-profit organization might be required to have, and another, equally large array of coverage this is "optional" but may be advised as wise.

Most of the "required" coverages are due to having employees.

Since most (all?) Friends groups in New York State do not have employees, we'll skip over those (unemployment, disability, paid family leave, worker's compensation, etc.), and focus on the other types of required coverage first.

With employees out of the picture, what other coverage is required?

If the Friends own a vehicle (also not too likely), automobile insurance is required.

If the Friends lease space, certain coverage (usually "general commercial liability") may be required by their lease.

If the Friends have accepted a grant or performance contract conditioned on certain coverages, those coverages must be in place.  For example, a grant to create a public mural at the Library may come with a requirement for proof of general liability insurance; a contract or MOU with the Library with which the Friends are affiliated might have a similar requirement.

If none of the above-listed "required" conditions apply, is any coverage required of a "Friends" group?

No.

This brings us to the "optional" coverage I mentioned; coverage that is not "required" but is "advised as wise."

For a Friends group that hosts many fund-raising events, some type of general liability coverage is wise (and just like under a lease or grant, may be "required" by contracts for certain event venues).

The scope of such coverage (as in, what types of claims it will kick in for) can change from policy to policy, but the basic function of such coverage is to ensure that the financial risks of conducting the events is mitigated in the event of a worst-case scenario.

What type of activities could a "Friends" group host, that merit such coverage?  As a hypothetical example, let's consider a Friends group that hosts four very popular routine fund-raising events per year: 

Event 1: A Fall "Bookride," a kids-focused event where children ride a horse-drawn carriage filled with books (instead of the more traditional hay.).

Event 2: A Winter "Library Tango", where participants buy tickets to dance the night away, with micro-events like a "Silent Book Auction,” with all proceeds for special programs at the Library.

Event 3: A Spring "Seedlings for Seniors," a tree/plant sale to ensure extra programming for senior members of the community.

Event 4: A "Summer Water Fest," an event where participants pay by the pint to douse local celebrities with water.

Each of these events have a certain—albeit small—amount of physical risk for participants.[1]  In addition, every event will take place at a location where the property owner could face some type of claim for negligent management of the property, leading to injury.

Whether it's getting kicked by a horse at the Bookride or a latex balloon allergy at the Water Fest, the way to mitigate the risk of a person sustaining an injury and bringing a legal action that could jeopardize the finances of the Friends is to either a) have insurance that covers a possible claim; or b) ensure all the risk as assumed by another entity that has insurance, and who has indemnified the Friends; and/or c) use waivers to mitigate the ability of participants to bring a claim.

As seasoned event planners know all too well, the trouble is, each of these mitigation methods bring its own complications. 

As the member points out, insurance coverage costs money, which many Friends groups would rather see go to support their library. 

Meanwhile, asking another organization (like a co-sponsor) to take on all the risk and/or supply the insurance is not always a feasible option.[2]

And using waivers, while effective if properly drafted, can be a real bummer.[3]

This is where a good insurance agent or lawyer can come in.  Either can help a group of Friends assess their actual "exposures" (what risks they face), after which the right type and amount of coverage can be selected.

If almost all the risk can be mitigated (for instance, if the only event is an annual book sale, conducted at the library, which has insurance, and agrees to accept the risk) an informed business decision to accept a small amount of risk, and not get coverage, can be made.  On the flip side, for an active Friends group with a wide array of physical events, it can be decided that ongoing coverage is worth the money.

The same goes for a final type of "optional" coverage: Director's and Officer's coverage, or "D&O," which covers certain claims (contract violation, defamation, advertising injury, theft, copyright claims) that can be made against the leadership of a corporation. 

Just like with other coverages, there is no "one" type of D&O. This means that any policy under consideration should be carefully reviewed, because some policies exclude the more common types of claims, making insured entities wonder: "Why did we pay for this in the first place?"[4]

For a Friends group without employees or many business transactions, extensive D&O might not be needed, but if the Friends are active on social media and in politics (for instance, fighting the good fight for intellectual freedom, increased budgets, and/or capital campaigns), some coverage for "advertising injury" and alleged defamation is wise.

So, what are the important take-aways, here?

First, without employees, it may be that a Friends group is not "required" to have any type of insurance coverage.

Second, a decision to obtain discretionary insurance coverage should be made based on the activities of the group, ideally with advice from a licensed insurance agent or advisor.

Third, such a decision should be revisited from time-to-time, and weighed by the full board, to ensure there is a good match between the coverage (or lack thereof) and the group's activities.

Thank you for an important question!

This issue—the question of a public library acting as a pass-through on an ongoing and open-ended basis for its Friends—is like a mouse seeking cheddar[1] cheese in a maze.

Picture the mouse: whiskers a-quiver.[2] It can smell the cheese. It sees the maze.

Picture the cheese: it's yellow, made in upstate New York, and sliced just right. It would be delicious with a whole wheat cracker.

Now picture the maze: so tantalizing. So twisty and turny. There are many paths forward, but only one has a tantalizing dairy product[3] at the end.

Except: there is actually no path to the cheese.

That's what this issue is like.

Here's why:

With a "pass-through", a 501(c)(3) agrees to accept the award of a tax-deductible donation; usually, this is done per the terms of a "pass-through agreement"[4] with a non-501(c)(3) individual or group, for a charitable purpose.

Examples of a pass-through include:

• A school district public library and a local artist agree to jointly apply for a grant from a foundation so an unincorporated artists collective can paint a mural at the library, but the grant is solely to the library, who "passes" the money to the artists' group for the project;
• A municipal public library affiliates (in writing) with a newly incorporated not-for-profit refugee assistance group without a 501(c)(3) to accept a grant for a language assistance program;
• An association library agrees to be a pass-through on a per-project basis for any local group offering programming consistent with the mission of the library; per the letter of agreement by which an organization in the area of service can participate, the administrative fee charged by the library is either 5% of the grant or $1500, whichever is smaller. Participants are tied to a strict set of performance criteria and accounting is set up to ensure documentation is immaculate.[5]

While there are a variety of fiscal and operational procedures that each of these written arrangements would have to follow, each of them shares a common feature—an endgame to the purpose of the pass-through (e.g., the mural is painted, the English-language learners program is launched, and the objective of each "per project basis" is met).

The member who submitted the question rightly highlights the crux of the question here: can this approach be used for unspecified purposes, with the 501(c)(3) accepting tax-deductible donations and then giving it to the non-501(c)(3) entity?

The answer is "No." Here is why:

In the three examples, and other defensible pass-throughs, the donation money going to the unincorporated or non-501(c)(3) entity is conditioned on the objectives set by the grant. In other words, the money is not a gratuity or a donation; it is part of a "quid pro quo" transaction, with the "quo"[6] being consistent with the conditions of the donor.

Accepting unconditional donations to then re-gift them to an unincorporated or non-501(c)(3) entity is a totally different situation from the "quid pro quo."[7] For an association library, it would be frowned upon, but with some careful maneuvering (a written agreement making the Friends an offshoot of the association library's operations), it could be done and properly accounted for in the required financial disclosures.[8] But for a municipal library, with its extra conditions and an absolute bar on just giving away money,[9] there is no way to make the otherwise elegant solution suggested by the member work.

So, the maze of options has no way to get to the cheese. Is there another way?

There is, but it is largely antithetical to the purpose of having a "Friends" group.[10]

Here is the way: the donations to the public library would go to a "Friends Fund" that is 1) always in the custody of the library; 2) managed and expended per all the fiscal controls of the library; and 3) is only distributed to Friends per an agreement that creates defined conditions (the "quid pro quo") , so it is clear the funds have been used "for the benefit of the library."

For example: The board of the ABC Town Library resolves to create a "Friends Fund" for very well-defined parameters, including that when the fund reaches $50,000.00 dollars, the board meets with the Friends to discuss how it will be used. In 2024, 100 people each donate $500.00 tax-deductible dollars to the ABC Town Library's "Friends Fund." The library’s board of trustees then meets with the Friends and passes a resolution to disperse the money with well-defined deliverables, effectively turning the collected funds into a "grant" or even a "contract for services." The grant or contract is then managed per all the same applicable fiscal, operational, and procurement requirements that the library always has to follow.[11]

Of course, by the time a library and friends group go through all that—only to have a structure that is far less flexible than a traditional Friends group—the Friends might want to just take the time to get 501(c)(3) status.[12]

Thank you for a thoughtful question.[13]

There are a lot of questions packed into this submission!

Let's take them one at a time.

First question: "I have always been under the impression that it is illegal for public libraries to fundraise on their own, aside from 2 book sales per year." [1]

It is not illegal for a public library to fundraise.  It's just that, like starting sourdough[2], fundraising by a public library has many complications.

For more on that, see the analysis in the "Ask the Lawyer" answer posted here: https://wnylrc.org/raq/donations-solicitations-public-libraries.

Second question: If a school district public library no longer has a Friends Group, can it host fundraisers?

Yes, but to briefly summarize the "caveats" mentioned above: a public library should never rely on fund-raising to meet basic operational and strategic needs (that funding must come from the tax base and via established agreements for service). In addition, a public library's fund-raising must adhere to the extensive laws and regulations applying to the solicitation, accounting, use, and investment of such moneys.

Third question: For example, could the library itself host a bingo night and raise money?

Yes, but any event that involves "games of chance" should follow the state law regarding gaming.  For more on that, see the guidance at the "Ask the Lawyer" answer here: https://wnylrc.org/raq/donations-solicitations-public-libraries.

Fourth question: Can a school district public library send out a fundraising letter?

Technically, yes, but because of the caveats, I would say such a letter should go out after:

1. the fund-raising initiative was built into an established fund-raising plan passed by the board of trustees;
2. the fiscal controls for accounting for the money were reviewed and approved by the library's accountant and lawyer; and
3. the text of the letter was reviewed by the accountant and lawyer for compliance AND approved by the board of trustees for adherence to the strategic plan.[3]

Fifth question: Or is it important that all library staff and trustees refrain from fundraising efforts in order to separate public funds from fundraising?

I wish it were this simple, but it's a bit more complex.  If a public library deeply plans for and builds capacity for fund-raising for special initiatives, it is possible for paid staff to engage in what is called (in the fund-raising biz) "advancement".  However, once serious planning is happening on that scale, there are a variety of reasons for a non-association library to work with an affiliated not-for-profit (like a "Friends" or a foundation) to achieve the same objectives.

Sixth question: I am struggling because we have a lot of great ideas, but the future of our Friends Group is unclear.

To the director who submitted this question: you are not alone.  "Friends uncertainty" can happen, and when it does, it is a lousy situation for a director to be in.

Also: I am not surprised you have good ideas for fund-raising; library directors are some of the best sources for good ideas for "Friends" and other library supporters.  After all, directors are the people with the closest eye on the well-being and day-to-day needs of the library. 

But as your fourth question suggests, the energy of you and your staff is best spent focused on those day-to-day needs, which should only include fund-raising if the board has initiated a well-thought-out plan and strategic support for employees assisting with it (translation: there is a budget, wording in a job description, and at least three pages in the updated strategic plan for this, then the director can have responsibilities related to fund-raising... which should never be more than a very small fraction of their duties).

Third:  If at all possible, when a "Friends" group is rocky, this is a time for library trustees to step up and see if they can help revitalize the organization.[4] 

Seventh question: I am wondering what options are available to me as a library director, and my Board of Trustees, if the Friends Group were to dissolve.

There’s an array of options for a public library in this situation:

Option	Legal considerations of fund-raising	Practical considerations
"Friends Free Lite": A public library without an affiliated "Friends", who fund-raises for small initiatives like an added story hour or to fund contracted events and performers (only up to 1% or less of operating costs).	Fund-raising efforts, even at this small level, must be very strategic and tightly planned for compliance and to not generate operating funds.  Fiscal policies related to fund-raising must be well-developed and strictly adhered to.	Fund-raising capacity will be more constrained than that of a "Friends" (by both practical and legal considerations) and requires careful attention to fiscal policy.
"Friends Lite": A public library with an affiliated "Friends" where the "Friends" fund-raise for small special initiatives (under $50K a year).	Fund-raising by the Friends in the name of the library should be per CONTRACT[5] that makes mutual commitments of legal compliance, cooperation, and transparency.	Small Friends groups can be operationally lax, leading to the type of uncertainty in the member's question.  For this reason, a contract between a library and Friends should set the stage for good succession planning.
"Friends Powerhouse": A public library with an affiliated Friends, who fund-raise for large special initiatives (over $50K a year).	Fund-raising by the Friends in the name of the library should be per a CONTRACT that makes mutual commitments of legal compliance, cooperation, and transparency, with extra care about required financial filings to the New York State Charities Bureau and the IRS.	Very often, a group operating at this level may have employees or contracted assistance.  Such a group should be paying deep attention to and have policies regarding use of paid consultants[6], lobbyists, and accountants. Such a high-functional group will good succession planning.
"Advancement without or without Friends"   In this model, a public library makes strategic use of deeply planned fund-raising for long-range objectives, and it plans and budgets for in-house capacity to fund-raise, including planned giving and other planned solicitations.	Planning to have in-house "advancement" requires a deeply committed board who has mapped this strategy out in a well-developed strategic plan.[7]	If a public library develops a deep "reserve" fund, there is a risk the public (and the NYS Comptroller) will regard it as stockpiling surplus funds.  For this reason, if there is a decision to do this, the board must be very strategic about it.

All of this brings me to the spirit of the question, which is: if fund-raising isn't going so well, what is a director to do?

Trustees who are reading, this is your chance to shine.  If you are so fortunate to have a director with good ideas, it is a good idea to listen to those ideas and see if they can fit into fund-raising by the Friends or by the library itself.  But unless a job description is re-written to include specific responsibility for fund-raising, and such activity is supported by the library's policies and strategic plan (after being carefully reviewed by the library's accountant and lawyer), a director or other staff member should NOT be fund-raising.

In other words: no aspect of fund-raising should ever, ever, EVER be a casual add-on to a library director's list of duties.  While a director's talents can be tapped for fund-raising, if things are going beyond brainstorming, such responsibility should only be imposed to the degree there is a clear and vetted plan[8] for doing so.

I thought this reply was written for directors, but really, it is written for boards, treasurers, and finance committees: if a director is to work on any aspect of fund-raising (which if they do, should only be the merest fraction of their duties), or if a public library is going to fund-raise, make sure the right infrastructure is in place!

Ideally, a public library does NOT handle the money of another entity, even for "Friends."  Ever.

That said, there is no law barring a library from helping out a partner or organization with cash handling for events; this "never" rule comes from risk management, not the law.  

What risks are managed by this "never" rule?  All the risks that come with handling funds, including:

• The risk that cash is not properly counted;
• The risk that the cash is misplaced or stolen;
• The risk that cash is from sales requiring sales tax;
• Accusations (even if unfounded) of mis-handling or theft;
• Improper attribution of income to the library;
• Consumer or regulatory agency confusion about who transactions were with.

None of these are risks that can be totally eliminated, but they can be mitigated.  Sometimes, there may be very compelling reasons to break the "never" rule so the library can help another entity (including Friends) and mitigate the risk as best as possible.

So my answer to the question "...is it allowable for libraries to collect Friends membership dues and donations then pay it back to the Friends?" is: YES, but it should only be done for the right purpose, with the right preparation, and per the right policy.

What is "the right purpose?"  That is up to your library and its policies.  But certainly, helping Friends or other affiliated organizations support the mission of the library can qualify.

What is "the right preparation?"  It starts with the "right policy."

If the limited capacity of the Friends (or another allied organization) means the library must help with cash handling (facilitating sales, accepting donations, forwarding the monies to the Friends), there should be a policy at both organizations addressing this approach.

A sample policy for the library is:

Fiscal Controls When Collaborating with Another Entity

To reduce costs and avoid risk, whenever possible, the Library will not support or serve as the agent for collecting donations or revenue for another entity with which it is jointly providing programming.

However, from time to time, the Library may help present an event that requires the coordinated payment, acceptance, and transfer of money or in-kind donations between the Library and the collaborating party.  When that is the case, to ensure adherence to all relevant laws, regulations, and policies, every such event shall be governed by written, signed terms for the handling of such monies.  Such written, signed terms shall be tailored to the specific circumstances of the event and shall set out the manner in which the parties will abide by all relevant policies, including but not limited to:

• Conflict of Interest
• Fiscal Controls (including those governing cash handling, acceptance of payment, payments, approved credit card use, acceptance of credit cards/PCI compliance, deposit, remission of funds, and accounting)
• Bar on political activity
• Relevant tax considerations

The written agreement shall be reviewed and approved by the Treasurer before being signed by the Director, no less than two weeks before the event.

For entities that frequently collaborate with the Library (local charities, Friends, etc.), a standing agreement reviewed once per year by the respective organizations may be used, so long as it contemplates all forms of accepting and remitting money and confirms the process for the sharing or remission of the same.

 

A sample Letter Agreement is:

RE:  [NAME OF EVENT]

Dear [Treasurer of Friends]:

The Library is looking forward to the event on DATE at the Library.

At the event, the Friends will be accepting donations via cash, credit card, and check.  While the credit card transactions will be completed via a service maintained by the Friends, the Library staff will be assisting with the acceptance of cash and checks by providing a secure location to store them until deposit per the Library's process for securely holding cash.

Per Library policy, at no point will one Library employee be responsible for receiving, counting, and securing cash on site (all transactions must include two Library employees). 

The Treasurer of the Friends will sign an acknowledgement confirming the amount of cash and number of checks turned over to the Friend's Treasurer for deposit.  The receipt will be retained by the Library for a minimum of 6 years.

If such sales are made as part of the event, the Friends will be responsible for collecting and remitting any sales tax owed for any sales of retail items.

 

All of this being said, it is the sign of a strong "Friends"—or any type of not-for-profit organization—for the organization to have its own fiscal control policies and to be ready to competently receive and account for donations.

While it is not the "sexy" part of a charitable mission, fiscal controls (and the ability to security accept money) is a critical infrastructure. So, when recruiting leadership for "Friends," taking the time to find a few volunteers who are familiar with accounting is a worthwhile investment!

Thank you for an important and nuanced question.

When one considers becoming a "Friend" of a library, several activities spring to mind:

Parties
Craft fairs
A charity auction
But being a "Friend" is not all book sales and giant thermometers.  Get out your Excel spreadsheets and prepare to take good notes; for a "Friends" group, raising "charitable" money[1] comes with detailed record-keeping and government oversight.

The "CHAR-500"[2] referenced in the question, an annual filing required of many not-for-profit organizations in New York State, is a major part of state oversight.[3]

A companion requirement—also referenced by the member—is that a not-for-profit register with the New York State Attorney General's Office.

But does every not-for-profit in New York State have to fulfill these requirements?

The answer, which does depend on some of the factors listed in the question, is:

"No.  BUT—." 

Let's review.

There are several factors that can exempt a not-for-profit operating in New York State from having to register and file the CHAR500. 

Of relevance to the member's question is Article 7-A of New York State's Executive Law, which provides:

§ 172-a. Certain persons[4] exempted.

...

2. The following persons shall not be required to register with the attorney general:

...

(d) Any charitable organization which solicits or receives gross contributions of less than twenty-five thousand dollars during a fiscal year of such organization, provided none of its fund raising is carried on by professional fund raisers or fund raising counsel. However, if the gross contributions received by such charitable organization during any fiscal year of such organization shall be in excess of twenty-five thousand dollars, it shall within thirty days after the date it shall have received gross contributions in excess of twenty-five thousand dollars register with the attorney general as required by section one hundred seventy-two of this article.

So, the member is right to point out the relevance of the Friends' annual income (although the trigger amount is $25,000.00, not $50,000.00).

That said, it is important to keep in mind that the reporting requirements of a not-for-profit are not just governed by the Executive Law.[5]  Further, even the Executive Law comes with exceptions: if the organization is using a professional fund-raiser, they will need to register (no matter how much money they take in).

Trying to figure out what to do?  For Friends, this is a good one to confirm with both your attorney and accountant, but in general, it is important to remember the difference between registering, which per Executive Law 172 and 7s-a is triggered when the $25,000 dollar annual income threshold is reached, and annual filing, which per Executive Law 172-b (2-s) is triggered either by registration, or when the first $25,000 dollar annual income is reached, after which a filing is due even in years with smaller income.

Despite this exemption for annual revenue of under $25k, many organizations will register and file the CHAR500 registration because: 1) they aspire to raise more than $25k; 2) they know that potential donors often use the Charities Bureau registration to conduct "due diligence" on potential donees;[6] 3) it is a way to model transparency (and inspire trust).

But to answer the question, in this instance, unless a pro is being used... no, registration is not required.

Thank you for an important question.

[1] Meaning money being raised by a charity, for a charitable purpose.

[2] Which is what I would call my BBQ-themed bar for not-for-profit sector workers, if I were to go into the niche restaurant business.

[3] Found here as of March 14, 2023: https://www.charitiesnys.com/pdfs/statute_booklet.pdf.

[4] As used in this section of the Not-for-profit Corporation law, a "person" is a not-for-profit organization.  I know, it's weird.

[5] The IRS allows certain charitable organizations with under 500K in assets and 200k in annual revenue to file an "EZ" form, rather that the full form 990.  For more on that, visit the IRS at https://www.irs.gov/instructions/i990ez.

[6] That said, not filing when it is not required can signal a commitment to economy and conservation of resources.

NOTE: As a primer to this answer, which mostly consists of the requested template, I suggest reviewing the materials in the ever-excellent "NYLA Handbook for Library Trustees,"[1] particularly the guidance and links on page 85.

"Ask the Lawyer" has addressed the issue of "Friends" relationships before.[2] This question presents a chance to address some common areas of concern pro-actively.

Of course, since an agreement is only as good as the lines of communication between the parties who are in it, aside from reviewing this template in advance of discussing it with your Friends, get ready to spend some time on this.  A good agreement is the product of a lot of discussion, back-and forth, and work for clarity—not the other way around.  And if you can, invite your lawyer to the table.

That said, a simple template can be a handy way to frame the discussion.  So with that, here it is:

 

TEMPLATE Cooperation Agreement

_____________ Library

and the

Friends of the ______________ Library

 

This agreement (the "Agreement") between the _________________ Library (the "Library") and the Friends of the  _____________ Library, Inc. (the "Friends") is intended to further the mission of the Library and the mission of the Friends by clarifying the mission-driven collaboration, shared commitments, and terms for collaboration between the two institutions ("Collaboration").

Mission-driven Collaboration

In all matters involving the Collaboration, the Library and the Friends shall be guided by their missions.

The mission of the Library is:

INSERT

 

The mission of the Friends is:

INSERT

 

In furtherance of their missions, the Parties set forth the below "Shared Commitments."

Shared Commitments of the Library and the Friends

Shared Commitment to Ethics

In all matters involving the Collaboration, the Library and the Friends shall be guided by the ethics of their institutions, including the American Library Code of Ethics, the Library Board's Code of Ethics, the oaths of office of the Library Board Members, and the Friends Board's Code of Ethics, and each parties' Conflict of Interest policy.

Shared Commitment to Legal Compliance and Transparency

As not-for-profit institutions governed by a variety of federal and state laws and regulations, the Parties operate under an array of legal obligations, and hereby commit to model compliance and all appropriate transparency in their stewardship of Library and Friend's resources.

Shared Commitment to the Success of the Library

The Parties agree that the very purpose of the creation of the Friends is the continued viability and growth of the Library, and all their Collaboration shall be to that end.

 

In furtherance of their shared commitments, the Parties set forth the below "Collaboration Terms."

Collaboration Terms

Use of Name

In consideration of the support enabled by this Agreement, the _________________ Library consents to the use of the Library's name in the name of the Friends.

Distinguishing the Entities

Although the Friends are allowed, by this Agreement, to incorporate the name of the Library into their name, each party agrees to exert extreme care to consistently distinguish one entity from the other, and to use their respective EIN's, proper corporate names, when relevant proper Charities Bureau number and corporate identification number, at all times to distinguish one from the other.   

This obligation shall be especially critical during any marketing, contracting, fund-raising, event-planning, and when either party communicates with the public or any oversight authority.

Inter-organizational Familiarity

To ensure mutual awareness of each other, the boards shall maintain a shared record of the current information for both parties, as it is available:

• Charter (Library); Certificate of Incorporation (Friends)
• Bylaws
• Fiscal policies
• Conflict of Interest policy
• Current list of Board members and officers
• Plan of Service (Library); Strategic Plan (Friends)
• Social networking addresses
• Meeting Schedule
• Event Schedule

Board Participation

By no later than DATE, the Library and the Friends shall create and maintain a "Library-Friends Collaboration Committee," with at least three board members from each organization, for the coordination of any aspect of the Collaboration, and shall invite no less than three Library board members to serve on the committee in a voting capacity. The committee itself may also appoint three additional members, by majority vote, but the total membership shall not exceed nine. 

The Library-Friends Collaboration Committee shall have no authority to bind either the Friends or the Library.

Committee members shall serve one-year, renewable terms, which run from January to December (the Friend’s fiscal year).  The Committee shall be co-chaired by one appointee from each board, as named by the President of that board.

The stated purpose and authority of the committee shall be "To maintain a strong and routine collaboration between the Library and the Friends, to facilitate planning in furtherance of the mission of the Friends, and to ensure clarity in matters of fund-raising, fiscal goals, and specific donations."

The Library-Friends Collaboration Committee shall meet no less than quarterly, in furtherance of the commitments of this Agreement.

Annual Contribution Ratio

The Friends shall aspire to direct no less than INSERT% of their total annual income to the Library.  Any departure from this percentage shall be subject to a vote by both parties, based on the planned need to temporarily direct resources in another way, for the benefit of the library (for example, the Friends contracting with registered fund-raising counsel for a capital campaign).

Annual Planning Sheet

As part of the operations of "Library-Friends Collaboration Committee" the committee shall create for each fiscal year an "Annual Planning Sheet."  This sheet will list the special asks the library has (including but not limited to funding for acquisitions, equipment, programming, board discretionary funds, or a capital campaign), and will be used by the Committee and the Friends to determine fund-raising objectives for the year, and to pre-identify any departure from the annual contribution ratio.

Donations

The Friends will encourage donors to make "unrestricted" donations (donations without conditions).

If a restricted donation is accepted (for instance, a donation that requires a naming right, or a certain work of art be placed in the Library) the conditions of the donations must first be reviewed for consistency with the Library's controlling documents and strategic plan, and then accepted via a majority vote by the Library's board.

It is expected that at all times the Friends shall maintain appropriate records of donations and donor-restricted donations and shall issue, in a timely manner, letters of acknowledgement in furtherance of any tax credit the donor may qualify for.

Grants

The Friends may apply for grants from government and private entities for the benefit of the Library, but prior to applying for the grant, the conditions of the grant must first be reviewed for consistency with the Library's controlling documents and strategic plan, and then accepted via a majority vote by the Library's board.  This is to ensure that the time and resources used to apply for the grant are not wasted.

If the Friends apply for grants from government and private entities for the benefit of the Friends (for instance, to purchase donor management software, or to buy equipment the Friends will use for events), the Library does not need to be consulted.  However, the Friends and the Library will, through the Collaboration Committee, maintain awareness of grant applications, to ensure there are no redundant requests.

Annual Accounting

In MONTH of each year, the Treasurer of the Library, and the Treasurer of the Friends, shall meet to exchange financial reports, and to independently and/or jointly develop any observations or advice they as Treasurers may have for the Committee or their respective boards.

No Library Resources for Fund-Raising

It is understood between the Library and the Friends that no library employees shall staff a Friends' fund-raising event, and no Library resources whatsoever shall be used in furtherance of such event.[3]

Appropriate Boundaries

To avoid any concerns regarding authority and responsibility, no members of the Friends Board shall volunteer at the Library.

Dispute Resolution

To avoid any concerns to the detriment of the Friends or the Library, in the event either party believes the other has violated its mission, formation documents, charitable purpose, applicable laws and regulations, or this Agreement, the concerned party shall notify the other in writing.

If the dispute is not resolved within ten days, the parties shall agree to retain a New York Bar Association-listed mediator to resolve the dispute.  To select the mediator, the Library shall supply a list of 5 qualified candidates, and the Friends shall select the mediator from the list.  As part of their service as a neutral party, the Mediator shall certify that they may serve without a conflict of interest.

If one full-day session of mediation does not resolve the dispute, the concerned party may seek such other relief as appropriate.

Bi-annual Agreement Review and Amendment

This agreement shall continue for so long as the Friends continue activities for the benefit of the ______________ Library.

Every two years, the officers of the Friends and the Library, shall meet to review this Agreement, or refine their practices that are governed by it, as needed.

This Agreement may be amended through a two-thirds vote by both boards within the same two-month period.

Effective Date and Term

The Agreement is effective upon the date of incorporation of the Friends, and shall continue for so long as both parties are in existence.

With this understanding, on ________, the Board of the ___________________ Library passed a resolution to enter this Agreement effective as of _________________, and the Board of the Friends of the  _____________ Library, Inc. passed a resolution to enter this Agreement effective as of ____________, as signified by the signatures below.

[insert signatures, etc.]

 

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[1] Found at: http://www.nysl.nysed.gov/libdev/trustees/handbook/handbook.pdf

[2] Specifically, here: RAQ #113

[3] This is to avoid any risk of library resources being used in furtherance of a private organization.

Before we address what may be the clear signs of a dysfunctional relationship between a library and its "Friends," let's explore the basis for the Library-Friends arrangement.

A public library, hemmed in by many laws, regulations and pressures governing fiscal operations, often enters into a cooperative agreement with a "Friends" group--an independent, usually "501(c)(3)"[1] corporation who can raise and spend money unburdened by such obligations.

Here's an example of how this works:

A town's library wants to create a special collection on "Local African-American Heritage"…a project that will be done in collaboration with a noted Black historian, the Black Studies department of a nearby college, and the archivist of a historically Black church in the town.  The initial $10,000.00 donation to kick off the collection was left to the Friends by a donor in their will.

The Library and Friends create a joint committee to make the special collection happen.  As envisioned by the joint committee, the project will involve renovation of a room in the library previously used for community meetings, as well as the acquisition of a wide range of books, museum-quality and ADA-compliant signage for the walls, and an oral history project housed on special interactive technology.  The library's staff will receive special training on the resources and the room.

The new section's "Grand Opening" will feature a keynote speaker who some town residents find controversial.  After the ribbon is cut (the Friends already own giant scissors) the Friends will host an off-site catered reception featuring a local rapper, which donors, trustees, project collaborators, staff and the media can attend for free.

Through careful planning by the joint committee, the details, budget, procurement procedures, and contracts for the room and opening events have been determined, and the bills are being paid entirely by the Friends.  However, the contracts involved are not so simple.

The construction contracts were bid and had to follow all applicable procurement laws and regulations.  The invoices for the new books are only in the name of the library.  The off-site venue and catering contracts are only in the name of the Friends, but the contract expressly "holds harmless" the library.[2]  And although her speech will be in the new room, the contract for the speaker is only in the name of the Friends…a tactic used to avoid community accusations that taxpayer money was spent to generate controversy.[3]

How does a library and its Friends reach this high-functioning ideal of collaboration?  It takes a well-crafted (and periodically re-evaluated) Collaboration Agreement,[4] sound policies, and  routine, informed communication by both sides.  This isn't to say there won't be a spat or two.  But with a commitment to those things, a library-Friends relationship can be appropriately challenging, while reaching a productive ideal.

The questions posed by the member show what can happen when things are less than "productively ideal."  They sound like symptoms of a problem I call "Friends Drift."

"Friends Drift" is where a previously strong relationship (or perhaps one that was never so strong), leads a library and its Friends to drift so far apart, they cease to collaborate effectively.  As a result, the types of great programming and support the relationship was forged to create cease to materialize.

What does "Friends Drift" look like?  It can have any number of causes and symptoms, but here are some solid hallmarks:

• Collaboration Agreement doesn't exist;
• Collaboration Agreement is over 7 years old without any revision in the past 7 years;
• Collaboration Agreement can't be found by newer leadership and no one has initiated a step to draft a new one;
• Prior operations depended solely on personal relationships and not written policy, so new members don't have a roadmap to proceed;
• Lack of policy between the two groups for approving expenditures and fiscal planning;
• Lack of routine productive meetings between the two groups;[5]
• Lack of separate but coordinated strategic planning;
• Lack of clarity about payment and fund-raising procedures;
• Friends board making decisions that are the purview of the library board (or visa-versa);
• Distrust and questioning propriety of the other's operations (as seen in the member's questions).

In the example provided by the member, the "Friends Drift" is so serious, the library is even wondering if the Friends are in compliance with State and Federal laws. 

This is particularly worrisome because as not-for-profit, charitable organizations, the fiscal and operational integrity of both a library and its Friends should NEVER be something one has to speculate about.  In New York, a public library must file an annual report with the Comptroller, while its Friends group must file both a "CHAR500" with the New York Attorney General and a form 990 with the IRS.[6]

Those mandatory filings should provide everything needed for mutual assurance fiscal responsibility and transparency.  If there is uncertainly even if those things are done, something has gone astray.

Which brings us to the member's specific questions, which I need to modify a bit, in order to provide accurate answers.

The first question is about whether a Friends group can withhold money from the library when the library asks for it. 

The answer to that is: YES, that might be okay.  In fact, it is often perfectly appropriate (and sometimes, highly advisable) for a Friends group not to pay for certain things for its affiliated library.  For instance, while this is a critical factor to be decided only by the library and agreed to by the Friends, I would encourage any library to think twice (and twice again) before using a Friends group to routinely supplement an annual operating budget.  In that same vein, a Friends group shouldn't pay (at least, not before deep and critical policy and fiscal analysis) a regular cost-of-living adjustment for staff salaries. 

Why? Because this type of predictable, routine expense is something that should be built into the base operating budget, and supported by the sponsoring tax base(s).[7]  While community budget battles aren't always pretty, they are an essential connection to your area of service.  Having Friends underwrite routine expenses to meet the library's basic Plan of Service is a potentially bad habit.  In my opinion, it is something an experienced Friends group will meet with resistance.

So, what are Friends for?  To put it in baking terms, they are for two things: whipping up delicious and beautiful frosting, and going from cupcake to cake.

The "frosting," is all the "extras" that are really flavorful essentials: speakers, new collections, special programming, or perhaps a really cool new set of carts or 3-D printer.  They should be highly visible and make things better…just like lovely pink frosting on top of a chocolate cupcake (and just like the frosting, they could actually be a huge factor in the appeal of the cupcake, and have more calories - I mean, cost more money).

And the journey from "cupcake to cake"?  That's a capital campaign.  Need a new building?  Hoping to expand?  Want to build a green roof with solar?  One-time physical upgrades are great candidates for "Friends" generosity and work, where the money can supplement a state grant or bond issue, or even take on the whole nut.

That's what Friends are for.[8]

Which bring us to the next (slightly modified) question: what if "Friends" funds aren't being released at all?  Can that risk their status at a not-for-profit?

Although there are some things Friends might not pay for, I can say with just as much assurance that any organization built solely around the well-being of a library, that does not use its resources for its not-for-profit purpose, is going to have some serious concerns.  And yes, those concerns could impact its charitable and 501(c)(3) status.

To diagnose those concerns, an attorney for the library (or the Friends) would need to review the group's charter, bylaws, recent CHAR500's and 990's, and (if possible) board minutes and correspondence with the sponsored library.  If there is a Cooperation Agreement, that should be reviewed.  The method of requesting funds, and the basis for the refusal should be assessed.  And of course, any exigent circumstances (were the Friends the victim of a theft?  Did they not meet their fund-raising goals?  Did they not yet conduct their audit?) would have to be considered.

Depending on what was found, legal action based on a violation of the Agreement could be threatened/brought by the sponsored Library, or a complaint to the New York Attorney General Charities Bureau or the IRS could be lodged.  If things get to that point, it's likely the relationship is highly adversarial, and each party would have brought in a lawyer. 

Now, I like lawyers.  Being one, I see their value, and I never hesitate to recommend when I think a party needs to consult one.  After all, it's how I make my living.

That said, if a library and their Friends are experiencing "Friends Drift" of the type discussed above, and its looking like things will get ugly, I recommend after initially working with their lawyers, the two groups consider using a mediator, not two adversarial lawyers, to help sort things out.

Now, when I say "mediator," I don't mean just any nice, neutral person who is willing to listen to both parties and help out. I mean a trained professional who knows the law and the obligations faced by both sides (likely a lawyer with not-for-profit experience), who can help them assess their mutual goals, and get their relationship on the right track. 

In some cases, the mediation could be a respectful, productive "airing of the grievances" used to diagnose the problems and craft a new (or a first) Cooperation Agreement.  In simpler cases, it could mean merely solidifying the functions of the groups' committees or developing some healthy new policies and procedures.

How does a mediation get set up?

A mediation is always conducted per a written "Mediation Agreement" that sets out the obligations of the mediator and the parties (a big one being confidentiality of the proceedings, another being the neutrality of the mediator and the willingness of the parties to proceed "in a spirit of mutual problem-solving").  The Mediation Agreement should also establish clear goals for the process (such as "…in furtherance of the mission of both parties, a session to discover and confirm shared procedures for the planned payment of certain library expenses") and defined results ("…the final product shall be a new/revised Cooperation Agreement to meet the needs of the parties for the next five years.").

A county's local bar association usually maintains a list of trained mediators.  That said, for an exercise like this, not only mediation experience knowledge of libraries and not-for-profits is essential.  The price tag for such a session could be anywhere from $1000-$50000 (with costs shared equally by the parties), but when compared with the costs for one party to hire a lawyer to go on the offensive, and the other to play defense - with nothing created but bad feelings and complaints in the end - as an investment, it may be worthwhile. 

This is especially true since--unless something truly nefarious[9] is suspected - "Friends Drift" is generally the result of good people caught up in the complicated web of not-for-profit operations, and not knowing quite what they can and should do.  But good intentions don't automatically translate into knowing how to run a compliant not-for-profit.  And when people try to wing it, trouble can start.

This is why the library-Friends relationship[10] can be fraught with fiscal drama, and "Drift," even when all good people are involved. 

The member's questions show how this drama - and Drift - can take up a lot of staff and volunteer energy, and cause a lot of stress.  Working to maintain good relations, and perhaps using a mediator when relations are strained, can be the best way to harness that energy for the library and its Friends…and thus, for the entire community.

Thank you for a difficult question on an under-discussed topic.

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[1] Meaning: donations to the group are tax-deductible, while operations are limited to its not-for-profit purpose.

[2] The library's pesky lawyer insisted on this, since the library is involved in the event.

[3] I know many taxpayers don't really care about the "Friends/Library distinction," but it never hurts to try to keep them distinct.

[4] It doesn’t have to be called a "Collaboration Agreement," but every library and friends combo should have a written contract that addresses how they operate together.

[5] The sad fact is, board committees can meet regularly and get nothing done (in other words, be "unproductive").  Signs of an unproductive board/committee meeting are: 1) big ideas are discussed but nothing is acted upon, 2) there are few if any anticipated resolutions for action items, and 3) a lack of clear objectives set at one meeting for action by the next meeting.

[6] I imagine there are tiny exceptions to this but in such a case, there would be other requirements for fiscal transparency.

[7] I am a lawyer, not a library budget specialist.  This is a good topic to visit with your library system…they are there for you on all things tax levy and budget!

[8] Yes, I have that song stuck in my head now.

[9] By "nefarious" I mean suspected embezzlement, conflicts of interest, fiduciary neglect, or other issues that aren't just disconnects, but possible wrongdoing by a Friends board.  If those are suspected, a Library should work with their lawyer on next steps.

[10] Libraries, you're not alone.  This is a problem in religious organizations, social clubs, and other volunteer-driven organizations…although the people in library disputes might be better at trivia games and have larger vocabularies.