Managing your school Understanding school finances

Posted by Michael Shabi on December 28, 2017December 28, 2017

Key sources of financial information

You will find information about resourcing and school finances in these areas of the Ministry of Education website:

Resourcing

Describes how schools are resourced and includes associated regulations and processes. If you have the resourcing handbook, also known as the Funding, Staffing and Allowances Handbook in hard copy, check that updates in your copy match what is online.

School finances

Has an accounting focus. Provides a clear and detailed explanations of financial best practice. Includes the Financial information for schools handbook (FISH).

School funding sources

Schools receive three types of funding through the Ministry of Education.

Operational funding – commonly called BG or Bulk Grant
Staffing entitlements – commonly called TS or Teachers’ Salaries
Property funding for capital works and funding for special activities.

The Resourcing Division administers Operational funding and Staffing entitlements while the Education Infrastructure Service (EIS) administers property funding.

Schools can also generate income from certain activities such as fundraising, donations and parent payments, trusts or fee-paying students.

Operational funding (BG)

Operational funding covers a school’s running costs, including the wages of all non-teaching staff, property maintenance, classroom materials, purchase and depreciation of capital items, leases and rentals and staff professional development.

Operational funding is calculated using school rolls and other factors such as decile. It is responsive to roll fluctuations.

The ministry pays it directly into your school’s bank account every three months. Each payment is approximately one quarter of your annual funding entitlement.

Read the operational funding information on the Ministry of Education website for a full explanation of the processes around this.

Operational funding – Ministry of Education

Teachers’ salaries (TS)

Staffing entitlements are also calculated on a formula.

The ministry pays the salaries of the teachers a school employs from within the school’s staffing entitlement. The ministry pays these salaries directly to teaching staff through an agency.

As principal you are responsible for making sure:

the level of staffing for the school does not exceed the levels confirmed by the Ministry of Education
the specific payments to teachers are correct in terms of their employment agreements. Each teacher should have an employment file where pay increases etc. are located and noted through a bring-up system.

Banking staffing monitors the teachers’ pay. It is important all principals fully understand how this works.

Banking staffing gives boards some flexibility in timing the use of staffing entitlement.
In one year, schools can choose to: anticipate up to 10 per cent of their staffing entitlement, using it in advance or going into overdraft; save up staffing to use later in the year – under-using or banking.

Read the school staffing information on the Ministry of Education website for a clear explanation of regulations and processes for staffing and salaries, including banking staffing.

Keeping the accounts

As principal, you and your board of trustees need to feel sure you can account for all money coming into the school and how it is spent.

Generally, schools or a financial service provider use a financial management software package.
Keeping the accounts involves, therefore, a data entry process so that you can generate all your necessary reports easily.
In small schools, it can be tempting to save money by doing the data entry yourself, but this is neither a safe nor sensible practice.

As a significant community business, it is very important that your school pays all monies due on time and in full to maintain healthy community relationships.

Read the financial management chapter in the Financial Information for Schools handbook to get a broad picture of what needs to be done in this area.

GST

Schools usually make GST returns on a two-monthly basis. Make sure staff know that GST invoices or receipts are essential records of expenditure. Invoices and receipts should be given promptly to the person responsible for GST accounting records in the school.

Attendance dues accounts

State-integrated schools must provide audited annual attendance dues accounts to the Ministry of Education.

Preparing the budget

Good financial practice means managing money and money processes so the budget is aligned with the school’s strategic plan. Budgeting is an important process that allows for some delegation of financial tasks and responsibility in larger schools.

The Ministry of Education has regional financial advisers who are available to provide advice on budgeting in schools.

Reporting on and reviewing school finances

Monthly and annual reporting is a key part of keeping your financial systems secure and successful. Before each board meeting your financial service provider or executive officer should prepare a management report. This should include:

income statement, balance sheet and notes associated with these reports. As a minimum the reports should include information to date, budget amount and percentage spent. A variance report showing obvious unders and overs is also recommended
bank reconciliation for all accounts the school uses
progress reports on any capital expenditure planned or underway (such as property or ICT purchases)
a financial forecast to the end of the year, which could be a cashflow forecast, is also a good monitoring tool and can be obtained from your service provider
banking staffing usage year-to-date and planned usage for the remainder of the year.

Before attending board meetings you should be comfortable answering all of the following questions:

Has all income and expenditure been properly reported?

Are capital expenditure purchases reported separately from the regular financial reports?

Does the financial report provide a forecast for the end of year? Is the school on track to meet the budget?

If the forecast is indicating that the school is not on target to meet budget, what steps is the school taking to rectify the outcome?

Do I know what the status of banking staffing is – under- or over-used? Am I and the board clear on the impact of banking staffing?

Do we have a clear understanding of the cost of both teaching and non-teaching staff that is being expensed to the operations grant?

Routine reviews

Reviews provide the security of knowing from month to month and year to year the state of your school’s financial systems. Ensure they are carried out thoroughly and in accordance with the required time frames.

REMEMBER

Do not rely on others for financial information – knowing about school finances is part of being a principal. If you don’t know, ask.
Get to know your financial contacts. Seek support from the Ministry of Education’s financial adviser for your region.
If you have a cashflow problem, please call your local ministry office. It is much easier to save a school at an early stage than to find out when it is potentially too late.
A cashflow concern does not happen overnight and will not happen if good monitoring processes are in place.
Before you take up a position at a new school do the following:

Check the school’s financial position. Becoming fully aware of this before you start helps to ensure school resourcing decisions made in your first term are appropriate. Financial reports are available from the school or the Ministry for the previous accounting year.
During the application process, do your homework on community, demographics, roll and so on, to help build a picture of the school’s resourcing position.

Useful financial terms

Equity – Debits – Credits – Balance sheet – Bottom line – Operating statement – Percentages – Cyclical maintenance – Operating loss/surplus – Viable/not viable – Working capital- Solvent/ not solvent – Depreciation – Fixed assets – Working capital – Banking staffing – Bank reconciliation

Financial self-checklists

GENERAL

I know and understand the formal financial delegations put in place by our board.
I know that robust financial structures are in place with office staff, accountant, and service provider.
I know how money is receipted, how cheques are drawn, where the cheque book is left at night, where the cash is kept overnight.
I know and understand the internal financial controls and know that staff is applying them. An order book system is in place. I know how to call in order books if spending gets out of hand.
Our financial filing systems are easy to follow. If I need to look up a payment, the process is straightforward.
Financial timelines are adhered to – that is, monthly reporting for the board and so on. All financial reports are available to the board meeting. Prior to meetings, I will have read and understood what our current financial position is.
I know how the plans for 10-year cyclical maintenance and 5-year property funding work, and how the 10 year plan is linked to the budget. For example, a school is required to budget to keep exterior paint work up to date.
I know about replacing assets and ensuring funds are put aside for this. I plan so that there are no surprises. I review depreciation and benchmark rates annually.
I ensure the roll is checked against the operational grant notice after the 1 March and 1 July roll returns (for primary). Secondary schools now have their operational grant reviewed at the time of the quarterly grant drops. Roll change up or down impacts on the year’s operational funding and will affect budgets. Roll changes will impact on future staffing as well.
I do not create large reserves. The money is provided annually for the students and should not be squirreled away unless it has a specific purpose.
I ensure appraisal systems for office staff who handle cash and do accounting work are carried out fully.

PLANNING AND BUDGETING

I use robust and transparent budgeting processes. These are linked to the charter/strategic plan. Good budgeting will also assist with the preparation of the Statement of Variance at year’s end, as it is written from the annual goals.
I prepare my budgets in Term 4. A draft is adopted before the end of the year and finally adopted in February/March.
I monitor spending within budget parameters. An over-spend in any part can mean disaster, even though other budgets are underspent. Look out for annualised support staff payments – January can be expensive, even though no staff is in attendance.
I delegate. A principal can delegate the financial functions down but still has to know what is happening with the finances.
I have developed the capability of teaching staff in budgeting processes. This is an excellent idea – get everyone involved.
When necessary, I liaise with the service provider. This is a good training source and checking device to ensure all processes are working well.
I talk with the auditor when they visit.

Remember, as principal, you, as well as the board chairperson, sign off the annual report. You need to know how the finances work in a school to be able to do this.

POLICIES

All financial policies are up-to-date and are reviewed annually. This is done with the board.
Know what a policy is and what is a procedure – don’t get bogged down with too many policies when a sound procedure provides the control.

PAYROLL

I monitor the fortnightly payroll system; keep a record of all staff, pay rates, annual leave balances, sick leave balances, and pay increment dates.
I ensure staff paid from the operational grant are paid as per budgets.
I annually review hours of staff paid from the operational grant. A drop in the roll of 20 may mean a reduction in hours.
I know how to read payroll and banking staffing reports. Remember, a banked staffing debt can be costly. Any debt will be repaid per FTTE at rates set each year by the ministry. Debts can be costly for schools in ensuing years. Starting carefully with banking staffing is probably a sound idea.
I ensure claims for relievers and so on are actioned on a regular basis.
I have checked that all people named on the annual SUE summary report are on the school’s payroll.