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ESF Finance Public Meeting

ESF Finance Public Meeting. Dec 9, 2010 Bradbury School 6:30pm. Topics to be Covered. ESF Accounts School Funding ESF/ESL Relationship Private Independent Schools ESF Centre. ESF Accounts.

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ESF Finance Public Meeting

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  1. ESF Finance Public Meeting Dec 9, 2010 Bradbury School 6:30pm

  2. Topics to be Covered • ESF Accounts • School Funding • ESF/ESL Relationship • Private Independent Schools • ESF Centre

  3. ESF Accounts • ESF prepares annual accounts in accordance with Hong Kong Financial Reporting Standards and The English Schools Foundation Ordinance. • KPMG, one of the big four global accounting firms, is our external auditor and they express an opinion on the accounts every year.

  4. ESF Accounts (2008-09)Income and Expenses • Major income sources: - Tuition fees: $943m (72%) - Government grants: $269m (21%) - Rental income from quarters and school facilities: $53m (4%) • Major expenses: • Salary related expenses: $945m (79%) • Depreciation: $86m (7%) • Repairs and maintenance: $60m (5%) • Other operating expenses: $109m (9%)

  5. ESF Accounts (2008-09)Income and Expense Balance sheet (Aug 09): • Assets: Fixed assets - $806m Cash - $346m • Liabilities: Advance fees - $137m Accruals for major repairs - $106m Payables - $188m Hardship allowance - $35m

  6. ESF Accounts (2008-09)Reserve Reserve: $735m ESF’s reserve is created from profit, that is the accumulation of accounting profits over the previous years. It represents the theoretical net value if we sell off all our assets and pay off all our debts. Hence, it is not the amount of cash ESF can spend.

  7. School Funding Financial resources for schools: A funding formula has been used to ensure the fair distribution of funding to schools. Controlled by schools: - Staff funding - Teaching and Learning Responsibilities Allowance (TLR) funding, e.g. Head of Department, Head of Year, etc. - Information and Communication Technology (ICT) funding - Others Controlled by ESF Centre - Centrally held funding

  8. School Funding Staff Funding Teaching staff funding: • a student number-based formula • target enrolments agreed with each school • amount determined based on median teacher salary (MPG 9), contact time, and curriculum (e.g. IB) • learning support, English as an Additional Language, Chinese, and Higher Education Counselor for secondary schools are given additional funding • surplus from the staff funding budget will be accumulated at school level, to be used at school’s discretion, within the guidelines set

  9. School Funding Support staff funding: • base funding plus additional amount per student • some positions such as pool attendants, lab technicians and workshop instructors are individually calculated • Chinese and Learning Support Centre Educational Assistants are additional to the formula • Schools are free to plan their staffing within the budget Schools can move funds between the teaching and support staff budget. Supply teaching funding: • for leave of absence and CPD • calculated as a % of teaching funding

  10. School Funding TLR budget: • based on size of school • 4 levels of TLR (primary TLR 2-4, secondary TLR 1-4) • established models based on student number • schools are free to assign positions within budget, but no more than 50% of teaching staff body can receive TLR ICT: • based on a number of factors: number of students, staff, departments, senior leadership, and classes

  11. School Funding Others: • Electricity supplement: student number based • Teachers training fund, e.g. Special IB Diploma teacher training fund for secondary schools • Operating expenses for office supplies, books, etc. - student number based Centrally held funding: • Summer works • Major capital works • Provision of continuing professional development for centrally held training

  12. ESF/ESL Relationship ESF • ESF is a statutory body established pursuant to the English Schools Foundation Ordinance. • The main object of ESF is to administer and operate, within Hong Kong, schools offering a modern liberal education through the medium of the English language to boys and girls who are able to benefit from such an education.

  13. ESF/ESL Relationship ESL • ESL is a company limited by guarantee established under the Companies Ordinance. • ESL is a registered charity and was originally set up to provide kindergarten education, language classes and extra curricular activities. It also operates the two Private Independent Schools. • The reasons for using such an arrangement are: • Tax exemption treatment under section 88 of the Inland Revenue Ordinance, and • Ring-fencing the PIS schools and kindergartens from the subvented ESF schools.

  14. ESF/ESL Relationship • The relationship between ESF and ESL was reviewed in detail by Mayer Brown JSM and KPMG at the request of the ESF Board on 11 May 2010. • The review considered the relationship from operational, legal and accounting perspectives and concluded that the current structure is acceptable from a risk and control perspective, and that there would be no tangible benefit from changing the existing arrangements. • The review opined that ESF has de facto control of ESL, making ESL effectively a subsidiary of ESF.

  15. ESF/ESL Relationship • ESF and ESL each keeps its own set of financial accounts. • Budgeting process is dealt with separately. • ESL receives support services from services from ESF. • ESF charges ESL an annual management and administration fee for the provision of such services. The fee is set at $3.5 million for 2010/11 and is determined by the proportion of time employees at ESF Centre spend on ESL matters during the year.

  16. Private Independent Schools • The Government selected ESF as a qualifying sponsoring body in relation to Private Independent Schools. • The applications for the construction of new schools under the Hong Kong Government’s Private Independent Schools policy was approved by the Government in 2000 and 2001 respectively. • In 2000 and 2001, ESF and the Government agreed for ESL to take over from ESF the role as the qualified sponsoring body to avoid confusion with the part of ESF’s activities which was supported by Government subvention.

  17. Private Independent Schools • Two primary-cum-secondary private independent schools, Renaissance College and Discovery College, are currently operated by ESL. • The two schools have a student capacity of 2,100 and 1,300, and enrolment of 1,872 and 901 respectively. • The Development and Operating Agreement (DOA) between ESF and ESL included the below: • ESF builds and owns the school premises and all furniture and equipment; • ESL undertake to operate and manage each of the schools; and • ESF has the right to receive fees from ESL.

  18. Private Independent School

  19. Private Independent Schools • The costs of constructing the two schools, net the Government grants, are included in the ESF accounts as Fixed Assets. • Based on the DOA, ESL makes a repayment to ESF every year. Total repayment received up to 2009-10 is $41.6m ($32.5m from Renaissance College; $9.1m from Discovery College). In 2010-11, the repayment is set to be $15.6m. • It was agreed that the funds ESF invested into the two PIS will be repaid within 20 years, including a 3 month HIBOR+1% return.

  20. Private Independent Schools

  21. Private Independent Schools • The tuition fees of the two private independent schools are set based on: • Market conditions • Cost structure • Overall profitability of ESL • Enrolment numbers

  22. ESF Centre ESFC provides the following services to our schools and ESL: • Education (strategic planning, assessment, reporting, continuous professional development, admissions) • HR management and support (recruitment, contracts, remuneration and benefits, systems support) • Finance (budgeting, reporting, internal control and monitoring, billing, payroll, payments, banking, procurement, systems support) • Facilities Development (major repairs and maintenance) • IT (planning, systems support, data management, infrastructure) • Communications (website management, marketing and fundraising, organisation wide communication) • Internal audit

  23. ESF Centre • Supporting 9 Primary, 5 Secondary, 1 SEN schools, 4 kindergartens and 2 PIS. • Total staff in the organisation, including ESL is approximately 2,700. • End of Sept 2010, ESF Centre has 104 staff member, representing 6.2% of total staff population in ESF, and 3.8% of total staff population including ESL. • ESF Centre’s staff cost is approximately 4.4% of ESF total revenue, and ESF Centre’s costs is approximately 6.2% of ESF total revenue.

  24. Appendix I – Fees Comparison (Primary Schools) Note: Information on other schools were obtained by enquiry.

  25. Appendix II – Fees Comparison (Secondary Schools) Note: Information on other schools were obtained by enquiry.

  26. Appendix III – Profitability of ESL (Draft 2009-10 numbers) HK$M HK$M HK$M

  27. Appendix IV – Analysis of Differential between ESF Foundation Schools and PIS Fees

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