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Managing School Finances – Executive Officer Presentation A Practical Guide. Objective and Themes for the session. Themes. Governance & Management structure Financial Policies Financial Management Financial Compliance Key transactions and areas of focus Staffing Property
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Managing School Finances – Executive Officer PresentationA Practical Guide
Objective and Themes for the session Themes • Governance & Management structure • Financial Policies • Financial Management • Financial Compliance • Key transactions and areas of focus • Staffing • Property • Payments by Parents • Other Areas if Interest
Governance & Management Structure Your school provides an education service to your community, in a similar way a business provides a service to its customers. Lets consider those similarities. Each of the parties plays a different role in the financial management of the School.
Financial Policies • What is the purpose of a financial policy? • To help ensure that school's financial resources are managed effectively • To maintain accountability for, and control of, the school's financial resources. • To safeguard the assets of the school for future generations of students. • Financial policy’s clearly set out the responsibilities of the Board of Trustees and School Management • Delegates responsibility and authority from the Board of Trustees to Management • Day to day management • Operational spending limits (delegated authority) • Operational activities e.g. preparation and submission to audit of the annual report
Common Financial Policies • Examples of common financial policies can be found: • Cash Management / Petty Cash • Schedule of Delegations • Credit Card Policy • Sensitive Expenditure • Travel Policy • Conflicts of Interest • Separation of Duties • Examples of common financial policies can be found: • Ministry of Education website • NZSTA - http:/nzsta.org.nz/professional-development/template-resources • Collaboration with Schools on fundamental operational policy
Good financial management is …. Common sense - think of it like personal finance • Not spending more than you get • Prioritise and then monitor spending • Plan for the future • Cyclical Maintenance • Asset Replacement • Common areas of financial risk • The leading causes of Schools finding themselves in financial difficulty are: • A declining roll • Over staffing • Significant asset purchases
Key Indicators of Financial Health Operational Roll information - how is your roll tracking? Staffing • Banking staffing usage is on track -not in significant overuse or underuse position • Board funded staffspend is within budget (as % of operational funding) Financial Statements • Positive operating surplus (rather than a deficit) • Positive working capital • Positive equity • Positive available cash, which is • Working capital plus term investments less term liabilities, • Consider directly noting tagged funds for Cyclical maintenance and future Asset replacement • How are you tracking against budget? • Explanation's of variances of more than +/-10% • Have you targeted your funding to where it is most needed?
Budgeting and Forecasting • Your budget is the most powerful tool you have to control your finances it is a plan of action and a standard way of tracking your income and expenditure • You have effectively have three budgets: • Operational – includes all expenditure a school incurs representing both cash and non cash (cash in the future/ accrual transactions) transactions • Capital – what you are planning to spend on new or replacement fixed assets. How you plan to spend your depreciation charge • Cash – is only the actual budgeted cash in flows and outflows i.e. includes actual capital expenditure and painting maintenance expenditure • Why is forecasting important? • It can simulate the impacts of different financial decisions or scenarios • How long can I afford to undertake this course of action? • If the school is in a difficult financial position it can be used to evaluate the time required to change the current position and what actions need to be taken.
Phased Budget Budget Template
What could a good monthly Board of Trustees report look like? • Make it user friendly – not all Board of Trustees members are accountants • Use graphs to show tracking during the year • Key graphs will show the key financial indicators of a schools operations, for example: • School roll • Banking staffing usage • Board funded staffing usage • Net surplus/deficit for the year to date • Working capital year to date • Available cash position • Tell the Board of Trustees about significant movements (+/-10%) from the Year to Date (YTD) phased budget and why • Show the school’s cash position and from that how much of the funds are tagged for a purpose • Should be prepared on an accrual accounting basis to avoid surprises at year end
Financial Reporting Compliance Important annual dates • 31 December – End of the school financial year • By 31 March – All draft annual reports are to be provided to your Auditor (section 87A) • By 31 May – All audited annual reports are to be provided to the Ministry of Education (section 87C) Preparation of annual accounts • All schools must prepare an annual report, under section 87 of the Education Act 1989. • This includes financial statements, and these must be audited (section 87A). • Kiwi Park is the name of the model financial statements prepared by the Ministry • It is compulsory to prepare your financial statements using the Kiwi Park model (section 87 (3AA)) • This helps ensure your financial statements meet the reporting requirements, streamlines the reporting of school finances across the country and ensures a consistent approach is taken • All annual reports are to be published on the schools website (section 87AB) • A copy of the Kiwi Park model is available on the Education.govt.nz website
Auditor’s Management Letter • This letter is required to be sent to all schools as part of the audit process, it is received at the conclusion of the audit, unless an interim management letter has been sent • The letter addresses items of interest noted during the audit, such as • Internal control weaknesses • Breaches of legislation • Financial position concerns • Sensitive expenditure • What should you do with the Auditors management letter? • Read it, research the points raised and respond to the auditor • Minute the response • The comments from the Auditor are designed to bring to your attention where improvements to your processes and systems can be made • What are you doing to address the issue(s) and safeguard yourself and your school?
How Staff are funded • Banking staffing is the management of your teaching staff entitlement • Board funded staff are your staff that are paid from operational funding (from your bank account) • Who are Board funded staff? • Administration employees – Office Managers, Reception, Executive Officers • Property employees – Caretakers and Cleaners • Learning Resource employees – Relievers, Teacher Aides Board funded teachers • Locally Raised Funds – International Student Staff, ASC programs
Banking Staffing • Every year in September, The Board of Trustees receives notification of your school’s Teaching staff entitlement to help you employ teachers. • Ideally Banking staffing will be “balanced” by year end (that is a nil position), • However a school can adjust any under or over position at the end of the Banking staffing year (PP22) during Pay periods 23 to 26 (the balancing period) • For example; An Overuse position at PP22 can be off set by Underuse in PP23 to PP26 • Overuse or Underuse of Banking staffing is recovered from the 1July operations grant payment. • 2019 recovery rate per FTTE (Overuse) - $72,500 plus GST • 2019 recovery rate per FTTE for Underuse - $55,500 plusGST • (up to 10% of your annual entitlement
How does the Banking Staffing year work? The Adjustment period (2nd Chance) to bring the pay year in line with the tax year (being Pay period 23 through Pay period 26) The schools annual financial year (being 1 January through 31 December) This is where the Pay year changes from 20XX26 to 20X(X+1)01 The tax year for Income tax purposes ends on 31 March every year The Teaching pay year starting in February and ending in January the following year (being Pay period 23 through Pay period 22)
How to Forecast my Banking Staffing position – An Example From the previous slide
Why is over staffing a risk? – Board Funded Staff • Board funded staff as a percentage of operational funding is important to understand. • Commonly when a school is operating in a deficit position it can be linked to staffing challenges. • All staff over your teaching staff entitlement are paid via your bulk grant. • If you spend a large portion of your operational funding on staff, how are you meeting the school other ongoing commitments? • Be aware of this when moving teaching staff between payment locations.
How is Board funded Staff calculated – as a % of Operations Grant • Take your annual operational grant funding and allocate it monthly • Include all direct funding for staffing e.g. ORS funding • Record the Year to Date (YTD) amounts for all wage and salary expense codes • Divide the expenditure by the income • This will give you your percentage of operational funding (bulk grant) used to fund staff wages and salaries • If the Board Funded Staff % is greater than your budgeted usage of your schools operational grant funding, your school may have a staffing challenge
Integrated School Property • Integrated schools must have long-term property plans that coordinate capital, maintenance and development projects. Integrated schools can choose to follow the Ministry’s 10 Year Property Plan (10YPP) process, which includes updating a Condition Assessment each year. • Proprietors and their boards of trustees should work together to plan how they will spend the maintenance and capital funding provided by the Ministry. • Maintenance plans: Every year, boards must prepare and deliver to their proprietor a rolling 10-year maintenance plan to assure the proprietor they are meeting their maintenance obligations. • Capital development plans: The Ministry provides Policy One funding to proprietors to modernise and upgrade their integrated property. Proprietors, in consultation with their boards of trustees, must prepare a rolling 10-year capital development plan showing how this funding will be spent.
What is Cyclical Maintenance? • A cyclical maintenance plan is different to the 10 year property plan (10YPP), but it is prepared at the same time. • Cyclical maintenance usually includes external and internal painting of the school, but can cover other long term maintenance. • It is a live document that should be reviewed annually by the Board of Trustees. • Cyclical Maintenance Provision • A portion of the cost of completing the work on the plan is expensed each year. This is built up over several years and is represented as a liability in your schools financial statements until you undertake the maintenance work. • It represents a real cost to the school, not now but in several years time. You need to save money to meet this future cost.
Cyclical Maintenance Provision example School Buildings Year since last Painted / Expected next Paint Total Paint Cost / Annual expense Current and Non –Current portions of painting
Statutory Right 3. Right to free primary and secondary education Except as provided in this Act, every person who is not at international student is entitled to free enrolment and free education at any State school or partnership school kurahourua during the period beginning on the person’s fifth birthday and ending on 1 January after the person’s 19th birthday. 447. Attendance dues (1)The proprietor of a State integrated school may, if the intergration agreement for the school so provides, enter into an agreement with the parents or other persons accepting responsibility for the education of a child providing that the parent other persons must pay attendance dues as a condition of the child’s enrolment at the school. (2) The dues must be established for the State integrated school or group of State integrated schools at the rates, and subject to the conditions, that are approved by the Minister by notice in the Gazette. 451. Financial contributions (2) Financial contributions other than attendance dues must be made on a voluntary basis and no student may be refused enrolment because of the unwillingness of parents to contribute in the way.
Payments by Parents • It is unlawful to charge or compel any payment for anything associated with: • Enrolment process • Curriculum • Donations may be requested but cannot be compelled or enforced • Parents are free to pay requested amounts in full, in part, or not at all • GST is not payable • Donation Tax Credits can be claimed • Invoices must clearly differentiate between voluntary donations and required fees.
Income Tax and GST • State and state-integrated schools do not need to register with the Charities Commission to be exempt from income tax for school operations. • Income tax – state and state-integrated schools are exempt from income tax under the Education Act (Schedule 6, clause 2). • Doneestatus – state and state-integrated schools have approved donee status from Inland Revenue. This means that people or organizations that make cash donations to them qualify for tax rebates. Goods and Services Tax • Schools are subject to GST & FBT • GST is a 15% tax payable and receivable from the IRD • All financial statements are exclusive of GST • All budgets are exclusive of GST
Borrowings Threshold 26. Breach of borrowing authority The Board has failed to comply with Schedule 6, Section 29 of the Education Act 1989 in that no authority is held from the Ministry of Education for borrowing which, in aggregate, involves repayment of interest and capital in excess of one tenth of the board’s operational activities grant for the year. The extent of the breach is assessed at $X,XXX in excess of the 10% allowable limit. (2017: nil) What will cause a borrowing breach? • Borrowing (including any finance lease, overdraft or other loan) that causes the school’s total annual principal and interest repayments to exceed 10% of its operation funding. What to do? • Obtain prior approval from the Ministers of Education and Finance • Guidance can be found in the FISH handbook on the Ministry of Education website
Probity / Sensitive expenditure “The Public Audit Act 2001 raises Parliament’s concern that public entities should not enter into transactions or activities that are wasteful, or that show lack of probity or financial prudence. In particular, probity is concerned with whether the expenditure may be justified from a public perspective.” • All money received by a school, whatever the source, automatically becomes public funds / crown funds • Locally raised funds and international student income are still public funds • The Board of Trustees are accountable for the expenditure from these sources • When spending funds it is critical to keep the above comments in the back of your mind. • A handy thought when determining whether an expenditure is considered to be sensitive or not apply the “Six O’clock News” test. • One of the biggest components of the audit process is around how you have spent public funds. This is over and above the standard audit process, and is a significant part of auditing a crown / public entity.
Sensitive expenditure examples Some transactions that may be viewed as wasteful or show a lack of probity or financial prudence include: • Lavish hospitality or entertainment – for example Christmas parties, morning tea shouts, international recruitment agents or guests to the school. • Financial prudence and value for money - failure to obtain competitive tenders for significant capital acquisitions or for large contracts for the supply of goods and services. • Discretionary expenditure by the principal and/or the Board of Trustees, which is not clearly related to the operation of the school. For example payment of a spouse to travel with the staff member attending a conference. • Advances to staff, are not allowed under section 28 of schedule 6 as the school is effectively entering a debt security arrangement. • Conflict of interest, Board of Trustee members and staff involvement in decisions which could result in a direct benefit, either financial or otherwise - for example a Board of Trustee member who is also a builder tendering for a capital works project. • Board of Trustee members and staff using school resources for personal benefit – for example, using a school credit card as a source of temporary finance.
Probity examples • Example 1 • The School paid for 6 members of staff to visit a neighbouring country, as part of an education outside of the classroom overseas. No evidence of the educational outcomes was provided to the Board of Trustees for this part of the trip, nor were there details of how this element was funded. • Why is it potentially an issue? – Without more detail or evidence on the educational purposes of this part of the trip or its funding, it would appear that potentially the Board of Trustees has used public funds in a manner that is not clearly linked to an educational outcome for the school or students of the school. As a result it could be argued that this type of expenditure could be considered wasteful and an inappropriate use of public funds. • Example 2 • The Board of Trustees gave the principal a $8,000 leaving gift upon retirement after 30 years of service to the school and community. The Board of Trustees approved the gift, however it was not consistent with the school’s gift policy, which allowed a gift to the value of $1,000. • Why is it potentially an issue? – There are two factors here, 1. The Board of Trustees has a policy of no more than $1,000 which they elected to break. Policies are your rules to operate under and so you should abide by them, and 2. The value of the gift could potentially be seen as extravagant and therefore could be considered wasteful and an inappropriate use of public funds.
http:/www.minedu.govt.nz/NZEducation/EducationPolicies/Schools/SchoolOperations/SchoolFinances/FinancialInformationForSchoolsHandbook.aspxhttp:/www.minedu.govt.nz/NZEducation/EducationPolicies/Schools/SchoolOperations/SchoolFinances/FinancialInformationForSchoolsHandbook.aspx
Contact Details • The School Finance Adviser Team • Rebecca Cook – Auckland, Tai Tokerau • rebecca.cook@education.govt.nz • Carmel Riordan – Auckland • carmel.riordan@education.govt.nz • Chad Britton – Bay of Plenty/Waiariki, Waikato • chad.britton@education.govt.nz • Alan Smith – Bay of Plenty/Waiariki, Waikato • alan.smith@education.govt.nz • Margaret Pattullo – Hawkes Bay/Tairawhiti, Rotorua/Waiariki • margaret.pattullo@education.govt.nz • David Hyland– Wellington, Taranaki/ Whanganui/ Manawatu • david.hyland@education.govt.nz • Andrew Seagar – Wellington, Nelson/ Marlborough/ West Coast • andrew.seagar@education.govt.nz • Alex Dieudonne – Canterbury, Otago/ Southland • alex.dieudonne@education.govt.nz
