Understanding school finances

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Overview

This guide contains useful information about school finances and resourcing. It provides a financial checklist and also covers:

sourcing general financial information
school funding sources
keeping the accounts
preparing the budget
reporting and reviewing school finances.

1. Getting general financial information

You will find information about school finances and resourcing in these Ministry of Education online handbooks:

Resourcing Handbook

This sets out the way schools are resourced and includes associated regulations and processes. Schools have this in hardcopy but check that updates in your copy match what is online.

Financial Information for Schools Handbook (FISH)

This has an accounting focus and provides a clear and detailed explanation of financial best practice. Schools have this in hardcopy but check that updates in your copy match what is online.

2. School funding sources

Aside from funding for school property, government money for state and integrated schools comes in two main 'parcels'. One is salaries of all teachers, paid for from funds generated through roll-based formulae. This is commonly called TS or Teachers’ Salaries.
The other is operational funding, also generated through roll-based formulae. This is commonly called BG or Bulk Grant.
Property funding for capital works and funding for special activities come from other government sources. Community-generated funds collected from fundraising, donations and parental payments, trusts or fee-paying students are another source.

Teachers’ Salaries (TS)

This funding is paid directly to your teaching staff by an agency. As principal you are responsible for ensuring that the level of staffing for the school does not exceed the levels confirmed by the Ministry of Education and that the specific payments to teachers are correct in terms of employment agreements. Banking staffing is a recent development that all principals need to fully understand.

The school staffing chapter in the Resourcing Handbook provides a clear explanation of staffing and salaries regulations and processes, including banking staffing.
The education service payroll chapter in the Resourcing Handbook provides detailed information on ensuring the school's payroll is correct.

Operational funding (BG)

This money has to cover all school running costs, including the wages of all non-teaching staff, property maintenance, classroom materials, purchase and depreciation of capital items, leases and rentals and all staff professional development. It is generated on a per capita basis, so that it is responsive to school roll changes. A quarter of your annual entitlement is deposited into the school bank account every 3 months.
The operational funding chapter in the Resourcing Handbook provides a full explanation of the processes around this.

3. Keeping the accounts

As principal, you and your board of trustees need to feel sure that 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 all your necessary reports are easily generated. 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.

The financial management chapter in the Resourcing Handbook gives a broad picture of what needs to be done in this area.
Chapter 1 of FISH provides in-depth information on best financial practice.

GST

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

4. Preparing the budget

Good financial practice means managing money and money processes so that the budget and the school’s strategic plan are aligned. Budgeting is an important process that allows for some delegation of financial tasks and responsibility within larger schools.
Information on preparing a budget can be found in Chapter 2 of FISH.

5. Reporting on and reviewing school finances

Regular 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 be no more than one or two pages long and should include a summary of:
- income and expenditure accrued for the current year to date (especially important for mid-term reports
- reports on progress on any planned or underway capital expenditure (such as property or ICT purchases)
- a financial forecast to the end of the year
- 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 has been properly accrued for the report (especially important for mid-term reports)?
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?

Review routines

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 financial adviser in your local Ministry office.
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

6. A financial self-checklist

General

I know and understand the formal financial delegations put in place by my school's 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, and where the cash is kept overnight.
I know and understand the internal financial controls and know that staff are applying them. An order book system is in place. I know how to call in order books if spending gets out of hand.
My school's financial filing systems are easy to follow. If I need to look up a payment, the process is straight forward.
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 the school's 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 by 1 March. (Roll change up or down impacts on the year’s operational funding. 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 preparing 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 are in attendance.)
I delegate. (A principal can delegate financial functions down.)
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 that, as principal, you sign off the annual report as well as the board chairperson. 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 reviewed annually. (This is done with the board. Templates can be downloaded here and can be adapted to fit your school’s needs. 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 and 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 students may mean a reduction in hours.)
I know how to read payroll and banking staffing reports. (Remember, a banked staffing debt can be costly. From 2008, any debt will be repaid at $57,500 per Full-time Teacher Equivalent (FTTE). Starting carefully with banking staffing is 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 Staffing Utilisation and Expenditure (SUE) summary report are on the school’s payroll. (Your chairperson has to sign this, as well as you.)

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