Budgeting
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Page index:
Introduction
Preparation
Timeline for budget
Budgeting procedures
Financial Reports to the Board
Key points
Where to go for help
Introduction
The board of trustees is responsible for the preparation of financial statements for the school. The principal, as chief executive, has a responsibility to ensure that the school is well managed. This includes ensuring that a budget is set and followed and that a record of spending and income is kept and audited. This section will highlight key points.
Preparation
The main points about the budget are that it:
- Provides direction, quantifying the schools' development plans
- Allows for the cost of maintaining Charter objectives and school policies
- Is a monitoring device, providing a check against what is spent and received
- Is an essential tool for long term planning
- Records who is able to commit the school to spending money and to what level.
Timeline for budget
Planning generally begins in September, giving plenty of time for consultation as appropriate.
The Finance Committee does the detailed work on the budget.
Step 1 - Principal consults with staff. The following year's objectives and initiatives are costed.
Step 2 - Using the detailed information gathered and collated, the budget is drafted. Consideration should be given to:
- staff requests
- latest monthly report
- previous year's annual accounts.
A spreadsheet programme is extremely useful for this work.
Step 3 - Copies of the draft are given to trustees well before the full board meeting, including summary of main issues and considerations.
Step 4 - Finance Committee presents draft budget which is adopted or amended by the full board.
Step 5 - A copy of the full budget is attached to the minutes, which must also formally record authorisation for the principal to undertake financial management duties including the day to day management of funds. This is necessary for audit purposes.
Budgeting procedures
Step One - Identify sources and levels of income, including:
- operational grant from government
- interest on funds in bank
- funds raised locally, activities fees, donations etc.
As most of a school’s income is from the Operations Grant, accuracy in roll returns is essential for budgeting purposes. The grant is paid quarterly with adjustments in the final quarter, based on the July return.
Step Two - Identify areas of expenditure which must include the following components.
(a) Operating expenditure which includes:
- consumables such as stationery and photocopying
- services e.g. repairs and maintenance, electricity, telephones, rates etc
- payroll e.g. wages and salaries for support staff, teacher relief days, caretaking and cleaning. View section on Staffing - banking staffing
- learning resources lines which include curriculum initiatives, professional development, library and all costs associated with teaching and learning programmes
(b) Depreciation
The effect of depreciation is to spread the cost of an asset throughout the years it will be used. For example, in cash accounting an asset costing $10,000 in the year of purchase, with an estimated life of 10 years, would cost $1,000 per year. In the first year expenditure would be overstated by $9,000 and in years 2-10 expenditure would be understated by $1,000 p.a. The depreciation, effected by a journal entry, corrects this. Another effect of depreciation is that the non-cash transaction in years 2-10 leaves $1,000 p.a. in the bank. This helps fund replacements.
Board of trustee expenditure budgets and reports should include depreciation. The cash flow budget should exclude depreciation, but include asset purchases.
(c) Provision for long term maintenance
It is necessary to check the Occupancy Agreement that the board of trustees has with the Ministry of Education to see what the obligations are. Most boards carry out major maintenance in cycles. The provision for this work must be allowed for in the annual budget.
Step Three - Finance Committee prepares a draft budget to send to the board prior to the meeting including a summary in table form, and for background, a summary of the main points taken into account during the preparation. The following budget summary from Financial Management for School Trustees provides an overview.
Budget Summary
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INCOME:
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Ministry Operational Grant
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Investment Income (Interest)
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Local Funds Trading
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Local Funds Fundraising
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Local Funds Activities
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Total Budgeted Income:
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OPERATING EXPENDITURE:
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Learning Resources
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Administration
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Property Maintenance Costs
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Local Funds Costs
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Plus Depreciation Provision
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Total Operating Expenditure including Depreciation:
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Operating Surplus (Income less Operating Expenditure)
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Deduct Expenditure on Assets funded from Income
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Deduct Provision for Long Term Maintenance
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RESULTING UNALLOCATED INCOME:
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Step Four - The board of trustees formally adopts the budget subject to any amendments. A copy of the budget, including the budget summary is attached to the minutes and the principal's authority to spend the budget is renewed. The board delegates its responsibility to the principal to spend within the budget. The full board is responsible for the financial performance of the school. Managing income and expenditure is the responsibility of the principal as is the formal reporting of the financial position to the board.
Financial Reports to the Board
These are regular management reports that contain the figures needed to monitor actual results against the budget: income, operating expenditure, capital expenditure, cash movements etc. The reporting process depends on accurate, timely and up-to-date data contained in the general ledger. A good computerised reporting programme is designed around what financial reports and level of detail are wanted.
There is a statement of financial performance which shows in summary form how the school is performing this particular year and there is a statement of financial position which shows what is owned (assets) and what is owed (liabilities).
As well it is helpful for the board to have a summary of cash movements to date which is simplistic and shows what the total cash is and how it has been arrived at.
If the school has a finance committee and/or an executive officer, some of the preparatory work will be done prior to reports being sent out to the board for approval.
Before the board meeting trustees receive reports to:
- Review the data and compare actual expenditure and income with budget figures
- Make notes, and frame questions to clarify any issues arising
- Prepare to debate any recommendations necessary to amend the budget in the light of significant changes in circumstances.
Refer to the publications listed at the end of this section for detailed examples and descriptions of what is required for monthly reporting.
Annual Reporting
Annual reporting is a culmination of what has occurred during the year. It is a statutory requirement and subject to audit.
The Petone West School model as shown in the MoE booklet 'School Accounting and Reporting Requirements' is available for information and guidance if desired. These accounting and reporting requirements demonstrate recommended layout and generally accepted accounting practice for the majority of schools. That is, schools that meet any two of the following criteria:
- total revenue is less than $5.0m inclusive of teachers' salaries
- total assets of less than $2.5m
- less than 20 full time equivalent paid employees.
Schools that do not meet these criteria follow a different model and must comply fully with financial reporting standards. The MoE financial advisor can help if there is any doubt.
Refer - Planning and Reporting under the Education Standards Act.
Key points
Reporting deadlines:
- by 31 March, financial statements to auditor
- by 30 April (or within 30 days of receipt) auditor must complete audit and return the audited reports to board of trustees
- by 31 May the board must send four copies of its annual report to their local MoE management centre.
Presentation and Contents
These requirements are detailed in the MoE booklet and also MoE Circulars, (available on MoE website highlighted below). The Annual Report consists of the Board Chairperson's Report, the Principals' Report, Statements as advised each year by the Ministry and the Auditor's Report. The Report is read as a whole document.
Where to go for help
Two publications which will help are:
- Financial Management for School Trustees - a Practical Approach Garry Whincop 1996
- School Accounting and Reporting Requirements (1997) Ministry of Education.
The local Ministry of Education (MoE) has financial advisers who are available to assist boards.
Read and file MoE circulars relating to financial matters to keep up to date with current requirements.