Budgeting
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 (see
chapter 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
Income: |
|
Ministry Operational Grant |
|
Investment Income (Interest) |
|
Local Funds Trading |
|
Local Funds Fundraising |
|
Local Funds Activities |
_____________ |
Total Budgeted Income |
$_____________ |
|
|
Operating Expenditure: |
|
Learning Resources |
|
Administration |
|
Property Maintenance Costs
|
|
Local Funds Costs
|
_____________ |
|
|
Plus Depreciation Provision |
_____________ |
|
|
Total Operating Expenditure including Depreciation |
$_____________ |
|
|
Operating Surplus (Income less Operating Expenditure) |
|
Deduct Expenditure on Assets funded from Income
|
|
Deduct Provision for Long Term Maintenance
|
_____________ |
|
|
Resulting Unallocated Income |
$_____________ |
|
|
|
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
http://www.minedu.govt.nz/
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 and so keep up
to date with current requirements.
