Review of equal terms principle and funding to municipal and free schools in Sweden. Executive summary

Transcription

1 Executive summary Review of equal terms principle and funding to municipal and free schools in Sweden July

2 Contents 1. Executive summary 2 2. Glossary 4 3. Introduction 5 4. Background Public and private sector Equal terms principle Key legal principles (education) School funding and split of economic resources among schools 7 5. Methodology 9 6. Analysis and conclusions Overall conclusions Financial position Net financial position School funding per pupil Net expenditure per pupil Supporting structures Inflows and school funding decisions Compensation to free schools Summary of key findings 33 7 Suggested areas for further analysis 34 Appendix Background Methodology Analysis and conclusions 53 01

3 Executive summary 1. Executive summary Introduction Deloitte has conducted an independent review of school funding to municipal and free schools and the associated equal terms principle on behalf of the Swedish Association of Independent Schools (Friskolornas riksförbund). The work was carried out from May to June 2018 and involved a total of 20 municipalities. The key objective was to determine the extent to which the equal terms principle is being met and complied with, by assessing: (1) financial position as the basis for main school voucher funding along with other funding and compensation; and (2) the supporting structures in place to ensure compliance with the equal terms principle. Approach The review has been principally based around an overarching question around whether possible to determine if the equal terms principle holds for the municipalities surveyed, with respect to school funding, other remuneration and compensation. The main data sources have been financial information, qualitative information received directly from municipalities, school funding decisions from 2017 and public statistics (including Statistics Sweden) from 2012 to Requests for public information have been formulated on the same basis to all municipalities where annual reports, departmental reviews and interim / tertiary reports have also been requested. The information collected has subsequently been reviewed and analysed, focusing on economic performance and supporting structures to help determine the extent to which equal terms principle is being met. The review has focused only on primary and upper secondary schools. Key conclusions In relation to the over-arching question, this review determines that it is not possible to determine whether the equal terms principle is met for the municipalities surveyed. This is in relation to an analysis of actual financial results and supporting structures. The key drivers behind this are: Lack of consistent basis for interpretation of equal terms principle - municipalities strive to ensure principle of equality is maintained, but can only prove this is the case to a varying degree; Different models for resource allocation and school funding decisions each municipality defines own resource allocation model, with varying approaches for determining school funding decisions; Differences in presentation of financial information and follow up to previous school funding decisions presentation varies between municipalities and the majority do not followup on their earlier school funding decisions; Varying or lack of processes for addressing a budget deficit the approach for identifying and handling a budget surplus or deficit for education varies markedly in each municipality; Relative absence of accounting and audit requirements for municipal schools external and internal audits typically take place on an over-arching municipal level, with school funding decisions and follow up on budget vs. actual financial results not within scope of a typical external or internal audit; and Information provision and transparency each municipality varies significantly in terms of availability of information and responsiveness. A number of suggested areas for further analysis have been identified based on this review. These focus on how a higher degree of clarity, consistency, transparency and quality regarding school funding decision and follow-up could be achieved, which in turn could facilitate future review and evaluation of compliance with the equal terms principle. 02

4 Note: the following document is a translation of a report originally written in Swedish, which was published on the 29 th June The report analyses a number of concepts, which are specific to the Swedish education system particularly around the structure of local municipalities, which serve as administrative regions for the delivery of local public services and provision of funding. These municipalities typically include a number of sub-committees who are themselves responsible for managing a number of different operations on behalf of each government department. The study behind this review has assessed municipal and free schools at the primary and upper secondary school level, principally attended by children from 7-16 and years old respectively. A number of key concepts, including the equal terms principle, use of funding principal for municipal and free schools, school voucher funding and social subsidies are explained in more detail in each section of this report and are also referred to in the glossary on the next page. The original Swedish term has in certain instances been kept in (within brackets next to translated word), for reference. 03

5 2. Glossary Figure 2.00: Explanation of key terms English Key term Swedish Explanation Balanced budget Gross inflows Gross expenditure Net result Funding principal (for free schools) Funding principal (for municipal schools) Balanskrav Bruttointäkter Bruttokostnader Driftredovisning Enskild (eller fristående) huvudman Kommunal huvudman Requirement for municipalities as a whole to neither have a budget deficit not surplus with inflows equal to expenditure External inflows (e.g. taxes and fees, external rent and state funding grants) and internal inflows (e.g. obtained from other activities in the municipality) Costs incurred (e.g. salaries, external goods, services, property, construction and other internal administration) Actual results for period in question in relation to budgeted inflows and expenditure Lead responsible for funding provision to free schools (organisation specific) Lead responsible for funding provision to municipal schools Municipal funding grants Kommunbidrag Distribution of municipal resources to fund on-going operations Net expenditure Resource allocation model School voucher funding Social subsidy (socio-economic resource allocation) Nettokostnader Resursfördelningsmodell Skolpeng Socioekonomisk resursfördelning Gross inflows minus gross expenditure the most common term for describing budgeted and actual costs for municipal operations Model to determine and allocate economic resources (e.g. for school voucher funding and additional grants) to different funding principals The term 'school voucher funding' is not defined in the School Act, but is typically used to describe financial resources accompanying a pupil from the local municipality to the actual school attended School voucher funding makes up the largest portion of school funding overall and communicated in a school funding decision ahead of the next fiscal year Economic resource allocation to schools based on differences in pupil s socio-economic circumstances. Sometimes also referred to in Swedish as strukturbaserad tilläggsersättning (of which a significant portion typically is the social subsidy) Supplementary funding grant Tilläggsbelopp Additional funding grants to schools with pupils who have specific needs. Additional grants are provided to children who have an extensive need for support, with actual amount determined by an individual child s specific needs Net financial position Underskott / Överskott Total net expenditure for the year (in actual terms) in comparison with budgeted net expenditure 04

6 3. Introduction This chapter describes the equal terms principle, approach to completing report and the client s role during review This report takes as it s starting point a question around whether and the extent to which equal terms principle applies in the allocation of economic resources between municipal and free schools in Sweden. The equal terms principle assumes that the same economic resources will follow a school pupil regardless of which type of school the pupil attends and is based on the principle of fairness and the individual s preference. This is also a guiding principle for designing supporting structures for the allocation of resources between different participants, who are responsible for ensuring the best possible conditions for education in Swedish schools. It is important for all stakeholders to monitor whether equal terms are applied in a fair and efficient manner. The equal terms principle applies to both municipal and free schools when school funding has been decided for a fiscal year and for changes during the course of an academic year. The work on the report has predominantly been guided by a hypothesis-driven approach, with a central over-arching question and a number of subordinate questions to guide the analysis of municipal financial results. This has been a prerequisite for determining whether the equal terms principle is met and whether the supporting structures are in place to enable municipalities to live up to this principle. The review referred to in this report was undertaken in May and June 2018, focusing on primary and upper secondary schools in 20 selected municipalities. The basis for the review includes the material received as a result of requests for public information, along with correspondence and interviews with selected municipalities. A number of additional sources have also been used to help ensure as complete a picture as possible is obtained. Examples of these include public data from the Statistics Sweden and Kolada, discussions with Swedish Association of Local Authorities and Regions (SKL) along with a review of underlying legislative requirements and reports from the National Agency for Education and the Swedish Parliament. As part of the review, the same questions have been posed to each municipality to help ensure comparisons are conducted on as consistent and like for like a basis as possible. The report has been prepared for Swedish Association of Independent Schools. The client s role, with support from several other free school participants, has been to: Define scope and over-arching question for assessing the extent to which equal terms principle is met (in relation to school funding); Provide an introduction to relevant legislation; Provide an overview of previous reports and current debates; Suggest 20 municipalities and topic areas for more detailed analysis (which were then subject to a test around suitability and how representative); Provide free school funding decisions, for municipalities in scope; and Participate in weekly status meetings for discussion and validation. 05

7 4. Background This chapter provides a brief background to the current school education environment in Sweden (split between public and private sector participants), guiding principles and key legislative measures which have been assessed as part of this report. This chapter also looks at the approach to resource allocation to school organisations across municipalities 4.1 Public and private sector As a result of the 1992 Free School reform, there are currently a number of different types of participant in the Swedish education system, and these can either be from the public (municipal, county or state) or the private sector. For the selected school forms in this review, be they primary or upper secondary schools, it is most common for either a municipal or free school funding principal to carry out and be responsible for operations. The municipal funding principal is the municipality itself (for municipal schools), while the free school funding principal can either be a company, foundation or association. 4.2 Equal terms principle When a municipality allocates money to schools, it must be conducted in accordance with the equal terms principle, which refers to the allocation of resources (principally economic) to both municipal and free schools. The equal terms principle entails that the same resources should follow the school pupil, regardless of whether attending a municipal or free school. In terms of the municipality's contribution to a pupil attending a free school, it is crucial that resources are allocated on an equal basis, which means that a municipality's model for compensation to free schools should account for all the costs that the municipality has for a pupil in a municipal school, on an equivalent basis. The equal terms principle for municipal and free schools should apply when school funding is determined for the fiscal year ahead, but also account for changes during the academic year. For example, the Schools Ordinance (2011: 185) Chapter 14, Section 2, states: "If additional resources are given to the local municipality's activities during the fiscal year, corresponding subsidies should be given to free schools (via the applicable funding principal). If the local municipality reduces funding for its municipal schools, contributions to free schools may be reduced by an equivalent amount (via the applicable funding principal) by reducing remaining payments during the fiscal year". Requirements for compensation have previously been the subject of a review by the Supreme Administrative Court, which states, inter alia, that compensation for resource grants may not be postponed to the coming years in the light of the school's equal terms principle (HFD 2015, ref. 53). A more detailed description of this can be found in the Appendix. 06

8 4.3 Key legal principles (education) In addition to the range of legislative measures that affect both municipalities and private sector participants in more general terms, including underlying municipal law, administrative acts and applicable accounting rules, the following broader legal measures apply to school funding: School Act (2010:800) o E.g. Chapter (Grants from local municipality) Ordinances o School ordinance (2011:185) - E.g. chapter 14 (Grants to funding principal for free schools) o Upper secondary school ordinance (2010:2039) - E.g. chapter 13 (Grants to funding principal for free upper secondary schools and upper secondary schools for pupils with special needs) In addition to underlying legislative measures, are also a large number of court decisions regarding compensation for free schools, in relation to a number of different resource grants and the possibility to appeal against a funding decision (see also Appendix Sources ). 4.4 School funding and split of economic resources among schools Schools in Sweden are predominantly financed by municipalities' distribution of municipal tax. According to the National Agency for Education, total school funding provision in Sweden was around 251 billion SEK in 2017, with almost 70% of economic resources derived from municipal taxes (according to SKL). In addition to municipal funds, schools are also financed by general and targeted government subsidies and other income, such as fees for pre-schools and children s recreation centers. An example of state funding grants are 'career services for teachers' and 'increased wages for particularly skilled teachers', but there are also grants from other government agencies, such as compensation for asylum-seeking children's schooling from the Swedish Migration Board. According to SKL, the National Agency for Education administers approximately 70 different targeted contributions amounting to approximately 15 billion SEK The municipalities themselves are responsible for allocating financial resources to both municipal and free schools. For this purpose, each municipality has its own resource allocation model and these often vary depending on the prevailing political and economic conditions in each municipality. For example, some municipalities allocate resources on a flat rate per year (according to specific programs provided each year), while others allocate an overall aggregated amount for each school. In certain municipalities, a portion of resources are distributed on a flat rate basis per pupil, with remaining resources distributed through different models based on various socio-economic factors, with the ultimate aim of allocating resources to the pupil who most needs them. The concept of school voucher funding is not formally defined in the School Act, but is typically used to describe the way in which economic resources accompany the school pupil from local municipality (in which resident) to the school which the pupil attends. The most common system in each municipality, which is also the case for the twenty municipalities included in sample, is to allocate funding on a per pupil base (taking into account individual needs) via a pengsystem (in Swedish), while other municipalities provide fixed allocations to each school entity. Clear guidelines on the types of costs to include in the school voucher funding to free school funding principals are provided in the School Act (2010:800), School Ordinance (2011:185) and Upper Secondary School Ordinance (2010:2039). These costs cover: Teaching; Teaching tools; 07

9 School pupil health; School meals; Administration; Property costs; and Value added tax. There are a number of underlying factors, which lead to a marked variance in average school costs in each municipality, including, for example, geographical and socio-demographic conditions, opportunities for economies of scale, varying property costs and wage levels. Overall, average cost per pupil have risen by approximately 4% each year for both primary and upper secondary schools from 2012 to

10 5. Methodology This chapter describes the choice of methodology and explains the approach for each of the seven key phases The development of this report was split into seven distinct phases, to help ensure that a high quality, objective and fact based series of analyses were conducted. Focus has been placed on ensuring the information received was reviewed from several perspectives, with the aim of determining whether and the extent to which the equal terms principle is met when school funding is allocated to different types of educational institution. Emphasis was also placed on ensuring a representative series of data was included as an input to analysis. Focus was subsequently placed on evaluating the current financial position, accounting principles and processes for municipalities surveyed, while ensuring that a specific opinion or individual position was not being conveyed. A number of underlying documents such as legislative measures, court decisions and investigations have been used as the primary basis and starting point for the review. See also Appendix 5.09 ( Sources ). The review was conducted in seven key phases, which include developing the over-arching hypothesis, data collection and investigation using a variety of sources, analysis, testing and validation of collected information (both as a result of requests for public information from the twenty municipalities and own data collection). The approach has also been partly driven by the aim of mimicking the way in which an assessment of the equal terms principle would need to be conducted in the current regulatory and legislative environment. It has become increasingly clear that accessibility and type of information differs depending on the source and municipalities surveyed. As a result, time has been spent comparing and confirming the same information from a range of sources whenever possible. Variations were noted where material (e.g. specific points in time or varying grounds for calculation of average). Available data has also been validated with several different stakeholders to avoid the use of false or misleading data points as the basis for analysis. The review has been conducted by a working group of three people with experience and expertise of analysis, financial reporting and accounting. The team has worked full time to collect, analyse and synthesise this information under a period of 8 weeks. The team has also had regular check-ins and guidance from an authorised auditor with experience in conducting municipal audits. Figure 5.00: Key phases Determine Develop Confirm scope municipalities Data collection hypothesis 6 in sample Analysis Test and validate 7 Review and draw conclusions 5.1 Confirm scope The report's approach has, as a starting point, included a quantitative analysis of financial results in 2017 (budget versus actual) of municipal and free school educational institutions in selected municipalities to try to assess whether primary and secondary schools have generated a surplus or deficit, and if any additional financing or compensation was provided during the fiscal year. 5.2 Determine municipalities in sample The investigated municipalities have been selected on the basis of providing a representative sample in or around major cities or large towns; based on size, volume of school pupils and mix of municipal and free schools. The municipalities represent four categories of municipalities based on the annual list from Sweden's municipalities and county councils and include the categories 'Large city, Suburban area near 09

11 large city, Large town and 'Small town, with the majority falling within the middle two categories. Within the selected municipalities, a varied mix of municipal and free school entities are also included. This breakdown is described in Appendix - Figure Develop hypothesis To help address the reports over-arching question, two principal hypotheses and associated underlying hypotheses were developed. The hypotheses were developed to help better understand and the challenge existing view of potential problem rather than seek to cover all aspects (including those which appear to already be well functioning in the current state) and which form the basis of the aforementioned equal terms principle. 5.4 Data collection The main information sources have been financial data and qualitative information, following requests for public information directly from the municipalities in scope. The questions were formulated on the same basis to all municipalities and information has been requested in three primary rounds (see Appendix, Figure 5.03 and Figure 5.04). Other investigated sources included, for example, school laws, The government s official investigations (SOU), court decisions, and databases such as Statistics Sweden, National Agency for Education (SiRiS) and Kolada (see Appendix Sources ). Information from a wide variety of general sources has been necessary, as access to necessary information directly from the municipalities has been limited. The data collection exercise has also sought to identify whether an eventual bias or opinion has affected the information provided to help ensure independence is maintained in relation to all data input to analysis. The data collection has been conducted in parallel with the analysis (with reference to section 5.5). 5.5 Analysis The analysis has involved a study of economic performance, resource allocation models and other variables which determine the degree of school funding per pupil. A more detailed analysis based on follow-ups with a number of specific municipalities has also been conducted to better understand the nuances of underlying information and the scope of supporting structure. The more in-depth analysis of five municipalities was conducted following initial assessment (outlining the variation in and complexity of supporting structures in each municipality) and as a result of having a more robust understanding of the varying availability of information. Account has also been taken of the limitations of each information sources and the ability to answer certain questions. This has, for example, been due to the fact that some data points are not available or exist only for a certain period of time or in a limited set of instances. In such cases, an alternative has either been sought or an analysis excluded due to the risk of a potentially misleading result. The latter includes, for example, a comparison of average school voucher funding for upper secondary schools in different municipalities, due to the large variation in the average value of funding per program type and access to comparable information across municipalities. Instead, only the social science, natural science and energy programs have been included in the analysis for upper secondary schools, on the basis of these programs being offered by all municipalities. 5.6 Test and validate A continuous focus has also been placed on identifying and excluding any anomalies or misleading data points from analysis to achieve as much consistency as possible when comparing across different municipalities. 5.7 Review and draw conclusions The review and synthesis has been based on the full set of results from both the aggregated and the indepth analysis have been conducted to arrive at the conclusions shown. This has included assessing the degree of openness around economic results and the extent of any potential surplus or deficit for school activities, and the extent to which equal terms principle is met. 10

12 6. Analysis and conclusions This chapter describes the over-arching structure and conclusions including the six key drivers in relation to the main question The principal basis for analysis has been the main question "Is it possible (from the sample set of municipalities) to determine if the equal terms principle is met when it comes to school funding, other inflows and compensation to municipal and free schools?" To help answer the main question, a number of supporting questions were identified, with the aim of developing an understanding of the municipalities' financial results as a prerequisite for determining whether the equal terms principle is met and the if the supporting structures are in place for the municipalities to be able to live up to the equal terms principle. In figure 6.00, the main issue is shown in relation to key areas categorised according to the two subordinate questions (1) and (2) and the associated areas of analysis (1a), (1b), (1c) and (2a) and (2b). Figure 6.00: Key areas for analysis Is it possible (from the sample set of municipalities) to determine if the equal terms principle is met when it comes to school funding, other inflows and compensation to municipal and free schools? 1 Financial position: Is the basis for calculating school funding, other inflows and compensation correct? 2 Supporting structures: Is there a sufficient structure in place to support school funding decisions and follow up on the preceding year s financial position? 1a Net financial position 1b 1c 2a 2b School funding decision and other compensation per pupil Net expenditure per pupil Net inflows and school funding decision Compensation to free schools Figure 6.01 on the next page also illustrates the more detailed questions in relation to each area of analysis. These have been a guide for the information gathering, as well as for the subsequent follow up discussions. 11

13 Figure 6.01: Key areas for analysis and underlying questions Is it possible (from the sample set of municipalities) to determine if the equal terms principle is met when it comes to school funding, other inflows and compensation to municipal and free schools? 1 Financial position: Is the basis for calculating school funding, other inflows and compensation correct? 2 Supporting structures: Is there a sufficient structure in place to support school funding decisions and follow up on the preceding year s financial position? 1a Net financial position 1b 1c 2a 2b School funding decision and other compensation per pupil Net expenditure per pupil Net inflows and school funding decision Compensation to free schools How did it go for the 20 selected municipalities in 2017? How large a variation is there between the presentation and auditing of financial information across different municipalities? How (if at all) does the carry over of a surplus or deficit across multiple fiscal years occur? How are large variations between full and half year results handled and what is the typical cause of this happening? Are municipalities able to reallocate funds between different departments? Is the budget for school funding split in a similar way to actual costs? How much does school voucher funding vary between different municipalities? How large a percentage of the total is the social subsidy? How much does the average cost per pupil vary across different municipalities? How clear are the guidelines and interpretation for classification of different cost types? E.g. - Teaching (leadership) - Property - Other (central administration) What is the process which drives a school funding decision in relation to the preceding year s result? What does the municipality do to help ensure equal terms between municipal and free schools? Is there a process or prompt after a deficit has occurred? What is the basis for compensation and how is the equal terms principle interpreted? Which internal controls or monitoring mechanisms are in place at the moment? 6.1 Overall conclusions In relation to the main question, "Is it possible (from the sample set of municipalities) to determine if the equal terms principle is met when it comes to school funding, other inflows and compensation to municipal and free schools?", it has been concluded that it is not possible to determine whether equal terms are met. This conclusion is based on a comprehensive assessment of actual result, presentation and financial reporting, as well as processes and infrastructure in place to maintain the equal terms principle. With reference to Financial position, and the question "Is the basis for calculating school funding, other inflows and compensation correct? it has been be concluded that it is not possible to obtain sufficiently comparable data to determine if this basis is correct across all municipalities surveyed. Additionally, the reporting of financial information and school funding decisions is often presented in such different ways, with each municipality maintaining its own model to allocate funding to responsible local government authorities and funding principals. This has increased the degree of complexity, with the contact with municipalities also varying in terms of availability and responsiveness. With reference to Supporting structure, and the question: "Is there a sufficient structure in place to support school funding decisions and follow up on the preceding year s financial position?", it has been concluded that supporting structures for resource allocation and compensation (in the event of deficits) vary greatly between municipalities. In some sample cases sufficient structures do not even appear to be in place. The extent of processes in place and ways to monitor a deficit also varies considerably between different municipalities, along with the lack of consistent basis for interpreting the equal terms principle, guidelines for accounting along with the extent and scope of internal controls. The main drivers of the above conclusions are: Lack of consistent basis for interpretation of equal terms principle - municipalities strive to ensure principle of equality is maintained, but only demonstrate this to varying degrees; Different models for resource allocation and school funding decisions each municipality defines own resource allocation model, with varying approaches for determining school funding decisions; 12

14 Differences in presentation of financial information and follow up on school funding decisions presentation varies between municipalities and the majority do not conduct followups on their previous school funding decisions; Varying or lack of processes for following up on a budget deficit the approach for identifying and handling a budget surplus or deficit for schooling varies markedly in each municipality; Relative absence of accounting and audit requirements for municipal schools external and internal audits typically take place on an over-arching municipal level, with school funding decisions and follow up on budget vs. actual financial results not within scope of a typical external or internal audit; and Information provision and transparency each municipality varies significantly in terms of availability of information and responsiveness. 6.2 Financial position This section presents the key findings and conclusions related to the municipalities financial position. When assessing the financial position of 20 municipalities, one main question has been - "Is the basis for calculating school funding, other inflows and compensation correct?" That is, is it possible to determine whether the calculation of school voucher funding and compensation is correct? The section is divided into three areas: (1) Net financial position; (2) School funding per pupil; and (3) Net expenditure per pupil. When analyzing the expenditure, it is important to be aware of the difference between 'gross expenditure' and 'net expenditure'. A common basis of presenting figures when the municipalities (or public database providers) report the actual result and / or budget is as per the table shown below (Figure 6.02). Net expenditure in this context can be considered as the entity s or department s total cost adjusted for inflows that are not municipal funding grants. The net expenditure is therefore calculated as gross expenditure minus gross inflows. The value of gross inflows affects relative value of net expenditure, which can affect comparisons between costs and revenues per pupil, depending on whether costs are reported on a gross or net basis. Figure 6.02: Financial position key terms Term Sign Explanation Gross inflows + External revenues (taxes and fees, external housing rent / local rent, other external income such as state funding grants and sales) Internal inflows (obtained from other departments in the municipality) "Municipal grants internally allocated to childcare and school operations through the budget are not counted as gross inflows"* Gross expenditure - Total expenditure split across staff, external goods, services and grants, property, construction and other internal administrative costs "In addition to the departmental / school specific costs, the gross expenditure includes the costs of children and/or education administration s (or equivalent) OH expenses as well as allocated overhead municipal expenses."* Net expenditure +/- Gross expenditure minus gross inflows "Within Educational establishments, the cost of sub-activities in each local government department for running of schools is calculated as net cost. The exception is other costs where the calculation is gross expenditure minus internal inflows."* Note: *Quote from Instructions for annual accounts for municipalities and county councils 2017 Source: SCB, Instructions for annual accounts for municipalities and county councils 2017, Deloitte analysis 13

15 Gross expenditure Net expenditure Gross inflows Review of equal terms principle and funding to municipal and free schools in Sweden Figure 6.03: Financial position key terms Gross expenditure, gross inflows and net expenditure can be shown as per the following illustration Net inflows are arranged on top of the net expenditure to help illustrate the proportion of total gross expenditure reduced as a result of gross inflows In most cases, budgeted net expenditure is equivalent to the value of municipal grant Figure 6.04 illustrates the school voucher funding and costs on a per pupil basis, along with the net financial position for primary schools during It can be concluded there is no clear link between the net financial position of a municipality's primary school and the varying level of expenditure and inflows. Nor is there a clear link between total expenditure and school voucher funding. The analysis needs to be supplemented with additional information to help determine whether free schools are due compensation (as a result of additional funding being provided to municipal schools during the year). A similar image for upper secondary schools has not been developed, due to the difference in the average value of funding across different programs (see also section 5.5). The information about net financial position, school funding and expenditure are each discussed separately in sections 6.2.1, and Figure 6.04: Net financial position, cost per pupil and average school voucher funding, per municipal primary school, 2017 (k SEK) 140 2% 1% 1% 1% 1%* 1% 0% 0% 0% 0% 0% 0% -1% -1% -1% -3% -3% -3% N/A N/A Municipalities Cost for municipal primary school grade 1-9 (ksek/pupil) Average school voucher funding (k SEK per pupil) Kostnad för kommunal grundskola åk 1-9, ksek/elev #% Surplus / Deficit Genomsnitttligt grundbelopp ksek/elev Note: Municipalities ordered by net financial position (total net expenditure for the year (in actual terms) in comparison with budgeted net expenditure). N/A = Information not available. *Based on total net expenditure for the year, budget figures 14

16 Kommun 13 Kommun 5 Kommun 15 Kommun 18 Kommun 2 Kommun 16 Kommun 9 Kommun 7 Kommun 1 Kommun 19 Kommun 14 Kommun 11 Kommun 17 Kommun 10 Kommun 3 Kommun 12 Kommun 8 Kommun 6 Kommun 4 Kommun 20 Review of equal terms principle and funding to municipal and free schools in Sweden Source: not available. Cost for municipal primary schools includes year 1-9. School voucher funding (free school incl. VAT) includes first year of primary school and primary school year 1-9. Request for public information (Municipality departmental review 2017), Deloitte analysis, Kolada (Municipality and County database), Expenditure for municipal primary schools year 1-9, SEK/pupil, 2017, School funding decisions, Deloitte analysis Net financial position Net financial position for the 20 municipalities assessed in 2017 There was an overall range of 5.5% in the comparison of actual vs. budgeted net financial position for primary schools in 2017 across the municipalities assessed, with municipality 13 having a surplus equivalent to 2.1% of budgeted net expenditure and municipality 6 having a deficit equivalent to -3.4% of budgeted net expenditure (ref. figure 6.05). Upper secondary schools vary by approximately 13.9%, between Municipality 13, which had a surplus equivalent to 6.4% of budgeted net expenditure and Municipality 11, which had a deficit equivalent to - 7.5% of budgeted net expenditure (ref. figure 6.06). Figure 6.05: Net financial position for primary schools (in sample set of municipalities), 2017 (%) 2,1% Surplus Deficit 1,2% 0,9% 0,6% 0,6%* 0,6% 0,4% 0,0% N/A 0,0% N/A 0,0% -0,2% -0,2% -0,2% -0,5% -0,5% -1,0% -1,0% -2,5% -3,0% -3,4% Municipalities Note: Source: Net financial position is defined as total net expenditure for the year (in actual terms) in comparison with budgeted net expenditure. N/A = information not available. *Based on net expenditure actual result, budgeted net expenditure figure not available. Request for public information (municipality departmental review 2017), Deloitte analysis 15

17 Kommun 13 Kommun 18 Kommun 3 Kommun 1 Kommun 2 Kommun 15 Kommun 9 Kommun 8 Kommun 16 Kommun 14 Kommun 5 Kommun 10 Kommun 6 Kommun 12 Kommun 4 Kommun 7 Kommun 17 Kommun 11 Kommun 20 Kommun 19 Review of equal terms principle and funding to municipal and free schools in Sweden Figure 6.06: Net financial position for upper secondary schools (in sample set of municipalities), 2017 (%) 6,4% 5,4% Surplus Deficit 3,8% 2,4% 1,1% 0,3% 0,2% N/A 0,0% N/A 0,0% -0,2% -1,1% -1,2% -1,8% -1,9% -3,4% -3,7% -4,2%* -5,0% -5,8% -7,5% Municipalities Note: Source: Net financial position is defined as total net expenditure for the year (in actual terms) in comparison with budgeted net expenditure. N/A = information not available. *Based on net expenditure actual result, budgeted net expenditure figure not available. Request for public information (municipality departmental review 2017), Deloitte analysis A deficit for a certain group of schools within a municipality at the end of the fiscal year does not necessarily mean that free schools are due compensation, see section Handling of and reason for large variations between half year and year end results Based on the information received, a general explanation of how large the variation actually is between the net financial position at an interim point and at year end cannot be confirmed. However, a number of cases where a late decisions and / or recognised state funding grants were identified as the driver for a relatively large deficit (reported at interim point) being reversed at the end of the year Re-allocation of surplus or deficit to next fiscal year The way in which municipalities handle a surplus or deficit across fiscal years for school entities varies and may differ within the municipality depending on the type of entity along with the extent of current regulations and guidelines. This makes it difficult to identify which inflows should be considered as an internal re-allocation. In the figure below, the re-allocation procedures have been divided into three key types. 16

18 Figure 6.07: Three different types of re-allocation method for school funding Re-allocations based on individual Structured rules for re-allocations decisions Re-allocation are not applied The municipality has formulated and adopted fixed rules for school entities. These rules are often included in guidelines for financial management or equivalent Re-allocations onto a new fiscal year are performed after decision in the City Council or other instance. Re-allocations are not applied. When transitioning to a new fiscal year, a new budget applies Example: Municipality #1 Sample rules of conduct: A certain share (in percentage terms) of surplus is allowed to be carried forward to next year Deficits can be offsett against accumulated surpluses Action plans and programs for school entities with deficits not covered by accumulated surpluses Example: Municipality #18 Around how a budget surplus or deficit is handled, this is a matter for municipal leadership team and based on the financial regulatory system. Individual committees does not have balance accounts." Example: Municipality #20 "... does not make any exceptional decisions regarding the handling of surplus or deficit. The result for the year is reported to the committee, which in turn reports it upstream in the organisation. Moving into a new year, the new budget applies without regard to previous year's results." Source: Deloitte analysis following discussions with municipalities It has not been possible, in relation to the above information on ways of re-allocating funding for school entities across fiscal years, to conclude that there are any restrictions or controls in place on how municipalities re-allocate resources between different local government authorities within a municipality during the fiscal year or at year-end Variations in presentation and reporting of financial information The presentation and reporting of financial information varies significantly between municipalities, which creates some challenges when looking to compare and evaluate the financial position across different local government departments on a consistent basis. The overall assessment of presentation and reporting of financial information has been divided into three categories (see below) based predominantly on the ways in which information has been provided throughout this review. Annual report and/or departmental review: The level of detail available in the information provided was found to vary by municipality, local government authority, income statement structure and the way in which each department choses to present its overall financial position. An example includes where the net result is shown in the format of a profit and loss account, solely as operating net result or as a variance in net expenditure. Certain municipalities and the associated local government department may also split the information it provides by school stage (primary and upper secondary), while others present as an aggregated net result. This might either be by request or in publicly available information. For example, in certain municipalities, the financial information for primary schools may sometimes include either the first year of primary school (often classified separately in other information) or a linked children s recreation center. There may also be instances of where these figures only include municipal schools, while in others the net impact of funding provision to free schools is included, due to the consolidation of both municipal and free school results. Specifically extracted information from requested public information or follow up questions to the municipality: The format of the financial information provided differs (following the same request to all municipalities). It was also found that data exports from local municipal financial systems, copies of reports and presentations, calculations presented in spreadsheets (in some cases without clarification on units applied) and screenshots are examples provided. 17

19 Public databases and statistics: All municipalities report financial information for the fiscal year to Statistics Sweden (SCB) via the Annual accounts for municipalities and county councils ( Räkenskapsammandraget in Swedish). Comparable information is available for each school stage and local government department approximately five to six months after the end of the preceding fiscal year. SCB publishes financial information online about different educational establishments. Such information is also available through the Swedish National Agency for Educational research database SiRiS and Kolada (Municipality and County database). Kolada often uses SCB's information when publishing annual key performance indicators and comparisons on quality of education by region and institution. The information received directly from municipalities sometimes differs significantly from the data available in pubic statistics. In addition, in correspondence with municipalities, many municipalities refer to their own internal database as a source for reporting to SCB. It was also mentioned that some of the data in SCB may be a source of possible errors due to manual reporting procedures in each municipality and the varying level of consistency between data sources School funding per pupil Important considerations to the total school inflows g per pupil for municipal and free school entities include: School funding/municipal funds School voucher funding (for free school entities additional funds for administration 3% and VAT 6%); Social subsidy; and / or Supplementary funding grant (e.g. for mother tongue language lessons). Other funding: Government funding grants from either the Swedish National Agency for Education or other authority (can be allocated through municipalities or specifically appointed to a certain operation); and / or Other inflows. 18

20 Figure 6.08: Split of total inflows for schools Total funding inflows for schools School funding Municipal funds Other funding State / other funds School voucher funding (plus additional funding of 3% and 6% for administration and VAT) Social subsidy Supplementary grant (e.g. for mother tongue language lessons) State grants (can be allocated through municipalities or specifically appointed to a certain operation) Other inflows (e.g. fees for children's recreation centre) Note: I nter-municipal funding re-allocation for pupils admitted to a s c hool in another munic ipality than the one whic h the pupil is regis tered in also impacts total funding per s chool It is also important to understand what types of school entities or school stages that are included or excluded in data used for comparisons, for example, if the term primary school only involves years 1-9 or if first year of primary school or children s recreation center is included Actual results and variation in school voucher funding per pupil School voucher funding for free school principals varies for primary schools by approximately 24k SEK per pupil between the highest and lowest average values (inclusive of years 0 and 1-9 ), with the range being 26% vs. the highest relative value in There were also a number of differences within municipalities from the same group, including Suburban area near large city. In addition to the variation between municipalities, some municipalities also differ in the extent of school funding provision internally by school stage. In some cases, school voucher funding is relatively evenly distributed among primary school years 1 to 9, while in other cases a much larger proportion of funding is allocated to pupils in years 7 to 9. Such a finding is particularly important when comparing across departments and entities. For example, in a theoretical comparison between municipal and free school entities, where one entity is only operating a limited number of school years ( 1-9 ) and the other entity operate all years. The variance by school years or programs indicates that the cost allocation models should look different for each municipality. 19