FINANCIAL PLANNING AND BUDGET MONITORING TABLE OF CONTENTS

Transcription

1 SECTION 2 FINANCIAL PLANNING AND BUDGET MONITORING TABLE OF CONTENTS Page Contacts for Section 2 3 FINANCIAL PLANNING 2.1 Introduction Financial planning in the medium term Benchmarking and management information Annual budget preparation Budget approval Registration of budget holders Budget preparation timetable 7 BUDGET MONITORING Introduction Timetable Monitoring Process Profiling the budget Recording income, expenditure and commitments Format of budget monitoring reports Reviewing budget monitoring reports Variances Correcting variances Recording budget monitoring activity 15 Part IV: Guidance - Section 2 Page 1 RESO3518 Issue 3 : April 2003

2 Part IV: Guidance - Section 2 Page 2 RESO3518 Issue 3 : April 2003

3 SECTION 2 FINANCIAL PLANNING AND BUDGET MONITORING CONTACTS Budget preparation Budgeting software and assistance in preparation of budget plans Financial Services for Schools Finance Planner software Benchmarking and Management Information HCC Management Information Ofsted Audit Commission Submission of Approved Budget Returns Return of Formula Funding Data Financial Services for Schools Website Alex Gooding-Williams Management Information Unit Website Publications Orderline Website Publications Orderline Website Sarah Moor School Funding Unit Chris Hart School Funding Unit trade/fss info/miu Part IV: Guidance - Section 2 Page 3 RESO3518 Issue 3 : April 2003

4 Formula Funding Primary and Secondary Schools Nursery and Special Schools Budget monitoring and control Gill Treble School Funding Unit Kirsty Alford School Funding Unit Lyn Stainton School Funding Unit Internal Audit Helpline Completion and submission of Financial Returns Sarah Moor School Funding Unit Part IV: Guidance - Section 2 Page 4 RESO3518 Issue 3 : April 2003

5 SECTION 2 FINANCIAL PLANNING AND BUDGET MONITORING FINANCIAL PLANNING 2.1 Introduction The budget should be an expression of the way in which the school intends to use its resources for educational priorities. The Governing Body is required to prepare detailed estimates of how it intends to use the budget share and other resources available to the school. The preparation of detailed budget proposals will usually be delegated to the Headteacher, who will then make recommendations to the Governing Body. Only the Governing Body may approve the budget. The process of setting the budget should reflect the school's aims and objectives in monetary terms, and not simply be an incremental process from one year to the next. As the School Development Plan may lead to changes in priorities for expenditure in successive years, the emphasis should be on the objectives that the school wants to achieve rather than on the monetary inputs. If this is not done, the Governing Body will be unable to assess whether requests for expenditure are warranted and in line with overall objectives of the School Development Plan. 2.2 Financial planning in the medium term If the school is to make effective use of its resources, it needs to produce a 3-year financial plan that is aligned to its 3-Year School Development Plan. The Authority has developed a tool, Finance Planner, to assist schools with the production of such plans. This software is revised annually and is available from Financial Services for Schools or can be downloaded from the website at This tool enables schools to: plan for a range of alternative options ensure that the priorities outlined in the School Development Plan are both affordable and sustainable develop contingencies to deal with unexpected events. Planning is a strategic activity, and any plans need to be shared with and reviewed by the Governing Body and the senior management team of the school. The school should establish Part IV: Guidance - Section 2 Page 5 RESO3518 Issue 3 : April 2003

6 formal procedures and timetables for planning the budget to ensure that all relevant factors both financial and non-financial are considered. The school should formulate clear guidelines, targets, assumptions and constraints to be observed when preparing estimates. 2.3 Benchmarking and Management Information Benchmarking and management information should be used to understand and challenge the impact of local spending decisions on agreed educational targets. Annual comparisons should be made between the school s educational outcomes and those of similar schools to identify where the school needs to improve and target resources. In this context, the DfES has developed a consistent financial reporting framework (CFR). The introduction of CFR has two major purposes: firstly, to provide a national benchmarking tool for schools; and secondly, to enable electronic transmission of financial information between schools, the LEA and the DfES A number tools are available to support schools in benchmarking activities. The Authority produces management information for schools in the form of an individual school profile, which can be compared, on a countywide basis with schools within the relevant benchmarking group. The profile provides contextual information for senior management teams and Governing Bodies. It can be used to review and develop planning activities and can also provide schools with an indication on how their decisions compare with countywide practice. Management information is published on the Management Information Unit website and further information and guidance is available from the contacts to this Section. Ofsted and the Audit Commission also produce tools and guidance to promote strategic approaches to financial decision making in schools. Keeping your Balance is designed to give a very broad picture of the way in which a school meets standards for financial administration and control. Whilst the diagnostic software Finances Self Evaluation Tool goes into greater detail probing the robustness of schools financial controls and financial management through a series of self-assessment questions. A feedback table and action plan is produced summarising the school s scores and identifying areas for improvement in priority order. Use of the questionnaire or the diagnostic software is a voluntary but useful activity for schools especially in preparing for audit or inspection. Keeping your Balance can be obtained from Ofsted or downloaded from their website. The Finances Self Evaluation Tool can be found on the Audit Commission website. Please see contacts to this section for further details. Part IV: Guidance - Section 2 Page 6 RESO3518 Issue 3 : April 2003

7 2.4 Annual budget preparation The Headteacher should prepare estimates of expenditure and income sufficiently in advance of each financial year to allow for consideration and approval by the Governing Body. Even if details of the school's funding have not been finalised, it is important that the Governing Body considers spending priorities in the light of an estimated or indicative budget. There should also be a clear, identifiable link between the school's annual budget and its School Development Plan. Clear and documented notes should be maintained to support budget preparation and financial reporting. The budget should also be detailed and clearly documented to enable actual expenditure to be closely monitored against it. The Authority supports software and provides budget preparation materials to facilitate budget preparation. Information about budgeting software and assistance in budget preparation is available from Financial Services for Schools. Please refer to the contact list for this Section Budget approval The Governing Body should ensure that planned expenditure for each financial year, including commitments carried forward from the previous year, does not exceed the available resources, adjusted for estimated or actual balances brought forward from previous years. The Governing Body must not plan for a deficit, except in certain exceptional circumstances and with the prior agreement of the Assistant Director (Resources). In these circumstances, schools will be required to adhere strictly to the Action Plan process determined by the Assistant Director (Resources) Registration of budget holders The staff responsible for managing budgets (known as budget holders) should be clearly identified by name in the school's organisation structure. A register should detail the allocated budget heading and expenditure limits against the name of each budget holder Budget preparation timetable Undoubtedly the time scale for budget preparation, consideration and approval is a short and intense one for schools and the Authority alike. It is vital, therefore, that the Part IV: Guidance - Section 2 Page 7 RESO3518 Issue 3 : April 2003

8 school develops a clear process and timetable for budget preparation. This must incorporate an early consideration of budget issues, both in terms of projected income (mainly the budget share) and specific spending plans. A broad outline of such a process and timetable may be as follows: Provision of school standing (formula) data to the Authority Nov/Dec Consideration of standing data such as changes in pupil numbers Nov/Dec Assessment of the impact of changes in the Scheme for Nov/Dec Financing Schools and in the funding formula on the school's budget Identification of specific issues arising from actual spending in Nov/Dec the current year which may have a continuing impact Completion and return of the Annual Schools Census January to the Authority Preparation of a standstill budget (the cost of existing January commitments) Preparation of detailed estimates of options for meeting new Mid January development plan targets Preparation of a key issues paper for consideration by the Mid February Governing Body Notification by the Authority of budget share 7 March Checking the budget share to ensure the funding formula has March been applied correctly to the school Balancing the budget March/April The annual budget is approved by the Governing Body March/April The approved budget return is submitted to the Authority 1 May The approved budget is circulated to those with responsibility April/May and authority for expenditure At the same time as the budget shares are issued, schools can expect to receive: notification of those elements of earmarked funding, where details are available, and the purpose for which such funding is made available advice on budget preparation together with other budget preparation materials; these will include pay and inflation tables and computerised budget calculation software a standard template for submitting the approved budget and best value statement to the Authority (if not produced using software supported by the Authority). Part IV, Section 3, Appendix A of the Handbook provides sample formats of these documents Part IV: Guidance - Section 2 Page 8 RESO3518 Issue 3 : April 2003

9 BUDGET MONITORING 2.5 Introduction Regular monitoring of income and expenditure against the agreed budget is central to effective financial management. It allows governors, the Headteacher and staff to maintain financial control by reviewing the current position and taking any remedial action. The Governing Body may wish to delegate this function and this would normally be to the Headteacher, who will report as agreed to the Governing Body and/or its Finance Committee. The Governing Body should also ensure that links are in place so that: committees understand the financial implications of the decisions they make; and the Finance Committee is aware of all decisions that have a financial implication. To enable control to be exercised and decisions to be taken, and to ensure actual spending matches available funding, schools need to put in place processes which compare actual spending against the overall school budget and individual budget headings. Budget monitoring reports should contain details of actual and committed expenditure compared with a profiled expected spend to date. They also need to project actual expenditure to provide a revised forecast of the budgetary position for the whole financial year. Budget monitoring reports must be made available to all budget managers to ensure that budgets are reviewed on a regular basis and to enable budget managers to take any necessary remedial action. The Headteacher should assess the adequacy of such reviews and any proposed action to deal with variances. The Headteacher should also periodically consult the Governing Body and other staff involved in the budget monitoring process to ensure that the financial and management information they receive is relevant, timely, reliable and understandable. Schools should not lose sight of other monitoring information that may have an impact on their financial position, such as pupil numbers and changes in contracts - both staffing and traded services. The Governing Body should: monitor its budget at least termly and record its findings, discussions and actions take all reasonable steps to avoid deficits report any potential or projected year end deficits to the Head of School Resources prepare in the specified form and submit by the specified date financial reports to the Authority. 2.6 Timetable The Governing Body must establish an annual timetable for financial reporting and control, both within the school and to the Authority. It should cover: long-term financial planning and monitoring Part IV: Guidance - Section 2 Page 9 RESO3518 Issue 3 : April 2003

10 annual budget setting periodic budget monitoring production of year end statement of accounts and other financial returns. 2.7 Monitoring Process Budget monitoring is a continuous process and the success of this activity is reliant on the production of monthly reports that are accurate and timely. It follows, therefore, that accounting systems from which the information is produced must accurately record income and expenditure against the latest approved budget so that the reports produced show both the monthly budgetary position and a projection for the entire financial year. Budget monitoring consists of a number of stages described below Profiling the budget Many items of expenditure and income do not occur evenly throughout the financial year. It is, therefore, necessary to establish profiles or spending patterns for individual budget accounts to enable actual spend to be compared with the proportion of the budget expected to be spent at that point in the year. Profiles need to take into account of seasonal variations energy consumption and termly spending patterns pay and price changes pay awards and increments volume changes staff numbers between the three terms changes to timing of payment processing arrangements Once the approved budget is input on the accounting system at the beginning of the financial year, it should be profiled to reflect the anticipated spending pattern for the year. Profiles should be regularly reviewed to ensure that they continue to represent what is expected to happen in practice especially when changes have been made to the approved budget. For example, the transfer of resources between budget accounts during the financial year would create a different profile or pattern of spending Recording income, expenditure and commitments Actual income and expenditure represents items processed through the school s bank account. Commitments relate to orders raised but where no payment has been made to date, or anticipated income that has not been received to date. To enable effective budget monitoring, it is essential that both actual and committed income and expenditure are accurately recorded against the appropriate budget provision. Part IV: Guidance - Section 2 Page 10 RESO3518 Issue 3 : April 2003

11 Financial staff having responsibilities for recording transactions on the accounting system must have access to information about planned income and expenditure in the approved budget Format of budget monitoring reports The Governing Body (and/or its Finance Committee) and the Headteacher should determine the format and detail required for budget monitoring reports. In doing so, they should have due regard for the resources available to produce financial reports. Accounting software supported by the Authority produces a number of standard and user defined reports that will meet general budget monitoring requirements. However, for effective monitoring and control of trading activities, such as catering, and significant activities or projects, additional reports may be required. Any such report should clearly provide detail from which it can be readily determined whether the activity is trading in accordance with the budget objectives Reviewing budget monitoring reports In reviewing the budget monitoring reports the following issues should be taken into consideration to assess the school s true financial position relative to its budget. The information in the accounts may not be complete The value of recharges, bills and invoices that have been posted to the accounts may not reflect the true costs relative to the accounting period unless amounts owing have been recorded as a commitment or otherwise accrued. Funding received by the school may not have been posted to the accounts e.g., additional funding, the proceeds from new or established sources of income, etc. Amounts that have been posted to suspense or holding accounts may not be reflected in the budget monitoring reports. The budget monitoring report may not reflect all commitments, liabilities or amounts owed to the school A school may be committed to various types of expenditure, of either a one-off or ongoing nature, that the accounting system is not designed to easily capture. For example, new staff whose salaries have yet to be charged to the school, the costs of new or changes to contracts for supplies or services where payments have yet to be made or over which there is doubt about costs to be incurred. Conversely the school may be expecting income from a grant bid, or an insurance claim where there may be some uncertainty about the amount that will be received. Part IV: Guidance - Section 2 Page 11 RESO3518 Issue 3 : April 2003

12 Some schools may choose to formally accrue for these amounts if their accounting system offers that facility. However, many will need to be aware of these items and take them into account as known or estimated adjustments to the levels of income or expenditure shown on the monitoring reports. Income shown in the monitoring reports may be earmarked or committed Earmarked income may only be used for the purpose for which it is provided. For example, a grant may have conditions attached restricting spending to certain activities, products or services or within specific periods of time. Such earmarked funds, not yet spent, should be clearly identified since they cannot be treated as available to offset any other budget overspends, or to finance other spending plans or needs. Equally the school may be in possession of other funds that it does not have the discretion to spend. For example, payments received for school trips yet to take place. These funds are not available for general expenditure, and must be discounted in the calculation of the budget remaining, since they are needed to meet expenditure in relation to the school trip. The full costs of projects or plans may not be fully reflected in the budget The school may be committed to a project or course of action the full costs of which have not been included within the approved budget. Contracts and orders may not have been placed and there may remain some discretion with respect to particular expenditure or commitments. For example, where a school is refurbishing an area within the school, estimates within the original budget plan may be too low in relation to the associated costs of furniture, equipment, additional utilities, cleaning, etc Variances Any budget monitoring reports should compare the amount spent or committed to date against budget expectations or profiles. Variances should be clearly identified and investigated in detail and corrective action should be taken where appropriate. Once established, the reason for significant variances should be recorded, as a part of the budget monitoring and reporting information. Comparison of actual and committed income and expenditure against the budget profile may produce differences (over- or underspends) known as variances. Part IV: Guidance - Section 2 Page 12 RESO3518 Issue 3 : April 2003

13 There are six principal reasons for variances: changes in policies changes in price changes in volume problems of timing profile errors accounting and coding errors Variances may also arise for reasons other than as a true disparity between expected and actual expenditure. For example, where additional funding is received after the budget has been set then a 100% variance may arise since the spending of the additional funds will not be matched in the budget by the corresponding income. To overcome this, governors may approve a revised budget, which can be presented alongside the original budget so that revisions and the latest budget position can be readily seen. Coding errors will distort the comparison of actual figures to the budget. If income or expenditure is coded to different budgets from those assumed, then both the original and the new budget may exhibit variances. These false variances can easily be corrected by journal transfer or by virement from the original budget to the new budget. It is important that both the producers and users of the budget monitoring reports need to be clear about the effect of the various potential factors listed above on any variances appearing in the monitoring reports. Failure to take these factors into account may produce a false representation of the budgetary position. Explanations may need to accompany the standard monitoring reports where figures from the accounting system do not reflect the true position. Alternatively, where a number of adjustments are required, then it is recommended that these be categorised by type, as follows: significant commitments not recorded in the accounts significiant debtors, creditors or other accurals not recorded in the accounts earmarked funds funds intended for specific projects, etc. coding errors not yet corrected Correcting variances Variances, particularly adverse ones (overspends) should never be allowed to accumulate before action is taken. If delayed in this way they may become too large ever to be fully corrected, resulting in overspending at the year-end. Clearly, the earlier action is contemplated and agreed upon the better. Part IV: Guidance - Section 2 Page 13 RESO3518 Issue 3 : April 2003

14 Whether or not corrective action is necessary will depend on the cause of the variance. Therefore, it is essential to establish the cause of the variance and whether it is a oneoff occurrence or is continuing (perhaps with an ever-increasing liability), so that the right response can be chosen. It is also important only to take action where a problem is material. Briefly, variances should be treated thus: small under spending or overspending no action required large under spending or overspending requires investigation and possibly corrective action major under spending or overspending requires immediate investigation and corrective action taken The definition of small, large or major will depend upon the type of expenditure and income and the size and organisation of the school. These matters will be a matter of judgement for each school. The following represent the options for corrective action. Virement This term means the transferring of resources from one budget account to another after an initial budget has been set. The Governing Body can delegate the power to approve virements, for example to a committee or to the Headteacher subject to the agreed delegated limits. Normally such a delegated power would be subject to an upper limit. It is, therefore, important to record, within the school s Schedule of Delegation (or similar document, the arrangements for authorising virements and the limits of that delegation, and to communicate this to the relevant staff. It is important that all virements are properly documented and authorised, and Governing Bodies should satisfy themselves from time to time that the school's arrangements are being operated properly. However, virement is not the answer to all spending problems. It is certainly no substitute for tackling the root cause of an overspend. Reduce the planned expenditure Cut back on future spending plans: - on the same type of expenditure as the overspend (e.g. offset overspending on electricity by introducing economies on gas consumption) - on another type of expenditure. Income generation Part IV: Guidance - Section 2 Page 14 RESO3518 Issue 3 : April 2003

15 It may be worth considering: - approaches to national and local commercial organisations to seek donations; this can be achieved by regular or one-off donations - private and commercial hire of premises - appeals for voluntary contributions from parents, former pupils and their parents Draw on School Contingency or Reserves Transfer resources from this fund to the appropriate budget account, bearing in mind that such a one-off use of funds cannot support recurring costs in the longer term. Where savings have been achieved, and before a decision is taken to commit the school to any increased spending which has a continuing liability (for example an increase in staffing), it would be prudent to judge whether foreseeable funding levels can support such a commitment. It is also worth bearing in mind that the phasing out of transitional protection arrangements or changes in pupil numbers may have a significant impact on a school's budget Recording budget monitoring activity Financial administration staff, budget managers, Headteachers and governors should ensure that all budget monitoring activity is evidenced. This can be easily achieved by annotation of reports that have been considered. The detail will show that significant variances have been considered and, where appropriate, the remedial action taken for redress. The Governing Body should ensure that budget monitoring activity is evidenced in the minutes of the Finance Committee and/or full Governing Body and should ensure that the following detail is recorded: the type and date of the monitoring reports received the key elements of discussions in relation to the reports any decisions or actions agreed which will include details of persons responsible for undertaking the action and any required timescales Part IV: Guidance - Section 2 Page 15 RESO3518 Issue 3 : April 2003