Themed Audits Assurance on Financial Planning. Summary Report for Schools

Transcription

1 Internal Audit Report Themed Audits Assurance on Financial Planning Summary Report for Schools 2016/17 Issued to: Copied to Simon Newland Assistant Director (Education Provision and Access) Schools Via the grid and the School Bulletin Abioye Asimolowo Finance Business Partner Children s Service Teams Saira Muschamp Finance Manager Education and Schools Catherine Tallis - Senior Planning Officer Report Status: Final Reference: 20203/17/001 Overall Assurance: Substantial

2 SIAS Themed Audit Financial Planning 2016/17 INDEX Section Page 1. Executive Summary 3 Appendix A s and Potential Risks 5 Appendix B Definitions of Assurance and Priorities 13 2 of 13

3 SIAS Themed Audit Financial Planning 2016/17 Introduction 1.1 Each year up to three thematic audits are selected to cover areas perceived to pose the greatest risk to the achievement of HCC s corporate objectives as they relate to schools. The theme selection also takes into account any requirements or risks highlighted by the Council s external auditor and the Department for Education. 1.2 Thematic work during 2016/17 included a review of the schools financial planning. Following the audit visit, each school was issued with an individualised report which detailed audit findings and associated recommendations to improve internal financial control, risk management or governance arrangements. 1.3 This theme was selected as it is important, given the diminishing resources available to schools in real terms, that schools have robust arrangements for financial planning. Effective financial planning should enable the school to ensure that the educational priorities of the school are affordable and a good education is provided for all pupils on role. 1.4 The audit assessed the effectiveness of controls in the following assurance areas: Governance, Policies and Procedures Budgeting to achieve the schools aims and aspirations Financial Monitoring Cash Flow Analysis. 1.5 This report summarises the findings arising from the visits made as part of the Financial Planning theme. The learning points captured are circulated to all schools via the School Bulletin and the Grid. Overall Audit Summary 1.6 We visited a sample of 13 schools in the spring term. In all schools visited, the controls in place in the risk areas at 1.4 were adequate or better. These outcomes enabled us to give an overall assurance opinion for these schools of at least substantial assurance. The chart below shows the assurance levels given Assurance Levels Given for Financial Planning Audits 3 of 13

4 SIAS Themed Audit Financial Planning 2016/17 Summary of s 1.7 We made a total of 49 recommendations across the schools visited. The graph below shows the distribution of these recommendations by area: Number of Audit s Raised in Each Assurance Area 1.8 The recommendations related to governance were primarily focused on schools clearly defining and operating the tasks required for efficient and effective financial planning and ensuring that these were clearly communicated. In particular, we highlighted the need to ensure that governor minutes clearly record the business of the meeting, highlighting decisions taken and actions required. 1.9 Budget setting recommendations highlighted the good practice of documenting and timetabling the budget setting process and ensuring that costs identified in school development plans are affordable and clearly transfer to the budget. Where appropriate, schools were also reminded that governors are responsible for the approval of the budget and any adjustments to it, with the need to have appropriate evidence that this responsibility has been discharged In respect of budget monitoring we reminded schools that this is a responsibility that cannot be delegated to one governor, with evidence required that the school s financial position is considered by the relevant committee Finally, we highlighted that as school balances reduce it is important that the cash flow is monitored to ensure that all financial commitments can be met, with recommendations to this affect made accordingly. 4 of 13

5 SIAS Themed Audit Financial Planning 2016/17 Annual Governance Statement 1.9 The work undertaken by Internal Audit in respect the financial management theme provides the Council and its external auditors with substantial assurance in respect the controls that schools have in place to ensure robust financial planning. 5 of 13

6 This section summarises the recommendations made within those schools sampled, which individual schools may wish to use to self-assess the robustness of their own internal control framework for financial planning and management. Governance Policies and Procedures 1. Scheme of delegation When reviewing their schemes of delegation to ensure compliance with best practice schools should ensure that: An out-of-date / incomplete scheme of delegation could lead to: the schools name is included that the scheme covers roles of governors and staff the following requirements have been removed: o a best value statement o a fund account return o a statement of internal control there is a limit for the approval level for capital projects responsibility for cash flow monitoring is included responsibility for the administration and monitoring of the fund account is included. decisions being inappropriately taken the decision-making process being challenged which could negatively impact on the reputation of the school key activities not being undertaken value for money not being obtained from the decisionmaking process and unnecessary expenditure being incurred. Schemes of delegation should be reviewed and formally approved by governors on an annual basis. 2. Finance Committee Terms of Reference When reviewing their Finance Committee Terms of Reference to ensure compliance with best practice schools should ensure that: The Terms of Reference includes: A lack of clarity surrounding responsibilities may result in: Committee members being unclear about their responsibilities and authorities 6 of 13

7 o o o o o The frequency of meetings Reporting arrangements to the full governing body Requirements for minuting the meetings the number of governors required for a quorum the use of associate Governors and their voting rights. Significant decisions or actions not being made or recorded and key deadlines not being met. Decisions being made being subject to challenge. The Terms of Reference should also clearly specify the financial business items to be covered by the Committee such as: o Budget preparation o Budget monitoring o Cash flow monitoring o Approval of virements o Approval of expenditure o Approval and monitoring of contracts o Income generation o Oversight of the private funds. The Terms of Reference should align with the schedule of delegation. It is good practice for the Terms of Reference to be reviewed and formally approved by governors on an annual basis. 3. Programme of Business It is good practice for schools to have a formal programme of business in place for their Governing Body and its committees that clearly shows the items of business to be taken on a termly or half termly basis, with these including key responsibilities in relation to financial management such as considering and approving the budget. The absence of a detailed schedule showing Governing Body and committee business could result in: Key statutory and Council deadlines not being met Non-compliance with the school s scheme of financial 7 of 13

8 delegation as key decisions or policy reviews may not be referred to committees for decision / approval. 4. Governor and Staff Competency Matrices To ensure an appropriate skills base is in place for financial management, competency matrices should be completed for all governors and school staff involved with the finances in the school. These should then be reviewed for any training needs or potential opportunities. The school is unaware of skills gaps and associated training needs which may compromise the effectiveness of the school s financial management arrangements. Associated Opportunity The school is unaware of skills and knowledge that staff may have to be used for the benefit of the school. 5. Finance Staff Job Descriptions Job descriptions should be in place and agreed for all staff who are involved in the in the financial management of the school, clearly specifying the tasks that are to be undertaken. Lack of a job description could result in individuals: being unaware of their roles and responsibilities and tasks being omitted / inappropriately performed being appointed who lack the values and experience necessary to work effectively as the post holder. 6. Governors Review of the Financial Position of the School Committees responsible for overseeing the financial position of the school should receive and review financial reports at least once per term and ideally twice per term where there are financial issues. Governors are not discharging their responsibilities satisfactorily in relation to overseeing the financial position of the school. This could increase the risk of school 8 of 13

9 Minutes should clearly demonstrate evidence of the discussions taking place. overspending due to a lack of challenge on financial strategies or decisions. 7. Procedural Guidance Schools should have in place procedural guidelines to cover the key tasks in operation in the school for financial management. The key tasks that need to be included are: Responsibilities of the Bursary Service/ School Finance Staff and the Headteacher during the budget setting process Budget setting Long term financial planning The staffing review Income generation Income collection Purchasing/contracting Payment processing Budget and cash flow monitoring Financial control process. The expected systems, processes and internal controls are not satisfactorily communicated to staff, increasing the risk that these will not be followed in practice. This could increase instances of fraud or error occurring, or impact on the robustness of business continuity arrangements. 8. Governors Minutes Clerks to Governors should ensure that minutes of committee meetings adequately record questions and challenges to demonstrate that governors are discharging their duties. In addition all proposed actions should be clearly recorded. Insufficient evidence that Governors are discharging their responsibilities satisfactorily in relation to overseeing the financial position of the school. This could increase the risk of school overspending due to a lack of challenge on financial strategies or decisions. 9 of 13

10 9. Cash Income Where cash is received by schools a receipt should be provided to the payee and ideally the reconciling and banking process should involve at least two members of staff. Where there are not two people available, spot checks should be undertaken using the receipts, income records and banking books to verify that all income received is banked intact and recorded in the school s accounts. Lack of separation of duties Cash could be misappropriated Challenge by parents that money has been given to the school. Budgeting to achieve the schools aims and aspirations 10. Budget Setting File It is considered good practice for schools to produce a budget file for each budget setting cycle, thereby providing a record of information and assumptions used to create the draft budget. The file should include, as a minimum: There is a lack of clarity or audit trail around the budget setting process which may leave the school unable to respond to challenge, leading more widely to reputational risk. a) Draft budgets; b) Details of income to be received; c) Expenditure explanations, including a staffing structure and contract information; d) Any assumptions made during budget setting. 11. School Development Plan (SDP) All schools should have a SDP that clearly identifies and quantifies the costs associated with the development activities that are proposed. Best practice is that the budget codes to fund the expenditure are also The absence of a fully costed development / improvement plan may result in the school s priorities not being met as they are unaffordable. This may impact negatively on the 10 of 13

11 shown. educational experience of the children in the school. 12. Approval of the Budget The budget should always be approved in line with the school s schedule of delegation. The Governing Body has the option of delegating the approval of the budget to the Finance / Resources Committee in the schedule of delegation. The budget could be open to challenge as it has not been approved in accordance with the schedule of delegation. 13. Budget setting timetable It is good practice for schools to have a budget setting timetable detailing key budget setting activities / input and that this is communicated to governors and key staff / budget holders. The absence of budget setting timetable could result in key budget setting activities / input not being identified or communicated to governors and key staff / budget holders. 14. Virements Schools should ensure that proposed virements are subject to the correct level of authorisation before being processed, in line with their scheme of financial delegation. Non-compliance with the school s schedule of financial delegation leaving the school open to challenge. Financial Monitoring 15. Budget Monitoring Committees responsible for financial oversight should receive financial monitoring reports that are produced from the school s financial system for review and discussion. This responsibility should not be delegated to one member of the governing body as a substitute for committee 11 of 13 Governors are not discharging their responsibilities satisfactorily in relation to overseeing the financial position of the school. This could increase the risk of school overspending due to a lack of challenge on financial

12 consideration. strategies or decisions. Cash Flow Analysis 16. Cash Flow Reporting As reserves diminish within schools the need to monitor cash flow takes on added importance. Schools should utilise the Cash Flow report available from their finance system or alternatively devise their own method to document monitoring of the cash flow. The report should be run on a monthly basis and shared with the Headteacher and governors as part of their monitoring activities. Where the report indicates that a school may have difficulty in meeting its payroll costs then it is important that there is a specific check each month before the payroll is run. The school does not have enough money to pay the contractors, staff and the general running expenses the school incurs. This leads to the possibility of the school becoming overdrawn at the bank which is not allowable for maintained schools. 17. Timeliness of Reports Given the challenging future financial position faced by schools the production of timely bank forecasts and reconciliations is critical to maintaining an overview of available cash-flow to meet commitments. Where necessary we recommend that schools visited discussed with the Bursary service the possibility of providing earlier end of period financial information. An increased risk of the school only identifying cash flow issues at the point they occur, leaving insufficient time to agree alternative strategies to meet key commitments. Schools could potentially become overdrawn at the bank which is not permissible for maintained schools. 12 of 13

13 Appendix B Definitions of Assurance and Priorities Themed Audit Financial Planning 2016/17 Levels of assurance Full Assurance Substantial Assurance Moderate Assurance Limited Assurance No Assurance There is a sound system of control designed to achieve the system objectives and manage the risks to achieving those objectives. No weaknesses have been identified. Whilst there is a largely sound system of control, there are some minor weaknesses, which may put a limited number of the system objectives at risk. Whilst there is basically a sound system of control, there are some areas of weakness, which may put some of the system objectives at risk. There are significant weaknesses in key control areas, which put the system objectives at risk. Control is weak, leaving the system open to material error or abuse. Priority of recommendations High Medium Merits Attention There is a fundamental weakness, which presents material risk to the objectives and requires urgent attention by management. There is a significant weakness, whose impact or frequency presents a risk which needs to be addressed by management. There is no significant weakness, but the finding merits attention by management. 13 of 13