Themed Audit Schools Budget Setting, Management and Control

Transcription

1 Internal Audit Report Themed Audit Schools Budget Setting, Management and Control 2015/16 Issued to: Copied to Simon Newland Assistant Director (Education Provision and Access) Marcus Cooper Senior Education Manager Abioye Asimolowo Finance Business Partner Children s Service Teams Report Status: Final Reference: 11021/16/018 Overall Assurance: Substantial

2 SIAS Schools Budget Setting, Management and Control INDEX Section Page 1. Executive Summary 3 Appendix A Assurance Areas 7 Appendix B Summary of Recommendations 10 Appendix C - Definitions of Assurance and Recommendation Priorities 17 2 of 17

3 SIAS Schools Budget Setting, Management and Control 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 highlighted by the Council s external auditor and the Department for Education. 1.2 Thematic work during 2015/16 included a review of the schools Budget Setting, Management and Control. This theme was selected as a rising number of schools are under increasing financial pressure. Following the audit visit, each school was issued with an individualised report which detailed audit findings and associated recommendations to improve internal control in the audited areas. 1.3 Our specific objective in undertaking the schools budgetary control theme was to provide the Council, its external auditor and the sample schools visited with assurance on the adequacy and effectiveness of internal controls, processes and records in place to mitigate risks in the following areas: Governance Policies, Processes and Training Budget Preparation and Approval Budget Monitoring Governor Oversight Submission of Returns to the Local Authority. 1.4 This report summarises the findings identified in relation to this theme. The learning points from this review are circulated to all schools via the School Bulletin and The Grid. Overall Audit Summary 1.5 We visited a sample of 17 schools in the autumn term In 76% of the schools visited, the controls in place in the above risk areas were adequate or better and this enabled us to give an overall assurance opinion of at least substantial assurance. 3 of 17

4 SIAS Schools Budget Setting, Management and Control Assurance levels given in schools audited for Budget Setting, Management and Control: 1.6 Where schools have high priority recommendations or have been given moderate or limited assurance appropriate follow up activity will be undertaken by SIAS to ensure that the recommendations have been implemented. Summary of Recommendations 1.7 We made a total of 98 recommendations across the schools visited. The graphs below shows the distribution of the recommendations across the primary assurance areas covered during the review (these are detailed in full in Appendix A). 1.8 Appendix B summarises all the recommendations raised. 4 of 17

5 SIAS Schools Budget Setting, Management and Control Number of Audit Recommendations raised for each Budget Setting, Management and Control area: Number of Schools where Recommendations were raised for each Budget Setting, Management and Control Area: 1.9 The majority of the recommendations made related to the need to improve the governance arrangements in relation to budget setting, monitoring and control. In 5 of 17

6 SIAS Schools Budget Setting, Management and Control particular, we sought to ascertain whether individual school governing bodies had adequate financial skills amongst their members to fulfil a challenge and support role in the field of budget management and value for money. In eight of the schools visited we found limited evidence to demonstrate this. We recommended that governors assess their skills and evaluate the results to identify any skills gaps which should be met by training or recruitment. We also noted that in eight schools there was a need to assess the financial skills and knowledge of staff with financial responsibilities There was a lack of clarity in the minutes of the governing body and subcommittees in relation to the financial operations of the school in ten schools visited In seven of the schools visited budget setting and monitoring had not been completed in a timely manner and there was no timetable to assist in monitoring the progress of tasks. We recommended that the schools adopt an annual timetable and a programme of business We examined the schools Medium Term Financial Plans and ensured that there were action plans in place where the school was predicting a deficit in year two. We made a high priority recommendation where a school was not taking action to bring its medium term financial plan into balance. The other high priority recommendation was in a school where the budget was not prepared in a timely manner and there was no programme of business or budget setting timetable. We will follow up the implementation of these recommendations. Annual Governance Statement 1.13 The work undertaken by Internal Audit in respect of schools budget setting, monitoring and control provides HCC and its external auditors with substantial assurance in respect of its Annual Governance Statement. 6 of 17

7 SIAS Appendix A Assurance Areas Schools Budget Setting, Management and Control A Governance Policies, Processes and Training Objective: To provide assurance that the school has appropriate governance arrangements in relation to budget setting and budget monitoring and that staff / governors with key finance responsibilities have sufficient skills and knowledge to fulfil these. (This includes the role and responsibilities of school staff and also governors, existence of key school policies, skills assessments and training and also evidence of application of these arrangements in practice.) A1 A2 A3 A4 A5 A6 Scheme of Delegation A scheme of delegation is in place that clearly identifies responsibilities for budget setting, approval and monitoring. Committee Structures a) Where not undertaken by the governing body, a finance committee (or equivalent) has been established to monitor the school s financial performance and review and approve the planned budget. This committee has clear terms of reference. b) The Governing Body has established an annual timetable for budget setting, review and approval. In addition, a timetable exists for financial reporting and control, both within the school and to the Authority. Governors - Roles and Responsibilities and Training a) The governing body undertakes regular assessments to confirm that sufficient financial skills are held by the committee as a collective to fulfil its role of challenge and support in the field of budget management. b) Governors are provided with sufficient briefings to ensure that they are aware of the financial context at both local and national level, as well as changes in requirements / legislation for the forthcoming year. Staff - Roles and Responsibilities and Training a) The school has access to appropriate staffing, skills and expertise in relation to financial management. b) Roles and responsibilities of key staff in relation to financial management are identified and included within job descriptions. Procedures a) Budget Setting - Policies and procedures have been produced and have been circulated to key staff to detailing the key stages and processes to be followed for the creation of the school budget. b) Budget Monitoring - Policies and procedures have been produced and have been circulated to key staff to detail the processes for preparing, reviewing and reporting financial information. c) A Budget Setting timetable is in place and communicated to all key stakeholders. Review & Reflection a) Schemes of Delegation, Policies and procedures are subject to periodic review and are approved by the Governing Body. b) Upon completion of budget setting and year end, appropriate reflection is undertaken by key committees and staff to identify and learn lessons for future years. B Budget Preparation and Approval Objective: To provide assurance that the school have followed an appropriate approach to setting and approving the school budget. The approach used complies with appropriate regulations and seeks to take into account key factors that may impact on the resources required. Budgets are approved 7 of 17

8 SIAS Appendix A Assurance Areas Schools Budget Setting, Management and Control by Governors. (This element of the review focussed on the budget setting process followed for 2015/16.) B1 Budget Preparation The school budget reflects an informed and reasonable estimation of planned income and expenditure. B2 Budget Setting Evidence An appropriate audit trail is maintained to demonstrate a smooth and informed construction of the budget. B3 Long Term Financial Planning The school has produced a 3 year budget plan; there are identifiable processes and assumptions in its construction. B4 Deficit Budget The Governing Body has confirmed that licensed deficit arrangements have been approved and appropriate recovery plans put in place, prior to approving a deficit budget. B5 Financial Performance Budgets set reflect the financial performance of the school. C Budget Monitoring Objective: The school has robust arrangements in place to monitor in-year expenditure against approved budgets, ensuring that appropriate remedial actions are taken where significant variances are forecast. C1 Budget Holders Budget holders have been allocated for all budgets held by the school. C2 Budget Monitoring Budget Holders and the Headteacher are provided with regular and accurate information to allow monitoring of their allocated budgets. C3 Financial Overview The Headteacher has in place appropriate arrangements to maintain an overview of the financial performance of the school. C4 Financial Systems Financial Systems used by the school produce appropriate information for the purpose of budget monitoring. C5 Budget Profiling Expenditure Profiles are appropriately set to ensure that variance monitoring systems can function effectively. C6 Budget Forecasting Outturn projections are produced at each reporting period to allow the school to estimate the year-end position and take early corrective actions on potential variances. C7 Budget Reports - Detail Reports are of sufficient detail to allow governors to review of the financial performance of the school. C8 Budget Reports Financial Accuracy Where reports provided to governors are not from the primary financial system, sufficient evidence of reconciliation to this exists. C9 Budget Amendments Changes to original budgets are approved in line with the SoFD and an appropriate audit trail maintained. 8 of 17

9 SIAS Appendix A Assurance Areas Schools Budget Setting, Management and Control D Governor Oversight Objective: To provide assurance that governors provide a robust level of oversight and challenge on the financial performance of the school and the future planned budgets. D1 Governor Meetings Governor Meetings are regularly attended to allow effective scrutiny of the schools financial position. D2 Governor Meetings - Finance Discussions The FGB and Finance Committee (or equivalent) has a formal agenda that devotes sufficient time to the discussion of financial governance. D3 Governor Meetings Advance Financial Information Governors are provided with financial information sufficiently in advance of meetings to facilitate meaningful scrutiny during the meeting. D4 Governor Meetings Minutes for Budget Approval Evidence exists of appropriate discussion and challenge by governors of the school s proposed budget, prior to approval. D5 Governor Meetings Minutes for Financial Challenge Evidence exists of appropriate discussion and challenge of the school s financial performance by Governors. D6 Governor Meetings Financial Performance Formal reports or presentations are provided by the Head or Bursar during committee meetings to provide governors with an overview of performance and how any issues are being addressed. E Submission of Returns to the LA Objective: To provide assurance that the school submits budgets and financial returns to the Local Authority in accordance with agreed formats and timescales. E1 Submission of Returns The school is aware of all required returns to the LA and submits these in accordance within required deadlines. 9 of 17

10 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation Associated Risk Based on the consolidated findings and recommendaitons from the 17 schools visited during this theme, the following areas are highlighted where schools could review their existing arrangements and processes to ensure that they continue to meet key requirements and good practice. A Governance Policies, Processes and Training A1 Scheme of Delegation (SoFD) Schemes of Financial Delegation should be periodically checked to ensure that they reflect the actual activity and delegations present in the school. It is good practice to include dates of review on key documents along with a date for the next review, (ideally reviews should be annual) Approval and subsequent review of the SoFD should be an agenda item for the Full Governing Body All school staff and governors should be made aware of the school s SoFD and the need to operate within it An entry should be made in the programme of business for the FGB to ensure that the SoFD is reviewed annually. An out-of-date / incomplete SoFD could lead to: 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 decision-making process unnecessary expenditure being incurred. A2 Committee structures and annual timetable A school s Full Governing Body (FGB) and Resources/ Finance Committee should have a programme of business identifying the term in which items of business are to be considered along with any external deadlines. The programme of business should be reviewed, updated and agreed at least annually by the FGB. An example programme of business is included below: The absence of an accurate budget setting timetable or schedule detailing the business of the full governing body and its committees exposes a school to the risk that the budget is not set in accordance with key dates, with statutory and Council deadlines not being met. 3.2 Prog of Business.pdf In respect of budget setting, the timetable should include all tasks that need to be 10 of 17

11 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation Associated Risk completed to allow a budget to be constructed and approved in a timely manner. A2 Terms of Reference Terms of reference for the Finance / Resources Committee should be subject to periodic review and updated where required. The date of the review and the planned date for future review should be included within the document. Associate governors voting rights need to be clearly shown within Terms of References. A lack of clarity surrounding responsibilities may result in: Committee members being unclear about their responsibilities and authorities Decisions made being subject to challenge Significant decisions not being made. A2 Approval of the Budget It is important that the processes for approving the annual budget are clearly documented within relevant SoFD s and Committee TOR s. Specifically, the respective roles of the FGB and Resources Committee (or equivalent) should be clearly stated. The approval of the budget could be open to challenge as it has not been approved in accordance with the SoFD. This could also lead to reputational risk for the school. Where FGB s approve the budget, annual work programmes and meeting timetables should ensure that budget approval can be taken as an agenda item before HCC s deadline for budget submission. A2 Budget Setting Timetable To assist in preparing an approved budget in a timely manner a budget setting timetable should be drawn up to include all tasks that need to be completed. The absence of an accurate budget setting timetable exposes a school to the risk that the budget is not set by HCC s deadline, resulting in non-compliance with HCC s current requirements. Governors Roles, responsibility and Training A3 Governors Competency Matrices The governors collectively should have the requisite skills to provide robust The school is unaware of skills gaps and associated 11 of 17

12 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation challenge and advice to the school. To ensure that all skills are available to the school: All governors should complete a Governors Competency matrix Completed matrices should be reviewed as a whole to identify skills gaps for the whole governing body which can be met by recruitment or training or individually to establish if any governor has a skills gap to be addressed by training A review should be undertaken annually to confirm that governors skills are used to best effect and that any gaps are being adequately addressed. Associated Risk training needs. These may compromise the governing body s ability to act as a critical friend or evidence that it is matching governor skills and experience to the responsibilities of governor committees. Associated Opportunity The school is unaware of skills that governors can offer which would enhance governance, financial management and decision-making. A3 Governors Training Programme To best be able to assist schools governors financial skills should be kept up to date. This can be achieved when governors have a training programme. Once training is undertaken this should be used to update any competency matrix.. Failure to keep up-to-date with developments in the field of education generally and schools finance in particular exposes the school to the risk of poor decision-making and leaves governors open to allegations that they are not appropriately skilled to undertake their role. Staff Roles, responsibility and Training A4 Staff Competency Matrices It is beneficial for a school to know if there are any gaps in the skills and experience of its finance staff and so those staff involved in the running of the finances at the school should complete a Staff Competency matrix. All completed matrices should be reviewed as a whole to identify any opportunities, skills gaps and training needs. Where necessary training should be arranged. Staff Competency matrix: 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 that staff can offer which would enhance governance, financial management and decision-making. 12 of 17

13 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation Associated Risk 6.1 financial management skills ma A4 Staff Job Descriptions In order to ensure that schools recruit the staff with the requisite financial skills these should be clearly recorded in the the job descriptions for the Headteacher, School Business Manager, Bursar and Finance Administrator. Inadequate job descriptions could result in future staff being appointed who lack the experience and skills necessary to undertake the financial aspects of the role and who are unaware of these responsibilities. This could result in potentially poor day-to-day financial management in the school. A5 Procedures Where school specific policies and procedures are clearly documented this provides resilience in the absence of the Headteacher and will assist governors with budget setting and monitoring. The school does not have a budget that is set to take account of school policies and procedures. This may result in a breakdown in financial control and a potential overspent position. This may also cause reputational damage to the school. B Budget Preparation and Approval B1 Budget Preparation The School Development Plan needs to be affordable for it to be achieved, therefore plans should include the costs associated with development activities and the budget codes from which these will be funded. The absence of clear links between the school s priorities/ improvement activities and budgets to be used may result in the school s priorities not being met as they are unaffordable. This may impact negatively on the educational experience of the children in the school. B2 Budget Setting Papers In order to substantiate the decisions taken when the budget is set and allow review A lack of clarity over how the budget was derived may 13 of 17

14 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation if there are significant variations between the budget and the actual figures later in the year, there should be a budget setting file and working papers that clearly document the budget setting process and clearly explain the key assumptions that underpin the budget set. Associated Risk lead to inaccurate or unachievable budgets. This will also assist the school in having appropriate guidance available in future years and for cover purposes in times of key staff absence. B3 Longer Term Financial Plan Where the Medium Term Financial Plan shows that the school is going into deficit in year two or three it is not acceptable to ignore this. Schools should present options for eliminating the deficit to governors for them to consider. These may include increasing the income streams or possible revisions to the staffing structure for teachers and non-teachers. As part of this process the risks associated with the plans must also be available for governor scrutiny. In addition, the governors discussions must be clearly recorded in the meeting minutes. Inaccurate financial forecasts could result in the school being: In deficit and required to redefine its priorities Unable to fund unanticipated expenditure Unable to maintain the fabric of buildings to an acceptable standard B4 Deficit Budget and B5 Financial Performance No recommendations made C Budget Monitoring C1 Allocated Budget Holders If the school is going to delegate responsibility for specific budgets to individuals then the agreed budget holders for each code must be clearly recorded to avoid any confusion later in the year. The school may fail to adequately manage the school budget as a result of a lack of clarity around where responsibility lies. This would ultimately result in a financial loss to the school. C2 Budget Monitoring In order to allow the school to demonstrate best practice when monitoring the Associated Opportunity 14 of 17

15 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation budget, the focus should be on the reasons for variances, impact on the year end position and any remedial actions planned, at budget line level. This will allow the Committees to maintain a high level view of the financial position of the school and facilitate the focusing of discussion / challenge on key variances. Associated Risk Clear narrative provides governors with clarity on the financial position of the school. C3 Financial Overview, C4 Financial Systems, C5 Budget Profiling, C6 Budget Forecasting, C7 Budget Report - detail, C8 Budget Report Financial Accuracy, C9 Budget Amendments. No recommendations made D Governor Oversight D1 Governor Meetings In order to demonstrate that governors are fulfilling their role as critical friends the minutes of the Full Governing Body (FGB) and Finance / Resources Committee a need to capture governors providing robust challenge and in particular record the questions that are asked and the answers given. In addition, the minutes should clearly show actions that need to be followed up and indicate when they were completed. The FGB minutes in particular should record that the matters arising from the subcommittees are reported to the FGB and discussed. A lack of clarity surrounding governor involvement could lead to potential challenge and more widely to reputational risk. The school governors are exposed to the risk of not being able to demonstrate that the activities undertaken have their approval. Potentially the school could be operating in an ultra vires way. Schools should ensure that copies of all governor minutes are retained on the school premises. D2 Governor meetings Financial Discussions Recommendation covered in D1 and D3 15 of 17

16 SIAS Appendix B Summary of Recommendations - Schools Budget Setting, Management and Control Recommendation Associated Risk D3 Governor meetings Advance Financial Information In order for governors to fully participate in meetings, they need advance information of what will be included, so agendas and supporting reports for Full Governing Body and Finance Committee meetings should be circulated two weeks before the date of the meeting. A log could be kept to record all information given to governors. Governors are not provided with sufficient time to review financial reports and make informed comments or challenges. The overall impact is that Governors are unable to effectively review the financial performance of the school, leaving the school in a vulnerable financial position. D4 Governor meetings Minutes for Budget Approval D5 Governor meetings Minutes for Financial Challenge D6 Governor meetings Financial Performance Recommendations covered in D1 E Submission of Returns to the LA E1 Submission of Returns Schools are required to conform to HCC s deadlines and therefore procedures should be in place to meet all external deadlines. The Head Teacher should monitor compliance with these to ensure deadlines are met. Non-compliance with Statutory requirements and reputational damage to the school. E2 Approval of the Budget Governors have responsibility for approving the school budget and so the budget must be approved by governors prior to its submission to HCC and clear evidence of this approval should be retained. To ensure that this occurs, an entry should be made in the summer term programme of business for the Full Governing Body. Non-compliance with HCC policy and the school s Schedule of Financial Delegation could result in the budget being challenged and the school exposed to reputational risk. 16 of 17

17 SIAS Appendix C Definitions of Assurance and Recommendation Priorities Schools Budget Setting, Management and Control 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. 17 of 17