effective financial governance · effective financial governance learning objectives after...

Finance Workbook 1Effective Financial Governance

Learning objectives After attending this workshop participants will have an understanding of the:• Overview of board responsibilities including

relevant legislation, strategic plan links• Practical approach to what you need to know

as a trustee• Roles and responsibilities of governance and

management of school fi nances

2 EFFECTIVE FINANCIAL GOVERNANCE FINANCE WORKBOOK 1 © NZSTA MAY 2018

The legislative framework – Education Act 1989 3

Legislation governing schools 4 – 5

Governance and management 6

Finances and ethics 7

Policies and procedures 8 – 9

Internal controls 10

Budgets 11

Budgeting timeline 12

Sources of school income 13

Staffi ng overview 14

Monitoring fi nances 15

Financial health indicators 16

Sample income & expenditure statement 17

Sample Statement of Financial Position (Balance Sheet) 18

Sample commentary report (small school) 19

Sample commentary report (large school) 20 – 21

Annual fi nancial reporting 22

Governance & management 23

Sources of support and information 24

© NZSTA This copyright allows for use of this resource and its contents by boards of trustees attending NZSTA professional development workshops.Use of the resource and/or its contents by any other person/party is forbidden unless specifi c approval for use has been granted by NZSTA in writing.

Contents

3EFFECTIVE FINANCIAL GOVERNANCE FINANCE WORKBOOK 1© NZSTA MAY 2018

Governance and management is a partnership which may work differently from school to school. The legal responsibility of boards of trustees and principals is outlined in the Education Act 1989, and allows each board to defi ne a model of governance that will best work for their school/kura.

Schedule 6 of the Education Act 1989 sets out, largely in one place, the key legal roles and responsibilities of the board in school governance, whilst those of the principal are set out in Section 76.

The Legislative Framework – Education Act 1989Governance and Management: one vision, different roles

THE PRINCIPAL/TUMUAKI

Section 76 Role of Principal1. A school’s principal is the board’s chief executive in relation to the school’s

control and management.2. Except to the extent that any enactment or the general law of

New Zealand provides otherwise, the principal:a. Shall comply with the board’s general policy directions; andb. Subject to paragraph (a) of this subsection, has complete discretion

to manage as the principal sees fit the school’s day-to-day administration.

THE SCHOOL

The board of trustees sets the strategic direction for the school/kura and the

policies by which the school is controlled and managed.

Through an eff ective self-review programme, the board measures the

performance of the school and principal against

the plans set.

Entrusting to its principal/tumuaki the

implementation of the plans on a day-to-day basis.

THE EDUCATION ACT 1989

THE BOARD/POARI

Schedule 6, clause 4 Board is governing body of the school 1. A board is the governing body of its school.2. A board is responsible for the governance of the school, including setting

the policies by which the school is to be controlled and managed.3. Under section 76, the principal is the board’s chief executive in relation to

the school’s control and management.

Schedule 6, clause 5 Board’s objectives in governing school1. A board’s primary objective in governing the school is to ensure that every

student at the school is able to attain his or her highest possible standard in educational achievement.

It is within these requirements that each board is able to defi ne its own model of governance.

Successful schools are characterised by both the board and principal/tumuaki having a clear understanding of their respective roles and responsibilities whilst working toward a shared vision.

State integrated schools are also subject to the provisions set out in Part 33 of the Education Act 1989.


Legislation governing schools

Finance related laws

Education Act 1989

• A large number of sections relate specifi cally to fi nance

Public Finance Act 1989

• Specifi es what is in the schools’ annual fi nancial report (s41)

Others

• Financial Reporting Act 2013

• Crown Entities Act 2004

• Income Tax Act 2007 (includes fringe benefi t tax)

• Goods and Services Tax Act 1985

• Holiday & Employment legislation

Education Act 1989

A number of sections in the Education Act 1989 relate specifi cally to fi nances:

• s4d Reimbursement to the Crown for foreign students

• Sch 6, Pt 2, 17 Delegations• Sch 6, Pt 2, 4–5 Board responsibility for the management, organisation and administration of the school

• Sch 6, Pt 3, 28 Restrictions on acquisition of securities

• Sch 6, Pt 3, 29 Restrictions on borrowing• Sch 6, Pt 3, 30 No delegation of power to borrow

• Sch 6, Pt 3, 31 Restrictions on giving of guarantees and indemnities

• Sch 6, Pt 3, 32 Restrictions on use of derivatives

• Sch 6, Pt 3, 33 Gifts• Sch 6, Pt 3, 34 Acquisition or lease of land and premises, Real Property

• Part 7A Interventions in schools

• s87 Annual reports

• s87A Audits

• s88 Payment of trustees costs and fees• s89 Payroll service

• s103A Confl icts of interestSchedule 5A lists the sections in the Crown Entities Act 2004 that apply to school boards of trustees, such as the s168 requirement to keep auditable records.

National Administration Guideline 4

According to the legislation on fi nancial and property matters, each board of trustees is also required in particular to:

1. Allocate funds to refl ect the school’s priorities as stated in the charter.

2. Monitor and control school expenditure, and ensure that annual accounts are prepared and audited as required by the Public Finance Act 1989 and the Education Act 1989.

3. Comply with the negotiated conditions of any current asset management agreement, and implement a maintenance programme to ensure that the school’s buildings and facilities provide a safe, healthy learning environment for students.


According to National Administration Guideline 4, each board of trustees is required to:

a) Allocate funds to refl ect the school’s priorities as stated in the charter

b) Monitor and control school expenditure, ensure that annual accounts are prepared and audited as required by the Public Finance Act 1989 and the Education Act 1989

c) Comply with …. asset / property management obligations and implement a maintenance programme.

Finance is more than money

• Describes the long term plans for the school or kura

• Refl ects priorities of parents, whanau & community

• Outlines key areas the board will focus on

• Sets goals that will help achievement of priorities

• Outlines targets and planned actions

• Must be approved by the Ministry of Education, including changes

Consider: • Does your school or kura’s charter mention

fi nance in long term priorities/objectives?

• What are the fi nancial impacts of the charter on operating and capital expenditure?

Budget

Crown

Property

Students

Auditor

Assets

Ministry

Policies

Accountability

BOARD

TRUSTEESSTRATEGIC

VISION

BUDGET

PRINCIPAL

CHARTER


Governance and management

The concept of governance and management can be diffi cult for both boards and principals to come to grips with, particularly in smaller schools, around fi nancial roles and responsibilities.

Boards of trustees are ultimately responsible and accountable for the school’s fi nancial performance and are required to set the direction for the school and monitor progress.

The school’s charter is the primary document that describes the board’s long term plans and sets goals to make them happen.

The board’s fi nancial policies must refl ect who has been delegated each particular role in relation to fi nancial governance and management.

Role Our Kura/ School

Board Tumuaki / Principal

Establishes the “tone at the top”

Develops plans & objectives

Sets policy

Delegates authority

Establishes fi nancial management policies

Allocates resources through budget

Regularly monitors use of resources

Monthly fi nancial reports

Makes “within budget” decisions

Administers curriculum, property fi nance, administration and staffi ng

Transactions recorded and reported/ summarised

Timely, relevant and accurate information collated and reported on


Finances and ethics

Trustees and confl ict of interestConfl icts of interest in a school may arise where a trustee’s, or an employee’s duties or responsibilities could be infl uenced by some other interest or duty that the trustee or employee may have.

Ethical fi nancial behaviour is crucial

• Public / Taxpayer Funds

• Probity / Prudence

• Confl icts of Interest

“Tone at the Top” is a term that is used to describe an organisation’s general ethical climate.

• Established by its board and management.

• Describes their commitment towards openness, honesty, integrity, and ethical behaviour

• Most important component of the control environment.

Example of confl ict of interestA trustee provides electrical services to school; he / she must be excluded from any board discussions on the relevant contract.

For contracts above $25,000 that a trustee has a fi nancial interest in, the board must get approval from the Secretary of Education.

Describe the “Tone at the Top” at your school or kura:


Policies and procedures

The principal is the board’s “chief executive” and manages the school or kura in line with board policy. He or she ensures that board policies and internal controls are followed.

The board must ensure that the following are covered by their policies or procedures

Policy Yes No Notes

Theft and fraud prevention

Credit card control

Entertainment

Gifts

Asset management

Delegation schedule

Cash management

Protected disclosure

Separation of duties

Travel

Sensitive expenditure

NZSTA Governance Framework 2018 at www.nzsta.org.nz/about/policy-framework

NZSTA Finance Committee Terms of Reference example at www.nzsta.org.nz/leadership/governance

Kiwipark model school policies can be found at www.education.govt.nz/school/running-a-school/school-fi nances/model-fi nancial-policies-kiwi-park-school/


Specifi c board responsibilities retained• Setting of annual budgets

• Approval of long term plans, including property plans

• Monitoring of plans and budgets

• Operating expenditure in excess of a predetermined level

• Capital expenditure decisions

• Approval for appointment of permanent staff (permanent v fi xed v teacher v staffi ng entitlement)

• Termination of staff

• Communication with Minister of Education

• Signing of formal agreements (leases contracts etc.)

• Approval of annual report

Delegated authorityThe board usually delegates authority to the principal for:

• Approval expenditure up to budgeted levels

• Cash management including deposits

• Appointment of relieving and casual staff including associated fi nancial implications

Good fi nancial management practiceManagement establishes procedures, including:

• Month end reporting timetable, ensuring adequate time for board review

• Month end reconciliations and accruals e.g. banking staffi ng/ depreciation

• Internet payments/ electronic banking

• Cash banking

• Surplus funding to interest bearing accounts

• Stock management controls (uniforms/ stationery)

• Best practice – written procedures (desk fi le)


Internal controls

Internal controls are:

Systematic measures such as reviews, checks and balances, methods and procedures, instituted by an organisation to:

(1) Conduct its business in an orderly and effi cient manner,

(2) Safeguard its assets and resources,

(3) Deter and detect errors, fraud, and theft,

(4) Ensure accuracy and completeness of its accounting data,

(5) Produce reliable and timely fi nancial and management information, and

(6) Ensure adherence to its policies and plans

Examples:

• 2 signatures required for all payments; cheque or online banking

• Principal/ responsible budget holder to okay all invoices

• 2 staff involved in the “cash up” i.e. preparer and checker

• Check all salary payments – verify no “ghost” staff

• Check “banking staffi ng” position each fortnight

• Confi rm accounts payable and cheque register (by board)

• Confi rm monthly bank reconciliation and fi nance report (by board)

Does your school have a full suite of fi nancial policies and procedures?

Does your school or kura have key internal controls in place?

Notes


Budgets

The role of the board is to identify the school’s education priorities to develop a budget that allocates resources to these priorities, and to monitor and report on this expenditure.

Allocation decisions must consider:

• Charter, including strategic & annual plans

• Asset management & property obligations

Approving and monitoring the budget are responsibilities of the board that cannot be delegated (except in a committee of the board). Collectively, all members of a school board are accountable for the funding and other resources allocated to the board.

• Review outcome; will income cover expenditure?

• Are the budgets for all categories, including separate budgets for local funds income and local funds expenses?

• Do we have a capital (asset) budget?

• Review key assumptions in January/ February e.g. starting roll size – is adjustment needed?

• Have we considered cash implications e.g. seasonality?

• Include lease payments, cyclical maintenance and depreciation.

FINANCIAL CYCLE

Strategic

planning

Budgeting

Fixed assets

register

Financial report to be

presented to the auditor

Audited

annual report


Budgeting timeline

ANNUAL BUDGET TASK – school fi nancial year January to December TIMELINE

Annual budget preparation/consultation Oct/Nov

Identify constraints/assumptions Oct/Nov

Prepare budget resources Oct/Nov

Review budget assumptions Nov/Dec

Preliminary approval by board Nov/Dec

Finalisation and board sign-off Feb/Mar

Mid-year budget review (with June year to date fi nancial reports) July

OTHER FINANCIAL TASKS TIMELINE

Board approved draft annual fi nancial statements submitted for audit 31 March

Annual review of 10 Year Property Plan (10YP) April

Submission of annual report to Ministry of Education 31 May

Consideration of and action on matters raised by auditor June

Annual review of insurances August

Periodic review of fi nance policies As required


Sources of school income

Overview• Schools receive income from a range of sources

• The Ministry of Education’s Operations Grant, received quarterly, is the main source of operating income

• Some government and grant income is “tagged” for specifi c purposes

• MOE property capital works funding is not operating income

• Income from local funds can include high levels of cash = risk

Ministry of Education

• Operations grant funding, includes property maintenance funding

• Special education funding

• Other special project funding

Locally raised funds

• Donations (from parents and other third parties)

• Hire of facilities by third parties

• Recoveries for curricular and extra-curricular activities

• Grants

• Fundraising

• International students (tuition fees)

Other government funding

• CYFS

• TEC (Tertiary Educations Commission) e.g. Gateway

• Others (can depend on nature of the school or kura/ primary, secondary


Staffi ng overview

Boards are the employer:

• Teachers paid for by the Ministry of Education

• Teachers paid for from the board (operation) funds

• Support staff paid from board (operation) funds

All teachers are paid through central government payroll Novopay System

Most boards use Novopay for support staff wage payments

High levels of board paid staffi ng can lead to fi nancial diffi culties

Ministry paid staffi ng

Ministry teacher staffi ng entitlement

• Based on student roll, MOE provides teacher staffi ng entitlement for schools

• Teachers are paid directly by the MOE; not through the school’s bank

Banking staffi ng system

• Allow schools some fl exibility around use of teacher entitlement usage

• Management reports banked staffi ng usage to the board

Board paid staffi ng Board funded wages are the school’s biggest outgoing.

From operational grant funding, schools employ support staff e.g.

• Caretakers and cleaners

• Teacher aides

• Administration offi cers

• Sports coordinators

• Some schools employ additional teachers


Monitoring fi nances

Financial reports let you know:• When you need to stop spending

• When you need to stop and take a second look

• When you can spend

Purpose of monthly fi nancial reports To enable the board of trustees to carry out their fi nancial governance responsibilities they need to receive regular monthly updates about the school’s fi nancial performance and fi nancial position.

Information needs to be:1. Accurate

2. Timely

3. In context

4. Appropriate

Purpose of reporting:1. Compliance

2. Evaluation

3. Planning

4. Taking action

Financial reporting to the boardReview regularly at board meetings:

1. Financial performance

2. Financial position

3. Budget variances

4. Banked staffi ng

Basics of good reporting:• Old information is worthless

• The information presented should be limited to what is useful and relevant for decision-making

• Information should be presented according to the needs of the audience

Key terms

Operating surplus / defi cit

The income & expenditure statement shows all income earned and expenses incurred during the period, resulting in an operating surplus (income more than expenses) or defi cit (expenses more than income).

Current assets

Balances of all bank accounts and amounts owing to the board (accounts receivable), showing what money or liquid assets the board has that are realisable within 12 months.

Current liabilities

Includes accounts payable cyclical, maintenance provision, income in advance and other commitments payable within 12 months.

Working capital

Current assets less current liabilities.

Non-current assets

Includes value of fi xed assets and funds held (long term investments).

Non-current liabilities

Money that is already committed for future years’ expenditure e.g., cyclical maintenance.


Financial health indicators

Operating income greater than expenses

Current assets greater than current liabilities (working capital positive)

Total assets greater than total liabilities

Student roll number stable or positive trend

Not heavily reliant on local funds, including international fees

No major banked staffi ng overuse

Cyclical maintenance obligations up to date

No serious risks identifi ed in the audit management letter

Consider: • How does your school measure

against the indicators?


Sample income & expenditure statement

Current Period Actual

Current Period Budget

Year to Date Actual

Year to Date Budget

Annual Budget

% Budget

UsedAnnual

Prediction

INCOME

MOE Operations

Donations

International Students

Interest

Trading – net

Activities – net

105,000 120,000 620,000 650,000 1,200,000 52 1,230,000

EXPENDITURE

Administration

Board of Trustees

Financial

Communication

Consumables

General

Wages

Staff Expenses

30,000 25,000 180,000 160,000 300,000 60 320,000

Learning Resources

Curriculum

ICT

Wages

59,000 44,000 352,481 290,000 530,000 67 650,000

Property

Repairs and Maintenance

Caretaking and Cleaning

Grounds

Energy

Wages

31,667 26,667 190,000 179,000 320,000 60 340,000

Depreciation 8,333 8,333 50,000 50,000 100,000 50 100,000

Total Expenses 129,000 104,000 772,481 670,000 1,250,000 62 1,410,000

Operating Surplus/(Defi cit) (24,000) 16,000 (152,481) (20,000) (50,000) (180,000)


Sample Statement of Financial Position (Balance Sheet)

YTD Actual $

Last Year $

Current Assets

Cash and Bank 235,000 355,689

Short term deposits 450,000 504,103

Accounts Receivable 15,000 16,000

Inventories 7,515 507,515 7,515 883,307

less Current Liabilities

Accounts Payable 120,000 80,000

GST Payable 30,000 15,200

Income in advance 105,984 99,541

Second language cluster fund 25,000 30,000

MOE Property Projects 350,365 450,000

Cyclical Maintenance (full school paint) 126,000 15,899

Finance Lease 5,985 763,334 4,568 695,208

Working Capital (55,819) 188,099

add Non-Current Assets

Fixed Assets 500,000 525,000

Shares-Term Assets 2000 2000

502,000 527,000

less Non-Current Liabilities

Finance Lease 1,500 2,000

Cyclical Maintenance 4,000 130,000

5,500 132,000

Net Assets 440,681 583,099

Represented By:

Opening Equity 583,099 593,066

Addition to Equity 10,000 –

Operating Surplus/(defi cit) (152,481) (10,000)

Closing Public Entity 440,681 583,099


Sample commentary report (small school)

September 2016 FINANCIAL REPORTAttachment: Financial reports for the month and year to date ended September 2016

Income

$9k MOE income for September mainly ESOL and Teacher aide funding income.

YTD on track apart from net trading income but this is not a signifi cant income stream. Local funds ahead of budget. This is due to grants received for specifi c purchases such as chrome books.

Expenditure

Within budget overall despite …… funding deduction $14.7k that was deducted from 1 Apr 16 ops funding instalment. Curriculum and relief teachers under budget. Programmed maintenance payment $22k still to come and this is main reason for property expenses performing better than budget.

Operating results YTD surplus $107k before depreciation 28k and PMS 22k.

Overall performance YTD satisfactory and ahead of budget.

Working capital Surplus $151k. Better than expected position based on original budget.

Other Increase in teacher aide hours (costs) expected to be offset by additional government grants.

Banking staffi ng On track to “break even”.

Property

Repairs & maintenance including H & S

Drain issue – Investigations underway. MOE Property advised.

Other N/A

Other Matters

CAPEX No signifi cant purchases.

Cash fl ow No pressures at present.

Risk areas No signifi cant issues at this time.

Next month’s priorities Budget preparation for 2017.


Sample commentary report (large school)

Attachment:

• Financial reports for the month and year to date ended 31 July 2016

Income and Expenditure Statement July 2016

Income

MOE funding

Month: On track –MOE Operations Grant funding for Aug & Sep have been moved to Income in Advance. Funds transferred to a Serious Saver Account.

International fees received in advance have been put on term deposit until beginning of December.

YTD: On track – ops, STAR etc.

Donations

Month: Monthly reminders to go out in College newsletter – request for payment of School Donation. Expect to achieve budgeted student donation.

YTD: As above

Trading incomeMonth: Trading income largely on track except for farm – timing difference for income.

YTD: As above

Hostel

YTD: Note important to comment on signifi cant other one off fi nancial matters that may apply to your school or kura. Separate reporting should be available.

Projected EOY: No concerns at this stage.

Expenditure

AdministrationMonth: Largely on track – need to review coding in BOT initiatives and Laptops. Phone costs under budgeted. YTD: As above

Learning resourcesMonth: On track.

YTD: As above

Property

Month: Cyclical maintenance included in monthly reports. Hostel portion of Insurance been coded out of Property.

YTD: On track except for H&S and grounds expenses. Variance in grounds due to urgent tree pruning (unbudgeted).

Hostel

Hostel portion of Insurance been coded from Property.

YTD income below budget but additional income from 3rd party letting will assist achieving budget.

R & M expense still the major risk area.

Other No concerns.

Overall Operating Result July 2016

Operating surplus YTD $10k (after depreciation accrual) vs Budget Surplus YTD $15k

No signifi cant concerns – expect to meet annual budget surplus.


Statement of fi nancial position 31 July 2016

Working capital$200k positive / surplus.

Tracking satisfactorily.

CAPEX Heat pumps installed in Tech and Alt Ed. YTD Capex $31k

Accounts receivableDebtor tracking and follow up systems subject to ongoing review to maximise collection rates and minimise bad debt potential.

Accounts payable Normal monthly creditor payments.

Banking staffi ng

Pay period, under entitlement:

Projected EOY: To make the best use of Teacher Salary (TS) entitlement, all relievers from the next pay period will be coded to TS. As a result, we forecast an underuse of the relievers’ budget by $50k for the full year.

Other Nil of note.

Cash fl ow

YTD: On track

Projected EOY: Update being worked on but not expected to be an issue for the College to meet its operating commitments.

Property

Signifi cant issues including fi nancial implications

Updated 10YPP received. Still in draft.

Working through implications of the new plan.

Will be submitted to Board next month.

Projects Current status: Block A guttering replacement has commenced and roof repairs starts T3 holidays.

Repairs and maintenance including cyclical maintenance

R & M being kept to a minimum.

Cyclical maintenance dependant on Board approval of new 10YPP.

Health and safety See meeting pack.

Hostel See separate Hostel Manager’s report in Board pack.

Plans for coming month

10YPP Will be submitted to Property Sub-committee and then to Board for approval.


Annual fi nancial reporting

Requirements • Education Act s87 & s87A

• Audited fi nancial statements for every school and kura to MOE by 31 May

Content of annual report • Financial statements in Kiwi Park school model report format

• Statement of responsibility (signed by chairperson and principal)

• Budget fi gures for statements of fi nancial position and fi nancial performance

• Analysis of variance

• Auditor’s report

Key dates

End of fi nancial year 31 December

Submit fi nancial statements to auditor – *see note below 31 March

Audit completed and returned (or 30 days of receipt) 30 April

Send to local MOE offi ce (board responsibility, not auditor) 31 May

*If your school uses a fi nancial service provider (the board’s agent) it remains the board’s responsibility to meet the deadlines.

Preparation of annual fi nancial statements Options: In-house accounting vs fi nancial service provider

Considerations:

• Independence

• Hands on, timeliness (school holidays)

• Finance staff skill sets

• Risks

• Blended model

External providers

Offer a range of fi nancial services to school boards:

• General ledger maintenance

• Monthly reporting

• Budget assistance

• Preparation of GST returns

• Maintenance of asset registers

• Staff back up

• Annual reporting


Governance & management

To sum up

How a board carries out its legal and accountability obligations:

• The charter, including strategic and annual planning

• Policy

• Monitoring and review

• Employment of staff

• Asset management, including fi nance and property

• Legal compliance

• Annual reporting and audit

Responsible and accountable


Sources of support and information

NZSTAwww.nzsta.org.nz

0800 782 435

Advisory & Support Centre, Governance

[email protected]

Advisory & Support Centre, Employment

[email protected]

Govtalks

http://www.govtalks.co.nz

NZSTA Governance Framework 2018

Ministry of Educationwww.education.govt.nz/school/running-a-school/fi nances

MOE Financial Information for School’s Handbook (FISH)

MOE Funding, Staffi ng and Allowances Handbook

MOE Property Toolbox

Model fi nance policies from NZSTA, MOE website

Ministry of Education Financial Advisor (four across New Zealand)

MOE Fundraising Advice for Boards of Integrated Schools

Other Financial Services Provider

School Auditor

effective financial governance · effective financial governance learning objectives after...

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