Chapter 8 financial management of guide for school governorsThis chapter applies to all schools other than special schools. It explains how schools are funded and sets out the main responsibilities of the Board of Governors and the principal in relation to the management of a school’s finances. It also offers guidance on the components to maintaining a high standard of financial management.
In this chapter:
- Role of DE
- Common funding scheme
- Financial management
- Financial management standards
- Restriction, suspension or loss of school budget
- The law
Role of the Board of Governors
The role of the Board of Governors is to manage the school funds economically, efficiently and effectively for the purposes of the school in accordance with a financial memorandum published by DE or by the ELB. The Board of Governors must
8.1. The Department (DE) is allocated an education budget by the NI Assembly Executive and the Department’s Permanent Secretary is responsible to the Education Minister and the Assembly for the propriety and regularity of the use of those resources. Grants are paid from the DE budget to the five ELBs (in other words the funding authorities for controlled and maintained schools) and to voluntary grammar and grant-maintained integrated schools on the basis of expenditure plans approved by DE. The grants are subject to financial accounting controls. The expenditure plans set out the amounts to be allocated to grant-aided schools under a common formula funding scheme.
8.2. Schools are free to raise extra funds through sponsorship schemes, voluntary contributions from parents and fund raising activities. Separate accounts should be held for non-public funds and the standard of accounting for and control of non-public funds should be as stringent as that required for public funds.
8.3. Since April 2005 all grant-aided schools, except special schools or schools established in hospitals, have been funded under the law, on the basis of a Common Funding Formula set out in the DE publication Common Funding Scheme for the Local Management of Schools. The formula aims to ensure that schools of similar size and characteristics receive similar levels of funding, regardless of sector or geographical location. The formula is subject to review from time to time following consultation with school governors and principals.
8.4. The formula intends to distribute the available resources fairly among schools of all sizes and types, making due allowance for costs attributable to pupil numbers, special needs, social deprivation, maintenance of premises, and a number of other factors. By far the most dominant element within the formula is the number of pupils attending the school. Pupil numbers are weighted, so that, for example, a Key Stage 3 pupil attracts more funding than a pupil in Key Stages 1 and 2. The weightings are intended to reflect the variation in costs associated with provision at the various stages of education, including, for example, the cost of examination entry fees and option choices at Key Stage 4 and Sixth Form level.
8.5. The total funds available for delegation to school Boards of Governors are known as the Aggregated Schools Budget. Every school receives a formula allocation from the Aggregated Schools Budget for each financial year. The financial year runs from 1 April to 31 March. The formula allocation is expected to cover the school’s annual expenditure on a wide range of delegated items. The delegated items are listed at Annex A1 of the Common Funding Scheme and include most staffing costs, some premises related costs and school requisites.
8.6. Schools may also access some of the funds held centrally by the Funding Authority for specific types of expenditure such as most long term staff substitution costs, additional costs approved by DE for statemented pupils, certain premises costs, start up costs for new schools and contingency provision. Further information is contained in Part 4 and Annex A2 to the Common Funding Scheme.
8.7. Other education funds are held centrally by the Funding Authority to meet administration costs, certain advisory and support services including home to school transport and approved capital expenditure. Further information is contained in Annex A3 to the Common Funding Scheme.
8.8. The Board of Governors is responsible in law for the management of the school’s financial allocation under the LMS Scheme, in accordance with a financial memorandum published by the funding authority. The financial memorandum sets out the conditions the Board of Governors must fulfil in managing the school’s funds. The purpose of the memorandum is to ensure that education funds are used economically, efficiently and effectively. The memorandum describes the role and responsibilities of the funding authority and the Board of Governors and sets out the arrangements that the school is expected to have in place for planning, budgeting and control of resources.
8.9. The Board of Governors must agree a three year financial plan for its school and submit it to the funding authority for approval in such form and within such timescale as that authority may require. The plan must align with the education priorities in the school’s development plan and cover the incoming financial year in detail and the following two years at a level prescribed by the funding authority. The plan has to be consistent with the financial resources available to the school and be based on realistic assumptions of pupil numbers and income and estimates of expenditure.
8.10. Expenditure should be contained within the annual budget, unless otherwise approved by the funding authority for the school. This is a major responsibility and governors are expected to show prudence in managing the school’s finances. Expenditure should be monitored in a systematic way during the financial year to ensure that it is properly controlled.
8.11. The Board of Governors may accumulate savings and carry them forward into the next financial year, but any deficit balances must also be carried forward. Surplus and deficit balances should not exceed five per cent or £75,000 (whichever is the lesser) of the school’s total delegated budget for the financial year, unless they are being accumulated for specific purposes and these are detailed in their three year financial plans. Where for any reason this is not achieved, the school’s three year financial plan must rectify the position. The Funding Authority monitors and provides advice on surplus and deficit balances.
8.12. While retaining oversight and responsibility for the school’s finances, the Board of Governors may delegate certain activities to a committee of its members and/or the principal in accordance with the Financial Memorandum for its school. It is expected that many schools will have a Finance Committee. Voluntary grammar schools can have a Finance Committee and a separate Audit Committee and grant maintained integrated schools are required to appoint a 'Responsible Officer' to fulfil certain responsibilities and to provide an independent check on financial issues. In all situations, the Board of Governors should ensure that written statements are maintained of the delegated activities of its committees and the principal and any other person with financial responsibilities.
8.13. The delegated duties of a Finance Committee may include
- considering a draft financial plan prepared by the principal for the incoming year in the context of the school’s formula funding allocation and its Development Plan;
- exploring different expenditure options;
- forecasting future pupil enrolments and income levels;
- monitoring budgeted income and expenditure on a monthly basis;
- monitoring and adjusting as necessary in year actual against approved expenditure;
- finalising end year accounts and reviewing outcome;
- assessing the effectiveness of financial decisions;
- agreeing a written statement of the school’s financial systems and procedures;
- administering voluntary and private funds including the school’s Charging and Remissions Policy;
- making recommendations to the Board of Governors on financial matters.
8.14. While the Board of Governors must determine how the school’s financial budget will be allocated for specific purposes, the principal is normally responsible for expenditure estimates, day-to-day decisions on spending and weekly monitoring of expenditure to make sure that the school budget is not exceeded. The principal must ensure that full financial records are kept in relation to all school funds and that these records are presented regularly to the Board of Governors in keeping with the requirements of the guidance issued by the Funding Authority.
8.15. The aim of the Board of Governors is to match expenditure with the delivery of the school’s curriculum. This will necessitate the principal, in consultation with the Board of Governors, specifying in the school’s Development Plan the school’s curriculum objectives, how it proposes to achieve these, and the resources required. This plan should then be costed on the basis of employee costs, premises costs, school requisites for teaching and learning and transport and other costs. The total estimated costs should then be matched against the school’s budget allocation. If there is an anticipated overspend, then priorities will have to be identified and the plan revised, so that expenditure is brought within budget limits. The principal is responsible for ensuring that this plan is implemented and for monitoring spending on a continuous basis.
8.16. The following guidance is offered on the essential components to maintaining a high standard of effective financial management:
i. Leadership and governance
- The Board of Governors should be aware of its own financial management responsibilities and those of its finance committee, any designated officer, the principal and any other relevant school staff, especially a bursar.
- The Board of Governors should ensure that its members and the school staff avoid any conflict between their business and personal interests and the interests of the school.
- The Board of Governors should maintain an up-to-date register of members personal and pecuniary interests and ensure that any conflicts of interests are avoided as required by the school’s scheme of management.
- The Board of Governors can develop its knowledge, skills or experience in financial management through the recruitment and co-option of governors with experience in this area and the take up of the training, advice, information and support services that are available to all schools.
ii. People management
- The principal and any other relevant staff should be aware of their own and each other’s responsibilities in relation to school finance and how each contributes to the school’s overall financial procedures.
- The staff should be deployed in such a way that financial controls are effectively maintained, even in the event of staff changes and absences of key personnel.
- Job descriptions should include relevant financial management functions.
- Reasonable efforts should be made to ensure that the school is not overly reliant on any one member of staff with regard to financial matters. Staff should have the opportunity to attend appropriate training.
iii. Strategic planning
- The school’s annual expenditure plan should be realistic and affordable in terms of the funds available and approved by the Board of Governors on a timely basis.
- It should reflect the school’s development plan and be consistent with the school’s longer term financial plans (including any deficit recovery) and strategic educational goals. It should have regard to achieving best value for money.
- It should be designed to manage any serious risks facing the school.
- The systems and procedures operated within the school should meet the information, accounting and the reporting requirements of the governors and the Funding Authority.
- The processes should take account of the need for regular expenditure monitoring and risk management throughout the financial year and include controls to safeguard the proper use of resources including the school’s assets.
- The Funding Authority provides advice on administrative and accounting and audit procedures; this includes advice on purchasing and contract procedures.
8.17. The Funding Authority has the power to restrict, suspend or withhold a school budget where the Board of Governors has failed to comply with any requirement or conditions associated with public funding or has not managed the budget share satisfactorily. This means that the Board of Governors temporarily loses some of its responsibilities but these may be restored after an annual review provided that appropriate standards are then in place. Loss of a delegated budget is a rare event and will remain so because schools should discuss any problems that might lead to suspension with the Funding Authority and seek to rectify them before formal action arises.
8.18. The law makes it clear that the governors of a school will not incur any personal liability in respect of any action taken in good faith in the exercise of their powers. Information about the provision for indemnity is contained in the Financial Memorandum.
The Education (NI) Order 2003 – Articles 3 to 9
(Funding of Grant-aided Schools)
The Education (NI) Order 2003 – Articles 10 to 12
(Financing of boards)
Common Funding Scheme for the Local Management of Schools, DE
Guidance on the Financial Management Arrangements for Controlled and Maintained Schools Funded under the Common Funding Scheme, DE
Guidance on the Financial Management Arrangements for Controlled and Maintained Schools Funded under the Common Funding Scheme, ELBs
Financial and Audit Arrangements Manual for Voluntary Grammar Schools, DE
Financial and Audit Arrangements for Grant-Maintained Integrated Schools, DE