Finance Workbook 1 Effective 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 finances
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Effective Financial Governance · Effective Financial Governance Learning objectives After attending this workshop participants will have an understanding of the: • Overview of
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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
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.
• 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?
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
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:
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/
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 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.
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.
• 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.
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.