Cheques and balances: Financial best practice in schools

With its report: ‘Oversight of financial management in local authority maintained schools’ published last October, the National Audit Office (NAO) examined the effects that budget reduction, greater financial independence and monitoring of public money was having on schools, and whether they were ready to effectively manage the process with clear audit trails and accountability.

“There must be early warning systems in place to alert the Department for Education to emerging issues requiring action and intervention,” according to Amyas Morse, head of the National Audit Office.

The NAO underlined the importance of effective financial management in schools, highlighting that it is essential that the financial management framework for schools is capable of alerting the Department for Education to any systemic issues that may require action or intervention.

The report notes that weak financial management and weak academic performance often go hand in hand. Therefore the ability and quality of the schools financial management is hugely important in ensuring the high quality delivery of education. If the operations of the school infrastructure are not managed properly then the likelihood of the right materials, staff and resources being available are impacted. The Department has a limited role in relation to the financial management of schools. It sets standards but responsibility for financial management and cost reductions lies with schools themselves, with local authorities responsible for exercising effective oversight.

Ultimately governors will be held primarily accountable for compliance of school finances and the replacement Schools Financial Value Standard (SFVS), the successor to FMSiS, which launched on 18 July 2011. This is a mandatory requirement for maintained schools and those that had not attained FMSiS will be required to submit SFVS to their local authority by 31 March, 2012, and annually thereafter. Other maintained schools will be required to make a submission as well by this date, and annually thereafter.

The NAO acknowledges that schools’ financial management capability has improved – especially as more schools have employed, or have access to, a school business manager. However, many primary schools still do not have access to such a manager, meaning that financial management and capabilities are impacted. This is being addressed through the development of cluster and local authority development groups where resources and best practice are being shared.

Reduced Funding
In the current financial environment, more schools have to manage with reduced funding, and strong financial management is more important than ever. Many headteachers have no personal experience of leading a school during a period of financial constraint. Many schools consider that they need to reduce staff costs and that they need guidance on how to do so while maintaining high-quality education. This should always be the last resort when looking at streamlining costs and reducing overheads. Consideration should be first given to collaboration, sharing resources across other schools and how to best deliver other high cost budgetary items like sickness cover and energy costs, where significant savings can be made.

The department now requires less detailed assessment of financial management, to reduce the administrative burden on schools and local authorities. Local authorities do not publish systematic data to demonstrate how they are monitoring schools’ financial management and that they are intervening where necessary. At a time when some schools may need support most, many local authorities are set to devote fewer resources to monitoring and supporting schools’ financial management. Forty per cent of authorities responding to an NAO survey do not believe they have sufficient resources to provide effective support to schools and almost half of those authorities are planning to reduce the amount of staff time spent on support.

Having the right skills to ensure that your school can meet the demands of the reducing budgets and deliver value for money is fundamental. By ensuring that money is spent most efficiently you can maintain standards and resources across the board. A discipline of budgeting and resource management needs to be developed across all members of school staff to ensure that collaboration and best use of materials occurs.

A school should not simply devolve its budget by department and monitor the spend to ensure no overspending; they should also create central purchasing of basic materials such as pens and paper so they are not bought as one-off items by multiple individuals in the school.

The most important factor in delivering accurate, timely and good financial management is having a qualified and well-trained business manager overseeing the day-to-day activity of the school. Where a primary school does not have this opportunity then having access to a shared resource and ensuring the school is a member of appropriate organisations can assist in the delivery of sound financial management.

The SFVS has been designed in conjunction with schools to assist them in managing their finances and to give assurance that they have secure financial management in place. Governing bodies have formal responsibility for the financial management of their schools.

Concerns have recently been raised that the change from the FMSiS to the SFVS will see less accountability, a lack of evidence and little intervention and review of a schools performance. Schools will be asked to complete and return an annual SFVS of the financial management in their school and the chief finance officer at the LA will be required to sign and say that all maintained schools in their area have completed their SFVS return.

Having a less bureaucratic and evidence-based review of financial practices in schools is fine in principle, but many schools are now concerned that the SFVS lacks structure, guidance and enough rigidity to ensure that best practice is delivered, adhered to and monitored. With increasing levels of fraud taking place in schools and appearing in the press there would appear to be a direct correlation between a reduction in the controls and monitoring of schools finance and the ease with which fraud can be committed.

For more information
www.nasbm.co.uk