Understanding school finances

You will find information about resourcing and school finances in these areas of the Ministry of Education website:

• Describes how schools are resourced. Includes associated regulations and processes.

• Provides detailed explanations of financial best practice. Includes the Financial Information for Schools Handbook (FISH).

School funding sources

Schools receive three types of funding through the Ministry of Education.

• Operational funding – also called BG or Bulk Grant
• Staffing entitlements – also called TS or Teachers’ Salaries
• Property funding for capital works and funding for special activities.

The Resourcing division administers operational funding and staffing entitlements; the Infrastructure division administers property funding.

Schools can also generate income from activities such as fundraising, donations, trusts or fee-paying students.

Operational funding

Operational funding covers a school’s running costs, including the wages of all non-teaching staff, property maintenance, classroom materials, purchase and depreciation of capital items, leases and rentals and staff professional development.

Operational funding is calculated using school rolls and other factors such as decile. It is responsive to roll fluctuations.

The ministry pays it directly into your school’s bank account every three months. The amount of the quarterly payments varies across the year.

Read the operational funding information on the Ministry of Education website for a full explanation of the processes around this.

Staffing entitlements

Staffing entitlements are also calculated on a formula.

The ministry pays the salaries of the teachers a school employs through the school’s staffing entitlement. The ministry pays these salaries directly to teaching staff through an agency.

As principal you are responsible for making sure:

• the level of staffing for the school does not exceed the levels confirmed by the Ministry of Education
• the specific payments to teachers are correct in terms of their employment agreements. Each teacher should have an employment file where pay increases etc. are located and noted through a bring-up system.

Read the school staffing information on the Ministry of Education website for a clear explanation of regulations and processes for staffing and salaries.

Banking staffing

Banking staffing monitors the teachers’ pay. It is important all principals fully understand how this works.

Banking staffing gives boards some flexibility in timing the use of staffing entitlement.

In one year, schools can choose to:

• anticipate up to 10 per cent of their staffing entitlement – using it in advance or going into overdraft
• save up staffing to use later in the year – under-using or banking.

Starting carefully with banking staffing is probably a sound idea, as banked staffing debts can be costly for schools in ensuing years. Any debt will be repaid at rates set each year by the ministry.

Banking staffing – Ministry of Education

Keeping the accounts

As principal, you and your board of trustees need to feel sure you can account for all the money coming into the school and how it is spent.

• Schools or a financial service provider generally use a financial management software package.
• Keeping the accounts, therefore, involves a data entry process, so that you can generate all your necessary reports easily.
• In small schools, it can be tempting to save money by doing the data entry yourself, but this is neither a safe nor sensible practice.

As a significant community business, it is very important that your school pays all money due on time and in full to maintain healthy community relationships.

Schools usually make GST returns on a two-monthly basis. Make sure staff know that GST invoices or receipts are essential records of expenditure. Invoices and receipts should be given promptly to the person responsible for GST accounting records in the school.

Attendance dues accounts

State-integrated schools must provide audited annual attendance dues accounts to the Ministry of Education.

Read the financial management chapter in the Financial Information for Schools Handbook to get a broad picture of what needs to be done in this area. You can download the Financial Information for Schools Handbook from the Ministry of Education website:

Preparing the budget

Good financial practice means managing money and money processes so the budget is aligned with the school’s strategic plan. Budgeting is an important process that allows for some delegation of financial tasks and responsibility in larger schools.

The Ministry of Education has regional financial advisers who are available to provide advice on budgeting in schools. See Managing school finances for contact details.

Reporting on and reviewing school finances

Monthly and annual reporting is a key part of keeping your financial systems secure and successful.

Before each board meeting your financial service provider or executive officer should prepare a management report. This should include:

• income statement, balance sheet and notes associated with these reports. As a minimum, the reports should include information to date, budget amount and percentage spent. A variance report showing obvious unders and overs is also recommended
• bank reconciliation for all accounts the school uses
• progress reports on any capital expenditure planned or underway, such as property or ICT purchases
• a financial forecast to the end of the year, which could be a cashflow forecast, is also a good monitoring tool and can be obtained from your service provider
• banking staffing usage year-to-date and planned usage for the remainder of the year.

Remember, as principal, you and the board chairperson sign off the annual report. You need to know how the finances work in a school to be able to do this.

Before attending board meetings you should be comfortable answering all of the following questions:

• Has all income and expenditure been properly reported?
• Are capital expenditure purchases reported separately from the regular financial reports?
• Does the financial report provide a forecast for the end of year? Is the school on track to meet the budget?
• If the forecast is indicating the school is not on target to meet the budget, what steps is the school taking to rectify this?
• Do I know the status of banking staffing – under- or over-used? Am I and the board clear on the impact of banking staffing?
• Do we have a clear understanding of the cost of both teaching and non-teaching staff that is being expensed to the operations grant?

Useful financial terms

Equity – Debits – Credits – Balance sheet – Bottom line – Operating statement – Percentages - Cyclical maintenance – Operating loss/surplus – Viable/not viable – Working capital- Solvent/ not solvent – Depreciation – Fixed assets – Working capital – Banking staffing – Bank reconciliation

Financial self-checklists

• I know and understand the formal financial delegations put in place by our board.
• I know that robust financial structures are in place with our office staff, accountant, and service provider.
• I know how money is receipted, how cheques are drawn, where the cheque book is left at night, where the cash is kept overnight.
• I understand the internal financial controls and know the staff is applying them. An order book system is in place. I know how to call in order books if spending gets out of hand.
• Our financial filing systems are easy to follow. If I need to look up a payment, the process is straightforward.
• Financial timelines are adhered to, that is, monthly reporting for the board and so on. All financial reports are available to the board meeting. Prior to meetings, I will have read and understood what our current financial position is.
• I know how the plans for 10-year cyclical maintenance and 5-year property funding work, and how the 10-year plan is linked to the budget. For example, a school is required to budget to keep exterior paint work up to date.
• I know about replacing assets and ensuring funds are put aside for this. I plan so that there are no surprises. I review depreciation and benchmark rates annually.
• I ensure the roll is checked against the operational funding notice after the 1 March and 1 July roll returns (for primary). Secondary schools have their operational funding reviewed at the time of the quarterly payments. Roll change up or down impacts the year’s operational funding and will affect budgets. Roll changes will impact on future staffing as well.
• I do not create large reserves. The money is provided annually for the students and should not be squirrelled away unless it has a specific purpose.
• I ensure appraisal systems for office staff who handle cash and do accounting work are carried out fully.

PLANNING AND BUDGETING

• I use robust and transparent budgeting processes. These are linked to the charter and strategic plan. Good budgeting will also assist with the preparation of the Statement of Variance at year's end, as it is written from the annual goals.
• I prepare my budgets in Term 4. A draft is adopted before the end of the year and finally adopted in February/March.
• I monitor spending within budget parameters. An over-spend in any part can mean disaster, even though other budgets are underspent. Look out for annualised support staff payments – January can be expensive, even though no staff is in attendance.
• I delegate. A principal can delegate the financial functions down but still has to know what is happening with the finances.
• I have developed the capability of teaching staff in budgeting processes. This is an excellent idea – get everyone involved.
• When necessary, I liaise with the service provider. This is a good training source and checking device to ensure all processes are working well.
• I talk with the auditor when they visit.

• I ensure all financial policies are up-to-date and are reviewed annually. This is done with the board.
• I know what a policy is and what a procedure is. Don’t get bogged down with too many policies when a sound procedure provides the control.

• I know how to read payroll and banking staffing reports.
• I monitor the fortnightly payroll system; keep a record of all staff, pay rates, annual leave balances, sick leave balances, and pay increment dates.
• I ensure staff paid from operational funding are paid as per budgets.
• I annually review the hours of staff paid from operational funding. A drop of 20 in the roll may mean a reduction in hours.
• I ensure claims for relievers and so on are actioned on a regular basis.
• I have checked that all people named on the annual SUE summary report are on the school’s payroll.

Further information

• Schools' payroll service – Novopay

• Do not rely on others for financial information. Knowing about school finances is part of being a principal. If you don’t know, ask.
• Get to know your financial contacts. Seek support from the Ministry of Education's financial adviser for your region.
• If you have a cashflow problem, call your local ministry office. It is much easier to save a school at an early stage than to find out when it is potentially too late.
• A cashflow concern does not happen overnight and will not happen if good monitoring processes are in place.