1. FINANCE FUNDAMENTALS Steve Papps – BDO Christchurch Ltd

2. INTRODUCTION Who am I? What to expect from today’s presentation
The “Big Picture”
Some of the “Nitty Gritty”
All questions are welcome and ask them as we go
Our focus today: Financial Governance

3. OUTLINE The Big Picture
Legislation governing schools
National Administration Guideline 4 (NAG4)
School Charter
Governance & Management

4. OUTLINE Getting into some “Nitty Gritty”
Budgeting
Staffing Overview
Monitoring the Finances
Annual Financial Reporting
Resources and Support

5. LEGISLATION GOVERNING SCHOOLS
Education Act 1989
A large number of sections relate specifically to finance
Public Finance Act 1989
Specifies what is in schools’ annual financial reports (s41)
Others
Financial Report Act 2013
Crown Entities Act 2004
Income Tax Act 2007
Goods & Services Tax Act 1985
Holiday & Employment legislation
Private Schools Conditional Integration Act 1975

6. NAG4 links charter & finance related legislation
LEGISLATION GOVERNING SCHOOLS National Administration Guideline # 4 (NAG4)
Each Board of Trustees is required to:
Allocate funds to reflect the school’s priorities as stated in the charter
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
Comply with …. asset/property management obligations and implement a maintenance programme.’
NAG4 links charter & finance related legislation

7. SCHOOL CHARTER The Key Guiding Document - Financial Implications
Describes the long term plans for the school or kura
Reflects priorities of parents, whanau & community
Linking your school’ or kura’s charter with NAG4
Does your school charter mention finance?
What are the financial impacts of the charter?
Operating and capital expenditure
Charter, plans & budgets should be linked and aligned

8. GOVERNANCE & MANAGEMENT Key Internal Controls
In small groups discuss what roles on page 37 are Board or Management

9. GOVERNANCE & MANAGEMENT Board Responsibilities – NZSTA Policy Framework 2016
School Governance
Establishes the “tone at the top”
Develops plans & objectives
Sets policy
Delegates authority
Financial Governance
Establishes financial management policies
Allocates resources through budget
Regularly monitors use of resources
Monthly Financial Reports

10. GOVERNANCE & MANAGEMENT Management Responsibilities
The principal is the board's 'chief executive' - manages the school or kura in line with board policy.
School Operations
Make “within budget” decisions
Administer curriculum, property, finance, administration, staffing
Financial Administration
Transactions recorded and reported/summarised
Timely, relevant and accurate information collated and reported on

11. GOVERNANCE & MANAGEMENT Control Environment
“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.
What is the “Tone at the Top” at your school?

12. GOVERNANCE & MANAGEMENT Control Environment
Ethical financial behaviour is crucial
Public / Taxpayer Funds
Probity / Prudence
Conflicts of Interest (6th Schedule 8 (8) & (9))
When making financial decisions board should take the:
“FRONT PAGE OF THE PRESS, DOMINION, AUCKLAND HERALD TEST”

13. GOVERNANCE & MANAGEMENT Setting Policy
All schools require a range of finance policies, examples:
Cash Management - s73 Education Act (registered banks only)
Theft and Fraud Prevention
Sensitive Expenditures
Conflict of Interest – (s103A)
Asset Management
Credit Card
Entertainment, Gifts, Travel
Protected Disclosures (“Whistle Blower” protection)
Delegated Authorities

14. GOVERNANCE & MANAGEMENT Specific Board Responsibilities Retained
Setting of annual budgets
Approval of long term plans, including property plans
Monitoring of plans & budgets,
Operating expenditure in excess of a predetermined level
Capital expenditure decisions
Appointment of permanent staff
Termination of staff
Communication with Minister of Education
Signing formal agreements (leases, contracts etc.)
Approval of annual report

15. GOVERNANCE & MANAGEMENT Delegated Authority
The Board usually delegates authority to the principal for:
Approval of expenditure up to budgeted levels
Cash management including deposits
Appointment of relieving and casual staff including associated financial implications

16. GOVERNANCE & MANAGEMENT Key Internal Controls
In small groups can you think of some examples of internal controls operating at your school or kura?

17. GOVERNANCE & MANAGEMENT Key Internal Controls
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. a preparer and checker
Check all salary payments – verify no “ghost” staff
Check “banking staffing” position each fortnight
Confirm accounts payable and cheque register (by board)
Confirm monthly bank reconciliation & finance report (by board)

18. GOVERNANCE & MANAGEMENT Separation of Incompatible Duties
What: Ensuring 2 or more people are involved in financial processes.
Why: For protection of the individual and the school or kura
Note: Can be difficult in a small school environment
Example of incompatible duties:
The person who collects & receipts cash also prepares the “cash up” & banking
Can you think of other examples?

19. BUDGETING The Budget The board’s primary financial monitoring tool
Board cannot delegate - sub-committee can prepare draft budget but full board must approve & minute approval of final budget
Allocation decisions must consider:
charter, strategic & annual plans
asset management / property obligations
Resources are limited – schools have budget constraints

20. BUDGETING Checks Budget Timeline
Review outcome; will income cover expenditure?
Are there 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?
Have we considered the costs of banking staffing overuse?
Do we need assistance e.g. Financial Service Provider

21. RESOURCE & ASSET MANAGEMENT Sources of School Income
Overview
School’s receive income from a range of sources
The Ministry of Education’s Operation Grant, received quarterly, is the main source of operating income.
Some government and grant income is “tagged” for specific purposes.
MOE property capital works funding is not operating income
Income from local funds can include high levels of cash = risk
Donations, Int’l Students, Grants , Fundraising, Hire
Schools must have systems to monitor “tagged funds”

22. RESOURCE & ASSET MANAGEMENT Government Sources of Operating Income
Ministry of Education
Operations Grant Funding, includes property maintenance funding
Special Education Funding
Other special project funding
Other Government Funding e.g.
CYFS
TEC (Tertiary Education Commission) e.g. Gateway
Cluster money received by Fundholding Schools : accounted for as a liability on the Balance Sheet

23. RESOURCE & ASSET MANAGEMENT Staffing Overview
Boards employ:
Teachers paid for by the Ministry of Education
Teachers paid for from board (operation) funds
Support staff paid for from board (operation) funds
All teachers are paid by central government via the Novopay System
Most boards use Novopay for support staff wage payments

24. RESOURCE & ASSET MANAGEMENT Ministry Paid Staffing
Ministry Teacher Staffing Entitlement
Based on student roll, MOE provides teacher staffing entitlement for schools
Teachers are paid direct by the MOE; not through the school’s bank
Banking Staffing System
Allows schools’ some flexibility around use of teacher entitlement usage
Management reports Banked Staffing usage to the board

25. RESOURCE & ASSET MANAGEMENT Board Paid Staffing
Board funded wages are the school’s biggest outgoing.
From Operations Grant funding, schools employ support staff e.g.:
Caretakers & Cleaners
Teacher Aides
Administration Officers
Some schools employ additional teachers
High levels of school paid staffing can lead financial difficulties

26. MONITORING THE FINANCES Monthly Finance Reports
Board should receive a finance update regularly, preferably monthly.
Updates should include:
Financial performance against budget
Commentary on significant variances from budget
Financial position
Working capital / cash
Banked Staffing position
Property; capital and major maintenance
Samples in Workbook

27. MONITORING THE FINANCES Key Terms
Operating surplus / deficit
Current assets / current liabilities
Working capital / cash
Non-current assets / non-current liabilities
Depreciation
Cyclical Maintenance

28. MONITORING THE FINANCES Financial Health
In small groups can you discuss ways that you can ascertain the financial health of your school or kura?
Using the example in the workbook are there any issues you can see?

29. MONITORING THE FINANCES Financial Risk Assessment Tool
NZSTA is developing a tool to help boards assess their school’ or kura’s financial risk by:
Early identification of actual or potential financial concerns
To enable the development of a plan to negate or manage any financial problems identified before they come major or significant.

30. ANNUAL FINANCIAL REPORTING Requirements
Education Act s87 & s87A
Audited financial statements for every school & 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 Figures for Statements of Financial Position and Financial Performance
Analysis of Variance
Auditor’s Report

31. ANNUAL FINANCIAL REPORTING Preparation of Annual Financial Statements
Timeline In Workbook
Options: In-house accounting vs Financial Service Provider
Considerations:
Independence
Hands on, timeliness (school holidays)
Finance staff skill sets
Risks
Blended model

32. RESOURCES AND SUPPORT External Providers
Offer a range of financial services to school boards:
General ledger maintenance
Monthly reporting
Budget assistance
Preparation of GST returns
Maintenance of asset registers
Staff back up
Annual Reporting

33. RESOURCES AND SUPPORT Sources Include:
New Zealand School Trustees Association (NZSTA)
NZSTA Policy Framework 2016
MOE Financial Information for School’s Handbook (FISH)
MOE Funding, Staffing and Allowances Handbook
MOE Property Toolbox
Model finance policies from NZSTA, MOE website
Ministry of Education Financial Advisers (four across New Zealand)
Financial Services Provider
School Auditor
MOE Fundraising Advice for Boards of Integrated Schools

34. MORE QUESTIONS?