Financial Management in Schools

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Financial Management in Schools

• Presented by
• William Simmonds F.R.S.A.
• (Freeman Guild of Educators)

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• We didnt actually overspend our budget. The
  allocation simply fell short of our expenditure
  - Keith Davis

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Financial Management Standard- why do we need one?

• Effective financial management and benchmarking
  is essential for schools in order that they can
• Exercise proper control and stewardship over the
  significant amounts of public funding entrusted
  to them
• Allocate and deploy resources effectively to meet
  school priorities for development and improvement

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Principles of FMSiS

• FMSiS is a simple statement of what a well
  financially-managed school would look like.
• Does not raise the bar of FM about doing the
  basics well.
• Provides a more consistent approach to FM across
  22,000 schools, formalising what schools should
  already be doing

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The impact of FMSiS

• For good schools and LAs business as usual
• For others a move towards a more consistent
  approach to audit and FM
• Without exception those that have completed the
  Standard have commented on what a positive
  experience it has been

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Overview

• Background
• Self Assessment
• The Website
• External Assessment
• Tool
• Process
• Approach
• Frequently asked Questions ( Answers)

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The Standard and Toolkit

• Developed by the DfES and the Institute of Public
  Finance (IPF)
• 1st Release April 2004
• Updated annually
• From January 2007 meeting the Standard is now a
  legal requirement for schools

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FMSiS updates

• Self-assessment/external assessment documents
  have been merged
• Evidence has been made more flexible
• More guidance provided
• Statement of Internal Control
• www.fmsis.info

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The Financial Management Standard

• A clear and consistent standard for financial
  management
• A self evaluation tool for schools to identify
  their own current strengths and weaknesses and
  prioritise action for improvement
• An external evaluation tool for external and
  independent opinion on whether or not they meet
  the Financial Management Standard

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Strategic Financial Management

• Financial Management Standard Toolkit
• http//www.fmsis.info
• The toolkit supports school staff in reaching the
  standard by providing relevant guidance and tools
  for each part of the standard
• Toolkit itself is a valuable source for all.

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Detailed Good Practice Guides
Guide to achieving the Standard
Good Practice Summaries
External Assessment
Self Assessment
FM Standard
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Strategic Financial Management

• The Standard is a simple one page document of
  what a school would be like if it was financially
  managed successfully.
• Covers strategic audit and other activities that
  schools should already be completing.
• Only two new aspects SIC, Staff competencies
  matrix.

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Five Key Areas

• Leadership and Governance
• Good financial management requires clear
  leadership and effective governance
• People Management
• The staff who are responsible for financial
  management must be well trained and ably led
• Policy and Strategy
• Resources are deployed carefully to ensure the
  school meets its objectives, achieves Best Value,
  and undertakes activities that it can afford
• Partnerships and Resources
• The school uses its resources efficiently and
  effectively, and seeks to access additional
  resources through partnerships and other
  arrangements
• Processes
• Financial management includes effective
  processes for budgeting, monitoring, control and
  reporting to ensure that financial plans are
  achieved, loss and waste are minimal, and that
  safeguards against fraudulent practice are robust.

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The Financial Management Standard

• Standard and Toolkit
• Self-evaluation
• External Assessment
• Ministers Expectations

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Self Assessment Tool

• Shows the evidence that governors and senior
  managers in schools should expect to see to
  confirm compliance
• Recognises that those undertaking the assessment
  will know from their own direct experience
  whether a number of the required components are
  in place.

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Financial Management Standard

• Schools can use the self-evaluation tool to
  monitor progress towards the standard
• Access toolkit resources
• Help generate portfolio of evidence links from
  self-assessment to where the evidence exists
• http//www.fmsis.info/

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Self Assessment

• Completed by ?
• The Bursar
• The Head
• Finance Committee
• Agreed by
• All Governors (eventually)

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FMSiS updates
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The Financial Management Standard

• Standard and Toolkit
• Self-evaluation
• External Assessment
• Ministers Expectations

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External Assessment Tool

• Shows the evidence that an external assessor
  would expect to see to support compliance with
  the Standard.
• Recognises that those undertaking the assessment
  will not have a detailed personal knowledge of
  the schools operations
• The assessor will need to rely much more on
  hard evidence and this has been reflected in
  the document.

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External Assessment

• Schools wanted a process to receive formal
  recognition of achieving the standard.
• Schools provide evidence that they have met the
  requirements of the Standard (as set out in G5)
  through the use of the self evaluation tool.

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External Assessment

• Three groups
• Internal Audit
• Local Authority Finance staff
• Third Party Providers
• Local Authorities to decide whether to
• (1) provide external assessors
• (2) allow schools to use third party providers
• (3) (If so), limit schools to the national
  providers or extend to local organisations.

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External Assessment

• Feedback so far
• Most local authorities are providing a service
  (at a cost to schools although usually lower
  than the external providers).
• Authorities using Internal Audit / Local
  Authority Finance staff.
• Authorities are not going to stand in the way of
  schools who want to use the national providers.

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External Assessment Process
Evidence Gathering
Draft Assessment
Consult
Final Assessment
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External Assessment Process
Undertake External Assessment
No
Yes
School decides to
No
Yes
Meet the Standard?
Sec. 151 Cat. (z)
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External Assessment Process
Meet the Standard?
No
Yes
Narrow fail
20 days
Sec. 151 Cat. (y)
Action by L.A.
Meet the Standard?
Yes
No
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Evidence Gathering

• Self Assessment Form
• Document Review
• Interviews

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Evidence Gathering Document Review

• Document Review
• Latest Reports i.e. Ofsted / Int. Audit
• Meeting Papers Minutes
• Budgetary Information
• School Development Plan
• Purpose
• Collate Evidence for External Assessment Tool
• Determine Accuracy of Self Assessment

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Evidence Gathering Interviews

• Interviews (Once a degree of understanding
  gained)
• Person who completed the form
• The Head
• Finance staff (bursar / Finance Admin)
• Chair of governors / Finance Committee
• Purpose
• Resolve queries
• Substance over Form

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Evidence Gathering School visit?

• When is a visit required?
• Most Local Authorities believe a school visit is
  always required
• Not set rule
• Assessor discretion / local policy
• Need to consider
• If a school is not meeting the standard, it will
  be necessary to make recommendations
• What value will be added by a visit

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Compliance

• Cannot rely on documentary evidence alone
• Are procedures followed on a daily basis
• Is there an awareness of procedures
• Exception where evidence is based on testing
  e.g. audit reports

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Substance over Form

• Accounting statements should be prepared so as to
  reflect the reality or substance of the
  transactions and activities underlying them,
  rather than only their formal legal character.

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Substance over Form

• Need to look beyond the documentary evidence i.e.
• Are the principles within financial procedures
  followed
• Is there a real understanding over the budget
  by governors
• Are Governors involved in decision making

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Exercise Budget reporting

• Consider the evidence put forward
• How does this school compare against the
  Standard?
• Would further information regarding this area be
  required?
• What recommendations (if any) would you make?

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FM Standard - Implementation

• Some LAs piloting with schools
• Trial external assessments
• Evidence gathering exercises
• Some plan to provide External
• Assessment within existing SLAs

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Benefits of Benchmarking

• Focus on planning and managing your budget
• Identify areas for improvement
• Achieve best value
• Improve the effectiveness of your spending to
  improve performance
• Identify efficiency savings
• Centre for Procurement Performance
• http//www.dfes.gov.uk/cpp
• Schoolquote
• http//www.nba.org.uk
• Benchmarking website
• http//www.teachernet.gov.uk/management/schoolfund
  ing/schoolfinance

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Summary

• a clear and consistent standard for financial
  management for schools to aim at
• a self-evaluation tool to identify current
  strengths and weaknesses
• an external evaluation tool (independent
  assessment)
• a guide to existing sources of advice on what
  constitutes good financial management
• new good practice guides for those aspects of
  financial management not covered by existing
  guidance
• a glossary of terms
• All schools to have gained the Financial
  Management Standard in schools by March 2010.

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Q1 What happens when schools meet the FMSiS?

• Successful schools meeting the Standard will
  then receive a certificate from the Department
  bearing the new FMSiS logo.
• If the school is successful, the assessor will
  also inform the DfES.
• For schools that are meeting the essential areas
  of the Standard, assessors should remind these
  schools of the next step i.e. meeting desirable
  characteristics.

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Q2 What is the timeframe for the renewal?
The Financial Management Standard is awarded to
the school for good financial management
practices, rather than to any individual, and
will require renewal every three years. The
renewal date of the Standard would commence from
the date of the assessment that the school has
met the requirements of the Standard.

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Q4 What is required of local authorities /
schools ?

• On 21st July 2005, the Government announced its
  expectation that all secondary schools should
  have met the FMSiS by March 2007, all other
  schools by March 2010.
• There will be a requirement for the Section 151
  Officer (CFO) to sign a declaration attached to
  the Section 52 outturn, to the effect that
  relevant schools either meet the FMSiS or are
  subject to appropriate action to ensure they meet
  the FMSiS. The statement is due around August
  25th next year, and the certificate should
  reflect the position as of 31 March 2007.

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Q5 What percentage of schools are the DfES
expecting to fail the standard?

• Ministers are expecting all secondary schools to
  meet the FMSiS by March 2007, and all other
  schools by March 2010. The Department wants
  assurance that all LAs have put in place
  arrangements to ensure that all of their schools
  meet the FMSiS and to remedy any identified
  shortfalls.

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Q6 Can schools opt out?

• Schools cannot opt out all secondary schools
  will be expected to meet the Standard.
• The Department has amended local authority
  schemes of financial delegation to assist local
  authorities in getting compliance with the FMSiS,
  allowing them to impose a requirement on schools
  to demonstrate achievement of and maintain the
  FMSiS, and to declare external assessment of the
  Standard compulsory for their schools.

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Q7 What do schools not meeting the Standard have
to do?

• For Schools that are currently not meeting the
  Standard, the S151 officers statement will
  include a declaration that appropriate steps are
  being taken to rectify this.
• If a school does not meet all of the required
  criteria, they will receive a written report on
  what they need to do to meet these requirements.
  The summary provided to the school
  post-assessment would clarify those areas in need
  of improvement.

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Q8 What are the consequences of failure? For
schools LA. Ofsted?

• Schools will not get certified if they fail. The
  CFO will have to confirm that schools not meeting
  the Standard are subject to appropriate action to
  ensure they meet the FMSIS
• Discussions are taking place with Ofsted about
  how best to link the Standard to the existing
  inspection framework.
• As FMSIS is now a legal requirement it could
  follow that adherence to the Standard is one of
  the statutory requirements under Leadership and
  Management in part C of the self evaluation form
  (SEF)

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Q9 How many of the tests do they have to fail to
get a failure overall?

• Schools must produce evidence to show that they
  meet each section of the standard, but this is a
  matter of judgement for the assessor. Clearly
  not all the criteria are of equal value or
  weight.
• Schools can of course have a narrow fail.

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Q10 What is a narrow fail?

• A narrow failure will be defined as failure to
  meet the Standard on one subsection.
• If a school narrowly fails the Standard, the
  school will have a total of 20 working days grace
  in order to provide the additional evidence
  required to meet that criterion before a final
  decision is made, without additional charge.

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Q11 What if the school disagrees with the
judgement?

• Hopefully this situation should not arise too
  often as the evidence for external assessment
  lends itself, in most cases, to a clear yes / no
  answer.
• The consultation with the school regarding the
  draft should also assist in this area.
• However, if the school does disagree, the issue
  will need to be taken up internally, although
  there is no formal right of appeal.

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Q12 What controls are in place to ensure
consistency between authorities?

• The External Assessment Training
• The improved External Assessment Tool
• The DfES are indicating that they will require
  details of why any school will not be meeting the
  Standard by the required deadline (guidance to
  follow).

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Q13 How long should an external assessment take?

• Depends on the size of the school and the
  quality of the self assessment submission (i.e.
  poor submissions will have cost implications).
• DfES estimates the average time to be between 1
  to 2.5 days, depending on the quality of the
  evidence gathered and the size of the school.
• It is hoped that over time the amount of days
  needed will be reduced.

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Q14 What happens if there is not a completed (or
near complete) self assessment form?

The expectation is that schools will want to
complete the self assessment form prior to the
external assessment in order to allow potential
problem areas to be highlighted and
resolved. Where a self assessment form is not
available, it is the decision of the local
authority / external provider as to how to
proceed.
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Q15 Can external assessors demand to see
documents?

• In determining if a school is meeting the
  standard, evidence will need to be collated. If
  evidence is not provided, the assessor will need
  to reflect this in the decision reached.
• If an assessor has concerns regarding a schools
  reasons for not providing a document, this should
  be referred to the local authority to be pursued
  through normal avenues. It is recognised however
  that some External Assessments will be part of a
  wider audit of the school anyway.

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Q16 What is the Statement of Internal Control ?

• Purpose of the SIC
• To give the reader a reasonable assurance that
  all the funds managed by a school have been
  properly controlled and accounted for.
• However
• The statement does make it clear that absolute
  assurance cannot be given as internal control
  procedures, no matter how sophisticated, cannot
  prevent errors or irregularities.
• Previously called the Controls Assurance
  Statement , renamed Statement of Internal
  Control (SIC) and will be much more closely
  linked with the Consistent Financial Reporting
  return

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R15 Statement of Internal Control

• The SIC statement is designed to be brief, but
  informative and it contains 5 paragraphs
• Explains the governing bodys responsibilities
  and the wording expected for the school to
  achieve the Financial Management Standard
• Explains the limitations of control systems. To
  achieve the Financial Management Standard, each
  school will be expected to use the wording in the
  specimen statement
• States how the Governing Body can satisfy itself
  that the controls are adequate before its
  representative agrees to sign the statement
• States that the Governing Body is satisfied that
  internal controls at the school were adequate
  during the year. If they are not satisfied they
  should list briefly any serious or high priority
  control weaknesses
• Where planned action to the control system is
  disclosed

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R15 Deciding if to disclose items in paragraph 4.

• Factors to consider
• How likely Likely, Possible or unlikely
• Impact minimal, moderate or significant
• Cost of any action needed to correct
• Is the cost disproportionate to the risk

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R15 When should the governing body sign ?

• Only when it feels it can do so with confidence,
  having studied all the evidence available.
• Evidence to consider
• Monitoring Reports
• Meetings
• LA audit reports
• Checklists
• R15 Appendix 2,
• LA,
• internal audit
• the Audit Commission

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Q17 Cash flow statement

• Is a cash flow statement necessary?
• Part of the evidence required to meet 3.1 is
• ensure that cash-flow is monitored and variances
  to the plan are investigated. If the assessor is
  satisfied, fine.
• However it is still considered by the DfES that
  as good practice for cheque book schools, cash
  flow forecasts are produced for the budget and
  can be accommodated within the limits of cash
  available.

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What evidence is required to meet the criteria
for Cash Flow?

• For cheque book schools
• The bank balance has not been overdrawn (or not
  exceeded the overdraft limit) in the last year.
• Cash flow is monitored and variances to the plan
  are investigated, the local authority has no
  significant concerns regarding the schools
  competence in dealing with vat returns and other
  records.

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Q18- Do assessors need to cover every item or use
risk based testing?

• All areas must be looked at although some will
  require more attention than others. All the boxes
  will need to be ticked in order to pass the FMSiS

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Questions