AUDIT in Education

We have recently been in consultation with both the Education Department and a sample of schools regarding making changes to the opinions that we give to schools in audit reports.  Basically, we felt that changes were required as schools would continually tell us that our use of the opinion ‘satisfactory’ (i.e. in a positive light) differs to the OfSTED use of the word at inspection, where we are told by schools that ‘satisfactory’ is much more of a negative comment when used by OfSTED!  Whilst stressing that the dictionary definition of the word backed up the context in which we used it, it is acknowledged that it was causing some confusion in schools if the LEA and OfSTED used it in different contexts.

In future, we will judge ‘satisfactory’ schools instead as ‘meeting the standard that we measure against’.  Hopefully schools will be in favour of this change. We cannot stress enough that, if you have received a ‘satisfactory’ audit report in the past, this is a positive endorsement of the school’s financial management and it is hoped that the report was received by both the school and its governors in this context.

There will be some other cosmetic changes to the way we judge a school’s overall opinion.  Firstly, the model that we use to generate an opinion has been revised to ensure that it remains relevant.  Again, these changes have been made in conjunction with the Education Department and a sample of schools.  It is also worth stressing that all opinions are rechecked at report review stage by an independent Senior manager within the audit team to ensure that opinions are both correct and consistent.  Secondly, in addition to the main opinion on the school’s financial management, audit reports will in future give sub-opinions too for each of the main financial areas within the school (e.g. budgetary control, income generation, protection and security of assets etc.).  Again, these sub-opinions will be based on the results of the audit.

Schools may be interested to hear that, in the whole of 2003, over 89% of schools visited were found to have ‘satisfactory’ financial management (or better).  We consider this to be an exceptionally high proportion and that Leicestershire’s schools in general should be confident in their financial systems and procedures, and rightly proud of the finance staff that introduce and operate them.

Please note that you cannot reclaim the VAT element of a receipt/invoice if addressed to an individual member of staff rather than the school.

It has been noted that although schools are holding Indemnity to hire forms incorporating the LCC conditions of hire, the hirer is not always signing these and regular users of the premises are not always renewing the hire forms on a regular (termly) basis.

Each school is advised to review its actual number on roll figures throughout the financial year.  Where, at termly census return dates, actual pupil numbers are less than those originally predicted on the school’s s.52 budget statement, this suggests that the school budget is likely to be reduced in the following financial year through a retrospective budget adjustment.  Where schools are aware of actual pupil numbers being less than those originally predicted, it is recommended that Governors should also be made aware of this, along with the implications on the school’s budget share.  This is in order that financial decisions can be made at an early stage regarding any likely reduction in the school’s budget.

The Finance Service advises that, where a retrospective budget decrease is anticipated, it would be prudent to set aside a sum of money from the current year’s budget to ‘fund’ this reduction.

The Finance Service issues a termly retrospective budget statement to all schools giving an indication of the likely level of any retrospective adjustment.  However, schools should not need to wait for receipt of this statement to know if numbers are fluctuating significantly from those estimated (i.e. on which the budget was originally calculated).

Where actual pupil numbers throughout the year exceed those originally estimated, then the school’s budget is likely to receive a retrospective budget increase.  Where a retrospective increase is anticipated, this too should be brought to the attention of the Governors, in order that decisions can be made on how to spend this additional funding.  The Finance Service advises that, where retrospective budget increases are known, this extra funding can be allocated for spending in the current financial year, even though the funding will not physically be received until the next financial year (the ‘this year’s budget for this year’s pupils’ scenario).

The retrospective funding system can appear at first to be complex.  In short, it serves to adjust school budgets once actual pupil numbers are known (i.e. by replacing estimated pupil numbers in the funding formula with actuals).  The Finance Service is able to give further advice to schools on accounting for anticipated retrospective adjustments both on SIMS and on budget intention returns

All budgets should have an owner. Where a specific budget has been allocated to an individual member of staff (Head of…, Premises officer etc.) the relevant SIMS cost code should clearly identify the nominated budget holder.  In the event where a budget has not been allocated to a specific member of staff, the name of the Head teacher should be detailed as the nominated budget holder on SIMS.

Please remember, it is equally important to monitor income budgets, as it is expenditure ones. An income budget failing to achieve its predicted income levels is as problematic as an expenditure budget which overspends.

A number of schools have recently enquired into the requirements for retaining official SIMS attendance registers.  The answer is found in Administrative Memorandum no. 79 which states that official SIMS registers should be printed off at least once a month, bound into annual volumes and retained for three years after the last date on which they were used.

It is recommended that schools check their SIMS Personnel records, on a half-yearly basis, to actual salaries being paid to confirm the accuracy of both systems. YOU MAY BE SURPRISED!

Schools are reminded that they should ensure that they are making effective use of their balances by investing surplus funds in either a high-interest deposit account or a building society account, in order to maximise the amount of bank interest received.  If a building society account is established, the school should ensure that the withdrawal mandate requires two signatories (as with cheques) and that if there are any restrictions on withdrawals then these are not likely to give the school any inconveniences (e.g. if money is invested in an account that requires x days notice before a withdrawal).

Whilst undertaking routine audit visits it was established that a couple of schools were experiencing two to three week delays between cash being collected by cash collection company and the credit appearing on the bank statement.  (This applying to income credited to the schools local cheque account held with the National Westminster Bank rather than school dinner money being credited to the General County Fund.)  Both cases have been brought to the attention of Mark Dewsbury, Finance Assistant in the Corporate Finance Section who has in turn taken the issue up with a representative from the NatWest Bank.

We now need to establish if this problem is confined to these two cases or if it is a larger problem.  If your school banks with the NatWest and has a cash collection service please could you monitor the time taken between collection  and the credit appearing on your bank statement.  If you are experiencing delays of two weeks or above please send details to Mark.  These will then be taken up with the NatWest Bank.

If you don't bank with the NatWest  but still have a cash collection service it may be worth your while to see if you are experiencing any delay. If so you should take it up with the cash collection service in the first instance and then with your bank if necessary.

Schools are reminded of the need to conduct an annual inventory check in accordance with the LMS Scheme of Delegation.  The results of this check and not the actual inventory should be given to the Governors, declaring that a physical check of items had been undertaken.  Schools are also reminded that the Governors have the responsibilities for approving the disposal of any obsolete, surplus to requirement and missing items.

These procedures must be clearly minuted in the Governors minutes.

The end of the financial year is perhaps a good time to undertake these general ‘Housekeeping’ tasks.

Schools are reminded of the existence of the LEA Code of Practice no. 14 ‘Policy on Driving on LEA Business’.  This Code sets out a school’s responsibilities both where it has its own vehicles (e.g. a minibus) and also where staff use their own vehicles on school business.

A recent audit of a sample of schools concluded that not all schools are in compliance with the Code of Practice and, as a result, are placing themselves in a position of vulnerability should an accident occur.

It is important that schools are aware of, and comply with the provisions of the Code of Practice.  In the unfortunate event of an accident, the potential impact on the school both financially and in the damage to its reputation could be very significant if proper health and safety procedures aren’t in place.

Important areas included within the Policy include: -

Schools with any queries regarding the operation of vehicles are advised to contact either the LEA’s Health & Safety Unit at County Hall (Health & Safety issues) on (0116) 265 6439 or the Client & Technical Support Service’s Transport Section on (0116) 288 5238.   Copies of the Code of Practice can be obtained from the Health & Safety Unit.

At a number of recent audits, schools have been criticised for being unable to demonstrate that value-for-money is being obtained when procuring large valued goods and services.

Schools are encouraged to obtain alternative quotations wherever better value may result and do not outweigh administrative costs.  The Authority’s Constitution requires a minimum of three written quotations to be obtained where the procured item is expected to cost in excess of £6,500, unless it is impractical to do so (£13,000 if building work).  One of the quotes should always be ESPO / central purchasing / LCC where it is appropriate to do so.  Governors are authorised to set their own policy for quotations, although any thresholds set must not exceed those contained within the Constitution (above).  The school’s quotation policy should exist in writing and be contained within its Financial Procedures / Finance Policy and be widely distributed to staff with authority to procure items (e.g. budget holders).  Where it is deemed impractical to obtain three quotes the reason(s) for this should be stated in writing, authorised by the Headteacher and retained for future audit inspection.

Prior approval from the Governing Body should be obtained for all expenditure above a pre-determined limit, irrespective of whether written quotes have been obtained.

Several schools have been commended by us for having established a central quotations file in which all quotation information is retained.  It is suggested that schools have a simple summary sheet detailing all of the quotes received for each item (subject to a minimum value where obtaining quotes would not be practical).  This sheet could be attached to the quotes and retained in the quotations file.

Under the LEA Scheme for the Financing of Schools, Governing Bodies are responsible for formally approving where a quote other than the lowest is selected (it is worth emphasising that value-for-money is not necessarily the cheapest option, but is a trade-off between cost and quality).  Such decisions should be formally minuted and a reference to the minute stated on the quotation summary sheet (e.g. ‘second lowest quote approved by the Governors (give details of rationale behind the decision) – see Finance Committee minutes 13/2/04’).

Under the Authority’s Constitution, all purchases estimated to exceed £50,000 should be put out to formal tender.  Again, Governors are at liberty to establish a threshold lower than this figure if they so wish.  The Education Finance Service is able to give more advice to schools on tendering procedures where required. Any proposal not to put a contract of over £50,000 out to formal tender should be authorised by the Governing Body.  (Advice should be sought from the Clerk to the Governors in relation to reporting requirements, to ensure commercial confidentiality.)