Nuts and bolts volume 2

Volume 2 – Finance: A practical guide Alan O’Reilly and Pauline Morris

Published by AMiE www.amie.uk.com AMiE is the leadership section of ATL – the education union.

Project Editor: Yvonne Fleming Edited and designed by thingswedo Printer: Blackmore Ltd, Shaftesbury Š Association of Managers in Education 2012.

All rights reserved.

Colleagues are most welcome to use the materials in this booklet in training sessions.

However, we would ask that you register your use with AMiE on 01858 461 110.

Feedback should be sent to Sara Shaw, Head of AMiE, at sshaw@amie.atl.org.uk, or: AMiE 35 The Point Market Harborough Leicestershire LE16 7QU Tel 01858 461 110 Fax 01858 461 366

Contents

1 4 17 27 38 45 46 47 48

Acknowledgements Foreword Introduction Finance – a strategic perspective Setting a budget Managing a budget Buying things!

Conclusion Glossary of financial terms Select bibliography Useful websites

Acknowledgements We would like to thank our colleagues in schools and colleges, in particular:

1 1Blackpool and The Fylde College, Blackpool 1 1Cardinal Newman College, Preston 1 1Cardinal Newman Catholic High School, Warrington 1 1Carmel Sixth Form College, St Helens, Merseyside 1 1Our Lady’s Primary School, Haigh, Wigan 1 1St Gregory’s High School, Warrington 1 1St John Rigby Sixth Form College, Wigan 1 1St Marie’s Primary School, Standish 1 1St Thomas Aquinas Catholic School and Sixth Form, Birmingham 1 1St William’s Primary School, Ince, Wigan.

Thanks too to Peter Rushton and Jim Fogarty, our colleagues from Promoting Excellence.

Alan O’Reilly and Pauline Morris Promoting Excellence Ltd

Foreword Welcome to the second publication in AMiE’s Nuts and Bolts series.

This volume aims to unpick some of the most challenging issues regarding finance which leaders and managers face on a daily basis in our schools and colleges.

In line with our ongoing aim, volume two is specifically designed to support new and aspiring leaders and managers in the practicalities of developing their own leadership skills, but it also has much to offer the experienced leader as a guide to best practice and a framework to reflect on individual development, improvement and values.

I hope that, no matter what stage of your career, you will find the following pages useful and relevant to the challenges you face on a daily basis and a source of practical tips to promote change and improvement in your organisation.

Sara Shaw Head of AMiE – the leadership section of ATL

Introduction In a world where constant change and challenging financial circumstances have become the norm, this second volume in AMiE’s Nuts and Bolts series explores the skills and knowledge needed to effectively manage a budget. It offers practical ‘how to’ advice on the kind of financial decisions that leaders and managers make in their everyday jobs.

Managing a budget is part and parcel of good leadership and management. An effective manager will plan to use resources in a way that supports teaching, learning and student achievement. Many leaders and managers believe that effective management of finance is the foundation stone upon which all other achievements can be built.

The booklet is primarily focused on the challenges that come with managing expenditure budgets. Managing income tends to be very complex and sector specific.

It is also traditionally an area subject to sweeping changes in schools as well as further and higher education and is inevitably a focus of accountability structures.

One of the three stated purposes of an Ofsted inspection is to: provide the relevant secretaries of state and other stakeholders with an independent public account of the quality of education and training, the standards achieved and how efficiently resources are managed.

Handbook for the inspection of further education and skills, Ofsted (June 2012)

It is important to keep in mind that effectively managing a budget is not just about getting more for less. It is about maximising the positive impact you can have on teaching, learning and student achievement with the resources you have available.

1

Using this volume We hope that you will find this booklet practical, useful and interesting, no matter what the stage of your career.

However, although much of the practical advice will be useful to leaders and managers at all levels, it is likely that some sections will be more useful than others depending on your role and experience. For ease of reference managers have been split into three categories:

1 1senior (e.g. principals/vice principals, headteachers/ deputies, bursars/business managers)

1 1middle (e.g. heads of faculty and heads of department) 1 1junior (e.g. curriculum leaders and subject leaders).

The main sections can be considered as follows: Strategic information (page 4)

Setting a budget (page 17)

Managing a budget (page 27)

Buying things! (page 38)

Useful for senior leaders/ managers but sets the context for those in middle and junior roles.

Useful for senior leaders/ managers but sets the context for those in middle and junior roles.

Useful for middle and junior leaders/ managers and a useful reference for those in senior roles.

Useful for junior leaders/ managers and middle managers new to finance.

2

Terms used in this volume As organisations often use different terms for certain processes and procedures – and indeed for how they designate themselves – please bear in mind the following when reading this booklet.

In this volume:

1 1organisation = school, college or academy 1 1strategic plan = development plan 1 1improvement plan = development plan, school improvement plan or quality improvement plan

1 1students = children, pupils or learners.

This explanation may also help to bridge any gaps between sectors or types of institutions where terminology may be different.

3

Finance – a strategic perspective This first section will outline some of the more strategic ideas that will set the context for the rest of the booklet. It is primarily aimed at senior managers but a good middle or junior manager will need to have at least a basic understanding of the main financial challenges facing their organisation.

Senior leaders and managers should take a strategic view of an organisation when it comes to finance. While this might sound obvious, it is nevertheless important to remember because it is easy to get sidetracked by the everyday details of financial management and lose the bigger picture.

What is strategic awareness?

The ability to view things with a broad perspective, taking into account what may affect your school/ college both in the short and the long term.

Promoting Excellence (2012)

In this respect, a three-year view is essential.

In determining long-term financial plans there are two key elements.

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1 Projected student numbers and associated estimates of income.

Across all types of organisation, funding is largely based on student numbers. reflect

Do you know what the local population demographics are in your area?

How can you use links with feeder schools to develop your own knowledge and understanding?

Are there any changes to local organisations which may affect your own?

2 Workforce planning and associated staff costs.

Ofsted inspections have demonstrated that the most successful schools take a strategic approach to workforce planning and staff development.

reflect

Have you identified the existing and future skills, competencies and behaviours in your staff that will enable improvement?

Do you know where any skills shortages or surpluses are?

What is the diversity profile at different levels in your organisation? How does it compare with the local population?

Three-year financial plan

Annual budget

Day-to-day financial decisions

Outstanding student experience

It is only with a clear plan for these two elements that a meaningful financial strategy can be developed. Financial plans cannot be developed in isolation: they should be the financial expression of an organisation’s vision.

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It is important that senior leaders and managers understand the risks to achieving the plans they develop. External factors such as local population demographics and changes to funding methodologies will have a significant impact – but internal factors, such as staff costs are often just as important. activity

The first step in developing a plan is to have a comprehensive understanding of the current situation. Do you understand your organisation’s internal strengths and weaknesses?

What are the key external opportunities and threats?

Use the boxes below to record your thoughts.

Strengths

Weaknesses

Opportunities

Threats

Highlight the factors you have included that have a financial impact.

6

reflect

What does this tell you about the importance of financial planning for your organisation?

How will you proceed as a result of this analysis?

Senior leaders should develop a three-year financial plan which sets the tone for each year’s budget. This in turn sets the context for all subsequent financial decisions taken within an organisation right down to the day-today decisions on spending made by junior managers.

It is always important to remember that once a plan is set it is almost immediately out of date. But the planning process is not wasted time: it leaves you well placed to act when circumstances change.

Plans are nothing; planning is everything.

Dwight D. Eisenhower (1957)

reflect

Think about the strengths, weaknesses, opportunities and threats you identified above.

How can they impact on your financial plans?

Do you understand how an adverse change in your assumptions will affect your plans?

Of course you cannot manage every threat, but do you know which ones are the most critical to your organisation and what you might do to overcome them?

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The role of the governing body Key responsibilities Governance structures differ across schools, academies and colleges but the governing body’s key financial responsibilities are similar in all these organisations.

Perhaps the key difference for colleges and academies from maintained schools is that governing bodies have responsibility for setting pay and conditions of service for staff. Aside from this difference, the governing body’s main financial responsibilities can be summarised as:

1 1approving the annual budget 1 1safeguarding assets 1 1monitoring financial health 1 1ensuring the effective and efficient use of resources. reflect

What kind of information do you think the governing body would need to monitor your organisation’s financial health?

How can the governing body ensure resources are being used effectively and efficiently?

Do there need to be any changes to enable this to happen?

Spending public money Maintained schools, academies and colleges are largely publicly funded organisations and must be able to demonstrate they are using that money efficiently, effectively and for the purpose it is intended. This responsibility ultimately lies with the governing body. Its members must ensure the systems in place for risk management and internal control are fit for purpose. This is equally true for independent and privately funded organisations.

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Why do internal controls exist?

Manage risk: to the achievement of strategic objectives

Internal control

Achieve propriety: by spending money with integrity Achieve value for money: by getting the maximum benefit for the money you spend Achieve regularity: by spending money for the purpose it was intended

reflect

Think of an example of a control in your organisation. How does it contribute to achieving one or more of these aims?

Do there need to be any changes to ensure that these aims are met?

Organisations will often document their key controls in procedural texts sometimes called ‘Financial Regulations’.

These will outline the responsibility, authority and accountability arrangements within an organisation. They lay out clear rules for how the strategic business of an organisation will be conducted. They cover areas such as audit, budget setting and procurement rules. They govern the working practices involved in managing a budget.

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Financial regulations contain a wealth of information about the working practices of an organisation when it comes to finance. As a new manager, you should get hold of a copy and read them. They will include the key controls on managing a budget such as how to order goods and services and how payments are made.

reflect

If your organisation does not have documentation of this sort, what plans will you put in place to remedy this situation?

Audit An audit is an independent examination of an organisation.

Audits take many forms and schools, colleges and academies are audited in lots of different ways for many diverse purposes.

Auditors are often appointed by the governing body but can also be appointed by funding bodies or anyone else with a statutory or contractual right to audit an organisation.

However, when we talk about audits we are usually referring to either internal or external audit.

Internal audits are carried out to test the effectiveness of internal controls. Internal auditors are appointed by the governing body to give them some assurance that controls are in place and operating properly.

Internal auditors will spend time testing the internal controls and risk management processes within an organisation. They will then prepare a report of their findings for the governing body. Internal audits can potentially cover any aspect of an organisation’s activities – they do not just cover finance. reflect

How would you prepare for an internal audit in your area?

What are the key controls in place to guard against risk?

10

External audits are independent examinations of an organisation’s annual report and financial statements.

External auditors are appointed by the governing body to express an opinion as to whether the annual report and financial statements are a ‘true and fair’ view of the state of affairs of the organisation.

The number of significant changes that schools and colleges have experienced with regard to their structures, governance and leadership systems in recent years means that many organisations will be undergoing their first or second external audit without a great deal of experience.

Checklist – preparing for an external audit Have you prepared a comprehensive timetable including a list of tasks to be completed?

Yes

Is each of the tasks on your timetable assigned to a named individual?

Yes

Do you have a well-organised file prepared before the audit?

Yes

Have you agreed with your auditors what they will want to see in the file?

Yes

External auditors are interested in governance.

Are the minutes and papers for governing body meetings available for auditors?

Have you discussed any potential points of contention with your auditors in advance of the audit? If you can agree a solution before you draft your financial statements you can avoid problems later.

Have you agreed an outline timetable for the audit before your auditors arrive on site? This will help ensure key staff are available when needed.

No

No

No

No Yes No

Yes No

Yes No

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case study

The experience of a new headteacher in a primary school Shortly after I was appointed as a new headteacher, I was notified of a Financial Management Standard in Schools (FMSiS) audit. I felt totally unprepared as the head in my previous school looked after things like this without really involving anyone else.

I met with our bursar and we quickly got to grips with the risks involved in the audit. We prepared as much paperwork as we could in advance to make the auditor’s job as easy as possible when they were on site.

What I have learnt from this experience was the importance of building proper record keeping and control into everyday working practices at the school. The FMSiS has now been replaced with a new Schools Financial Value Standard (SFVS) and next time round we will be much better prepared.

top tip

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The best way to prepare for any audit is to have robust controls and effective record keeping at all times.

Probity When you work in the public sector, you have a responsibility to act with integrity. As a leader you are inevitably under even greater scrutiny – perhaps even more so as a manager with responsibility for finance. The seven Nolan principles are standards which should underpin the behaviour of all leaders and managers but especially in the public sector. They are: Selflessness

Integrity

Holders of public office should act solely in terms of the public interest.

They should not do so in order to gain financial or other material benefits for themselves, their family, or their friends.

Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might seek to influence them in the performance of their official duties.

Objectivity

Accountability

In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.

Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.

Openness

Honesty

Holders of public office should be as open as possible about all the decisions and actions that they take.

They should give reasons for their decisions and restrict information only when the wider public interest clearly demands.

Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.

Leadership Holders of public office should promote and support these principles by leadership and example.

First Report of the Committee on Standards in Public Life (1995) 13

The principles apply across all areas of public life from Members of Parliament to those working in publicly funded organisations and they underpin the rules by which organisations spend money. They also provide excellent standards for privately financed educational establishments. reflect

How can the Nolan principles affect your day-to-day behaviour and decision-making?

Take time to consider and learn from your previous experience. When do you think you got it right? Are there times you would have done things differently? Why?

Dealing with fraud – it doesn’t just happen in other organisations!

Fraud can take many forms, from theft of small amounts of cash to collusion with suppliers amounting to thousands of pounds. The National Fraud Authority estimates that fraud will cost central and local government budgets £4.7bn in 2012. As a leader and manager with responsibility for finance you need to be aware of the potential for fraud to occur in your organisation. This is not to say that you cannot trust your colleagues, but you do need to be alive to the possibility that fraud does not just happen in other organisations. There are plenty of examples in the education sector. And when it does go wrong, it often goes badly wrong for an organisation … leading to newspaper headline allegations of improper use of company credit cards for hi-tech gadgets and even sex games!

The most important thing you can do is report any suspicions you have promptly. Over half of public sector fraud is uncovered by tip-offs. Do not try and carry out your own enquiries as you may end up prejudicing a future, more formal investigation.

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Read your organisation’s fraud policy (if it exists).

This will explain how allegations of fraud are handled.

A whistle-blowing policy may also exist which would give you the option of making a confidential disclosure of suspected fraud, corruption or malpractice.

reflect

Do you manage a team of people? Would a member of your team know what to do if they suspected fraud? How can you build awareness of fraud within your team in a positive way?

What about working practices in your area? Would you change anything to help prevent fraud?

Do you have a robust and up-to-date policy on fraud?

Disclosure of gifts and personal interest What would you do if a supplier to your organisation offered you an expensive ‘thank you’ gift? It might not change the way you make decisions but sometimes perceptions are just as important as reality. In many sectors, offering gifts and hospitality to customers is common practice. However, accepting gifts and hospitality from suppliers to your organisation can sometimes leave you open to accusations of improper behaviour. It is often best to politely decline.

If you do accept gifts, as rule of thumb you should disclose anything other than small value items like branded pens or stationery. Simply send an email to your line manager outlining the nature of the gift or hospitality and the reason you have accepted.

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Your organisation will probably use local suppliers for many goods and services. It is not rare that small local suppliers are owned or managed by friends and family of the people making decisions in your organisation.

When it comes to making financial decisions in your professional role, you should disclose any personal interest in a decision you are making. This is not just restricted to financial interests. Simply send an email to your line manager outlining the nature of your personal interest. case study

The experience of a finance manager in a sixth form college I have responsibility for payment of college bills. I had recently been working with a local building company which was a supplier to the college. We had worked together to reduce paperwork and improve the payment of their invoices.

The new approach was better for the college and the supplier.

I mentioned to the supplier that I had recently had some work done at my own home which was of a poor standard.

The supplier offered to come around to my home and put right the work that had been done. They wanted to show their gratitude for the more timely payments they were receiving since we had introduced the recent changes.

What do you think? What would you do? And why?

It is always good to get on well with your suppliers, but is everyone in your organisation clear about the parameters for supplier relationships?

A register of interests is a straightforward way to avoid many of the pitfalls budget holders can encounter.

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Setting a budget This section is aimed at senior managers. However, middle and junior managers may find it useful as a context for the subsequent sections.

Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds and sixpence, result misery.

David Copperfield, Charles Dickens

How is a budget set?

A budget is an organisation’s financial roadmap for the delivery of its strategic plan. A good budget will reflect an organisation’s strategic priorities and is informed by its improvement plan. It is prepared by the leadership team and approved by the governing body.

Like most publicly funded sectors, budgets in schools, colleges and academies are set annually based on an organisation’s financial year. In a large general FE college, budget setting can involve many managers across the college. In a small primary school it may just involve the headteacher, a bursar and a handful of staff.

Modern approaches to budget setting suggest that you can set a more effective budget by involving greater numbers of staff. Budget setting should be informed by curriculum planning. A well thought-out budget will support effective teaching and learning and the organisation’s achievement of its aims in the year ahead.

Testing your plans and ideas for the year ahead against a wider audience than just the senior leadership team can often help you refine and improve the final budget.

A transparent and well-documented approach to budget setting can often help leaders and managers with their understanding of budgets.

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reflect

How can you empower middle or junior managers by involving them in the budget setting process?

How can their voice be heard in the process?

What about learners or parents?

It is also good practice to share your budget with all staff. This will give them an understanding of the organisation’s financial position and help them make better everyday decisions.

Those staff with responsibility for an element of the budget (‘budget holders’) should be informed of their allocation within the budget and the reasoning behind the decision.

reflect

What other stakeholders would be interested in your budget?

What do you think is the best way to communicate your budget to all of those with an interest?

case study

A finance director in a sixth form college Historically we had never really communicated the college budget beyond those managers who had some budgetary responsibility – even they only really knew about their own areas. But given that we expected some pretty large cuts to our budget in the coming years we decided that staff really needed to have some understanding of the college’s financial position.

I presented the budget at our Monday morning staff briefing.

Not in too much detail – just the most important points. I explained some of the key assumptions we had made in setting the budget – such as how much income we would generate and how much we planned to spend on staff pay and estates. The principal also talked about how changes to government policy would impact on future funding.

I was surprised by the level of interest that existed amongst staff. Although we only got a few questions after the presentation, over the next few weeks many staff came to see me to ask questions about their particular area. It really seemed to get people thinking.

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When setting your budget you will need to consider many factors. Every organisation has its own priorities and risks to consider but the following will be common to all organisations.

Setting a budget for income The starting point for your budget is usually income.

For most organisations the majority of income will be allocated by central or local government or an agency of one or the other. In practice this means your ability to influence your income is limited. reflect

Do you understand the basis on which your organisation’s income is calculated?

Do you understand why income goes up or down from year to year? If your income has gone up is it because you are receiving more income per student or have your student numbers increased?

What if your income is decreasing? What plans have you in place to address this?

Understanding the reasons for changes in income will help you make better decisions about the other elements of the budget.

19

Setting a budget for staff costs Staff are the driving force behind effective teaching and learning. Staff costs typically amount to roughly two-thirds of income and therefore from a financial point of view, they are the largest revenue spend of the total budget. Colleges, academies and independent schools employ their own staff and can set their own terms and conditions of employment.

It is a key task for them to strike the right balance between properly rewarding staff and maintaining long-term financial health. It is important to plan future staffing costs carefully and to regularly consider what alternatives are available to your organisation’s existing structure without endangering the overall quality of teaching and learning. Remember: It is the people who work in schools who make the biggest contribution to children’s experience and what they can achieve.

Improving Efficiency in Schools, Department for Education (2011)

If your organisation’s income is growing then this balance is easier to strike – especially if income growth is based on more funding per student. Equally, where income is stable, it is difficult to pay increased staff costs without compromising financial health in the long term. Ultimately, it is a decision for each school, college or academy to make, as every organisation has its own unique set of circumstances.

The important point is to be fully aware of your current situation and review and plan accordingly on a regular basis.

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Setting a budget for non-staff costs Non-staff costs are all costs that do not relate to pay.

Where possible you should prioritise non-staff budgets based on your organisation’s aims. You will have little influence over some costs such as utilities (electricity, gas) and insurance costs – though even here there are always alternatives.

However, other areas of spend will require decisions about how you prioritise items in your budget. You will need to align these decisions with your organisation’s aims. This is just as true for individual budget holders as for the organisation. activity

Think about the different categories of non-staff costs that make up your budget. Which are beyond your control and which can you influence? Add your own categories in the empty boxes.

training

ICT equipment

consumables

printing

books

electricity

stationery

enrichment

travel expenses

hospitality

publications

external courses

maintenance photocopying

postage

telephones

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When deciding on your budget, you might want to consider the following questions:

1 1Does the budget align with our improvement plan?

1 1Are we adequately resourcing our priorities?

1 1Are we funding staff development?

1 1What needs to be delegated to middle and junior managers?

1 1What needs to be kept in reserve for unexpected events?

1 1What do students want? Is it in the budget?

1 1How much are we planning to retain as a surplus? reflect

As a senior manager: Can you use your budget to empower others to take responsibility?

What budgets would you entrust to junior managers?

What aspects of budgets could you delegate and what must you retain?

case study

The experience of a literacy co-ordinator in a primary school A few years ago our school improvement plan identified literacy as a key area for improvement. I was keen to ensure this was reflected in the budget.

I approached the head to discuss how we might be able to fund my ideas for improvement. It was budget-setting time and as a leadership team, we decided to increase the literacy budget from £5,000 to £8,000 to reflect its importance to the school’s improvement. The extra funds meant I was able to introduce new reading books and pay for some staff development too. By being well prepared and understanding the budget-setting process, I was able to ensure that the school’s resources were focused where they needed to be.

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case study

A curriculum manager in a large college on the importance of collaboration I am curriculum manager in engineering and I was planning a new design course beginning in the next academic year for which I needed to purchase some software. I was keen that the learners on the course would get to use industry standard software but it wasn’t cheap. The initial cost was roughly £12,000.

I was ready to go ahead and prepare a bid for the funds when I had a chance conversation with a colleague from IT. He told me that I needed to speak to the finance department.

They were able to advise me that I needed to get three quotes for a purchase over ÂŁ10,000. They also advised me to speak to IT to ensure the software would work on the college network. I realised that I cannot do curriculum planning in isolation. I needed to involve colleagues from across the college if I was to successfully plan the new course.

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Why do we need to budget for a surplus?

Schools, academies and colleges are not-for-profit organisations – so why do they need to make a surplus? Why not just break even each year? When setting a budget, an organisation should plan to generate a surplus for three main reasons: 1 To fund growth and development An organisation needs to spend money before it sees any return. A new course will require development before an organisation can begin to recruit new students. The cost of this development time is called working capital.

Organisations need working capital to grow. The higher the growth, the more working capital required. There are two sources of working capital – surpluses in prior years or funding from outside the organisation (for example, grants from funding bodies or loans from banks).

2 To guard against the unknown Generating a surplus each year allows an organisation to build up its financial strength over time. This gives the organisation the ability to react to a changing environment with a thoughtful and considered approach. It means an organisation can absorb the immediate financial problems of most situations and make decisions without a looming financial crisis.

3 To make investments Investments come in many different forms. Investing in working capital is explained above but organisations also have to invest in other areas too: in their IT infrastructure, in equipment for students, in buildings and in staff.

Determining the purpose of an investment is dealt with in the next section but it is important to understand that without generating a surplus each year the ability of an organisation to invest is severely restricted.

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Organisations will usually budget for a surplus each year. In colleges the size of surplus is a matter for the governing body to decide – every college is in a different position and will set their required surplus accordingly.

In maintained schools and academies the Department for Education set limits on the amount of funds that can be carried forward from one year to the next. For example, in academies a surplus on the General Annual Grant to be carried forward is limited to 12% to avoid the unnecessary accumulation of funds. If you plan to break even each year you will eventually run into financial trouble. reflect

What initiatives or activities in your organisation are funded through surpluses made in previous years?

How can financial strength protect your organisation in a fast changing environment?

What plans do you have for the future which are dependent on surpluses you start to accumulate now?

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Investment decisions An important element of your planning is setting a budget for long-term investments. These are generally investments in property and IT or other equipment. You will always have many more options than you have money to invest.

Your decision is therefore about prioritising the money you have to invest. Some questions you might consider when deciding on an individual investment are as follows:

1 1How much should you set aside for investment? Every organisation is different but the total should be informed by the level of surplus your organisation achieves each year.

1 1What is the purpose of the investment? Are you investing in growth or in the renewal of existing activities?

1 1Is there any financial help available for investments?

Often funding bodies have pots of funding to support investments and you may be able to bid for funding.

1 1What do students want? Are your investment decisions reflecting the student voice? top tip

Money for investment is a scarce resource.

You should link your investments to improvement plans and student feedback.

Senior managers set the budget in the context of the organisation’s current position and future goals. But the budget is just a plan. The hard work of delivering the plan is covered in the next section.

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Managing a budget In this section we will move from the strategic to the operational level. Good planning is just the beginning of good financial management. Effective control of budgets on a day-to-day basis is the foundation on which an organisation’s financial health is built. This section includes lots of practical advice for leaders and managers at all levels. case study

Suggestions from a finance director in a sixth form college Many new managers are thrown in at the deep end with finance. They often think they should know how to manage finance without having ever been trained. It is important to seek advice and guidance from someone with experience. Go and see your finance team if you are unsure about anything or if you think you have got it wrong.

You shouldn’t think of finance as something apart from your main role. Managing a budget successfully can make you a more effective manager.

The skills you need to manage finances are much the same as the skills you need to be a good manager. In my experience good managers apply the same skills to managing finance as they do to other areas of their jobs – they plan, they monitor and they intervene when it’s needed.

As manager of a budget you have an opportunity to plan your spending in a way that maximises the benefit to your students. Every organisation works within financial constraints and your organisation is no exception. It is also worth remembering that if you aspire to a leadership role then you will need to manage budgets more and more as you are promoted throughout your career.

reflect

Which elements of your budget most influence students?

How can I use my budget allocation to improve teaching and learning?

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activity

Below is a list of some of the skills you need to be an effective manager at any level. Which of these do you need to possess to effectively manage finance? Try ranking them in order of importance.

Skill

Rank

Why?

Communication skills Influencing skills Strategic thinking and awareness Planning and monitoring performance Analytical skills Interpersonal skills Organisational skills Delegation skills Change management skills Using your initiative

reflect

Can you think of any other skills that would be essential for good financial management?

What opportunities exist within your organisation to develop these skills?

Are you making best use of these opportunities?

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Planning your spending A new manager in a school plans her spending for the year ahead

Stati one ry

s ok Trips

Printing

m

t en

erials Mat

Bo

Eq uip

I had never managed a budget before but now I had responsibility for a £2,000 budget for the year as head of English. I had lots of competing priorities and I worried about how I could afford to do everything I wanted in the year ahead.

y enc ing t n Co

Staff e xpe n se s

es renc nfe Co

Staff t r a i nin g

case study

I started by estimating the costs of all the things I wanted to do. For example, I assumed printing costs will be £10 per student for each of the 50 students in my department.

This gave me a total of £500 for the year. I also included £650 for a training event I was planning on embedding equality and diversity in lesson planning. Also, the department had always subsidised a trip to Stratford-uponAvon so students can experience a live Shakespearean play. The cost to the department is £350. For other items I was less sure about the cost so I estimated.

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When I added up the cost of everything it came to £2,800 – a full £800 more than my budget. I was worried about how I could afford to do everything I had planned. I arranged to meet the business manager to discuss my concerns. We started by comparing my plans with the previous year’s spending.

We immediately identified that I had overestimated the cost of stationery by about £100 for the year. When we discussed printing costs I discovered we could save £125 by using the reprographics department rather than the small printer in the department.

When we discussed the training event it became clear that the cost could be paid from the school’s staff development budget if the event was opened to all staff.

I realised that subsidising trips is unique to the English department. In other departments students must cover the full cost of the trip. This approach would save the department £350 and also contribute to a more consistent approach to trips across the school.

We were able to reduce the cost of my plans to less than the £2,000 budget. I decided to put aside £275 as a contingency and I was even able to upgrade the books I was planning to buy with the money I’d saved.

English department budget plan Original New cost cost

Saving

Printing

£500

£375

£125

Better use of reprographics department

Training event

£650

–

£650

Training costs covered by central budget

Student trip £350

–

£350

Change to department policy on trips Reduced estimate of stationery costs

Stationery

£300

£200

£100

Books

£400

£550

(£150)

More funds available for books

Contingency £0

£275

(£275)

New contingency created with savings

Other costs £600

£600

£0

Total

£2,000

£800

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£2,800

Always speak to the finance department, school bursar or school business manager about your financial plans. They understand how the finances of your organisation work and will be able to give you advice and guidance on managing your budget. Never be afraid to ask other colleagues for help and advice.

reflect

Ask a colleague about their approach to managing their budget: How is it different to your approach? What can you learn from them?

What about other organisations? How can you benchmark your approach against theirs?

Must you always adopt the same formula each year when looking at spending?

Are there other ways of attracting finance?

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Record keeping and regular monitoring No plan is ever 100% accurate but going through the planning process gives you a solid understanding of the costs you are managing and will help inform your decisions when things don’t go according to plan. Managing your budget effectively involves regular monitoring of how you are doing against your plan so you can take action when things do not go as you anticipated. Usually you should do this once a month.

This regular review process is repeated at different levels within the organisation. A senior manager will review budgets in their areas of control. And the leadership team and governing body will review the overall budget on the same basis.

In some larger organisations you may be provided with regular reports on progress against budget. If this is not the case you will need to maintain your own records to ensure you know your current position at any given time. This will allow you to determine whether you have enough money left to commit to a purchase. If your organisation has a finance team or business manager you should discuss your budget with them if you think it is appropriate.

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case study

A subject leader for maths in a primary school explains their approach to record keeping I am responsible for the maths budget at my school.

Colleagues come to me when they need some new equipment or learning materials and I will purchase what they need. For many years I found this to be a big hassle and I thought it took up a disproportionate amount of my time. I had a haphazard approach to record keeping because I was so busy. I would write people’s requests on Post-it Notes and make the orders whenever I could find time. I tried to keep a proper record but I could never seem to keep it up to date.

I finally decided enough was enough. I told staff they would need to have any orders for the next week with me by each Thursday or they would have to wait another week. I place orders once a week and I update my records at the same time. It now takes up just a fraction of the time. I can also use my records to monitor how much is being used by different members of staff and I have much better control of the budget. People are more careful about what they order because they have to plan better and the budget is used more effectively.

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top tip

reflect

Plan your spending for the year and regularly review it – at least once a month. This is the key to successfully managing your budget. It will allow you to make informed decisions and help you match your spending to your priorities.

How good are you at record keeping? Do you use the records you keep?

How could you change your approach to record keeping so that it is more effective for both yourself and your organisation?

activity

Peter is head of music in a sixth form college. John is head of faculty for creative arts and Peter’s line manager.

Peter

John

‘John has asked to see ‘I have arranged to meet me about my budget. We Peter about the budget for haven’t had a chance to music. I have just received sit down together for a a breakdown of spending while. I’m looking forward from the finance department to meeting with him. I am and Peter has spent over really excited about the half his budget on musical plans I’ve got for the college instruments after only band. I can’t wait to share three months of the year.’ them with John. He’s going to love my ideas.’

Think about it ...

You are Peter 1 What information do you need to bring to the meeting?

1 What are your priorities?

Do they align to John’s?

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Think about it ...

You are John 1 What is the purpose of the meeting?

1 What questions would you ask Peter?

1 How can you gain confidence in Peter?

1 How can you avoid an overspend?

What if I am going to overspend?

We didn’t actually overspend our budget. The Health Commission allocation simply fell short of our expenditure.

Keith Davies, Australian Administrator and Physician (Sydney Morning Herald, 14 November 1981)

If you think you are going to spend more than you have available in your budget the most important thing to do is share your concern. If your organisation has a finance department then speak to them about your options.

They can probably help with ideas to reduce, delay or reallocate expenditure elsewhere in your budget.

If these actions are not enough to solve the problem then it will need to be taken further. Most organisations have an established approach to such matters and it is often linked to the amount of potential overspend involved.

A small overspend at year end can be dealt with in a number of ways, for example, by reducing your budget in the following year. It depends on the policies of your organisation. The important point is that you should be aware of how your organisation deals with such matters.

If the overspend is likely to be a large amount then it may need to be sanctioned by your organisation’s senior managers. A significant departure from the budget originally approved by the board of governors will usually require their approval. This is a situation you should try to avoid and it can be done with careful planning, organisation and regular review.

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Financial year end What is a financial year in a school, college or academy?

As we have already discussed, maintained schools, colleges and academies are largely funded by central or local government or their agencies. Funding allocations are generally made on an annual basis and it is often anticipated that funding will be spent in the year of allocation.

This makes the financial year an important concept to understand for someone who wants to understand finance.

School

1 April – 31 March

Academy

1 September – 31 August

College

1 August – 31 July

Why is it important?

Recording income or expenditure in the wrong year can create problems for your budget. Organisations do have differing practices for assigning expenditure. It could be based on the date of the purchase order, the supplier’s invoice or even, as an incentive for departments to get their orders completed in a timely fashion before the end of the year, by delivery date. It is therefore crucial that you understand the procedure in your organisation to avoid having equipment recorded against next year’s budget.

Some funding is allocated based on financial years and must be spent by a prescribed date with any unspent balance having to be returned to the funding body.

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reflect

How do you plan for financial year end?

In colleges and academies it is at a time when most staff are on leave. What effect do you think this might have?

Get to know your organisation’s internal policies on carrying forward unspent budgets.

It is crucial to ensure you understand your likely year end position and manage your budget closely to ensure you are not surprised by your final financial position against plan.

Before the year end, speak to your finance team or business manager.

Hopefully you now have a good understanding of what is involved in managing a budget as well as plenty of practical advice for what to expect as a new manager. In the next section we will move on to what you need to know about the procurement process.

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Buying things!

The procurement process is the method by which an organisation controls how it spends its money.

This section will cover the basics of the process and get you thinking about why controls exist. It is information and advice that would be useful to a junior manager who is new to managing a budget.

How do you know you are spending properly?

The Treasury’s guidance on the use of public funds suggests using the following checklist. If you can realistically answer ‘Yes’ to each question then you can be confident you are using public funds properly.

Checklist

1 1Is the expenditure in the best interests of the organisation?

1 1Does the expenditure comply with the organisation’s approved procurement rules and policies?

1 1Will there be a valid business benefit to the organisation from the expenditure?

1 1Is the expenditure within approved budget?

1 1Is the expenditure necessary?

1 1Has the expenditure been properly authorised?

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Ordering and receiving processes Every organisation has its own controls on purchasing. They exist to help your organisation get as much value as possible from the money it spends and to ensure your organisation can demonstrate that money is spent with integrity. reflect

An organisation can include a whole array of different controls within its purchasing process. Thinking about the examples listed in the table below, what purpose do you think each one serves?

Control

Purpose

‘You can only buy from a supplier on the approved supplier list.’

‘Only specific staff can purchase ICT equipment.’

‘Any mileage over 100 miles claimed in one day is paid at a reduced rate of 22p per mile.’

‘You can only buy stationery via the college contract.’

‘A purchase over £10,000 requires three written quotes.’

‘You must complete a requisition for each purchase you want to make.’

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reflect

Think about the purchases you make as a budget holder.

Do you negotiate on price or just accept the initial offer?

An example of a purchasing process in an academy Ordering Do you need supplies?

Yes Is it curriculum based?

No

Prepare a bid for principal and SMT/SLT, complete with quotes

No

Request a budget fund transfer from your line manager

No

Return to finance with explanation

No

Highlight the difference, sign the delivery note and return to finance

Yes Have you funds in your budget?

Yes 1 Complete a requisition 2 Get it signed by your manager 3 Give it to finance

Receiving Are these the goods you ordered?

Yes Are the goods as per the delivery note?

Yes Sign the delivery note and give it to finance

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reflect

What can you tell about this organisation from the process?

What does the process tell you about the authorisation of spending decision?

What kind of budget is delegated and what is held centrally?

Why is the receiving process important?

Sample requisition Almost every purchase begins with the completion of a form – certainly any sizeable purchase. In most cases this will be a requisition. This is simply a form you complete to seek authorisation for making a purchase either on paper, or more and more frequently, online.

A requisition exists to ensure spending decisions are properly authorised and recorded. If you are a budget holder, you may be authorised to sign the requisition.

Equally you may need to complete it and send it to someone else to authorise. They are also used by organisations to monitor spending to ensure the best value possible is being achieved. A sample is shown on page 42.

41

42

Name Address

Name

Department

Date

Print name

Signature

Email

Email

Description

Tel.

Tel.

Account code

Cost centre

Supplier details

Requisitioned by

Purchase requisition

Total

VAT

Line total

Authorised by

Subtotal

Unit price

Requisitioned by

Quantity

Email

Tel.

Address

Name

Delivery details

Requisitions are used to generate purchase orders.

A purchase order is a contract between two organisations for the supply of goods or services. Once goods or services have been delivered the supplier will raise an invoice. This invoice is sent to the purchasing organisation where it is approved for payment.

Every school, academy and college will have their own unique approach to purchasing. As a manager you should get to grips with the process that exists in your organisation.

activity

Think about the things you buy as a budget holder.

Many will be standard items such as stationery and paper. But you will also buy things that are unique to your area. Perhaps they are vocationally specific?

Taking just one example, see how the price you are currently paying compares to other suppliers. Try ringing three or four alternative suppliers and rank them in order of price. How does the price you are currently paying compare? What is the difference between the highest and lowest price?

Use this space for notes

43

reflect

Is the saving made worth the time you took to do the research?

The procurement process is a controlled method of spending an organisation’s money. It allows an organisation to authorise and document its spending in a way that is transparent and can be interrogated afterwards.

44

Conclusion Good leaders know that understanding finance is an important element of effective management.

Getting it right can help you drive improvements in teaching and learning and student achievement.

Resource allocation and spending plans should be linked to self-assessment and student feedback.

New Ofsted Inspection Framework (2012)

Some final advice

Don’t forget that you are not an accountant. You can never know everything about finance and a strong grasp of the basics is enough to be an effective budget holder.

Don’t be afraid of finance.

People often say ‘I’m not a numbers person’ but actually the skills you need to manage finance are the same as those you need to be a good leader and manager.

If you are unsure about anything or if you think you have got it wrong, then seek help from a finance specialist.

As you get promoted through your career you will need to understand more and more about finance. At the level of a senior manager, financial management is closely linked to good governance.

We hope that you have found this booklet useful and that it can be a valuable point of reference for you in the future.

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Glossary of financial terms A list of commonly used financial words and phrases you may find useful for reference.

Accrual An accounting adjustment made to determine an accurate current position by recognising costs incurred but not yet paid.

Allocation An amount of money assigned to a specific area as part of budget setting.

Assets Anything owned by an organisation with a monetary value and a life of more than one year.

Examples include buildings, equipment, vehicles and cash.

Overhead An expense that cannot be attributed to any one part of an organisation’s activities.

Examples include the cost of heating and lighting.

Phased (or Profiled) budget The estimated monthly pattern of expenditure over a financial year.

Variable costs Costs that vary with volume.

For example, learning materials for students.

Depreciation The cost of wear and tear of an asset over its life.

Variance The difference between actual expenditure at a point in time and the estimated expenditure at that point in time included in the budget.

Fixed costs Costs that do not vary with volume. For example, staff costs.

Virement Moving money from one budget to another.

Incremental budgeting The rolling forward of previous year’s budgets into a new budget.

The opposite of zero-based budgeting.

Zero-based budgeting Starting with a blank sheet of paper and challenging the assumptions in previous budgets when setting a new budget. The opposite of incremental budgeting.

Liabilities The amounts owed by an organisation to others. Examples include bills not yet paid or funding received for a specific purpose which has not yet been spent.

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Select bibliography Blandford S (1997). Resource Management in Schools: Effective and practical strategies for the selfmanaging school. School Management Solutions.

Coleman M and Anderson L (2000). Managing Finance and Resources in Education. Sage Publications.

Department for Education (2011). Improving Efficiency in Schools. DfE website.

Keating I and Moorcroft R (2006). Managing the Business of Schools. Sage Publications.

Nolan Committee (1995). First Report of the Committee on Standards in Public Life. HMSO. Groves M, Goodfellow M, O’Brien B, Forster S (2012).

Funding the Future: How schools are responding to funding changes. National College publication.

Ofsted (2012). Handbook for the Inspection of Further Education and Skills from September 2012.

Ofsted No. 120061.

Ofsted (2012). School Inspection Handbook from September 2012. Ofsted No. 120101.

Southworth G (2010). School Business Management – A quiet revolution, part 1. National College publication.

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Useful websites Association of Managers in Education www.amie.uk.com Association of Teachers and Lecturers www.atl.org.uk Department for Education – Administration and Finance www.education.gov.uk/schools/adminandfinance EFA – Finance www.education.gov.uk/aboutdfe/armslengthbodies/ b00199952/the-education-funding-agency-efa/ finance-performance-maintained-schools National Association of School Business Managers www.nasbm.co.uk National College for School Leadership www.nationalcollege.org.uk National Fraud Authority www.homeoffice.gov.uk/agencies-public-bodies/nfa Promoting Excellence Ltd www.promotingexcellence.co.uk Skills Funding Agency – Finance skillsfundingagency.bis.gov.uk/providers/finance The Association of Colleges – Finance and Funding www.aoc.co.uk/en/policy-and-advice/ funding-and-finance-pensions

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This second publication in AMiE’s Nuts and Bolts series continues to unpick some of the most challenging issues which leaders and managers face on a daily basis in our schools and colleges.

This volume aims to support new and aspiring leaders and managers in the practicalities of financial management, but it also has much to offer the experienced leader as a guide to best practice and a framework to reflect on individual context.