An Introduction to setting and delivering a Budget

Presented by Jane Cousins

6th November 2008

Aim of Workshop

• To provide governors with informationon setting/delivering a budget

• To ensure monies are used for the current pupils

• To ensure balances are reasonable

Funding of Individual Schools

Where does a school get its income?

• The majority of the income a school receives originates from either central or local government funding with additional income from local sources

• The funding is described as - delegated if it has no restrictions in its use- devolved if there are some restrictions in its use

Delegated funding

• The main delegated funding is the budget share which is allocated through the funding formula

• The allocation is mainly dependent on pupil numbers although it also depends on free school meals (FSM), prior attainment, index of multiple deprivation (IMD), floor area, pupil mobility etc and has a fixed element

• The School Standards Grant (SSG) is a grant and is also based on pupil numbers

Devolved Funding

• There are many different types of grant but most are part of The Standards Fund (TSF) arrangement. This includes School Development, specialist schools, primary and secondary strategies, information communication technology (ICT) etc

• These grants have varying demands on their use and must be spent within 17 months from the start of the year.

Other income

• There are many sources of income that a school can use to supplement their main fundingeg bank interest, donations, sponsorship, services, as well as income for school trips which will probably closely match expenditure

• A school also receives capital income (eg formula capital)

Average Income for Primary

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Average Secondary Income

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Setting a Budget

What is a budget?• A budget is a tool to help you achieve the aims and

objectives of the school, identified in your School Development Plan financial priorities

• The SDP must drive the budgeting process

• A plan - expressed in financial terms for a defined time period - 1st Apr to 31st Mar.

• If strategic plans change during the financial year the

budget should be revised

• Now working towards 3 year budgets

Benefits of setting a realistic budget

• Lowers the risk of financial crisis

• Focuses the resources to areas of need or development – achieves educational aims

• Motivates staff

• Improves the image of the school ( a school with a positive image may fair better)

Zero based budgeting

• Build up from scratch each year based on the WSDP(Whole School Development Plan)

• The ideal but probably impracticable in most situations. Some elements need to be considered each year.

• Due to staffing and contracts you cannot move to the ideal immediately but phase over a number of years

Building the budget in line with WSDPsome stages but need to integrate them – not a set order

1. Estimate income- Based on Census2. Estimate staff costs3. Estimate operational expenditure-

Trends/Historical4. Allocate curriculum budgets5. Identify ICT developments6. Identify premises developments7. Allocate other specific grant income (TSF)8. Planned use of surplus

Building the budget – supplementary 1

1. Income – estimate pupil numbers / post 16 funding / specific grant income / local income e.g. lettings & bank interest / expected surplus/deficit from current year

2. Staff costs – staffing requirements (teachers, TA’s, premises staff, admin staff etc) / curriculum timetable / supply needs / staff development plan / retirements / PPA time / responsibility allowances (TLR’s)

3. Operational expenditure (supplies and services) – utilities / cleaning contracts / rates / insurance / repairs & maintenance / postage / telecoms / look at cost known trends/historical costs

Building the budget – supplementary 2

4. Allocate curriculum budgets – use formula based system to allocate in line with need and school priorities

5. Identify ICT developments – consider hardware, software, training, developmental projects - prioritise

6. Identify premises developments – see AMP priorities / Health & Safety / security / rolling program of refurbishments

7. Allocate other specific grant income8. Planned use of surplus – accrued surpluses can

result from weak financial management (5%/8%)

Key terms

• Budget profiling

• Forecast cash flow

• Consistent Financial Reporting (CFR)

• Benchmarking

A balanced budget

• Aim to balance income and expenditure

• Funding is based on pupils on roll • Funding is for pupils on roll

• The budget should be realistic• The budget should be ‘deliverable’

Delivering the Budget

Internal controls

• Staff appointments / Petty cash / payroll / purchasing / payments / income etc

• Set out a clear scheme of delegation in your finance Policy and Procedures document

• Establish areas of responsibility and accountability

Budget monitoring – who/when?

• Governors – monthly/termly/quarterly• Head – monthly • Budget holders - monthly• LA – quarterly• Parents • Different formats/levels for different

stakeholders

Budget monitoring - format

• CFR categories• Allocated Budget• Commitments• Actual spent • % spent• Budget left• End of year projection

Budget monitoring – what?

• Actual costs should be compared to budgeted costs on a regular basis

• Variances from the budget should be highlighted

• Reasons for variances should be investigated

• Materiality

Budget variances

• Will the variance correct itself?• Was the original budget unrealistic?• Has there been a material change since

the budget was set?• Is the variance due to increased costs?• Is the variance due to increased usage?• Is the variance due to inefficiency?• Your opportunity to challenge

variances

Corrective measures

• Are the differences within the control of the school?

• What can be done to bring the budget back into line?

• Do we want to bring it back into line?• What is the contingency plan?

Increase income/defer major project• Virements

Some conclusions

• Best Value is key to ALL decisions about the deployment of resources no matter whether they are goods, services or staff related

• These decisions will take place at all levels of the deployment process such as from do we need X, to how we go about researching the information to make the decision, and then the decision itself.

Best Value

• The 4 C’s arecompetitionconsultationcomparechallenge

• The 3 E’s areefficiencyeffectivenesseconomy

Best Value Statement• Required to be submitted with budget plan

by 1st May• The process is much more important than

the statement• Suggest the statement is no more than one

side of A4 and includes- agreement school is following policy- some examples of actions taken- future actions/decisions to be made

BalancesBalances

Surplus/Deficit Balance

• Plan for unspent balances (Surplus)• Plan to recover from a deficit position• Excessive balances to fund future

development plans (revenue balances for Capital projects)

• An effective budget will be used for current pupils on roll

• Excessive balances demonstrates poor vision for the school/weakness in Financial Management

What is considered an excessive balance?

• Total value of surplus balances deemed to be excessive

• Exceeding 5% of budget share for secondary schools

• Exceeding 8% of budget share for nursery, primary and special schools.

Activity 1

• What do you consider to be the definition of committed revenue balances

Answer Activity 1

• Ring fenced Grants (TSF)

• Cluster monies

• Revenue to be used for capital projects

• Extended School balances (Children Centre surplus)

Summary of workshop key points

• SDP must drive the budgeting process• A budget is a tool to reduce financial risk enabling the

school to meet its objectives set out in the SDP• The budget is for pupils on roll in that financial year• Variances against budget is your opportunity to

challenge• Best Value is the key to all decision making• Balances should be less than 5% secondaries,8%

primaries• Excessive balances demonstrates weakness in

financial management

Useful documentation

• S3.1 Setting Annual and Multi Year Budgets

• S5.1 Budget Monitoring and Reporting

• R23 Suggested Cash flow statement

• R34 Best Value Guidance

• R37 Example Best Value statement

• To be found on www.fmsis.info/toolkit index

Follow Up and Evaluation

• I hope that you have enjoyed and found the workshop informative.

• If you wish to follow up on any aspect of the above then please contact me on either 020 8760 5610 or schools.finance@croydon.gov.uk

• I would appreciate it if you would please complete the evaluation form