Episode 35: Financial reporting for schools

In this episode, we’re continuing to talk about school budgets, and      we’re covering financial reporting and audits as well. Just a reminder that your school finance advisors are there to help – lean on them if you have questions about school finances.

 

My guests are:

• Hannah Levy, Ministry of Education finance advisor – Otago/Southland
• Mārama Stewart, former tumuaki and Ministry of Education leadership advisor
• Adrian Edwards, Ministry of Education finance advisor.

 

This podcast was produced for the Ministry of Education as part of Te Ara Tīmatanga mō ngā Tumuaki - The Beginning Pathway for Principals.

 

You can learn more about this topic by accessing Te Ara Tīmatanga mō ngā Tumuaki - The Beginning Pathway for Principals e-learning modules on the Education LMS: https://training.education.govt.nz

 

Show notes

Episode themes:

• Don’t leave it too long to start working on your school’s budget. Don’t wait until you’ve seen all expenditure through to December. Start early.
• If something unexpected happens and your budget is no longer accurate, you can reforecast. In some cases additional funding may be available, talk to your finance advisor about the issue.
• Ensure you code spending correctly.
• Look for budget variances over 10%.
• If you start at a school and you can see the budget is in deficit, go to your finance advisor for advice.
• If your monthly accounts are in good order year round, not only will you have fewer (or no) surprises, but the preparation time for the annual financial statements will be shorter.
• It’s compulsory to follow the Kiwi Park model financial statements. You can find them on the MOE website (link below).
• Audits aren’t just about the figures that appear in the financial statements. They also look at the policies and procedures and how the school operates in order to produce those figures.

 

Additional information

School annual financial statements https://www.education.govt.nz/education-professionals/schools-year-0-13/administration-and-management/school-annual-financial-statements#paragraph-5775

Funding and financials https://www.education.govt.nz/education-professionals/schools-year-0-13/funding-and-financials

 

Questions

 

0:38 [All] How long before it's due should you start working on a school's budget?

 

2:43 [Hannah] What happens to a school's budget if something unexpected happens? Like, you know, the boiler explodes, or something bigger where things have to pivot on really short notice. Can you re-budget? How does that work?

 

4:24 [Hannah] How much flexibility is there to move money around if there's a surplus in one area, and a deficit in the other?

 

5:12 [Hannah] What is variance analysis?

 

6:41 [Hannah] Do you need the variance analysis for the end of year accounts as well to help you tell the story?

 

7:03 [Hannah/Adrian] What happens if a school completely blows their budget?

 

9:12 [Adrian] How long before they're due should the tumuaki and the board start working on the annual report that includes the annual financial statements?

 

11:28 [Adrian] What do the annual financial statements have to contain?

 

12:48 [Adrian] And the principal isn’t expected to prepare the annual financial statements, the accountant does that?

 

16:08 [Adrian] What kinds of things does the audit checklist include?

 

16:5

Episode Transcript

Eleisha (00:07):
Kia ora and welcome back to The Principals, a
podcast series for new tumuakiin Aotearoa New Zealand. I'm
Eleisha McNeill. Today we'recontinuing to talk about school
budgets - when to startpreparing them, variances (don't
worry, the experts will explainthat one), financial reporting,
and audits - with our guestsHannah Levy and Adrian Edwards,

(00:28):
finance advisors from theMinistry of Education and former
tumuaki and current leadershipadvisor Mārama Stewart.
Cracking back into it, Māramahow long before it's due should
you start working on a school'sbudget?

Mārama (00:41):
I made the mistake when I was first that I wanted to get
it perfect and I left it way toolate because I wanted to see
exactly what I was going tospend right up to December, and
then I wanted to plan how manykids I was going to get. And
again, I didn't really get ituntil about January, and that
was the wrong thing to dobecause you're not aiming for
perfect, you're aiming for astory. So I'd start, you know,

(01:03):
start looking at it when yourprovisional staffing and
operation grant comes out inSeptember. It's really good
because you know when you getyour staffing prediction for the
next year that's your bottomline, you can rely on that
staffing being there next yearand anything more that you may
get because your roll goes up isa bonus. You have to be a little

(01:26):
bit careful with your operationsthough, that will be based on
your actual numbers that you getin March, it will go up and down.
But just if you're unsure, justtype in the numbers from the
previous year. It doesn't matterif it's slightly off you, you
are just building a picture overtime and as long as you got

(01:48):
something together and you'rewithin five grand, I think
that's fine.

Eleisha (01:52):
Hannah and Adrian, would you agree?

Adrian (01:54):
Yes. And I'm glad Mārama said that because I'm a
believer that people withbudgets, they tend to overrate
the accuracy and underrate thetimeliness importance. So I
think you're better having itahead of time. You're better
having your budget set ahead oftime, even though it's not
perfect because a budget is onlya guide anyway. So once you're
in the in the thick of it, inthe middle of the year, you'll

(02:16):
have these stories formingaround, well, why is our
operational grant lower, becauseour March roll return was lower
than expected. Those storieswill form based on variances
from budget. So it's it's notlike crucial to get absolutely
every item to match perfectly.And you know, we're not living
in a world where you can copyand paste last year into this

(02:38):
year and do everything the sameway. There's unpredictable
things. So that's good advicefrom Mārama I think.

Eleisha (02:42):
Yeah, for sure. So, what happens to a school's
budget if something unexpectedhappens? Like, you know, the
boiler explodes or somethingbigger where things have to
pivot on really short notice.What can you re-budget? How does,
how does that work?

Hannah (03:00):
You can't re-budget because once the board's
approved the budget for the year,it's kind of set in stone. And
that needs to happen becausethat's what goes into your
accounts, your financialaccounts for your year end. But
what you can do is re-forecast.So in maybe in July when you get
your July operations grant,that's quite a good time to

(03:21):
re-forecast. So what you can dois you can look at how much did
we spend up till now and then isthe budget accurate anymore or
has some unexpected stuffhappened, which means that we we
think we're going to land in adifferent place than what the
budget said. So as Mārama saidbefore, sometimes you can maybe
make savings in another areathat can compensate for other

(03:44):
areas going over. In the case ofextra maintenance costs and so
forth. I guess to some extentthat's why you want to have some
some reserves or some cash builtup so that it is enough to deal
with those unforeseen events.

Eleisha (04:01):
Mm

Hannah (04:01):
It is worth talking to your school financial advisor
because sometimes unforeseenactions that happen, we
potentially can give you someextra funding like additional
relief teacher funding. Sothere's some situations where we
can give you some top-up or withheat, light and water, sometimes
you may be eligible for a top upon that, as well. So

Eleisha (04:20):
hmm.

Hannah (04:21):
so those are some things to keep in mind.

Eleisha (04:23):
Yeah, definitely. And how much flexibility is there to
move money around, you know, ifthere's a surplus in one area,
and a deficit in the other, howmuch flexibility is there?

Hannah (04:32):
There is flexibility because the budget belongs to
the board. But I would say don'tgo and code stuff to the wrong
category. Like don't say, oh,I'm spending I'm spending more
on curriculum than I thought Iwould, so I'm just going to code
it to some other code. It'sreally important that you code

(04:52):
the expenses in the area thatthey actually happened. So don't
play around with it in that way.But what you can do is when
you're doing your varianceanalysis, like Adrian was saying
before, you could saying, well,we had to spend extra in
maintenance, but perhaps we'resaving in another area. And so
those will offset

Eleisha (05:12):
Variance analysis. What?

Hannah (05:15):
Yeah, good question. Um so variance analysis. So
basically a variance is thedifference between what you've
actually spent versus what youplanned or your budgeted to
spend.

Eleisha (05:26):
Mm hmm.

Hannah (05:27):
So when you're looking at your accounts every month,
you're looking at what youbudgeted to spend versus what
you've actually spent, andthat's on a year to date basis.
So you want to look at anyvariances that are over 10%. So
you want to focus on the moresignificant variances and try to
understand why those arehappening.

Eleisha (05:44):
hmm.

Hannah (05:44):
And is there anything you can do about about it to
change things going forward?

Eleisha (05:50):
Where would you, would you write that variance analysis
down, or is that just to helpyou kind of answer questions if
they come up?

Hannah (05:58):
Yes. So often a set of monthly accounts will have a
like some sort of finance reportattached

Eleisha (06:04):
Mm

Hannah (06:05):
so sometimes if you've got an external accountant doing
your monthly accounts, they maysort of highlight some of the
key variances, but you stillneed to put in an explanation as
to why those happened, becausethey won't necessarily know why.
And sometimes the school mightdo their own monthly accounts.
And so then it's really good forthe principal to have like a
sort of a written finance reportthat kind of highlights the key

(06:28):
numbers from the accounts andthen also explains the key
variances. So yeah, it'sdefinitely important to write it
down. Yeah, if you just try tokeep it in your head, it'll just
get confusing and it will makeit harder for the next month
round.

Eleisha (06:41):
Yeah. And do you need it for those end of year
accounts as well to kind of tellthe story?

Hannah (06:46):
Yes, definitely. Well, for one, you, you want to be
able to report to your board onwhat happened over the whole
year. But then secondly, yourauditors are going to ask you
about those variances as part oftheir work. So if you've already
got answers prepared, then thatwill really help

Eleisha (07:02):
Yeah. For sure. And what happens if a school just,
like, completely blows out theirbudget? What happens then?

Hannah (07:11):
Right. Well, then you probably want to contact your
school financial advisor. Yeah,yeah, I mean, it depends a bit
on what sort of reserves or whatsort of cash the school has got
available to it. Because, youknow, if you've got good levels
of reserves, then you canprobably cope with a loss one

(07:32):
year and it will just be coveredby your reserves. But if you're
starting to get loss after lossyear after year, then you're
eroding your cash and you'regoing to get into cashflow

Eleisha (07:43):
Mm hmm.

Hannah (07:43):
difficulties. So the sooner you can reach out for
help, the better so don't waittill things are really dire.
Like if you see things startingto go wrong, reach out to to
somebody else like a mentorprincipal or school financial
advisor to try to get someadvice and to see if there's any
any levers you can hold to tryto turn things around.

Eleisha (08:05):
Yeah. Adrian, would you add anything to that?

Adrian (08:08):
I agree with what Hannah's said, I find it useful
to think of it in terms ofnumbers, or at least for
explaining it. So if I told youin isolation that a school had a
$50,000 deficit, we wouldn'tknow how good or bad that was
without knowing what theirreserves are.

Eleisha (08:24):
Mm hmm.

Adrian (08:24):
So if I then told you that school has $5 million in
reserves, it would be acompletely different situation
from a school that had nothingin reserve.

Eleisha (08:32):
Mm hmm.

Adrian (08:32):
So like not all deficits are created equal, but
definitely seek advice. So for,for example, well, most schools
that get into deficit year afteryear, the most common way for
that to happen is through overstaffing, because once you have
those, those staff, you know,you don't just flip a switch and

(08:54):
cut a big chunk out of yourbudget. You have to manage that
level of staffing. So evenduring the year, if you can see
that things are tracking over,reach out for help because it
might take, you know, a numberof months to work out how you're
going to reorganise yourstaffing for the following year.

Eleisha (09:11):
Yeah. Let's get into financial reporting a little bit
deeper. So how long beforethey're due should the tumuaki
and the board start working onthe annual report that includes
the annual financial statements,Adrian?

Adrian (09:27):
I'm a great believer that it's actually a year round
process because the first thingfor the upcoming year that you
do as a board is prepare thebudget. And that actually is
going to go into the financialstatements 12 months later.

Eleisha (09:41):
Hmm. Hmm.

Adrian (09:41):
So that's actually a first step. But I'm also a
believer in having a goodprocess around producing like
meaningful monthly accountsbecause when you come to the end
of the year and you're ready todo your financial statements, if
your December monthly accountsare accurate and not missing
very much information, it'llmake that preparation time for

(10:03):
the annual financial statementsmuch easier to meet deadlines.

Eleisha (10:06):
Hmm.

Adrian (10:07):
So in a way, the process is year round and also your
previous year audit, you wouldhave learnt things from your
auditor that will still apply inthe following audit.

Eleisha (10:18):
hmm

Adrian (10:18):
So

Eleisha (10:18):
hmm

Adrian (10:19):
it is kind of year round. But in terms of preparing the
financial statements themselves,which doesn't fall on the
principal the preparer is anaccountant, they can start as
early as January but typicallynot a lot's done until February.
Um

Eleisha (10:33):
hmm hmm

Adrian (10:34):
there are some figures that come from EdPay and from
the Ministry of Education. Soyou won't be able to submit your
accounts to audit much earlierthan early February because you
will need some of those figures.So the annual payroll figures
particularly, but you can submitaccounts early in February if
you've got all of your ducks ina row and you have the time to

(10:56):
actually do the preparation work

Eleisha (10:58):
So all of those go through to audit all of those
annual financial statements.

Adrian (11:03):
That's correct. Yeah, it goes as one document. So it's
one set of financial statements,each disclosure within there is
a statement of its own type. Butas a principal, it's really
about understanding how to readit when it comes out the other
end, you don't need to know howto put it together because it's
very much an accountant's job.

Eleisha (11:22):
But your accountant or your financial advisor can help
you understand that when itcomes back.

Adrian (11:26):
Absolutely. Yeah, that's right.

Eleisha (11:27):
Well, thank goodness for that. And what do those
annual financial statements haveto contain? What has to be in
there?

Adrian (11:35):
Well, since the audit of 2015, the Kiwipark model
financial statements that theMinistry prepares have been
compulsory and they're publishedonline. So if you want to
familiarise yourself with whataccounts contain, you can either
go and have a look at that forthe upcoming year or you can

(11:56):
look at your last year accountsbecause for this year and for
next year they haven't changedsignificantly. They're quite
similar. We're just tweakinglittle items from year to year.
So they have a number ofstatements. So you have what's
called the statement offinancial performance, which is
like your operating budget, andthen they have a statement of

(12:18):
financial

Eleisha (12:19):
hmm.

Adrian (12:19):
position, also known as a balance sheet. And that's
really talking about what yourcash and bank your assets and
liabilities are. And then thereare other statements as well.
And then the largest part of thefinancial statement is actually
notes that link back to thosemain statements that just give
you a bit more detail. So forexample, on the operating budget,

(12:39):
on the statement of financialperformance, there will be a one
line administration, but in thenote, it will be broken down to,
you know what's what what andwith more detail.

Eleisha (12:48):
And you mentioned there that the principal doesn't have
to prepare those annualfinancial statements, they're
done by the accountant. So whatdoes the principal have to do?

Adrian (12:56):
Well, actually, like the responsibility for the accuracy
of the accounts and that theygive a reasonable impression of
the school sits with the boardas a whole and the accounts get
signed off by the principal andthe presiding member and
sometimes there's a littleconfusion with principals about
exactly what they're signing,because I've had principals say,
well, I don't agree with whathappened, you know, in term one

(13:19):
before I started, and so I don'twant to sign these accounts.
You're not signing that youagree with everything that
happened financially in the year,you're just signing that that
the financial statements are areasonably accurate reflection
of what happened.

Eleisha (13:32):
hmm

Adrian (13:32):
At the end of the day, the buck does stop with the
board. So you need to ensurethat you have an accountant set
up to prepare your annualfinancial statements and that
they can access the informationthey need and that you supply
things in a timely mannerbecause certain items like
payroll information and thingslike that, you know, you might
have to log into EdPay to getthose documents to forward them

(13:54):
on to your accountant. So theresponsibility overall sits with
the board and the principal isoften doing, you know, most of
that legwork. But in terms ofthe details of the accounts,
that's very much an accountingjob. So larger schools may have
a business manager doing that.Others will have a outsourced
accountant to do it.

Hannah (14:14):
I was just thinking too, we were talking about KiwiPark
before, and that's just ahypothetical school that we
choose to use and just we justcall it Kiwipark School. And so
that's where the, the exampletemplates come from. So um just
in case you hear that word andto understand what it means. Um

(14:34):
yeah, no, I think, I thinkyou've covered everything Adrian
and I I guess just making surethat you've given the accountant
all the information that theyneed to prepare as accurate
accounts as possible. So makingsure that you've given them all
the invoices that have landed onyour desk or come to your email
at the end of the year givingthem access to things like lease

(14:55):
agreements for example for ITequipment and stuff so that they
can do the proper accountingaround those.

Adrian (15:04):
And I thought to add just, just as Hannah was talking
the audit is not just about thefigures that appear in the
financial statements. It's alsoabout the policies and
procedures and how the schooloperates in order to produce
those figures. So it's notreally hand in this 20 pages and
the auditor looks at that andgives you a big tick. There will

(15:25):
be audit checklists coming fromthe auditor and if you use an
accountant, they're likely tohave a checklist that you'll
need to complete as well. Theycan be quite intimidating when
you first get them because youget you look at it and say oh
there's 45 questions on this one,I don't have time, but they're
designed to encompass absolutelyeverything. So you may find that
in those 45 questions, 30 ofthem you mark not applicable. So

Eleisha (15:46):
Right.

Adrian (15:47):
don't feel overwhelmed until after you've gone through
the checklist and do sit downwith somebody because your
school accounts person, even ifyou don't have an accountant
inside your school, y personthat processes the accounts will
have a good handle on a lot ofthose things coming through. So
often it's something to do, bedone with your accounts person
or your office person.

Eleisha (16:08):
So does that cover the kinds of processes that you use?
You know, when you're processingreceipts, for example, does it
cover those kinds of things?

Adrian (16:15):
That's right. And schools tend to not change
things too often unless they'reprompted by the auditor.

Eleisha (16:22):
Hmm. Hmm

Adrian (16:22):
So something the auditor also does is if they've had any
recommendations the year before,they'll check up with you
whether you took up your theirrecommendations or whether you
adjusted something. So they'relooking for weak points. It's

Eleisha (16:33):
hmm

Adrian (16:34):
that's

Eleisha (16:34):
hmm

Adrian (16:34):
part of the part of the good thing about auditing is
that it can actually help makeyour school run better. So don't
think of it as just thishorrible process I have to go
through that interrupts myteaching time. It can really
help with the way that youroffice runs and things like that.

Eleisha (16:50):
Yeah. And Mārama, when you were a tumuaki, what would
you have looked at to kind ofget your head around a school's
budget when you walked in thedoor? Would you have looked at
the financial statements fromthe previous year, or would you
have looked at the budget fromthe previous year?

Mārama (17:04):
When I first became a principal, I didn't know they
existed. I had no idea.Absolutely no idea. I just
looked at the monthly one and Iwas reading it and then I didn't
really understand that this waslike an round all year round
process until the auditorscontacted me, which was quite a
shock. But luckily it was reallywell run and I just, you know,

(17:25):
copied what I'd seen beforehand.But I would really stress the
auditors are generally prettygood. They know that you're a
teacher, not an accountant,

Eleisha (17:34):
Mm hmm.

Mārama (17:35):
and you can ask them questions. Notes, again, keeping
those notes whenever you gounder and over, the auditors are
really helpful, that helps themthrough the process and all
those checklists, just use it asa to do list. If you go through
and you think I haven't got that,I know what that is, google it
and find out, ask Adrians andHannahs and if you haven't got a

(17:56):
policy for disclosures or pettycash or whatever just do it and
then you can say, yes, I've gotone now, put it through the
board. Yeah, just use it as alearning experience.

Eleisha (18:08):
Like everything else in principalship, eh.

Mārama (18:11):
That's pretty much.

Eleisha (18:13):
So what advice would you guys give new tumuaki about
this kind of financial planningand budgeting and reporting part
of running a school?

Adrian (18:23):
Ask for help. So you'll probably have someone who
processes accounts in yourschool, you'll have possibly an
external accounting provider,you've got mentor principals and
other principals in the area andyou have school financial
advisors. So ask for help evenif it's dedicating, you know,
the number of times we've said aone hour meeting and then we've

(18:44):
said, gosh, we've rolled into 2hours,

Eleisha (18:45):
Hehe.

Adrian (18:46):
get that person in front of you and just pick their
brains, go through your to dolist and don't panic because
there's there's plenty ofsupport out there. You will be
most likely coming into a schoolthat already has its way of
operating. So it can take kindof that first 12 months to
understand how your specificschool operates compared to

(19:06):
other schools. And you may havecome from another you may have
come from being a DP at a largeschool to being a principal of a
small school. And

Eleisha (19:14):
Hmm.

Adrian (19:14):
things will be quite different in terms of the
budgets and things like that. Sodon't rush, a wait and see
approach with with the financesuntil you kind of understand how
that annual cycle works, and askfor help.

Eleisha (19:27):
Brilliant. Hannah

Hannah (19:29):
Yeah, I guess I was sort of going to say the same thing
around just be patient, and onceyou've gone through a first one
year cycle things will start tomake a lot more sense and it
will be easier the second timearound. And I guess the other
thing is just trying to stay ontop of your reporting so you
don't get any surprises. Sosometimes with schools, I've
seen they kind of get quite abit lax with doing monthly

(19:52):
accounts like maybe they don'tdo them every month, maybe less
frequently, and then they getsome nasty surprises when they
do actually deal with them. So Iguess just make sure that you've
got the resource that you needto prepare accounts, you've got
a good office person who can orsometimes if you just don't have
the capacity in-house, then it'sreally worth paying an external

(20:14):
accountant to do that. So justso you can keep on top of what's
happening throughout the yearrather than getting a surprise
at year end.

Eleisha (20:21):
Mārama.

Mārama (20:22):
I think when you first come in you need to make sure
you do have an experiencedaccountant that is specialised
in education

Eleisha (20:29):
Hmm. Hmm.

Mārama (20:29):
because it is a different reporting and
financial year to everybody else.So, they need to know how school
finances work and because it'ssegmented into many different
areas, they are different, butthey all have to be able to work
together and it's not an easything to get your head around if
you, if you haven't gotexperience in that area and you
want to be able to be abovereproach in that area, anything

(20:51):
you present to the board interms of monthly financial
reports, you need to trust thatis accurate and fully filled out.

Eleisha (20:57):
Hmm. Hmm.

Mārama (20:58):
The most problems I find with beginning principals
is when I go and say, well how'show's your monthly accounts
looking and they don't havemonthly accurate reports.
They're with a small local farmfirm or a local firm that
doesn't give really goodinformation, and it's quite
shocking at how many principalsI speak to that cannot view

(21:18):
their account balance. Theycan't view their staffing, and
it's all locked down by theaccountant. It should not be,
you should be able to vieweverything.

Eleisha (21:26):
Hmm hmm

Mārama (21:27):
It should not be gatekept and it shouldn't be
gatekept by the board either.

Eleisha (21:31):
hmm

Mārama (21:31):
So

Eleisha (21:31):
hmm

Mārama (21:31):
I'd make sure you should at least have eyes on the
actuals at any time that youneed to. And that's what good
education firms will do. I I'mnever or wouldn't be too worried
about deficits if they'replanned and there's reasoning.
But I'd also question any reallylarge bank accounts sitting
there with huge sums of moneyjust sitting there doing nothing

(21:54):
because we're not building nesteggs for the future. We're meant
to be using that money on thekids

Eleisha (22:00):
hmm.

Mārama (22:00):
and I'm always wondering if there's $5 million
bucks in the bank and you'reonly in a medium sized school,
what are they missing out in theclasses, this is a resource for
the kids so that's maybe a redflag to look out for, huge pots
of money sitting there with nopurpose. I mean, if they are
fundraising for a new gym andthere's a reason fair enough,

(22:22):
but if it's just sat therebecause the board feels cool
about having a lot of money inthe bank, it's not such a great
thing. And yeah, just reach outfor help and ask questions
sooner from your localprincipals association, from
your accountants, from Adrian,Hannah. Yeah. Ask early rather
than leaving it too late.

Eleisha (22:41):
Mm hmm

Hannah (22:42):
Yeah, and I guess, yeah, just in general, like just reach
out for advice. We're not goingto like tell you off for
anything. We're, we're going totry to help you, you don't need
to be afraid or feel like youneed to hide stuff from us
because we know what therealities are and we just want
to support you and in whateverway we can.

Eleisha (22:59):
Yeah, yeah. Leadership advisors, finance advisors,
property advisors. There's somuch support out there and it's
so important that new principalsremember that, and remember that
they are not alone in this crazyjourney that they are embarking
on when they first step into aschool. Thank you all for your
time today. It's muchappreciated.

Adrian (23:18):
Thanks Eleisha.

Hannah (23:19):
Thank

Eleisha (23:19):
Thanks. The next few episodes of The Principals are
going to focus on Māoriprincipals, and the lovely
Mārama Stewart, who you'veheard speak many times in the
series, including in thisepisode, will be hosting and
she'll be awesome. But from mefor now, noho ora mai.