London Borough of Merton Scheme for Financing Schools From April January Children, Schools and Families. Director: Yvette Stanley

Transcription

1 London Borough of Merton Scheme for Financing Schools From April 2010 January 2010 Childrens, Schools and Families Director: Yvette Stanley Children, Schools and Families

2 TABLE OF CONTENTS London Borough of Merton Scheme for Financing Schools 1

3 1. INTRODUCTION The Funding Framework The role of the scheme Application of the scheme to the Authority and maintained schools Publication of the scheme Revision of the scheme Delegation of powers to the headteacher Maintenance of schools FINANCIAL CONTROLS Application of financial controls to schools Provision of financial information and reports Payment of salaries; payment of bills Control of assets Accounting Policies (including year-end procedures) Writing off of debts Basis of accounting Submission of budget plans Submission of Financial Forecasts Submission of a budget flow Best Value Statement of internal Control Virement Audit: General Separate external audits Audit of voluntary and private funds Register of business interests Purchasing, tendering and contracting requirements Application of contracts to schools Central funds and earmarking Spending for the purposes of the school Capital spending from budget shares Financial Management Standard Notice of Concern INSTALMENTS OF THE BUDGET SHARE, BANKING ARRANGEMENTS Frequency of instalments Proportion of budget share payable at each instalment Interest clawback Interest on late budget share payments Budget shares for closing schools Bank and building society accounts Restrictions on accounts Changes to accounts Investment of surplus funds Signatories to the bank account Borrowing by schools Other Provisions THE TREATMENT OF SURPLUS AND DEFICIT BALANCES ARISING IN RELATION TO BUDGET SHARES The right to carry forward surplus balances Reporting on the intended use of surplus balances Interest on surplus balances Obligation to carry forward deficit balances Planning for deficit budgets Charging of interest on deficit balances London Borough of Merton Scheme for Financing Schools 2

4 4.7. Writing off deficits Balances of closing and amalgamating schools Licensed deficits Loan schemes Credit Union Approach GM schools balances INCOME Income from lettings Income from fees and charges Income from fund-raising activities Income from the sale of assets Administrative procedures for the collection of income Purposes for which income may be used THE CHARGING OF SCHOOL BUDGET SHARES General provision Charging of salaries at actual costs Circumstances in which charges may be made GTC TAXATION Value Added Tax (VAT) CITS THE PROVISION OF SERVICES AND FACILITIES BY THE AUTHORITY Provision of services from centrally retained budgets Timescales for the provision of services bought back from the LEA using delegated budgets Packaging Service level agreements Teachers' Pensions PFI INSURANCE Insurance cover MISCELLANEOUS Right of access to information Liability of governors Governors' expenses Responsibility for legal costs Health and Safety Right of attendance for Chief Finance Officer Delegation to new schools Optional delegated funding Special Education Needs Interest on late paymentss 'Whistleblowing' Child Protection School Meals RESPONSIBILITY FOR REPAIRS AND MAINTENANCE COMMUNITY FACILITIES POWER Introduction Consultation with the LEA Funding agreements Other Prohibitions, Restrictions and Limitations Supply of Financial Information Audit Treatment of Income and Surpluses London Borough of Merton Scheme for Financing Schools 3

5 13.8 Health and Safety Insurance Taxation Banking ANNEX A The funding framework: main features ANNEX B Responsibility for repairs and maintenance ANNEX C Best value ANNEX D Community Facilities ANNEX E Proporton of Budget Share payable at each instalment ANNEX F Policy on Charging and Remission ANNEX G Financial Reports and Returns from Schools London Borough of Merton Scheme for Financing Schools 4

6 1. INTRODUCTION 1.1. The Funding Framework Since 1990 the Local Authrotiy has delegated funding tp its schools in accordance with its Local Management of Schools scheme as approved by the Secretary of State. Under the terms of the School Standards and Framework Act 1998, LAs were required to draw aup a new scheme for the financing of schools which replaced the existing LMS Scheme. The funding framework which replaces Local Management of Schools is based on the legislative provisions in sections of the School Standards and Framework Act Under this legislation, local education authorities determine for themselves the size of their Schools Budget and LA Budget although at a minimum the local authority must appropriate its entire Dedicated Schools Grant to its School Budget. The categories of expenditure which fall within the two budgets are prescribed under regulations made by the Secretary of State, but included within the two, taken together, is all expenditure, direct and indirect, on an authority's maintained schools except for capital and certain miscellaneous items. Local authorities may centrally retain funding in the Schools Budget for purposes defined in regulations made by the Secretary of State under s.45a of the Act. The amounts to be retained centrally are decided by the authority concerned, subject to any limits or conditions prescribed by the Secretary of State. The balance of the Schools Block left after deduction of centrally retained funds is termed the Individual Schools Budget (ISB). Expenditure items in the LA budget must be retained centrally (although earmarked allocations may be made to schools). Local authorities must distribute the ISB amongst their maintained schools using a formula which accords with regulations made by the Secretary of State, and enables the calculation of a budget share for each maintained school. This budget share is then delegated to the governing body of the school concerned, unless the school is a new school which has not yet received a delegated budget, or the right to a delegated budget has been suspended in accordance with s.51 of the Act. The financial controls within which delegation works are set out in a scheme made by the LA in accordance with s.48 of the Act and approved by the Secretary of State. The Secretary of State, who has power to modify schemes or impose one, must also approve all revisions to the scheme. From 16 th March 2007, revisions to the scheme may be approved by Merton s Schools Forum, subject to their compliance with statutory guidance issued by the Secretary of State. This document forms the required scheme for this Authority. Subject to provisions of the scheme, governing bodies of schools may spend budget shares for the purposes of their school. They may also spend budget shares on any additional purposes prescribed by the Secretary of State in regulations made under s.50. An LA may suspend a school's right to a delegated budget if the provisions of the school financing scheme (or rules applied by the scheme) have been substantially or persistently breached, or if the budget share has not been managed satisfactorily. There is a right of appeal to the Secretary of State. A school's right to a delegated budget share may also be suspended for other reasons (s.17 of the SSAF Act 1998) but in that case there is no right of appeal. Each authority is obliged to publish each year a statement setting out details of its planned Schools Budget and LA Budget, showing the amounts to be centrally retained, the budget share for each school, the formula used to calculate those budget shares, and the detailed calculation for each school. After each financial year the authority must publish a statement showing out-turn expenditure at both central level and for each school, and the balances held in respect of each school. Both statements must be made available on a publicly accessible website. The detailed publication requirements for financial statements and for schemes are set out in regulations, but each school must receive a copy of the scheme and any amendment, and each year's budget and out-turn statements so far as they relate to that school or central expenditure. London Borough of Merton Scheme for Financing Schools 5

7 1.2. The role of the scheme This scheme sets out the financial relationship between the Authority and the maintained schools which it funds. It contains requirements relating to financial management and associated issues, which are binding on both the Authority and on the schools Application of the scheme to the Authority and maintained schools From 1 April 1999 this scheme applies to all community, nursery, voluntary, foundation, community special and foundation special schools maintained by the LA (as listed in Annex A). The scheme will also apply to any new maintained schools which open after 1 April Publication of the scheme A copy of the scheme will be supplied to the governing body and the head teacher of each school covered by the scheme and placed on Merton s Website, and any approved revisions will be advised of by bulletin Revision of the scheme Any proposed revisions to the scheme will be the subject of consultation with all schools and will require the approval of the Schools Forum. Sometimes the Secretary of State directs that changes are made to authorities schemes. Schools will be advised of such changes but they will not be subject to formal consultation Delegation of powers to the Head Teacher The Governing body is asked to consider the extent to which it wishes to delegate its financial powers to the Head Teacher, and to record its decision (and any revisions) in the minutes of the governing body. However, the first formal budget plan for the year must be approved by the Governing Body or by a committee of the governing body. The LA has no wish to impose uniformity on schools but considers that the level of delegation to Head Teachers which is desirable, is as set out in the following documents already sent to schools: On the right track 3 - Section Maintenance of schools The Local Authority is responsible for maintaining the schools covered by the scheme, and this includes the duty of defraying all the expenses of maintaining them (except in the case of a voluntary aided school where some of the expenses are, by statute, payable by the governing body). Part of the way an authority maintains schools is through the funding system put in place under sections 45 to 53 of the School Standards and Framework Act FINANCIAL CONTROLS Application of financial controls to schools Governing bodies are responsible for establishing and maintaining sound systems of financial and other management control, which will ensure economy of operation and effective internal control, including appropriate provision for division of duties and efficient use of resources within the school. This applies to the management of the school s private funds as well as public funds. In managing their delegated budgets schools must abide by the Authority's requirements on financial controls and monitoring. Certain of these are directly referred to in this scheme while others are included in the following document already sent to schools: On the right track 3 London Borough of Merton Scheme for Financing Schools 6

8 Provision of financial information and reports Schools are required to provide the Authority with details of expected and actual expenditure and income, in a form and at times determined by the Authority. The school should have a financial management information system that meets the particular needs of the school. The system must be capable of producing either the following financial returns or the information to complete such returns. See Annex G for details of returns and reports required from schools by the LA In addition, where the LA is not the employer and the LA s payroll is not used, monthly returns for pensions contributions must be completed and sent to the payroll department. The schools must also submit annual teachers employment details as requested by the Payroll Section of the Authority Payment of salaries; payment of bills The procedures for these will vary according to the choice schools make about the buying back of the authority s payroll system, these are as set out in the following document already sent to schools: On the right track 3 - Sections 7 & Control of assets Each school must maintain an inventory of its moveable non-capital assets and set out the basic authorisation procedures for disposal of assets. Guidance as to the content of the inventory and advice on disposal of assets are set out in the following document already sent to schools On the right track 3 - Section Accounting Policies (including year-end procedures) Schools must abide by procedures issued by the authority in relation to accounting policies and year-end procedures. These procedures are as set out in the following document already sent to schools: On the right track Writing off of debts Governing bodies must approve all debts to be written off but are only authorised to write off debts up to 250. In the case of larger debts the school must obtain the specific approval of the Director for Children Schools and Families. These procedures are as set out in the following document already sent to schools: On the right track 3 - Section Basis of accounting The Authority s financial year commences on the 1st April and ends on the 31st March. All records relating to Council funds and any Government funds must be kept on this basis as they form part of the Council s accounts. London Borough of Merton Scheme for Financing Schools 7

9 The Authority prepares its statutory accounts on an accruals basis. Reports and accounts furnished to the LA must be on an accruals basis, i.e. all income and expenditure should be accounted for in the period to which it relates. In addition, Consistent Financial Reporting Returns to the DCSF should also be on an accruals basis, so they are on the same basis as reports to the Authority Submission of a one year budget plans Governing bodies are responsible for agreeing a school income and expenditure plan for the financial year. Each school is required to submit a one year budget plan to the Director of Corporate Services by the following date each year: 1 June Governing bodies are responsible for scheduling their committee meetings so that approved budgets are received by the Authority on 1 st June each financial year. Schools may take full account of estimated surpluses and must take account of estimated deficits at the end of the previous financial year, but will need to submit a revised plan if the actual deficit/surplus is significantly different to that estimated. The budget plan must show the school s intentions for expenditure in the current financial year and the assumptions underpinning the budget plan. The school s formal annual budget plan must be approved by the governing body, or a committee of the governing body then ratified at a full governing body meeting. The Chair of Governors and the Head Teacher must sign the budget plan. The authority may also require the submission of revised plans where the authority deems it necessary. The LEA will supply schools with all income and expenditure data which it holds and which is necessary to efficient planning by schools. See Annex H for the format of the budget plan required from schools by the LA Submission of Multi-year budget plans Schools are required to submit financial forecast covering each year of a multi-year budget period for which schools have been notified of budget shares beyond the current year (3 year budgets). These forecasts must adhere to projections of pay price inflation supplied alongside the multi-year budget and estimate inflation on non-pay items. Each school is required to submit this budget plan to the Director of Corporate Services by the following date each year. 30 June The forecasts will be used in conjunction with the LA s Medium Term Financial Strategy. It must be authorised by the Chair of Governors and the Headteacher. Schools will be undertaking financial planning and the above forecasts will be used to support the LA s responsibility for declaring their schools adherence to the Financial Management Standard in Schools. See Annex H for the format of multi-year budgets required from schools by the LA Submission of a budget cash f low. Schools are required to submit a budget cash flow which match the one year budget. This is a tool which will support the financial management in schools and which must be submitted to the Director of Corporate Services by the following date each year 30 June See Annex H for the format of a budget cash flow London Borough of Merton Scheme for Financing Schools 8

10 2.4. Best value Best Value is not a statutory requirement for schools and it does not apply formally to governing bodies in their use of delegated and devolved budgets. Governing bodies are, however, required to set targets to raise standards. They are also expected to provide good quality schooling and to spend public money wisely. Schools are expected, as part of Fair Funding, to follow the principles of Best value in making decisions about major activities. To meet this intention when submitting the annual budget plan, the governing body of each school shall submit a statement setting out what steps it will be taking in the course of the year to ensure that expenditure, particularly with respect to large contracts, will reflect the principles of the best value regime. Guidance on what Best Value means for schools and how applying the Best Value principles might benefit your school is contained in Best Value in School produced by the Department for Education and Skills and is obtainable at Guidance from this document on writing a best value statement is reproduced at Annex C and an example Best Value Statement can be found on This statement should be submitted at the same time as the schools Annual Budget Plan and should be received by 1 st June each financial year Statement of Internal Control The Statement of Internal Control is a statement from the head teacher and the governing body to confirm that the financial management and controls in place at the school are adequate and effective. If any weaknesses are identified by the school or through an internal audit, then these must be documented and an explanation of proposed corrective action given. This document must be produced by the following date each year. 30 June An example of the specimen Statement of Internal Control For Schools can be found in the yellow School Accountancy & FMS Manual (page 71) Virement Schools are free to vire between budget headings in the expenditure of their budget shares but governors are advised to establish criteria for virements and financial limits above which the approval of the governors is required. Virement forms must be used to show the formal approval and be shown at finance committees. This must be noted in the minutes. Procedures are as set out in the following document already sent to schools: On the right track 3 - Section Audit: General Schools are required to co-operate both with auditors employed by the local authority (internal audit) and auditors appointed by the Audit Commission to audit the local authority itself (external audit). Schools should be aware that the auditors (both internal and external) have a right of access to all documentation and to interview employees of the school at all reasonable times. In regard to internal audit, all schools come within the audit regime determined by the Authority. Details of this are set out in the following documents already sent to schools: On the right track3 - Sections 30 & 31 In relation to external audit all schools come within the Authority s external audit regime as determined by the Audit Commission. London Borough of Merton Scheme for Financing Schools 9

11 2.7. Separate external audits In instances where a school wishes to seek an additional source of assurance at its own expense, a governing body is permitted to spend funds from its budget share to obtain external audit certification of its accounts, separate from any Authority s internal or external audit process. Where a school chooses to seek such an additional audit it does not remove the requirement that the school must also co-operate with the Authority s internal and external auditors Audit of voluntary and private funds In addition to the normal internal and external audits, schools must provide audit certificates in respect of any voluntary and private funds they hold and of the accounts of any trading organisations controlled by the school. The procedures for furnishing these audit certificates and advice on the handling of such voluntary and private funds is set out in the following document already sent to schools: On the right track 3 - Section Register of business interests The governing body of each school is required to maintain a register which lists for each member of the governing body, the head teacher, staff with financial responsibility and budget holders, any business interests they or any member of their immediate family have. The register is to be kept up to date with changes being made as they occur and by means of an annual review of entries. The register must be available for inspection by governors, staff, parents and the LA. More detailed guidance on the maintenance of such a register is set out in the following document already sent to schools: On the right track 3 - Section Purchasing, tendering and contracting requirements Schools are required to abide by the Authority's financial regulations and standing orders in purchasing, tendering and contracting matters 1. This should include a requirement to assess in advance, where relevant, the health and safety competence of contractors, taking account of the LEA s policies and procedures. The Authority s financial regulations and standing orders for contracts entered into by school Governing Bodies are set out in Annex D Application of contracts to schools Schools have the right to opt out of LA arranged contracts, however they are bound to any they have voluntarily committed to the LA. In these cases schools will be bound into the contract for its length (although the contract might contain clauses allowing variance of its terms and conditions). Contracts which schools may have voluntarily opted into are listed below: School Meals Cleaning Information Technology Building Maintenance 1 However, any section of the Authority's financial regulations and standing orders shall not apply if it requires a school to do anything incompatible with any of the provisions of this scheme, or any statutory provision, or any EU Procurement Directive. London Borough of Merton Scheme for Financing Schools 10

12 2.12. Central funds and earmarking The LA is authorised to make sums available to schools from central funds, in the form of allocations which are additional to and separate from the schools budget shares (the Standards Fund regulations require LAs to do this with many grants). Such allocations shall be subject to conditions setting out the purpose or purposes for which the funds may be used: and while these conditions need not preclude virement (except, of course, where the funding is supported by a specific grant which the LA itself is not permitted to vire), this should not be carried to the point of assimilating the allocations into the school s budget share. Such earmarked funding from centrally retained funds is to be spent only on the purposes for which it is given, or on other budget heads for which earmarked funding is given, and is not to be vired into the school s budget share. Earmarked funds must be returned to the LA if not spent in-year or within the period which schools are allowed to use funding if different. The LA is not able to make deductions for interest costs on devolved specific or special grants. In order that schools may demonstrate compliance with this requirement, the procedure as set out in the following documents already sent to schools shall be used: On the right track 3 - Section Spending for the purposes of the school Governing bodies are free 2 to spend budget shares for the purposes of the school, subject to any provisions of this scheme Capital spending from budget shares Governing bodies are permitted to use their budget shares to meet the cost of capital expenditure on the school premises 3. The governing body must notify the LA of any capital spending from the budget share, by submitting a summary of proposed expenditure with the one-year budget. The budgets must also show the income and the expenditure for the year and any carried forward balances If the expected capital expenditure from the budget share in any one-year will exceed 15,000, the governing body must also take into account any advice from the Capital Programme Manager as to the merits of the proposed expenditure. Where the premises are owned by the LA or a school has voluntary controlled status, then the governing body shall seek the consent of the LA to the proposed works. Consent by the LA can only be withheld on Health and Safety grounds Financial Management Standard The authority requires all schools to demonstrate compliance the Financial Management Standard in Schools (FMSiS) through external assessment carried out by the authority s External Assessor. Schools will be externally assessed every three years. The assessment will also take account of relevant comments in the reports of auditors, advisers and inspectors and accounting performance, and of any other relevant information available, including financial returns to the authority. Schools that fail to meet the requirements of the Financial Management Standard in Schools will be given an action plan and be supported by the authority to meet the criteria. (See also Section 2.16: Notice of Concern). 2 In accordance with s.50(3) (b) of the School Standards and Framework Act 1998 (the SSAF Act 1998) and the Schools Budget Shares (Prescribed Purposes) (England) Regulations 2002 (SI 2002/378). The latter regulation has been amended by the Schools Budget Shares (Prescribed Purposes) (England) (Amendment) Regulations 2004 (SI 2004/444). 3 This includes expenditure by the governing body of a voluntary aided school on work which is their responsibility under paragraph 3 of Schedule 3 of the SSAF Act London Borough of Merton Scheme for Financing Schools 11

13 Further information and advice on the Financial Management Standard in Schools is available from the External Assessor or the website at Notice of Concern The LA may issue a notice of concern to the Governing Body of any school it maintains. Such a notice may be issued where in the opinion of the Chief Finance Officer (Director of Corporate Services) and the Chief Education Officer(Director of Children, Schools and Families), the school has failed to comply with any provisions of the scheme, or where actions need to be taken to safeguard the financial position of the local authority or the school. Such a notice will set out the reasons and evidence for it being made. The LA requirements on a governing body in relation to the management of funds may include the following: relevant staff should undertake appropriate training to address any identified weaknesses in the financial management of the school; an appropriately trained/qualified person chairs the finance committee of the Governing Body; more stringent restrictions or conditions on the day to day financial management of a school than the scheme requires for all schools such as attendance by the Schools Finance Manager at the Governors finance committee meetings. regular financial monitoring meetings at the school attended by LA officers; requiring a Governing Body to buy into the LA financial support service; restrictions or limitations on the manner in which a school manages extended school activity funded from within its delegated budget share for example by requiring a school to submit income projections and/or financial monitoring reports on such activities. The notice will clearly state what the requirements are, the way in which and the time by which such requirements must be complied with in order for the notice to be withdrawn. It will also state the actions that the authority will take where the Governing Body does not comply with the notice. The principal criterion for issuing a notice, and determining the requirements included within it, should be to safeguard the financial position of the LA or school. Where a notice of concern is issued it will provide for the notice to be withdrawn once the Governing Body has complied with the requirements it imposes. The purpose of this provision is to enable the LA to set out formally any concerns regarding the financial management of a school they maintain and require a Governing Body to comply with any requirements deemed necessary. It will not be used in place of withdrawal of financial delegation where that is the appropriate action to take. However, it will provide a way of making a governing body aware of the LA s concerns short of withdrawing delegation and identifying the actions a governing body should take in order to improve their financial management to avoid withdrawal. 3. INSTALMENTS OF THE BUDGET SHARE, BANKING ARRANGEMENTS 3.1. Frequency of instalments The budget share will be made available to governing bodies at monthly intervals. London Borough of Merton Scheme for Financing Schools 12

14 3.2. Proportion of budget share payable at each instalment The proportion of the budget share to be made available to schools shall be calculated as set out in Annex E Interest clawback The LA will make no deduction from budget share instalments to cover the estimated interest lost by the LA in making available the budget share in advance Interest on late budget share payments If as a result of an LA error, the budget shares are paid after the agreed dates, the LA will add interest to the payments. The interest rate used will be the current Bank of England base rate Budget shares for closing schools Budget shares of schools for which approval for discontinuation has been secured, will be made available until closure on a monthly basis, net of estimated pay costs, even where some different basis was previously used Bank and building society accounts All schools may have an external bank account into which their budget share instalments (as determined by other provisions) are paid. Where schools have such accounts they shall be allowed to retain all interest payable on the account unless they choose to have an account within an LA contract which makes other provision. New bank account arrangements may only be made with effect from the beginning of each financial year. Schools can have an amount (agreed by the school and LA) transferred to the account as the estimated surplus balance Restrictions on accounts Schools may have accounts for budget share purposes which are in the name of the school rather than the LA. However, if a school has such an account the scheme requires that the account mandate should provide that the LA is the owner of the funds in the account (s.49(5) of the Act); that it is entitled to receive statements; and that it can take control of the account if the school s right to a delegated budget is suspended by the LA. Accounts may only be held for the purpose of receiving budget share payments, at the following banks or building societies Abbey National Bank/ Santander Alliance and Leicester Plc Bank of Scotland / Lloyds TSB Barclays Bank Plc Bradford and Bingley Building Society Britannia Building Society Co-operative Bank Halifax Plc Lloyds TSB Plc HSBC Bank Plc Nationwide Building Society National Westminster Bank Plc Royal Bank of Scotland Yorkshire Building Society London Borough of Merton Scheme for Financing Schools 13

15 Schools wishing to open a new account with banks not on the approved list must seek the written approval of the Director of Corporate Services The LA will continue with the arrangements negotiated with Lloyds Bank for schools that wish to use such arrangements Changes to accounts Any school closing an account used to receive its budget share and opening another must select the new bank or building society from the approved list, even if the closed account was not with an institution on that list Investment of Surplus Funds Surplus funds of more than 5,000 may be lodged with the Council and will earn interest. See para.4.3 for details Schools may chose to invest surplus funds in other accounts, but only accounts which are shown to provide no risk to the capital sum may be used. The Director of Corporate Services will offer advice on investments but investments must not be through any intermediaries. Most banks operate schemes whereby a high interest account is linked to the cheque account allowing for transfer of funds between the two. It is suggested that this arrangement be considered so that temporary balances can gain interest to the benefit of the school. Details of the accounts used must be notified to the Director of Corporate Services. Interest from the investment of the surplus funds will be retained by the schools for their use. However, any charges made by the bank will be borne from the school s delegated budget Signatories to the Bank Account There must be at least two approved signatories for each account one of whom should normally be the Head Teacher. Governors who are not members of staff cannot be a signatory to the account Borrowing by schools Governing bodies may borrow money only with the written permission of the Secretary of State 4. Schools are explicitly barred from using credit cards unless fully approved by the Authority s Internal Audit Section, which are regarded as a form of borrowing. Debit cards must be used in accordance with the Debit Card Policy. An up to date copy of this document is available from Internal Audit on Other provisions Separate detailed rules and guidance in respect of other aspects of banking arrangements may be applied, provided no aspect of those rules and guidance conflicts with the LEA contract. 4. THE TREATMENT OF SURPLUS AND DEFICIT BALANCES ARISING IN RELATION TO BUDGET SHARES 4.1. The right to carry forward surplus balances Schools may carry forward from one financial year to the next any surplus in net expenditure relative to the school's budget share for the year plus/minus any balance brought forward from the previous year. 4 This does not apply to Trustees and Foundations, whose borrowing, as private bodies, makes no impact on Government accounts. These debts may not be serviced directly from the delegated budgets, but schools are free to agree a charge for a service which the Trustees or Foundation are able to provide as a consequence of their own borrowing. Governing bodies do not act as agents of the LEA when repaying loans. London Borough of Merton Scheme for Financing Schools 14

16 4.2. Reporting on and control of the use of surplus balances In order to allow the LA to monitor excessive balances, governing bodies holding surpluses (as published in the Section 52 Outturn Statement) in excess of 5% of the current year s delegated budget (8% for primary and special schools) will be required to show what plans they have for spending all or part of the balances. The plan will state how much is committed for a specific project, stating how this links with the school s development plan and how much is uncommitted and kept for emergencies. The predicted date of completion of this project must be stated. This will allow schools to build up reserves for a project but cannot defer implementation indefinitely. These projects must be included in the budget estimates and multi-year budgets in the relevant year. An authorised excess balance sheet must be submitted by 30 th of June, this will change in the next financial year to form part of the closing procedure. Specific projects permitted by the LA: premises eg classrooms/science lab/ technology room refurbishments furnishing and equipping rooms fixed playground equipment ICT hardware/software school transport eg purchase of mini-bus curriculum project requiring sets of text books or equipment planned staff re-organisation requiring additional resources significant falling pupil rolls requiring use of reserves to balance current year budget Surplus balances held by schools as permitted under this scheme are subject to the following restrictions with effect from 1 April 2007: a. the LA shall calculate by Mid May each year the surplus balance, if any, held by the school as at the preceding 31 March. For this purpose the balance will be the recurrent balance as defined in the Consistent Financial Reporting Framework; b. the LA shall deduct from the calculated balance any amounts for which the school has a prior year commitment to pay from the surplus balance and any unspent Standards Fund grant for the previous financial year. Prior year commitments to be substantiated with SIMS print outs and order numbers if requested by the LA; c. the LA shall then deduct from the resulting sum any amounts which the governing body of the school has declared to be assigned for specific purposes permitted by the authority as indicated, above, and which the authority is satisfied are properly assigned. To count as properly assigned, amounts must not be retained beyond the period stipulated for the purposes in question, without the consent of the authority. In considering whether any sums are properly assigned the authority may also take into account any previously declared assignment of such sums but may take any change in planned assignments to be the sole reason for considering that a sum is not properly assigned. If the results of steps a-c is a sum greater than whichever is the greater of 5% of the current year s budget share (secondary schools) or 8% (primary and special schools) the authority shall apply the surplus balance policy. Funds held in relation to a school s exercise of powers under s27 of the Education Act 2002 (community facilities) will not be taken into account unless added to the budget share surplus by the school as permitted by the LA. The total of any amounts deducted from schools budget shares by the authority under this provision will be applied to the Schools Budget of the Authority Interest on surplus balances The Strategic Financial Control Section of the Corporate Services Department manage a scheme for the investment of surplus balances held by schools. Deposits can be lodged with Merton, who will pay interest at 1% higher than the rate that would be available from the current TSB Merton Schools Scheme. The minimum deposit is 5,000, and interest will be calculated on a daily basis. Interest will be accrued London Borough of Merton Scheme for Financing Schools 15

17 on a compound basis Obligation to carry forward deficit balances Deficit balances will be carried forward by the deduction of the relevant amounts from the following year's budget share (see also 4.9) Planning for deficit budgets Schools may only plan for a deficit budget in accordance with the terms of para. 4.9 below Charging of interest on deficit balances The LEA will not charge interest on deficit balances but refer para. 4.9 for further information Writing off deficits The LA has no power to write off the deficit balance of any school. The LA can only provide assistance towards the elimination of a deficit balance at its own discretion Balances of closing and amalgamating schools When a school closes, any balance (whether surplus or deficit) shall revert to the LA; it cannot be transferred as a balance to any other school, even where the school is a successor to the closing school. 4.9 Licensed deficits Governors have no legal right to set a deficit budget without the consent of the Authority and should not presume that such consent will be granted. However, the Authority will consider approving a licensed deficit to a school where it agrees that there a re circumstances in which it would be unreasonable for that school to balance its budgets in-year. Specific guidance is provided by the Authority is provided in respect of setting a deficit budget an up to date copy of this policy may be obtained from the Schools Finance Manager on Any such deficits would be met from the collective balances held by the LA and would not exceed in total more than 40% of the balances Where a request is received from the Governors of a school to allow the school to set a deficit budget, the grounds for consideration would be:- A significant reduction in the schools budget has occurred through the funding formula, which require staffing changes which cannot be fully achieved in the current financial year (Para ) An emergency situation has occurred at a school which requires revenue expenditure to enable the normal business of the school to continue and which cannot be met entirely from the school s budget within the current financial year. In order to qualify the resource reduction required by the funding formula must exceed 5% of the previous years delegated budget share. Deficits may be agreed up to a maximum of 10% of the delegated budget share or 100,000, whichever is the lower. No deficit budgets will be approved for periods exceeding 36 months. The overall level of reserves held by schools will be taken into account in reaching a decision to allow the setting of a deficit budget. London Borough of Merton Scheme for Financing Schools 16

18 Schools are not allowed to set a deficit budget without prior permission from the Director of Corporate Services and the Director of Children, Schools and Families. This permission must be sought by the Chair of Governors, through the Departmental Finance Manager for Children, Schools and Families Finance as soon as possible. The application will be assessed in consultation with your assigned inspector and other relevant officers.. If a school sets a deficit budget the school may have insufficient cash flow to meet day to day expenditure. In this circumstance the Authority may need to provide a temporary loan until the school has eliminated the deficit and returned to surplus. The agreement of a loan will be related to the approval of the deficit. The loan will be made from the council s general fund reserves. The Authority reserves the right to charge interest at current market rates on any loans. Where the school has not eliminated the deficit by the end of the agreed period or repaid the temporary loan, the management of the delegated budget of the school will be reviewed and a report submitted to the Head of Education and/or the Director of Children, Schools and Families If a school has a licensed deficit and proposes to spend amounts received by it in respect of Schools Standards Grant on purposes other than reducing the licensed deficit, the LA must agree to such a proposal unless the proposed expenditure is deemed unreasonable in the school s financial circumstances Loan Schemes Merton does not operate a loan scheme other than the licensed deficits scheme outlined in para above Credit Union Approach If no other loan scheme is available, schools may wish to group together to utilise externally held balances via a credit union approach. Audit certification would be necessary for this scheme if the LA does not act as administrator of the loan arrangement Balances of schools that were formerly GM The scheme provides that where a deficit balance existed at the end of FAS funding, that it was carried forward; and that any schedule for eliminating the deficit agreed with the FAS (or the LA in the case of deficits incurred when the school was previously maintained by the LA, and carried over into the change of status under the GM Finance Regulations) will continue to be adhered to. Schemes may not contain any provision which seeks to reinstate deficits left with LAs at the time of becoming GM, by schools which acquired GM status prior to INCOME Schools shall be able to retain income except in certain specified circumstances Income from lettings Schools may retain income from lettings of the school premises which would otherwise accrue to the LA, subject to alternative provisions arising from any joint use or PFI agreements. Schools are permitted to cross-subsidise lettings for community and voluntary use with income from other lettings, provided there is no net cost to the budget share. However, schools whose premises are owned by the LA shall be required to have regard to directions issued by the LA as to the use of school premises, as permitted under the School Standards and Frameworks Act 1998 for various categories of schools. Income from lettings of school premises should not normally be payable into voluntary or private funds held by the school. London Borough of Merton Scheme for Financing Schools 17

19 5.2. Income from fees and charges Schools may retain income from fees and charges except where a service is provided by the LA from centrally retained funds. However, schools are required to have regard to any policy statements on charging produced by the LA. Income from boarding charges is collected on behalf of the LA and should not exceed that needed to provide board and lodging for the pupils concerned. See Annex F for the London Borough of Merton s Charging Policy Income from fund-raising activities Schools may retain income from fund-raising activities Income from the sale of assets Schools may retain the proceeds of sale of assets except in cases where the asset was purchased with non-delegated funds (in which case it should be for the LA to decide whether the school should retain the proceeds), or the asset concerned is land or buildings forming part of the school premises and is owned by the LA Administrative procedures for the collection of income Because of the potential VAT implications of providing services which lead to fees and charges, fund raising activities and the sale of assets, the LA has established administrative procedures for the collection of income which are set out in the following documents: On the right track 3 - Section Purposes for which income may be used No restrictions are placed by the LA on the use to which the school may put income from the sale of assets. 6. THE CHARGING OF SCHOOL BUDGET SHARES 6.1. General provision The LA must charge the salaries of school based staff to the budget share of a school at actual cost. Otherwise the budget share of a school may be charged by the LEA without the consent of the governing body only in circumstances set out in 6.2 below. The LA shall consult a school as to the intention to so charge, and shall notify a school when it has been done. Schools are reminded that the LEA cannot act unreasonably in the exercise of any power given by this scheme, or it may be the subject of a direction under s.496 of the Education Act The LA shall make arrangements for a disputes procedure for such charges Charging of salaries at actual cost As per 6.1 the LA must charge salaries of school-based staff to school budget shares at actual cost Circumstances in which charges may be made Where premature retirement costs have been incurred without the prior written agreement of the LA to bear such costs (the amount chargeable being only the excess over any amount agreed by the LA). London Borough of Merton Scheme for Financing Schools 18

20 6.2.2 Other expenditure incurred to secure resignations where the school had not followed LA advice Awards by courts and the Employment Tribunal against the LA, or out of court settlements, arising from action or inaction by the governing body contrary to the LA's advice Expenditure by the LA in carrying out health and safety work or capital expenditure for which the LEA is liable where funds have been delegated to the governing body for such work, but the governing body has failed to carry out the required work Expenditure by the LA incurred in making good defects in building work funded by capital spending from budget shares, where the premises are owned by the LA or the school has voluntary controlled status Expenditure incurred by the LA in insuring its own interests in a school where funding has been delegated but the school has failed to demonstrate that it has arranged cover at least as good as that which would be arranged by the LA Recovery of monies due from a school for services provided to the school, where a dispute over the monies due has been referred to a disputes procedure set out in a service level agreement, and the result is that monies are owed by the school to the LA Recovery of penalties imposed on the LA by the Board of Inland Revenue, the Contributions Agency, HM Customs and Excise, Teachers Pensions or regulatory authorities as a result of school negligence Correction of LA errors in calculating charges to a budget share (e.g. pension deductions) Additional transport costs incurred by the LA arising from decisions by the governing body on the length of the school day, and failure to notify the LA of non-pupil days resulting in unnecessary transport costs Legal costs which are incurred by the LA because the governing body did not accept the advice of the LA (see also section 11) Costs of necessary health and safety training for staff employed by the LA, where funding for training has been delegated but the necessary training not carried out Compensation paid to a lender where a school enters into a contract for borrowing beyond its legal powers, and the contract is of no effect Cost of work done in respect of teacher pension remittance and records for schools using non- LA payroll contractors, the charge to be the minimum needed to meet the cost of the authority's compliance with its statutory obligations Costs incurred by the LA in securing provision specified in a statement of SEN where the governing body of a school fails to secure such provision despite the delegation of funds in respect of that statement Costs incurred by the LA due to submission by the school of incorrect data Recovery of amounts spent from specific grants on ineligible purposes Costs incurred by the LA as a result of the governing body being in breach of the terms of a contract Any legal costs, compensation, out of court settlements and ombudsmen costs associated with a school governing body failing to carry out a Director s Notice on the admission of a pupil to a school Recovery of outstanding balances on loans to school staff, where the loan was approved by the head teacher and/or Governing Body, the loan was to be recovered by deduction from payroll, the member of staff is no longer employed by the school or authority, and where it has been impossible to mal acceptable alternative arrangements to recover the outstanding debt from the borrower London Borough of Merton Scheme for Financing Schools 19