LUTON BOROUGH COUNCIL
LUTON BOROUGH COUNCIL
LOCAL BANK ACCOUNT SCHEME
Staffing Contacts 2
The Scheme (Section A)
1. Banking Arrangements
1.1 Introduction 3
1.2 Scope 3
1.3 Choice of Banker 3
1.4 Choice of Accounts 4
1.5 Choice of Banks 4
1.6 Investments 5
1.7 Opening an Account 5
1.8 Advances 6
1.9 Bank Account Withdrawals 7
1.10 Cheque Administration 8
1.11 Payments by Standing Order or Direct Debit 8
1.12 Charge and Credit Withdrawals 8
1.13 Overdrafts and Borrowing 9
1.14 Collection of Income 9
1.15 Deposits 10
1.16 Write Off Procedure 10
1.17 Payroll Costs - scheme 1 only 10
1.18 Bank Reconciliation 11
2.1 Bank Reconciliation 11
2.2 VAT 11
2.3 Construction and Industry Tax Deductions 11
2.4 Income Tax 12
Advice, Guidelines and Accountability (Section B)
1. Responsible Officer 13
2. Lines of Responsibility 13
3. Separation of Duties 14
4. Recording of Transactions 14
5. Information to be retained by School 14
6. Security & Retention of Documents & Data 15
7. Financial Regulations 15
8. Taxation Penalties 16
9. Ordering and Payment for Goods and Services 17
10. Authorisation Procedures 17
11. Leasing of Equipment 18
Calculation for the loss of interest by the Borough Council 20
Appendix B Example of Invoice Certification Stamp 21
LUTON BOROUGH COUNCIL
Local Management of Schools
LOCAL BANK ACCOUNTS
Subject Contact Officer Telephone (01582)
Bank Reconciliation School Financial Advisers 548129
Returns LMS Team
Banking Arrangements, Lorraine Byrne, School
Transfer of Funds Funding Co-Ordinator 548072
VAT/VAT Returns VAT and Sytems 546974
Accountant, Stuart House
Construction Industry Janice Beeson, Payments
Scheme (CIS) Team Leader 547048
Purchasing Chris Addey, Corporate 546867
Income Martin Coles 546120
Audit Bev Hannah, 547042
Deputy Audit Manager
Exchequer Services Angela Claridge 546062
LUTON BOROUGH COUNCIL
Local Management of Schools
LOCAL BANK ACCOUNTS
SECTION A : THE SCHEME
1. Banking Arrangements
Under the School Standards and Framework Act all schools have the right to
their own bank account, covering all running costs if they wish. This Scheme
offers this facility together with an option to have payroll costs paid centrally.
The Finance Manager (Children & Learning) will need to be satisfied that
schools who operate a local bank account are able to manage the facility in
an effective, efficient and secure manner.
As all monies within the Individual School’s Budget will be subject to oversight
by the Council’s Head of Corporate Finance, under Section 151 of the 1972
Local Government Act, the LEA reserves the right to withdraw bank account
facilities if the accounts are mismanaged.
There are two bank account schemes available for schools:
Scheme 1 - covers all running costs within the individual
school’s budget (including Standards Funds).
Scheme 2 - covers all running costs within the individual
school’s budget (including Standards Funds), with
the exception of payroll costs
A choice of these schemes is available for schools to use.
1.3 Choice of Banker
Schools should find that banks and building societies are keen to bid for their
business and that accordingly special arrangements may be negotiable.
Schools should be aware of the various services available when choosing
their banks/building societies. Individual circumstances at schools will dictate
which banking arrangements are best suited to each school. The school
should investigate fully its requirements and match these to services
Schools should consider aspects such as cost (bank charges), type of
accounts available, interest, information provided to the school and the cost
of this provision when selecting their bank or building society. Schools may
wish to consider services such as BACS payments and on-line computer
banking including balance updates and automatic transfer of funds to high
1.4 Choice of Accounts
Most banks and building societies now offer a choice of accounts for
businesses. These will include:
Cheque and Deposit Accounts
Funds would initially be paid into the deposit account. Transfers to the
cheque account would be made to pay the school’s bills. With these kinds of
accounts it is normal that only the deposit account would bear interest and
any remaining balance in the cheque account would not accumulate any
interest. This kind of arrangement is often known as sweep accounts, where
funds from one account are swept into the other to maximise interest in one
account and ensure solvency in the other.
Interest Bearing Cheque Accounts
Advances and other income would be paid directly into and from this account.
Interest would be paid on cleared balances, i.e. balances which the school
could withdraw instantly. This would negate the need to sweep funds from
one account to another to cover expenditure. This type of account may have
a lower rate of interest than a deposit account, in some cases significantly
lower and may not be the best option especially if schools have larger
balances held on reserve.
These are normally higher interest accounts where a notice period for
withdrawal of the funds would be required. The school would suffer a loss of
interest should the funds be required and withdrawn early. Typically these
earn higher interest because of the withdrawal notice period, and may require
a minimum value of deposit to achieve higher rates of interest (some
accounts offer higher rates of interest on higher balances). If schools are
aware that there are amounts of cash which will not be required on a day to
day basis, (e.g. reserves being accumulated for a capital project), use may be
made of these longer term or high interest bearing accounts. This will allow
schools to maximise the possible return on investment whilst ensuring that
the school does not suffer cash flow difficulties as a result of typing up funds
for specific periods of time.
1.5 Choice of Banks
Schools may need to negotiate their own banking terms and conditions and
arrange their own transfer of funds between their current and interest earning
accounts when investing cash surplus to their immediate requirements.
Where charges are made on accounts by the banker these will be met from
the school’s delegated budget. The Borough Council will offer advice and
assistance in obtaining the best choice available, particularly in regard to
investing surplus funds. From time to time the Head of Corporate Finance will
issue a list of recommended banking institutions. The current list of approved
banking institutions offering a wide range of facilities is:
Abbey PLC HSBC
Alliance and Leicester Woolwich
Bank of Scotland PLC National Westminster PLC
Barclays Bank PLC Royal Bank of Scotland PLC
Halifax PLC Lloyds/TSB Bank PLC
Co-operative Bank Ltd
There are many other Banks and Institutions approved for investment
purposes and advice should be sought from the Head of Corporate Finance if
schools wish to make use of these institutions. The written permission of the
Head of Corporate Finance must be obtained, prior to a School making
arrangements outside of the approved list shown above.
As stated in 1.5, the Head of Corporate Finance will offer advice and
assistance to obtain the best deal available, when investing surplus funds. If
schools wish to pool their resources with the Borough Council’s and obtain
favourable rates, then this can be arranged as long as the bank account is
held in the name of Luton Borough Council (followed by the School’s name),
and the account is held by a bank which can offer pooling facilities with the
Council. Schools should be aware that whilst the Borough Council’s main
banker is currently The Co-operative Bank, there is a scheme operated by the
National Westminster Bank which can offer schools its own bank account with
preferential rates of interest.
National Westminster Scheme
The schools who opt for the National Westminster scheme must have their
accounts in the name of Luton Borough Council and the appropriate school.
(see 1.7) The rate applied will be similar to the bank base rate and achieved
by pooling each school’s bank balance and investing the total sum. Each
school will receive interest quarterly based on its own balances during the
quarter. There will be no need for schools to manage their surplus funds as
this will be done automatically.
Investing with Luton Borough Council
Where schools operate an account which does not have pooling facilities with
the Council then investment opportunities can still be offered through the
Head of Corporate Finance. Detailed arrangements for operation of this
scheme are obtainable from the Head of Corporate Finance, but the scheme
will only be available to investments in excess of £250,000 for a minimum
investment period of 7 days.
1.7 Opening an Account
New bank accounts are subject to the approval of the Finance Manager
(Children & Learning) who will make subsequent arrangements for opening.
The opening of all accounts must be authorised by the governing body who
should set out, in a formal memorandum, the arrangements covering the
operation of accounts, including any transfers between accounts and cheque
signing arrangements. The operation of systems such as Bankers Automatic
Clearing System (BACS) and other means of electronic transfer of funds
should also be subject to the same level of control.
Schools should notify their bank in writing that their bank accounts must not
become overdrawn at the end of the banking day, or give rise to overdraft
charges. Schools must therefore ensure that sufficient funds are available to
meet larger volume transactions such as BACS payment runs which are
normally subject to a separate contractual arrangement from that governing
the operation of the school’s bank accounts.
The annual sum allocated to each school’s bank account will be the total of its
LMS delegated budget and Standards Funds budgets. Schools will be
advanced one twelfth of their total budget per month, with additional funding
for annual rates allocated in April
Schools must inform the LMS team of the dates each month on which staff
salaries are paid. Notification of payroll dates should be supplied annually, in
advance, for the forthcoming year. Monthly instalments will normally be
cleared into the school’s nominated bank account three working days prior to
The governing body should formulate its own profiles of cash requirements. If
it becomes clear that the standard profile is significantly different from the
school’s forecasts, and this will cause difficulties at the school, the Group
Accountant Schools will consider a change to the existing monthly profile in
order to overcome any difficulty.
If any change to the profile results in Luton Borough Council incurring a loss
of interest then it will be necessary to apply the objective formula, shown at
The annual sum allocated to each school’s bank account will be that
proportion of the school’s total budget required to cover the cost of items paid
locally. Advances will be made twice yearly, in April and October. These
advances will be based on the individual school’s local budget plan and the
reconciled bank balance as at 31st March. In the absence of detailed budget
plans at the beginning of the financial year, the initial advance will be
Funds will be transferred on the 1st Friday of the financial year (or the
previous working day if a Bank Holiday is involved) for the first instalment.
The second instalment will be transferred on the 1 st October or the nearest
working day if this falls on a weekend. To ensure that Luton Borough Council
does not incur a loss of interest on its balances because of the transfer of
funds, an adjustment, calculated by the application of an objective formula,
shown at Appendix A, will be made to the advance. This adjustment should
be offset by the interest earning capacity of individual schools through the
investment of funds which are immediately surplus to requirements.
Schools should monitor their budget plans at regular intervals to ensure that
sufficient funds have been retained centrally to finance payroll costs. If the
total of payroll costs made during the year substantially exceeds the budgeted
amount, schools may be charged interest on the difference between the two
figures. As the precise date of the overspend occurring cannot be accurately
determined the interest will be calculated using the formula in Appendix A.
If, following an investigation, the Finance Manager (Children & Learning)
believes that any overspend of the payroll costs budget is wilful, or results
from mismanagement, the local bank account facility can be withdrawn. In
the event of a dispute the individual case will be reviewed by the Head of
Corporate Finance, or his representative, whose decision will be final.
1.9 Bank Account Withdrawals
Schools should implement the following controls, ensuring that:
(a) there is segregation of duties between the authorisation, preparation
and issue of cheques, so that no-one who may sign a cheque may also
prepare and issue it;
(b) suitably authorised documents exist, initiated or approved by non-
signatories (who need not be governors) in respect of every cheque
(c) restrictions are in place on the signing of cheques so that, as a
minimum requirement, dual signatures must be obtained for each
(d) cheque signatories should be drawn from a panel of up to four
nominated by the Headteacher. This panel should be made up of
employees of the LEA, or employees of the school in the case of
foundation and aided schools. Employees who are involved in the day
to day running of the bank account e.g. the Bursar/Finance Assistant
should not be signatories. Any alterations to this panel should be
immediately notified to the Group Accountant Schools by the
Headteacher. Cheques are only to be signed in manuscript by
members of the approved panel;
(e) controls as in (a, (b) and (d) exist over electronic withdrawals and
electronic transfer of funds, including BACS and direct banking links
such as telephone banking or computer banking, e.g. for payroll
purposes or the investment of surplus funds or other transfers of funds
(f) mandates are held by the school’s bankers detailing the arrangements
in (c), (d) and (e) together with clear instructions that the school’s bank
accounts must not become overdrawn. A copy of the mandate should
be retained at the school.
Please note that control (b) does not prevent a school representative on the
panel of cheque signatories from also being an authorising officer. The key
point is that he or she should not sign a cheque relating to goods or
services for which he or she has also authorised the expenditure. It
does not affect the ability to sign cheques for expenditure authorised by
others or to authorise expenditure where others sign the related cheque.
Many banks offer additional security over payments through the use of
authorisation sheets. These are lists of cheques drawn which are authorised
by the school and filed with the bank who will only cash cheques if the details
agree to the authorisation sheet.
1.10 Cheque Administration
All cheques drawn on the account must be crossed “account payee only” to
avoid the possibility of improper negotiation of the cheques. Cheques must
always be made out with the current date and must not be pre-signed.
Where a cheque written by the school remains unpresented 6 months after
the date of issue, the school will enter it into its local records as reduced
1.11 Payments by Standing Order or Direct Debit
Payment for regular monthly contracts may be made by standing order or
direct debit. Mandates should be signed by two school signatories and a
1.12 Charge Card Withdrawals
Many banks, financial institutions and retail stores produce cards which can
be used for purchasing. In addition, Luton Borough Council has negotiated a
purchase card scheme for schools (details are available from the School
Funding Co-ordinator in the LMS Finance Team). The use of these cards can
be controlled in various ways such as limiting purchases to those relating to a
specific commodity by using the Standard Industry Code. The use of these
cards is not considered to infringe borrowing restrictions as long as the
balance on the account is cleared in full at the end of each month. It should
be possible to arrange for payment by direct debit which would satisfy this
The governing body should authorise any cards to be used having considered
the potential risk over and above that of the purchase order system and
appropriate controls over usage. The following procedures should be helpful
when considering the use of these cards.
The governing body should approve
- a list of authorised users;
- restrictions on the use of the card’s spending limits;
- written instructions on the scope and use of the cards.
- direct debit instructions to ensure account is cleared in full
A member of staff, who is not a card signatory, should be appointed to
control the use of the cards and a signing-out procedure implemented
for the issue of cards to authorised staff.
Documentary proof of any goods purchased with the charge/purchase
card including details of the nature and cost of those goods, should be
returned to the person responsible for recording card transactions as
soon after each purchase as is reasonably practical.
Transactions should be reconciled to statements by someone other
than a card signatory.
1.13 Overdrafts and Borrowing
Schools will not be empowered to incur overdrafts on their accounts or borrow
Schools are not allowed a credit card facility.
No loans from the school’s private funds to the delegated budget, or vice
versa, are permitted.
1.14 Collection of Income
Schools will be required to pay all income related to the School Budget Share
into their bank accounts including
Private Telephone Calls
Schools will be responsible for the collection of their own income. If schools
require a sundry debtor invoice to be raised by Luton Borough Council
appropriate forms can be requested from Exchequer Services.
Exchequer Services will follow normal debt recovery procedures, however, in
the case of non recovery the school will be liable for the loss of income.
Where schools raise their own invoices the Borough Council’s VAT guidelines
should be followed in particular the inclusion of the Borough’s VAT Number
198210747. Invoices raised by schools should be included in their normal
VAT Return. It is advised that invoices must be raised within two months of a
service/goods being provided, to comply with VAT regulations. However it
should be considered prudent to obtain payment in advance, wherever
A separation of duties should exist so that the person responsible for raising
the debtor accounts is not also responsible for receipting income against
Where particular difficulty with the collection of debtors income is
experienced, the advice of the Exchequer Services Department should be
All income must be paid into the local bank account. The money received
must be paid promptly to the bank and held at school for no more than one
working week in accordance with Schools Financial Regulations.
No deductions from official income may be made or personal cheques
cashed. All income received must be entered in detail on the bank paying-in
slip and counterfoil, showing the amount of each transaction, the debt to
which it relates and date of receipt. Income should also be entered on to the
school’s financial system as soon as possible after receipt.
Cheques paid as income into the local bank account that are returned by the
bank unpaid will be entered into the school’s local records as reduced
Official Income must not be temporarily placed in any other bank accounts,
e.g. School Fund, prior to banking in an official Luton Borough Council
1.16 Write Off Procedure
No debt should remain outstanding for more than one year from the date of
invoice, unless there is clear evidence that the debt will be paid. If a debt
remains irrecoverable after one year or if during the year it becomes clear that
the debt will remain unpaid (e.g. debtor has left the country), then a report
must be submitted to the Governing Body for approval to write off the debt.
The report must give clear reasons as to why the debt is irrecoverable and
also state the measures taken to collect the debt. The Governing Body should
supply the Corporate Director of Children & Learning with a copy of such
1.17 Payroll Costs - scheme 1 only
Scheme 1 of the bank account scheme covers all running costs including the
payment of salaries and wages.
Schools will establish payrolls for monthly and, if necessary, weekly paid staff.
Weekly payrolls are normally more expensive to administer than monthly. It
may, therefore, be cost effective for all salaries to be paid through one
Payments to staff should normally be made by bank credit. There should be
a monthly reconciliation of the total of individual payments to the gross
salaries amount due where schools operate their own payrolls.
Schools who employ the services of Luton Borough Exchequer Services or a
payroll bureau should ensure contract payments are checked against the
payroll analysis and paid over by the due date.
Schools should discharge their liability for income tax, national insurance and
pensions within the appropriate deadlines set by the particular agencies.
Schools who do not employ the services of Luton Borough Council Payroll
Services must ensure that details of deductions to the Teachers Pensions
Agency and the accompanying payment are submitted to Exchequer Services
on a monthly basis. Failure to meet deadlines will result in penalties and
interest charges being incurred.
1.18 Bank Reconciliation
Schools should ensure bank statements are received regularly and that
reconciliations are performed at least on a monthly basis. In operating
reconciliation procedures they should also ensure that:
all bank accounts are reconciled to the school’s cash book;
reconciliations are prepared by staff who are not authorised to sign
adjustments arising are dealt with promptly.
unrepresented cheques are cancelled on the school’s financial
software system if they are not cashed within 6 months of the date of
reconciliations are independently reviewed
2.1 Bank Reconciliation
Schools will be required to complete and forward to the Group Accountant
Schools a monthly reconciliation between their own cash records and bank
statements received from their bank or building society by the 15th day of the
Particular attention must be given to documentation and financial returns to
close the Statutory Accounts at the year end in accordance with year end
guidance issued to schools.
Failure to make the necessary returns or to carry out adequate reconciliation
procedures may result in the bank account facility being withdrawn.
Schools will be required to forward copies of the VAT monthly returns to the
VAT Officer, Corporate Finance by the 5th of the following month. These
reports will be used to complete the VAT return to HM Customs & Excise and
repayment of VAT to the Local Bank Account the following month. Failure to
follow these procedures may result in non-repayment of VAT.
2.3 Construction Industry Scheme
Schools are expected to follow the rules relating to the Construction Industry
Scheme (CIS). Schools now have authorisation by the Inland Revenue to
operate the Small Payment Concession. Failure to comply with the
procedures may result in penalties from the Inland Revenue being incurred by
the school. Detailed guidance is obtainable from Janice Beeson, Exchequer
Services, telephone number 547048.
2.4 Income Tax
All payments to individuals including expenses and benefits, must be subject
to Income Tax and National Insurance. If in doubt seek the assistance of your
payroll provider. (In the case of Luton Borough Council, this is the Exchequer
Services Manager). Under no circumstances should any payment be
made to individuals without being subject to Income Tax and National
Insurance and appropriate records maintained.
Where a school operates a payroll other than with Luton Borough Council, it
will be necessary to contact the Exchequer Services Manager to confirm
where returns for statutory deductions are required to be made.
Any dispensations from recording benefits in kind and expenses must be in
writing and are only acceptable on terms agreed with the Inland Revenue.
Where individuals are self employed and supply the appropriate certificates, it
may be necessary to obtain an ‘Inland Revenue questionnaire’. Copies of this
questionnaire can be obtained from the Exchequer Services Manger. This
may result in the payments to these individuals being required to be
processed through a PAYE scheme.
LUTON BOROUGH COUNCIL
Local Management of Schools
LOCAL BANK ACCOUNT SCHEME
SECTION B : ADVICE, GUIDELINES AND ACCOUNTABILITY
1. Responsible Officer
The Head of Corporate Finance is the statutory officer under section 151 of
the Local Government Act 1972 which imposes duties regarding the proper
administration of all the financial affairs of the Council. Ensuring compliance
with the Accounts and Audit Regulations (as amended) is also his/her
In addition the Head of Corporate Finance has a statutory responsibility under
Section 114 of the Local Government Act 1988 relating to reporting
procedures in circumstances where there are illegal losses or unlawful
financial decisions. In undertaking these duties the Head of Corporate
Finance has responsibility to lay down procedures to be followed by
Responsible Officers and ensure Schools have adequate staffing to allow
statutory financial obligations to be carried out.
Governing Bodies must ensure that there are adequate staffing and other
administrative arrangements in place within the school which are sufficient to
provide the required level of control when a local bank account is operated.
In some schools this may mean revising the duties of existing administrative
staff or employing additional staff. A degree of staff training may also be
The Headteacher will be the Responsible Officer at the school who shall
ensure that funds advanced are properly managed, controlled and secured in
accordance with the scheme and procedures. Responsible Officers will need
to inform the Internal Audit Service, Customer Corporate and Services,
promptly of any situation relating to the circumstances outlined above.
2. Lines of Responsibility
The Headteacher as responsible officer must ensure that:
An organisation structure of financial management is maintained with
named budget holders.
Levels of authorisation for expenditure are clearly defined and
Payment documents are approved for payment and certified prior to
raising cheques or making cash payments.
Statutory returns and payments are made within the appropriate
3. Separation of Duties
The separation of duties is a key financial control. The following functions
should be delegated to at least three members of staff involved with the bank
account scheme. One person should not undertake all tasks listed below:
Authorisation of orders.
Authorisation of invoices for payment.
Custody of cheque books - Signature of cheques.
Recording of expenditure.
Computer based systems maintenance.
Further advice on this is available from the Internal Audit Service, Customer
and Corporate Services.
4. Recording of Transactions:
Schools should use software approved by the Finance Manager (Children &
Learning) to record details of transactions under the Scheme.
There must be a clear transaction trail to link each order and invoice to
transactions within the system.
5. Information to be retained by the School:
Cheque stubs and unissued cancelled cheques, stored in cheque
Copy orders filed in numerical order and marked with the cheque
number, date invoice paid and amount paid.
Certified paid invoices together with delivery notes annotated with the
cheque number and filed in cheque number order.
Bank and charge/purchase card statements and bank reconciliation
statements, filed in date order.
Paying-in slips filed in date order.
Data held in detail on data disks with separately stored daily backups
which are recycled each week. In addition it is recommended that a
back up is taken at the end of each accounting period and year end
and that these are securely retained.
For schools having payroll suppliers other than Luton Borough Council
Exchequer Services, all timesheets and payroll records must be kept
for a period of six years.
NOTE: No downloading of data for re-analysis and reloading shall be
allowed. Original data must remain intact.
6. Security & Retention of Documents & Data
Cash balances and unused cheques should be stored in a lockable
container. This will normally be the school safe.
Data Disks from the finance system must be held on separate
computer disks for each financial year. A separately stored,
systematic and regular back-up system of disks and programmes
should be in place
All documentation and transaction details remain the property of Luton
Borough Council and need to be securely stored for the current
financial year and, for Audit and VAT inspection purposes, the previous
Such documents include:
Signed delivery notes
Certified/cancelled paid invoices
Bank reconciliation statements
Paying-in books and cheque listings
Detailed prints or data disks
Contracts for supplies of goods or services
Copies of VAT returns to VAT Officer, Corporate Finance
Copies of CITDS returns to Exchequer Service Department
Payroll records and timesheets (see 5 above)
7. Financial Regulations
This scheme significantly increases the accountability required of a school’s
staff. Greater contact between schools and staff from the Internal Audit
Service, Exchequer Services and Children & Learning Finance is desirable for
the assurance of Governors, Headteachers and the Head of Corporate
The Borough Council’s Financial Regulations authorise the Internal Audit
Service to visit Departments and other establishments, to have access to
records, documents and correspondence and to seek other explanations as
necessary on any matter under examination.
Statutory and Financial Regulations require that Headteachers notify the
Head of Corporate Finance immediately of any financial irregularity or
suspected potential irregularity concerning the resources of the Council. By
notifying the Finance Manager (Children & Learning) and/or Head of the
Internal Audit Service schools will have complied with this requirement.
In addition to the above, access to school manual records and electronic data
must be given to Officers from:
(i) Inland Revenue
(ii) Department of Social Security
(iii) HM Customs and Excise
(iv) External Auditors
(v) Teachers Pension Agency
(vi) Local Government Pension scheme (Bedfordshire County Council)
If schools are approached by individuals purporting to be officers of these
agencies, they should check the identification documents of the individuals
If schools are notified of an inspection from the above officials it would be
helpful if the Headteacher would inform in advance:
The Head of Exchequer Services, Corporate Finance where
inspections from (i), (ii), (iii), (v) and (vi) above will be taking place.
The Internal Audit Service, Customer and Corporate Services where
inspections from (iv) above will be taking place.
Similarly, if Corporate Finance receives prior notification of inspection from
the above officials, schools will be advised accordingly.
8. Taxation Penalties
There are several areas where taxation or other statutory deductions need to
be made from transactions effected through local payments. Failure to
complete the correct deductions can lead to financial penalties being
Where a school incurs a charge through:
Failure to produce documents for inspection;
Failure to account properly for moneys due to the Inland Revenue,
Department of Social Security, HM Customs and Excise, Teachers
Pension Scheme and Local Government pension scheme.
Such a charge will be borne by the school’s delegated budget. It is worth
noting that Government Agencies also have, in the past, imposed penalties
on a range of establishments based on a visit to a single establishment.
The continued avoidance of penalties requires the co-operation of schools in
the prompt and accurate submission of monthly returns and adherence to the
procedures and processes explained in this document and other relevant
publications e.g. VAT Guide.
9. Ordering and Payment for Goods and Services Procedures
Although local purchases may appear to represent a bargain it may be
prudent to contact the Corporate Procurement Manager for his advice as a
yardstick for comparison of locally available purchases and a value for money
check on purchasing options.
In arranging procedures for payment it is advised that a balance between
frequency of payment and beneficial cash flow is maintained. (The Luton
Borough Council standard payments procedure provide for payments to be
made 30 days after the invoice date.)
Schools should be advised to follow the guidelines set out in the Late
Payment of Commercial Debts (Interest) Act 1998, whereby certain
contractors have the ability to charge interest on payments made after 30
days. It should be noted that there is not an exception for schools who ‘close’
during the holidays. Penalties incurred will be borne by the school’s delegated
These guidelines set out the responsibilities of staff who are involved in the
process of ordering and payment for goods and services.
10. Authorisation Procedures
An invoice will only be processed for payment when it is authorised by a
Not Previously Authorised:
The authorised officer must ensure that the invoice has not been previously
certified or paid. This will usually be by reference to the official order which
should be marked as paid as each invoice is passed for payment.
Goods Received or Work Done:
Upon receiving an invoice the authorised officer must be satisfied that the
goods have been received or the work has been completed. Where this is
not the case the officer shall inform the supplier that the invoice will not be
passed for payment until this has been done and if necessary, request a
replacement invoice covering agreed items.
Quality, Quantity and Prices Correct:
Having been satisfied that the goods/services have been received, the
authorised officer shall ensure that the quality and quantity of the goods
ordered/services received are correct and are in accordance with any overall
arrangements agreed by the officer ordering the goods/services or the
Purchasing and Supplies Service. The invoice shall be checked to ensure
that the price agreed upon ordering the goods/services is the same or any
variation has been agreed.
Any alteration to the total amount of an invoice, whether by the
suppliers/contractors or an officer of the Borough Council, shall be signed by
the authorised officer before payment is processed.
Discounts for Prompt Payment:
Invoices attracting a discount for payment shall be given sufficient priority to
ensure that the discount can be taken.
The authorised officer shall examine the invoice and deduct any discounts
that may be allowed if this has not already been done by the supplier. Where
such a discretionary discount is taken the invoice total must be amended to
show the net sum payable to the supplier. VAT must not be amended and is
not subjected to any discount that may be offered in those circumstances.
See VAT guide for further advice.
Budget Provision Available:
The authorised officer shall ensure that there is budget provision for the
goods/services to be ordered.
The calculations and additions of all invoices shall be checked. Where an
error is found the discrepancy shall be referred to the supplier and corrected
before the invoice is passed for payment. When the invoice requires
amendment no alteration shall be made to VAT which can only be amended
by the supplier rendering a supplementary invoice/credit note.
When checks, as above, have been completed, the invoice shall be stamped
with an official certification stamp, an example of which is given at Appendix
B. Schools should contact their School Financial Adviser for advice on
obtaining such a stamp.
The officer(s) who has undertaken the checks should date and initial the
appropriate blocks and the authorised officer should sign within the space
provided - facsimile signatures are not accepted.
Schools must only issue cheques to staff who produce a suppliers receipt.
11. Leasing of Equipment
Many suppliers of photocopiers, computers etc. are offering a leasing facility
to potential customers as part of a comprehensive sales package. Schools
should be wary of such arrangements as the potential for unforeseen future
costs is great.
The only type of lease that schools may enter into is described as an
Operating Lease. The main requirements of this type of lease are:
Ownership must not pass to the Borough Council either during the lease
period or on disposal.
Any renewal at the end of the lease period must be at open market rentals
agreed prior to the end of the leasing period.
The proceeds from the sale of the item which is leased must not accrue
directly or indirectly to the Borough Council.
At the date of the agreement the estimated value of the leased item at the
end of the leasing period must be at least 10% of the initial value.
Any arrangement which does not comply with the above requirements must
be avoided to comply with Government regulations on capital expenditure.
The advice of the Finance Manager (Children & Learning) must be sought if
you are considering entering into a leasing agreement or any other agreement
which involves periodic payments.
Calculation for the loss of interest by the Borough council
1. Beginning of the financial year
D = A x I where D = Deduction
4 A = Advance
I = Interest rate of 1%
below base rate (as of
previous 1st March).
2. During the financial year
D = A x I x (12-M)
4 12 where D = Deduction
A = Advance
I = Interest rate of 1%
below base rate
(as at end of
M = Number of full
completed in the
3. Central Under/Overspends
D = B x I where D = Deduction
4 B = Difference
I = Interest rate of 1%
below base rate
as at previous
INVOICE CERTIFICATION STAMP
INVOICE CONTROL STAMP
Quality, Qty, Prices
Cheque Posting Date
For advice on how to obtain an invoice certification stamp, schools should contact
their School Financial Adviser.