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					S3.1 - SETTING ANNUAL AND MULTI-YEAR BUDGETS


April 2009




Web: www.fmsis.info
                                              IPF
                                              Web: www.ipf.co.uk
Email: financial.management@dcsf.gsi.gov.uk   Email: info@ipf.co.uk
SUMMARY OF GOOD PRACTICE                                                                         LINKS
Why Is Budget Setting Important?
                                                                                                 For more information about your local
An effective budget is the result of a careful examination of what the likely income and         authorities budget setting time table and
expenditure will be in your school. It needs to be done so that you can weigh up whether         information requirements Contact your
you have enough funds to pay for the activities that you believe are necessary for the           LA.
school to carry out its School Development Plan (SDP). In short, the budget process
ensures the budget can be balanced and helps you to ensure that resource allocation              Click here to go to the Summary on the
matches school priorities.                                                                       School Development Plan (S1.5).

Your Local Authority (LA) may also require certain information from you about the school’s
budget and it will be important to provide the LA with the information it requires in a timely
manner.

There should be annual and multi-year budgets. An annual budget is an absolute
requirement as part of the LA’s own budgeting arrangements. Ideally, these annual
budgets for the school will be prepared in the context of a longer term financial plan
covering at least three years that takes account of issues in the SDP, such as:

   Forecast pupil numbers, likely staffing profile etc.
   Longer-term improvement and development aspirations
                                                                                         For more information on future funding
In this way the longer term financial plan or budget can help to demonstrate the Click Here (R90). This will take you to the
sustainability of the SDP. From 2006, every school receives a guaranteed minimum School funding settlement 2008-11.
increase in funding per pupil each year help to make multi-year budgeting more accurate.

Key Benefits of Setting a Realistic Budget
                                                                                              For more help in making the best use of
Key benefits of setting a realistic budget that directs limited school resources in line with the resources available to your school
                                                                                              Click Here (R103). This will take you to a
school priorities are:

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SUMMARY OF GOOD PRACTICE                                                                       LINKS
                                                                                               2006 DCSF Research Report
   Financial – A good budget lowers the risk of financial crisis in the year, hence, the      Investigating the Effective use of
    school is more likely to be able to fund its planned activities and less likely to spend   Resources in Secondary Schools. While
    valuable teaching and management time responding to funding shortages                      the main focus is secondary, many of the
   Educational – The school needs to have the right resources to support the changing         findings and conclusions are also readily
    needs of the curriculum and the mix of pupils (e.g. inclusion of special educational       applicable to other types of school.
    needs pupils). A good budget will allocate resources to these areas of need or
    development and therefore helps the school to achieve its aims
   Motivational – If a school is able to concentrate on its primary purpose i.e. educating
    the children rather than responding to financial problems that result from poor budget
    planning, the motivation of the pupils and staff is likely to be higher
   Image – A school that is managed well financially is likely to have a better external
    image than a school with budgetary problems. Where there is competition for
    resources (pupils, staff and sponsorship etc) a school with a positive image may fare
    better

Summary of Good Practice

The School has a financial plan or budget covering the same period as the SDP that
reflects all the growth and development issues in the SDP and demonstrates that, in
financial terms at least, it is sustainable. This three year budget will cover all financial
issues but in broader terms than is necessary for the annual budget (e.g. categories of
teaching salary costs rather than a fully costed staffing plan). In terms of timing, the multi-
year budget should be prepared at the same time as, or slightly after, the SDP and Where additional income needs to be
updated as frequently as the SDP.                                                               raised or new funding needs to be
                                                                                                accessed it may be useful to go to
In terms of the annual budget, the school has to set this before the year starts (i.e. by 1st Summary S4.2 Click Here which covers
April for the financial year that starts on that date). However, because a key component of school income sources.
the budget, i.e. income from the LA, is not known until the Local Authority sets its overall
budget in March each year the time for detailed budget work is limited. Therefore the first

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SUMMARY OF GOOD PRACTICE                                                                       LINKS
key to effective budget setting is to start the process early.

For most of the budget setting process, whether annual or three year, the figures used will
be best estimates. A good budget is, therefore, only possible if the estimates of likely
income and required expenditure are realistic. On materiality grounds the three most
important estimates are:

   The LA Schools Budget (which must include all the Dedicated Schools Grant received
    but can be added to from the LA’s own resources) and the LSC Post 16 Budget (for
    schools with 6th forms). These typically account for over 90% of a school’s annual
    income. Since your LA and the LSC both use pupil number based formula this
    estimate is best based on the January PLASC return for the annual budget. The SDP
    will have projections of pupil numbers beyond that period.
   Staffing costs in schools typically account for 75% to 80% of the overall school
    expenditure. Again, once the PLASC return is complete in January staffing
    requirements can be estimated and known/planned changes can be entered on a staff
    salary calculator for the annual budget. The staffing implications of changes in pupil
    numbers should also be factored in for future periods.
   Premises and ICT typically account for a further 10% to 12%. The School’s ICT and
    Premises Development Plans provide the basis for these estimates, as they are
    costed and prioritised and used to set the provisional budget figures in January for the
    annual budget. Again, changes included within the SDP will need to be factored in for
    future periods.

The full step by step process is:

   Step 1 Estimate Income - Based on PLASC, plus estimates for Standards Funds,
    Lettings, Community and Extended School activities Income
   Step 2 Estimate Staff Costs – Based on a staff salary calculator taking account of


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SUMMARY OF GOOD PRACTICE                                                                           LINKS
  known retirements, responsibility allowances etc.
 Step 3 Estimate Operational Expenditure – Based on known cost trends for utilities,
  insurances, supplies and Extended School activities etc.
 Step 4 Allocate Curriculum Budgets to Departments – Use a transparent formula
  to equitably allocate funds in line with need and school priorities
 Step 5 Identify ICT Developments – Start with priority 1 items from the ICT
  Development Plan. If funds allow move on to priority 2 items and so on
 Step 6 Identify Premises Developments – Start with priority 1 items from the
  Premises Development Plan. If funds allow move on to priority 2 items and so on
 Step 7 Plan the Use Of Standards Funds – Where the items have not been picked
  up in steps 5 and 6 above
 Step 8 Verify Planned Levels of Unspent Balances - Ensure the resulting annual                   For more help on Consistent Financial
  surplus or deficit is in line with plans to either recover from an overall deficit position or   Reporting (CFR) Click Here (R16). This
  build up unspent balances to fund future development plans.                                      will take you to the DCSF CFR
                                                                                                   Framework site which gives
                                                                                                   comprehensive guidance on:
For more guidance on dealing with a range of specific issues that affect school budgets,
see the section below.                                                                              The current CFR
                                                                                                    Plans for future CFR developments
Presentation of the Budget and the Expected Cash Flows                                              The current Schools Finance Pack &
                                                                                                       the Standards Fund.
As stated above the annual budget needs to be approved by the Governing Body before
the start of the financial year. The presentation of the budget needs therefore to be clear, For information on funding per pupil
and it should aid transparency. Since Ofsted requires the financial outturn statements to Click Here, (R124).
be in DCSF Consistent Financial Reporting (CFR) format it makes sense for the budget to
also be set in this format.                                                                  For guidance on Teachers’ Pay and
                                                                                             Conditions Click Here. (R128)
Again for consistency, it is good practice for the three year budget to be in the same
format as the annual budget as this helps to make the linkage between the plans more For help with the presentation of your
apparent. Approval processes for this budget should be the same as that for the SDP.   cash flow forecasts Click Here (R23A).

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SUMMARY OF GOOD PRACTICE                                                                         LINKS
                                                                                                 This will take you to a cash flow pro forma
To aid in-year monitoring it is also helpful if the annual budget is profiled over the year. A   prepared for this Toolkit. It allows you to
budget profile presents the likely spending pattern over the 12 months of the year in            record your initial forecast and then at
recognition of the fact that not all expenditure is likely to be incurred evenly over the 12     monthly intervals record actual cash flows
months. This process will normally also enable schools that have their own bank accounts         in comparison to the plan.
to profile the expected flow of cash into and out of its bank account so that it can be sure
it will have the cash it requires to pay its likely outgoings in the year and to anticipate
borrowing needs or cash investment opportunities.

Dealing with specific issues
                                                                                                 For more information on falling school
In developing their School Development Plan Governors and the Senior Management                  rolls Click Here (R93).
team have to deal with a wide range of issues from legislative/regulatory change to more
demographic or physical local changes. Help with some of the more specific issues is set
out below:
                                                                                           For more help on school improvement
 Falling school rolls - Many areas are facing a serious decline in their primary school   Click Here (R92). This will take you to the
   population. Local authorities and primary schools faced with falling rolls need to take National Audit Office publication “Guide
   action to ensure they are equipped to deliver the best possible quality of education with
                                                                                           for school Governors on improving school
   the resources available to them.                                                        performance” 2006. It is in three parts
                                                                                           dealing with:
   School Improvement - the perpetually high profile of education in general and  Identifying poor performance and
    academic attainment in particular (evidenced by the regular publication of performance     supporting schools at risk
    league tables) means that school improvement should be on the agenda of every  Turning around poorly performing
    school.                                                                                    schools
                                                                                            Sustaining a school after recovery.

                                                                                                 For more information on funding repairs
                                                                                                 and new build Click Here (R99). This will
                                                                                                 take you to the relevant page on the

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SUMMARY OF GOOD PRACTICE                                                                LINKS
                                                                                        Teachernet website which covers useful
                                                                                        issues such as bidding for funds and
   Funding repairs and new build – There is almost always far more demand for repair sources of capital funding.
    work and new build than the funding available, so key decisions have to be taken on
    priorities.                                                                         For more information on salary sacrifice
                                                                                        Click Here (R100). This will take you to
                                                                                        the DCSF Local Authority web page
                                                                                        summarising the types of salary sacrifice
                                                                                        that are possible and providing links for
                                                                                        more detailed information.

   Salary sacrifice - Changes to the School Teachers' Pay and Conditions document          For more information on Energy
    mean that teachers can now participate in salary sacrifice arrangements offered by      efficiency Click Here (R102). This will
    employers, adding more complexity to budgeting for pay.                                 take you to the relevant Carbon Trust
                                                                                            web page summarising the types of
                                                                                            support, including grants that might be
                                                                                            available and giving contact details for the
                                                                                            Carbon Trust.
   Energy efficiency advice - The DCSF, as part of its commitment to sustainable
    schools, has been working with the Carbon Trust in providing energy efficiency advice
    to schools.




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