S3.1 - SETTING ANNUAL AND MULTI-YEAR BUDGETS
April 2008
IPF
Web: www.fmsis.info Email: financial.management@dcsf.gov.uk Web: www.ipf.co.uk Email: info@ipf.co.uk
SUMMARY OF GOOD PRACTICE Why Is Budget Setting Important? An effective budget is the result of a careful examination of what the likely income and expenditure will be in your school. It needs to be done so that you can weigh up whether you have enough funds to pay for the activities that you believe are necessary for the 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 resource allocation matches school priorities. 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.
LINKS For more information about your local authorities budget setting time table and information requirements Contact your LA. Click here to go to the Summary on the School Development Plan (S1.5).
For more help with annual budget setting click here (R22). This will take you to a short Guide to Preparing the Annual Budget There should be annual and multi-year budgets. An annual budget is an absolute requirement as prepared specifically for this tool kit. The part of the LA’s own budgeting arrangements. Ideally these annual budgets for the school will be guide: 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: Explains what an annual budget is Discusses how to plan the budget Forecast pupil numbers, likely staffing profile etc. Shows how the budget can be presented Longer-term improvement and development aspirations Stresses why budget profiling is important Includes a step by step case study In this way the longer term financial plan or budget can help to demonstrate the sustainability of showing how a school can build up a the SDP. From 2006, every school will receive a guaranteed minimum increase in funding per budget pupil each year help to make multi-year budgeting more accurate. For more information on future funding click here (R90) . This will take you to the School funding settlement 2008-11 The Benefits of Setting a Realistic Budget Or click here (R98) which takes you to the The benefits of setting a realistic budget that directs limited school resources in line with school Teachernet web page for the school funding review 2006/7. priorities can be categorised into four. They are: Financial – A good budget lowers the risk of financial crisis in the year, hence, the school is more likely to be able to fund its planned activities and less likely to spend valuable teaching . and management time responding to funding shortages
S 3.1 Setting budget 30-3-07
2
SUMMARY OF GOOD PRACTICE Educational – The school needs to have the right resources to support the changing needs of the curriculum and the mix of pupils (e.g. inclusion of special educational needs pupils). A good budget will allocate resources to these areas of need or development and therefore helps the school 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 fair 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 (eg 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 updated as frequently as the SDP. In terms of the annual budget, the school has to set this before the year starts (ie by 1st April for the financial year that starts on that date). However, because a key component of 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 key to effective budget setting is to start the process early.
LINKS For more help in making the best use of the resources available to your school click here (R103). This will take you to a 2006 DCSF Research Report Investigating the Effective use of Resources in Secondary Schools. While the main focus is secondary, many of the findings and conclusions are also readily applicable to other types of school.
Where additional income needs to be raised or new funding needs to be accessed it may be useful to go to Summary S 4.2 of this tool kit, which covers school income sources.
For guidance on Extended School activities For most of the budget setting process, whether annual or three year, the figures used will be best click here (R89)This will take you to the estimates. A good budget is, therefore, only possible if the estimates of likely income and required DCSF guide “Planning and funding extended schools: a guide for schools, local authorities expenditure are realistic. On materiality grounds the three most important estimates are: and their partner organisations”. 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
S 3.1 Setting budget 30-3-07
3
SUMMARY OF GOOD PRACTICE forms). These typically account for over 90% of a school’s annual income. Since your LEA 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:
LINKS For more help on Consistent Financial Reporting (CFR) click here (R16). This will take you to the DCSF CFR Framework site which gives comprehensive guidance on: The current CFR Plans for future CFR developments The current Schools Finance Pack and Guidance on the Standards Fund. For more help with your multi-year budget click here (R72). This will take you a list of the top 10 hints for creating successful multiyear budgets.
For more help with your multi-year budget Step 1 Estimate Income - Based on PLASC, plus estimates for Standards Funds, Lettings, Click Here (R143). This will take you 3 year forecasting tool. Community and Extended School activities Income Step 2 Estimate Staff Costs – Based on a staff salary calculator taking account of known retirements, responsibility allowances etc. Step 3 Estimate Operational Expenditure – Based on known cost trends for utilities, insurances, supplies and Extended School activities etc. For help with the presentation of your cash Step 4 Allocate Curriculum Budgets to Departments – Use a transparent formula to flow forecasts click here (R23). This will take you to a cash flow pro forma prepared for this equitably allocate funds in line with need and school priorities Step 5 Identify ICT Developments – Start with priority 1 items from the ICT Development tool kit. It allows you to record your initial forecast and then at monthly intervals record 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 actual cash flows in comparison to the plan. 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 surplus or deficit is in line with plans to either recover from an overall deficit position or build up unspent
S 3.1 Setting budget 30-3-07
4
SUMMARY OF GOOD PRACTICE balances to fund future development plans For more guidance on dealing with a range of specific issues that affect school budgets, see the section below. Presentation of the Budget and the Expected Cash Flows
LINKS
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 and it should aid For more help on school improvement click transparency. Since Ofsted requires the financial out turn statements to be in DCSF Consistent here (R92). This will take you to the National Financial Reporting (CFR) format it makes sense for the budget to also be set in this format. Audit Office publication “Guide for school governors on improving school performance” Again for consistency, it is good practice for the three year budget to be in the same format as the 2006. It is in three parts dealing with: annual budget as this helps to make the linkage between the plans more apparent. Approval Identifying poor performance and processes for this budget should be the same as that for the SDP. supporting schools at risk Turning around poorly performing schools To aid in-year monitoring it is also helpful if the annual budget is profiled over the year. A budget Sustaining a school after recovery profile presents the likely spending pattern over the 12 months of the year in recognition of the fact that not all expenditure is likely to be incurred evenly over the 12 months. This process will For more information on funding repairs normally also enable schools that have their own bank accounts to profile the expected flow of and new build click here (R99). This will take cash into and out of its bank account so that it can be sure it will have the cash it requires to pay you to the relevant page on the Teachernet its likely outgoings in the year and to anticipate borrowing needs or cash investment opportunities. website which covers useful issues such as bidding for funds and sources of capital funding. Dealing with specific issues For more information on salary sacrifice click here (R100). This will take you to the In developing their School Development Plan governors and the senior management team have to DCSF local authority web page summarising deal with a wide range of issues from legislative/regulatory change to more demographic or the types of salary sacrifice that are possible physical local changes. Help with some of the more specific issues is set out below: and providing links for more detailed information. Falling school rolls - Many areas are facing a serious decline in their primary school population. Local authorities and primary schools faced with falling rolls need to take action to For more information on performance ensure they are equipped to deliver the best possible quality of education with the resources related pay grants click here (R101). This
S 3.1 Setting budget 30-3-07
5
SUMMARY OF GOOD PRACTICE available to them.
LINKS will take you to the relevant Teachernet web page summarising the types of grant that School Improvement - the perpetually high profile of education in general and academic have been provided. attainment in particular (evidenced by regular publication of performance league tables) mean For more information on Energy efficiency click here (R102). This will take you to the that school improvement should be on the agenda of every school. relevant DCSF local authority web page summarising the types of support including grants that might be available and giving contact details for the Carbon Trust.
Funding repairs and new build – There is almost always far more demand for repair work and new build than the funding available so key decisions have to be taken on priorities.
Salary sacrifice - Recent changes to the School Teachers' pay and Conditions document mean that teachers can now participate in salary sacrifice arrangements offered by employers adding more complexity to budgeting for pay.
Performance related pay grants - One of the main principles underlying reforms launched by the 1998 Green Paper, Teachers: Meeting the Challenge of Change, was to provide better
S 3.1 Setting budget 30-3-07
6
SUMMARY OF GOOD PRACTICE rewards for teachers, including those who decide to concentrate on the classroom rather than take up management roles. The reforms included a new staffing framework and were supported by a number of different grants to help bed them in. Energy efficiency advice - The DCSF, as part of its sustainable schools year of action, is working with the Carbon Trust in providing energy efficiency advice to schools.
LINKS
S 3.1 Setting budget 30-3-07
7