IMPROVING SCHOOL
GOVERNANCE

3.1 Budgeting

Why is this topic important?

The budget is the school council’s main financial management tool. It is the ‘money plan’ that shows how the school will use its financial resources to support the goals and priorities in the school strategic plan. Proper and adequate oversight of the school's finances, in line with Departmental guidelines, is one of council’s most important responsibilities.

On completing this unit, school councillors should understand the budget process and timeline and be able to:

  • review program budget submissions against the school strategic plan
  • recommend, approve and revise the school's program budget
  • monitor the performance of programs against the budget.

Programs include:

  • the various curriculum programs (such as Art, Science and Mathematics)
  • administrative programs (such as staff development and school maintenance)
  • trading activities (such as the canteen)
  • specific purpose programs (such as the library).

The principal develops the workforce plan and salary budget (using the Department’s salary structures for teaching and administrative staff). Council is not involved in preparing this budget.

The following table shows the typical budgeting responsibilities of the principal and school council.

The principal:

The school council:

  • develops the budget timeline
  • approves the budget timeline
  • develops program budgets with staff, and salary and revenue budgets
  • reviews budget submissions and program priority list (done by the finance sub-committee if council has one)
  • evaluates program outcomes, prepares and prioritises budget submissions
  • reviews and approves the budget
  • communicates the budget to staff

 

 

Most schools have finance sub-committees and this unit is written as if your school has one. If it doesn't, council will undertake the tasks described.

Budget process and timeline

At the outset of the budget process, the principal and finance sub-committee develop the budget timeline. The diagram below shows an indicative timeline (actual timings depend on the school).

Budget Process and Timeline


The principal, business manager and program leaders develop program budgets using estimates of revenue derived from:

  • student funding received through the Student Resource Package (SRP)
  • other government funding or special purpose grants such as Commonwealth National Partnerships funding
  • locally raised funds
  • funds left over from the current and previous years.

SRP funding is the major source of funding for schools and is provided by the Department. It is calculated using complex formulas which take into account the number of students at each year of study and includes equity funding and other funding for special initiatives.

The funding is provided in two parts: credit and cash. Broadly speaking, the credit part of the funding (which accounts for approximately 90% of the SRP) is money allocated to the school but held by the Department and used to pay school salaries and professional development costs.

The remainder, which council oversees, is given as cash and held in the school’s bank accounts. It funds school running costs (such as electricity and phones) and the non-salary expenditure in program budgets approved by council.

If in any year the school overspends its SRP credit funding, it must repay the overspent amount in the next year. Its budget must allow for this.

If the school wants to put money aside for large purchases (such as equipment) in a future year, it will have less to budget for programs in the coming year.

Council discusses priorities for the coming year with the principal and gives advice about these to the finance sub-committee. The principal and school staff consider and determine priority programs for the following year and prepare budget submissions for each program. They also rank programs by priority; that is, in order of their importance for funding. 

The finance sub-committee informs its review of the budget submissions with the priorities advised by council.

Reviewing budget submissions

Council is encouraged to have a finance sub-committee to review budget submissions in detail on behalf of council. The finance sub-committee checks that each submission provides enough information for it to make a decision to recommend it for funding or not. Each submission should include:

  • an evaluation of the program’s current and previous outcomes
  • the rationale for the program (how it meets the school’s strategic priorities)
  • the program’s estimated revenue and expenditure, with expenditure split between the essential, unavoidable costs of the program and the non-essential costs (for extras which will enhance the program, in line with the school’s strategic priorities).

Guided by the strategic priorities decided by council, the finance sub-committee should ask:

  • what did the last evaluation of the program reveal?
  • how well will the program address the school’s strategic priorities?
  • does the allocation of funding in the submissions reflect key strategic priorities?
  • if the program is not explicitly part of the strategic plan, does it have merit?

The finance sub-committee discusses expenditure estimates in the budget submissions with the business manager or principal to determine whether these estimates are reasonable. The business manager will have reviewed all submissions but councillors bring their own knowledge and perspectives to the task and, for good governance, must satisfy themselves that the proposals are sound and the estimates are reasonable.

 

Economy and efficiency

When considering expenditure it is important to consider value for money (VFM).

In basic terms VFM means “getting a good deal from school expenditure”. It is based not only on the minimum purchase price (economy) but also on the maximum, efficiency and effectiveness of a purchase.

This means finding solutions that achieve the best mix of quality and effectiveness for the least outlay.

This may not always mean choosing the immediately cheapest option since, for instance, it may be more cost effective to buy a more reliable service or a better quality asset with lower maintenance costs and a longer operating life.

 

The Three E's
 

VFM Concept

Definition

Example

        Economy

Careful use of resources to minimise expense, time or effort

Was photocopy paper of the quality specified obtained at the lowest possible price?

        Efficiency

Delivering the same level of service for minimum input of cost, time or effort; or obtaining maximum benefit from a given level of input

Were canteen costs reduced while improving the nutritional content of food provided?

       Effectiveness

Delivering a successful outcome and meeting objectives as fully as possible

Has the literacy program improved NAPLAN results?

A strategic approach to economy and efficiency

Develop a value for money culture

This means getting everyone to accept that value for money is not the responsibility of the school business manager, but rather it is a shared responsibility across the school. If strong leadership is provided by the principal, senior leaders and the school council, this will significantly enhance the importance of value for money in the wider school community.

Skills and capacity

Ensuring value for money requires a range of skills at different stages of the procurement process, including:

  • product knowledge: for example, knowledge of the functionality required from ICT equipment and the requirements of specific groups of pupils.
  • purchasing options: for example, the ability to carry out a best value analysis on the relative merits of buying or leasing a school minibus.
  • negotiating/bargaining skills: for example, the ability to achieve reductions in the price of a service, without reducing its quality.
  • understanding contract law: for example, when considering the lease of a photocopier.
  • evaluative skills: for example, when assessing if the outputs from a purchase represents good value for money.
  • conflict of interest knowledge: for example, identifying conflicts of interest and articulating concerns when considering school cleaning contracts.

If these skills are not present, the school should invest in developing them and seek appropriate advice whilst this development is occurring.

 

Recommending, approving and revising the budget

The finance sub-committee, after discussion with the principal, determines:

  • the final prioritised list of programs to be funded, in light of available funding and if appropriate by changing the priority order of submissions
  • how the funded programs will be evaluated when the budget for the following year is developed.

The finance sub-committee then recommends the final prioritised list of submissions to council as the school's program budget. Council reviews and approves the budget and the principal communicates the budget to school staff.

There may be more than one version of the budget during the year. The finance sub-committee recommends changes to the budget, in line with the priority list, if:

  • SRP funding increases or decreases (for example, the school may need to rely on its cash budget to fund salaries if the credit budget is not sufficient)
  • funds left over from the last financial year are less (or more) than expected
  • for another reason revenue increases or decreases.
  • estimates of expenditure change.

Resources and links
 

Title

Link

Finance Manual for Victorian Government Schools

A Guide to Budget Management in Schools

Documents can be accessed under the heading School Financial Guidelines:

http://www.education.vic.gov.au/school/principals/finance/pages/default.aspx

 

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