IMPROVING SCHOOL
GOVERNANCE

3.2 Financial reports

Why is this topic important?

Council is responsible for overseeing the school’s financial performance and for making sure that monies coming into the school are being spent as planned.

Council and its finance sub-committee monitor the school’s financial performance; the principal manages the school’s finances.

On completing this unit school councillors should understand the main financial reports and be able to:

  • monitor the school's financial position, including actual revenue and expenditure against budget
  • consider and decide on actions arising from the reports.

The following table shows the typical responsibilities of school council and the principal in terms of financial reports.

The principal: School council:
  • prepares financial reports
 
  • explains financial reports to the finance sub-committee and council, and recommends action as appropriate
  • monitors revenue and expenditure against the budget
  • implements council’s decision
  • approves action to address issues arising from the financial reports

 

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

The main financial reports

The Department provides CASES21 software to government schools to support their administration, finance and central reporting. The software generates the reports in the following table. The principal would typically provide these reports to the finance sub-committee and council would usually see only the operating statement and balance sheet. Note that the investment register and cash flow forecast report are not generated through CASES21.

 

Report

Details

Balance sheet (GL21161)

Lists the value of the school’s assets and liabilities at a point in time

Operating statement (detail) (GL21150)

Compares actual to budgeted revenue and expenditure by category for the whole school for the month and year-to-date; and calculates variances (differences between actual and budget)

Cash Receipts Report (GL21002)

Lists receipts for the period

Cash Payments Report (GL21003)

Lists all payments for the period

Cancelled receipts (GL21004)

Lists cancelled receipts

Cancelled payments (GL21005) Lists cancelled payments
Journal Report (GL21006) Lists transactions entered into the finance system; that is, it shows some of the data on which other reports are based
Cash flow statement (GL21151) Shows the inflow and outflow of cash, and the closing balance, for each of the school’s bank accounts
Cash flow forecast
(if applicable)
Shows estimated cash balances for coming months based on expected cash in and out
Bank Account Movements Details (GL21152) Shows every recorded transaction relating to the Bank Accounts
Annual sub-program budget (GL21157) Compares year-to-date actual revenue and expenditure to the full year budget, and shows last year’s actual and budgeted revenue and expenditure, for individual sub-programs. Calculates the percentage of the annual budget earned and spent to date
Invoices awaiting payment (CR21118) Lists invoices received but not yet paid
Family credit notes (DF21309) Provides details of any credit notes or reversed charges which have been issued for families
Sundry debtor credit notes (DR21309) Gives details of credit notes generated for specified debtors
Bank reconciliation (copies) Matches the bank statement to the school’s banking records and shows and explains any variances
Purchasing card statements (if the school has a facility) Lists all transactions on any purchasing card attached to the school 
School Budget Management Report SRP-First page only Calculates the likely surplus or deficit in SRP funding at the end of the year
Investment register Where the school has investments other than the high yield investment account, shows amounts invested, terms of investment, types of investment, where invested and interest rates to be earned

 

Note: that the investment register, cash flow forecast report, Purchasing Card Statements and School Budget Management Report are not generated through CASES21.

Victorian government schools use accrual accounting. This means that the operating statement, annual program budget report and annual sub-program budget reports show revenue when it is earned and costs when they are incurred. This will usually be before the school receives monies or pays bills. This is normal accounting practice.

A sample of each of the CASES21 reports is attached to this unit, with notes to help councillors understand the reports.

The following table shows some other reports to which the finance sub-committee may refer.

 

Report

Details

YTD additions –
accounting (AR21122S)

Shows new assets (such as equipment)

YTD disposals –
accounting (AR21131S)
Shows assets sold or of no value
Cash payments greater or equal to $1,000 (GL21007) Lists payments made which were greater than or equal to $1,000
Sundry Debtor trial
balance (DR21101)
Shows debtors (those who owe the school money) and the age of the amount owed
Family trial balance
(DF21102)
Shows debtors (those who owe the school money) and the age of the amount owed by families
Creditors trial balance (CR21101) Shows creditors (those to whom the school owes money) and the age of amounts owed

 

Reviewing reports and taking action

Generally speaking, the finance sub-committee at each meeting receives copies of the main reports from the principal or business manager with advice about any issues that require council action.  It discusses the issues with the principal or business manager to achieve a shared understanding and makes recommendations to council. For example:

  • if expenditure on a program is over budget, the sub-committee might recommend that non-essential expenditure on the program stops
  • if the school is underspending its total budget, the sub-committee might recommend that council fund some programs that were not initially approved for funding, in line with the priority list.

Council makes decisions which are then implemented by the principal.

People often don't understand financial reports but don't feel confident to say so.  For good governance, councillors must understand what the reports are saying and ask questions, especially if they don't have a financial background. The principal or business manager will help clarify any aspect of the reports, using language and concepts understandable to councillors.

The following describes typical review and action steps on each main report.

Operating statement

When reviewing the operating statement, the finance sub-committee and council compare the actual financial result (the net operating surplus or deficit) to the budget for the month and year-to-date. This shows the extent to which the school has met its revenue and expenditure budgets.

If there are significant variations, or if the financial result raises other issues, the principal may advise the finance sub-committee to take action, and how the action proposed would affect the school’s operations and implementation of the strategic plan.

The finance sub-committee discusses proposed actions with the principal to achieve a shared understanding, reviews the priority list of programs put together at budget time if necessary, and makes a recommendation to council. Council decides on the action to be taken and the principal implements the action.

Annual program and sub-program budget

The finance sub-committee reviews these reports in the same way as it does the operating statement, by:

  • noting variations between actual and budgeted amounts
  • receiving advice from the principal about reasons for variations and required actions (for example, if program expenditure is over budget, the principal might advise that non-essential expenditure on the program stops; and if a program is underspent, that finance sub-committee looks again at programs that were not initially recommended for funding with a view to funding some, in line with the priority list)
  • confirming that the principal’s advice is in line with the priority list of budget submissions and the school’s overall financial results.

As with the review of the operating statement, council decides on the action to be taken.

Bank reconciliation

The bank reconciliation shows cheques issued but not yet presented (which will be in the school’s records but not in the bank’s) and monies received by the school but not yet banked. The finance sub-committee:

  • makes sure that it receives the bank reconciliation regularly
  • asks questions to understand the reconciliation and about any issues arising.

Journal 

While the finance sub-committee is not expected to understand all the transactions in the journal report, it is provided in the spirit of full transparency; and the finance sub-committee might on occasions ask questions about a transaction in the report.

Cash flow statement

The finance sub-committee reviews the cash flow statement and receives advice from the principal and business manager, to monitor whether the school has enough cash to pay its liabilities as they fall due.

Sundry debtor trial balance and family trial balance

The finance sub-committee uses these reports to check how long the school has been waiting for payment of amounts owed to it and to discuss action with the principal or business manager.

Sundry debtor credit notes and family credit notes

The finance sub-committee uses these reports as an internal control, to verify that credit note transactions are valid.

Invoices awaiting payment

The finance sub-committee uses this report when approving invoices for payment.

Balance sheet

When reviewing the balance sheet, the finance sub-committee and council:

  • ask questions about any items councillors do not understand and about any items which have changed greatly since the previous report
  • monitor whether current assets are greater than current liabilities (indicating that the school should be able to pay its debts)
  • monitor whether there is enough money in the official bank account to pay debts (these are in the accounts payable control account)
  • discuss debtor amounts in the accounts receivable control account with the principal to monitor whether the school is collecting monies owed to it
  • monitor whether there is too much money in the official account, so that surplus funds can be invested. The cash flow statement also gives this information.

Council makes sure that the school is solvent. Like every organisation, it must be able to pay its debts as they fall due.

Investment register

The investment register is not a CASES21 report, but will be prepared for the finance sub-committee to show:

  • the type or types of investment
  • the amounts invested
  • the terms of the investments (including interest rates) and maturity dates
  • where amounts are invested (with which financial institutions).

The finance sub-committee uses this register to monitor compliance with the school’s approved investment policy and to monitor the funds available to meet future payments.

Cancelled payments and cancelled receipts

The finance sub-committee uses these reports as an internal control, to verify that cancelled transactions are valid.

Resources and links 
 

Title

Link

Operating Statement: A practical example and explanation

Financial Reporting for Schools

Documents can be accessed under the heading CASES21 Finance Publications at

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

 

Learning Activity

 

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