IMPROVING SCHOOL
GOVERNANCE

3.3 Internal controls

Why is this topic important?

Internal controls are the procedures that the school implements to ensure that:

  • monies coming in to the school are being spent as planned
  • the school’s assets are safe
  • council can rely on the accuracy of the financial information it receives.

Government schools are required to have a functioning, effective system of internal controls.

On completing this unit, school councillors should:

  • know about minimum internal controls
  • be able to monitor the adequacy of the school's internal controls.

The following table shows the typical responsibilities of school council and the principal in terms of internal controls.

The principal:

School council:

  • puts in place a system of internal controls
  • ensures the school has and uses a system of internal controls
  • conducts school financial business in line with the system of internal controls
  • adheres to internal controls such as: 
    • appointing one councillor (normally the president or a delegated councillor) to â€‹approve payments and sign cheques;
    • approve an investment policy if appropriate;
    • approve trading operations and ensure issues raised by the auditor are addressed
  • provides financial reports to council
  • considers financial reports

Minimum internal controls

The table below shows what most schools would have as a minimum system of internal controls.

Function Common internal controls

Purchasing goods and services

  • using purchase orders for all purchases other than those using petty cash
  • the principal or their delegate (as approved by school council) approving all orders
  • not allowing the person who receives goods to approve the purchase order
  • getting quotes or tenders for purchases over specified amounts
  • identifying and appropriately removing or managing conflicts of interest
  • applying fair and equitable evaluation of quote and tender submissions

Paying for goods and services

  • not allowing cash payments (except for petty cash) and only allowing payment by cheque, direct debit, BPay or purchasing card
  • requiring 2 signatories (the principal and a delegated councillor) for payments: the business manager must not be a signatory
  • using a voucher system for internet banking to ensure the 2 approved signatories approve payments

Accounting for assets

  • recording all assets valued at $5,000 or greater on an asset register
  • tagging / engraving assets with identification matching that on the asset register
  • conducting a bi-annual stocktake of assets
  • having and following a process to dispose of assets

Receiving money

  • follow the receipting process and receipts checklist available in the publication Internal Controls for Victorian Government Schools
  • storing cash in a safe and not leaving cash at school during term holidays
  • ensuring that all bank accounts and investments:
    • are in council’s name (except for the high yield investment account)
    • have a principal and a delegated councillor as signatories; the business manager must not be a signatory
    • are used for all monies received
    • are never overdrawn

Investing

  • having an investment policy approved by council that is consistent with the Department investment policy

Payroll

  • having procedures which comply with Australian Tax Office, superannuation and WorkCover requirements
  • having a process to authorise hours worked
  • reconciling payment summaries
  • requiring all non-teaching school-based employees to have a current working with children check
  • requiring all employees who handle cash to have a criminal records check
  • all teachers (including CRTs) have a current VIT registration

Recording and reporting

  • keeping up-to-date accounting records that are supported by documentation
  • reconciling bank accounts with bank statements
  • reconciling petty cash
  • reporting to each council meeting about receipts, payments and financial commitments
  • reporting to the finance sub-committee and council about financial performance, including comparing actual revenue and expenditure to budget

Budgeting

  • including in the budget:
    • all revenue sources and funds carried forward from the previous year
    • any committed funds
    • any deficit (to be repaid) or surplus from SRP funding in the previous year
  • approving a budget before the start of the new year
  • regularly reviewing actual financial performance against budget

Trading operations

  • requiring all operations to be approved by council
  • requiring all costs to be covered by revenue
  • completing an annual profit and loss statement

Auditing

  • having the financial statements audited by an external auditor nominated by the Department at least once every four years

School Purchasing Card

  • Department procurement procedures are followed including a school purchase order being prepared for each purchase
  • an “Undertaking by the Card holder” is completed by each user after modifications by the principal
  • monthly purchasing card statement/s to be attached to the relevant reports (CASES21F) and tabled at school council meetings
  • the principal should authorise all cardholders expenditure except their own
  • where the principal is a card holder the school council president should authorise their expenditure.

Monitoring the adequacy of internal controls

Council is itself responsible for some internal controls: for example, it reviews the financial reports and approves policies, and a councillor co-signs payments.  It is also responsible for ensuring that any issues the auditor raises are addressed through changes to internal controls.

Council is also responsible for ensuring that the school maintains and monitors a system of internal controls. It does this by regularly:

  • confirming with the principal that the school has documented internal controls similar to the ones above and covering similar functions
  • discussing with the principal the extent of compliance with the internal controls and any identified instances of non-compliance; and asking for evidence of compliance if councillors feel it is required.

School Council Financial Assurance (SCFA) program

What is the SCFA program?

Under the Education and Training Reform Act 2006, school councils have the duty to ensure that all monies received by schools are expended for proper school purposes. School councils are required to account for all monies under their control and to prepare appropriate financial reports in accordance with the Department’s school financial guidelines.

Under the SCFA program the schools are subjected either to Agreed-upon Procedures (AUP) or topical audits.

In the AUP approach key school business processes are covered, for example:

  • locally raised funds
  • school council governance
  • expenditure and accruals
  • local payroll
  • cash and bank
  • fixed assets.

Schools are selected for the AUP on a random sampling method. This approach is intended to assist the Department to achieve additional assurance over financial internal controls and transactions at the school level for the purposes of consolidation into the Department’s 30 June financial accounts.

The AUP report to schools includes factual findings resulting from each procedure performed. Schools are requested to comment on the factual accuracy of the findings and suggested actions to rectify the findings in the final report.

Findings from individual schools are compiled by the Assurance Branch and assessed for potential impacts at the Departmental level.  A collective assessment for each individual procedure is performed to ensure consistency in risk ratings across all the schools. Based on overall risk ratings each school is categorised in one of the following categories:

  • good
  • acceptable
  • needs improvement
  • unsatisfactory.

In addition to the overall assessment of AUPs, the Assurance Branch performs root cause analysis of the findings based on the nature of the procedure, factual finding and comments from the school on the finding.

A state-wide report on the AUPs is prepared based on the overall results and root cause analysis. This state-wide report is approved by the Department’s Audit and Risk Committee and circulated to the regional offices, Financial Services Division and all the schools in order to ensure that corrective measures are taken to rectify the findings at the Department and school level.

In addition to the AUPs, each year, the Department identifies a number of topic audits to be carried out at schools.  Schools are selected by the Assurance Branch based on multiple risk factors and are notified of their involvement via email.

Examples of topical audits include:

  • review of key financial management controls
  • review of school council governance
  • review of school purchasing cards.

Role of school councils

The school council’s governance role relating to the SCFA program incorporates:

  • making sure that monies coming into the school are being properly expended and authorised
  • ensuring that the school has a functioning and effective system of internal controls
  • helping the development of the school budget
  • monitoring the school’s financial performance against the budget in conjunction with the principal.

The following table shows the typical responsibilities of the principal and the school council with regard to the SCFA program.

The principal

The school council...

  • is familiar and complies with the requirements of the Finance Manual for Victorian Government Schools and other guidelines/instructions relevant to schools’ financial reporting
  • is familiar with the school financial requirements as outlined in the finance module of the Improving School Governance training package for school councils
  • is available on the day of the audit to answer questions and discuss the preliminary findings
  • the school council president attends the audit, if requested by the auditors
  • provides management comments within the specified timeframe to the auditors to be included in the management letter
 
  • organises for the final audit report to be tabled at a school council meeting
  • rectifies any non-compliances reported in the final report
  • reviews past audit/AUP reports of the school and discuss how the non-compliances (if any) have been rectified
  • note the key findings of the SCFA program and apply relevant  improvements to the school’s processes and controls                                 

Resources and links

Title

Link

Internal Controls for Schools

Finance Manual for Victorian Government Schools

Documents can be accessed under the heading School Financial Guidelines at:

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

Making the Partnership Work

http://www.eduweb.vic.gov.au/edulibrary/public/schacc/make_partnerships_work.pdf

School Policy and Advisory Guide – School Council Financial Audits

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

 

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