IMPROVING SCHOOL
GOVERNANCE

3.3 Internal controls

Why is this topic important?

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

  • funds coming in to the school are being spent as planned

  • decision making for procurement expenditure can be justified

  • 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 approve payments and sign cheques

    • approving an investment policy if appropriate

    • approving trading operations and ensuring issues raised by the auditor are addressed

    • approving the purchase of goods and services

  • 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 and services to approve the purchase order

  • getting quotes or tenders for purchases over specified amounts as per the Schools Procurement Policy and Procedures

  • identifying and appropriately removing or managing conflicts of interest

  • applying fair and equitable evaluation of quote and tender submissions

  • clearly documenting the procurement process and justifying and obtaining appropriate approval for the selection of a supplier

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 two 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 two 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

  • following 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 funds received

    • are never overdrawn

Investing

  • having an investment policy approved by council that is consistent with the Department’s 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, which is now distributed through eduPay

  • requiring all non-teaching school-based employees to have a current working with children check – the hiring process with eduPay cannot be completed unless this compliance is met

  • requiring all employees who handle cash to have a criminal records check

  • ensuring all teachers, including casual relief teachers (CRTs), have a current Victorian Institute of teaching (VIT) registration - the hiring process with eduPay cannot be completed unless compliance is met

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 the 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 purpose

  • 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 (CASES21) and tabled at school council meetings

  • the principal should authorise all cardholders expenditures 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. The school council is also responsible for ensuring that any issues the auditor raises are addressed through changes to internal controls.

Council is also responsible for ensuring 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.

Resources and links

Title

Link

Internal Controls for Schools

Finance Manual for Victorian Government Schools

Documents are available under the heading School Financial Guidelines at:

www.education.vic.gov.au/school/teachers/management/finance/Pages/guidelines.aspx

Making the Partnership Work

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

School Procurement Policy and Procedure Portal

edugate.eduweb.vic.gov.au/sites/i/pages/production.aspx#/app/content/2089/support_and_service_(schools)%252Fprocurement,_funding_and_travel%252Fprocurement%252Fprocurement_procedure

 

School Council Financial Assurance (SCFA) program

What is the SCFA program?

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

Under the SCFA program, the Department’s Assurance Branch conducts Agreed-upon Procedures (AUPs) and Schools Internal Audits (SIAs). The Assurance Branch also conducts ad-hoc audits at Victorian government schools at the request of schools, Department and/or external bodies.

The Department engages external auditors to perform AUPs in schools. The AUPs are intended to assess and improve the financial internal controls at schools.

Schools are selected for the AUPs using a random sampling method after applying statistical methods to determine the sample size.

The business cycles and/or processes generally covered under the AUPs include:

  • locally raised funds

  • expenses

  • school council employee payroll

  • cash and bank

  • school council governance.

Schools are notified of the selection and the fieldwork is anticipated to take between 2-3 days.

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. Schools are expected to present and discuss the final AUP report at a council meeting.

Findings from individual schools are compiled by the Assurance Branch and assessed for potential impacts at the Department level. The Assurance Branch assigns individual ratings to each individual finding based on the nature of procedures, findings and the schools’ comments. Based on the risk ratings, each school is assigned an overall conclusion of good, acceptable, needs improvement or unsatisfactory.

A state-wide report is prepared based on the consolidated results of the AUPs and SIAs. The state-wide report is circulated to all the schools, regional offices and the Department’s Financial Services Division (FSD) in order to ensure that corrective measures are taken to rectify the findings at the school level.

School Internal Audits (SIA)

In addition to the AUPs, each year, the Department identifies a number of SIAs to be carried out at schools. Examples of SIAs are:

  • review of key financial management and processes at schools (KFMP)

  • review of revenue collection processes for locally raised revenue and parent payments (LRF)

  • review of school purchasing cards (SPC).

Ad-hoc audits/reviews

Ad-hoc audits/reviews may occur outside the Internal Audit Plan based on requests from schools, the regions, Department business areas and the Audit and Risk Committee, or are self-initiated by the Assurance Branch based on risk assessments.

Role of schools

Schools are expected to:

  • cooperate and provide auditors with access to all information reasonably required to perform the AUPs/SIAs/ad-hoc audits

  • ensure the principal and business manager are available to answer questions and discuss the preliminary findings (auditors may also ask the school council president to attend)

  • be professional in their approach to the AUPs/SIAs/ad-hoc audits and cooperate with auditors in the discussion of any findings

  • provide management comments within the specified timeframe to auditors to be included in the AUPs/SIAs/ad-hoc audits report.

Role of school councils

The school council governance role relating to the SCFA program includes:

  • making sure that funds 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...

  • understands and complies with the requirements of the Finance Manual for Victorian Government Schools and other guidelines/instructions relevant to the school’s financial reporting
  • understands 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 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 final report
 
  • organises for the final SCFA reports of the school to be tabled at a school council meeting 
  • reviews the SCFA reports of the school and discuss how the non-compliances (if any) will be rectified
  • rectifies any non-compliances reported in the final SCFA reports
  • reviews past SCFA reports of the school and discusses whether the non-compliances (if any) have been rectified
  • notes the key findings of the SCFA program and applies relevant improvements to the school’s processes and controls
  • discusses the SCFA state-wide report at the school council and identifies opportunities for improving the school’s processes

Resources and links

Title

Link

If you require more information on the SCFA program, email: scfa@edumail.vic.gov.au

Finance Manual for Victorian Government Schools

www.education.vic.gov.au/school/teachers/management/finance/Pages/guidelines.aspx

School Policy and Advisory Guide – School Council Financial Assurance

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

 

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