Section 4: Managing the budget print

Sun 16. Apr 17 17:11

Managing the budget


The White Paper (2010:84) states that "All schools should be working to make savings and should be spending their funds prudently with proper regard for value for money" and suggests that school business managers make a significant contribution to these aims.

Most school business managers have the delegated responsibility for the financial management of their school. They report to the governing body which is ultimately responsible and accountable for the school's financial management. School business managers also have the responsibility for the operation of their cash and payment processes, ensuring that income and expenditure is timely, correctly recorded and reported.

This unit discusses:

  • charts of accounts and cost centres
  • the monitoring process, including the production of monitoring reports
  • evaluation of the budget in meeting the aims of the school improvement plan
  • managing the bank accounts
  • cash management, including cash flow, income collection and debt management
Learning outcomes

On successful completion of this unit, you will be able to:

  • understand the importance of monitoring the budget and the different forms of reporting required
  • understand the key principles and processes for evaluating a school budget
  • understand how effective cash flow management can ensure a balanced bank account
  • evaluate systems for the control of credit and debt in the school budget

The chart of accounts

Consistent financial reporting
In order to be able to identify income and expenditure trends it is necessary to use a consistent set of codes and cost centres. The chart of accounts is a schedule of all cost centres and the ledger codes that are linked to them, and is an invaluable document for designing and setting out the structure of the school's accounts.

Maintained schools are required to comply with the consistent financial reporting (CFR) framework. The framework is split into five sections:

  • core income
  • core expenditure
  • capital income
  • capital expenditure
  • balance
For consistent financial reporting framework headings and more guidance, visit the DfE web pages on CFR (see 'Further information' at the end of this unit).

State-funded independent schools like academies can set up their own chart of accounts. These may be based on CFR or other standard accounting models. It is suggested that in order to aid benchmarking between academies it may be useful to use a similar system with other academies either locally or nationally.

Cost centres

Depending on the size of the school and the complexity of the budgetary system required, there will be a need to create cost centres in order to allocate budgets to budget managers. As defined within the school's financial procedures manual the budget manager will be responsible for controlling expenditure within the relevant budget heading. This permits clear identification of the costs of any particular activity.

Before you read further, you may find it useful to consider a scenario which will be familiar to many school business managers – how best to explain the complexities of the school budget to governors who may have limited financial training.

The scenario 'Reporting - a good report' in the following topic describes some common issues that SBMs face and provides an opportunity for you to check your understanding of key concepts used in financial reporting.

Scenario: Reporting - a good report


In this scenario, you will follow the school business manager, Amanda, who is developing a good financial report for the governing body.

Through Amanda's clear financial reporting, it is possible to highlight potential problems and understand how to deal with them.

By the end of this scenario you will be able to:

  • explain the importance of providing financial information in a format that laypeople can understand and challenge
  • explain the variances within a budget, and what actions may be taken to reduce them.
For some time, the finance committee has been concerned about the formatting of documents used in financial reporting. So, in response to the finance committee's request, Amanda has developed a new reporting format. She has a meeting with the headteacher and Chair of Finance to discuss the new reporting format and the school's budget.

Discussing the new report

I like this new format, it's simple to understand - Chair of Finance


The supply budget is overspent

Having agreed that the new reporting format is useful, Amanda looks more closely at the budget with the headteacher and the Chair of Finance.

The Chair of Finance asks Amanda to explain why the supply budget is overspent. 

Amanda replies: "Two of our staff are on long-term sick, another two are on maternity leave and the insurance cover isn't sufficient. The flu bug last month hit us badly as well."

The Chair of Finance is very concerned about the supply budget, and asks what can be done about it.

Can we fix it?

What actions do you think Amanda should suggest?

Consider options A to E below. Which do you think are the most appropriate?

A. We could make a virement payment; that's a transfer of funds from capitation to make up the budget balance."
B. We could save money if we stop staff going out of school if it means they need supply cover"
C. We should introduce a staff absence policy, monitor absences and use return to work interviews to try to reduce absence."

D. I predict that the whole school budget can manage this overspend, but we must identify any sickness trends for future budget plannin
E. I need to review the insurance cover and see if we can arrange better terms."

Best choices

In the above table, options C, D and E are the best choices.

Making a virement payment to balance a budget is not good financial management and only covers the issue rather than fixing it.
Stopping staff going out of school could be used, but would impact on staff development.
Policies would highlight staff health issues and allow appropriate action to be taken.
Reviewing insurance cover is a long-term approach to obtaining best value and ensuring that appropriate underwriting is in place.
Finally, the last approach will assure the governing body that overspend can be handled, but they will also expect this budget area to be reviewed for future planning.

A and B are not correct.

Good news?

Looking again at the budget report, the Chair of Finance says: "Well, at least the fuel budget is looking good – we've spent less than was predicted for this period. Can we use some of this to bolster the whole school budget?"

The headteacher adds: "We're through the worst of the winter, so things can only get better."

Amanda shakes her head, however, and replies: "It's not as good as it looks. We haven't had the electricity invoices for three months."


No. A calculation based on last year's costs for the period would provide an indication, but would not take into account any rises in unit prices. Basing it on the expenditure invoiced so far this year would not reflect the winter period. A calculation based on the metered units from last year and calculated on this year's costs would be more accurate, but would not take into account any variance in this year's usage

No. A calculation based on last year's costs for the period would provide an indication, but would not take into account any rises in unit prices. Basing it on the expenditure invoiced so far this year would not reflect the winter period. A calculation based on the metered units from last year and calculated on this year's costs would be more accurate, but would not take into account any variance in this year's usage.

No. A calculation based on last year's costs for the period would provide an indication, but would not take into account any rises in unit prices. Basing it on the expenditure invoiced so far this year would not reflect the winter period. A calculation based on the metered units from last year and calculated on this year's costs would be more accurate, but would not take into account any variance in this year's usage.

Correct. This would be the most accurate estimate. Keeping monthly meter readings provides monitoring data for the reduction of fuel usage and allows the fuel bills to be checked.

Now the headteacher notices that the amount spent on premises staff is less than projected. She asks: "What's this? Have we reduced the caretakers' salaries?"

Amanda explains that the caretakers' overtime has been wrongly coded to the cleaning budget, and that she will do a journal entry to recode these costs.

The Chair of Finance picks up on another row in the budget, asking: "I'd noticed that the cleaning budget was overspent. Does this mean that once the coding is corrected these budgets will be balanced?"

Amanda replies: "Yes, we need not worry about these two budgets. It was an error."

Later that week...

Amanda attends a meeting of the finance committee.

See what each  each person says about the good news about the school's budget.

There is good news on the administrative costs. The new telephone contract has provided the savings we predicted. With the added advantages of cheap text messages and extra use of emails, we've also been able to reduce our postage costs.

Chair of Finance
That's good news. I expect more messages reach the parents now.

We introduced emailing letters to parents some time ago. We now need to evaluate its success.

Finance committee meeting

Before the finance committee meeting, Amanda recodes the caretakers and cleaning budget and adds some more notes to the report. These were then sent out a week before the meeting. The report has been presented to the governing body.

The Chair of Finance is obviously pleased, and thanks Amanda, adding: "This is an excellent reporting format." Mr Littlechild agrees: "Yes, I felt that I could understand it much better than before."

More praise comes from Mr Hamilton, who says: "I liked the written report. It answered a lot of my questions."

Finally, Mrs Gupta adds a comment on the report's layout: "I found the way you had highlighted the headings and sub-headings helped me know what questions I need to ask. Well done."


Understanding significant variations

In the course of this scenario, you have followed Amanda as she has identified four different, but significant, variations in the school budget. There are four possible reasons for such variations, as shown below. See if you can match the right reasons to each of the variations in this scenario.


Match the items on the right to the issues on the left and Submit.



You've reached the end of this scenario.

During the scenario, you have seen how important it is to:

  • present financial reports in a format that is easily understood
  • identify significant variations
  • understand the reason for these significant variations
  • agree corrective actions both short and long term
  • evaluate spending trends to inform future budget setting.

Monitoring and reporting

Budget monitoring and budget reporting are two distinct processes.

  • Budget monitoring compares actual income, expenditure or cash flow against projected income, expenditure or cash flow.
  • Budget reporting safeguards the funds and ensures that they are spent as authorised.
The finance office should continually monitor the budget, for instance when placing orders, to ensure that there are sufficient funds available to make the purchase. The more formalised process of monitoring and reporting will require the school business manager to provide appropriate reports, on an agreed regular basis, in an agreed format to the following:

  • budget holders
  • leadership team
  • governing body
  • local authority/funding agency
  • DfE
  • Ofsted

3.1: Financial monitoring and reporting
Consider the various different forms of financial monitoring and reporting that your school undertakes.

Make a list, identifying if these are:

  • internal monitoring, not requiring a formal reporting process
  • formal monitoring and reporting
Once you have identified these different monitoring processes, describe:

  • When they happen; is it on a regular basis or ad hoc?
  • Who is the report presented to?
  • Who can agree any corrective action

Budget profiling

Profiling is an important element of monitoring the budget. Budgets should be profiled to determine a month-by-month pattern of income and expenditure by budget heading which can be used to compare actual monthly income and expenditure.

Monitoring reports to official bodies

Maintained schools are legally required to provide quarterly income and expenditure statements to the local authority. In practice, these reports are usually on a monthly basis, alongside their VAT reimbursement claim. Monthly reporting provides a good basis for monitoring the school's income and expenditure.

Academies have different reporting regulations. They are required to submit budget monitoring returns to the DfE, on an accruals basis, at two stages in the accounting year:

  • a mid-year budget review statement must be provided by 31 March
  • a provisional final outturn statement must be submitted by 31 September
All schools are required to submit an end of year return, on an accruals basis. Academies are required to prepare final audited accounts in line with company law and The Charity Commission.

The format of monitoring reports

It will depend on what level you are monitoring and who the report is aimed at as to how the reports are presented, but they will usually have a common basic format (see the table opposite), which will identify:

projected income, expenditure to date
actual income, expenditure to date

These reports may provide the 'projected to date', 'actual to date' as percentages (see the table 'More detailed format of monitoring reports'), as well as figures, to provide a simple visual check for those less experienced in financial statements so that they can quickly identify any significant variances.

Typical format of monitoring reports
A more detailed format is shown below. Further headings that monitoring reports might include are cash flow, commitments and projected year end.


The stages of the monitoring process

Once a report has been produced, it needs to be scrutinised by an authorised person or body. They should be looking for any significant variances between the proposed and the actual income/expenditure/cash flow and between the budget set and the projected year-end figures.

If a significant variance has been identified, then the three stages shown in the table below need to be considered.



3.2: Identifying variances

Consider the monitoring reports that have been presented to your school’s finance committee over the last year.

Can you identify any significant variances?

Using the three stages described in the table above, consider:

What were the causes of these variances? And how were they managed?
What procedures and processes would you put in place to try to ensure that the size of any variance is minimised?

Evaluating the budget

Knight (1993:151) suggests that the evaluation of the budget is, perhaps, the most challenging aspect of financial management.

Note: The diagram 'The three aspects of budgetary evaluation' has been removed to comply with copyright laws. You may wish to look at Knight (1993:151) or similar models.


Husham Khan, School Business Manager

The schools that I work at use benchmarking for a multitude of purposes and historically over the last five years we've used the financial benchmarking on the DFE website, and more recently we've used the new financial benchmarking data that's been available from January 2011 on the DFE site. But we also use it for measuring our costs against other schools of similar size and demographics, but we're also increasingly using it to look at value for money and almost like a return on investment also.

For example, one of the things that we have started doing at one of my schools is looking at what we're spending on TAs and teachers and measuring that against the SATs results at the schools to see how the two, how they relate to each other and what the relationship between spending and school standards is to see where we can target money more effectively to increase school standards.

David Allen
School Business Manager

Yes, there's a number of ways to benchmark expenditure. If we look at the financial data that's actually produced then we have our financial information is provided to government in terms of consistent financial reporting, off the back of this the department of education produce a vast number of pieces of information, data which allows you to compare schools in relation to costs so that's a very useful tool that you can access to benchmark costs. The second aspect that I think is important in terms of benchmarking is actually networking with your colleagues as well so actually understanding what's happening on the ground in terms of other schools, business managers that are in similar roles.


With the huge emphasis placed on achieving value for money, schools have increasingly turned to benchmarking activities to check how they compare with other schools. Before you read this topic, watch the video to hear how two of our SBMs engage in benchmarking in their schools

Benchmarking is a systematic process for comparing performance or processes in different organisations, or between different parts of the same organisation in order to learn how to do things better.

Benchmarking is a key element of Best Value (BV).

Schools are expected to provide evidence that they have used benchmarking to improve their financial management.

Benchmarking can be carried out internally through the use of previous year's data, by comparing budget headings with each other. External benchmarking may consist of comparing data from schools within your own local authority or within your own sector, or through the use of the DfE benchmarking website.

It is important to remember that benchmarking only highlights differences in spending patterns. Having identified these differences the SBM must then investigate why these differences have happened.

Before you start the activity 'Budget benchmarking', you may find it useful to practise your benchmarking skills. The next topic 'Activity: Secondary schools benchmarking exercise', is an example of a local benchmarking exercise carried out by seven high schools. As you work through the exercise, you will be asked a series of questions designed to help your understanding and interpretation of the data.


3.3: Budget benchmarking

Identify three areas of your school budget in which you are particularly interested because you think it might be possible to achieve savings in expenditure

Contact colleagues and compare your expenditure levels with their expenditure levels.

Are there any significant differences? If so, why?
What economies could you make in your school?

Activity: Secondary school benchmarking exercise

About this activity

Schools are responsible and accountable for spending considerable amounts of public funds. They need to demonstrate value for money by showing how money has been spent efficiently and effectively to achieve the best outcomes for children. Comparing finances through benchmarking is one way in which schools can ensure their resources are being used effectively.

This activity will help you to understand benchmarking and how it works. To get started, you will need to download and read through the linked document and spreadsheet. Keep these sheets open as you will be asked to refer to the data throughout the activity.


Copy of secondary_schools_benchmarking_spreadsheet.xls

Using the above documents answer the following:

Question One
Which school spends the greatest proportion of its budget on teachers?

That's correct. School E spends the most, at 67.47%

Question Two
The percentage spent by school D on technology technicians is significantly higher than other schools.

Why might this be?

Think about this question, make notes, and then compare your answers to our suggestions.

Answer - Suggestion
Possible reasons for school D’s higher spend on technology technicians are as follows:

historic reasons – the school is over-staffed
curriculum reasons – the school specialises in technology
the school might be split site (leading to duplicate provision)

Question Three
Which school spends the least on teachers?

Yes. At £41,633, the average cost per teacher is lowest for school D (see line 90).

Question Four
School E only spends 0.13% of its budget on supply cover, which is much lower than the other schools (line 7). 

Why might this be?

Think about this question, make notes, and then compare your answers to our suggestions.

Answer - Suggestion
  • School E might be spending less on supply cover because it employs more cover supervisors (see line 39).
  • School E might be spending less on supply cover because historically it has lower annual levels of staff absence.

Question Five
School D spends over twice as much on classroom assistants as School A.

Why might this be?

Think about this question, make notes, and then compare your answers to our suggestions.

Answer - Suggestion
  • School D might have a higher proportion of pupils with learning difficulties.
  • School D's classroom assistants might be on higher pay-scales.
  • School D might have employed fewer teachers and more classroom assistants
Question Six
School G plans to spend (proportionately) four times as much as school F on premises (line 72). Why might this be?

Any of the first three options might be correct. It's highly unlikely that school F doesn’t have a maintenance programme
It's highly unlikely that school F would not have a maintenence programme

Question Seven
Very small schools may find benchmarking less valuable.

Why might this be?

Think about this question, make notes, and then compare your answers to our suggestions.

Answer - Suggestion
Smaller schools might find benchmarking less valuable because smaller numbers make statistics less reliable; it's less easy to find schools which are very similar.


In this activity, you have experienced interpreting data to effectively benchmark one school against another. This knowledge will help you to assess your own school and how value for money is being demonstrated.

This skill will help you to evaluate value for money in your school and will be useful in helping to ensure that your school meets best practice guidelines for the management of school finances.

Cash management

Bank and building society accounts
Schools operate their cash management and payment processes in a variety of ways. Some maintained schools will manage most of their payments through their local authority, via electronic order and payment systems. In these cases, they may only use their bank for petty cash and emergency payments, with most of their budget being held centrally with the local authority. Other schools will have paid into their bank account, on a monthly basis, a full portion of their budget.

In between these two extremes, there will be other levels of bank account and cash management.

Choosing a bank or building society
Schools should consider the appropriate financial regulations when setting up their bank account. The opening of all accounts must be authorised by the governing body. Maintained schools can nominate the bank they wish to use, but they do need to receive approval from their local authority.

Schools that have charitable status should ensure the bank is aware of this when the accounts are opened as this will enable interest to be credited gross without the deduction of tax.

Operating the bank or building society accoun
Robust controls should be in place over all methods with which funds may be drawn from accounts, including such operations as standing orders, direct debit mandates, debit cards, transfers, online banking, BACS payments and salary payments.

The bank mandate should be kept current and include the names and signatories of those who can sign cheques and carry out certain levels of authorisation.

Schools should ensure that bank and card statements are received regularly and that reconciliations are performed at least on a monthly basis.

If an online banking system is in operation then reconciliation can be carried out on a daily basis.

Cash holdings
Many schools deal with cash in both their public and private funds, as parents may pay for meals and make contributions to trips, materials and other educational activities. Increasingly schools are encouraging parents to make payments through online systems.

This volume of cash is a banking and security issue which should be carefully considered by governors. The school business manager needs to ensure that the level of cash held in any safe does not exceed that stipulated in the school's insurance cover.

Petty cash
Cash expenditure related to public funds will usually be limited to the use of petty cash, which is used to make small purchases up to a value specified in your school's financial procedures manual. Petty cash is operated under an imprest system.

It is important to remember that even though the values you are dealing with are small, petty cash is still public money and as such demands a high standard of stewardship

Purchase cards
A school debit, credit or purchase card is also a form of cash.

Local authorities differ in the guidance they give to maintained schools concerning the use of credit cards because, strictly speaking, they represent a form of borrowing, which maintained schools are not allowed to engage in, except with the express permission of the secretary of state.

Payment by debit card results in the funds being taken from the school bank account straight away which would therefore satisfy this condition.

Some state-funded schools have investments which may have built up from legacies and former affiliations, through trust funds or other 'private' accounts. Faith schools often receive investment gifts from their parent faiths.

Investing monies from the school delegated budget can, sometimes be feasible within the budget year, but schools need to be mindful of the arrangements with regard to claw back of surplus funds. If the school manages the whole of its delegated budget, then there may be an opportunity to invest money, for a fixed term at a fixed rate over holiday periods when there may be little expenditure.

Schools are not allowed to take out high-risk investments and should concentrate on lower, guaranteed returns. The governing body should agree an investment policy. The school business manager should advise the governors appropriately so that the duty of stewardship may be properly discharged.

Cash flow management
Schools are not allowed to overdraw as this is a form of borrowing which is not permitted. During any financial year, the levels of income and expenditure will vary from month to month and cash balances can fluctuate significantly within any particular month, therefore it is necessary to determine the patterns of when income comes into the school and payments are made.


3.4: Analysing bank statements

Analyse the bank statements for your school for a three-month period.

What do they tell you about your daily cash flow, that is the flow of cash in and out of the bank?
Is there a period in the month when the bank balance is particularly high or low?
What is the main reason for this? Does this fluctuate throughout the year?

Cash flow forecasting
The individual school's budget is usually paid on a monthly basis. This may be based on a standard profile which will be known in advance, for example, one-twelfth of individual school budget per month, or there may be an initial higher payment at the start of the school's financial year, with the remaining budget spread out over the rest of the financial year.

The advantages of budget profiling have already been discussed in this unit. Through using both the income and expenditure profiles on a month to month basis it is possible to forecast the cash flow for each month. This allows the school business manager to ensure that the bank balance is always in credit and to move surplus cash into higher interest rate accounts on a regular basis to gain maximum benefit from the available cash.

Credit control
Each school should develop a comprehensive credit control policy for the collection of monies due, in other words, it should have a system in place to ensure that debtors are invoiced promptly and that income is properly recorded when received.

Invoicing income
As schools become more diverse and the extended schools programme becomes embedded it may be that there is greater opportunity to raise income from other providers.

It is the responsibility of the governors and the school to collect income owed to them promptly and to pay such income into the bank regularly. It is a statutory requirement for maintained schools to have a charging and remissions policy. They cannot make charges for any activity without this.

Debt management
The governing body should set a policy for the collection of any debts due to the school and should include the credit terms allowed, together with the collection procedures from initial invoice to the use of legal proceedings. The procedures should lay out the actions to follow in the event of writing off a debt as irrecoverable.


3.5: Credit control
Describe your school's credit control policy.

If there is not one in place, what steps need to be taken to rectify this?
What should it contain and how would you develop it?
How is it monitored?

You might wish to consider:

whether debtors pay their invoices within agreed times
how you follow up if payment is not made within the set time
whether payments are correctly processed and the effect this has on the school’s reporting system

Further Reading

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