School Accounts

Mitigating Audit Blues

Audit issues over Locally Raised Funds
fundraising
We thought the above topic will be of relevance to your school especially due to external audit sensitivity over this Revenue area.

Your school’s audit service providers may have previously raised their concerns through the Management Report to the Board.

These concerns typically have centred on the lack of internal controls affecting Locally Raised Funds and whether this lack of internal control impact on the accuracy and completeness of revenue as reported in the financial statements.

Some external audit service providers have resorted to qualifying their Audit Report due to this uncertainty especially when certain fund sources have been deemed to be material to audit.

What are Locally Raised Funds?
Locally raised funds are revenue items that are broadly classified as either School Activity or General Fundraising.

School Activity funds for example, are funds raised for School Trips, Kapa Haka, In School Activities, and Production income.

General Fundraising includes Gala Fundraising and funds received by way of Grants from external Foundations like the Lottery Grants Board.

Internal control processes at your school

Well, let’s step back a bit…

What are Internal Controls?
No, it has nothing to do with your physical disposition!

“Internal control is broadly defined as a process, effected by the Board of Trustee’s, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
• Effectiveness and efficiency of operations
• Reliability of financial reporting
• Compliance with applicable laws and regulations
• Safeguarding of assets

Internal control consists of five interrelated components:
Control environment – The control environment includes the integrity, ethical values, and competence of the Board’s staff and is the foundation for all other components of internal control.
Risk assessment – Every School faces risks that must be identified, analysed, and managed to achieve its governance objectives.
Control activities – Control activities are the measures used to help ensure that management directives are carried out and that risks are addressed. They take many forms including policies and procedures, approvals, verifications, reconciliations, performance reviews, security measures, and segregation of duties.
Information and communication – Information systems must be in place to identify, capture, and communicate relevant information in a form and timeframe that enables people to carry out their responsibilities and maintain accountability for the School’s assets.
Monitoring – The entire internal control process must be monitored and the quality of its performance assessed as a part of regular management and supervisory activities. Corrective actions must be taken whenever the system does not perform as intended.”

Yes, the definition rather sounds daunting in a school context but let’s have a look at what policy, procedure, processes and controls a school may currently have in place over the collection and recording of Locally Raised Funds together with a cause/effect analysis.

School Activity Funding

Scenario 1
Pupil is given a $50 note by parent/caregiver for a class trip. On the way to school pupil uses funds to buy a Prezzy Card to fund internet gaming costs. Pupil still goes on trip due to Board policy that no pupil should miss out.

Cause/Effect
The Board, unknowingly, has incurred an additional $50 cost. Pupil is naturally ecstatic and absent from school for the next three days.

In this example, would you think that the Board had prepared an appropriate Revenue collection policy?
Are there extenuating demographic factors? Rural, domestic?

Regardless, policies could still be developed to cover for this scenario.

Scenario 2
Exactly the same scenario above but this time, pupil hands over the $50 to his teacher who has been given the responsibility for collecting the funds. Teacher dutifully records the relevant details in a paper record and retains the cash and record in teacher’s desk.

At the end of the week, teacher hands over the cash and records to the main office for receipting and banking.

Cause/Effect
Well done! But wait…does this scenario address certain key components of internal control referred to above?

Effectiveness issue. Is there a duplication in the handling of cash and of the recording duties?

Custody Issue. Are Board funds retained in a secure environment (other than a teacher’s desk)?

Timeliness issue. Was the banking recorded and performed daily, intact?

Policy/Procedure issue. Could teacher not instruct pupil to visit the office for direct payment and thereby have more time for teaching? (There is another effectiveness issue raised in this regard.)

Scenario 3
Parent sets up an internet banking arrangement with the school. Monies are transferred and school administration personnel record the transaction using a Student Management System (if applicable) and to update the General Ledger.

Cause/Effect
This process is the most administratively cost effective and efficient due the nature of the transaction.

Liquid cash is more prone to “diversion” than any other form. Internet transactions are immune to diversion barring Internet piracy…and rejection by the Banks due to “insufficient funds”.

There is an absence of cash handling fees.

Your accounting software (such as Xero) creates the bank transaction which can then be analysed and recorded into the General Ledger within minutes.

This transaction process of course is extremely subject to geographic and domestic demography and we would all love to live in a perfect world.

THE BIGGIEgala
Next we will examine the biggie that gives the auditors the “twitches” …yep…Gala and other significant Fundraising!

There is a huge amount of fun and camaraderie whenever we ever attend a school gala.

Coconut shies, Books and White Elephants, BBQ snags with bread and onion and mild American, meat raffles and oh! Children having fun without being scolded by teachers and what? Fine weather too!

Then the auditors arrive later (not to the gala of course) and say, well, it’s all good having money recorded in your financial system for the Gala but…

• Are we satisfied that the internal controls (policy and procedure) the Board had in place are sufficient to ensure the Gala funds recorded in your General Ledger is accurate and complete?
• If we are not satisfied (and a true auditor has no sense of humour…unless sarcasm is an acceptable form of humour), Does the lack of internal control provide a material audit risk to the financial disclosures made in the Annual Report?

We offer some scenarios below regarding this form of General Fundraising but we stress that this only applies to Gala and other financially material fundraising activity that is conducted directly by the Board of Trustees on behalf of the School and its beneficiaries, namely the pupils.

Generally there is little audit risk when, Parent Teacher Associations, Friends of the School and such associations operate independently of the School Board with such major fundraising activity.
These Associations/entities usually remit the proceeds to the Board in the capacity as an independent institution.
Is your PTA or similar association an independent entity from the Board?? If so, the scope of the audit only includes Board activities and does not concern itself with “interested parties” that are under independent control.
The concept of Board independence is critical in this regard and we would be only too pleased to assist the Board in developing appropriate structures to address this particular area of Governance.

There are key audit control/financial risk elements when a Gala (or similar, significant fundraiser) is convened by the Board;

• Even if non-cash transaction facilities (such as EFTPOS) were made available by the Board, there will still remain a substantial amount of liquid cash involved.

Liquid/Cash funds derived from Gala fundraisers and similar are able be “diverted” no matter how benevolent the purpose and the consequence will have cause/effect on the Board financial reports.

• Cash collection/custody and recording can be susceptible to distortion of the financial result

• Cash donations at Gala events may be offered without requirement for receipt

Typical Gala Fundraising Scenarios

Scenario 1

Successful Gala!
Out of the Gala cash proceeds, cash is utilised to negotiate a transaction for a “high value” item such as an Electronic Learning Board for $7,000. Funds raised from Gala = $25,000 less the $7,000 = $18,000.

The Bouncy Castle and other Amusement theme providers are paid directly from cash funds derived from Gala activity upon conclusion of the fundraising event.

Residual cash proceeds are deposited into a “common fund” container and taken away by a volunteer for safe keeping during the weekend period.

These funds were banked by the volunteer on the next banking day.

Question: Have Gala funds been collected, banked intact and completely recorded in the Board financial General Ledger?

Answer:Funds have been banked net of disbursements from the Gala funds. Income and expenses recorded in the General Ledger and Financial Reports are not complete and accurate.

Scenario 2
Same gala event but this time, the School has arranged and has prepaid the Amusement Theme providers via the school bank account and has posted these to the General Ledger as Gala Expenses.

Also, the school has designated Board staff volunteers to be at the various points of sale, including the Amusement theme sites. Bouncy Castle Operators have been advised that they will not be involved in collecting cash.

These volunteers text the Office staff when cash levels become high and two Office staff collect the funds and return the same to the office.
If the office staff have time, the cash can be counted with both staff present and a banking lodgement can be completed, bagged and secured ready for banking the following business day.

This process is carried out throughout the Gala day until the end of the fundraiser.
Residual cash is collected by the two office staff and returned in the same way to the office and retained in the safe and is counted and banked on the following Monday.

Question: Will the process outlined above provide more assurance to audit that there was sufficient separation of duties in the cash collection process and that Gala funds have been collected, counted and banked intact?

Answer: The above process provides for a better separation of duties between the parties receiving the cash and those in charge of the recording, banking and custody of the same. No disbursements have been directly made out of the Gala proceeds. Because banking’s were made regularly on Gala day, there will also be less time spent by Office staff in counting and banking the residual funds so that they can focus on their normal roles without the additional stress.

This second scenario is simply an example where cash losses can be minimised to a great extent. Cash being cash is highly liquid and would still be exposed to loss with the above example however, we believe that external audit would gain more confidence over the material completeness and accuracy of gala funds.

What ideas and thoughts do you have? The mind boggles with cunning plans!

Have fun on Gala day too! It’s possibly the only time of the year where the pupils can “dunk” their teacher and/or Principal…

School Accounts

2017 Budget Bliss

Yes! (Oh no!)

It is that time of the School year when your Accounting Service Provider would/should have forwarded to the School Principal and/or the Administration Team, Budget 2017 workpapers to complete.

You, as Principal and also in consideration of your Administration staff, might feel stressed over this Financial Governance requirement. However, as you know it is a useful financial management tool as well as being a statutory obligation.

We would be delighted to assist you in any way we can to provide your Board with an appropriate Budget that fits with your Charter, Strategic and Annual Implementation Plans.

Our following information and advice is here for you, as Principal and for your Administration Team to assist you to provide your Board with an objective budget using objective budgeting techniques.

Background

Budgeting is a process that requires objective and predictable data and should also provide a linkage to the Board’s Strategic and Annual Implementation Plans.

What is the Board deciding to implement in 2017 as part of the above??

MoE initiatives also tend to change rapidly to meet demands of the community (or political motivation) at any point during a school year. What is funded and spent in the previous and current years may have little or no relevance to the 2017 school reporting year.

“Change is a constant in any organisational or personal environment. If we can adapt and plan for change, this will help define the success for us as individuals, Principals, Teaching staff and pupils”. (Colin Falconer)

Budget Approach Summary

Expenditure
All schools are expenditure driven to meet the requirements for positive student/pupil outcomes in any period of their tenure and these are funded by various sources such as Operational Grant, Special Grants, Fundraising and Trading Activities.
We consider the word “justification” as an appropriate point to work from for any expense/activity budget line item (or General Ledger account code that is reported upon).

Justification refers to knowing the cost drivers for each activity, and whether the cost is appropriate and relevant to the Board’s Annual Implementation & Strategic Plans, MoE new initiatives and normal operating activity.

Working the budget backwards refers to examination of each operating Expense line item and upon justification for each budget expense line item, one can then examine and plan for sustaining the planned operational expenditure and your School’s Working Capital requirements by way of the school’s Revenue streams, (e.g. Operations Grant, Special Grants, Fundraising, and Trading Activities).

Budget Techniques

There are a number of techniques although we have included only three in this blog for simplicity;

Cost Plus Approach
This method simply involves looking at last year’s budget line amount and increasing the amount by a percentage.

This method is not often recommended since last year’s budget line expense/income may have little relevance to the new year. Also, there is no objectivity nor justification considered under this approach. However, there are circumstances where this might be useful such as estimating inflation on utilities E.g. water, electricity, subscriptions.

Stab in the Dark
This approach is typically used in Fundraising and Trading Activities and lacks any objectivity. There are appropriate bases to use for these activities which we will discuss later.

Zero Basis
This approach as the name suggests requires that each budget line amount starts from scratch and the budget is calculated from known factors such as Roll Count, new MoE Initiatives, Cleaning Contract payments and Operational lease costs. Consideration should also be made to whether any contracts are likely to expire and whether new contracts will be entered during the new year.

This approach provides more objectivity and goes a long way to support/justify the income or expense line item.

The following link is to our websites free resource Budgeting Table, which gives an indication as to the appropriate base to use for some typical revenue/expense lines that schools traditionally have trouble with in the budget exercise: School Accounts Budgeting Basis

Variances to Budgets

Throughout the above examples (given in the link), we hope that we have demonstrated the need for objectivity when preparing your 2017 Budget.

Once the Board’s Annual Budget has been approved, there is no need to change this during the new year…that is flexible budgeting and while flexible budgeting might provide for a “pretty picture” with no variance, it will not provide you any appropriate base to work from in the following year. There will always be “one-off’s” or items coming from “left of centre”. These are recorded as variances with the suitable explanation, which helps inform you for the next year’s budgeting exercise.

It is an accounting requirement that your original ratified budget must be used for the annual financial papers. But do note, where there is a substantial unprecedented change in a budget item, you can have the Board of Trustees ratify these changes so that the updated budget becomes the annual work paper.

In Summary

If you keep the words “justification” and “objectivity” in your mind while budgeting, you and your Admin Team are on a good path to providing better financial stewardship and financial governance for your Board.

We sincerely hope that this article on budgeting will go some way to guide you and your Admin staff to positive outcomes for your School.

At School Accounts Limited we are well experienced with these processes. If you find you are in need of some assistance, we would love to help. Contact us for an appointment now.

Nicola Edie and Colin Falconer

School Accounts

One of those days?

School admin in Crisis? Holidays causing strife in the school accounts department? Had a key accounts staff member just resign or get seriously sick and now you are in need of some relief work?

This is a service we have capacity for right now, so if you need a part time, short term reliever until things get sorted give us a call! We hit the ground running with extensive experience in school finances and accounting processes.

We are here and can help. With a smile! Contact Nicola on 021 116 4747

School Accounts

Working Capital

It really is a dull sounding word, but essentially it is the school’s bread and butter, so I have tasked my colleague with the challenge of laying it all bare (what, no butter?) You will feel your thinking muscles literally expanding.
gears

What is Working Capital??

Working capital represents the difference between the school’s Current Assets (what they own this year) less its Current Liabilities (what they owe this year) at any point in time.

It is an indicator of fund sustainability and reflects your schools ability to fund its activities toward for example;
• Bulk Grant Salaries
• Suppliers
• Capital works/Fixed Assets that are Board funded

Is there a required Working Capital level for my school??

In our experience, each school has its own set of funding requirements to meet its commitments as noted above. No one school is the same and has its own set of traits that can be related to school roll/ decile and geographic location.

Questions over how frequently your school receives and spends funds may be an indicator to determining an appropriate level after considering any possible expenses that may come from “left of centre”.

Positive Working capital therefore has that “rainy day” cover for any exigency.

Working Capital Budget

Your actual working capital is normally shown as a separate line in the final and audited Balance Sheet (or Statement of Financial Position depending on the flavour of the day) as at 31 December in any year.

This base figure is the starting point for calculating your Budgeted Working Capital over the forthcoming year.

Budgeted Working capital can then for example be calculated as follows;

Working Capital as at 31 December $100,000
New Year Operating Budget Surplus $20,000
Add back: Budget Depreciation $20,000
Deduct : Budget Asset Purchases $(40,000)
Deduct : Board Funded Capital Projects $(15,000)

Budget Working Capital Projection $ 85,000

Projected Working Capital Budget

In a perfect world and assuming that your Board works within the budget set above, at the end of the year, the Board will have cash funds from Depreciation of $20,000 to replace assets.

In generating the Operating Surplus of $20,000 and using its existing working capital, the Board has applied these funds generated to acquiring fixed assets and funding its own capital project.

However, the world is not perfect and we all live with uncertainty.

When setting the Operating Budget above, the Board will have made some base assumptions about roll count and budget MoE Grant revenue that derive from the roll. The Administration, Curricula and Property expense budgets will also have been established with base assumptions.

So what happens to the Board’s Working Capital Budget if the budget assumptions made originally prove wrong through the course of the year??

We then need to Project the end of year working capital expectation, based on activity at any point during the school year.

Taking our base budget as stated previously, this can now be modified to include operational and capital budget variances as follows;

Working Capital as at 31 December $100,000
New Year Operating Budget Surplus $20,000
Add back: Budget Depreciation $20,000
Deduct : Budget Asset Purchases $(40,000)
Deduct : Board Funded Capital Projects $(15,000)

Budget Working Capital $ 85,000

Less Expenses over budget to date $(5,000)
Less Asset Budget overspend to date $(10,000)

Projected Working Capital as at dd/mm/yy $ 60,000


The Board should have this projected information presented to them at their meetings so that appropriate measures can be taken to maintain the desired working capital base of $85,000.

In the above example, the Board could possibly decide to defer the Board Project while also investigating reasons for the expense budget blowout in a timely manner.

We will discuss budgeting and variance reporting in a separate newsletter since that is a whole new discipline.

Article by Colin Falconer

School Accounts

Xero Updates for Schools

Who doesn’t like a few good workshops every now and then? Well not everyone does, but I took a hit for the team and attended the latest Xero Roadshow so I could pass on the best bits to you the school community. The hardest part was choosing which workshops to leave out when really if I had my way I would have gone to them all!

Things you may have noticed:

If you are a regular Xero user you may have already picked up the odd tweak here and there from Xero that have overall improved the hands on stuff. Here are some of them:

Old and new reports are now all in the one place. Don’t forget to tick the ‘star’ next to the reports you use the most so they appear in your drop down list. Also be aware that you can’t actually see every single report in one go – there are little ‘dot dot dots’ like this . . . to open up the full list under each category. Now is a good time to ‘star’ the new reports.

Those of you who use the cash coding function (when you have a large backlog of bank statement lines to reconcile) there are more features here such as selecting in bulk and applying a bank rule, and showing lines with suggested matches. Make sure you have a driving lesson before trying to use cash coding however – things can go awry if you don’t know the rules. Watch here for more.

Speaking of bank rules, man these rule! Have you created some lately? Once again, you need to know a few little tips to make them work every time. I recommend you use the condition ‘Any’ instead of ‘All’ and don’t create too many conditions. Trouble is the bank tends to change its descriptions over time, so if you are too specific it will stop working. Also use ‘contains’ instead of ‘equals’ and you are going to be okay. But here is the new bit I picked up from the Roadshow: use the one bank rule to rule them all. What? For example, if there are several different types of bank fees that will all go to the same code, use ‘any’ and then list all conditions that pick up the various bank references/payees/descriptions on bank fees, and select ‘all bank accounts’ (no. 6) and then you only need the one rule for all bank fees. The same with fuel companies, and so on. Ideally 80{5d9813fdab8383e3716ac8b1c27a383d40d7c18ef85580f98cf318169ae62b96} of your bank coding should be using bank rules.

Searching for things got a whole lot easier when Xero introduced the global search function – the magnifying glass at top right of the screen. You can still search within each area you are in, but from anywhere you can use this ‘one search to rule them all’ and type in anything from a number, contact, keyword etc. and up pops a whole lotta options. The keyboard shortcut for global search is forward slash “/”. I now use this instead of ‘Find and Recode’ when looking for just a couple of things. Even to see if a creditor has been paid or not. It is like a shortcut to Mount Doom.

If that is a bit ‘Lord of the Rings’ for you, maybe you’d be more interested in the Reports changes. Now you can save as a template reports you use often as ‘Custom’  (instead of draft or published as per previously). Then just pick it up from Reports/Custom tab each time you want to run it. Perfect for department reports if you have cottoned on to using the new Account Transactions report for these, and don’t forget the ‘Report Settings’ area lets you customise these further.

Earlier I mentioned Find & Recode (an Advisor only function); this magical feature means that if you or a colleague (not you of course) has been making the same mistake all year, your Advisor can fix it in one go instead of having to literally find and recode one transaction at a time. So don’t waste your time doing things the hard way – be brave and confess your sins so they can fix it quickly.

Things you may not have noticed:

Filing GST just got easier with a ‘File Now’ button that takes you straight to your myIR login and Xero populates it all for you.

The Xero Add On partners have now grown to 500 plus. So they have developed a ‘Marketplace’ where you can search by the type of function you are looking for OR by the type of organisation/business. Brilliant. Many of the more popular ones have reviews or ratings to help you decide, and just about all of them let you try them for free. Some Add On functions relevant for schools in my books are:

  • Inventory (school uniforms/tuckshops)
  • Payments (if you run school fees from Xero)
  • Point of Sale (for the shop)
  • Bills + Expenses (if you have 30 plus supplier invoices to enter each month)

 
In Summary, Xero Roadshows are worth going to so that you know what features you, your staff, or your Advisor should be using to maximise efficiencies for the school. If more than one of you use the software, make sure you update each other each time you learn something new – perhaps make it part of a regular staff meeting ‘check in’.

And if most of this article just sounded like Elvish to you, maybe a training session is due. Contact us at School Accounts; we speak your language.
Super Xero Updates

School Accounts

Support Staff Star

How much do you feel you or your support staff are valued in the school? Do you feel like a star? Or just a ‘non-teaching’ staff member? Each school environment handles this differently depending on the prevailing culture set by senior management (or sometimes it can be just an historical ‘default’ setting in the school).

This is something I am passionate about having been a support staff member in a previous working life. When support staff feel like valued members of the school team magical things can happen.

The more we are thanked and included, the more we can get fired up about helping teaching and management staff ‘to the max’.

When you remove causes of resentment between all departments of the school, the more the children are the focus, and the teachers are released to teach, and the support staff are released to shine.

Here are 3 things you can do as a support staff member to get closer to this culture:

  1. Evaluate how you feel about your place in the school and compare that to the reality. Do you shine? Why not? What are the specific things that take away from your shine-ability? (yes, I just made up a word) Write them down. Note the occasions when you do feel valued as well – things that contribute to your shine-ability.
  1. Think about the teaching and/or management staff you report to or influence on a daily basis. Once a term (at least), write them each a note thanking them genuinely for something you noticed they did or said or an attribute of theirs you admired or respected.

Don’t worry if this is never reciprocated. You just alerted them to the fact that you notice what is going on.

  1. Get together with other support staff at least once a month for a coffee break. How you treat this time is up to you. It can be purely social just to make sure you are connecting with someone in the school who experiences similar work dynamics. Team starts with relationship.

Or it can be an informal meet up to consider how things are going for each (like peer mentoring). There is only one rule – no negativity. Make it clear from the start you don’t want this to disintegrate into a whine fest. Only discuss problems when you are willing to discuss solutions.

And know this – there is always someone who thinks you are a star!

School Accounts

Those Pesky Bills

Remember this? It is the start of term. You are all refreshed and holidayed and ready for the term ahead. (I hear a few ‘yeah, right!’s) The mound of mail is waiting for you eagerly, and you just know there is a lovely backlog of creditor invoices to enter, somehow, before the Accountant wants to close off the month. Which is tomorrow. (And you were also hoping to find a winning lotto ticket gifted to you from a grateful parent, but then you wake up…)

How would you like your software to do that for you? (The invoices, not the lotto ticket!)

With that in mind I have a valuable recommendation for you that solves this problem: the data entry of bills (creditor invoices, payments to suppliers – whatever your terminology is!) If you have a lot of them each month, and if you are using Xero, Quickbooks, or Sage accounting software (to name a few), there is an application called Receipt Bank that can do all the work for you. It is an award winning software and service that extracts the key information from your bills, receipts and invoices, removing the need for manual data entry. Receipt Bank can then publish the data to your accounting software (with PDF already attached!)

How does it work? You scan any hard copies through to them, or forward your emailed invoices to a Receipt Bank email address. The beauty is you can also use the app on your smart phone to snap any receipt (parking tickets, shop dockets) and send it straight to Receipt Bank – it all turns up in your accounting software as an invoice or expense claim ready for you to approve.

What is wonderful is that you can trial Receipt Bank free for 14 days to see if it is going to be worthwhile for you.

When compared to the cost of employing someone to do all that data entry, it is very sensible. They also keep every document stored for you (retrievable at any time) for the required 7 years. Take a look and at least consider changing the way you do things to be smarter about your time. See the attached Flyer for more information. RB-Flyer

As a Receipt Bank partner I can get you started on your free trial, give you all the training you need to get going, (it is very simple!) including showing you how to set up supplier rules so that the invoices autopublish straight to Xero. All for free, and then should you wish to continue using it, for the cost of the monthly subscription.

Find out more now! Before another term finishes and starts! Contact Nicola at [email protected] or on 021 116 4747.

(Don’t know what Xero is? Give me a call!)