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.
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
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).
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.
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.
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