Spot The Subtle Signs: Overlooked Red Flags in School Finances

The amount of attention to detail required when it comes to the analysis and evaluation of school finances cannot be underestimated; in a time when budgets are tight and good cashflow management is key, Clare Skinner explains why schools cannot afford to miss anything

We will be looking at variations against cost centre budgets to advise budget holders of their individual situations. We will be looking at ledger code variations to budgets to inform our headteachers and trustees/governors of the overall financial position – but what else should we be looking at to ensure that this information is fully accurate and will therefore support informed decision making at all levels within our organisation?

Coding

Consistent coding is key in managing your finances, this starts at budgeting level. Be really clear which cost centre and ledger code is used for each type of income and expenditure- communicate this to your teams and ensure that they are coding correctly. Coding can be checked at every transaction from raising the requisition to approving the invoice, to ensure that the spend is allocated to the correct budget line.

Trial Balance

Running the Trial Balance (TB) at month end can really help to identify coding issues, but it will also highlight other potential errors. Look at your income and expenditure – are the positive and negative numbers in the right place? There are occasions where an income line will be negative (grants being clawed back) and where expenditure will be positive (credit notes not yet used) but other issues could be identified by a quick scan of those credits and debits – don’t ignore them, be able to narrate them. You can use ledger code transaction reports to analyse the issues that you identify and unpick errors for correction.

Reconciliation

Payroll, bank accounts and VAT should all reconcile on your system. Has everyone been paid correctly, and if not, why? It could be that an amendment has gone through without your knowledge, but find out and ensure that you know the reason for the variance and that it has been approved appropriately. Do variances on your bank statement come from items being posted in the wrong period? Is your VAT being claimed accurately and in a timely manner to support cashflow?

Control Accounts

On the balance sheet side of your TB, is everything under control? Your payroll control accounts should be balanced, if not you need to investigate. The exception to this may be your PAYE which should balance back to your payroll reports. What debtors and creditors are sat over 30 days, and what is being done to ensure that money owed to you is going to be paid in the next couple of weeks and that the outstanding invoice does not create additional charges for the school? Is accrued and deferred income being coded correctly and reconciled back to your funding allocation statements, so you receive everything you are due?

Create a “Right First Time” Culture

When investigating red flags, it has the potential to create a lot of questions for a range of people that you work with. Some of these questions will be uncomfortable and awkward as people may feel under attack when errors are identified. The process needs to be a supportive one and should result in systems and guidance being put in place to avoid the same errors recurring in the future. Training, coaching and support will mean that colleagues are confident in the accuracy of their work and that a “right first time” culture is embedded when it comes to financial procedures.