Contact: Sheila Little , 01962 847545, [email protected] mailto:

1 Summary

1.1 The Scheme for Financial Management of Schools (SfFM) is being updated and new government guidance needs to be incorporated. The list of proposed changes is being considered by Schools Forum on 11 October 2006. It then needs to be agreed as the basis for consultation with all schools before submission to the DfES for approval.

1.2 The management by schools of their delegated funds is governed by the SfFM. This incorporates important safeguards and controls, such as the role of the County Council's Financial Regulations, Standing Orders and Contract Practice Notes, in setting the principles which schools need to follow. Each local authority has to prepare a scheme in accordance with statutory guidance from the DfES.

1.3 The current SfFM was approved by the Executive Member for Education on 27 March 2003. The changes proposed reflect the experience of the last three years and anticipated new government guidance.

1.4 The proposals do not contribute directly to the new Corporate aims but meet statutory requirements and will improve the quality of financial management in schools.

2 The Government's policy context for school financial management

2.1 When the Government made its announcement on 21 July 2005 about school funding from April 2006 it covered school financial management issues as well as the introduction of the Dedicated Schools Grant(DSG). The DfES said that the new arrangements are designed:

· to give schools greater certainty over their future budgets, while retaining all-important stability in their funding;

· to provide schools with the tools they need to plan ahead with confidence, to improve their financial management, and to link their financial planning to the school improvement outcomes they are aiming to achieve.

2.2 The recently published changes to the SfFM set out specific measures to help achieve improved financial management:

· Multi - year budgets forecasts by schools

· The facility to clawback excess uncommitted school balances

· The introduction of notices of concern

· The implementation of the Financial Management Standard in Schools (FMSiS).

2.3 These specific measures have been welcomed by many local authorities and School Forums, including support for the principles by Hampshire's Schools Forum. The main issues were contained in draft DfES statutory guidance which was discussed at Schools Forum on 2 May 2006. The final version is still awaited; it is not expected to materially differ, but in order to give schools sufficient time to consider the changes, the proposals need to be considered now.

3 The proposals for change to Hampshire's Scheme for Financial Management of Schools (SfFM)

3.1 The scheme is the main instrument for regulating the financial management of schools and it is binding on the County Council and on schools. It does not cover the formulas for allocation of funds to schools as those are covered by separate regulations and are expressed in the budget share guidance notes and other supplementary material.

3.2 The detailed texts of the changes that are proposed are given in Appendix 1.They follow the order of the current scheme which can be found at http://www.hants.gov.uk/education/schools/lmscheme/index.php. They can be grouped into a number of main themes which are then considered in the remaining sections of this report:

· budgeting and planning

· financial reporting

· balances

· deficits

· notices of concern

· financial management standards and FMSiS

· general updating.

4 Budgeting and planning

4.1 These changes reflect the local implementation of the objectives of multi year school budgets with explicit links with the wider school improvement plan and a requirement for schools to forecast budgets for the multi year period. Also emphasised is the importance of formal governing body ownership of the budget and the plan and the need for revised budgets during the financial year.

4.2 Appendix 1 with its detailed paragraphs on the changes (9, 11-14, 16, 18, 20-26, 43, 75) gives the proposed text on these aspects of the scheme

5 Financial reporting

5.1 There has been greater interest in the standards of financial reporting in recent years. The Audit Commission has expressed public concern at the inadequate level of information on school finances. All local authorities have to close their accounts, which include all the finances of schools, by the earlier date of 30 June. Locally there is experience of schools' use of the County Council's accounting system and the problems that can arise where a few schools do not use it. All these factors have influenced the changes that are proposed.

5.2 Whilst the broad approach of the changes is shown in Appendix 1 (31-33, 67-72, 76), the rewritten reporting appendices (91-92) attached at Appendix 2 give the full detail.

6 Tackling school balances

6.1 The level of school balances has grown over the last few years and this has been a concern both locally and nationally. School returns and budget forecasts regularly show that balances will reduce in the near future and that the rest is committed. The evidence does not support these propositions as the table in 6.2 shows.

6.2 The movement in school balances in Hampshire over the last few years is shown below:

6.3 Details on individual school balance can be found at http://www.hants.gov.uk/education/schools/section52/2005/tableb.pdf

6.4 The most recent national data (for 2004/05) indicates that the total of school balances at March 2005 was £1.508 billion or 6.9% of planned budget (up from £1.3bn and 6.4% the previous year). This suggests that the local position is not untypical.

6.5 It is important both locally and nationally to tackle the rise in balances. The new DfES statutory guidance introduces a requirement that the scheme should have a mechanism for clawing back excess uncommitted school balances. This concept was supported by Schools Forum on 2 May 2006 and the detailed proposals are given in the next section and Appendices 1 and 3.

7 Clawback of excessive balances

7.1 These changes, Appendix 1 (15, 17, 19, 54-56, 60-63, 93),provide the Hampshire enactment of the new DfES requirement to have a balance control mechanism with excessive uncommitted balances, that is ones not assigned for a specific purpose, being redistributed. They apply from 1 April 2007 and so returns are needed from all schools with balances for 2006/07. Since the DfES guidance requires authorities to have established for each school by 31 May whether any clawback applies, the declaration by each school as to its assignation of balances is needed by 1 May.

7.2 This is a material change to Hampshire practice whereby schools have been notified of their balance in early June and have had until the end of the summer term to give reasons for the larger balances. Instead schools will have to incorporate their intentions and calculation of anticipated and target balances more fully into their financial planning and notify their intended uses by 1 May. Whilst the exact balance will not be known by then schools should have a clear idea and be able to declare their intentions and policies. The level of unassigned balance before clawback applies allows scope for last minute adjustments on the usual minor scale to be accommodated.

7.3 In place of the DfES suggestion of a 5% threshold in secondary schools and an 8% for primary, special and nursery schools with a universal clawback for uncommitted balances in excess of those percentages, a more vigorous approach is proposed. This should encourage the proper use of such balances by schools and reduce the likelihood of schools focussing on coming just under those thresholds. An uncommitted balance in excess of the greater of 4% of the current year's budget share (secondary) or 5% or £25,000 (other schools) is to be adjusted with the amount clawed back being redistributed. Thus, if the unassigned balance at 31 March 2007 of a large primary school exceeded 5% of the 2007/08 budget share the adjustment mechanism is likely to come into effect.

7.4 The new appendix to the scheme, Appendix 3 to this report, gives accepted reasons for recognising part of the balances as assigned to specific purposes. General contingency is not regarded as assigned to a specific purpose. Amounts not assigned or not accepted as being assigned form part of the uncommitted balance which is subject to adjustment. Where no declaration of assignment to specific purposes is made by a governing body all the balance is treated as unassigned.

7.5 The evidence from schools' returns for 2004/05 and 2005/06 on the intended uses of balances indicate that about £8.150m (391 schools) is in uncommitted balances including their general contingency and the scope for clawback is about £0.700m (36 schools).

7.6 A problem which has been frequently discussed is balances which are assigned to a purpose for several years and which do not get used. Appendix 3 also gives the lengths of time for which balances for particular purposes would be regarded as appropriately assigned. The onus would be on schools to provide reliable evidence that it is still reasonable to regard the money as properly assigned if the periods have been exceeded. Where balance returns to EFS over recent years show that these periods have already been exceeded the schools will be contacted in autumn 2006 for such evidence.

7.7 The evidence from authorities which have already implemented such schemes is that very little money is clawed back and redistributed but it has some impact on changing behaviour so as to use more of the money. The February 2007 meeting of Schools Forum will consider the best way of using any clawed back amount and this advice can then be considered by the Executive Member. This timing enables the clawback and reuse to be notified to schools together at the end of May.

8 Deficits

8.1 The provisions in respect of forecasting deficits, producing recovery plans, the monitoring and delivery of these plans are strengthened Appendix 1 (27-30, 39, 57-59, 66, 77). As rolls fall and deficits have to be eliminated by management action the importance of robust and achieved recovery plans has never been higher.

9 Notices of Concern

9.1 Existing rules and procedures have provided little scope for intervention short of the very drastic step of the removal of delegation. The introduction of FMSiS has further highlighted the need to raise concerns over financial management at school level with a mechanism for addressing them. The proposal to issue notices of concern with a range of interventions involved aims to deal with this problem.

9.2 In effect "Notices of Concern" provide an escalation mechanism which allows matters to be raised and the progress in meeting them to be monitored. The specific actions that are involved allow particular concerns that are relevant to individual schools to be dealt with. The inclusion of this facility is a very welcome feature of the new DfES guidance.

9.3 These clauses in Appendix 1 (34, 49-52, 76) provide a way of the authority expressing serious concerns as to a school's financial management and hence effecting improvements therein. The range of potential requirements given in section 13.4 of the scheme (Appendix 1 para 0) is widely drawn and in most cases only a few of them will be needed. In each case where a notice is issued the specific requirements will be set out in the notice itself. It is expected that this new power will have to be used regularly to stimulate the necessary improvements.

10 The introduction of the Financial Management Standard in Schools

10.1 The DfES have announced that all secondary schools are expected to meet the requirements of the Financial Management Standard in Schools (FMSiS) by March 2007. Primary, special and nursery schools have until 2010 to reach the standard which is nationally determined. Schools can be externally assessed or complete a self assessment as to their achievement of the standard.

10.2 The standard deals with many of the important aspects of financial management in schools and the respective roles of those involved. Thus it is essential to recognise it in the SfFM.

10.3 As well as the introduction of FMSiS and external assessment the new material Appendix 1 (5-8, 10, 37-38, 47-48, 90) also reflects the importance of maintaining public service standards. The full FMSiS itself should provide a real focus for schools to ensure they handle their financial affairs well.

11 General Updating

11.1 These changes, Appendix 1 (1-4, 35-36, 40-42, 44-46, 53, 64-65, 73-74, 78-89 and 94) mainly reflect more up to date wordings for elements of the scheme and incorporate material that has recently been found to be relevant, e.g. on the definition of loans and the treatment of children's centres. They also include a reordering of sections to improve the flow of the scheme.

12 Consultation process

12.1 The County Council have to consult every governing body and every headteacher before submitting the scheme to the DfES for approval. It is thus possible for the governing body and the headteacher of the same school to make separate replies. No more than two replies are acceptable from any school. Responses will be by Web form only and the person completing the return will required to indicate whether they are doing so on behalf of the head or the governors or both.

12.2 It is intended to issue the consultation papers to every school as soon as possible after consideration by the Executive Member on 12 October 2006. A deadline for responses of 31 January 2007 is the latest that can be allowed if the revised scheme is to come into effect on 1 April 2007. Schools will have the choice of endorsing/rejecting all the changes en bloc or dealing with each proposal individually.

12.3 The results of the consultation will be reported to both Schools Forum and the Executive Member in February 2007. This will allow scope for any adjustments to the proposals in response to the consultation. The proposed revised scheme will then be submitted to DfES for approval. To ease that process the DfES will be sent a copy of the consultation papers when they are issued to schools so that any problem areas can be highlighted early on.

13 Legal implications

13.1 None.

14 Financial implications

14.1 No cost implications but the management of funds by schools should improve.

15 Personnel implications

15.1 None.

16 Impact assessment

16.1 The proposals contained in this report are not considered to be discriminatory.

17 Crime prevention issues

17.1 Not applicable.

18 Views of the Local County Councillor

18.1 Not applicable as applies to all electoral divisions.

19 Recommendations

The Executive Member is recommended to:

1 approve the proposed changes to Hampshire County Council's Scheme for Financial Management of Schools as the basis for consultation with all schools.

Section 100 D - Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

None

NB: the list excludes:

1. Published works

2. Documents which disclose exempt or confidential information as defined in the Act.