Chapter 3: Financial management
Contents
This chapter contains more detailed information for boards (particularly those with finance
responsibilities) and for school Principals and Administrators.
Financial Management
3.1
Operational Planning
3.2
SMART objectives
3.2.1
Planning for international students
3.2.2
Financial systems and internal control
3.3
Asset management policy
3.3.1
Bank accounts
3.3.2
Borrowing
3.3.3
Buy or lease?
3.3.4
Conflicts of interest
3.3.5
Delegations – who is allowed to do what?
3.3.6
Financial records
3.3.7
Fraud
3.3.8
Fundraising cash
3.3.9
Funds held for International Students
3.3.10
Gifts
3.3.11
Guarantees and indemnities
3.3.12
Internal control
3.3.13
Inventory/stock
3.3.14
Large or long-term financial commitments
3.3.15
Loans to staff
3.3.16
Petty cash
3.3.17
Procurement guidance for schools
3.3.18
Securities
3.3.19
Segregation of duties
3.3.20
Shared funds
3.3.21
continued on next page
Chapter 3: Financial Management
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Chapter 3: Financial management
Contents
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Financial Management Relating to Employees
3.4
Funding, Staffing and Allowances Handbook
3.4.1
Banking staffing
3.4.2
Severance Payments
3.4.3
Management reports
3.5
Purpose of monthly financial reports
3.5.1
Responsibility for preparing reports
3.5.2
The basics of good reporting
3.5.3
Monthly Report to Board (through Finance Committee)
3.5.4
Monthly report to Principal and Finance Committee
3.5.5
Monthly Report to Budget Holders
3.5.6
Insurance
3.6
Risk management scheme
3.6.1
Workers accident insurance
3.6.2
Contract works insurance
3.6.3
Assets
3.7
Asset Acquisition
3.7.1
Fixed Asset Register
3.7.2
Furniture and equipment
3.7.3
Library and curriculum resources
3.7.4
Capital works – state-integrated schools
3.7.5
Buildings – state schools
3.7.6
Housing
3.7.7
Surplus Property Disposal Incentives Scheme (SPDIS)
3.7.8
Minor or valuable assets
3.7.9
Depreciation and asset replacement
3.7.10
Asset replacement plan
3.7.11
Tax
3.8
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Chapter 3: Financial Management
3.1 Financial Management
This list of indicators shows how a school’s finances can be well managed.
• Positive working capital – short-term assets (cash and assets that can be converted to cash
quickly) are greater than short-term liabilities (payments that have to be made soon) −
shows the school can pay its current debts.
• Operating surplus – income is greater than expenses.
• No unauthorised orders for goods and services.
• Bank reconciliations up to date and complete.
• Sufficient cash is held to represent all reserves and funds held on trust.
• Financial queries are answered promptly and completely.
• Monthly financial reports are accurate, complete, timely and useful.
• Annual reports are produced on time and receive an unqualified audit report.
• The management letter received from the school’s auditor contains no adverse comments.
• Budgets approved by the board are in place and are monitored monthly by the board.
• Financial policies are in place, have been approved by the board and are reviewed
annually.
• There are written delegations from the Board to committees and staff and signed copies of the delegations are kept on the Delegations File.
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3.2 Operational Planning
Once strategic goals are set, it is necessary to develop a plan to achieve the strategic goal.
Operational planning typically includes deciding who is going to do what and by when and in
what order so that the school will reach its strategic goals. These plans are usually the concern
of the Principal and staff, they generally focus on the short term (up to 12 months) and they
have to be linked to the annual budget.
Operational plans and objectives:
• are developed from strategic goals
• are usually the concern of the Principal and staff
• set out systems and processes in detail
• have specific time frames
•
are short term in focus (up to 12 months).
3.2.1
The objectives of an operational plan can be summarised as ‘SMART’:
SMART objectives
What are our targets to be achieved?
S
Specific
How will this be done?
Who will be responsible
M
Measurable
Which indicators tell us the progress we have made
towards our targets?
Who will monitor them?
A
Achievable
What resources (human, financial, administrative,
technical) are required?
Can it be done?
R
Realistic
Does it have sufficient priority?
Is it worth the cost?
T
3.2.2
Planning for
international
students
Timely
When will it happen?
Can it be done in the current year?
Planning for international students includes marketing, forecasting numbers, ensuring
appropriate educational and pastoral care resources will be available and putting in place
financial systems to manage them.
Useful resources to plan for international students are the marketing services of the Education
New Zealand Trust (www.educationnz.org.nz), together with the general ‘export education
brand’ for New Zealand (www.newzealandeducated.com).
continued on next page
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3.2 Operational Planning continued
International Students − Code of Practice for Pastoral Care
When students from other countries come to study in New Zealand, it is important that those
students are well informed, safe and properly cared for. The ‘Code of Practice for the Pastoral
Care of International Students’ was introduced on 31 March 2002. The Code sets out minimum
standards of advice and care that are expected of education providers regarding international
students on their rolls. It provides a procedure that students can follow if they have concerns
about their treatment by a New Zealand provider or agent of a provider. Unless a school signs
up to the Code they are not able to enrol international students.
Summary of the Code
Standards are set for education providers to ensure that:
• high professional standards are maintained
• the recruitment of international students is
undertaken in an ethical and responsible
manner
• information supplied to international students is comprehensive, accurate and up to date
• students are provided with information before entering into any commitments
• contractual dealings with international students are conducted in an ethical and
responsible manner
• the particular needs of international students are recognised
• international students under the age of 18 are in safe accommodation
• all providers have fair and equitable internal procedures for the resolution of international
student grievances.
The Code also establishes the International Education Appeal Authority and the Review Panel
to receive and adjudicate on student complaints.
Part 3 of the Code covers Contracts and Indemnity and one of the requirements is to have a
policy that protects the fees of international students to ensure there are good fiscal control
mechanisms in place.
Good fiscal controls should include:
• fees coded and audited separately
• fees not spent in advance on the premise that students will continue to attend the school
• the board always having sufficient reserves to be able to return student fees if a student refund
is required because the school is unable to provide or continue a course or programme.
Example Fee Protection Policy
Kiwi Park School separately records fees received from international students as
‘fees in advance’. These funds are held in the school’s main bank account and only
released as revenue when the fees have been earned (meaning when the student
has completed a block of course work – usually on a term by term basis). Kiwi Park
School Board of Trustees guarantees to keep sufficient funds in reserve to enable the
refund of the unearned portion of fees, should the school or the student be unable
to continue the course.
Note: this fee protection policy is a minimum requirement for schools hosting international
students. Schools may have more comprehensive Fee Protection Policies, including separate bank
accounts for fees in advance, insurance cover and legal trusts.
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3.3 Financial systems and internal control
A financial system includes financial processes that people follow, how those processes are
approved, paper documentation and computerised records.
A financial system also includes sub-systems eg, money coming into the school (income/debtors),
money going out of the school (expenses/creditors), asset management and payroll systems.
Financial processes for each financial sub-system should be documented clearly, paperwork
should be filed systematically and computer records should be printed and backed up
periodically.
3.3.1
Asset
management
policy
Refer also to 3.7 − Assets
The Ministry of Education encourages schools to have asset management policies that require
asset replacement and maintenance plans. This planning will inform the decision to buy, lease
or enter into other long-term debt arrangements (ie, for maintenance).
For example, a school may implement an aspect of their asset management policy to maintain
and replace personal computers on a three to four-year life cycle and write them off in line
with the standard three-year warranties applicable to most personal computers. The funds
required to replace personal computers can be staggered over a number of years, avoiding the
constraints of needing large capital funding injections once every three to four years or the
need to lease information technology equipment.
3.3.2
Bank accounts
Operating a school bank account
All money received by a school must be paid, as soon as practicable after it is received, into the
school’s bank account. The account must comply with Education Act requirements at all times.
School boards must properly authorise the withdrawal or payment of money from their bank
accounts. This means that:
1. Boards may grant a power of attorney to a service provider to use the bank account but
those boards will still be responsible for that account
2. No income for the school can be paid directly to a service provider trust account, proprietor’s
account or the account of any other third party.
Bank reconciliations should be completed at least monthly and weekly for larger schools (banks
will provide weekly bank statements on request).
Authorised bank accounts
School bank accounts must:
1.Be in the name of the school only and may not include the name of a service provider. For
example, ‘Kiwi Park School’ or ‘Kiwi Park School Board of Trustees’
2.Be denominated in New Zealand dollars unless the Minister of Finance allows otherwise
3.Be held at one or more of the following:
a. a registered bank or registered building society that meets a relevant credit-rating
  specified in the Crown Entities s.158(1)(a) and the credit-rating test set out in
 Regulation 7; or
b. a registered bank or registered building society that meets the conditions of any
relevant approval given by the Minister of Finance by notice in the Gazette; or
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3.3 Financial systems and internal control continued
c. a bank outside New Zealand if that meets the conditions of any relevant approval
given to all schools, is authorised by the Minister of Finance or conditions related to
an individual school, a group of schools or a type of bank account.
Approvals have been given by the Minister of Finance to allow Crown entities to hold bank
accounts at TSB Bank Limited (TSB) and registered building societies, subject to certain
conditions. These conditions require that:
a. TSB does not fall below its current credit rating by Standard & Poor’s of BBB– and
continues to comply with the conditions of registration by the Reserve Bank; and
b. a registered building society confirms in writing that it has total equity of at least $15
million and is in compliance with the terms of its prospectus and trust deed related to
the offer of debt securities and has not notified that it no longer satisfies these
conditions.
All approvals are gazetted in the NZ Gazette.
The Reserve Bank maintains, and updates from time to time, a list of registered banks and their
credit ratings at: www.rbnz.govt.nz.
Refer to: www.minedu.govt.nz/goto/finance for a current list of approved banks and securities.
Period of Grace for Bank Accounts that Cease to be Authorised
Should a bank account cease to qualify as an account authorised as detailed above, a board
has a period of grace in which it may continue to operate that bank account. By the end of that
period, it must have closed the account and transferred all the money in the account to another
account that does qualify as an authorised account. This situation would arise, for example, if
a registered bank no longer satisfies the credit-rating test or TSB or a registered building society
ceased to satisfy any of the conditions of the approval given by the Minister of Finance. The
period of grace ends on the earlier of:
• two months after the bank account ceases to qualify; or
• a date specified by the Minister of Finance and notified to the board.
Approval of Bank Accounts at registered banks and building societies
If your board wishes to operate a bank account that is not authorised under the guidelines
above it can apply to the Ministry of Education, attention Senior Financial Advisor, for approval
of the bank account. The application must contain the following information:
• why the board wants or needs to bank with a bank or building society that does not meet
the specified credit-rating test
• the nature and size of the board seeking approval and the likely amounts that will be kept
in the bank from time to time
• what the bank or building society’s credit rating is (if applicable), the reasons it has not been
able to satisfy the specified credit-rating test and the significance of those reasons, in terms
of investment risk, to the board as a banking customer
• whether
the bank or building society is prudently managed and meets its statutory
obligations
•
the ability of the bank or building society to meet the needs of the board and the relative
convenience of the board using that bank or building society
continued on next page
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3.3 Financial systems and internal control continued
• the level of risk that the bank or building society might default on its obligations (and any
attendant Crown risk)
• whether there is any other factor that might point to it being financially irresponsible for the
board to bank with the particular institution.
Bank accounts at banks outside New Zealand
School boards of trustees may not operate a bank account at a bank outside New Zealand
unless they receive the prior written approval of the Minister of Finance or the prior approval
of the Minister of Finance by notice in the Gazette.
Boards may seek the Minister of Finance’s approval for the operation of a bank account outside
New Zealand. For such a request to be considered a board must forward a written application to
the ministry (attention Senior Financial Advisor, PO Box 1666, Wellington) and receive approval
prior to opening the account. Bank accounts denominated in foreign currency
The bank accounts of school boards of trustees must be denominated in New Zealand dollars
unless the board obtains the prior approval of the Minister of Finance.
For such a request to be considered a board must forward to the Ministry a written application
(attention Senior Financial Advisor, PO Box 1666, Wellington) and receive approval prior to
opening the account.
3.3.3
Borrowing
School boards of trustees can only borrow within the limits set by s67 of the Education Act
1989 and the conditions specified in regulation 12 of the Crown Entities (Financial Powers)
Regulations 2005. A school board of trustees can:
“in any calendar year, borrow any amount it thinks fit from any source it thinks fit
provided that the total annual cost to the board of trustees in repaying all outstanding
borrowings (including both principal and interest repayments) is equal to or less than
one-tenth of the value of the grants determined by the Minister of Education to be paid
to the board for operational activities for that year”.
What situations won’t create a breach of the borrowing limit?
From time to time changes in a board’s circumstances may cause the board to exceed the 10%
limit. For example, increases in interest rates and/or decreases in operational funding may
cause the board to have borrowing in excess of the limit. If this occurs, the board is not required
to seek retrospective approval for the borrowing, because at the date the borrowing was entered
into, the borrowing met the restrictions. However, if changes to a school’s environment have
caused it to exceed the 10% limit, then any further borrowing will be in breach of the Act.
If money has been borrowed within a board’s borrowing limit and the board subsequently
decides to retire the debt early (pay it off), when the repayment of the principal plus interest
costs for the year exceed the school’s 10% limit, the repayment of principal will not cause the
school to breach regulation 12 of the Crown Entities (Financial Powers) Regulations 2005 or s67
of the Education Act.
A long term-loan or short-term advance from the Ministry of Education will not create a
breach.
Note: advances are only approved for schools that are in severe financial difficulties and will
almost certainly be accompanied by a requirement to engage expert assistance.
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3.3 Financial systems and internal control continued
What will create a breach of the borrowing limit?
Any new borrowing that causes a school’s total principal and interest repayments to exceed
10% of its operational funding in that year will cause a breach of the borrowing limit. The new
borrowing may be a finance lease (some long-term property maintenance contracts are a form
of finance lease), overdraft or other loan.
If a board exceeds the limit and does not obtain prior ministerial approval then that board is
deemed to be in breach of the Education Act 1989 and retrospective approval cannot be given.
How can a school get approval to exceed the borrowing limit?
If a board wants to borrow in excess of the 10% restriction it must obtain the prior joint approval
of the Ministers of Education and Finance.
The board must submit a written application that includes the following information:
a)the educational benefit expected from the new borrowing, eg, increased capacity or improved
performance from the acquisition of physical assets
b)a copy of the board’s minutes showing its resolution that the proposed borrowing is necessary,
including how and why, to achieve the aims and objectives for its strategic direction as set out
in the school charter
c) the value and the term of the proposed borrowing arrangement, along with any associated
security, contractual restrictions, obligations or covenants
d)any credit rating or other financial risk information about the proposed lender
e)a copy of the board’s latest audited financial statements and current year-to-date financial
information for the school
f) a copy of the board’s financial plan (including a projected Statement of Cash Flow) that
demonstrates the school’s ability to meet its current financial obligations and the proposed
borrowing arrangement
g)details of any interest a board trustee may have and the extent and/or financial value of that
interest
h)information relating to any negative implications that may accrue to the board if the
borrowing arrangement is not approved.
This application should be forwarded to the Ministry of Education, National Office, attention
Senior Financial Advisor, Ministry of Education, PO Box 1666, Wellington.
The Ministry of Education will consider the application and may request clarification or further
information. If the Ministry of Education supports the application then they will forward it to
Treasury officials for consideration. Joint approval by the Minister of Education and the Minister
of Finance is required.
If approval is granted the following conditions will apply:
a) the approval is from the date of the decision and is not retrospective
b) the approval is for the proposed borrowing arrangement only
c) the Ministry of Education and Treasury do not guarantee any borrowing arrangements
entered into by boards.
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3.3 Financial systems and internal control continued
3.3.4
Buy or lease?
Should you buy or lease? And if you lease, should you rent or get a finance lease? Both buying
and leasing have their own benefits and drawbacks. The decision to buy or lease depends on
the costs and circumstances of each school, including whether a lease would exceed the school’s
borrowing limit. A Buy-Lease Excel tool is available in the resources section of this handbook
and is available for download from the ministry’s website. The tool will assist you and your
board to make the appropriate decision for your school.
A lease is a rental agreement by which the legal owner of goods (lessor) allows another party
(the lessee) to use those goods for a stated period of time in return for a series of payments.
When deciding whether to lease assets, the board and principal must weigh the advantages and
disadvantages. A leasing arrangement can be used to overcome shortfalls in funding but it has
the potential to cost a board more in the long run and to constrain budget flexibility by creating
expenditure commitments in future years.
By leasing, schools may be unnecessarily surrendering assets well before the end of their useful
lives. There is also the risk that the acquisition and replacement of assets will be driven by
leasing rather than operational need and optimal replacement times and therefore result in
additional costs.
The Ministry of Education encourages schools that do not have sufficient cash to purchase
assets to assess whether leasing is preferred to buying, after seeking quotes for other sources
of finance. For instance, it may be cheaper for a school to obtain a loan from its bank than to
obtain a finance lease for assets at a higher interest rate.
Leases are generally more expensive than borrowing or purchasing outright (in net present
value terms) because they include a premium to compensate the lessor for assuming the risks
of ownership. The most significant risks of ownership are obsolescence and a less than expected
resale price when the owner disposes of the assets (‘residual value risk’). A school may determine
that it would be highly exposed to these risks if it were to own the assets and, therefore, it may
be prepared to pay a premium to transfer these risks to a lessor. In these cases, leasing could be
shown to be more cost effective. In other cases, leasing can be cheaper than purchasing.
A lessor makes profits through a combination of interest charges, tax benefits and proceeds
of asset sales or re-leases. Some lessors have developed specialised distribution channels for
disposing of assets and, therefore, can expect to obtain higher resale prices for second-hand
assets than the lessee (school) could. In these situations, the benefits of higher disposal values
are passed onto the lessee in the form of reduced lease payments. As such, the total payments
over the term of the lease can be less than an outright purchase (in net present value terms). A
summary of the advantages and disadvantages of buying and leasing are listed below.
BUYING
LEASING
ADVANTAGES
• Flexibility in the use and replacement
• Risks of ownership are retained by
• Unrestricted access to benefits of
• May offer a cheaper method of
• May be less costly in the long run
• Minimises obsolescence concerns
of assets
ownership
the lessor
acquisition
DISADVANTAGES
• Requires initial capital outlay
• Limits control of assets
• Possible financial and operating issues if • Lease payments may be excessive
assets become obsolete well before the
• Short lease terms may force lessees
end of their economic lives
to unnecessarily surrender assets well
before the end of their useful lives
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3.3 Financial systems and internal control continued
3.3.5
Conflicts of
interest
Why does a conflict of interest matter?
A conflict of interest may be more perceived than actual. All aspects of school governance and
management must be fair and ethical and must be very clearly seen to be so.
The State Services Commission notes that conflicts of interest should be viewed within an ethical
context of “good faith, honesty and impartiality”.
• Good faith: members of boards have an obligation to act at all times in good faith and in
the best interests of the school.
• Honesty: members of boards have an obligation to act honestly at all times in relation to all
matters concerning the school.
• Impartiality: members of boards must observe the principles of fairness and impartiality, or
access to information, or anything similar.
How the situation may be perceived by an outsider is as important as the reality. For example,
a board may have a dispute with a builder about the quality of building work carried out. If
that builder was the brother in-law of one of the trustees, a member of the school community
might reasonably assume that the trustee would be influenced by this relationship if the board
considers legal action against the builder.
What should a trustee do if they have a conflict of interest?
If a trustee has a conflict of interest, they must declare that and remove themselves from any
discussion or decision making by the board of trustees in that matter1.
An important rule of thumb for trustees to use is ‘if in doubt, opt out!’ When there is any doubt
about whether a conflict of interest exists, or whether an outside observer could reasonably
perceive that such a conflict exists, it is safer for both the Board and the trustee if the trustee
declares the interest and excludes themselves while the board discusses the matter. This is
particularly important when a trustee feels passionately about an issue – if he or she declares
their interest and excludes themselves from the board there can be no subsequent allegations
that the board’s decision making was tainted.
What should a Board of Trustees do about a conflict of interest?
The Education Act does not prohibit a board from entering contracts with trustees or people
associated with trustees – provided the trustee concerned declares their interest and excludes
themselves from meetings when the matter is being considered.
However, under s103A a trustee may be disqualified from continuing as a board member if they
have a financial interest in contracts with the board that total more than $25,000 in a financial
year unless the board obtains prior approval from the Secretary for Education.
How can a school apply for approval where contracts may exceed $25,000?
If a board wants to enter into contracts totalling more than $25,000 in any one year with a
board of trustee member who has declared a conflict of interest, the board must obtain the
prior approval of the Secretary for Education. The Secretary for Education must be satisfied
there is no risk that the school trustee who has a concern or interest in the contract has used
their position on the board to receive preferential treatment from the board.
continued on next page
Schedule 6 (clause 8) of the Education Act 1989 states that “…a trustee who has a pecuniary interest in any matter or any interest
that may reasonably be regarded as likely to influence a trustee in carrying out his or her duties and responsibilities as a trustee shall be
excluded from any meeting of the board while it discusses, considers, considers anything relating to, or decides, the matter.”
1
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3.3 Financial systems and internal control continued
The board must submit a written application that includes the following information:
1. Evidence that the board has taken all reasonable steps to ensure that potentially interested parties had an opportunity to tender for the contract
2.Evidence that the board has considered and evaluated each of the tenders or quotes, and can
justify the preferred choice on the basis of cost, performance or quality of service
3.Evidence that the board has resolved to accept the contract subject to the Secretary for
Education’s approval. The contract should not have been entered into prior to approval being
sought, but it is permissible for the board to have conditionally entered into the contract
subject to obtaining the Secretary’s approval
4.The board minutes record that the trustee who is ‘concerned or interested’ in the contract,
declared that interest and excluded themselves from all meetings of the board when the
matter was being considered.
Although the Secretary may retrospectively approve contracts that have already been entered
into, the approval process is not an automatic one. Where the contract has already been entered
into when a board makes its application, evidence needs to be provided that there is sufficient
good reason why the board did not apply for prior approval.
Applications for approval should be made to the Ministry of Education National Office, attention
Senior Financial Advisor, Ministry of Education, PO Box 1666, Wellington.
Note: this figure of $25,000 is only a trigger point. Even if a contract is less than $25,000 but still a
significant sum (say $5,000-$10,000), the board needs to be very certain that it has taken the same
rigorous approach to ensuring that a conflict of interest is avoided.
What should a Board of Trustees do if the conflict of interest is unmanageable?
A conflict of interest can be managed when the board member is able and willing to remove
themselves from any discussion and decision making surrounding the ‘conflicting interest’.
A conflict of interest may be unmanageable when a board member is unable or unwilling
to disassociate themselves from the conflicting interest. In some cases the conflict may be so
pervasive or material that the trustee is unable to discharge their duties at all and therefore
should resign from the board.
3.3.6
Delegations –
who is allowed to
do what?
A delegation is a formal tool used to communicate the authority and responsibility that is
being vested in an individual or group. Providing delegations to school employees are one of
the key ways in which boards carry out their responsibilities for governing schools. By setting
appropriate delegations the board communicates its views about school management to staff.
For example, a board may delegate to the principal authority to make all staff appointments
within the existing school structure. However, the board may retain the right to approve or veto
any appointments to newly established positions.
Delegations are given only by board resolution, with the nature and conditions of the delegation
to be specified in writing and provided by notice to the delegated person or persons as specified
in s66 of the Education Act 1989. By formalising the delegation process (recording it in writing)
the Board reduces the risk of:
• overlooked tasks because ‘everybody thought someone else was doing it’
• duplicated tasks because several people thought they were responsible
• conflicts between people or groups because they feel they are uncertain who should be
doing what.
A sample of a formal delegation is available in the Resources Section of this handbook.
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3.3 Financial systems and internal control continued
3.3.7
Financial records
Section 168 of the Crown Entities Act 2004 requires school boards of trustees to ensure that
accounting records:
• correctly record and explain the transactions of the school; and
• will at any time enable the financial position of the school to be determined with reasonable
accuracy; and
• will enable the trustees to make certain that the financial statements of the school
• comply with generally accepted accounting practice
• include any other information or explanations needed to fairly reflect the school’s financial
operations and financial position; and
• include the forecast financial statements prepared at the start of the financial year, for
comparison with the actual financial statements
• will enable the financial statements of the school to be readily and properly audited.
The accounting records must be in written form or in a manner in which they are easily accessible
and convertible into written form.
3.3.8
Fraud
Fraud refers to an intentional act by one or more individuals among management, employees,
or third parties intended to deceive others. Fraud may involve:
• manipulation, falsification or alteration of records or documents
• suppression or omission of the effects of transactions from records or documents
• recording of transactions without substance
• misapplication of accounting policies
• misrepresentations in a financial report
• misappropriation (theft) of assets.
The ministry policy is to refer all prima facie cases of fraud to the appropriate authorities for
consideration of prosecution. Schools are expected to adopt the same policy.
The school board and management are responsible for the prevention and detection of fraud
and error, which is done through the implementation and continued operation of adequate
internal control systems. These systems reduce but do not eliminate the possibility of fraud
and error.
Boards should note that it is not the responsibility of auditors to detect or prevent fraud. In
the course of their work, auditors may uncover evidence of fraud and, if that is the case, they
bring this evidence to the attention of the board. It remains the responsibility of the board and
Principal for the prevention, detection and reporting of fraud.
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3.3 Financial systems and internal control continued
Practical steps to protect the school
Remember that most fraud is opportunistic. Generally, fraud is committed when an individual
is presented with an opportunity to commit that fraud.
For example, when a school employee holds a school credit card and that same employee is
responsible for checking, approving and paying the credit card bills, an opportunity exists for
them to use the credit card for personal purchases without anyone else noticing. By ensuring
that an independent person reviews all credit card purchases, the opportunity for fraud is
reduced.
Practical steps that staff and the board can take to protect the school are:
• remain
sceptical. It is better to ask questions and follow up where necessary than to
suffer loss
• educate all concerned of the risk of fraud. The more people who are aware of the risk, the
harder most frauds become
• revisit your financial controls whenever changes occur. You must ensure the controls in
place in your school are appropriate to the systems you operate. Where possible, make sure
that more than one person is involved in any financial process
• seek independent assistance. A review of your systems and controls by an independent,
expert third party can be highly beneficial
• if you do find fraud, take action. Taking appropriate legal action against a fraudster does
two things. It prevents the fraudster from taking advantage of another school and it sends a
clear message to all that fraud will not be tolerated.
If you suspect fraud in your school, then immediately seek appropriate advice from an expert,
such as your liability insurer, the Ministry of Education Financial Advisor, an auditor or forensic
accountant with fraud investigation experience or a solicitor who has taken fraud cases. This
is important because if the correct process is not followed, it is easy to destroy the chance
of recovery of funds. If the person you suspect of fraud is an employee, contact your NZSTA
industrial advisor, or another advisor approved by your liability insurer, for advice on how to
handle the issue appropriately.
No single control will protect against fraud. Instead, a full and varied set of systems and controls
provides the best chance of fraud protection.
3.3.9
Fundraising cash
Schools undertake a variety of fundraising activities, sometimes using associated groups
to organise the activities. Careful controls on cash in and out should be agreed before the
fundraising activity starts. For example, a cash ‘float’ may be required at the beginning of the
activity to provide change for cash purchases etc. The source of those cash funds should be
carefully recorded and all cash received counted by two people before banking.
One system for reducing cash handling at school fairs is to sell tickets equivalent to cash that
can be ‘spent’ at booths and stalls around the fair. That keeps cash at the ticket booth, where
there should always be two people monitoring cash in and tickets out.
Cash should not be provided to any third party who is not directly associated with the school
and its board. This includes the PTA and any external persons or businesses on site. They must
be responsible for obtaining their own cash.
Note that state integrated schools should refer to the Ministry of Education webpage for fundraising
advice. See Fundraising Advice (Board of Trustees of Integrated Schools) - Ministry of Education
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3.3.10
Funds held for
International
Students
In certain circumstances, schools may look after international students’ personal funds and
‘drip-feed’ this money to the student over the year. However, there are other options available,
such as bank accounts with restrictions on access.
Whatever the legal arrangement, any school looking after funds for international students
needs to regard itself as being in a fiduciary relationship with the student. Therefore, the school
must behave in an exemplary manner with regard to the use of the funds.
For example, schools should deposit the private funds held on behalf of students into a bank
account separate to the school’s main bank account – schools are holding funds on trust and
have a very high duty of care. Interest earned on the funds must be returned to the students
rather than being treated as a windfall by the school. Schools should have written agreements
with the students and/or their parents/guardians to outline the circumstances in which the
funds can be used or accessed and by whom.
Schools should not act as financial guarantors for international students since this places school
resources at risk. Moreover, while boards have very wide powers, they are only allowed to
commit school funds in pursuit of school goals as outlined in their charters and according to
the National Administration Guidelines (NAGs).
3.3.11
Gifts
A board of trustees should be cautious when giving and receiving gifts. This is a sensitive area
of expenditure where perception is important. Generosity should be tempered with probity
for prudent management of school finances. Decisions should be made carefully, taking into
account the purpose and value of the gift. If the board has any doubt about the appropriateness
of a gift they should seek independent advice (eg, from a lawyer, NZ School Trustees Association
or their regional Financial Advisor in the Ministry of Education).
Gift policies generally require that all gifts given and received by school employees and trustees
are recorded. This ensures transparency in school operations and also provides protection for
employees in the event of allegations being made about that employee. Gift policies also reduce
a school’s exposure to the risk of fraud and any obligation to the giver.
Giving gifts
Gifts given in recognition of employment or services rendered by employees (including payments
made when employees retire, compassionate grants and bonus payments), may conflict with
the terms of collective agreements and require concurrence ie, approval from the Secretary
for Education (refer to the collective agreements and the Funding, Staffing and Allowances
handbook).
The board may wish to express their thanks to parents or other community members who
donate services to the school by way of a small gift. It may also be appropriate for employees
travelling overseas to give a small gift to their hosts.
Factors that the board may wish to consider would include the value of gifts, frequency of gifts,
perception issues, personal links between staff/trustees and receivers of gifts.
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3.3 Financial systems and internal control continued
Receiving gifts
Gifts to Boards of Trustees
Section 68 of the Education Act allows a board to accept or decline any gift of money or property.
Where a board accepts the gift of an item that it could not acquire on its own behalf (for
example, real property or securities that are not authorised by the Act or by approvals given by
the Ministers of Education and Finance) the Act allows the board to continue to hold that gift
for a period that is reasonable in the circumstances. In these circumstances boards wishing to
retain the gift are advised to seek approval within 12 months of receiving it. If approval is not
forthcoming then the board must return the gift.
In some circumstances, a board may receive a gift or bequest where, as a condition of the gift
or bequest, the board must continue to hold a security in its current form. This form of gift or
bequest is common in schools where the donor or testator determines that the school should
continue to hold the security and fund activities or prizes from any return on that security.
In these circumstances the acceptance of a conditional gift or bequest creates a trust and
section 161(2) of the Crown Entities Act exempts the board from the requirement to hold only
authorised securities. The board may, therefore, continue to hold the gifted or bequeathed
security in perpetuity without need to seek approval.
Gifts to School Employees
School employees should consider the appropriateness of the gift offered.
It may be appropriate for a teacher to accept a small gift from the parents of a student who
has shown great improvements under that teacher’s guidance. A cash gift to a teacher by the
parents of a student under threat of suspension or stand-down is clearly inappropriate. It could
lead to a feeling of obligation to the giver, or even to allegations of bribery or graft.
Similarly, a principal or trustee accepting a gift from a construction firm when the school is
about to tender a construction project would not be appropriate as it would give rise to a
conflict of interest.
3.3.12
Guarantees and
indemnities
A guarantee or indemnity is an undertaking to do something that has a financial and often
long-term consequence. Examples where schools may give a guarantee or indemnity without
the prior approval of the Minister of Finance and Minister of Education are limited to:
• an agreement to perform functions for another school (for example, a board may undertake
to perform the functions of a lead school in an administration cluster, a schooling
improvement cluster or an RTLB cluster)
• an indemnity relating to and contained in a loan agreement lawfully entered into by the
board as borrower
• a contract to lease, or a lease of, real property entered into by the board as lessee or
tenant
• a contract (including a deed) executed by the board to settle litigation brought against it by
a third party
• a contract of hire executed by the board in the ordinary course of its operations
• a contract of insurance entered into by the board as the insured party in the ordinary course
of its operations
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3.3 Financial systems and internal control continued
• a contract for the sale and purchase of goods entered into by the board in the ordinary
course of its operations
• a contract for the procurement of services entered into by the board in the ordinary course
of its operations
• a contract for the purchase of an intangible (including intellectual property or a license of
intellectual property) entered into by the board in the ordinary course of its operations.
Except as outlined above, a school must not give a guarantee to, or indemnify another person
without the express prior approval of the Minister of Finance and the Minister of Education.
Schools should not act as financial guarantors for international students.
Sometimes when a school sets up a trading account with a new supplier the supplier
may ask for a personal guarantee from the Principal. Under no circumstances should
a Principal (or anyone) sign a personal guarantee on behalf of the school. The school
is a Crown entity, not a company, and therefore the Principal is not in a position to
give personal guarantees. The supplier should provide an account application form
for a non-profit organisation, trust, incorporated society or similar entity, which will
not require a personal guarantee.
How to get approval for guarantees or indemnities
Regulation 14 of the Crown Entities (Financial Powers) Regulations 2005 allows boards to
authorise guarantees and indemnities that arise in the ordinary course of a school’s operations.
If a board enters into a guarantee or indemnity not provided for in the regulations and does not
obtain prior ministerial approval then that board is deemed to be in breach of the Education
Act 1989 and retrospective approval cannot be given.
Requests for approval to provide guarantees or indemnities beyond those provided for in the
Crown Entities (Financial Powers) Regulations 2005 are unlikely to be approved unless the board
can clearly demonstrate that the proposal is financially prudent and the business purpose is
consistent with its strategic direction and objectives as per its charter.
The application should include:
1. Any business reasons for providing the guarantee or indemnity
2. Any risks and benefits expected to accrue to the board if they provide the guarantee or
indemnity
3. Any negative implications that may accrue to the board if the guarantee or indemnity is not
approved
4. The maximum value and term of the proposed guarantee or indemnity
5. Details of any interest a board trustee may have, and the extent and/or financial value of
that interest
6. Any credit rating or other financial risk information relating to the proposed guarantee or
indemnity
7. Current year-to-date financial information for the school
8. A copy of the board’s financial plan, which demonstrates the school’s ability to meet its
financial obligations and the proposed guarantee or indemnity should the guarantee or
indemnity be called upon
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3.3 Financial systems and internal control continued
9. A copy of the board’s minutes showing its resolution that the proposed guarantee or indemnity is necessary to achieve the board’s aims, as set out in the school charter
10. Any wider educational considerations that should be considered in reviewing the
application.
If approval is granted the following conditions will apply:
1.The approval is from the date of the decision and is not retrospective.
2.The approval is for the proposed guarantee or indemnity only.
The request should be sent to the Ministry of Education National Office, attention Senior
Implementation Advisor, Schools and Student Support, PO Box 1666, Wellington.
3.3.13
Internal control
Internal control refers to the set of policies, procedures and systems an organisation uses to
safeguard its resources. These can range from requiring two signatures on a cheque to having
a computerised purchasing and accounting system that separates the ordering, approving,
receipting of and payment for purchases.
No organisation can completely guard against fraud and theft. However, a combination of
internal controls will help to prevent it.
If you would like to know more about effective internal control contact your local Ministry of
Education Financial Advisor, your school’s accounting service provider or your auditor.
3.3.14
Inventory/stock
Many schools or associated entities operate trading activities of some sort eg, canteen, uniform
sales or stationery.
There should be documented systems for recording purchasing, receiving, paying for supplies,
sales, income received and banking that include segregation of duties and cross checking. One
key control is a physical count of all stock with a reconciliation against records of items received
and sold. A uniform shop may require a stocktake once a month or each quarter; a canteen may
require a daily stocktake.
All receipts and all payments made by cheque should be banked. Purchases must not be made
from cash receipts but should be made through cheque, or for small value items, through the
petty cash payments process..
A regular comparison of income against cost of goods sold should show a predictable pattern.
Unusual variances should be investigated, especially if the operation is making a loss.
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3.3 Financial systems and internal control continued
3.3.15
A school board of trustees needs to take significant care when making decisions about large
Large or longterm purchases or long-term financial commitments. Decisions made now may impact a school’s
financial
financial situation for many years.
commitments
The diagram below includes some of the things that should be considered when making
decisions about spending a lot of money and before signing long-term contracts.
is the item/s a
significant asset?
No
Yes
is the item a
consumable?
Yes
No
ASSETS
Examples include:
- computers
- buildings
- vehicles
CONSUMABLES
Examples include:
- stationary
- sports equipment
- centeen supplies
SERVICES
Examples include:
- painting and maintenance contacts
- plumbing and electrical work
- computer consultants
Possible options include:
- buy
- finance lease, or
- operating lease
Possible options include:
- preferred supplier agreement
- bulk purchase agreements (eg, STAbuy - see www.nzsta.org.nz)
- case by case purchase
Possible options include:
- preferred supplier agreement
- quotes or closed tender
Key considerations
- buy
- cash discount
- warranty
- on going service and supplies
- maintenance (local expertise and
complexity)
- economic life
- obsolescence
Note - for more information
for the pros and cons of leasing
versus purchasing see the
ministry’s information guide
...found at www.minedu.govt.
nz/goto/finance...also available
is a lease calculator in the form
of a downloadable spreadsheet
which will help calculate a cost
benefit analysis of leasing versus
purchasing.
Key considerations
- cost
- availability
- continues supply
- delivery cost
- environmental impact
- loyalty discounts
- fit for purchase
- bulk purchase discount
- quality
Key considerations
- total cost
- quality
- previous experience
- reputation
- communication
- continuity of service
- guarantee
Note - for long term contracts it
is important the school considers
the total cost of the contract and
the amount of interest paid. For
assistance with this calculation
see the ministry’s downloadable
spreadsheet available at
www.minedu.govt.nz/goto/ finance
Key considerations in all acquisitons involving goods or services:
- will the acquisition contribute to more efficent or effective administration or the learning outcomes of students? If not then reconisder whether this is the best use of resources
- is the acquisition in the school’s strategic plan and has it been budgeted for? For large expenditure consider whether the acquisition is affordable
Chapter 3: Financial Management
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3.3 Financial systems and internal control continued
3.3.16
Loans to staff
In terms of the Education Act a loan made by a school to a member of staff is illegal unless prior
approval has been received from the Minister of Education.
Note: there are occasions where the board may need to make what is sometimes referred to as an
‘advance’ to staff because of an error in payroll processing. These payments need to be clearly
described as payments for arrears of pay, not payments for advances of pay (which would be
effectively a loan).
3.3.17
Petty cash
Petty cash is used to make small purchases or reimbursements in cash for items such as stamps,
office supplies, milk etc. The board or senior management should develop a policy of how
much money should be available in cash and a maximum expenditure that can be paid with
petty cash – this can be included within the school’s cash management policy.
For example, they may establish a petty cash fund of $200 and have a policy that says payments
for items costing over $20 must be made by cheque rather than reimbursed through petty cash.
The fund should be enough to cover petty cash expenditures for about a month. If it is too small
it will have to be constantly replenished and if it is too large cash will be held on hand that
could be more safely kept in the bank.
The petty cash fund should be kept in a locked box or drawer. Auditors recommend that only
one person, called the custodian, have access to this cash and that person be responsible for
all petty cash activity. To disburse petty cash funds, the school will need to document each
transaction, using receipts and petty cash vouchers and determine who in the school can
approve petty cash top-up payments.
Establishing a petty cash fund
Once the board has determined (with staff input) how large a fund is needed, write a cheque to
the petty cash custodian (not to cash) to establish the petty cash fund. For example, if you have
a $100 petty cash fund and Mary Robinson is the petty cash custodian, write a cheque for $100,
payable to Mary Robinson, Petty Cash Custodian. Mary then cashes the cheque and places the
money in a locked box or drawer.
Operating a petty cash fund
To reimburse someone (in this example, John Roberts) for a small purchase, Mary should obtain
proof of purchase from John, ie, a receipt. John must complete a petty cash voucher, detailing
the nature and reason for the purchase. After the voucher has been approved by the appropriate
person, John is reimbursed for his expenditure. A sample petty cash voucher is provided under
Attachment 1. Most stationery stores sell pads of petty cash vouchers if you do not want to
design your own.
In some cases, the school may permit an advance from petty cash to cover an upcoming
purchase. For example, if the office manager is going to the post office to mail an overnight
package, they may get approval to take $20 from the petty cash fund with the stipulation that
he or she return with a receipt and change. In this case, the office manager completes a voucher
for a $20 advance, approved by a designated staff member. When the office manager returns
they complete an accurate voucher for the final postage amount, attach the receipt and return
the change to the custodian.
Once the fund is substantially depleted, the petty cash custodian adds up the vouchers and
assigns them into appropriate categories (e.g., postage, office supplies). The total of receipts
plus cash available must equal $100 in order to prove that all money has been accounted for.
When the account has been balanced, a cheque is written (in accordance with the cheque
authorisation procedure established for all disbursements,) again payable to the petty cash
custodian, for the exact amount of the vouchers/receipts, bringing the fund back to its original
balance of $100.
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3.3 Financial systems and internal control continued
Therefore, in the example described above, Mary totals the receipts in the petty cash box and
determines that they fall into the following categories:
Postage (4 receipts) $32.50
Printing/copying (1 receipt) $11.50
Office supplies (2 receipts) $26.95
Total receipts $70.95
In addition, Mary confirms there is $29.05 in cash remaining in the petty cash box. A cheque
for exactly $70.95 is written, payable to Mary Robinson, Petty Cash Custodian, to bring the
fund back to $100. This method of maintaining a constant amount in petty cash through a
combination of cash and receipts is called an imprest system. The petty cash vouchers should
be stapled to the summary of expenses prepared by Mary and filed away so they are not
reimbursed a second time.
When entering this transaction into the accounting system, the petty cash cheque can be split
between the expenses incurred or coded to ‘petty cash’ and recoded by journal.
Petty cash internal controls checklist
The following questions reflect common internal accounting controls related to petty cash. You
may wish to use this list to review your own internal accounting controls and determine which
areas require further action.
• Is an imprest petty cash fund maintained for payment of small, incidental expenses?
• Is there a limit to the amount that can be reimbursed by the petty cash fund?
• Is supporting documentation required for all petty cash disbursements?
• Is a petty cash voucher filled out with supporting documentation, name of person being
reimbursed and proper authorisation?
• Is access to petty cash limited to one person who is the fund custodian?
• Are unannounced counts of petty cash made by someone within the school other than the
fund custodian?
3.3.18
Procurement
guidance for
schools
Basic principles that govern all public spending
There are some basic principles that govern the use of all public funds. They should be considered
for any funding arrangement with an external party. This includes procuring goods or services.
The international literature on this area includes many different versions of the principles that
need to be considered. They cover similar ground. The basic principles are summarised as:
• Accountability – schools should be accountable for their performance and be able to give
complete and accurate accounts of the use they have put public funds to
• Openness – schools should be transparent in their administration of funds, both to support
accountability and to promote clarity and shared understanding of respective roles and
obligations between schools and any external party
•
Value for money – schools should use resources effectively, economically and without waste,
with due regard for the total costs and benefits of an arrangement and its contribution to
the outcomes the entity is trying to achieve
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3.3 Financial systems and internal control continued
• Lawfulness – schools must act within the law and meet their legal obligations
• Fairness – schools have a general public law obligation to act fairly and reasonably. Schools
must be, and must be seen to be, impartial in their decision-making
• Integrity – anyone who is managing public resources must do so with the utmost integrity.
By applying these principles sensibly, schools can demonstrate they are spending public money
wisely and properly managing the process for spending it.
Financial delegations and other authorities
School board members and employees must comply with any applicable financial delegations
when purchasing goods or services.
A school should cross-reference its procurement policies and procedures to the up-to-date list
of financial delegations and ensure that all relevant staff are aware of them.
Once the total cost of purchasing has been approved, financial delegations for payments to
suppliers within the approved amount should be set at a level that does not place undue
restrictions and administrative burden on the contract manager. In deciding on the levels of
financial delegations in a contract, schools may wish to consider:
• the value and complexity of the contract
• the function that the individual is responsible for performing in the project
• the fiscal risk to the entity.
General approach to procurement
Procurement policies and procedures
Publishing an unambiguous procurement policy and following that policy reduces the risk
of challenges to the decision-making process and may reduce the cost. It also helps retain
credibility with suppliers. Clear processes can help ensure that the procurement policy is
consistently followed.
Organisational policies and procedures are more effective when they are up to date and easily
available to all staff who need to access them. For these reasons, a school’s procurement policies
and procedures should include:
• a process for regularly reviewing the policies and procedures and assigning responsibility
for updating them
• version control to identify the most recent version
• a process for educating staff, including any agent that the school uses to purchase on its
behalf, about the policies and procedures.
Keeping records
A school should keep records in accordance with audit and other normal processes of
accountability. This includes ensuring that records of all decisions and supporting documentation
are available for audit.
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3.3 Financial systems and internal control continued
Liability
When contracting for goods or services, a supplier or purchaser may wish to exclude or limit its
liability under the contract. It is not uncommon for suppliers to:
• propose excluding their liability for any losses that are not the direct result of their acts or
omissions (for example, for indirect loss, consequential loss, loss of profits);
• limit their liability to an amount that is a specified multiple of the value of the contract.
Schools need to understand that accepting a limitation on liability is different from giving a
supplier an indemnity. In accepting a limitation on liability, a school agrees to limit the liability
of a supplier to an amount specified in the contract. If the school suffers loss through the
supplier’s actions or omissions in performing the contract, the school will not seek to recover
more than the agreed amount and will bear any loss above that amount.
An indemnity, however, involves a school agreeing to accept the risk of loss or damage that the
supplier may suffer and to meet any costs to the supplier for that loss or damage. Schools need
to be aware of statutory restrictions on giving indemnities – for example, refer to the Public
Finance Act 1989 and the Crown Entities Act 2004.
Legal advice can help address these issues and assist a school with negotiating exclusions and
limitations of liability and assessing risks.
Confidentiality
Confidentiality is a common characteristic of any competitive procurement process. A school
should take particular care when handling commercially sensitive information. Schools should
note that confidentiality obligations apply throughout the entire procurement process and also
after the contract has terminated or expired. For more information see: http://www.oag.govt.
nz/2008/procurement-guide/
3.3.19
Securities
A security is any interest or right to invest in any capital, assets, earnings, royalties or other
property of any person. There are two main types of securities – debt securities and equity
securities.
In general terms, a debt security is a right to be paid money that has been lent to someone
else. The most common form of a debt security that most people are familiar with is a term
deposit. Debt securities can also include debentures, debenture stock, bonds, notes, certificates
of deposit and convertible notes.
An equity security is full or part ownership of a private or public company.
What this means is that you can own securities in a registered bank or other credit
worthy institution (seek advice on credit worthiness rather than make your own
decision, and you can own bonds and stock issued by public bodies, but you cannot
own shares in private or public companies (meaning companies listed on a stock
exchange. You definitely cannot invest overseas or in any currency other than New
Zealand dollars.
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3.3 Financial systems and internal control continued
Under s161(1)(a) of the Crown Entities Act and s73 of the Education Act boards may not acquire
securities other than:
1.A debt security denominated in NZ dollars that:
(a) is issued by a registered bank, or other institution, whose credit: OR
i. is rated as ‘A-‘, or ‘A-1’ for short-term securities, or higher by Standard
& Poor’s Ratings Group
ii. is rated as ‘A3’, or ‘Prime-1’ for short-term securities, or higher by Moody’s
Investors Service Inc, except that
iii. where the issue (security) is rated by one of the two agencies listed above
it must satisfy the test for that agency, and
iv. where the issue is rated by both Standard & Poor’s and Moody’s, it must
satisfy the test for each agency.
(b) meets a credit rating test that is specified for another credit-rating organisation in a notice
in the Gazette published by the Minister of Finance.
2.A public security (this includes any loan or credit agreement, guarantee, indemnity, bond,
note, debenture, bill of exchange, Treasury bill, Government stock and any other security
representing part of the public debt of New Zealand)
3. A security authorised by regulations or by approval jointly by the Minister of Education and
the Minister of Finance under s 160(1)(a) or (b) of the Crown Entities Act and also in s.73(2)(c)(ii)
of the Education Act.
Approval of securities
Approval for securities that do not meet the tests listed above requires the joint approval of the
Minister of Finance and the Minister of Education. Approval will only be given if there is no risk
to Crown funds; and there is a significant level of benefit (educational or otherwise) for one or
more boards or their students.
How to apply for approval to acquire securities
A written application needs to include:
1.Reasons for wanting to acquire these securities
2.Expected benefits from acquiring the security
3.Current financial information for the school
4.The value and, where applicable, the term of the security the board wishes to acquire
5.Details of any interest a board trustee may have and the extent and/or financial value of that
interest
6.Any credit-rating or other financial risk information about the issuer of the security
7.Any security offered by the issuer
8.An assessment of the potential effect on the school in event of default by the issuer
9. Information relating to actions taken, or proposed to be taken, by the board to minimise
and/or mitigate credit risk exposure if the application is approved.
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If approval is granted the following conditions will apply:
1.The approval is from the date of the decision and is not retrospective.
2.The approval is for this transaction only
3. The Crown does not guarantee securities acquired by school boards.
Applications should be forwarded to the Ministry of Education (attn: Senior Implementation
Advisor, Schools and Student Support, PO Box 1666, Wellington).
What if a debt security ceases to qualify as authorised?
Should a security cease to qualify as a security authorised by s.73(2) of the Education Act, as
detailed above, a board has a period of grace in which it may continue to hold that security.
The period of grace ends on the earlier of:
1.Two months after the bank account ceases to qualify
2.A date specified by the Minister of Finance and notified to the board.
From the time the board becomes aware that the security no longer satisfies the credit-rating
test it must diligently monitor the credit rating of the debt security and take all prudent steps
to avoid loss.
What if the school is given the securities?
Section 68 in the Education Act applies to boards that receive gifts of money or property. Under
this provision:
• any money or property that is gifted to a school may be accepted or declined by the board.
• any limitation in the Education Act or that applies under the Crown Entities Act 2004
(such as a limitation on the form in which property may be held) does not apply during a
period that is ‘reasonable in the circumstances (for schools this is a period of no more than
12 months)’.
• This means that the school is required to divest itself of the non-approved securities or apply
for approval to keep the securities within a year of receiving them. Requests for approval to
retain securities will be assessed on a case-by-case basis. All of the information listed above
for an application to acquire securities should be provided with the application to retain
securities.
What if the school is given non-approved securities as a conditional gift?
Refer also to Funds Held in Trust in Chapter 4 − Financial Reporting
In some circumstances a board may receive a gift or bequest with the condition that the board
must continue to hold the security in its current form. This form of gift or bequest is common
in schools where the donor or testator determines that the school should continue to hold the
security and fund activities or prizes from any return on that security.
In these circumstances, the acceptance of a conditional gift or bequest creates a trust and
the restrictions in section 160 regarding securities do not apply as stated in section 161(2) of
the Crown Entities Act. The board may, therefore, continue to hold the gifted or bequeathed
security in perpetuity without need to seek approval.
The list of approved types of securities is hard to understand. To summarise the
practical reality:
this means you can place money in a registered bank, you can probably accept most
gifts (but check with the ministry or seek legal advice) and you definitely cannot
purchase or own any form of investment that does not meet the credit rating test.
Chapter 3: Financial Management
January 2009
Page 25 of 40
3.3 Financial systems and internal control continued
3.3.20
Segregation of
duties
One of the simplest and most effective forms of internal control is to ensure the segregation of
any duties relating to purchasing and paying for items or handling money. This makes it harder
for one person to steal or defraud the school, unless they have the help of someone else, and
employees are not exposed to temptation.
When considering the segregation of duties schools should try to separate as many as possible
of the following functions:
• receipting of cash
• banking
• ordering of goods/services
• authorisation of expenditure
• cheque signing
• accounting records.
No one person should have control of ordering goods, approving expenditure and signing
cheques. This would allow a dishonest person to purchase and pay for goods for their own
use without the purchase ever being checked or detected by someone else. To prevent this
situation, the school could require that goods are requested, and the expenditure authorised,
by senior staff. The order is then placed by the school’s administration staff and the cheque
signed by a member of the board and the Principal, preferably with neither of the signatories
having prepared the cheque.
Effective segregation of duties is much more difficult in smaller schools where there are fewer
people available to carry out tasks. However, every attempt should be made to separate as many
of the functions listed above as possible, if necessary by the involvement of board members
with some tasks.
In addition to the segregation of tasks, another very effective internal control is requiring two
signatures on cheques. Two people should also be required to authorise payments made via
Internet banking. This arrangement can be formalised with the bank and will help prevent
fraudulent payments.
A sample of how financial duties within a school can be segregated is available in the Resources
Section.
3.3.21
Shared funds
There are several instances when schools share resources to achieve a common purpose. Common
purposes may include projects to improve teaching and learning, for teacher professional
development; to improve efficiencies; or to reduce administration costs. Examples include:
• Extending High Standards Across Schools (EHSAS)
• Enhanced Programme Fund (EPF)
• ICT Professional Development clusters (ICT PD)
• Joint Schools Initiative Funding (JSIF)
• Resource Teachers of Learning and Behaviour (RTLB)
• School transport networks (known as Direct Resourcing or DR)
•
Supplementary Learning Support (SLS).
continued on next page
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January 2009
Chapter 3: Financial Management
3.3 Financial systems and internal control continued
Shared resources may include people, property or funds (money). This information is about how
to account for shared funds.
Schools form a cluster or group (referred to as a cluster in the handbook) and share funds for
a common purpose as an administrative convenience; the cluster is not a new entity but is a
jointly controlled operation.
One school will be the ‘lead school’ (or ‘host school’ or ‘fundholder school’ or ‘initiating school’)
for the cluster and act as an agent for all the schools in the cluster. This school is referred to as
the lead school in the handbook. The lead school may set up a separate bank account on behalf
of the cluster, or account for shared funds using a separate ledger, but can only spend shared
funds as agreed with the cluster.
The lead school will receive funds from the Ministry of Education or other funding sources
on behalf of the cluster; they may also receive funds from member schools to be used for the
cluster’s common purpose.
The lead school should include GST on transactions for the cluster with their own GST returns.
The cluster should have a written agreement about what the shared funds are for, how they are
to be used, which school/s own any assets bought with shared funds, and what will happen to
any remaining funds and assets when the cluster stops working together.
The use of the funds is subject to the same considerations that apply to the schools that are
members of the cluster, eg, reporting, audit, procurement processes, investment of funds and
managing any conflicts of interest.
Reporting to the ministry or other funder of the cluster
An organisation that is funding the cluster (or the part of the Ministry of Education that is
monitoring funding provided to the cluster) may have specific requirements about reporting
that need to be adhered to by the cluster.
Such reporting requirements will be set out by the funder and are separate to the reporting that
schools are required to include in their financial reporting.
Management reporting to other members of the cluster
The lead school should track all income and expenses for the cluster’s purpose separately from
their other operations so that they can provide regular, detailed management reports to the
cluster and the cluster’s funders.
Each school that is a member of a cluster should show the balance of funds held by the lead/
host school on their behalf as an asset in their balance sheets, with reference to a note. The note
should include their share of the net income (or expenses) of the cluster for the year to show
how the asset balance changed during the year.
See how shared funds are accounted for in Chapter 4.5.
Chapter 3: Financial Management
January 2009
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3.4 Financial Management Relating to Employees
3.4.1
Funding, Staffing
and Allowances
Handbook
The Ministry of Education produces the Funding, Staffing and Allowances Handbook that includes
information on school staffing, payments to individuals and Education Service Payroll.
3.4.2
Banking staffing
Since 2001, schools have been allowed flexibility to manage their staffing, eg, they can employ
teachers over their allocated staffing entitlement or save up any unused staffing entitlement.
There are a range of processes that schools must adhere to and records relating to their
employees that schools must keep in good order.
Schools can save (bank) staffing for use later in the year. They can also anticipate staffing up to
a limit of 10 percent of their annual entitlement and pay this back by under-using their staffing
entitlement later in the year.
Schools are provided with a banking staffing report fortnightly. Under or over usage of banking
staffing as at 27 January (PP22) each year can be corrected up to and including PP26 (end of
March) of that year. Any remaining overuse at PP26 is deducted from the operations grant
funding payment on 1 July.
Note: PP means pay period
Refer to Banking Staffing Overuse in Chapter 4 - Financial Reporting.
3.4.3
Severance
Payments
The principles of good employment practice are:
• a fair and transparent recruitment and appointment process
• a clear and comprehensive employment agreement – with express provisions regarding
termination and redundancy
• regular reviews of performance against measurable benchmarks
• a clear and well-documented process for resolving disputes.
An employment relationship should be managed in such a way that a dispute does not escalate
to the point where termination of the relationship appears to be the only feasible option.
However, in some exceptional circumstances a fair and cost-effective means of terminating the
employment relationship may need to be sought.
It is vital that the board contact their insurance company as soon as there is any indication of a
dispute. The board should also immediately contact the industrial relations section of the New
Zealand School Trustees Association for advice.
Disputes settlement is the heart of employment law and practice. Some settlements are
inevitable. What is important is that they are:
• made for the right reasons
• structured appropriately
• as transparent as possible.
continued on next page
Page 28 of 40
January 2009
Chapter 3: Financial Management
3.4 Financial Management Relating to Employees continued
When facing a possible severance payment it is expected that, as an employer in the public
sector, a board will:
• seek and obtain specialist advice (in writing) before reaching a severance agreement
• use a fair, sound, documented process leading up to the severance agreement
• ensure the terms of the severance agreement are fair, reasonable, transparent, and properly
authorised
• keep its stakeholders appropriately informed throughout the process taking into account
the nature of the stakeholders’ interest and the need to protect other interests (such as
privacy of employees).
In May 2002, the Controller and Auditor-General reported on Severance Payments in the Public
Sector and identified the following six key principles that should underlie a public sector
employer’s approach to resolving employment disputes:
1)Minimise the potential for terminating employment
Any dispute with an employee arises in the context of an employment relationship. A good
employer should manage the relationship in such a way as to minimise the potential for an
emerging dispute to develop into one where termination of the employment becomes the
only feasible option for either party.
2)Reach a soundly based decision to settle
If termination of employment becomes the only feasible option for resolving a dispute, a
public sector employer’s decision to settle (rather than pursue a dismissal and/or defend a
personal grievance raised by the employee) should be one which is:
a) properly authorised
b) based on specialist advice that assesses all options for resolving the dispute and
appreciates the wider public sector dimension
c) reasonable and appropriate – having regard to the interests of the organisation and
the wider public interest.
3)Observe appropriate standards of probity and integrity
When negotiating an employment settlement, a public sector employer should conduct itself
in a manner that reflects appropriate standards of probity and integrity.
4)Ensure that terms of settlement are appropriate
A public sector employer that enters an employment settlement should ensure that the terms
of the settlement are consistent with:
a) the employer’s contractual obligations to the employee, and
b) the employee’s legal entitlement to, and acceptable levels of payment for, tax-free
compensation.
5)Preserve maximum transparency
A public sector employer should ensure that any confidentiality agreement reached as part
of an employment settlement:
a) is genuinely necessary, and in the interests of both parties
b) Ii consistent with the employer’s obligations regarding disclosure of information
c) does not otherwise prevent the employer from being accountable for its use of public funds.
continued on next page
Chapter 3: Financial Management
January 2009
Page 29 of 40
3.4 Financial Management Relating to Employees continued
6)Avoid exposure to public or political embarrassment
A public sector employer should not expose an external stakeholder to public or political
embarrassment in relation to an employment settlement by failing to:
a) address political or public interest risk, or
b) keep the stakeholder adequately informed.
Severance payments to trustees
The Education Act (section 78NA) states that no trustee is entitled to any compensation or other
payment or benefit relating to his or her ceasing to hold office as a trustee.
This section of the Act clarifies the government’s previously announced expectation that
government departments and Crown entities are not to provide ‘golden handshakes’ to members
as they leave office.
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January 2009
Chapter 3: Financial Management
3.5 Management reports
3.5.1
Purpose of
monthly financial
reports
To enable the Board of Trustees to carry out their financial governance responsibilities they
need to receive regular (preferably monthly) updates about the school’s financial performance
and financial position.
The board of trustees should get assurance from the financial reports that:
• they have been advised of all key current financial issues and how those are being managed,
eg, if the audit management letter was received recently, what actions are planned to
respond to any recommendations
• the school has positive working capital – or what is being done to improve the financial
position
• income
and expenditure is within budget for the year to date − or reasons for major
variations are supplied
• forecast income and expenditure for the rest of the year indicate the school’s finances will
remain on track – or what action is being taken to mitigate identified issues and risks, eg, if
the roll has changed significantly, has the forecast been adjusted
• all funds held on trust are kept separate and managed appropriately
• the school has set aside enough money for long-term commitments eg, asset replacement,
external painting
• the school is operating within the policies approved by the board, eg, there has been no
unauthorised expenditure, all spending is within delegations
The responsibility for preparing monthly financial reports will vary from school to school. It may
3.5.2
Responsibility for lie with an accounting service provider, the executive officer or the Board Treasurer. However, in
preparing reports general the board will delegate to the Principal responsibility for the quality of the reports and
for ensuring they are prepared and presented on time.
3.5.3
The basics of
good reporting
Things to keep in mind when preparing internal reports:
• old information is worthless information – so reports must be prepared and presented as
soon as possible. For example, if it takes 15 working days for monthly financial reports to
be generated by your accounting service provider, commented on by budget holders and
reviewed by the Principal, the board will not get their reports until near the end of the
following month. If the report indicates that urgent action needs to be taken it may be too
late
• the information presented should be limited to what is useful and relevant for decisionmaking. Providing too much detail can cloud the issues and may confuse
• information should be presented according to the needs of the audience. Avoid accounting
jargon, especially for a board whose members have little or no financial experience. The
Finance Committee is likely to want more detail.
Chapter 3: Financial Management
January 2009
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3.5 Management reports continued
3.5.4
Monthly Report
to Board
(through Finance
Committee)
The monthly report to the board should include:
• Statement
of Financial Performance (or a summary statement) showing revenue and
expenditure against budget to date
• Statement of Financial Position (or a summary statement) including significant commitments
for the next month
• Commentary/Exception Report – a simple written report showing:
– any unusual or unexpected variance from what was budgeted, eg, extra interest
– any points that should be brought to the board’s attention
– any areas of risk and plans for mitigating that risk
– plans and expectations for the coming month(s).
Payments outside the Principal’s delegation (eg, over a certain amount or of a certain type)
need to be presented to the board for approval.
3.5.5
Monthly report
to Principal
and Finance
Committee
The Principal, as the manager of the school’s day-to-day finances, should receive more detailed
monthly reports. It is important the Principal is fully conversant with the financial performance
of the school.
Therefore, in addition to the reports provided to the board, the Principal should receive a
complete Statement of Financial Performance and review a full ledger transaction report,
listing all income received and payments made during the month.
3.5.6
If a senior staff member has been allocated responsibility as a budget holder then the Principal
Monthly Report to is obliged to keep them fully informed. They should receive regular and up-to-date reports
Budget Holders
showing details of all transactions from accounts within their control and the balance against
budget.
The budget holder should always have an accurate picture of all expenditure committed. They
should also hold records of all outstanding orders.
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January 2009
Chapter 3: Financial Management
3.6 Insurance
The Risk Management Scheme offered through the Ministry of Education is a contents and
3.6.1
Risk management liability insurance that covers most losses of property in the event of break in, vandalism or fire,
as well as a range of legal liabilities.
scheme
It is important to keep a record of what is being insured. For example, as well as a fixed asset
register, some schools make a video/DVD recording of the contents of each classroom.
Premiums for the Risk Management Scheme are deducted before schools receive their operational
grants. All state schools are automatically included in the scheme. Ministry approval is required
to opt out of the scheme.
Note: board-funded buildings are not insured by the Ministry of Education. Seperate insurance
cover should be arranged.
3.6.2
Workers accident
insurance
From 1 July 2000 Accident Compensation Corporation (ACC) became the sole provider of accident
insurance for all employers. All claims for work-related injuries occurring on, or after, 1 July
2000 must be lodged with ACC.
On behalf of state and state-integrated schools the ministry has entered into ACC’s WorkPlace
Cover programme. Further detail is provided in the Funding, Staffing and Allowances Handbook.
Schools are invoiced by ACC each August for their Residual Claims Levy and Workplace Cover
premiums.
3.6.3
Contract works
insurance
Contract works insurance covers property that is in the course of construction for Ministry of
Education contracts or jointly funded contracts with the board of trustees. The cover is on the
basis of accidental damage, including vandalism, theft and earthquake to the contract works
and is not extended to board of trustee property or contractors’ plant and equipment.
Boards of trustees will need to arrange 100% cover for work to board of trustees owned assets
or work that will create a board owned asset.
Other potential areas of insurance
Schools are covered for most types of insurance. However, additional areas of insurance that
should be considered are:
• overseas travel insurance – if staff travel abroad on school business
• motor vehicles – the Risk Management Scheme covers vicarious liability for motor vehicles
within the public liability section, but if a school owns motor vehicles, then it should consider
obtaining comprehensive insurance for these
• overseas students – overseas students should obtain their own health and travel insurance.
Chapter 3: Financial Management
January 2009
Page 33 of 40
3.7 Assets
3.7.1
Asset Acquisition
Schools have a lot of assets – fixed assets, minor/valuable assets and stock. All assets need to be
recorded and managed.
See 3.3.18 Procurement guidance for schools
Competitive quotes
Prior to seeking competitive quotes for lease finance, schools should obtain the most competitive
quote or tender to purchase the asset. Obtaining a competitive equipment purchase price is
fundamental to obtaining, and assuring, value for money. As with most acquisitions, good
financial management would be to seek the lowest purchase price and then, if borrowing
money, the cheapest source of finance. The same principle applies to equipment leasing.
If a school decides that leasing or borrowing is preferred then it is important schools directly
negotiate lease finance with more than one lessor.
Standard Lease Agreements
Lease agreements have the potential to contain a variety of terms and conditions that are not
appropriate for schools (such as onerous rights of entry, unknown future costs or very long
term arrangements) or could significantly increase the costs of leasing and, therefore, affect the
outcome of a lease vs. buy analysis.
3.7.2
Fixed Asset
Register
Fixed assets are physical goods with useful lives in excess of 12 months, which provide a benefit
during each year of their lives and are generally replaced – computers, office equipment, library
and curriculum resources, grounds-keeping equipment etc.
What is on the fixed asset register
Schools are required to maintain fixed asset registers. For each asset the register lists:
• purchase date
• purchase price
• estimated useful life
• residual value
• annual depreciation expense
• depreciation rate
• accumulated depreciation
• book value (purchase price less accumulated depreciation)
• description
• quality
• location
• asset classification (eg, sports equipment)
• donor (where applicable)
• vendor.
continued on next page
Page 34 of 40
January 2009
Chapter 3: Financial Management
3.7 Assets continued
The ministry suggests that schools only record assets in their Fixed Asset Register if they cost
more than $1,000, but smaller schools may choose a lower value and larger schools a higher
value. Every board should minute their minimum asset register value.
The Fixed Asset Register should be kept up-to-date and an asset stocktake done at least
annually.
3.7.3
Furniture and
equipment
Funding for furniture and equipment in state schools is provided as a capital contribution.
There is no GST included and it is not income for the school. On receipt, the money should be
credited to the school’s equity account in the Balance Sheet and not recorded as revenue in the
Income Statement.
Funding for furniture and equipment in state-integrated schools is provided as part of their
grant income and does include GST. Funding is on the basis of new square metres based on an
approved maximum roll increase, at the same rate as state schools. As with state schools, repair
and replacement of furniture and equipment is the responsibility of the school to pay for from
their operations grants.
Furniture and equipment is the property of schools rather than the Ministry of Education and,
therefore, schools are responsible for its repair and replacement. Grants received from the
Ministry of Education provide for this repair and replacement, but if the school’s furniture and
equipment needs are met the money can be used for other purposes.
More information about furniture and equipment funding is available in the State Schools
Property Management Handbook – see:
Section 3 - Qualifying for Funding - Ministry of Education or www.minedu.govt.nz
3.7.4
Library and
curriculum
resources
A school’s library resources form a valuable asset that serves to support teachers and enhance
students’ learning opportunities.
Record of library acquisitions
For schools using automated library management systems, the following information should
be recorded electronically, with copies in the form of back-up tapes or disks stored off-site at
all times. For schools using manual systems, a Library Accession Register should be maintained
and for each book it should record the:
• date of purchase or donation
• barcode number assigned to the item (automated systems) or accession number (manual
systems)
• title and author
• publisher
• supplier
• purchase cost, GST exclusive (or estimated cost if donated)
The register is very important in the event of a fire or civil disaster. It will be this record on
which an insurance claim will be based. For this reason it is vital that back-up disks or tapes
are done regularly and stored off-site and for schools on manual systems, the accession register
must also be kept off-site.
Chapter 3: Financial Management
January 2009
Page 35 of 40
3.7 Assets continued
Classroom library resources
If schools have resources purchased specifically for classroom use (such as classroom books),
then they should be treated in the same way as library resources. If entered on the automated
library system, the same information should be recorded as for library resources. If the school
uses manual systems, the details should be recorded in a section of the Accession Register.
These resources will be depreciated in the same way as library resources and should be included
in the annual stocktake.
Curriculum and teacher resources
Departmental and curriculum resources are a mix of working tools (such as Ministry of Education
curriculum materials, Learning Media curriculum support resources, instructional teaching
resources, School Journals, graded reading materials and resource kits from other educational
agencies and publishers) as well as subject-specific textbooks, journals and resources purchased
to support specific curriculum areas. These should be recorded as library resources.
3.7.5
Capital works state-integrated
schools
Capital works include land, buildings and build ing additions and alterations.
For state-integrated schools, capital works are the responsibility of the proprietor and should
not show as assets on the school Balance Sheet. It may be possible for the board of trustees to
get approval from the Ministry of Education and their proprietor to undertake capital works
– refer to information on the webpage:
Capital Works Expenditure by Boards of Trustees of Integrated Schools - Ministry of Education
If approval is granted then the capital works must be included in an equitable lease between the
proprietor and the school board of trustees. Template documents are available in the Resources
Section of this handbook.
3.7.6
Buildings – state
schools
Any buildings erected on Crown land become part of that land. Legal ownership of educational
Crown land and the buildings on it that are used by schools is vested in the Ministry of Education.
It is for these reasons that before any school buildings are erected on school land, Ministry of
Education approval must be obtained. This will avoid any later disputes as to the ownership,
use and disposal of such buildings. The cost of a board-funded building must be accounted for
as a fixed asset in the school’s Balance Sheet. All buildings on the school’s Balance Sheet are the
responsibility of the board of trustees to manage and maintain.
3.7.7
Housing
A number of school houses have been transferred to board of trustee ownership since 2005
and should also be in the school’s Balance Sheet. The Ministry of Education Teacher Housing
Policy and management guidelines are available on the ministry website www.minedu.govt.nz
– keywords Teacher Housing.
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January 2009
Chapter 3: Financial Management
3.7 Assets continued
3.7.8
Surplus Property
Disposal
Incentives Scheme
(SPDIS)
Boards can release surplus property to the ministry for disposal through the Surplus Property
Disposal Incentive Scheme (SPDIS). Information about this is available in the State Schools
Property Management Handbook:
There are restrictions on how these funds may be spent - See Section 3 - Qualifying for Funding
- Ministry of Education - Property Management Handbook.
On the Ministry of Education website, search for property handbook
3.7.9
Schools should keep a register of minor or valuable assets that cost less than the asset register
Minor or valuable value but need to be managed and replaced if they wear out or get lost, stolen or damaged. A
assets
minor/valuable asset register is likely to include items such as telephones and mobile phones,
small printers and other low-value computer equipment, and sports equipment.
A minor/valuable asset register should record:
• description
• location
• purchase date
• purchase price
• estimated useful life
• donor (where applicable)
• vendor.
3.7.10
Schools must budget for depreciation and should be setting aside the cash equivalent to the
Depreciation and depreciation expense for asset replacement.
asset replacement
If a school budgets for a small surplus including depreciation, and meets that budget result at
the end of the year, then they will have a cash surplus that includes the operating surplus and
the depreciation expense.
The resulting cash surplus can be used for asset replacement.
Chapter 3: Financial Management
January 2009
Page 37 of 40
3.7 Assets continued
3.7.11
Asset
replacement plan
As well as recording all fixed assets in the Fixed Asset Register, schools should maintain those
assets in good working order and plan for their replacement.
Asset planning should be consistent with an Asset Management Policy – refer to Financial
Governance, chapter 2.
One suggested method for preparing an asset replacement plan is to:
1.Ensure that the Fixed Asset Register is up to date and accurate
2.Identify fixed assets that you:
(a) don’t plan to replace eg, school houses, assets becoming obsolete with technology changes
(b) don’t plan to replace by using board funds, eg, assets bought with fundraising
(c) don’t plan to replace by purchasing, eg, computers that will be leased. Make sure that
all finance leases are within the school’s borrowing limit; and use the lease/buy tool
available in the Resources Section to ensure the right decision is made
3.Decide what new assets will be needed to achieve the school’s strategic plan. Note: asset costs such as consumables and maintenance need to be budgeted for.
4.Determine when existing assets will be replaced. Note: replacement costs may be higher than original cost; and that roll projections will affect the
number of assets to replace.
5.Prepare a forecast of future cash flows needed for asset replacement, including timing of
purchases during a year, as teaching staff may expect assets to be available for the beginning
of a new school year
6.Compare the depreciation budget with the asset replacement budget. Prepare a savings plan
to cover any shortfall plus new asset purchases.
Build in flexibility to the asset and savings plans if possible so that funds are available if an asset
needs to be replaced unexpectedly.
It can be a challenge to stick to an asset plan, especially if there is a perceived need or community
expectation to keep up with technology beyond the school’s ability to pay for it, or if senior staff
members are tempted by marketing and salespeople.
It may help to discuss variations to the Asset Replacement Plan at a board of trustee meeting
and/or with the school’s financial service provider and to have a ‘wish list’ of items that could
be considered for purchasing later in the year, as finances allow and there are clear links to
educational outcomes.
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January 2009
Chapter 3: Financial Management
3.8 Tax
There are a number of tax issues that apply to schools. The Inland Revenue Department (IRD)
has a range of useful information available from its website: www.ird.govt.nz, especially the
IR253 ‘Education centres: A tax guide for organisations that provide education’.
Income Tax
State and state-integrated schools are exempt from income tax under the Education Act
(Schedule 6, clause 2).
Payroll taxes and employer deductions
Payroll service centres manage payroll taxes and deductions on behalf of schools for all
employees on the education service payroll. Refer to the Funding, Staffing and Allowances
Handbook for information at:
Funding, Staffing and Allowances Handbook - Ministry of Education
If a school manages the payroll for any employees then that school is responsible for all payroll
taxes and deductions for those employees. Please refer to the IRD webpage on employer
responsibilities:
Payroll for employers or www.ird.govt.nz/payroll-employers and obtain and read all relevant
IRD guides.
If a school provides housing for employees at below market rent then they should refer to the
Ministry of Education website: www.minedu.govt.nz
Goods and Services Tax (GST)
Please obtain and read a copy of the IR375 ‘GST Guide’.
Schools must be GST registered and must complete GST returns regularly. The Ministry of
Education recommends two-monthly GST returns or monthly for large schools.
Systems need to be established to ensure GST is fully accounted for and is readily reconciled
with GST returns. GST statements received from the IRD need to be checked with the return
submitted and any adjustments required incorporated into the accounting system.
All ministry grants are GST inclusive except for Furniture and Equipment Grants, Capital
Contribution Grants and School Support Capital Grants.
Most expenses have GST included except for wages and salaries, interest and back charges and
loan repayments.
Make sure that you only claim GST on expenses where the supplier has provided a correct GST
invoice (refer to the IR375 GST Guide about what should be included in a GST invoice).
Check that all your invoices are correct GST invoices.
A common mistake that schools make is to pay invoices that are addressed to other organisations
or people. For example, a school could contract a painter for the exterior repaint of school
buildings. The painter then purchases paint on behalf of the school and gives the invoice from
the paint company to the school for payment. If that invoice is addressed to the painter rather
than the school and the school pays the invoice and subsequently tries to claim a GST credit,
the school has committed an offence and could be fined. Instead, the painter should pay for
the paint then include the cost of the paint on their invoice to the school or the school should
pay the paint company directly.
Chapter 3: Financial Management
January 2009
Page 39 of 40
3.8 Tax continued
Fringe Benefit Tax (FBT)
Please obtain and read a copy of the IR409 ‘Fringe benefit tax guide’.
Schools are employers and may have to pay FBT on benefits provided to employees. Schools
should take care that any such benefits do not contravene the terms of collective agreements.
FBT may be payable on the laptops provided to teachers (and any other employees) if they
have significant private use and no recovery is made for that by the school. It is recommended
that schools stress to teachers that the laptops are to be used predominantly for work-related
purposes.
FBT will be payable if a school vehicle is provided to a Principal for their private use. Providing
a vehicle for private use would also form part of the Principal’s remuneration and requires
concurrence from the Ministry of Education. If the board allows a Principal to take a school
vehicle home (such as the school van), it should be clearly documented that the vehicle is not
to be used for private use.
Note: any of the IRD tax guides recommended can be found at www.ird.govt.nz
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January 2009
Chapter 3: Financial Management