Unit 2 School Budgeting

Introduction
After identifying possible sources of funds a school head, as a financial planner, has to draw up a plan for securing and expending the resources. For the plan to be expressed as a school budget a head needs to have some knowledge and experience of designing and managing a budget.

Individual study time: 4 hours

Learning outcomes
By the end of this unit you should be able to:

describe the responsibility of the school head as a financial planner
explain the nature and functions of budgeting in a school
design and manage your own school budget.

A school head as a financial planner
As a Headteacher, you mainly rely on resources that are determined by others, such as the government or the Parent‑Teacher Association (PTA), and assigned by them to you. Thus you may operate under a financial environment with two major elements:

1) Resources may be received from government which are usually fixed for the duration of the financial year.
2) Resources may be received from the region or district directly and from various community groups or NGOs, which are not fixed and are often far from certain.

However, as a school planner and finance manager, you should take an active rather than a passive role in determining, mobilising and acquiring financial resources. In such a way you are more likely to ensure the effective implementation of your school programmes. Thus your major tasks as a planner are to ensure that:

you fully understand the financial situation in which your planning is to occur
your planned resources are available when required and are properly and effectively utilised to achieve the school mission and objectives.

Essential to the accomplishment of the above tasks is effective budgeting.

What is budgeting in a school?
Budgeting is a process of preparing a statement of the anticipated income and the proposed expenditure. In other words, it is a process for preparing a summary of the programmes of the school reflecting the expected revenues and expenditures. This statement is the school budget which guides a head through the various school activities, as well as towards achieving the objectives of the school. It is important to mention here the role of school improvement planning through the use of the SIP. Funds should always be used for a purpose. To this end, government does not and cannot provide unlimited financial resources. The Headteacher is the one who leads others in making decisions about what the school needs and ultimately what it can ask for and what it can afford. A well-articulated SIP which has been approved by the Regional Department and supported by the PTA will be the starting point for this decision making process.

Stages in school budgeting

Activity 2.1
Reflecting upon the situation in your school:

1) Identify and list activities you want to be carried out in your school this year.
2) List the resources that will be required and the possible sources.
3) Give an estimated cost of each of these resources.
4) Study the budgetary guidelines issued by the Ministry of Education and explain how you will present your budget.
5) Using the guidelines write down the costs of each activity against the expected resources.
Comments
In summary, the stages of budgeting which you have just gone through are:

Stage 1: Identification of programmes, projects or activities you wish to accomplish in the budget period.

Stage 2: Identification of the resources, in terms of personnel requirements, materials and time.

Stage 3: Costing of the resources ‑ this is the most important activity in budgeting since a budget is basically a financial statement.

Stage 4: Presentation of the budget as per budgetary guidelines formulated by the Ministry of Education in conjunction with the Ministry of Finance

Stage 5: Obtaining approval of the budget by the financial provider.

Consider these stages carefully and ask yourself if it is really necessary to go through all of them? Is budgeting really necessary in your school?

Let us consider this last question now.

Functions and purposes of school budgeting

Major functions
Budgeting is the process of relating the expenditure of funds in a systematic way to the achievement of the planned mission and objectives of a school. It has three major functions:

1) It provides an operational cost‑time framework for the implementation of school programmes. It is therefore the major planning instrument in your school.
2) It can serve as an instrument for the delegation of authority. The school budget is designed to show which particular people are responsible for specific programmes.
3) It can be an instrument for controlling and evaluating performance.

(Note: When a budget is approved by the authorities, the delegation of functions is automatically approved.)

Your budget provisions offer you a simple guide to assessing the rate of expenditure in any given activity. If your budget is suitably designed, it will also readily provide you with data on three elements to assist in the control and evaluation function. These are:

§ rate of expenditure
§ output
§ costs.

Purposes
Your school budget is a forecast of future financial events showing the anticipated revenue, expenses and financial position of the school.

The purposes of budgeting can probably be categorised into three:

1) To show what the results will be if the present school financial plans are put into effect; in other words, the purpose of your budget is to disclose areas that require attention and action.
2) To evaluate the financial performance of the school: you use the school budget to control the operations, revenues, costs, and the persons responsible for the operations and related revenues and expenditures. In effect your school budget is a yardstick against which your financial performance may be compared. You should always aim at having a budget that promotes cost effectiveness, that is, a high level of school output at low levels of expenditure.
3) To determine that the operation of your school provides “value for money”

Period of school budget
Generally the school budget period should be long enough to show the effect of your financial management policies and short enough so that school estimates can be made with maximum accuracy. The most commonly used school budgets are:

SCHOOL MASTER BUDGET
This is the overall school financial and operating plan for a forthcoming financial period. This is usually prepared annually.

SCHOOL CAPITAL BUDGET
This interprets the school plans for major expenditure on capital assets such as buildings. It is often a five year financial plan and must be linked to the SIP.

SCHOOL DEPARTMENT BUDGETS
These are segments of the school master budget, relating to the different school departments. Responsibility is delegated to particular staff, for example, heads of department or level heads. They may be prepared termly or annually.

So far we have seen that a school budget has three major functions as:

a major planning instrument in the school
an instrument for delegating authority
an instrument for controlling and evaluating performance.

School Budget Designs

Types of design
Budgets can be designed in many different ways. However in the case of schools, two basic designs have proved to be more effective.

THE PERFORMANCE BUDGET OR SCHOOL PROGRAMME BUDGET DESIGN
This is the budget which serves as an instrument for carrying out a school plan. The emphasis in this budget design is on what is going to be done and on the benefits accruing to the school. In this budget design you not only state the income and expenditure, but include also a brief description of what is to be achieved after each item of expenditure.

THE TRADITIONAL OR LINE‑TERM / LINE-ITEM BUDGET DESIGN
In this design you merely list estimated income and items to be funded. The emphasis is on the issue of financing rather than on what is to be achieved.

In both cases the budget design should provide extensive and accurate estimates of:

income or receipts
expenditure.

Although the latter is the simplest form of budget display, it is inconceivable that one would not link financial provision and monitoring to performance objectives. Often budgets are displayed in the traditional way described above and the detail is in an appendix and linked to the SIP.

Income or receipts
The bulk of a school’s income is pre-determined and comes from the Ministry of Education. However, other income will be generated throughout the year. The school derives this income mainly from fund raising activities, contributions from PTAs, Alumni Associations, and, in the case of private schools, from supporting agencies and donations from foundations and other charitable organisations.

Payments of teacher salaries, maintenance, construction and other aspects related to the material and human resources of the school are made directly by Government with the assistance of the Departments of Education in Georgetown and the Regions.

EARMARKED GRANTS
These are grants which come mainly from the MOE and they are clearly assigned for a specific purpose, for example, teachers' salaries, mainte­nance of buildings and construction. These grants cannot be re‑allocated at the school level for any other purposes.

NON-EARMARKED GRANTS
These are grants for use on expenditure items determined as priorities in the school. These include contributions from Regional Departments of Education and community groups, for example, the PTA or NGOs.

Expenditure
School expenditure essentially falls into two categories:

RECURRENT EXPENDITURE
This constitutes the greatest percentage of the budget. It includes items such as salaries and other benefits to administration, supervision, teaching, special services and support staff, maintenance and other operating costs in travel and communication, and educational materials. This is the expenditure on consumables.

Although salaries are paid centrally in Guyana, it is always helpful for Heads to understand the personnel costs of their school – hence, the importance of the staffing allowance given to you by the Teaching Service Commission which you will interpret to meet the needs of your school. In many countries, decentralisation of personnel costs has taken place and staff salaries are paid directly by schools through an agency. The appointment of staff lies in the hands of the Headteacher who must budget accordingly. This is an onerous task but gives more flexibility to achieve curriculum objectives.

CAPITAL OR DEVELOPMENT EXPENDITURE
This is expenditure on capital assets such as buildings, furniture, equipment and vehicles. They are investments made at irregular intervals, but they cover a time span of several financial years.

The amount of recurrent expenditure you need in your school is deter­mined by the growth of your school, that is, by the number of pupils and teachers, by the extension of facilities, and by any improvements in the economic position of the government or in the re‑allocation of finance by government from some other sector to education.

For ease of management you can sub‑divide capital expenditure by differentiating between level (primary, secondary and tertiary) and within each of these between ongoing and new development projects. The purpose of classification is to provide you with a clear picture of the balance of resource allocation between new and ongoing projects.

Activity 2.2
Obtain a budget statement either for your own school or some other.

1) Is the design of your sample traditional or is it a budget design which is related to school performance?
2) What are the advantages and disadvantages of the design of your sample budget statement?
3) How might you improve the design of the sample to fit the situation in your school?

Comments
A budget which is related to school performance is one which presents the purposes and objectives of the school for which funds are collected, the costs of the school programmes proposed to achieve the school objectives and the quantitative data measuring the accomplishments and work performed under each programme. This budget is suitable for long‑term school strategies.

The advantages of such a budget are as follows:

1) It sets out each major school programme and what it is attempting to achieve.
2) It may be used as a good control mechanism to show value for money.

The disadvantage is that it is complex and costly to put together, usually requiring a computer. It is only suitable for big schools.

Managing school budgets
After getting your budget approved by the appropriate authorities, you enter the next phase in which you have to implement, monitor, supervise and control the school budget. This is the most important stage of the budget cycle since a well managed budget should lead to more effective levels of achievement of the mission and objectives of your school.

Implementing the school budget

Activity 2.3
Considering the situation in your school:

1) What do you do to implement your school budget?
2) What procedure do you follow to release school money?
3) What difficulties do you face while implementing your budget?

Comments
Managing the school budget includes the management of its implementa­tion. Once approved by the appropriate authority, your budget becomes the basis for your financial decisions in the school. Within the appropriation for various budget headings you are entitled to make commitments to spend money. Each type of expenditure you make can be subject to particular norms designed to guarantee that you follow the rules and good accounting practices.

School budgets are operated under specific budget headings, often called votes. Whatever expenditure you make in school should always be entered in a vote book under the appropriate vote headings. The use of a vote book is mandatory in accounting systems. Whatever financial transaction you make must be made on an expenditure voucher. You will learn more about vote books in Unit 5.

In some countries, regular paper accounting has been taken over by computerised systems. Although this is not the case in Guyanese schools at present, it almost certainly will be some time in the future. The private sector has already embraced this form of accounting. However, the principles are much the same and the computer is allowed to do the work.

Using the school budget effectively
Budgets are estimates of income and expenditures and there may be changes as your school financial situation becomes more reliable. Your forecasts may therefore be revised during the course of the year. However, any decision to change the budget should follow the same procedure and restrictions as the main budget so that the budget remains a meaningful document and an effective tool of management and forecasting.

When you receive delivery of goods or services ordered, you should always settle the account promptly. You should calculate the exact amount involved as indicated on the supplier's invoice and compare it with the amount on the order. You can also settle the account by certifying that service was rendered. This certification makes it possible to issue a signed payment order, by which you instruct payment by the person responsible.

It is essential to ensure that school funds are handled in accordance with the rules, that the authority of the head, who is the school finance manager, and that of the school secretary (if there is one), who is responsible for collecting the school funds and paying expenses, are kept separate. Having two people working independently of one another on the spending process leads to greater security in the choice of expenditure and the use of funds. It also protects both parties from any allegation of fraudulent practice.

The school secretary verifies the payment orders signed by the head. After checking that budget funds exist on the budget headings or votes from which the orders must be paid and that the envisaged expenditure follow the rules, the school secretary pays the creditor and records that fact in the books which have to be kept in accordance with the school ledger. In the case of some schools, the Head works both as Finance Manager and Secretary. This is unavoidable if the school has not been allocated the staff to separate the two roles. In this case, it is strongly advised that another person or persons is involved in order to protect the integrity of the system.

The recording of expenses and income is done by making a note of payments made on a series of documents:

A log or journal: This lists in chronological order the payments made per day.

A vote book: This lists the orders paid out of any one vote or budget heading.

You should always draw up summary documents periodically, as follows:

A statement of expenditure: This allows you to see to what extent school funds for various headings have been used.

A balance sheet: This allows you to check that there are no discrepancies between the various budget headings and to know the status of the school financial account at any one time. This is done on two levels as follows:-

The balance in any one budget heading – this is the expenditure on the income received. e.g. $200,000 dollars is allocated for the purchase of exercise books. Half way through the year, only $100,000 has been spent and there are still books in stock. These consumable items in stock should be taken into account before ordering more. One might assume that you have over-budgeted in this area.

The balance for the whole budget – this is the school’s income from government (excluding salaries) against the total expenditure for the year to date at a given time. Although one might think that the school’s budget, which is essentially a forecast of spending, would be on target if 33% had been spent after one term, it is not quite so simple. Some expenses might be seasonal and may not occur until the final term. The reverse also applies, where one buys in bulk at the beginning of the year and 50% of the budget has been spent after one term.

Surplus Balances
All of this will convince you, we are sure, that meticulous record keeping and forward planning are essential to ensure that you neither overspend nor find yourself with surplus balances which you may lose if not spent. Often organisation rush to use all of the available unspent balances before the end of the financial year in case they lose them. This is poor planning as funds must be used in schools for specific purposes and be linked to the overall curriculum plan. Such a spending pattern should be avoided at all costs.

Nevertheless, part way through the year one may discover after completing a statement of expenditure and a trial balance that excess funds are available in one budget heading and there is a likely overspend in another. It is normal practice for funds to be moved from one area to another. This is called virement and requires authorisation from the relevant authorities who have approved the initial budget. Once an approved virement has been made it forms part of the main budget and expenditure can be placed against that subject heading.

It sounds complicated but it is just like a person who has three purses – one for gas, one for food and another for spending money. He / she simply moves money from one purse to the other when one purse has too much money in it. The only differences are that records need to be kept and it requires approval because it is public money.

To view this draft budget you will need to download the PDF version of the module as the text version does not support this type of diagram. See the side bar on the right.

Comments
In essence, this is a very simple budget which serves its purpose as a planning tool to ensure funds are available for each of the specified areas. However, it is not a Programme Budget because it does not relate expenditure to teaching and learning and school effectiveness. It is very general in nature and lacks detail.

A budget which was clearly linked to the SIP which stated the following, for example:

“To improve the provision of resource materials for CSEC Social Studies with a view to increasing examination passes by a minimum of 20%
in the next two years”

would link expenditure with overall school performance and use the funds to meet those objectives. One would be able to measure the strategy in the following year once the books had been purchased, thus showing value for money. Many Heads purchase books which remain in locked cupboards. They are meant to be in the hands of children and to make a difference to their lives.

Activity 2.5
Think of three curriculum goals which would improve school effectiveness and cost them as part of your overall budget.

Comments
Your three objectives should have the following essentials:-

A statement of improved performance in terms of school effectiveness
Measurable criteria against which to determine the performance
A time frame – when the improvement will happen.

This will all be stated in your SIP which will be carefully costed to spread expenditure over a few years, as and when it becomes available. When considering your budget against your school objectives, always ask yourself what you want to do, why, how and by when?.

Monitoring and supervising the school budget
Monitoring and supervising the school budget goes on throughout the year. However, at the end of the year, the total amount of income and expenditure is consolidated in a yearly financial account which is drawn up according to a strict procedure. This makes it impossible to camouflage operations in the books and makes it possible for the Ministry of Education and other bodies to check the accounts.

Monitoring your school budget requires you to do the following:

Check that expenditures are made in compliance with the budget authorisations.
Note, at regular intervals throughout the year, whether the budget is on target and / or whether virements need to be made.
Note whether there is a surplus or a deficit at the end of the year and whether there is the possibility of building reserves.
Assess the implementation of the budget with a view to preparing subsequent budgets more accurately.
Provide continuity in the school's accounting system, in as much as a financial account is established on the basis of the balance sheet of the previous year, and leads to the balance sheet of the following year.

The supervision of the school budget can be more or less extensive. It requires you to check whether the school's budget is really balanced and that all compulsory expenditures required by law are included and fulfilled.

Controlling school budgets
Controlling a school budget requires you to understand the financial status of your school and its priorities for expenditure. Controlling the budget means controlling the budget headings, that is, ensuring they are not overspent, and that money received is put under the appropriate headings. Before you agree to any expenditure first check the heading to ensure there is enough money to cater for the expenditure. If there is no money you should either abandon the expenditure or seek permission from the appropriate authori­ties to re‑allocate funds on the heading.

Income throughout the year
You will have estimated the income you hope to receive and will have included it in your original budget. However, schools are sometimes fortunate enough to receive funds for which they did not budget which are not earmarked. e.g. extra fund raising activities, charitable contributions, etc. Such money, when it arrives, will be accounted for in income and will either:

§ offset other income which you budgeted for but did not receive e.g. reduction in pupil numbers causing a shortfall of government funds or;
§ will be used to increase a budget heading where an additional need has been identified or;
§ will form part of the reserves so that new purposes can be found.

Summary
In this unit you have learned that:

budgets serve as a plan designed to achieve a set of the school objectives
budgets serve as indicators of areas of the school that require action and should be clearly linked to the SIP
when a budget is approved, delegation of financial responsibility and accountability is given to the Headteacher
budgets are used as a means of evaluating performance of the school head
a major responsibility of the school Head is to design, manage, monitor and control the school’s budget.
the school’s budget must be linked to school effectiveness.
the school must provide “value for money”

A Headteacher who is a good financial manager will maximise opportunities in order to ensure an excellent educational provision for his / her school.