Unit 5 Expending and accounting for school funds

Introduction
The effectiveness and efficiency of the education system largely depends on the quantity and quality of the teaching and learning materials available. The purchase of such materials is a skilled task and requires large sums of money. It is vital, therefore, that school heads know how to select appropriate materials, manage school funds and ensure value for money. Although, in Guyana, most materials are provided centrally through the Book Distribution Unit (BDU), there are many situations when heads and their staff will purchase materials themselves. Proper care must be taken to ensure that the materials are appropriate and used for the purpose they were intended.

Individual study time: 4 hours

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

define expenditure
define finance
identify the procedure of expending school funds
explain accounting procedures in the management of school funds
display some knowledge of management and controlling of school funds
practise proper accountability procedures for school funds.

Financial resources and management in schools
This unit does not comment on the various sources of school funds nor on the need for proper budgeting in schools. These have already been discussed in Units 1 and 2. The present unit will therefore deal with:

the procedure for expending school funds
the processes of controlling school expenditure
accountability of school funds.

Before we do so, remind yourself of what was covered in Units 1 - 4 by answering the following briefly:

Activity 5.1
1) Explain what is meant by preparing and monitoring a budget.
2) How are income and expenditure dealt with in a school budget?
3) Differentiate between line item and programme budgets and evaluate their use in schools.

Comments
The following are useful additions to the answers you may have given:

Budgeting is a process of preparing estimates or the statement of expected income and proposed expenditure.
Budgets need to be monitored throughout the year to ensure that spending is in line with them and to ensure that the available funds are not exhausted or used unwisely.
Income refers to amounts of money made available to the school and where it comes from.
Expenditure is the amount that was / will be allocated to be spent on various functions.
Programme budgets are benefit-oriented, based on set goals, while line item budgets are cost‑oriented. A programme budget is more likely to assist you in meeting your educational goals linked to your SIP whereas a line item budget will merely keep you informed of the cost of items and services purchased without reference to school improvement or effectiveness.

Good financial management is the disbursement of money and other resources which assist the school in achieving its objectives.

The proper management of school funds is an important component of good school management. Funds constitute the nerve centre of the school. They must therefore be properly dealt with for the school to achieve its objectives.

Procedure for expending school funds
This is referred to as the implementation stage of the budget or budget administration. In practice this is the execution of planned school programmes with proper expenditure of funds as shown in the approved budget. The budget becomes a very important document for managing the finances of the school. Before beginning to implement it, you need to explore its structure so that you understand its basic requirements, as well as the opportunities and threats it may present.

Reflect on your experience as a school leader at whatever level and consider how the financial regulations and practices that you have to follow assist you in performing your function or whether they create difficulties for you.

Comments
No doubt you will have concluded that structures and regulations are necessary to enable you to carry out your task as the finance officer for the school. However, this will sometimes come with its own frustrations if, for example, your priorities are different from those who provide the finance. e.g. MOE. It could also be that funds provided by the PTA for computer equipment may not fit in with your own thinking that sports facilities need to be developed in the school to channel the excess energies of the children.

Regulations
The Ministry of Education issues specific instructions with regard to the spending of and accounting for funds. For example:

Funds released by the Ministry of Education for one purpose may not be diverted for another purpose. If the need for expenditure arises, contrary to the approved budget, written authority should be sought from the MOE, the governing body, PTA or trustees of a private school.
Guidance is given on how much you can spend on a particular item.
It compels you to obtain approved authority for spending on an item.
All expenditures incurred should be recorded in an acceptable manner according to the Standard Accounting Practice (SAP).

Consider for a moment any problems which may have arisen recently for you in following the MOE’s financial regulations.

Procurement procedures
It is essential that spending at all times provides value for money. It would be irregular practice, therefore, to purchase items from the same supplier all of the time without checking that the goods or services supplied are the best value. This does not necessarily always mean the cheapest as you would wish to take into account quality and the speed and efficiency of delivery.

Where large items and services are being ordered, they should be put to tender. That is, three reliable suppliers should be asked to give a price for the same service. A tender board in the school or governing body would make a decision on the one which best met the needs of the school. If there is any bidding, a finance committee should be set up to deal with this. In schools where there is a board of governors or trustees, such matters would often be out of the hands of the headteacher.

Interested parties are not allowed to supply goods and services to the institution. Anyone dealing with finance must declare an interest if they have a friend or relative who is a supplier to the school. One must always protect oneself from this last issue.

Pro-forma invoice
A pro-forma invoice is issued when payment is made before goods are deliv­ered. When one cannot be obtained, an officer responsible for implementing a task raises a claim in respect of the task and submits it to the head for approval. At this stage the approved funds can be released.

Order forms
The purchase of goods, furniture, materials, services or maintenance works must be done by using an order form which clearly states your requirements and is clear to the supplier. This will be used in any dispute about the quality or quantity of goods and services received. It also serves as a record when checking off goods received against the delivery and the delivery note, as you will only pay for items which have been delivered. Any discrepancy must be noted and adjustments made when making payment. especially if the supplier has not noted these on the invoice for payment.

Delivery notes
All goods and services should be accompanied by a delivery note which lists the contents of the package or services received. It is your responsibility to ensure that the delivered goods and the note match and that any differences are noted. You must ensure that goods and services ordered are delivered before signing the delivery notes. Ideally, this process should be carried out by two persons to avoid fraudulent practice. All items of a capital nature (e.g. DVD players, computers furniture etc) should be entered in the school’s asset register, and indelibly marked with the school name and reference number, before delivery to the department. This is a further check against theft.

Payment
Payment is normally made by cheque to ensure that the order to pay is legal. It is a written record that payment has been made. In addition, the supplier must issue you with a receipt, especially in the rare occurrence of a cash payment. You should check if the payment claimed was correct; that goods/services paid for were delivered; and that the transaction was properly recorded. It would be normal practice, especially in a large school with complex financial needs, that payment via the writing of a cheque would be done by a different person from the one who approved the order and received the delivery. This further ensures that fraudulent practice cannot take place.

As stated before, cheques must always bear two signatures, usually out of a group of three or four possible signatories (those eligible to sign). Choice of these signatories should be made wisely to ensure collusion in bad practice cannot take place. We cannot express more strongly that it would be improper for you, your staff or a member of the governing body where there is one, to sign a blank cheque or for a cheque to bear only the signatures of yourself and the school secretary.

Financial flexibility
In certain circumstances flexibility is possible. This will depend on the current regulations of the Ministry of Education. The total amount of money available to the school must be used for the benefit of the current children in the school for whom it is provided. If, therefore, in your budget monitoring it becomes clear that you have over budgeted in one area and under budgeted in another, action must be taken. Furthermore, sometimes long term projects require careful financial planning and better value is gained by making savings in one year which can be used alongside the allowances of the following financial year. It can be done in two ways:

Borrowing of funds from one budget heading (vote) to another: Internal borrowing is justifi­able because under-spent accounts can compensate for over-spent accounts. For example, maintenance of buildings (very expensive items) may lead to virements (movement of funds) from general or contingency accounts. Internal virements also help to coun­teract uncontrolled prices and inflation. However, such adjustment must be done with the approval of the authority approving the budget.

Carrying balances forward: It may be possible to carry forward unspent capitation allowances (the grant received based on the number of your pupils on roll) from one year to another for specific approved projects. Over‑spending is carried forward as a deficit to be paid off in the following financial year. This should be avoided at all costs as it becomes increasingly difficult to cater for those children who are currently on roll and they must not be disadvantaged. Institutions should only plan their expenditure outside the limits of one financial year if the carry-over of funds or the deficit has been approved for a special purpose. There may also be a risk of losing unspent funds or funds being used for other purposes in the MOE if you are unable to spend your year’s allocation. We could only conceive that this would happen, in these times of tight budgetary control, if you have managed your funds badly.

Comments
The expenditure of most schools will be very similar. Larger schools will break up their ordering into the needs of individual departments, although there is an economy of scale by buying in bulk. You may have divided your list into areas such as:-

capital expenditure (furniture, electrical goods etc),
services (electricians, plumbers, carpenters etc),
learning resources (goods and materials which will eventually need replacement but have a reasonable life span)
consumable items (those which are expendable and have a fixed life span such as cleaning materials, chalk and exercise books).

All but the first on the list are recurrent expenditure in that they are generally smaller less valuable items in themselves and will need to be replaced. Capital goods will also need to be replaced but there is also the possibility of repair and a longer life span.

Activity 5.2
Recollect what you have read and thought about in this section of the unit and write answers to the following:

1) List some of the items on which your school spends money.
2) Give reasons why you may need to be flexible in financial management.
3) Name two ways of effecting financial flexibility.
4) Explain 'capital' and 'recurrent' expenditure.
5) Group the items you buy for your school into the above categories.

Accountability of school finance

Definitions
Accounting: This involves checking to ensure that the order to pay is legal, that payment is effected and recorded in the general financial account covering all money spent in accordance with the budget.

Accountability: This refers to budget control. It is the evaluation and guid­ance of budget administration activities through careful monitoring throughout the school's financial year.

Budget control: This acts as a device for assuming accountability to prevent misappropriation, embezzlement and illegal spending of funds. It deals with monetary records which keep account of how money is spent and therefore helps planning for the future.

Activity 5.3
In view of the definitions of terms above
1) Name some of the finance records you use when accounting for school funds.
2) Give reasons to justify the use of such records.
3) Describe the accounting principles involved while making financial records.

Comments
It is important that you would have included the following in your points:

§ Financial records are the account of day‑to‑day financial operations in a normal situation in school management.
§ These records are important because they are the basis for decision‑making on any financial matters
§ There will be clear links between your financial records and the SIP
They provide a means of tracking the growth or decline of the school's assets or liabilities
They form the basis for determining the value (appreciation or depreciation) of school property
They are guidelines to indicate the financial position of the school.

Budgetary records
They are systematic ways of accounting for budget implementation by keeping basic records. The following documents are essential in a school for the effective handling of funds:

RECEIPT BOOKS
All payments and receipts should be presented with the proper evidence. You should have receipt books where the pages are numbered to enable the detection of lost receipts. Receipts should be issued at least in duplicate for money received, for example, payment for a school trip. They must also be received for money paid out. The receipt is the first evidence of cash spent or received.

THE VOUCHER
This can be in book form or in loose sheets which can be filed. It is a docu­ment detailing the following:-

§ purpose of any payment made
§ the date of the payment
§ the amount
§ the budget heading or vote or item within which the expense is being incurred
§ the authority that has sanctioned the payment. An example of a payment voucher is given below.

Note that:
1) The voucher has to be written and signed first before money is released.
2) It must bear a number that can be quoted.
3) Receipts obtained after purchases must be attached to the voucher.
4) This document informs one as to how public money has been used.

THE CASH BOOK
This is a book into which information is entered on a daily basis, giving details of money received, such as parental contributions and payments; and money paid out, such as for purchasing learning resources.. This book has to be balanced daily so that cash received that day must be balanced against cash spent on the same day. That way, you are immediately aware of the day's collections and spending.

Cheques received or paid out all form part of the day's income and expendi­ture respectively.

A LOG BOOK OR JOURNAL
As financial controller you should open a log book in which all financial transactions are recorded each day. This book can be referred to as a journal, that is, a record of financial transactions done on a daily basis.

FINANCIAL LEDGERS
For records of account to be meaningful, information from the journal should be posted in ledgers. These account books record the income and money spent by the school on particular days. The record emphasises the items in the income and expenditure sides and the net balance for that date.

Computer accounting software
In schools in many countries, much of the private sector in Guyana and in central ministries, accounts are kept by the use of computer software. However, at the time of writing, this has not reached the majority of schools in the country. It will, though, become an inevitable progression in this country as computers become available and accounts become more complex.

The principles of computer accounting are much the same as those on the paper equivalent but the software makes the calculations for you and adds additional levels of security. Where computers are used, care must be taken to make regular back-ups of work and to print records on paper on a regular basis to ensure data is not lost.

Note that all information in receipt books, vouchers and cash books have ended up in the ledger. It offers a clear picture as to which items are frequently purchased.

The Fees Ledger (private schools only): This ledger records all information on each student's fees payment, that is, date, amount, total paid to date and balance outstanding, or carried forward. At a glance it is easy to assess the extent of fee collection, to obtain a list of fees defaulters and to know accurately how much fee money is still outstanding. The information has to be recorded as soon as the fees are paid in order to avoid problems caused by the loss or misplace­ment of receipts and receipt books or accumulation of work.

Such a ledger is often used where there are subscriptions to be paid to the PTA.

Credit Ledger: This is a book that contains the list of the school's debtors, the amount owed to the school by each, dates when settle­ment was made and the outstanding amount still to be paid. It is necessary to keep checking this book to ensure that your school has recovered what is due to it. You ensure this by keeping the entries in the book up‑to‑date.

Vote Book: This is a book which essentially shows how much is left of the vote for an item. It records the total amount voted for the item as per the budget, the daily purchases made under that item and the balance left after these purchases. It makes it easy for you to see whether you are over­spending or not and is a particularly useful check on high spending. It is therefore essential that you maintain a vote book. You will find an example below.


The Green Book: This is a book that lists all those who have been given money for purchasing, the amount given and all the details related to it.

Asset Registers: It is essential that you keep track of capital items and learning materials. This is done by maintaining an asset register (sometimes known as an inventory book). You will enter details of items purchased, date purchased, where they are stored and who is responsible for them. Equipment like DVD players, computers, printers etc. are recorded in this book. You would also record furniture, gardening implements, cookers etc. The purpose of these asset registers is to enable the school management to keep track of school property, to hold named persons responsible for its safety and to make replace­ments accordingly. Regular checks (at least annually) must be made on random items in the asset register and the register signed. This task is often delegated to heads of departments and level heads but overall control must be maintained by a member of the Senior Leadership Team.

Items may be grouped together, such as sets of text books and DVDs, cricket bats and balls and other learning and sports materials. However, checks must to be made to minimise theft and loss. When an item is deemed no longer serviceable, it must be inspected and officially deleted from the register with notes and a signature. This should preferably be done by two persons.

Consumable items are much more difficult to keep track of – bails of toilet tissue, chalk, pencils, exercise books, cleaning materials. Although a certain amount of trust must be placed in the hands of those responsible, such items often disappear especially when they have a use in the home. Checks should be made on excessive use and time spans given to users before new materials may be ordered. For example a teacher is given an allocation of materials which must last until more is ordered the following term.

Consider for a moment whether the procedures you use in your own school differ from those described here. If they do, how are they different?

Basic accounting processes
Once you know how to keep the account books properly, you can turn your attention to thinking about how to analyse the financial data now available. To do this, you should know the basic accounting processes. These are:

preparation of financial statements such as: income statements, balance sheets, reconciliation statements and flow of funds statements, etc.
analysis and preparation of financial statements and drawing corresponding conclusions
preparation of comprehensive financial reports
rendering of financial advice on decisions to be made in the light of the conclusions reached.

In practice, to be able to perform the above functions, as the accounting officer of the school, your duty is to initiate financial plans for the Ministry of Education, Regional Department of Education, RDC or PTA to adopt, dependant on the purpose of the finance. You are at the centre of the school's financial plan and therefore you need to help those with whom you work to formu­late proper plans. If that is achieved, then your job of mobilising funds becomes relatively easy. Remember, the Ministry or PTA will not contribute more money to the school if the plans are not well defined.

Note that knowledge of accounting will assist you in the day to day management of the funds of the school. It is important so that you have some insight into the financial planning and organisation of your school's finances.

Trial Balance
We first look at the Trial Balance which is an important tool in accounting and gives a list of all the accounts used by the school at the appropriate value and time. Its main purpose is to enable you to know precisely the balance in each account at say fortnightly or weekly intervals. This enables you to know at any point of the financial year which items are taking up most of the school’s funds. It helps you to put a brake on if you are spending too fast on one item.

The School Balance Sheet
This is the most important financial document for the school. It is a financial statement of the school at a given date. It must reveal all the assets and liabilities of the school at a particular time, for instance, at the end of an accounting period or the financial year. Before you proceed, ensure that three of the accounting terms used in the Balance Sheet are clear.

Consider for a moment on what you understand by the terms financial statements, assets and liabilities.

The importance of a school's Balance Sheet lies in the revelation of all the assets and liabilities of the school at the date in question. The terms 'finan­cial statements', 'assets' and 'liabilities' should therefore be understood in the context of the Balance Sheet to mean the following:

Financial statements: These show at a glance the amount spent on various items. They convey the financial status of the school at a particular time.

Assets: These are the properties or belongings of the school which appear in the Balance Sheet. They may be classified as long or short term assets, namely fixed or current assets. Assets can be in the form of money or property. In terms of the Balance Sheet it normally refers to money. However, when making a valuation of the school, say for insurance purposes, property is taken into account.

Liabilities: These are the debts or claims of outsiders against the belongings of the school as at the date when the balance sheet is drawn up. They too can be long term or short term in nature, namely fixed or current liabilities. For example, a fuel or telephone bill is an example of a liability. The goods or services have been received but not yet paid for. Such liabilities should be recorded as commitments when drawing up the balance sheet.

You may wish to make a quarterly balances sheet. Some heads make it monthly. However, an annual one is essential. Annual accounts and balance sheets have to be prepared and a copy sent to the MOE at the end of every financial year.

Balance sheets should be the main financial concern of a new school head. It is essential that he / she knows the financial position of the school and has complete control over it.

If you look at a school balance sheet, you should be able to see:

the total value of fixed assets
the total value of current assets
the sources of funds
the debts to which you would give immediate attention
debts which require payment ‑ but not in the near future
the total value of assets possessed by the school and how much of this is claimed by outsiders.

Note that:
Changes in your financial plan will cause changes in the school balance sheet.
Such changes should be recorded systematically in the record books already referred to.
The balance sheet requires the proper keeping of all records of account such as receipts, vouchers, inventories, ledgers, etc.

Avoiding fraudulent practice
Even if you trust yourself to keep accounts which are above reproach, you must be mindful of the fact that not all others will do the same. Especially in times of poor remuneration, temptation to commit fraud, to steal or behave in a corrupt manner is rife. You must set up checks and balances that avoid this at all costs.

Never allow only one person, especially yourself, to deal with all aspects of the financial processes – tendering, ordering, receiving goods and payment. There must always be others in the process. Use the available staff such as the school secretary, SMs, HODs and level heads. This is a safer practice for you. However, it is more difficult in small schools. Perhaps a parent or a teacher can check on a regular basis what you are doing with the school accounts. The DEO could be involved.

Activity 5.4
You can now look back at the whole of Unit 5. Recollect what you have learnt and answer the following questions:

1) Explain the procedures for expending school funds.
2) Show, using specific examples, how failure in conforming to book-­keeping and accounting functions may lead to the mismanagement of school funds.
3) How can you employ the basic accounting concepts in main­taining financial records in the school?

Summary
In this unit you have learnt about:

expending and accounting for school money
the procedure for expending school funds
the financial regulations of the Ministry of Education
the need to exercise flexibility in the management of funds
the importance of maintaining proper financial records
the operation of proper and regular school balance sheets
the need for a good financial plan.