Why forward financial planning for schools and academies is more difficult and more important than ever
For a long time, there has been an expectation on schools that budget planning and financial forecasting will span a three to five year period. This expectation was formalised with the introduction of the FMSiS and then SFVS (Schools Financial Value Standard) for LA maintained schools.
Academies do not have to meet the SFVS and they are no longer required to submit a value for money statement. However, the Academies Financial Handbook stipulates an academy has to demonstrate how the trust has secured value for money via the governance statement included with the audited accounts. This should include examples where value for money has been achieved.
LA maintained schools are held to account on their multi-year budget planning by the LA’s assessment of their compliance with SFVS. The Standard determines that a school should produce multi-year budget plans which should be reported to the governing body’s finance committee; minutes should evidence that a meaningful process with discussion and challenge has taken place.
In an academy, the trust’s senior executive is the accounting officer responsible for value for money, regularity and propriety. Accountability is via EFA’s monitoring of compliance with the Academy Financial Handbook and the Academies Accounts Direction in relation to the content of the audited accounts.
Why is it needed?
Schools and academies are accountable for the use of public funds and as such have a professional and moral responsibility to plan the use of those funds wisely to maximise outcomes for children, providing high quality, value for money education. In order to do this schools and academies must plan ahead.
LA maintained schools cannot set a deficit budget without permission for a licensed deficit from their LA. Once an application is made, the LA will decide whether to approve it and will monitor the school’s progress in implementing its recovery plan.
The position is similar for academies; they have to notify EFA within 14 days if intending to set a deficit budget without reserves to cover it. The EFA will send a recovery plan to the academy for completion and it’s likely they will also issue a Financial Notice to Improve because of the need to advance funds; they will want to be assured that these will be repaid.
All schools and academies therefore have to ensure that their spending does not exceed the funding they receive, except where it can be funded from reserves which have been carried forward.
According to Statistical Release SR48/2015, in the financial year 2014/15, LA maintained schools spent the following proportions of the overall budget on staffing:
This large area of expenditure cannot necessarily be reduced quickly in order to realise savings immediately. Staff reduction consultations take time, cause turbulence and can impact negatively on student outcomes if they are not carefully planned and intrinsically linked to all other strategic planning documents in school such as the School Development Plan and curriculum plan.
So it is critical that schools and academies look ahead to what their funding might be and plan their expenditure within those means well in advance. Of course, the further ahead you look the less accurate predictions become and multi-year budget planning should be updated and refined year on year to ensure it is as meaningful as possible and not out of date.
The more prepared schools are the more strategies can be considered if the likelihood is that funding will reduce. It could be that staffing reductions can be avoided, where appropriate, if the reduction would impact negatively on student outcomes. Consideration of strategies to make savings in other areas, implement those strategies and see the results can take considerable time.
If you don’t give yourself time and space to find creative solutions by planning ahead, more extreme decisions may have to be taken quickly. These could have a significant detrimental effect on the performance and ultimately the reputation of the school.
Do schools and academies plan ahead?
Recent research conducted by HCSS Education (A leading finance specialist) has found that:
* 78% of schools and academies across the country are finding that balancing the budget is becoming ‘significantly more difficult’.
* 81% of academies and 76% of schools are finding that managing their finances is becoming considerably more problematic.
* 90% of schools and academies believe that the main budgetary pressure is increasing staff costs, followed by funding pressures (80%).
* Despite finding budgets more difficult to manage, 13% of maintained schools and academies do not have 3-5-year budget plans in place.
We question whether the remaining 87% of schools and academies have meaningful 3-5-year budget plans in place in the current school funding climate. An extra layer of complexity is added when you consider the uncertainty over future school funding levels and the lack of information about the content and timing of the proposed National Funding Formula (NFF).
Why is it so difficult to plan ahead?
It has never been easy for schools and academies to take a medium to long-term view of their budgets because they do not receive multi-year budget allocations. In recent years the relative stability of Dedicated Schools Grant per pupil allocations has helped, although the ability of LAs to make changes in local formulae has meant that schools are still not able to predict their future funding with confidence.
All the uncertainty over the NFF makes it even more difficult for schools to plan ahead.
The cost pressures that are starting to emerge, particularly those related to staffing expenditure, are putting more and more pressure on school finances.
Why is it more important now than ever?
The imminent changes to school funding through the introduction of the NFF, and the cost pressures that are starting to emerge make it more important now than ever that schools and academies plan ahead to be prepared for the challenges they may be faced with.
For some schools and academies, the NFF will mean a reduction in funding and as it stands we have no idea how significant those reductions might be and over what period of time they will be phased. Schools that currently receive relatively high levels of funding and are therefore at risk of reductions need to be prepared to make some changes to their budget plans and reduce expenditure without impacting negatively on the quality of the education they provide.
Even schools and academies who may gain from the NFF need to plan ahead. They may not receive increased allocations immediately, depending on the logistics of implementing the NFF. Even when they do this additional funding must be planned and spent wisely to ensure maximum positive impact on student outcomes and enable them to prove value for money.
The point is, despite any speculation (of which there will be plenty) no school or academy can be certain of what the NFF will mean for them until budget shares are issued in early 2017, because the final allocations will be based on the October 2016 census. The delay in the second consultation, which should provide some indication of the potential impact (although this is for consultation purposes only and could change), brings frustration, worry and even more uncertainty for schools and academies.
The only way to ensure your school or academy’s future financial success is to plan ahead on the basis of some educated estimates, prepare early and allow yourself time to respond to future changes with informed wisdom, sound professional judgement and strong financial leadership.
What can you do to make the process more manageable and more meaningful?
At School Financial Success we have developed an eBook, toolkit and online course which walk you through a step by step process to produce your own bespoke Financial Sustainability Plan. The tools include templates for a range of five-year budget projections to help you prepare for future funding changes and increasing cost pressures.
This is done through a series of activities which support you to:
* consider current funding patterns for your school or academy;
* consider your LA funding compared with all other LAs nationally as a broad indicator of whether you are at risk of reduced funding;
* calculate a range of scenarios for per pupil funding and model future roll projections;
* predict a range of funding scenarios including estimates of grants and other funding elements;
* review all areas of expenditure within your budget to ensure value for money.
Your range of five-year budget projections forms the basis of your bespoke Financial Sustainability Plan. But the plan goes a step further than the budget projections themselves, detailing your interpretation of those projections and most importantly your response as a school to the changes ahead.
All of this leads into an action plan which is in effect your development plan for financial leadership. The Financial Sustainability Plan acts as a planning tool for school leaders, but it is also an ideal way to involve governors in your strategic financial planning, by offering them a detailed evidence of your financial leadership. The process offers a broad brush approach to forecasting your future financial position, in order to stimulate debate and raise awareness of the potential impact of the changing school funding system on your school. If you want to find out more, please visit our website at www.schoolfinancialsuccess.com and sign up for our free funding information updates and newsletters.