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Add accountancy to your list of skills;Fair funding

It's not always wise to pass your school's financial affairs to a third party, advises Sarah Morrison, an accountant

Budgeting, monitoring, reporting - the eyes of many headteachers may glaze over, but these tasks are becoming increasingly important as part of the Government's Fair Funding initiative. It gives schools responsibility for substantially more of their budget and puts the onus on headteachers and governors to make purchasing decisions for services that previously were probably carried out by their local education authority.

The new regime will bring opportunities to schools, but will also present difficulties. Schools will need to find providers for services ranging from payroll administration to catering and, although this will be time consuming, it will be an opportunity to make sure the school gets value for money.

When seeking quotations, ensure that the specification of the work is clear and unambiguous so that proposals can be compared. Buying services from the local authority may be the best option in many instances, but the decision should not be made on the grounds of familiarity alone.

Schools need to take a hard look at their accounting and control systems, assess what the new arrangements require of them and plan a strategy for filling any gaps.

A school may consider putting some or all of its accounts out to tender. Passing accounting over to a third party may appear attractive, but long-term considerations must come into play. Many grant-maintained schools chose not to "outsource" their accounts fearing they would have less control over a vital part of the functioning of the school just when the head and governors needed to understand it.

Being dependent on an external consultant could make the school a hostage to fortune; you are unlikely to be able to receive the immediacy of response available from a person working in your school, dealing with both day-to-day and strategic issues. Investing in in-house accounts expertise allows the school to buy specialist help as and when it is needed. This may include assistance with funding applications or taxation queries, commissioning an independent review of the systems and controls set up by the governors or an audit of the school's accounts.

The in-house accounts person's role can be lonely, so support and recognition is needed. Training may be necessary and buying in support arrangements, such as those offered by software suppliers or local authority finance teams, may be helpful. However, to make best use of trained people, and to put financial issues firmly alongside educational ones, the head should consider making the head of accounts a member of the school's senior management team.

A school's governing body is responsible for the budget under its control. Whatever use is made of third parties, this responsibility cannot be devolved.

An annual budget covering all income and expenditure, including school funds, special educational needs and other non-core income and expenses, should be agreed as early as possible. An indicative budget prepared at an early stage is good practice, with fine tuning once funding has been formally notified by the local authority.

Schools should monitor the budget against actual income and expenditure every month and produce variance reports with commentary from the head andor chair of the finance committee to go to the governing body at least once a term. Financial returns will also need to be submitted to the local authority, but the form and content of the reports to governors should be driven by the school's needs, not the local authority's.

Variances between expected and actual income and expenditure must be acted upon if they are significant and the budget "flexed" to accommodate them. Staff costs, for example, may be affected by a long spell of uninsured sick leave. Reflect such changes in a revised budget so that any expected surplus or deficit at the year end can be anticipated with some accuracy.

The head or a nominated governor should periodically check that transactions are recorded correctly in the school's accounting records, for example that invoices have been processed and the cashbook maintained and reconciled to the bank balance. This is to provide assurance to the governors that the reports they get are accurate.

Schools have finite resources, and heads and governors have many demands on their time. However, setting up and maintaining good financial control systems can made a real contribution to the effective running of a school - better decisions will be made and savings achieved with careful management. Buy in external resources with caution, agree the scope of work and monitor the contractor. Schools should not forget that responsibility ultimately lies with them.

* Sarah Morrison is a partner and head of education services at Littlejohn Frazer, chartered accountants. She is also vice-chair of governors at Gainsborough primary school, Hackney

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