How to budget wisely...

How to set about improving the quality of learning should be the starting point for serious financial planning. David Evans offers ideas for getting that process on the stocks

Sound financial management is a legal obligation on governing bodies. They have three legal responsibilities: to set a balanced budget; to spend within budget and use it to provide the best education possible for their pupils. They will be held to account for these by their local education authority and when they are inspected by the Office for Standards in Education. Inspectors are instructed to "evaluate and report on the efficiency and effectiveness with which the resources made available to the school are managed...and the extent to which the school provides value for money".

Reports from OFSTED and the Audit Commission indicate that most schools manage the first two obligations successfully but many governing bodies are not addressing the "value for money" issue. The Chief Inspector's latest annual report says: "Financial management is weakened in nearly half of (primary) schools by a failure to evaluate whether they have spent their money well. "

When a group of headteachers and chairs of governors were recently asked "when you receive your budget share, what is the first question you ask?" their responses were either "have we got as much as last year?" or "can we balance the budget, doing what we did last year?" Both responses show the wrong starting point for budget thinking. They should be thinking "how can we best use this money to improve the quality of teaching and learning in this school?" Two key roles for governing bodies are to establish strategies to make the school more effective as a place of learning and to monitor the success of the school in realising those strategies. The school development plan is the crucial document for setting out the strategy for the coming year and a few years ahead.

Most governing bodies delegate the financial management to a finance committee. In preparing the budget, the finance committee will be resourcing the school development plan, each of the priorities in which should have been costed, with success criteria, time-scale and lead persons designated before the plan was approved.

The school development plan must drive the budget to ensure that the focus is on the pupils' education, not on the money available. The governing body will delegate the implementation, including agreed spending, to the head, in accordance with a schedule of financial delegation set down by the governors. Governors need to assure themselves that at least two quotations are obtained before awarding any contracts before ordering redecoration or textbooks. Savings can be obtained through discounts. No governor seeking a contract with the school should be involved in the awarding of that contract.

In monitoring the budget, the governors need to ensure that during the financial year, spending does not diverge widely from the agreed targets. The governors need to receive an easily read budget report at least termly, preferably monthly. This will be checked against the budget statement and school development plan, any variance accounted for and remedial action taken if necessary. If the supply budget is overspent by several thousand pounds by September because of heavy staff illness, it may be necessary to defer the planned appointment of a classroom assistant for a term.

Setting a balanced budget and keeping within spending limits shows financial probity, but it does not ensure value for money. The governors must now go further and ask whether priorities set in the school development plan were successful in improving standards of learning. The success criteria defined in the school development plan are indications of this. If the strategy is not successful, they must ask why and seek a solution. Can other strategies achieve the same result?

They must also examine critically all the assumptions on which the budget is based. A critical analysis of the budget was advocated by the Audit Commission in their 1993 report on schools' financial management, Adding up the Sums. The report was based on the comparison of figures between sample schools.

Many local education authorities have since published similar figures for their own schools covering a wide range of variables: pupilteacher ratios, expenditure on different budget elements, absence rates, examinations, test results and end-of-year balances. These are valuable for questioning existing practices.

Governors and heads need to be cautious in using raw data, as the rationale and circumstances leading to decisions is not contained in the statistics. Governors should return to first principles and define the basic budget. What are those elements essential to provide the minimum education required: for example, one teacher per thirty pupils? What is left is the discretionary budget. It is this element which governors use to implement their priorities. The smaller the basic budget, the greater the discretion.

As the largest item of expenditure is staffing, this is where governors need to be critical, constructive and pro-active. How many headteachers and deputies on top salary levels spend their time in administrative tasks that a secretary could do at a fraction of the cost? This critical review will enable the governors to establish benchmarks against which to set targets for annual improvements.

Such a review cannot be rushed in the few weeks of MarchApril when the budget has to be set. It is a task for a finance committee to undertake between budgets.

Governors may consider supplementing the budget share by income generation. Letting the school premises can add considerable sums of money to the school finances.

Governors must ensure that end-of-year balances are used to benefit the pupils on roll, unless they are either a contingency fund (about 2 per cent of the budget) or are clearly designated for anticipated expenditure.

The governors, through their finance committee, should scrutinise both the setting and monitoring of the budget.

But more importantly they should be constantly relating their decisions to pupils' education and seeking continuous improvement.


* How is the budget helping or preventing you achieving development plan priorities?

* lAre pupil numbers rising or falling and what will be the effect on the budget?

* How does your pay policy further plans for improving the school?

* What evidence is there that the time and money spent on training benefits the school?

* What evidence is there that staff are managing allocations for equipment and resources effectively?

* Are budget changes needed to enable staff to manage the demands of the national curriculum?

* Is more administrative support needed?

* Is the site being managed effectively?

* Could lettings be increased or managed more cost-effectively?

* Does spending on promotional activities produce results?

* Are any of our existing contracts reaching the end of their terms, if so do we wish to renew them or make other arrangements?

* Is the contingency fund growing? What is it there for?

* Have there been any unexpected savings or costs and what action are you taking as a result?

Adapted from Key Issue Cards available from ISCG 0171 229 0200


Adding up the sums Audit Commission. 1993 HMSO 0171 873 9090

Benchmarking School Budgets 1996 DFEE 0171 510 0150

Keeping your balance OFSTEDAudit Commission. 1993 OFSTED 0171 510 0180

* David Evans is an education consultant

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