Local authorities are to be given powers to claw back surplus cash from their schools under controversial legislation being introduced by the Assembly government.
New regulations will allow councils to take action if schools are holding more than 5 per cent of their annual budgets in reserve.
When surpluses reach an average of pound;50,000 in a primary or pound;100,000 in a secondary or special school, LAs will be able to direct them to spend their balances. If they fail to do so, schools could be forced to hand back the money.
In a memo explaining the changes, education minister Leighton Andrews said: "Holding balances of more than 5 per cent of the budget for no specific purpose represents poor financial management.
"Of course schools will on occasion save for a specific purpose and that will still be allowed to happen as authorities will use the powers provided by this legislation at their discretion.
"This legislation will provide authorities with a suite of powers that will allow suitable action to be taken in all circumstances."
According to Assembly government statistics, reserves held by Welsh schools totalled pound;75 million on March 31, 2009, the equivalent of pound;164 per pupil, with 815 primary and 67 secondary schools holding on to reserves of 5 per cent or more.
Teaching unions gave a cautious welcome to the news, but Gareth Jones, secretary of the Association of School and College Leaders (ASCL) Cymru, said schools often have surpluses because their annual budgets are subject to significant change.
He also said the cash-based accounting methodology schools are forced to use can create the false impression that they are holding large surpluses when they are in fact waiting to be invoiced for services or equipment they have already received.
David Griffiths, president of the National Association of Head Teachers Cymru, said some schools also try to maintain a surplus so that they have a financial cushion against falling pupil rolls.
Jane Morris, director of Governors Wales, said: "The legislation will allow schools to save on occasions for a specific purpose - this is especially important.
The new regulations will also require LAs to give schools three-year budget forecasts instead of the current one-year predictions, something heads and teaching unions have repeatedly proposed.
Mr Andrews said this would sharpen LA performance and allow schools to improve their financial planning.
ASCL Cymru's Mr Jones said the measure was "long overdue". But he added: "Let's be blunt, this is not three-year budgeting. Local authorities won't be bound by their predictions.
"What school leaders and governors would want is three-year budget scenarios where they know what factors could change. That way, they could plan ahead."
English reserves fall
Schools in England have been criticised for keeping too much money in reserve rather than spending it on pupils.
Surpluses have fallen to their lowest levels since 200203, figures released in January showed.
But Vernon Coaker, schools minister, said the overall surplus held by some individual schools remains too high. "We expect revenue funding to be used to support the education and well-being of pupils in school now," he said.
Surplus balances were down in 200809 in England by around pound;118 million on the previous financial year, to pound;1.92 billion.