Circular 2010/15 - Annual Reporting Circular
This circular is about preparing your 2010 Annual Report.
Date 31 October 2010 | End Date 31 October 2011 Circular no 2010/15 | Category Finance
This circular is about Preparing your 2010 Annual Report
This circular replaces Circular 2009/08 issued October 2009.
The action needed is Ensure your school incorporates all financial reporting requirements into its 2010 Annual Report.
It is intended for
- Chairpersons of boards of trustees and principals of all state and integrated schools.
- All those preparing school annual financial statements.
- Appointed auditors of schools.
For more information Direct any inquiries about this circular to your school accountant, financial service provider, your local Ministry of Education Senior Financial Adviser (listed at the end of this circular), or your school auditor.
This circular provides information, advice and guidance on preparing your 2010 Annual Report.
Content of annual reports
Annual reports are a statutory requirement for boards of trustees. They allow boards to account for how they have used resources provided by the Government and the local community for the educational needs of their students. They can also be used to reflect on boards’ achievements and how information gathered over the previous year will shape activities in the future.
Boards should use the report to communicate performance and objectives to stakeholders such as the Ministry of Education, Members of Parliament and, most importantly, parents and the wider school community.
The information that must be included in your annual report, along with model financial statements, can be found at www.minedu.govt.nz/kiwipark.
All information on school financial management can be found on the School Finance homepage www.minedu.govt.nz/finance. In particular the Financial Information for Schools Handbook issued in February 2009 (see www.minedu.govt.nz/fish) lists a number of resources and references that may be useful for technical advice and to help prepare your annual report.
Timeframe for completing 2010 annual reports
- 31 March 2011 - your draft annual report must be provided to your auditor before this date. If a financial service provider completes your annual accounts, it is still the board’s responsibility to ensure the service provider meets this deadline.
- 31 May 2011 - your annual report, including audited financial statements, signed by your board chair must be filed with your local Ministry of Education office before this date. It is the responsibility of the board to submit these reports and not that of your auditor or your financial service provider.
You must send four print copies of your board’s annual report to your local Ministry office by 31 May 2011. The Ministry retains two copies of your report and forwards one to your Electorate MP and one to your local Māori Electorate MP.
The Ministry recommends that you agree on a timetable with your auditor to ensure that audited accounts are with the Ministry by 31 May 2011. This timetable should allow for sufficient time to submit draft accounts plus the variation report and work through any issues identified through the audit.
Note that your charter is not part of the annual report and should be sent to your local Ministry office separately.
2010 annual accounts – key items to note
Related party disclosures – other Crown-controlled entities
Boards are required to include a statement that discloses the general relationship between the school and other Crown-controlled entities. A new template disclosure note is included in the Kiwi Park Model Financial Statements.
Banking staffing gives boards flexibility in timing the use of their staffing entitlement. Boards are sent fortnightly Banking Staffing reports along with their Staff Usage and Expenditure (SUE) reports to help them monitor usage. A spreadsheet is available from www.minedu.govt.nz/bankingstaffing. This allows schools to project staffing usage to the end of the year and to model various scenarios. The Ministry of Education monitors boards’ usage and may contact schools at risk of significant overuse during the year.
Accounting for over-used staffing
Boards that overuse their staffing entitlement must repay the Ministry for the amount overused. Banking staffing overused at the end of the year must be taken up in the annual financial statements as an expense against teacher salaries, with a corresponding accounts payable entry for the amount due to the Ministry. These amounts are exclusive of GST. The time period for balancing the staffing usage is pay-periods [y]23 to [y]26 in respect of the banking staffing as at year ended pay-period [y]22. The amount due to the Ministry at the end of pay-period [y]26 will be recovered from the July operations grant payment.
Cash reimbursements for unused staffing
Previously, if a school used less than its full entitlement, the amount left over was lost to it. From the end of 2010, however, to help schools obtain the resources to which they are entitled, schools will receive a cash reimbursement for roll-based staffing and additional staffing that they have been unable to use by the end of the staffing year. This will be limited to a maximum of 10% of the school’s total roll-based and additional staffing. The ‘reimbursement rate’ for unused staffing will be set by the Ministry at the end of each staffing year.
The Ministry is working to resolve issues related to the timing of the provision of the reimbursement rate, and appropriate treatment in the draft annual accounts which must be provided to auditors by 31 March 2011. Schools will be advised of the steps to follow, including accounting treatment, as soon as these issues have been resolved.
In the meantime, for more information contact the Resourcing Contact Centre 04 463 8383.
Fixed assets – reconciling opening and closing balances
In the annual financial statements there is a requirement to provide a reconciliation between the opening balance (the closing balance of the previous year) and the closing balance of the current year.
The Kiwi Park Financial Statements model has been updated as an example of how this can be achieved.
Capital works funding (state schools)
State schools receive funding from the Ministry of Education for capital works in accordance with their five year capital funding programme (5YP). This money must be accounted for separately in the board’s accounting system so that revenue and expenditure can be kept separate from the board’s other expenditure.
The funds received for property projects under the 5YP should not be treated as income. This money is held on behalf of the Ministry until spent and should be accounted for as follows:
- funds should be credited to a liability account on receipt
- separate ledger expenditure accounts should be maintained for each capital works project to assist with financial management and control
- financial statements should include a disclosure note on the amounts received and spent during the year for each project, even where there is no liability at year end.
The Kiwi Park model has been updated to provide an example of how the disclosure note might appear, especially where the school has been engaged in more than one project during the year. See Capital Works Projects at www.minedu.govt.nz/finance for more information.
Board contributions to capital works
It is the board’s responsibility to ensure that capital works projects are completed within budget. Where projects are planned to be of greater value than the Ministry funding (ie. when the board wishes to contribute to the project from its own funds) the board MUST obtain prior approval from the Ministry. Boards only have an "ownership" interest in a building when the project adds more floor area (square metres) than the Ministry is prepared to fund.
Treatment of board contributions
- Cost overruns on Ministry-funded capital works projects that are not met by the Ministry (and therefore have to be met by the board) should be written off by the board as an expense - unless there is specific Ministry approval that the cost overrun may be recognised as a fixed asset by the board.
- A board contribution to a Ministry-funded capital works project may be recognised as a fixed asset by the board when it is a joint project and there is an explicit agreement with the Ministry. Where there is no such agreement, the board contribution should be written off as an expense.
- For schools where the statement of financial position at 31 December 2009 recorded work in progress, cost overruns or board contributions to such Ministry-funded capital works projects should be handled in the 2010 accounts in accordance with one and two above.
- For the 2010 financial statements, any cost overruns or board contributions to a Ministry-funded capital works project recognised as a fixed asset in the board's 2009 financial statements should continue to be recognised as a fixed asset. The accounting treatment of fixed assets of this nature will be reviewed by the Ministry and the Office of the Auditor-General for the 2011 financial statements.
Reporting on Kiwisport
Kiwisport is a Government funding initiative to support sport for school-aged children. A direct fund has been included in the Ministry of Education’s Operations Grant paid quarterly to schools for 2010 and has been identified as a separate line in the entitlement notice.
Schools are required to include a short statement in their annual report on how they have used the funding to increase student participation in organised sport – see Kiwi Park Annual Report model, "Reports on special and contestable funding".
Use of the funding will also be monitored as part of schools’ regular ERO reviews.
Recognition of sick and annual leave
Schools were advised in 2009 that, with the planned introduction of the new payroll system during 2010, accurate information on sick and annual leave accruals for non-teaching staff was likely to be available. This would enable schools to make appropriate provision in their 2010 annual financial statements.
The payroll change has been delayed until 2011 and, as a result, this information is currently not available. Because of this, the Ministry has determined that schools do not have to accrue for leave accumulated by non-teaching staff at 31st December 2010. Note 1(n) to the annual financial statements in the Kiwi Park model has been updated accordingly.
Accounting for locally raised funds
There are many different interpretations of what should be included as locally raised funds in schools. Some boards have categorised local funds as any money coming into the school not provided directly by the Government. Others have just included fundraising and donations. This variation in practice has made it difficult to compare the amount of locally raised funds raised between schools or between years.
For the 2009 accounts, the Ministry made changes to the locally raised funds section of the Kiwi Park School Model Accounts to identify these two categories more consistently.
For the 2010 accounts, direct costs of fundraising must be disclosed separately from income. An example is included in the Kiwi Park Model Financial Statements.
A detailed description on accounting for locally raised funds is available on the Ministry’s website at www.minedu.govt.nz/finance.
Separate legal entities, which are controlled by the board of trustees, are also public entities. Therefore they will probably have to prepare their own financial statements and have them audited by the Auditor-General, in the same way as for a school’s financial statements. Where the separate legal entity is material to the school, the school will have to prepare consolidated financial statements incorporating the transactions and balances of the separate entity. Schools should give careful consideration to whether the creation of a separate legal entity is essential to achieve their objectives.
Schools in the Canterbury region, affected by the earthquake on 4 September 2010, are asked to provide information on the costs incurred as a result of the earthquake. The information should be provided by way of a disclosure note in the financial statements. An example is included in the Kiwi Park Model Financial Statements for guidance.
2010 annual accounts – some reminders
Schools are encouraged to read Circular 2009/08, as well as information about the recent change to the GST rate and the implications for schools. Links to both documents can be found on the school finance homepage www.minedu.govt.nz/finance.
The Crown Entities Act 2004 sets out the rules controlling the operation of school bank accounts. Circulars 2005/01 and 2005/07 provide more detail and are available on the Ministry’s website: www.minedu.govt.nz/Circulars. Acting in contravention of the requirements of the Act could result in your school being in breach of the legislation.
The main requirements are:
- bank accounts for your board must be established, maintained and operated by the board and not by another third party
- your board may grant a power of attorney to a service provider to use the bank account but your board must still be responsible for that account (ie receive bank statements). This power of attorney must clearly specify the authority that has been delegated. Note that the power of attorney must not allow the service provider to open or close accounts
- bank accounts must be in your board’s name. Bank accounts held and maintained by service providers in trust type arrangements are not allowed under the Act. Note that this also applies to any third party organisation providing services to schools operating school transport
- boards must ensure that all money received by their school is paid as soon as practicable into the board’s bank account. No board income, regardless of its source, can be paid directly to a service provider, proprietor or any other third party.
Capital works – state-integrated schools
Capital works at state-integrated schools are the responsibility of proprietors, who collect funding from attendance dues and from the Government. In some rare instances, boards of trustees at state-integrated schools are permitted to undertake capital works which are over and above the minimum obligations of proprietors. State-integrated boards that wish to spend money over and above these obligations must seek prior approval from their proprietors and the Ministry of Education. More information can be found at www.minedu.govt.nz/finance.
Use of land and buildings
The notional lease value for inclusion in 2010 annual accounts for state schools is available on the Property Management Information System (PMIS) as a field on the ‘Property Information’ tab. This page should be printed and included with your working papers for the auditor. See http://pmis.minedu.govt.nz/.
For state-integrated schools the notional lease value will be calculated each year by the proprietor and provided to each school. You should obtain a copy of the advice from your proprietor for your auditor.
Audit management letter
It is usual practice for auditors to issue an audit management letter following completion of an audit. The management letter is different from the audit report (which forms part of the annual report), and is addressed to the board of trustees or the chairperson – not to the school or the principal. It should be tabled at a board meeting.
It is a surprisingly common misconception that "management letter" means a letter addressed to the school’s management team (and thus not for the board’s eyes).
The management letter will often identify issues and suggestions that may not be required to be disclosed in the Annual Report, but that reflect the auditor’s concerns and suggestions noted during the audit. It may outline issues that need to be addressed by the board, or it may state only that the audit is completed and that there are no issues to raise with the board.
One of the useful functions of the management letter is that the auditor's independent view may help a board to identify cost-effective methods of reducing risks to the lowest practicable level. In general, an auditor can give constructive advice on how administration of the school may be enhanced through improvements in internal accounting and control systems.
Steps in the process
- Some auditors may give the board a draft management letter to look at first to check for factual accuracy.
- The management letter should be tabled at a board meeting, given to the principal to make comments on the recommendations made, then tabled back to a board meeting for consideration.
- The board needs to be happy with the comments by the principal.
- The board should reply to the auditors with responses to the recommendations and outlining decisions that it has made.
- The above process may involve working through the finance committee (or similar) if there is one.
- The issues raised in the management letter will be looked at again at the next audit. If they are not addressed and are serious then the auditor may wish to comment in the Audit Report.
Advice and support
If you have questions about preparing annual reports or the requirements of this circular, ask your board’s accountant, financial service provider or auditor. You can also speak to financial advisers in the Ministry who are experienced in schools’ financial matters and who can provide advice and support. See below for contact details.
Senior Financial Adviser to Schools
Private Bag 92 644
Symonds Street Auckland 1150
Street address: Corner Normanby Road and Edwin Street, Mt Eden, Auckland 1024
Phone: 09 632 9440
Email: email@example.com [no spam]
Senior Financial Adviser to Schools
Central North Region
PO Box 147 Napier 4140
8A Lever Street, Ahuriri, Napier 4110
Phone: 06 833 6734
Email: firstname.lastname@example.org [no spam]
Senior Financial Adviser to Schools
Central South Region
PO Box 301 77 Lower Hutt 5040
19 Market Grove, Lower Hutt 5010
Phone: 04 463 8673
Email: email@example.com [no spam]
Senior Financial Adviser to Schools
PO Box 2522 Christchurch 8140
39 Princess Street, Addington 8041
Phone: 03 378 7777
Email: firstname.lastname@example.org [no spam]
Annual report checklist
Make sure that you can tick off each of the items below before you send your annual report to the Ministry.
- Analysis of variance
- List of board of trustee members (refer Kiwi Park)
- Financial statements attached (all pages – please check)
- Statement of Responsibility is signed and dated
- Audit report (not the management letter) signed and dated.
Jeremy Wood, Group Manager, Education Curriculum and Performance
Ministry of Education, National Office, 45 – 47 Pipitea Street, Thorndon
PO Box 1666, Wellington, New Zealand, Phone 04-463 8000, Fax 04-463 8001