Circular 2006/08

Date: 11 May 2006
Circular Number: 2006/08
Category: Funding

Early Childhood Education: Early Notification of Financial Reporting Requirements for the Financial Year Ending in 2007

This circular is about: The financial reporting requirements for licensed, chartered early childhood education (ECE) services for the financial year ending in 2007.

It is intended for: All chartered Early Childhood Education services and their umbrella organisations (excluding Nga Kohanga Reo) and all those preparing and auditing ECE services' financial statements.

The action required is: Read this Circular alongside the Early Childhood Education Funding Handbook (2005) and make any changes necessary e.g. to your Chart of Accounts to enable you to meet the financial reporting requirements for the 2006/07 financial year.

For further Information: Contact the Resourcing Division Contact Centre, Ministry of Education, PO Box 1666, Wellington.
Phone: 0800 323-323 Fax: 04 463 8374
Email: resourcing@minedu.govt.nz

For licensing or general operational matters, please contact your local office of the Ministry of Education.

Refer also to the Early Childhood Education Funding Handbook (2005).

Introduction

This circular explains what information Early Childhood Education (ECE) services will need to include in their audited financial statements for the financial year ending in 2007. Please read this circular carefully as there are changes to the reporting requirements.

The changes are a consequence of the additional funding subsidies available to ECE services from 1 April 2005. Details of the subsidies and reporting requirements are shown in the Early Childhood Education Funding Handbook 2005.

Why you need to provide this additional information in your audited financial statements 

Section 309 of the Education Act 1989 provides for the payment of bulk funding subsidies to chartered Early Childhood Education services. One of the conditions for receiving government funding is that services must send the Ministry a copy of their audited financial statements every year. Additional funding subsidies were made available to ECE services from 1 April 2005 and ECE services must report separately on each type of funding subsidy they receive.

The Ministry's Statement of Desirable Objectives and Practices (DOPs) also requires as a condition of funding, that ECE services make available to their communities information showing how the Ministry's subsidies have been spent. This must be done within 90 days of the end of the service's financial year.

This financial information is required from ECE services so that the Ministry can be sure that services have spent the Ministry's subsidies appropriately. ECE services must report separately on the various funding subsidies and grants as illustrated in the table below.

Note that both Equity Funding and the Support Grant for Provisionally Registered Teachers are "tagged" funding and can be used only for the purposes for which they have been claimed.

Community-based ECE services' audited general purpose annual financial statements

Community-based ECE services' audited general purpose annual financial statements must include the following information: 

1. A statement of accounting policies comprising: a definition of the reporting entity, statement of general accounting policies, statement of particular accounting policies, and a statement of changes in accounting policies.
2. A statement of financial performance (profit and loss account) that includes specific reference to each type of subsidy or grant received (ATIS, Equity Funding, Support Grant/s for Provisionally Registered Teacher/s) from the Ministry of Education. A statement of financial performance shows the service's revenue and expenses and the final operating position (surplus or deficit) for the previous 12 months.
3. A statement of financial position (balance sheet). The balance sheet illustrates the service's ability to meet its financial commitments as they fall due.
4. A statement of movement in equity. This statement shows movements in services' equity position between financial years.
5. An audit report prepared by a member of the NZ Institute of Chartered Accountants (ICANZ) who is not associated with the service and who has not been involved in the preparation of the financial statements.

Private ECE services' audited special purpose financial statements

Private ECE services may, if they wish, provide audited general purpose financial statements, including the information given above, or they may provide audited special purpose financial statements which include the information below:

1. Special purpose financial statements should include specific reference to each type of subsidy received from the Ministry of Education. A special purpose financial report does not need to include information on income other than the subsidies received from the Ministry of Education. (i.e. you do not need to declare how much income you have received from parents' fees, or other sources).
2. A statement of accounting policies comprising: a definition of the reporting entity, statement of general accounting policies, statement of particular accounting policies, and a statement of changes in accounting policies. 
3. An audit report prepared by a member of the NZ Institute of Chartered Accountants (ICANZ) who is not associated with the service and who has not been involved in the preparation of the financial statements.

Definitions

(Refer also to the Glossary in the Early Childhood Education Funding Handbook).

A private provider is any person or persons operating an early childhood centre as a sole trader, through a company, partnership or private trust, who invests their own personal income and/or capital into the centre with any profits made being paid back to the investor for their own private purpose.

Community-based ECE services are generally operated by an Incorporated Society or Trust for the benefit of the community they serve. Community-based services' funds are not available for any group or individual's private purpose. ECE services owned by public bodies e.g. health boards or government departments are also considered community-based services.

Umbrella Organisations such as regional Kindergarten Associations may choose to return consolidated general purpose financial statements on behalf of their individual services. Each regional Playcentre Association, as well as the Playcentre Federation should send consolidated general purpose financial statements. Individual Playcentres are required to send their audited statements of receipts and payments to the Ministry via their Association. The National Office of Barnardos returns consolidated general purpose financial statements on behalf of its individual services.

If you are uncertain what information you need to supply please refer to Chapters 4, 9 and 11 of the Early Childhood Education Funding Handbook (2005) or contact the ministry by phone, email, or fax as indicated at the end of this circular. 

Financial Statements must be audited by an ICANZ member

All services must have their financial statements audited by a chartered accountant who is a member of the Institute of Chartered Accountants of New Zealand (ICANZ). ICANZ members are bound to follow the auditing standards prescribed by the Institute. Auditors need carry out only limited testing, sufficient to provide assurance that the conditions which enabled a service to access the government funding subsidies have been fulfilled.

Services can check whether their auditor is an ICANZ member by visiting the ICANZ website http://www.nzica.com. Note that services' annual financial statements may be prepared by an accountant or financial adviser who is associated with the service's management group but the person or entity carrying out the audit must be independent of that group. This means the person compiling or preparing the financial statements should not also audit those statements.

The audit report must have the following information

ICANZ set the auditing standards and members can obtain information from their website. In broad terms the basic elements of an audit report are as follows: 

1. A statement indicating to the reader the name of the entity responsible for the preparation of the financial statements. This is normally the governing body of the entity being audited.
2. A brief explanation of the audit process, what the auditor has done to be able to give an opinion, and a statement of the auditor's independence. 
3. The audit report must be signed and dated. 

You will be notified when to send your 2006/07 audited financial statements to the ministry

Please retain your 2006/07 audited financial statements until we ask for them. A Ministry Circular and declaration form will be sent to all ECE services in March 2008 advising when and where to send audited financial statements for the financial year ending in 2007. 

Issued by:

Kevin Wilson
Senior Manager
Resourcing Division
Te Wāhanga Whakarato Rawa
National Office
45 - 47 Pipitea Street, Thorndon
PO Box 1666, Wellington, New Zealand
Phone: 0800 323-323
Fax: 0-4-463 8374
Email: resourcing@minedu.govt.nz
Web: www.minedu.govt.nz