Capital works - state schools

Boards are required to maintain clear and specific records of capital projects within their financial management systems in a manner which clearly delineates Ministry receipts and expenditure distinct from the schools’ own operating accounts.

Ministry funded projects are undertaken on a project by project basis and reimbursements are made to schools only with prior approval.

The funds received for property projects within each school’s Five Year Agreement (5YA) are not income to the school, they are held on behalf of the Ministry until spent – as below:

• funds should be credited to a liability account on receipt;
• separate ledger accounts should be maintained for each capital works project to assist with financial management and control;
• the 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.

When funds provided by the Ministry have not all been spent the credit balance left is to be returned to the Ministry. There is no threshold for this - it is down to the last dollar. If there are any circumstances where any unspent funds may be retained for another project or retained for other purposes prior approval will be required from the Ministry and the documentation provided to the auditor.

Boards who fail to consult with the Ministry if they face overruns run the risk of having to pay for overruns from their own funds. Any unapproved overspend should not be included in the asset register but must be written off as an expense.

As all property development under the 5YA belongs to the Ministry, a full reconciliation is required for each project on completion which substantiates the use of the monies granted.

There may be occasions when the board, by prior arrangement with the Ministry, will contribute its own funds (see below for conditions) to a particular development. Examples might include where a school wishes to add a further classroom over its entitlement, or the construction of an adventure playground or a swimming pool.

In these cases the structure (sometimes part of a building) will become the property of the board and will be included in the board’s asset register.

The expenditure of board funds on building assets needs to be approached with careful consideration of the implications for the board. Board funded structures, apart from using the board’s funds which may have been raised from the local community, will result in an increase in depreciation expense, and all maintenance costs (ongoing upkeep and future upgrades) are the responsibility of the board.

For the 2009 financial statements only, any cost overruns or board contributions to a Ministry funded capital works project recognised as a fixed asset in the board's 2008 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 OAG for the 2010 financial statements.

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Process for applying for approval to use board funds for capital works

Boards can fundraise for capital works but should make the purpose of that fundraising clear to their community. If a board wants to use any of its own funds (including locally raised funds) for capital works, it is required to obtain the Ministry of Education's prior approval. The step-by-step process to be followed for the application is as follows.

1. Seek the approval of the expenditure concerned from the Ministry of Education's local office by providing the following information:
   • confirmation that the board will not exceed the borrowing limits (annual repayments of capital and interest must be within 10% of its annual operating grant) if it plans to borrow money for the capital works; and
   • the purchase price and all ongoing operating costs (including the cost of servicing any loan) will be paid for by assured current assets (ie, cash in bank or guaranteed grant funding) and assured future funding (ie, operational funding) and will not disadvantage the school’s operations now or in the future; and
   • the capital works will not negatively impact on the school, for example they will not create significant upgrading costs; and
   • the project will bring educational advantages to the school; and
   • the board has sought legal and accounting advice, if required, to support the expenditure.
2. If the Ministry of Education gives approval, then those capital works assets must be included on the board’s balance sheet.
3. If approved, the board will receive a confirmation letter from the Ministry. This confirmation should be shown to the auditor during the annual audit of the board's financial accounts.