Schools Forum / Item 7
16 May2012
Consultation - Improving the Assurance System for Financial Management in Local Authority Maintained Schools
Report of the Director of Corporate Resources
Contact: Gordon Shinn (01962 847545);
1.Executive Summary
1.1.This report outlines Department for Education (DfE) proposals to tighten up on the assurance arrangementsfor local authority (LA) maintained schools. The DfE proposes a number of criteria against which LAs will be assessed, although it does not provide details of any sanctions for non-compliance.
1.2.This report shows that Hampshire County Council already has robust measures in place and is unlikely to be impacted by the proposals.
1.3.The consultation deadline was 11 May 2012. The attached response has been submitted in the name of the local authority and Schools Forum, following discussion with both Primary Heads and Secondary Heads Resources Committees.
2.Background
2.1.In October 2011, the National Audit Office published a report on ‘Oversight of financial management in local authority maintained schools’.The report recognised a weakness in the current assurance system and the Department for Education (DfE) accepted their findings. The DfE has, therefore, agreed to strengthen its arrangements for approaching Local Authorities (LAs) about the financial management of their schools, where there are problems identified.
2.2.The consultation “Improving the assurance system for financial management in LA maintained schools” runs from 2 April to 11 May 2012. The DfE plans to use the information it already collects, or plans to collect, to identify where there may be problems with LAs' or their schools'financial management.
2.3.The information will be analysed against 6 proposed criteria to identify which LAs' information indicates that there is reason for the DfE to be concerned. The consultation sets out the proposed criteria and how the DfE plans to approach the LAs identified. There are three areas covered by the six criteria:
- Dedicated Schools Grant (DSG) spend in year
- School Balances
- Schools Financial Value Standards (SFVS), which replaces FMSiS
2.4.The full consultation document can be viewed at:
2.5.The introduction of these proposals coincides with the DfE’s ‘Local Authority Schemes: Directed Revisions 2012’ that takes effect from April 2012. This includes provisions relating to ‘Efficiency and Value for Money’ and the requirement for schools to complete the ‘Schools Financial Value Standard’ assessment.
3.Consultation questions – proposed responses
3.1.The consultation questions and proposed responses are attached as appendix 1. The following analysis provides background to the responses in relation to the proposed criteria and the other questions.
Criteria A and B
3.2.These relate to the use of Dedicated Schools Grant (DSG) and any carry forward from one year to the next (surpluses and deficits). For the last three years the amount of carry forward was as follows:
Year / £000 / %2010/11 / 22,051 / 3.1
2009/10 / 12,638 / 1.8
2008/09 / 9,345 / 1.4
3.3.The authority has a strong record of making best use of its overall allocation of DSG on a year to year basis, through good financial management and support from Schools Forum and representative groups such as Primary and Secondary Heads Resources Committees.
3.4.Although the DSG underspend for 2010/11 appears relatively high at 3.1%, it is still lower than the proposed threshold of 5%. The main reason for the build up of the underspend is the carry forward and addition to the Equal Pay provision. Other reasons for underspend include: Capital Repairs (CERA) slippage, Schools Forum agreed carry forward to spread over several years e.g. early years, general underspends at year end.
3.5.It appears sensible to agree a lower threshold for deficit (overspend) balances of DSG, as this is a higher risk than underspends. The % proposals for both appear reasonable.
Criteria C and D
3.6.These deal with excessive surplus and deficit balances held by schools over the last four years. The number of schools in Hampshire that would meet the criteria, and with adjusted thresholds are as follows:
Deficit/Surplus each of last 4/5 years / No. schools / %DfE proposals:
Deficit of 2.5% or more / 0 / 0
Surplus of 15% or more / 4 / 0.7
Possible alternatives:
Deficit of 2.0% or more / 1 / 0.2
Surplus of 10% or more / 18 / 3.2
3.7.This shows that, with the proposed criteria for both deficits and surpluses, the proportion of schools falls well below the thresholds of 2.5% of schools for 4 years (deficits) and 5% of schools for 5 years (surpluses). Tightening of these criteria to 2% (deficits) and 10% (surpluses) shows that the number in surplus increases to 3.2%.
3.8.There are only 4 schools that have had a deficit for 4 years. However, were the surplus threshold reduced to 8%, this would capture 5% of schools in surplus for 5 years.
3.9.The table below shows the impact of changing the term from 4/5 years to 3 years compared with the first table above:
Deficit/Surplus each of last 3 years / No. schools / %Deficit of 2.5% or more / 1 / 0.2
Surplus of 15% or more / 4 / 0.7
Deficit of 2.0% or more / 2 / 0.4
Surplus of 10% or more / 23 / 4.1
3.10.Although this shows minimal impact, it may be more appropriate to consider another criterion with this reduced timescale but a higher surplus (say 30%), as this would be an indicator of a very high balance and potentially no plans to use it. In this case it may also be appropriate to reduce the overall % of schools to say 2%. Within Hampshire, there are no schools that would fall into this category.
3.11.Another option would be to consider excluding balances of a minimum threshold of, say £25,000, as this is a reasonable contingency threshold. This would be similar to the approach that was previously adopted in the local balance control scheme (claw back mechanism) for primary schools.However, over a long term (5 years) the effect on total numbers is minimal.
Criteria E and F
3.12.These relate to the Schools Financial Value Standards (SFVS), which has replaced the Financial Management Standard in Schools (FMSiS). There are no schools in Hampshire that didn’t meet the FMSiS requirement. Therefore, criterion E would not be a consideration.
3.13.The proposal to allow a small minority of schools in each LA to not complete the SFVS seems the most proportionate and least bureaucratic approach. The proposed 2% threshold also strikes a reasonable balance for intervention.
3.14.LAs will be aware of those schools that have not complied with SFVS requirements through completion of the 'Outturn DSG CFO Statement' and have powers to impose relevant sanctions demonstrating actions to address non-compliance
Overall Criteria
3.15.The consultation suggest that any LA ‘caught’ by any one of the criteria will be ‘approached’ by the DfE and asks whether that is appropriate. What it doesn’t make clear is what, if any sanctions, that approach might result in. The analysis of the data suggests that any resources should be targeted at those LAs caught by more than one criteria. The risk-based approach should also consider whether LAs have made appropriate risk-based interventions themselves and whether there are ‘persistent offenders’.
Proposed process
3.16.The document sets out the proposed timescales and process for 2010/11 and future years.
3.17.It is important to ensure that resources are used effectively and that there is no duplication in terms of any additional assurances required or other interventions.
Schools Forum role
3.18.The consultation requests consideration of how Schools Forum could be involved if the DfE has any concerns. It is anticipated that the existing mechanisms that we have in place would be sufficient to reassure the DfE that Schools Forum already has, and will retain, a strong role in the overall financial management of the budget, including the control of balances at school level and the requisite financial assurances.
4.Recommendation
4.1.Schools Forum are asked to endorse the responses to the consultation questions.
1