Section 21A of the Education Act 1990 Became Relevant for Existing Non Government Schools

NSW Non-Government Schools

Suggested procedures and best practice guidelines

Section 21A of the Education Act 1990 (NSW)

Version2 September 2009

Definitions

Board also means council or governing body
Business Manager also means bursar, director of finance or any other name referring to the person responsible for the financialmanagement of the school
Board members also means directors
Person includes a body corporate
Principal also means Headmaster
Proprietor is the legal entity designated in the school’s certificate of registration, as the proprietor of the school
"Reasonable market value” is the amount which would be paid by a knowledgeable, willing party, at arms length to the seller
Related organisation. In this context the sponsor of the school or college, or any organisation which is under the control of the sponsor would be considered as related
School also means college
Sponsoring body meansan organisation or association that has a pecuniary or other interest in the school

Introduction

The legislative base for providing funding for non-government schools in New South Wales is the Education Act 1990 (the Act). Section 21 of the Act provides the legal authority for the Minister to distribute grants to schools. Parliament passed legislation to amend section 21 of the Act to prevent schools that operate ‘for-profit’ from accessing state funding. Section 21A came into effect on 1 January 2007 for existing schools and 5 October 2006 for new schools.

A non-government school is taken to operate for profit if any part of its proprietor’s assets (in so far as they relate to the school) or income (in so far as it arises from the running of the school) is paid to any other person.

Sec 21A provides two tests which indicate if a school is operating at a profit.

These include instances when:

any part of its proprietor’s assets (in so far as they relate to the school) or income (in so far as it arises from the running of the school) is paid to another person.

2. a payment is made to any person, in relation to the school's running costs, where the payment is greater than at “reasonable market value”.

According to the S 21A of the Act, the following exemptions apply to the above rules:

3 (a) Any payment made to a person in connection with that person’s activities as a member of a school’s governing body, being an honorarium or reimbursement for out of pocket expenses.

3 (b) Any payments made to students in relation to a prize, scholarship or other activity as students of the school.

3(c) Any payment made to a person in connection with the provision, at no more than reasonable market value of property, goods and services required in relation to the running of the school

3(d) Any payment made to a related organisation that does not operate for profit, in connection with the provision of property, goods or services required in relation to the running of the school.

These Guidelines

This document has been prepared to assist schools in developing and reviewing their own specific policies and procedures relating to:

compliance with general statutory requirements relating to the financial functions of non-government schools including Sec 21A of the Education Act
establishment of sound internal control procedures and processes
developing best practice principles resulting in a high level of care and due diligence

General Overview

In regard to Sec 21A it is considered that the followingshould be maintained by the school:

The Governing Body's Constitution and Charter

A delegations manual detailing the persons and authority provided to each by the school’s governing body.

Procedures covering:

1 The operation of bank accounts

2Purchase of goods and services

3Accounts payable

4Accounts receivable

5Asset registers

6Employment of staff and salary matters

7Awarding of scholarships and cash prizes to students

8Computerised accounting functions

9Conflicts of interest

10The operations of any Foundation, or similar institutionassociated with the School.

11The preparation of Annual Financial Reports

12 Documentation relating to:

any loans made tothe school by any related organisation or other persons
any loans made by the school to any related organisation or other persons
any leasing arrangements between the school, as lessor, and any related organisation or other person
any leasing arrangements between the school, as lessee, and any related organisation or other person
management/service fees paid to a related organisation or members of the school's Governing Body
management/service fees paid by a related organisation or members of the school's Governing Body
charges to related organisations or other persons

General Procedures

Operation of Bank Accounts

a)All bank accounts should be in the correct legal name of the school.

b)There should be at least 2 signatories to each account, and at least 2 of the signatories to sign each transaction.The authority to open and transact business on behalf of the school should be supported by a resolution of the School's Board or Finance Committee.

c)All cheques should be pre printed as “not negotiable account payee only”.

d) Electronic transfers should be made after meeting the control procedures required by the School's bank and with the same conditions regarding signatories as that for the cheque account. Individual remittance advices should be checked and authorised by 2 cheque signatories. The authorising persons should sign a print out of a summary supporting the amount transferred after the transaction has been completed.

e) Where possible all cheques and electronic transfers should be prepared by an independent person to those who will check and authorise these documents. .

f)The amount that can be paid by means of electronic transfers shall be subject to a maximum limit as set out in the delegations manual.

g)Documentation to support bank accounts details, i.e., BSBs and account numbers should be retained. These bank details should be stored in a secure place and appropriate authorisation in place to ensure any changes to bank details are correctly authorised. Random checks should be undertaken monthly to compare bank account details for payment being made to particulars of the bank accountsbeing retained on file.

h) Bank accounts should be reconciled on a daily basis and the reconciliation authorised by one of the cheque signatories.

Purchase of goods and services

(Note: Goods and services that are not specifically for the use of the school should not be purchased through the school's procurement process)

a)A purchase order must exist with the appropriate level of authorisation before a purchase can be made on behalf of the school.

b)The limits of the delegation to staff to incur expenditure at varying levels should be clearly set out in the delegations manual

c)An official purchase order should be raised for all items of expenditure on goods supplied to the school. Where verbal quotes are obtained before an order is raised, details of the quotes should be noted and retained. The orders should be approved by persons in line with the school’s delegation manual.

d)The quoted price should berecorded on the order. Schools should implement appropriate order requirements where goodsare supplied under a contract to be provided over a period of time. This would include such items as electricity, gas, insurances, cleaning catering etc, as these would be covered under the approved process for entering into contracts.

e)Except in abnormal and urgent circumstances and where approved by the delegated authority, an order should only be placed after the approving person ensures that it will not result in the budget set by the school for that category of expenditure being exceeded.

f)The school should develop an approved supplier list over time, based on quality of product or service, competitiveness, reliability, after sale service and warranty provided. The list should be reviewed by the Business Manager annually, ensuring that those listed are still appropriate.

g)Any person who is relatedto orassociated with any employee of the School or Director of the Board should not be used to supply goods and services to the School unless first approved by the appropriate individual/s nominated in the delegations manual. If there is a relationship with any employee of the School or Director of the Board, this approval should only be given if there is absolute certainty that the transaction is being undertaken at arms length and no more than “market “ price is being paid for the goods or services.

h)Schools should determine in their delegation manual the $ value above which quotes are to be obtained for goods and services. This will be specific to individual schools. (A sample Expenditure Approval Authority is attached at Appendix XX)

i)Guidance on the calling of tenders, especially for building projectscan be obtained from the practice note issued by the Royal Australian Institute of Architects “Calling, Receiving and Negotiating Tenders”.

j)Tenders should be delivered to a ‘locked’ box and opened and receipted in front of 2 persons from those nominated in the delegations manual. The selection process should be on the basis of overall value for money which may include;

Price,
Capabilities /Experience
Ability to complete on time
Financial stability
References
Previous work undertaken for the school

k)The outcome of the tender process should be clearly documented and signed by the individual/s nominated in the delegations manual.

l)Those who tendered should be advised of the outcome as soon as possible after the close of tenders and the decision being made.

m)Formal documentation, signed in accordance with the delegations policy should be on hand to cover continuous contracts such as cleaning, property maintenance, royalties etc. The documentation is to include period, nature of service rate charged. For royalty payments, the nature of the intellectual property received should be detailed. All suppliers should quote their ABN; provide evidence of registrations if appropriate, and details of insurance covers if applicable. Tax invoices should be provided to cover the supply.

Accounts Payable

a)Delivery dockets, etc should be attached to invoices accompanying the goods when received and be signed by the receiving person to evidence receipt of the quantity shown.

b) Invoices for all goods and services should be stamped to indicate the following:

Goods/Services Received
Prices Checked
Extensions Checked
Approved for Payment
GL Code
Date entered into accounting package
Cheque Number(where appropriate)

The invoices should be signed by the relevant persons in the area provided for each of the above.

c)The monthly invoices for payment should be reconciled with the month end suppliers’ statement when available. Any unmatched invoices should be followed up with the supplier at that time.

d)The monthly statement, invoices, etc should be initialled by the 2 cheque signatories indicating they are satisfied that the statement had been properly reconciled and the supporting invoices signed as required.

e)All invoices should be cancelled as “paid’ after the cheque has been signed to avoid duplication.

f)In instances where a payment is required to be made without invoices etc being necessary, the payment should be supported by a cheque requisition, authorised in accordance with the delegations manual, and signed by the 2 cheque signatories.

g)A signed letter from the Board Chair should support the payment of any amount to a member of a school’s governing body being an honorariums or reimbursement for out of pocket expenses. Other honorarium or ex gratia payments must be authorised by the individual/s nominated in the delegations manual.

h)For reimbursement of expenses etc, the supporting tax invoices or dockets should be attached to the relevant cheque voucher. All reimbursements should be approved by an authorised person. No person shouldauthorise payments made to themselves.

i)In instances where cheques or cash are provided in advance for excursions etc,an appropriate system should be in place to ensure that the proper accountability occurs in respect of the advance including the provision of the supporting invoices etc. Staff members receiving cash payments in advice should sign an appropriate statement confirming that they have received a cash payment.

j)For payments of compensation the supporting legal documentation should be available.

k)Authorised cheque signatories shall also be the authorising persons for any payments made by electronic funds transfer (EFT) (see also General Procedures - Authority to Operate Bank Accounts)

l)Changes in relation to details maintained on the School’s computer system regarding creditors should only be made by an independent authorised person after verifying the change to be made.

Credit Cards

m)The Board should authorise the process for issuing of credit cards in the name of the school to individuals and a register of card holders and their limits should be held by the business office.

n)All supporting tax invoices for amounts appearing on credit cards should be agreed with the entries appearing on the periodic statement and each card holder is responsible for retaining tax receipts until the credit card statement is issued by the bank.

o)The credit card statement should be stamped and signed in line with the process followed for the approval of invoices (see sec 3(b)).

p)The reimbursement of the above credit card should be made in line with Sec 3(d).

q)In instances where credit cards are reimbursed automatically each month, a register of cards in use should be maintained to ensure that the supporting documentation is subject to the approval process detailed in 3 (b).

Accounts Receivable

a)A student file should be commenced for each student once their enrolment has been confirmed.

b)The file should include information regarding the student including:

Application for Enrolment form

Family details

Medical records

If transferring from another school, prior school reports

Sufficient information to ensure compliance with MCEETYA reporting and other State and Commonwealth reporting requirements.

Details of -

Sibling Discounts
Scholarships
Other special discount arrangements

c)Access to the Student billing process should be limited to those persons responsible for the operation of the school fees system. It would be preferred if this person was independent of the receipt and banking of School funds.

d)Approved rates of fees, levies and other charges as well as discounts etc should be input onto the fees module as early as possible after student numbers are finalised. The fees table should be authorised by the Business Manager prior to the billing run in any Year. The fee table should be sufficiently password protected to ensure that the fees cannot be changed without appropriate authority.

A listing of students charges should be produced at the beginning of each billing cycle and reconciled with the class rolls to ensure all students have been input onto the Debtors/Fees system. Any unusual billing arrangements should be verified and authorised.

e)Student fee invoices should be produced promptly at intervals determined by the Board and promptly distributed to families.

f)Each school should have their own specific policy to cover the follow up of outstanding student fees accounts.An aged listing of outstanding fees should be produced monthly and the school’s fee collection policy for collection of outstanding fees followed.

g)A list of doubtful debts should be reviewed by the Business Manager. Where it appears that there is no chance of collecting the debt, the Business Manager should make the appropriate provision for bad debts in the general ledger and seek approval from the individual/s nominated in the delegations manual for the amount to be written off.

h)The person responsible for the debtor’s ledger should only process credits against fee accounts where authorised by the Business Manager, or in the case of a bad debt, by the individual/s nominated in the delegations manual.

n)Any special fee or other allowances provided to students whose parents or relatives are employees of the school should be clearly documented and approved by the individual/s nominated in the delegations manual. These should also be considered in regard to salary sacrificing arrangements including FBT issues.

o)Where possible, all mail should be opened in the presence of 2 persons and all cheques should be immediately stamped “Not Negotiable-Account Payee only.”

p)A separate record should be made of any cash received as well as any cheques received for all items.

q)Amounts received should be banked daily.

r)No cheques should be cashed from daily takings in any trading activities.

s)Any cash amounts received from canteen takings, vending machines, collections for excursion etc should be counted in the presence of 2 people and the total recorded in a receipt book. Those present should agree the total funds with the receipt book entry and sign the entry accordingly. The book should be signed by the receipting officer to indicate recording and banking through the cash receipts system.

t)Direct electronic transfers to the schools bank for student fees should be notified to the accounts department who should record the amount in the cash receipts module crediting same to the relevant student’s account when the entry appears on the bank statement.

u)A subsidiary fees ledger should be maintained for the following amounts due to the school for :

Staff or other parking (if applicable)

Commissions.

Sale of Scrap.

Amounts due to the School other than fees

Sale of assets

v)The subsidiary fees ledger should be maintained under the same guidelines as the student fees ledger. The subsidiary fees ledger should be reviewed monthly by the Business Manager to ensure all amounts have been received.

w)Receipts /collections received on behalf of organisations not forming part of the school should be clearly identified at the time of receipt. Individual suspense accounts should be maintained in the School’s general ledger to clearly separate these receipts. Amounts received/collected for other organisations should be paid to them as soon as possible after receipt.

5. Asset Registers

a)A separate asset register should be maintained by the school, and all additions with a value of greater than $1,000 should be recorded at the time of purchase.

b)Each item should be provided with either a serial number or bar code for identification purposes.

c)The asset register should reconcile to the relevant fixed asset account in the School’s general ledger on a monthly basis.