Bursar’s Review Summer 2020.

Summer 2020 www.theisba.org.uk 12 Finance Author Sam Coutinho Sam Coutinho Consulting Ltd How often do we receive management information? Schools should be receiving management information monthly. While termly accounts match fees and expenditure neatly, termly accounts do not identify issues quickly enough to address them. What management information do we receive? Most schools receive information on income and expenditure. Balance sheet information should also be included in order to assess the balance sheet insolvency test. Do we have enough cash to pay debts as they fall due? Schools should be receiving cashflow forecasts as part of their management information. This manages cash in and cash out alongside cash balances and overdraft facilities. It shows there is enough cash, when it is going to run out and how quickly. Have financial controls been compromised? As staff have been furloughed or working from home, controls may not have been operating as required. How do we measure the financial performance of the school? Schools need to have KPIs that are relevant to their financial circumstances. Variance analysis should be detailed with significant differences fully explained. Comparing actual results to the original budget may prove difficult if the basis of the budget has significantly changed. Have we assessed the risk of insolvency? Schools that may be in financial difficulty must assess the risk of insolvency and this should form part of the regular management information. Do we have funds that could be utilised? Funds in schools can be complex and each fund has specific legal restrictions. Management accounts should show all funds and schools should consider opportunities to release restricted funds and endowment funds. Do we have onerous commitments that can be cancelled to release cash? Schools may need to extract themselves from financial commitments for financial reasons. Are we reviewing the whole financial position of the group? School groups can be complex. Most schools will have a trading subsidiary that could now be making losses and be insolvent due to the loss of trading income from sources like lettings. Are we taking professional advice? The Charity Commission is clear that governors should take professional advice if they need it. On the next few pages, Sam suggests more steps schools can take to ensure resilience and develop their business continuity plans as we address the consequences of COVID-19. Strong financial management in schools has never been more important and the next couple of terms are going to be challenging for schools when we don’t quite know what the autumn term will bring in terms of pupil numbers. There are two purposes of management information: • to measure the financial performance of the school at a particular point in time; and • to enable schools to make financial decisions. For many schools, additional information will be required in the management accounts. Governors are responsible for ensuring the school is solvent. There is no legal definition of insolvency but in practice there are two tests, either of which might indicate insolvency: • the cashflow test: the school is unable to pay its debts as they become due; and • balance sheet test: the value of the school’s assets is less than the value of its liabilities (i.e. overall, it owns less than it owes). This test must be considered in conjunction with the cashflow test. Set out below are 10 considerations for management information in these financially challenging times which should help bursars and governors to focus the management of finances. This is a good time to take stock of your school’s finances. In this article Sam Coutinho suggests 10 questions to ask when establishing the financial health of your school and what steps to take to recovery if necessary. Questions we should be asking on the school finances www.samcoutinho.com