Memorandum submitted by the Audit Commission
SUMMARY
The Audit Commission welcomes the Select Committee's
focus on school accountability and is pleased to submit evidence
for the Committee's consideration.
This submission addresses the questions posed in
the Committee's call for evidence about the areas for which schools
should be held accountable and focuses on financial accountability.
We have responded to other aspects of accountability in our replies
to the recent consultations referred to by the Select Committee
and these are attached as appendices:
The education provision for children and young
people can be a key determinant of their quality of life and their
life chances in adulthood. Around £37.5 billion per
annum is spent in schools. It is important to demonstrate that
these sums are well spent and that they are delivering optimum
value for our children and young people, their carers and families,
and taxpayers. The Audit Commission feels that currently, there
is not sufficient scrutiny over resource planning, financial management
and value for money in schools.
RECOMMENDATIONS
The Commission recommends that:
| R1 | Councils should have robust, accurate and up to date information about the state of school budgets. They should adopt a formal budget reporting structure to give an accurate and up to date picture of school spending.
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| R2 | The value for money judgement in school inspections should be strengthened.
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| R3 | Training in financial management and resource planning in schools should be provided for governors. This should be mandatory for Chairs and Finance Committee Chairs.
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| R4 | The processes for monitoring, providing challenge and support, and intervening in schools on financial management issues should be closely aligned to those in place covering pupil and school improvement through:
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| appropriate support from advisers and school improvement partners;
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| the inclusion of strategic resource management in the financial management packages offered by councils to their schools; and
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| detailed costing of school development and department/key plans.
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| R5 | Councils' responsibility towards the stewardship of resources held and managed by schools should be clarified.
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| R6 | Internal audit visits to schools should be regular and provide assurance on wider questions of resource management.
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INTRODUCTION
The Commission's interest in schools' financial accountability
Financial accountability is of particular interest to the Commission
because we have a responsibility to ensure that public money is
spent economically, efficiently and effectively to achieve high
quality local services for the public. The topic under discussion
is highly relevant to our five current strategic objectives, which
are:
to raise standards of financial management and financial reporting;
to challenge public bodies to deliver better value for money;
to encourage continual improvement in public services so they
meet the changing needs of diverse communities and provide fair
access for all;
to promote high standards of governance and accountability;
and
to stimulate significant improvement in the quality of data
and the use of information by decision makers.
In particular, as part of the Comprehensive Area Assessment,
the Commission will undertake annual Use of Resources assessments
of councils. The assessments will be based on three key themes;
managing finances, governing the business and managing resources.
Our interest in school funding and the problems faced by
local councils in managing school funding prompted our national
study Education Funding (2004).[3]
Concerns over the way in which schools manage their finances led
us to develop a school balances tool (2008)[4]
by which school surpluses and deficits balances can be compared
across local authorities; and a resource pack for schools to help
them achieve good value for money from their Special Educational
Needs (SEN) and Additional Educational Needs (AEN) funding (2008).[5]
It also led to our current national study on value for money in
schools, which is due to be published by the summer of 2009.
DETAILED RESPONSE
Recommendation 1: Councils should have robust, accurate and
up to date information about the state of school budgets. They
should adopt a formal budget reporting structure to give an accurate
and up to date picture of school spending.
School expenditure represents the largest single element
of local government expenditure but attracts the least detailed
financial scrutiny. Current expenditure in schools is estimated
at £37.5 billion in 2007-08.
Councils are actively involved with schools in relation to their
performance and improvement. However, the case is not so strong
in relation to schools' budgets and their financial position.
Councils have very limited up to date knowledge of the state of
schools' finances. They have responded to requirements in the
past to delegate funding to schools and to support school autonomy.
Government restrictions on centrally incurred education expenditure
have limited their capacity to fulfil the crucial role of monitoring,
challenge, support and intervention in relation to schools' budgets,
financial management and value for money.
The absence of up to date, reliable and comprehensive financial
information about a large segment of the public sector budget
means that councils place great dependence on schools' own reports
and forecasts. The ring fencing of money allocated to schools
diminishes the incentive for councils to feel they should be involved
in school budget issues, even though the sums involved are substantial.
As a result, direct involvement with schools by councils is more
likely to occur where there is a large budget surplus or where
there is a deficit and the school needs to agree a recovery plan.
Councils have distanced themselves, and been expected to
do so, from monitoring and challenging schools budgets other than
to deal with critical incidents. The budget controversy in 2003 revealed
that nowhere in the system is there a secure picture of the state
of school finances and the likely impact of any changed funding
arrangements on them. Reliable information about how schools'
actual spending relates to budget is not available until well
after the year end.
Engagement with individual schools is often very limited.
Councils appear to be unsure about the extent to which they can
and should exercise closer scrutiny and challenge in relation
to schools' spending.
Where councils do have more up to date knowledge of spending,
it has been as a result of being involved in providing a traded
financial service. Frequently this will not cover all schools
within a council area.
Recommendation 2: The value for money judgement in school
inspections should be strengthened.
The number of schools in deficit during the past eight years
has remained fairly constant at around 2000 schools, although
this has reduced in 2007-08. It is likely this figure would have
been significantly lower if schools had the same monitoring, challenge
and support in resource and financial management, where the schools'
senior management normally have less expertise, as they receive
in the areas of teaching and learning, where senior staff have
considerable expertise. Evidence from inspections of the education
function of councils is that the link between school improvement
support and challenge and the strategic use of resources, budget
review and costing of school development plans is not as strong
as it should be. The emphasis in school inspections results in
limited coverage of resource management and performance, both
in respect of revenue and capital funding.
Recommendation 3: Training in financial management and
resource planning in schools should be provided for governors.
This should be mandatory for Chairs and Finance Committee Chairs.
Governors and headteachers are responsible for very significant
budgets. There is a need to continually enhance skills and expertise
of key staff and governors. Reported incidents of poor accountability
attract wide media attention. The Audit Commission public interest
report into Whalley Range High School (October 2005) concluded
there had been a significant breakdown in appropriate standards
of governance and accountability. The governing body had failed
to properly perform its role.
Recommendation 4: The processes for monitoring, providing
challenge and support, and intervening in schools on financial
management issues should be closely aligned to those in place
covering pupil and school improvement through:
appropriate support from advisers and school improvement partners;
the inclusion of strategic resource management in the financial
management packages offered by councils to their schools; and
detailed costing of school development and department/key plans.
Written guidance for schools on financial management is generally
of good quality, though it is often focused more on processes
and procedures than on the quality of resource management. Advice
on best value and value for money in schools is usually very limited.
Training is similarly limited, and education advisory staff tend
to play little part in what there is. This reinforces the division
between the financial management and school improvement agenda.
The Audit Commission's annual school survey and evidence
from inspections have found that council financial support services
are generally well regarded by schools. But this service relates
predominantly to day-to-day financial management, not strategic
financial planning. The range of services and choice on offer
varies, but usually reflects schools' demands. Financial training
is similarly well regarded by schools. Training content however
usually covers budget management process and how the fair funding
formula allocates money to schools. It is not generally targeted
at strategic resource management, how to link the budget to the
school development plan, or to managing deficits or surpluses.
Recommendation 5: Councils' responsibility towards the
stewardship of resources held and managed by schools should be
clarified.
Councils have statutory responsibilities to monitor and challenge
resource management and financial decision making and they are
also best placed to carry out this function. However, in practice,
the role is not undertaken consistently and it is not effectively
integrated into the wider monitoring and challenge role carried
out by school improvement partners or school advisers. The Audit
Commission's Money Matters report in 2000,[6]
the joint report with Ofsted in 2003 on Resource Management,[7]
and the Audit Commission's Education Funding Report in
2004 all highlighted this deficiency. Councils have been
under pressure to reduce central costs and to prioritise spending
controlled directly by schools. This has affected their ability
to prioritise the financial scrutiny of schools. They have interpreted,
and been encouraged to interpret, the requirement to provide support
and challenge in inverse proportion to success as a reason to
withdraw from aspects of budget monitoring. Many have reached
the point where their knowledge of school budget management and
resource deployment is not secure. There is uncertainty about
councils' responsibility towards the stewardship of resources
held and managed by schools.
Recommendation 6: Internal audit visits to schools should
be regular and provide assurance on wider questions of resource
management.
Internal audit does now appear to play a broader and more helpful
role than in the past. Schools generally appreciate its activities.
Most activity now involves a full financial health check, rather
than concentrating wholly on probity. The regularity of visits,
and use of risk assessment to determine programmes of work, however
varies between councils. The extent to which visits cover and
provide assurance on wider questions of resource management is
variable.
February 2009
1
Not printed. Back
2
Not printed. Back
3
Audit Commission-Education Funding 2004http://www.audit-commission.gov.uk/reports/NATIONAL-REPORT.asp? Back
4
Audit Commission-School Balances tool 2008. Back
5
Audit Commission-Resource pack for schools on Value for Money
in SEN/AEN 2008. Back
6
Audit Commission-Money Matters 2000. Back
7
Audit Commission and Ofsted - Resource Management 2003. Back
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