Scheme for Financing Schools - 2021/2022 Chief Executive

 
Scheme for Financing Schools - 2021/2022 Chief Executive
Schemefor

                     Scheme for
                Financing Schools
                          2021/ 2022
                           Chief Executive

            1
Scheme for Financing Schools - 2021/2022 Chief Executive
Contents

1          Introduction                                                        5

1.1        The funding framework                                               5
1.2        The role of the scheme                                              6
1.2.1      Application of the scheme to the authority and maintained schools   6
1.3        Publication of the scheme                                           7
1.4        Revision of the scheme                                              7
1.5        Delegation of powers to the Headteacher                             7
1.6        Maintenance of schools                                              7

2.         Financial controls                                                  8

2.1.1      Application of financial controls to schools                         8
2.1.2      Provision of financial information and reports                       8
2.1.2a     Fully funded schools                                                 8
2.1.3      Payment of salaries and invoices                                     9
2.1.4      Control of assets                                                    9
2.1.5      Accounting policies (including year-end procedures)                  9
2.1.6      Writing off debts                                                    9
2.2        Basis of accounting                                                 10
2.3        Submission of budget plans                                          10
2.3.1      Submission of financial forecasts                                   10
2.4        School resource management                                          10
2.5        Virements                                                           11
2.6        Audit: general                                                      11
2.7        Separate external audits                                            11
2.8        Audit of voluntary and private funds                                12
2.9        Register of business interests                                      12
2.10       Purchasing, tendering and contracting requirements                  12
2.11       Application of contracts to schools                                 13
2.12       Central funds and earmarking                                        13
2.13       Spending for the purposes of the school                             15
2.14       Capital spending from budget shares                                 15
2.14a      Devolved Formula Capital (DFC)                                      16
2.15       Notice of concern                                                   16
2.16       Schools Financial Value Standard (SFVS)                             17
2.17       Fraud                                                               17

3          Instalments of budget share – banking arrangements                  18

3.1        Frequency of instalments                                            18
3.2        Proportion of budget share payable at each instalment               18
3.3        Interest claw back                                                  18
3.3.1      Interest on late budget share payments                              18
3.4        Budget shares for closing schools                                   18
3.5        Bank and building society accounts                                  18
3.5.1      Restrictions on accounts                                            19
3.6        Borrowing by schools                                                19
3.7        Other provisions                                                    20

                                             2
4        The treatment of surpluses and deficit balances arising           21
         in relation to budget shares

4.1      The right to carry forward surplus balances                       21
4.2      Controls on surplus balances                                      21
4.3      Interest on surplus balances                                      22
4.4      Obligation to carry forward deficit balances                      22
4.5      Planning for deficit balances                                     22
4.6      Charging of interest on deficit balances                          22
4.7      Writing off deficits                                              22
4.8      Balances of closing and replacement schools                       23
4.9      Licensed deficits                                                 23
4.10     Asset loan scheme                                                 24
4.10.1   Credit union approach                                             25
4.10.2   Salix energy efficient loan scheme                                25

5        Income                                                            26

5.1      Income from lettings                                              26
5.2      Income from fees and charges                                      26
5.3      Income from fund-raising activities                               26
5.4      Income from the sale of assets                                    26
5.5      Administrative procedures for the collection of income            26
5.6      Purposes for which income may be used                             26

6        The charging of school budget shares                              27

6.1      General provision                                                 27
6.1.1    Charging of salaries at actual cost                               27
6.2      Circumstances in which charges may be made                        27

7        Taxation                                                          29

7.1      Value Added Tax (VAT)                                             29
7.2      Construction Industry Taxation Scheme (CIS)                       29

8        The provision of services and facilities by the LA                30

8.1      Provision of services from centrally retained budgets             30
8.2      Provision of services bought back from the LA using delegated     30
         budgets
8.2.1    Packaging                                                         30
8.3      Service level agreements                                          30
8.4      Teachers Pensions                                                 31

9        Private Finance Initiative/Public Private Partnership (PFI/PPP)   32

10       Insurance                                                         33

10.1     Insurance cover                                                   33

11       Miscellaneous                                                     34
                                            3
11.1       Right of access to information                            34
11.2       Liability of governors                                    34
11.3       Governors’ expenses                                       34
11.4       Responsibility for legal costs                            34
11.5       Health and safety                                         34
11.6       Right of attendance for Assistant Chief Executive         35
           (Enabling Services)
11.7       Special Educational Needs                                 35
11.8       Interest on late payments                                 35
11.9       Whistleblowing                                            35
11.10      Child protection                                          35
11.11      Redundancy / early retirement                             35

12         Responsibility for repairs and maintenance                38

13         Community facilities                                      39

13.1-2     Introduction                                              39
13.3       Consultation with the LA – financial aspects              40
13.4-5     Funding agreements – authority powers                     40
13.6-7     Other prohibitions, restrictions and limitations          40
13.8-9     Supply of financial information                           40
13.10-11   Audit                                                     41
13.12-13   Treatment of income and surpluses                         41
13.14-15   Health and safety                                         41
13.16-17   Insurance                                                 41
13.18-20   Taxation                                                  42
13.21-23   Banking                                                   42

Appendices                                                           43

Appendix A          Schools to which the Scheme applies              43

Appendix B          Licensed deficit recovery plan                   45

Appendix C          Schedule of works deemed capital which are the   46
                    responsibility of the LA

                                                4
1      Introduction

1.1.   The Funding Framework

       Bedford’s Scheme for Financing Schools is based on the legislative provisions in
       sections 45 – 53 of the School Standards and Framework Act 1998 (the Act) and
       the Schools and Early Years Finance (England) Regulations 2018.

       Under this legislation, the Local Authority (LA) will determine for itself on an
       annual basis, the size of the schools budget and the non-schools education
       budget, although at a minimum the LA must appropriate its entire Dedicated
       Schools Grant (DSG) to the schools budget.

       The categories of expenditure which fall within the two budgets are prescribed
       under regulations made by the Secretary of State, but included within the two,
       taken together, is all expenditure, direct and indirect, on the LA’s maintained
       schools except for capital and certain miscellaneous items.

       The LA may deduct funding in the schools budget for purposes defined in
       regulations made by the Secretary of State under Section 45A of the Act
       (centrally retained expenditure). The amounts to be deducted for these purposes
       are decided by the LA annually, subject to any limits or conditions (including
       gaining the approval of the Schools’ Forum or the Secretary of State in certain
       circumstances) as prescribed by the Secretary of State. The balance of the
       schools budget remaining after deduction of the centrally retained expenditure is
       termed the Individual Schools Budget (ISB).

       Expenditure items in the non-schools education budget must be retained centrally
       (although earmarked allocations may be made to schools).

       The LA must distribute the ISB amongst all maintained schools, using a formula
       which accords with regulations made by the Secretary of State and enables the
       calculation of a budget share for each maintained school. This budget share is
       then delegated to the governing body of the school concerned, unless the school
       is a new school which has not yet received a delegated budget, or the right to a
       delegated budget has been suspended in accordance with Section 51 of the Act.

       The financial controls within which delegation works are set out in Bedford
       Borough Council’s Financial Regulations for Schools in accordance with Section
       48 of the Act and regulations made under that section.

       All proposals to revise this scheme must be approved by the Schools Forum,
       though the LA may apply to the Secretary of State for approval in the event of the
       forum rejecting a proposal or approving it subject to modifications that are not
       acceptable to the LA.

       Subject to the provisions made by or under the scheme, governing bodies of
       schools are empowered to spend such amounts of their budget shares as they
       think fit for any purposes of their school* and for any additional purposes
       prescribed by the Secretary of State in regulations made under Section 50 of the
       Act (*Section 50 has been amended to provide that amounts spent by a
       governing body on providing community facilities or services under section 27 of
                                          5
the Education Act 2002 are treated as if they were amounts spent for the
        purposes of the school (s50(3A) of the Act).

        The LA may suspend a school’s right to a delegated budget if the provisions of
        this scheme (or rules applied by the scheme) have been substantially or
        persistently breached, or if the budget share has not been managed satisfactorily.
        There is a right of appeal to the Secretary of State. A school’s right to a
        delegated budget share may also be suspended for other reasons (Section 17 of
        the Act) but in that case there is no right of appeal.

        The LA is obliged to publish each year a statement setting out details of its
        planned schools budget and other expenditure on children’s services, showing
        the amounts to be centrally retained and the funding delegated to schools After
        each financial year the LA must publish a statement showing outturn expenditure.

        The detailed publication requirements for financial statements are set out in
        directions issued by the Secretary of State.

        The LA Section 251 budget and outturn statements detailing centrally held
        expenditure along with the funding formula can be found on the Council website.

        Regulations also require the LA to publish their scheme and any revisions to it on
        a website accessible to the general public, by the date that any revisions come
        into force, together with a statement that the revised scheme comes into force on
        that date.

1.2     The role of the scheme
        This scheme sets out the financial relationship between the LA and the
        maintained schools which it funds. A list of maintained schools covered by this
        scheme can be found in Appendix A.
        This scheme and the requirements relating to financial management and
        associated issued as set out in Bedford Borough Council’s Financial Regulations
        for Schools are binding on both the LA and on schools.

1.2.1   Application of the scheme to the authority and maintained schools

        With effect from 1 April 2014 the following maintained schools have been subject
        to the requirements of this scheme:

        Community schools
        Community special schools
        Voluntary schools
        Foundation schools
        Foundation special schools
        Nursery schools
        Pupil Referral Units

        It does not apply to schools situated in the authority’s area which are maintained
        by another authority. Nor does it apply to academies.

                                           6
Any new schools opening after 1 April 2014 will be subject to the requirements of
      this scheme by virtue of Section 48 of the Act.

1.3   Publication of the scheme

      The scheme will be published on a website which is accessible to the general
      public and any revised version will be published by the date that revisions come
      into force, together with a statement that the revised scheme comes into force on
      that date.

1.4   Revision of the scheme

      Any proposed revisions to the scheme will be subject to consultation with the
      governing body and the head teacher of every school maintained by the LA
      before they are submitted to the schools forum for approval by members
      representing maintained schools. Where the schools forum does not approve
      them or approves them subject to modifications which are not acceptable to the
      LA, the LA may apply to the Secretary of State for approval.

      It is also possible for the Secretary of State to make directed revisions to
      schemes after consultation. Such revisions become part of the scheme from the
      date of the direction.

1.5   Delegation of powers to the Headteacher

      The governing body is required to consider the extent to which it wishes to
      delegate its financial powers to the head teacher and to record its decision (and
      any revisions) in the minutes of the governing body.

      However, the first formal budget plan of each financial year must be approved by
      the governing body, or by a committee of the governing body.

1.6   Maintenance of schools

      The LA is responsible for maintaining the schools covered by this scheme, and
      this includes the duty of defraying all the expenses of maintaining them (except in
      the case of a Voluntary Aided School where some of the expenses are, by
      statute, payable by the governing body). Part of the way the LA maintains
      schools is through the funding system put in place under sections 45 to 53 of the
      School Standards and Framework Act 1998.

                                         7
2        Financial controls

2.1.1    Application of financial controls to schools

         Further to paragraph 1.2 above, all schools are required, in the management of
         their delegated budgets, to abide by the LAs requirements on financial controls
         and monitoring , not only those in the scheme but also those requirement
         contained within the Bedford Borough Council’s Financial Regulations for
         Schools. These regulations encapsulate approved financial management
         procedures appropriate to all phases and categories of schools in Bedford. These
         regulations cover the accounting procedures approved for operation in Bedford
         schools and associated banking arrangements, where appropriate.

2.1.2    Provision of financial information and reports

         Provision by schools of financial information and reports to the LA will be detailed
         in the Fully Funded Bank Account Scheme, updated for April 2020. The scheme
         reflects the fact that as of 1st April 2020, all maintained schools will be fully
         funded.

2.1.2a   Fully funded schools

         Schools must satisfy the minimum requirements with regard to financial controls,
         procedures and systems in operation so far as necessary for the discharge of the
         LA’s Assistant Chief Executive (Enabling Services)’s responsibilities under
         Section 151 of the Local Government Act 1972. As this option involves all
         financial records being maintained in school, these documents become the prime
         record and, therefore, are subject to a more rigorous LA and external audit.

         Schools are required to provide the LA with various financial reports in order for
         the LA to consolidate school expenditure onto its own accounting system. These
         reports shall be returned to the LA, in accordance with the timetable set out in the
         Fully Funded Scheme.

         In order for the Assistant Chief Executive (Enabling Services) (Section 151
         officer) to prepare the annual accounts, schools will be required to provide
         financial information in accordance with the timetable determined by the Assistant
         Chief Executive (Enabling Services) in consultation with the LA external auditor.

         The content and frequency of returns to the LA are prescribed through Bedford’s
         Fully Funded Bank Account Scheme. From 1st April 2020, the LA will require fully
         funded schools to provide quarterly income and expenditure statements; cash
         flow forecasts and updates, in addition to budgeted and year end (actual) balance
         sheets. The frequency and format of returns will be subject to change in light of
         the fact that all maintained schools will have fully funded status as of 1st April
         2020.

         Financial reporting must be in line with the Consistent Financial Reporting (CFR)
         framework which standardises, simplifies and streamlines the coding and
         reporting of school finances in all maintained schools in England. It applies to all
         budgets, forecasts, recovery plans and outturn returns.

                                            8
An annual return, in CFR format, is required to be submitted to the LA in
        accordance with the timetable issued each year.

2.1.3   Payment of salaries and invoices

        The procedures for these will vary according to the choices schools make about
        the holding of bank accounts and buying back of services.

        Where the LA’s preferred payroll supplier is also used by schools, the Assistant
        Chief Executive (Enabling Services) will arrange for the completion and return of
        all payroll related financial statements which are required by law.

        Where a school has elected to use an alternative provider of payroll services all
        associated responsibilities (e.g. effective administration, payments and
        submissions of returns) will rest with the school. Specific details of these
        requirements are included in Bedford’s Financial Regulations for Schools.

        Schools should use their best endeavours to ensure that payments can be made
        within 30 days of invoice date. This is both central government and Council
        policy. Where an invoice is disputed, the query should be raised, with the
        supplier, as soon as is known. The invoice should be promptly cleared for
        payment, once the query is resolved, or credit note received. All invoices should
        be cleared, or query made, prior to major holiday periods.

2.1.4   Control of assets

        Each school must maintain an inventory of its moveable assets, in a form
        determined by the LA, setting out the basic authorisation procedures for disposal
        of assets. These procedures are set out in Bedford's Financial Regulations for
        Schools. The prescribed format must be used and in the form of an electronic
        spreadsheet. (This is available from the Schools’ LA website) This should be
        downloaded and completed at 31 March each year and certified as verified and
        submitted to the LA as required. Schools are free to determine their own
        arrangements for keeping a register of assets worth less than £1,000. Schools
        are encouraged to register anything that is portable and attractive, such as a
        camera. They should keep a register in some form.

2.1.5   Accounting policies (including year-end procedures)

        Schools must abide by the procedures and timetables issued by the LA in relation
        to accounting policies and year-end procedures. The year-end procedures and
        timetable will be issued by the LA each year, during February.

2.1.6   Writing off debts

        Governing Bodies are only authorised to write off debts up to £5,000.

        In the case of larger debts the school must refer such cases to the Assistant
        Chief Executive (Enabling Services) or his nominated officer for approval.

                                          9
2.2     Basis of accounting

        Bedford Borough Council’s accounting policies are based on the Chartered
        Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Local
        Authority Accounting in Great Britain and all accounts are prepared on an
        accruals basis.
        Fully funded schools operating local accounting systems (as outlined in
        paragraph 2.1.2b above) are required to provide the LA with reports and
        accounts on an accruals basis in accordance with an agreed timescale.

        Schools are free to use whatever software they wish, provided they meet any
        costs of modification to provide output require by the LA.

2.3     Submission of budget plans

        Each school is required to submit at least a 3 year budget plan approved by the
        Governing Body or by a committee of the governing body to the LA no later than
        15 June of each year.

        The budget plan must show the school’s intentions for expenditure in the current
        and the following financial years and details of any assumptions made
        underpinning the budget plan e.g. expected income. In determining the budget
        plan, schools are required to take into account estimates of any surplus or deficit
        projected for the previous year financial end.

        The format of the budget plan and any supporting documents shall comply with
        that provided by the LA when distributing individual school budgets to take into
        account the CFR framework and the desirability of compatibility with that.

        The LA may also require the submission of revised plans at any time where the
        LA deems it necessary. The intervals at which revisions may be required will not
        be more often than every 3 months.

        The LA will supply schools with all income and expenditure data that it holds and
        which is necessary for efficient planning by schools.

2.3.1   Submission of financial forecasts

        As part of budget management, schools are required to undertake regular
        forecasts of outturn against budget. Schools are required, to provide at least one
        forecast outturn return to the LA, once the October income and expenditure
        reports have been issued. These forecasts will be used to confirm if schools are
        undertaking effective financial planning or not.

2.4     School resource management

        Schools must seek to achieve effective management of resources and value for
        money, to optimise the use of their resources and to invest in teaching and
        learning, taking into account the LA’s purchasing, tendering and contracting
        requirements.

                                          10
It is for heads and governors to determine at school level how to optimise the use
      of resources and maximise value for money. There are significant variations in
      the effective management of resources between similar schools, and so it is
      important for schools to review their current expenditure, compare it to other
      schools and think about how to make improvements.

2.5   Virements

      Schools are free to vire between budget headings identified in the school’s
      budget plan and governors are required in their Schemes of Delegation to
      establish criteria for virements and financial limits above which the approval of
      the governors is required. Decisions should be recorded in governing body
      minutes.

2.6   Audit: general

      Schools are required to co-operate within the audit regime determined by the LA
      as regards internal audit, and also within the LA’s external audit regime as
      determined by the Local Audit and Accountability Act 2014.

      With regard to internal audit, all maintained schools are within the scope of the
      audit regime determined by the LA.

      The internal audit of schools is an obligation imposed upon the Council by the
      Accounts and Audit Regulations 1996 which require the maintenance of an
      adequate and effective system of internal audit of the accounting records and
      systems of the Council. The responsibility for internal audit has been delegated to
      the Assistant Chief Executive (Law and Corporate Governance).

      Schools must allow both internal and external auditors full access at all times to
      all papers and records of the school and provide explanations the auditors
      consider necessary. Schools must pass on any information to the auditors that
      they should be aware of to carry out their audit.
      In relation to external audit, all maintained schools are within the scope of the LA
      external audit regime as determined by the Local Audit and Accountability Act
      2014. The governing body must bear in mind that whilst external auditors must
      plan, perform and evaluate their audit work to have a reasonable expectation of
      detecting material misstatements arising from error or fraud, the duty to deter and
      detect fraud rests primarily with the governing body.

2.7   Separate external audits

      Where a school wishes to seek an additional source of assurance at its own
      expense; a governing body is permitted to spend funds from its budget share to
      obtain external audit certification of its accounts, separate from any LA internal or
      external audit process. Where a school chooses to seek such an additional audit
      it does not remove the requirement that the school must also be subject to and
      co-operate with the LA’s internal and external auditors. In the event of a
      difference of opinion between the LA’s external auditors and a governing body
      appointed auditor, the views of the LA’s external auditor will prevail.

                                         11
2.8    Audit of voluntary and private funds

       In addition to the normal internal and external audits, schools must provide
       annual audit certificates to the LA in respect of any voluntary and private funds
       they hold and of the accounts of any trading organisations controlled by the
       school. Where a school wishes to establish a trading organisation it must consult
       with the LA regarding the nature of the trading activity.

       The procedures for providing the audit certificates and advice on the handling of
       such voluntary and private funds are set out in Bedford's Financial Regulations
       for Schools

2.9    Register of business interests

       The governing body of each school is required to maintain a register which lists
       for each member of the governing body, the Headteacher, and any member of
       staff involved in any way in the selection of suppliers:

       Any business interests they or any member of their immediate family have;

       Details of any other educational establishments that they govern;

       Any relationships between school staff and members of the governing body;

       And to keep the register up to date with notification of changes and through
       annual review of entries, to make the register available for inspection by
       governors, staff, parents and the LA and to publish the register, for example on a
       publicly accessible website.

       More detailed guidance on the maintenance of such a register can be found in
       Bedford's Financial Regulations for Schools.

2.10   Purchasing, tendering and contracting requirements

       Schools are required to abide by Bedford's Financial Regulations for Schools,
       Contract Procedure Rules and Financial Procedure Rules in purchasing,
       tendering and contracting matters. Notwithstanding this, schools are required to
       assess in advance, where relevant, the health and safety competence of
       contractors, taking account of Bedford Borough Council’s policies and
       procedures.

       The policies and procedures will not require schools:-

       a) to do anything incompatible with any of the provisions of the scheme, or any
          statutory provision, or any EU Procurement Directive;

       b) to seek LA Officer countersignature for any contracts for goods or services for
          a value below £60,000 in any one year;

       c) to select suppliers only from an approved list;

                                          12
d) to seek fewer than three tenders in respect of any contract with a value
          exceeding £10,000 in any one year, subject to specific listed exceptions.

       Schools may seek advice on a range of compliant deals via Buying for schools.

2.11   Application of contracts to schools

       Schools have the right to opt out of any contracts arranged by the LA.

       Although governing bodies are empowered to enter into contracts (Education Act
       2002 Schedule 1 paragraph 3), in most cases they do so on behalf of the LA as
       maintainer of the school and the owner of the funds in the budget share.
       However, other contracts may be made solely on behalf of the governing body,
       when the governing body has clear statutory obligations e.g. contracts made by
       aided or foundation schools for the employment of staff.

2.12   Central funds and earmarking

       The LA is authorised to make sums available to schools from central funds in the
       form of allocations which are additional to and separate from the schools’ budget
       shares. Such allocations shall be subject to conditions setting out the purpose for
       which the funds may be used and while these conditions need not preclude
       virement (except, of course, where the funding is supported by a specific grant
       which the LA itself is not permitted to vire), this should not be carried to the point
       of assimilating the allocations into the school’s budget share.
       Such allocations might, for example, be sums for SEND or other initiatives funded
       from the central expenditure of the LA’s Schools Budget or other authority
       budget.

       Schools are required to spend such earmarked funding from centrally retained
       funds only on the purposes for which it is given, or on other budget heads for
       which earmarked funding is given, and it is not to be vired into the budget share.

       Earmarked funds must be returned to the authority if not spent within any period
       stipulated by the authority over which schools are allowed to use the funding.

       The authority is not permitted to make any deductions, in respect of interest
       costs to the authority, from payments to schools of devolved specific grant.

       The declaration of Earmarked Funds form can be found at:
       https://www.bedford.gov.uk/secure-school-area/finance/year-end-information/.
       Section B01 must include:

       a) any unspent revenue grant where the grant determination allows for a carry
          forward of unspent grant; and

       b) balances held for capital projects, where written contracts have been entered
          into.

       Furthermore, schools may apply for funds to be earmarked and retained by the
       LA where balances relating to future significant capital projects meet the following
       criteria:
                                           13
a) the school scheme will be taking place within 3 years, and:
b) it appears on the LA capital programme, or:
c) is detailed on minutes of Governor’s meetings and has received written
   support from the LA that the scheme is appropriate.

School’s that wish to transfer funds to the LA in line with the above criteria must
apply in writing to the Chief Education Officer by 1 February preceding the
financial year-end.

Subject to approval, arrangements will be made within the following month to
transfer funds from the individual school to a ring-fenced reserve on the LA
balance sheet for use against a specific future scheme. These funds can only be
assigned towards capital schemes that meet the LA’s definition of capital.

Supporting evidence must be submitted for the LA to authorise earmarking.
Schools must maintain and present accounting records in support of such
expenditure.

Schools will receive a statement when the first contribution is made and then at
least annually thereafter confirming:
   • the value of contributions made to date,
   • the timescales for utilising funds and
   • the mechanism for drawing down funds when expenditure occurs.

Interest is payable on funds held by the LA for this purpose. The current rate of
interest on such loans is the Local Authority 7 day Rate.

Any unspent balances remaining at the end of the 3 year term will be transferred
to the LA capital scheme and will no longer be available for use by the school.

However, in exceptional circumstances the Chief Education Officer may approve
requests for an extension to the original 3 year expenditure deadline. Such
circumstances may include (but are not exclusive to):

   1. Capital works arising from the 2 tier conversion programme or school
      expansion;
   2. Unavoidable delays in completing the project(s) within the original
      timescales envisaged when the funds were originally transferred.

Any extension requests must be submitted to the Schools Finance Team by 3
February preceding the original 3 year deadline.

Requests will be approved by the Chief Education Officer.

Requests must:
  • include brief, reasoned arguments for the extension request (up to a
     maximum of 2 years) and
  • be supported by minutes of Governor meetings where the request was
     agreed.

                                  14
Requests for extensions beyond 2 years will not be considered.

           Any balances remaining thereafter will be transferred to the LA capital scheme
           and will no longer be available for use by the school.

2.13       Spending for the purposes of the school

           Governing bodies are free to spend budget shares ‘for the purposes of the
           school’ (Section 50(A) of the Schools Standards and Framework Act 1998),
           subject to any provisions of this scheme and the regulations made by the
           Secretary of State

           By virtue of Section 50(3A) (which came into force on 1 April 2011), amounts
           spent by governing bodies on community facilities or services under section27 of
           the Education Act 2002 will be treated as if spent for any purposes of the school.
           Under Section 50(3) (b) the Secretary of State may prescribe additional purposes
           for which expenditure of the budget share may occur. He has done so in the
           School Budget Shares (Prescribed Purposes) (England) Regulations 2002
           (SI2002/378), which have been amended by the Schools Budget Shares
           ((Prescribed Purposes) (England) (Amendment) Regulations 2010 (SI2010/190).
           These allow schools to spend their budgets on pupils who are on the roll of other
           maintained schools or academies.

2.14       Capital spending from budget shares

           Governing bodies are permitted to use their budget shares to meet the cost of
           capital expenditure on the school premises 1 in accordance with the Councils
           accounting procedures. However, schools are not permitted to use their budget
           shares to contribute to capital works if:

           a) this results in a revenue deficit or
           b) existing devolved formula capital balances are held by the school for the
              current or previous financial years.

           Where the premises are owned by the LA, or the school has voluntary controlled
           status, then the Governing Body will seek the written consent of the LA to:

           •   the extension of existing buildings
           •   any internal or external alterations to existing buildings
           •   the construction of any new buildings
           •   any external works impacting on play areas or playing fields

           However, consent for building work can only be withheld by the LA on health and
           safety grounds.

           The reason for these provisions is to help meet responsibilities with the the
           School Premises (England) Regulations 2012, the Workplace (Health, Safety and
           Welfare) Regulations 1992, the Regulatory Reform (Fire Safety) Order 2005, the
           Equality Act 2010, and the Building Regulations 2010.

1 This includes expenditure by the governing body of a voluntary aided school on work which is their
responsibility under paragraph 3 of Schedule 3 of the Act.
                                                      15
2.14a   Devolved Formula Capital (DFC)

        DFC is delegated to schools; however, this must only be used in line with the LA
        capital guidance and definition and not for revenue purposes e.g. repairs and
        maintenance.

        Schools are required to return to the LA, on a timely basis as prescribed by the
        LA, control schedules identifying actual capital spend, supported by copy
        invoices.
        DFC must be spent within the three year time frame or claw back may be applied.
        Direct Revenue Finance (DRF) entries are not permitted where a school has a
        Licensed Deficit agreement or where sufficient capital balances are held.
        Exceptions will be made where earmarked funds authorised by the LA in a
        previous financial year have detailed a capital contribution.

        Voluntary Aided (VA) Schools must ensure a separate bank account is held for
        DFC and only the contribution from the school budget share is shown in the LA
        school accounts. VA Schools must ensure that they follow LA guidance and
        definitions for capital. It is the responsibility of the school to comply with
        deadlines and returns as prescribed by the Diocese or the Department for
        Education (DfE).

2.15    Notice of concern

        The LA may issue a notice of concern to the governing body of any school it
        maintains where, in the opinion of the Assistant Chief Executive (Enabling
        Services), the Chief Education Officer and Director of Children’s Services, the
        school has failed to comply with any provisions of the scheme, or where actions
        need to be taken to safeguard the financial position of the LA or the school.

        Such a notice will set out the reasons and evidence for it being made and may
        place on the governing body restrictions, limitations or prohibitions in relation to
        the management of funds delegated to it. These may include:

        • insisting that relevant staff undertake appropriate training to address any
          identified weaknesses in the financial management of the school;

        • insisting that an appropriately trained / qualified person chairs the finance
          committee of the governing body;

        • placing more stringent restrictions or conditions on the day to day financial
          management of a school than the scheme requires for all schools – such as
          the provision of monthly accounts to the LA;

        • insisting on regular financial monitoring meetings at the school attended by
          local authority officers;

        • requiring a governing body to buy into an LA’s financial management systems;
          and

        • Imposing restrictions or limitations on the manner in which a school manages
                                           16
extended school activity funded from within its delegated budget share – for
         example by requiring a school to submit income projections and / or financial
         monitoring reports on such activities.

       The notice will clearly state what these requirements are and the way in which
       and the time by which such requirements must be complied with in order for the
       notice to be withdrawn. It will also state the actions that the LA may take where
       the governing body does not comply with the notice.
       Where the authority issues a notice of concern, the notice will be withdrawn once
       the governing body has complied with the requirements it imposes.

2.16   Schools Financial Value Standard (SFVS)

       All LA maintained schools (including nursery schools and pupil referral units
       (PRUs) that have a delegated budget) must demonstrate compliance with the
       Schools Financial Value Standard (SFVS) and complete the assessment form
       and financial dashboard on an annual basis.

       Governors must demonstrate compliance through the submission of the SFVS
       assessment form signed by the Chair of Governors. The form must include a
       summary of remedial actions with a clear timetable, ensuring that each action has
       a specified deadline and agreed owner. Governors must monitor the progress
       of these actions to ensure that all actions are cleared within specified
       deadlines.

       All maintained schools with a delegated budget must submit the return to the LA
       annually by the 31st December.

2.17   Fraud

       All schools must have a robust system of controls to safeguard themselves
       against fraudulent or improper use of public money and assets.

       The governing body and head teacher must inform all staff of school policies and
       procedures related to fraud and theft, the controls in place to prevent them and
       the consequences of breaching those controls. This information must also be
       included in the induction for the new school staff and governors.

                                         17
3       Instalments of the budget share and banking arrangements

        For the purposes of this section, budget share includes any place-led funding for
        special schools or pupil referral units.

        As of 1st April 2020, all maintained schools will be fully funded using the
        school’s own nominated bank account.

3.1     Frequency of instalments

        The entire schools budget share will be made available to the governing body on
        a monthly basis. Top up payments for pupils with high needs will be made on a
        monthly basis unless alternative arrangements have been agreed with the
        provider.

3.2     Proportion of budget share payable at each instalment

        Fully funded school budget shares will be transferred into the school bank
        account in 12 monthly instalments. Any re-determinations of school budget will
        result in amendments to the instalments lodged in the school’s bank account.

        Schools may request an adjustment to the proposed instalments by writing to the
        Manager (Business Partner) for Schools and Children, with a supporting
        cashflow, demonstrating the school’s requirements. Any accelerated instalments
        will be deducted from future instalments. The operation of the bank account will
        be subject to the Fully Funded Bank Account Scheme.

3.3     Interest clawback

        Where the LA standard proportion of instalments is used (Section 3.2), no
        deduction will be made from school budget share instalments for the estimated
        loss of interest.

3.3.1   Interest on late budget share payments

        Where there is a delay in part or all of a scheduled payment, due to an error by
        the LA, interest will be paid on the unpaid amount at the relevant Bank of
        England base rates for the period.

3.4     Budget shares for closing schools

        Budget shares of schools for which approval for discontinuation has been
        secured will be made available until closure on a basis agreed by the LA. This
        may either reflect the existing banking arrangements or an alternative
        arrangement that suits both the LA and the school concerned.

3.5     Bank and building society accounts

        All maintained schools may have an external bank account into which their
        budget shares will be paid in accordance with the provisions contained at
        paragraphs 3.1 and 3.2 of this scheme. Where schools have such accounts they

                                            18
shall be allowed to retain all interest payable on the account and be subject to
            any bank charges arising.

            New bank account arrangements may only be made with effect from the
            beginning of each financial year and any such change must be requested prior to
            1 January preceding the start of the new financial year.

3.5.1       Restrictions on accounts

            Fully funded bank accounts may only be held at either a bank or building society
            that has been approved by the LA’s Assistant Chief Executive (Enabling
            Services) and appears on the approved list held by the LA Treasury and
            Technical Accounting Team.

            Any school closing an account used to receive its budget share and opening
            another must select the new bank or building society in line with the authority’s
            treasury management policy.

            The scheme allows schools to have accounts for budget share purposes which
            are in the name of the school rather than the LA. However, if a school has such
            an account the scheme requires that the account mandate provides that the LA is
            the owner of the funds in the account; that it is entitled to receive statements; and
            that it can take control of the account if the school’s right to a delegated budget is
            suspended by the LA.

            The LA can continue to have arrangements negotiated with certain banks
            whereby the accounts are in the name of the LA but specific to each school, and
            offer such arrangements to schools.

            Budget share funds paid by the LA and held in school accounts remain LA
            property until spent (s49 (5) of the Act)

            The LA may decide to restrict signatories for bank accounts, but should allow at
            least LA employees and school employees to be signatories. Such a provision
            should not be limited to authority employees only, because this is not practicable
            for foundation or aided schools. The LA may not allow governors who are not
            members of staff from being signatories. In this case the LA may choose to
            nominate a signatory.

            The use of direct debits or standing orders for a bank account operated by a
            school is permissible, except where the account is part of an LA contract.

3.6         Borrowing by schools

            Governing bodies may borrow money (which includes the use of finance leases)
            externally only with the written permission of the Secretary of State 2 following
            consultation with the LA.

2 This does not apply to Trustees and Foundations, whose borrowing, as private bodies, makes no impact on
Government accounts. These debts may not be serviced directly from the delegated budget, but schools are
free to agree a charge for a service which the Trustees or Foundation are able to provide as a consequence of
their own borrowing. Governing bodies do not act as agents of the LA when repaying loans.
                                                      19
The Secretary of State’s general position is that schools will only be granted
      permission for borrowing in exceptional circumstances.

      Schools are allowed to use any scheme that the Secretary of State has said is
      available to schools without specific approval, currently including the Salix
      scheme, which is designed to support energy saving.

      This does not apply to loan schemes run by the authority (see section 4.10).
      Schools are not permitted to use interest bearing credit cards, which are
      regarded as borrowing. However, schools are encouraged to use procurement
      cards, as these cards can be a useful means of facilitating electronic purchase.

      Charge cards are also permitted. However, no interest charges should be
      incurred by the school, with balances fully cleared on a monthly basis.

3.7   Other provisions

      Bedford's Financial Regulations for Schools sets out in further detail the
      operational requirements of the banking schemes outlined in 3.1 above. In
      addition the Regulations include information on the Bank and Cash Imprest
      Schemes, which can be used in conjunction with centralised payments.

      Where two or more schools are federated under Section 24 of The Education Act
      2002, the LA may allocate a single budget share to the governing body of that
      federation. Applications to pool or un-pool budgets for federated schools must be
      received by 01 November to take effect from the following financial year.

                                        20
4     The treatment of surplus and deficit balances arising in relation to budget

4.1   The right to carry forward surplus balances

      Schools may carry forward from one financial year to the next any surplus or
      deficit in net expenditure relative to the school's budget share for the year plus or
      minus any balance brought forward from the previous year.

4.2   Controls on surplus balances

      Surplus balances held by schools as permitted under this scheme are subject to
      the following restrictions with effect from 1 April 2008:

      a.   the LA shall calculate by 31 May each year the surplus balance, if any, held
           by each school as at the preceding 31 March. For this purpose the balance
           will be the recurrent balance as defined in the Consistent Financial
           Reporting Framework;

      b.   the LA shall deduct from the calculated balance any amounts for which the
           school has a prior year commitment to pay from the surplus balance and
           any unspent grants for the previous financial year where the grant
           conditions allow carry forward to a future financial year;

      c.   the LA shall then deduct from the resulting sum any amounts which the
           governing body of the school has declared to be assigned for specific
           purposes permitted by the LA, and which the LA is satisfied are properly
           assigned. To be properly assigned, amounts must not be retained beyond
           the period stipulated for the purpose in question, without the consent of the
           LA. In considering whether any sums are properly assigned the LA may
           also take into account any previously declared assignment of such sums but
           may not take any change in planned assignments to be the sole reason for
           considering that a sum is not properly assigned.

      d.   if the result of steps a-c is a sum greater than 6% of the current year's
           budget share for secondary schools or 9% for nursery, lower, primary and
           special schools, and this is the 3rd consecutive occurrence, then the LA will
           consider the excess balances by review through the Surplus Balance Sub
           Group (a sub group of the Schools Forum) and may recommend the
           clawback of any excessive surplus or direct the use of these funds within
           the school for specific purposes in future financial years,.

      Funds deriving from sources other than the LA will be taken into account in this
      calculation if paid into the budget share account of the school, whether under
      provisions in this scheme or otherwise.

      The total of any amounts deducted from school budget shares by the LA under
      this provision are to be applied to the Schools Budget of the LA.
      The LA has regard to the principle that schools should be moving towards greater
      autonomy, should not be constrained from making early efficiencies to support
      their medium-term budgeting in a tighter financial climate, and should not be
      burdened by bureaucracy. The mechanism will therefore, be focused on only
                                         21
those schools which have built up significant excessive uncommitted balances
      and / or where some level of redistribution would support improved provision
      across a local area.

      To assist the LA in carrying out its financial monitoring role, governing bodies are
      required to report to the LA on the use which the school intends to make of
      surplus balances (after taking account of any earmarked funds, as per the annual
      CFR return) in cases where the total balance exceeds the threshold’s set out in
      section d above.

      Relevant evidence must support B02/B06 Uncommitted/Community Focused
      Revenue Balances and be in written form and examples may comprise of:-

         •   Finance governors meeting minutes
         •   Three year plans
         •   Projected pupil numbers
         •   Correspondence with contractors
         •   Any other relevant information

4.3   Interest on surplus balances

      Balances held by the LA on behalf of schools do not attract interest. Balances
      held by schools in their own bank accounts, (option b) referred to in paragraph 3),
      may attract interest for the school depending on the type of account.

4.4   Obligation to carry forward deficit balances

      Deficit balances will be carried forward by the deduction of the relevant amounts
      from the following year's budget share (see also 4.8).

4.5   Planning for deficit budgets

      Schools may only plan for a deficit budget in accordance with the terms of
      paragraph 4.9 below. All schools must notify the LA immediately should it
      become apparent at any time that there will be a deficit budget in any of the years
      covered by the multi-year financial plan,

4.6   Charging of interest on deficit balances

      Fully funded schools operating their own bank account are not permitted to allow
      their account to become overdrawn.

4.7   Writing off deficits

      The LA has no power to write off the deficit balance of any school. Funds to
      support mainstream maintained schools in financial difficulty are available from a
      de-delegated contingency budget where this has been agreed through Schools
      Forum.

                                         22
4.8         Balances of closing and replacement schools

            When a school closes, any balance (whether surplus or deficit) shall revert to the
            LA; it cannot be transferred as a balance to any other school, even where the
            school is a successor to the closing school, except that a surplus transfers to an
            academy where a school converts to academy status under the provisions of the
            Academies Act 2010.

            However, the LA may, if they wish, make allocations to schools, which have the
            effect of giving them the benefit of additional sums that are equal to or less than
            the surplus balances of relevant closing schools.

            The LA may also recognise the deficit of the preceding school by reducing the
            amount of extra funding allocated to a new school, by an amount equal to the
            deficit from the previous school. Any deficit cannot be set against the ‘normal’
            elements of funding the new school, such as elements of funding it would receive
            anyway if it were not new.

4.9         Licensed deficits

            The general provision in paragraph 3.6 above forbidding governing bodies to
            borrow money shall not apply to schemes run by the LA as set out below.

            The LA will permit schools which do not have a deficit at the start of a financial
            year to plan for a deficit budget in particular circumstances subject to the
            approval of the Chief Education Officer by delegation of the Director of Children’s
            Services and the Assistant Chief Executive (Enabling), or their nominated
            representative. The funding to allow such a deficit budget shall be provided from
            the collective surplus of school balances held by the LA on behalf of schools 3.

            The Licensed Deficit (LD) shall be in accordance with the following conditions /
            requirements:

            (a) The normal maximum length of time over which schools may repay the deficit
               (i.e. to reach at least a zero balance), will be three years. Schools’ requests for
               licensed deficits will need to be supported by a detailed recovery plan.
               Progress against the plan will be reviewed formally each month and schools
               are required to submit a formal Licenced Deficit Outturn which is available to
               download within the Licenced Deficit section of the Schools’ secure website.
               This submission must be supported by a system report confirming expenditure
               to date. Should the financial position of the school deteriorate then schools will
               need to adjust their plans accordingly to achieve the terms of their agreed LD.
               If the school forecasts that the approved LD recovery cannot be met they
               should submit in writing a request for additional funds, supported by a revised
               recovery plan, as soon as possible.

               In exceptional circumstances the recovery period may be extended, but only
               with the express approval of the Assistant Chief Executive (Enabling Services)

3It is open to the LA, in circumstances where there is no such surplus, to make alternative arrangements if it
can do so within the relevant local authority finance legislation.
                                                        23
and the Chief Education Officer by delegation of the Director of Children’s
         Services.

       (b) Licensed deficits will normally only be agreed where circumstances affecting
          the school change in ways which could not have reasonably been foreseen
          and the school concerned needs a period in excess of one financial year in
          order to effect a reduction in its annual level of expenditure and / or an
          increase in its annual level of income sufficient to eliminate the budget deficit;

       (c)Licensed deficits shall not normally exceed 10% of a school budget share;

       (d) No more than one third of the collective balances held by the LA will be used
          to back these arrangements. The collective balances will include any balances
          held in external bank accounts where the funds were initially made available
          by the authority.

       (e) The format of the Licensed Deficit Recovery Plan is shown in Appendix B. This
          plan is available to download from the Licensed Deficit section of the school’s
          secure website. To accompany this plan, detailed notes are required to be
          submitted to support the recovery plan.

       If the recovery period is less than three years, the plan only needs to cover the
       recovery period i.e. an additional one or two years. If exceptionally, a longer
       period has been agreed as set out above, the plan must be extended to the
       financial year of recovery.

4.10   Asset loan scheme

       The LA operates an Asset Loan Scheme which does not operate by way of a
       licensed deficit but rather by way of expenditure by the LA, on asset purchases,
       in respect of a particular school on condition that repayments of principal and
       interest are repaid from the budget share. The current rate of interest on such
       loans is the Bank of England base rate.

       The loan shall be in accordance with the following conditions / requirements:

       (a) the maximum length of time over which schools may repay the loan will be
          three years. Schools’ requests for loans will need to be supported by the
          School’s Development Plan. At no stage will the loan period be extended
          beyond three years;

       (b)loans will only be agreed if they meet the approval of the Assistant Chief
          Executive (Enabling Services);

       (c)the maximum permitted value of a purchase will be such that in the period
          over which the school elects to spread the cost, each annual payment
          (comprising both principal and interest) will not exceed one per cent of the total
          budget share (formula allocation excluding balance brought forward), as
          calculated in the year in which the agreement commences;

                                          24
(d) the minimum value of a purchase considered to be appropriate to the loan
            scheme is £10,000;

         (e) no more than one third of the collective balances held by the LA will be used to
            back these arrangements.

         (f) loans must only be used to spread the cost over more than one year of large
             one-off individual items of a capital nature that have a benefit to the school
             lasting more than one financial or academic year. Loans must not be used as a
             means of funding a deficit that has arisen because a school’s recurrent costs
             exceed its current income. If loans are made to fund a deficit and a school
             subsequently converts to academy status, the Secretary of State will consider
             using the power under paragraph 13(4)(d) of Schedule 1 to the Academies Act
             2010 to make a direction to the effect that such a loan does not transfer, either
             in full or part, to the new Academy school’.

4.10.1   Credit union approach

         Schools may wish to group together to utilise externally held balances for a Credit
         Union approach to loans. Where schools choose to borrow money through such
         a scheme the LA will require audit certification of the running of the scheme,
         unless the LA itself acts as the administrator of the arrangement. Details of the
         arrangements can be found in Bedfordshire's Financial Regulations for Schools.

4.10.2   Salix energy efficient loan scheme

         Funded by the DfE, Salix launched a Schools programme in 2012 providing
         100% interest-free loans specifically for schools in England for Energy Efficiency
         Initiatives. There is a minimum value for any single project of £500 and a total
         minimum application and loan value of £5,000. There is not a maximum loan
         value. The repayment of the loan will be a minimum of 4 years up to a maximum
         of 8 years, dependent on the project payback. The loans must be paid back to
         Salix by direct debit every March and September over the confirmed period.

         As noted in paragraph 3.6 above, Secretary of State approval is required for
         schools to borrow externally. In the case of Salix loans, blanket approval has
         been given for the scheme and schools are not required to obtain individual
         approval.

         For detailed accounting guidance for this loan, please contact your School
         Financial Anaylist.

                                            25
5     Income

      Schools shall be able to retain income except in certain specified circumstances.

5.1   Income from lettings

      Schools may retain income from lettings of the school premises which would
      otherwise accrue to the LA, subject to alternative provisions arising from any joint
      use or PFI/PPP agreements. Schools are permitted to cross-subsidise lettings for
      community and voluntary use with income from other lettings, provided the
      governing body is satisfied that this will not interfere to a significant extent with
      the performance of any duties imposed on them by the Education Acts, including
      the requirement to conduct the school with a view to promoting high standards of
      educational achievement. Schools whose premises are owned by the LA shall be
      required to have regard to directions issued by the LA as to the use of school
      premises.

      Income from lettings of school premises should not normally be paid into
      voluntary or private funds held by the school. However, where land is held by a
      charitable trust, it will be for the school’s trustees to determine the use of any
      income generated by the land.

5.2   Income from fees and charges

      Schools may retain income from fees and charges except where a service is
      provided by the LA from centrally retained funds. Schools are required to have
      regard to any policy statements on charging produced by the LA.

5.3   Income from fund-raising activities

      Schools may retain income from fund-raising activities.

5.4   Income from the sale of assets

      Schools may retain the proceeds of sale of assets except in cases where the
      asset was purchased with non-delegated funds (in which case it should be for the
      LA to decide whether the school should retain the proceeds), or the asset
      concerned is land or buildings forming part of the school premises and is owned
      by the LA.

5.5   Administrative procedures for the collection of income

      Schools are required to comply with the LA’s guidance on VAT as expressed in
      Bedford Borough’s VAT Guide. (This is available from the school’s secure
      website within the VAT section). The LA will inform schools of any changes to
      approved procedures, which may arise from time to time in the light of advice
      from HM Revenue and Customs.

5.6   Purposes for which income may be used

      Income from the sale of assets purchased with delegated funds may only be
      spent for the purposes of the school.
                                         26
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