Skip to main content

National Audit Office report: Financial Management in the Department for Children, Schools and Families

Financial Management in the Department for Children, Schools and Families

"The Department has made progress in integrating financial management with its strategic and corporate planning. There is room for a better understanding of costs attributable to each of the Department’s strategic objectives. The Department could usefully consult further with delivery organisations such as local authorities to see what might be done here. It also needs to improve its management of financial risks, and to use the introduction of new finance systems to improve financial reporting and forecasting." In 2007-08 the Department’s expenditure totalled £48.9 billion and around £40 billion (82 per cent of the Department’s spending) was spent on schools or services to support schools. The Department has built up a large capital underspend, which is around £2.4 billion at the end of March 2009. In 2007-08 the balance increased by £654 million to £1.9 billion and 2008-09 figures will show that this increased to around £2.4 billion by the end of March 2009. Schools build up surpluses when they do not spend their full budgets and carry over the balances to future years. An excessive surplus is defined by the Department as being greater than five per cent of annual budget for secondary schools and greater than eight per cent for nursery, primary and special schools. At 31 March 2008 nearly 40 per cent of schools had excessive cumulative surpluses and 22 per cent had held an excessive cumulative surplus for at least the last three years. Accruals accounting is an accounting convention under which transactions are recognised as the underlying economic events occur, irrespective of the timing of cash receipts and payments related to these transactions. Under accruals accounting, expenditure incurred or income earned, but not yet paid or received, are included in the accounts in the period when they were incurred or earned. This differs from cash accounting where income and expenditure are recognised when the cash is received or paid respectively.

"The Department has made progress in integrating financial management with its strategic and corporate planning. There is room for a better understanding of costs attributable to each of the Department’s strategic objectives. The Department could usefully consult further with delivery organisations such as local authorities to see what might be done here. It also needs to improve its management of financial risks, and to use the introduction of new finance systems to improve financial reporting and forecasting." In 2007-08 the Department’s expenditure totalled £48.9 billion and around £40 billion (82 per cent of the Department’s spending) was spent on schools or services to support schools. The Department has built up a large capital underspend, which is around £2.4 billion at the end of March 2009. In 2007-08 the balance increased by £654 million to £1.9 billion and 2008-09 figures will show that this increased to around £2.4 billion by the end of March 2009. Schools build up surpluses when they do not spend their full budgets and carry over the balances to future years. An excessive surplus is defined by the Department as being greater than five per cent of annual budget for secondary schools and greater than eight per cent for nursery, primary and special schools. At 31 March 2008 nearly 40 per cent of schools had excessive cumulative surpluses and 22 per cent had held an excessive cumulative surplus for at least the last three years. Accruals accounting is an accounting convention under which transactions are recognised as the underlying economic events occur, irrespective of the timing of cash receipts and payments related to these transactions. Under accruals accounting, expenditure incurred or income earned, but not yet paid or received, are included in the accounts in the period when they were incurred or earned. This differs from cash accounting where income and expenditure are recognised when the cash is received or paid respectively.

Tim Burr, head of the National Audit Office

 

The Department for Children, Schools and Families has made progress in improving its financial management, with strong commitment at senior management and board level, according to a National Audit Office report today.  The Department’s ability to reach a high standard of financial management depends partly on successful working with local authorities, other partner organisations, and the schools themselves. It does, however, face specific challenges, including the need for better strategic management of its large capital programme, and to encourage better financial management in schools.

The Department has built up a large capital underspend, which increased from £1.9 billion at 31 March 2008 to around £2.4 billion at the end of March 2009.  Its capital expenditure programme will need to be carefully managed given the history of underspending and the challenge of bringing forward £924 million of expenditure from 2010–11 to 2009–10 as part of the Government’s fiscal stimulus.

At March 2008, schools in England had a net cumulative surplus of £1.9 billion.  Only 1 in 5 local authorities reduced their total net school surplus in 2007–08.  Local authorities are accountable for school spending and the Department should encourage them to redistribute  excessive uncommitted surpluses in line with local needs.

The Department was, in 2007, one of three departments which had not implemented in-year accruals accounting systems, which would help to improve the accuracy of financial forecasting and reporting.  It has introduced a system to identify monthly accruals which is fully in place for the start of the financial year 2009-10.  The planned introduction of a shared services arrangement for finance with procurement and personnel support should also help improve financial management and lead to efficiencies, though implementation has been delayed because of slippage in another Shared Service implementation programme.

 

Publication details:

ISBN: 9780102954777 [Buy a hard copy of this report from TSO]

HC: 267 2008-2009

Published date: April 30, 2009