Governance Finances - Do Your Governing Body Members Understand Their Financial Accountability?

Published
30 July 2020

According to the Australian Tax Office (ATO), teaching and learning about taxation and superannuation should be an integral component of consumer and financial literacy education. In Australia, there have been moves over several years to strengthen consumer and financial literacy education in schools and bring about sustainable improvements in the types of learning outcomes associated with active and informed citizenship.

 

Australian Tax Office (ATO) and the Organisation for Economic Co-operation and Development Expectations (OECD)

The ATO promotes the OECD International Network on Financial Education - OECD/INFE Guidelines on Financial Education in Schools which basically argue that the students of today face increasingly complex financial problems and decisions, and advocate teaching and learning programs that “will enable students to make savvy and effective financial decisions in their daily life and when they become adults”.

The OECD/INFE guidelines recommend that members:

  1. integrate financial education into the school curriculum
  2. include financial education from the beginning of formal schooling
  3. allow for flexible school-based curriculum implementation
  4. encourage standalone and cross-curricular approaches
  5. provide appropriate financial and in-kind resources
  6. ensure suitable involvement of important key stakeholders
  7. support the education system in the provision of teacher education.

There is no reason why points 2, 5 and 6 cannot also apply to school governing body members. Many of them may not have had financial education during their formal schooling and many may have limited understanding of financial processes in relation to schools.

 

Why Should We Apply the Same Principles of Financial Literacy to our Governing Bodies?

School governing bodies are accountable for the finances of the school. Many governing bodies are composed of parents or other members of the local school community. The contribution of these parents or volunteers who give up so much of their valuable free time to help in the governing of their school is usually very much welcomed but no matter what their background or capabilities, they need to understand both school finances and how to interrogate the school’s financial statements so that they can make educated decisions regarding income and expenditure in line with their fiduciary responsibilities.  

Every non-government school in Australia has legal obligations to have financial stability and accountability as a condition of their registration/accreditation. In general, they must:

  • observe the standards (where they apply) throughout the period of their registration
  • comply with any conditions and directions given by the regulator
  • provide information regarding the day-to-day management and ongoing financial viability of the school within the time parameters determined by the regulator.

Additional financial obligations also arise from a myriad of ancillary legislative and regulatory requirements such as those imposed by the Australian Securities and Investment Commission (ASIC) and the Australian Charities and Not-for-profits Commission (ACNC).

According to ASIC:

“Financial literacy is defined as the ability to make informed judgments and to take effective decisions regarding the use and management of money. In today's world of increasingly complex financial decisions, financial literacy may be considered a vital skill for all consumers”.

It can be argued that governing body financial responsibilities can be divided into three distinct categories:

  • needing to learn how to read financial documents such as balance sheets, profit and loss statements, cash flow statements and a financial dashboard. These skills do not happen by osmosis. School governing bodies should sign off on the monthly account statements and all governing body members must be able to understand the documents that they are about to approve. This is not a ‘tick the box’ exercise.
  • the approval of the annual school budget cannot be made in isolation nor should it be made by people who do not understand how it has been developed and the manner in which the school is funded and how it manages its expenses.
  • compliance with their fiduciary duties in relation to finances-i.e. the manner in which each board member conducts their business on the governing body.

So, when any person is invited or applies to join a school governing body, the school needs to ascertain their current level of financial acumen and their 'knowledge gap' in terms of being able to read, understand, and ultimately approve governing body financial documents. Governing body members need to understand reconciliation from an accounting context both internally as per school requirements and externally as per accounting standards.

Training should include (as a minimum):

  • a financial orientation or induction by the finance committee, business manager and/or other governing body members
  • the annual budget and how it is developed
  • personal and collective fiduciary duties including in relation to the school’s government funding-related obligations (discussed further below).

In addition, the business manager (however named) in each school should explain the minutiae of profit and loss sheets, cash flow statements, the financial dashboard and other regular financial documents in detail to new governing body members as required.

 

What are the Risks?

In 2019, School Governance identified three crucial governance risks, relating to school governing bodies and leadership that will have a significant impact on school operations:

  • failure to develop and maintain a high-performance school governing body
  • failure to provide robust, data-based school governing body reports
  • failure of governing bodies and school leadership to spend sufficient time on strategy.

In addition, when one or more of the following risks for governing body effectiveness is present in a governing body, it could make its total work ineffective:

  • failure to build strategy
  • failure to understand fiduciary duties
  • failure to understand and interrogate finances
  • failure to understand the budget process.

Without the right or adequately trained people with the required talent and experience on a school governing body, it is highly unlikely that the governing body will meet the financial (think changes to Commonwealth per capita funding) or the strategic challenges that lie ahead which is particularly relevant in the current ‘COVID-19 circumstances’.

 

Government Funding Obligations

Schools receive considerable per capita funding from state/territory and Commonwealth governments. They are accountable for these funds and how they are used. In a previous School Governance article we wrote:

”If schools accept government funding and if schools are serious about providing quality education in a safe and caring environment, then they need to remain compliant - and should be trying to remain continually compliant; not just reviewing policies and procedures in the six-month lead up to their next registration visit”.

School governing bodies need to show ongoing compliance with:

  • their funding-related/per capita grants obligations (Commonwealth Government)
  • registration and state/territory per capita grants obligations
  • the Federal Financial Health Survey
  • their charitable status requirements if appropriate
  • the Corporations Act as a company limited by guarantee (if applicable)
  • their tax obligations (Australian Tax Office).

 

Conclusion

The members of the governing body cannot afford to fail to understand or ignore the school finances that they approve or be complacent in their roles. In a nutshell, your school’s governing body is accountable for the education and the care of children and for the provision of sufficient resources to ensure that this requirement is fulfilled.

If the school does not get its finances right and show that it is using government funds for the purposes for which they were given, not only will this affect the students and their overall education but governing body members and school leadership could be held legally accountable and even face criminal prosecution.

 

Learn More:  Online Professional Learning for School Governing Bodies and Leaders 

CompliSpace has created curated and bespoke online professional learning for school governing bodies, boards, councils and executives.

Click here to download an overview of what this professional learning includes.

To request more information about this professional learning for your school governing body and leaders, click here.

Craig D’cruz

With 37 years of educational experience, Craig D’cruz is the National Education Lead at CompliSpace. Craig provides direction on education matters including new products, program/module content and training. Previously Craig held the roles of Industrial Officer at the Association of Independent Schools of WA, he was the Principal of a K-12 non-government school, Deputy Principal of a systemic non-government school and he has had teaching and leadership experience in both the independent and Catholic school sectors. Craig currently sits on the board of a large non-government school and is a regular presenter on behalf of CompliSpace and other educational bodies on issues relating to school governance, school culture and leadership.