Jane Onn runs Onn Target Ltd, a company specialising in providing bursarial serv

Becoming a bank account school

We begin a series of best practice advice features with a look at the implications of a school having its own bank account

MORE AND MORE schools are now seeing the benefits of financial autonomy through bank account status. But what would becoming a bank account school mean for your institution?

You would operate and manage your own bank account.
You would receive funding in staged payments from the local authority.
You would pay most, if not all, of your supplier/purchase invoices and collect your own income independently of the local authority; and as a result you would be able to check supplier enquiries immediately.
You would hold the prime accounting records on your own local system, together with backup documentation, which also would allow immediate resolution of queries.
You would provide reports to the local authority, including VAT returns.
You would generate interest on your bank balance.
You would be responsible for your own finances and cash flow.
You would produce your own reports for governors, which would be based upon up-to-date information.

Principal considerations

Any local authority maintained school may, with the approval of the local authority, operate its own bank account through an approved bank. In doing so you should ensure that the decision is authorised by a full governors’ meeting and that the required period of notice of intention to withdraw from central payments is provided to your authority. Appropriate notice must also be provided where a school intends to withdraw from other support services such as payroll. All transactions must be through an approved bank. Some local authorities specify that their name must appear on the bank account together with that of the school.

The headteacher and governors must decide who is responsible for the safeguarding of monies in the account and ensuring its proper operation as follows:

bank account monies and cheque books are safe from theft or misuse
income and expenditure through the bank account is lawful
the bank account is operated in accordance with the Scheme of Financial Management
best value is achieved within the banking arrangements authorised by the local authority
separation of roles and responsibilities is clear
fully documented records are kept.

A local authority can suspend a school’s bank account if it considers that the school is failing to carry out the above processes.

Decisions to be made

Once the decision has been taken to run your own bank account there are several other decisions required as a result.

Which bank?

Most local authorities provide a facility whereby the school can operate its bank account as a subdivision of the local authority banking scheme. This enables the school to benefit from higher interest rates which have been negotiated by the local authority by ‘grouping’ its schools; it is advisable to investigate alternative arrangements also. If you choose to run your account through the local authority system then you should approach the authority to confirm the arrangements.

Schools choosing a bank other than that used by the local authority can open both a current and an investment account with any of a list of banks approved by the authority. The school should provide the authority with a copy of the bank mandate and signatories for its records. Some local authorities permit schools to take advantage of overdraft facilities, particularly when they stay within the local authority banking arrangements. It is advisable to avoid such a facility, however, as overdrafts result in additional costs to the school.

Which payroll?

When reviewing banking arrangements it is often an opportune time to also review the choice of payroll providers. Benefits to be gained by using a payroll provider outside of the local authority include:

Cut-off times are negotiable.
The timing of reports can be dictated by the school.
The problem whereby other schools’ staff appear on your payroll is removed.

Which accounting software package?

The school will hold the ‘prime accounting records’ and any software package must ensure compliance with accounting instructions and requirements issued by the local authority.

Which staff?

The school must be able to:

maintain accurate and up-to-date accounts
retain support documentation, eg invoices, bank statements, etc
undertake regular bank reconciliations
ensure regular backup of computerised records
restrict access to computerised records to authorised members of staff
submit timely reports to the local authority in the required format
be prepared to have accounts audited by internal and district audits; they may also be checked by Inland Revenue and Customs and Excise
provide year-end reports for the local authority to incorporate within its accounts.

To complete these requirements the school needs to consider the following:

Adequate support to fulfil the accounting function, especially during holiday periods so as to ensure that procedures continue without interruption.
Staff involved in maintaining a bank account must have a basic knowledge of book keeping processes, particularly bank reconciliations.
Any accounting software must be able to produce reports to the local authority requirements
Separation of duties within financial administration must be clearly defined in order to comply with audit requirements.
Suitable secure storage facilities for the retention of historical records for the appropriate periods.

Reporting implications

The local authority will require monthly/quarterly reports on budgetary position and VAT. It may also require information on bank reconciliation and cash flow. Governors too will require regular reports, but these will now be as up to date as the accounting system and budget holder reports can be more up to date.

Security implications

The following should be considered:

Monies and cheque books must be kept securely locked away, with access restricted.
Cheques should be signed by two people. The school should, therefore, ensure a minimum of three signatories so as to cover sickness. None of these signatories should be involved in the day-to-day bank processing.
Blank cheques must never be pre-signed.
The accounting system must be secure, ie protection must include each user having a different ID and password. Hardware should be located in a secure environment and regular backups must be made and kept either off-site or in a fireproof container.

Payment implications

Most payments can be processed directly through a school’s bank account. However, the following are exceptions:

Payments to employees, including payments for casual work, staff travel claims, eye test fees, removal expenses, relocation expenses, redundancy payments. All of the above may have income tax/NI implications and must be processed via the payroll.
Construction industry scheme/sub-contractor payments.

Jane Onn runs Onn Target Ltd, a company specialising in providing bursarial services to schools.

This article first appeared in School Financial Management - Mar 2007

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