The Audit Commission’s report Valuable Lessons questions whether taxpayers are getting value for money from the education system. The Commission has also issued guidance on how schools can improve economy and efficiency while still optimising outcomes for children. Gill O’Donnell looks at the recommendations
What could you do with £400m per year? Not you personally, of course – though it is nice to dream – but if you were in charge of education throughout the country, what would you do with an extra £400m per annum? The prospect of so much extra cash flooding into schools during the current drought in funding is a mind boggling prospect and yet according to a recent study by the Audit Commission, Valuable Lessons: Improving Economy and Efficiency in Schools, £400m is the sum believed to be lost to the education system because schools do not buy equipment and services sensibly.
The problem is compounded, the authors conclude, by the fact that 40% of schools hold reserves in excess of the recommended amount of no higher than 8% of income in primary schools and 5% in secondary schools. This is further exacerbated by the fact that this money is then transferred across, year after year, so that in effect schools are tying up cash reserves in the region of £2bn. This process, the report argues, while regarded by many as a prudent measure in view of the uncertainty over future funding during times of economic uncertainty, means that surpluses tend to grow and the problem thereby increases, whereas good financial management would ensure that the money is put to practical use rather than simply retained. One can’t but help draw the parallel with those who, rather than purchase goods required for their houses, instead hoard their money under the mattress only to find that mice sneak in and shred the notes in order to make their own nests more comfortable.
As a result of its findings the Audit Commission has concluded that there is great uncertainty as to whether or not the taxpayer is actually getting value for money from the education system. To date it claims that school inspection – rightly, many would believe – tends to focus predominantly on educational standards and what teachers actually do rather than considering the basic financial questions which other organisations have to face on a daily basis in order to survive. It therefore suggests that as well as the necessary educational focus there should be more attention paid to economy and efficiency in education, and that councils should likewise give a more high-profile consideration to issues relating to schools providing value for money in order to maintain public confidence that taxpayer’s money is being well spent.
It further feels that as part of their role, school governors should realise that they too are keepers of the public purse and should adopt a far more proactive stance in insisting on value for money. The burden of providing better value has, therefore, been placed squarely upon three groups who should work together to ensure that each individual school plays its part in actively working towards an improvement in economy and efficiency within the education system. To this end the commission has issued guidelines for headteachers and school staff who have financial responsibilities, for council staff and for governors. Each of these three briefing documents outlines the steps which can be taken to promote a positive emphasis on economy and efficiency in schools.
This article looks at the Audit Commission’s definition of what value for money means in a school context and goes on to highlight some of its key recommendations for those working in schools and for school governors.
Value for money
The briefing document for headteachers and school staff with financial responsibilities acknowledges that ‘value for money’ is a complex area and that while the principle is fairly simple to comprehend, it can be very difficult to assess in real terms. It gives a definition based on three elements which it refers to as ‘the three Es’: economy, efficiency and effectiveness.
- Economy: minimising the costs of resources used for goods, a service or an activity.
- Efficiency: the relationship between outputs and the resources used to produce them.
- Effectiveness: the extent to which objectives have been achieved.
It is important to realise that compromising in certain areas is not the answer to improving value for money in schools. With regards to economy, for example, it would not make financial sense to purchase cheaper goods if they are not necessarily fit for purpose. A classic example is the purchase of cut-price toner for printers – which then leaks and damages the system, necessitating expensive repairs and also invalidating the guarantee on the equipment. A saving of a few pounds which can end up costing hundreds to put right does not equate to economic sense in the long-term.
The same is true of efficiency; a system cannot be described as efficient if the money spent on resources to produce the finished product is worth more than the product itself. While this can be understood easily where the product is something with a fixed financial value (eg, a pack of sweets which can be sold for £1 where the costings would include ingredients, packaging, power, labour to a total of £1.50 per unit), the concept can be far harder to recognise where the output is the provision of an examination option which will be taken by a small number of pupils but which would require additional resources in terms of equipment and staffing.
Effectiveness is also sometimes more difficult to measure when dealing with intangible items. However, it is all too easy to recognise when something goes wrong – for example, a reduction in teacher contact hours for a subject which leads to a whole year group failing in a subject.
The art of creating value for money is to be aware of the interplay of these three areas and to realise that, while the focus in schools is normally on effectiveness by improving standards and advancing wellbeing, this cannot be done at the expense of the other two areas. Public money is not infinite and so there has to be a level of accountability which requires an awareness of economy and efficiency in the actions of the school.
Guidance for headteachers and financial managers
Using the above definitions, the briefing goes on to identify six key areas where the Audit Commission feels that any school can set itself targets in order to improve financial management and ensure value for money. The suggestion is that by studying these and using the online managing school resources toolkit (available at www.ncsl.org.uk/managing_your_school-index/fmis-index/fm_reference_05.htm), the school financial management group can more effectively assess their own progress and target areas for improvement.
1. Consider the financial implications of school plans
The Audit Commission considers that to be fully effective, the school development plan should not only set out the aims and objectives but specify how activities will assist them to meet these objectives by efficient targeting of resources. They should include a considered costing of all the key activities which will occur annually for the duration of the plan, along with the concomitant staff costs. The plan should further indicate the school’s priorities and be linked to the multi-year budget and therefore provide a baseline for assessing overall progress. Schools are advised to carefully examine their spending patterns and see that they do actually accurately reflect the priorities which have been outlined in the development plan and that money spent on goods, services and staffing are clearly linked to educational and wellbeing outcomes. It is also vital to ensure that there is a means for assessing the accuracy of forward planning and that contingency strategies are in place should the plans be overly optimistic (or pessimistic) in any respect, for example with respect to school-roll fluctuations.
2. Review the financial surplus (or deficit)
This is regarded as a significant issue and it is strongly recommended that hoarding money is not conducive to good financial practice and represents very poor value for money. The report strongly advocates that schools should spend the ‘current revenue balance on current pupils’ rather than holding onto excessive sums as contingency measures to be spent at some unspecified future date. In situations where the surplus balance does exceed the recommended level, it advocates that schools should ensure that there are plans to reduce the balance and that this should be regularly monitored. It is also recommended that any extra spending in this area accurately reflects the school’s key priorities as outlined in the development plan and is not simply linked to recurrent annual expenditure. In situations where there is a deficit, there should be plans to ensure the management of the deficit and again these should be regularly monitored to ensure effectiveness.
3. Ensure that the goods and services purchased represent value for money
In order to ensure cost-effectiveness in this area, schools should consider the following key issues:
The extent to which the goods and services meet the individual needs of the schoolThis can be determined by regular review of the performance of goods and services, including longer term service contracts in areas such as admin and ICT.
The regularity of review of the goods and service providers to ensure that the purchases made are from the most competitive market
This is clearly important when it is a service which has traditionally been provided by the local council and where there is a danger that services are continued out of habit without full understanding of the financial implications. However, it is important in these situations to realise that the scale of council purchasing power can create the opportunity for substantial savings. Using electronic procurement systems can also ensure savings of time and money in buying high volume routine purchases. In areas where there are specialised market providers (eg, phone suppliers), it may also pay to shop around in order to achieve good deals.
Whether all purchases are in line with the purchasing policies of the school as decided by the governing bodyThis will include making sure that all staff are aware of the policies and the level at which tenders are required, and the need for a clear audit trail being available for all major purchase decisions.
The efficient use of goods and services
In short, schools need to only purchase what they need and use these goods and services well – the classic example here being the need to ensure that buildings are greener in terms of fuel efficiency.
4. Use the school workforce to best effect
The workforce is a normally equivalent to 78% of the school’s revenue expenditure. Staffing matters, therefore, represent the most important financial decisions in a school and it is essential that the quality of teaching provided is paramount. However, it is also important that teachers and teaching assistants are used in a manner which guarantees that they will have most impact. It is important to relate the pattern of staff deployment to the school’s overall vision and ensure that the curriculum – whether this is the current curriculum or that which is projected as a future goal – is affordable. Skilful workforce planning will also take into account the costs relating to providing staff absence cover and the deployment of non-teaching staff (eg, sharing staff with other schools or sub-contracting out specialist technicians to cluster schools).
5. Collaborate with other local schools
Collaboration between schools can take place either formally through federations or informally through network sharing. However it is done it undoubtedly pays dividends in a range of ways:
- sharing information and awareness about market suppliers for goods and services
- joint training days with other schools
- bulk purchasing
- sharing of resources
- buying and selling specialist staff skills between local schools (eg, shared ICT technicians across primary and secondary schools)
- mutual specialisation with different schools becoming expert in different subject areas.
6. Use data and information to support better decision making
Using national benchmarking to compare spending can help to show where savings can be made and can also assist with understanding why certain differences occur. This in turn means that a fuller picture is gained so that decision making about the deployment of resources is based on sound understanding of a national picture. By comparing the school’s own financial inputs against outcomes with nationally or locally comparable schools, it is possible to see if resources are being utilised effectively. By regularly analysing the savings made over the preceding year and the cost of improving outcomes, it is possible to understand the fuller financial picture and therefore to see what further savings can be made and to predict what future improvements might cost.
While these six key areas might seem somewhat daunting, it is important to note that as part of its report the Audit Commission has underlined the importance of increased availability and an improvement in the quality of financial support provided as part of council financial packages for schools. It furthermore recognises the need for further assistance in terms of increased resource management and value for money training for those with financial responsibilities in schools.
The role of school governors
A further set of briefing notes has been prepared for school governing bodies, and while these in the main cover similar ground to those for headteachers and financial managers, they have a number of additional important messages for governors as to how the Audit Commission views the role of governors. Significantly, governors are seen as ‘keepers of the public purse’ and it is stressed that their role is not simply to support decisions made by the school but to equip themselves with the skills and understanding that will allow them to ask challenging questions to ensure that the school gets the best from its budget and that as much money as possible can be spent on improving outcomes for children.
The notes emphasise strongly that the notion of ensuring positive outcomes for pupils is not necessarily the same as achieving value for money, as the latter should also encompass the following:
- ensuring that school costs should be minimised by ensuring the purchase of appropriate quality goods and services at the most economic price
- utilising resources (staffing, buildings and equipment) in the most effective manner and ensuring that waste is avoided
- making sure that all activities are in line with the recognised school goals and provide positive outcomes for the local community and the pupils themselves
- making the most of every pound in the budget.
The central focus for governors should always remain the achievement of the best outcomes for pupils. However, the report stresses that by placing value for money at the centre of all planning decisions they are most likely to achieve this aim. To this end it suggests that governors should endeavour to work towards the following seven areas.
- Supporting and challenging school management: The governing body benefit from having a unique perspective on the school and as such should use this to ensure that decisions relating to finance are ‘constructively challenged’ and a policy of openness is encouraged in regard to decisions relating the utilisation of resources.
- Ensuring the school has considered the financial implications of its plans: The governing body should ensure that resources are utilised sensibly and that all planning includes information on financial implications of the decisions made.
- Reviewing school financial balances: Current funding should be spent on current pupils and it is important for governors to challenge any situation where this is not occurring and to encourage schools to develop specific projects to utilise surplus funds in an appropriate manner.
- Using financial information when making spending decisions: To make informed decisions and challenges governors need to be provided with financial reports that are clearly presented, contain high-quality information and are relevant.
- Ensuring that the goods and services that the school buys are value for money: Governors need to be aware of the cost implications of decisions made in this area and where necessary be prepared to challenge decisions.
- Ensuring that the school uses its workforce to best effect: Governors should ensure that they are always aware of the financial implications of any changes to the re-organisation of staffing, particularly when there are any significant curriculum changes.
- Encouraging greater collaboration with other schools: This should be fully explored with governors to ensure that they too are aware of the benefits of work of this nature.
In its concluding comments the Audit Commission recognises the importance to schools of governors with good financial skills, and therefore recommends that members of governing bodies should always undertake financial management and resource training. This is also firmly regarded as an entitlement by The National Governors’ Association (NGA) and its importance is also recognised by councils, with 94% providing specific financial management training to governors. The report itself also includes a list of recommended resources for governors in relation to training.
It is important to emphasise that the Audit Commission is not expecting the priorities highlighted in this article to be tackled by schools and their governing bodies alone – they are instead seen as only part of a wider partnership. Support must be forthcoming from both councils and the DCSF in order for schools to progress in this area. The report and briefing documents are just the beginning, for effective action to take place there needs to be substantial commitment from all partners over a sustained period of time.
The full report and detailed briefing notes can be downloaded from: www.audit-commission.gov.uk/nationalstudies/localgov/Pages/valuablelessons.aspx
Gill O’Donnell is an education consultant and writer based in Yorkshire