Capital works - state schools
Under the 5 year agreement (5YA) process, schools are allocated funds to use for capital works.
In your school’s 10 year property plan (10YPP) you can also apply for extra funding for capital projects.
Keeping records of capital works
Your school’s financial management system must keep separate records of income and expenses relating to capital projects funded by the Ministry and funds received through your 5YA.
The funds received for property projects through the 5YA are not income to your school – they are held on behalf of the Ministry until spent. This means that you must:
- credit the funds to a liability account when received
- maintain separate ledger accounts for each capital works project to assist with financial management and control
- include a disclosure note in the financial statements stating the amounts received and spent during the year for each project, even if there is no liability at year end.
As all property development under the 5YA belongs to the Ministry, you must prepare a full reconciliation at the end of each project which substantiates the use of the funds.
Underspends and overspends
If Ministry funds are not all spent, you need to return the credit balance to the Ministry, even to the last dollar. If you want to keep unspent funds for another project or other purposes, you will need to get Ministry approval before the funding period ends and provide documents to the auditor.
You must contact the Ministry if it looks like your school will overspend your property funding. If you do not do this you may have to cover the overspend from your own funds. Any unapproved overspend should not be included in the asset register but must be written off as an expense.
Using your board’s own funding
You can fundraise for capital works but you must make the purpose of that fundraising clear to the school community. Your board may get Ministry approval to contribute its own funds to a particular development. Examples are if a school wishes to add a further classroom over its entitlement, or the construction of an adventure playground or a swimming pool.
In these cases the structure (sometimes part of a building) will become the property of the board and will be included in the board’s asset register.
If you are thinking about using board funds on building assets, please consider this carefully. If you fund and then own a building you become responsible for all ongoing maintenance costs and the depreciation expense.
Applying to use board funding
To apply to use your own board’s funding towards capital works, you need to contact the Ministry of Education local office with written confirmation that:
- the board will not exceed the borrowing limits (annual repayments of capital and interest must be within 10% of its annual operating grant) if you plan to borrow money for the capital works
- the purchase price and all ongoing operating costs (including the cost of servicing any loan) will be paid for by assured current assets (ie, cash in bank or guaranteed grant funding) and assured future funding (ie, operational funding) and will not disadvantage the school’s operations now or in the future
- the capital works will not negatively impact on the school, for example, they will not create significant upgrading costs
- the project will bring educational advantages to the school
- the board has sought legal and accounting advice, if required, to support the expenditure.
If the Ministry of Education gives approval, we will send a confirmation letter. You must include those capital works assets on the board’s balance sheet.
You will need to show the approval letter to the auditor during the annual audit of the board's financial accounts.
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