Circular 2018/04 - Annual Reporting Circular

This circular provides information, advice and guidance on the preparation of your 2018 annual report.

Date September 2018 | End date 31 August 2019 | Circular 2018/04 | Category Governance

This circular is about Preparation of your 2018 annual report.

This circular replaces Circular 2017/04 issued September 2017.

The action needed is Ensure your school’s 2018 annual report incorporates all requirements.

It is intended for Chairpersons of boards of trustees and Principals of all state and state-integrated schools. All those preparing school annual financial statements. Appointed auditors of schools.

Introduction

This circular provides information, advice and guidance on the preparation of your 2018 annual report.

Annual Reports

The annual report is a key accountability document that Boards of Trustees (Boards) are required to prepare to inform and report to stakeholders including the Ministry of Education (the Ministry), Members of Parliament and, most importantly, parents and the wider school community.

The annual report contains the audited financial statements for the year that show how the Board has applied its financial resources to achieve the goals set out in the school charter.

The annual report also contains an analysis of any variance between the planned aims, objectives, directions, priorities, or targets (as set out in the school charter) and what the school has actually achieved during the year. The analysis of variance describes how the school has addressed the Board's priorities for improving student achievement, and how successful the school's approach has been. The analysis of variance should also provide the basis for plans for the coming year.

The components of the Annual Report are further explained in Appendix 2.

Important Dates

By 31 March 2019, your draft financial statements must be submitted to your Auditor. You should also provide the rest of the annual report to your Auditor as soon as possible, as your Auditor is required to check the consistency of information between the financial statements and the rest of the report.

If a Financial Service Provider completes your financial statements, it is still the Board’s responsibility to ensure that the Service Provider meets this deadline.

By 31 May 2019, a single PDF file of your annual report, including your audited financial statements and audit report must be submitted to the Ministry via the Ministry’s School Data Portal (external link) . It is the responsibility of the Board to submit the report and not that of your Auditor or your Financial Service Provider.

For a complete list of important dates refer to Appendix 1.

Preparing your Financial Statements

Requirements and Guidance

Public Sector Public Benefit Entity (PBE) financial reporting standards are mandatory for state and state-integrated schools.  To help ensure compliance with these standards, schools are required to prepare financial statements in the format outlined in the Kiwi Park model.1

The Kiwi Park model financial statements (and related guidance) can be found on the School Finance homepage at: Kiwi Park Model

Financial Reporting Tiers

The Public Sector PBE financial reporting standards categorise entities into four tiers based on the entities level of public accountability and size criteria. The tier determines the format of reporting and required disclosures for that entity.

The Ministry has made it a requirement for all schools to report under tier 2, unless they are required to report under tier 1 (i.e. they have expenditure greater than $30 million). The Kiwi Park model is designed to meet the requirements for a tier 2 entity.

Guidance on additional disclosure requirements for tier 1 entities can be found at:  [Checklist for Tier 1 Schools]

The standards contain provisions for schools moving between tiers. If your school is expected to have total expenditure over $30 million for the 2018 year but does not currently report at tier 1, please contact the Ministry of Education through the School Finance Advisor for your region.

Group Financial Statements

Separate legal entities which are controlled by the Board are also public entities. An entity is considered to be controlled by the Board when the Board has the capacity to influence the activities and financial and operating policies of an entity. Where a controlled entity is material to the school and it meets the requirements of PBE International Public Sector Accounting Standard 6, the school will have to prepare consolidated accounts incorporating the transactions of the separate entity.

Schools that are required to prepare consolidated financial statements under Section 87 (3) (A) of the Education Act 1989, should use the Kiwi Park Group model for 2018.

If an entity that has been assessed as a controlled entity is required to be audited by either legislation or its founding document, the Auditor-General must audit its financial statements.

Accounting Changes

The Crown resolved to adopt PBE International Financial Reporting Standard 9 Financial Instruments for financial statements prepared for periods beginning on or after 1 January 2018.  This means it will be applicable to your 2018 financial statements.  We have reviewed the requirements of this standard and expect the impact on financial statements to be low.  Further guidance on accounting for debtors or receivables (including provisioning for doubtful debts) and term deposits under this standard can be found on the Treasury website.

Guidance on Accounting for Financial Instruments Under PBE IFRS 9 for Non-financial Entities (external link)

Filing your Annual Report

School Data Portal for Submission of Annual Reports

Please use the School Data Portal (external link) to submit your annual report to the Ministry. This can be found at the following location:

School Data Portal logon.

Please use the drop-down option ‘Annual Report (31 May)’ in the School Data Portal as shown in the picture below to ensure your annual report is submitted correctly.

Drop down option for annual reports.

Your report should be a single PDF file, including audited financial statements and required signatures (Chair of Board, Principal, and Auditor Report).  To help ensure clarity of document content, you are asked to use original documents, rather than photocopies, to construct the PDF file.

Submission of financial statements in Excel format

Schools can now also upload the Excel spreadsheet version of their financial statements via the Ministry’s School Data Portal. Please ensure that this is the final audited version of the financial statements.  This process will provide further efficiencies in collating all schools data in a timely manner. Please follow the same process as submitting your school’s annual report, as above.

Publishing your annual report online

Your Board is required to make the school’s annual report available to the public on an internet site maintained by or on behalf of the Board. Making annual reports available on an internet site ensures that parents and the wider community can access information about what your school has achieved and how the Board has managed school finances in the previous school year.

Please ensure your annual report does not contain any information that may breach an individual’s privacy before you make it publicly available. If you require assistance with this, please contact the New Zealand School Trustees Association (external link) .

Audit Management Letter

Following completion of the audit, the Auditor will issue a management letter. This letter is different from the audit report (which forms part of the Annual Report). It is addressed to the Board of Trustees or the Chairperson, not to the school or the Principal, and should be tabled at a Board meeting.

The letter will often identify issues and suggestions that may not be required to be disclosed in the Audit Report, but reflect the Auditor’s concerns and suggestions noted during the audit.It may outline issues that need to be addressed by the Board, improvements that could be made, or it may state only that the audit is completed and that there are no issues to raise with the Board.

One of the useful functions of the letter is that the Auditor's independent view may help a Board to identify weaknesses in internal accounting and control systems and may provide recommendations on how to improve those systems and controls.

Steps in the process:

  • Auditors may give the Board a draft letter to review for factual accuracy before finalising.
  • The letter should first be tabled at a Board meeting and then given to the Principal to make comments on the recommendations made.  The letter should then be brought back to a Board meeting for consideration.
  • The Board should reply to the Auditor with responses to the recommendations, outlining the decisions it has made.
  • The above process may involve working through the finance committee (or similar) if there is one.

The issues raised in the management letter will be looked at again during the next audit.

Important Reminders

Probity

School Boards and Management have a responsibility to ensure that all funds received by the school, no matter their origin, are safeguarded and spent in the best interests of students. Any expenditure should be carefully considered before being approved. Expenditure is deemed as sensitive when it could appear to be spent inappropriately and not in the best interest of the school. Common examples of areas of expenditure that can be highly sensitive are; travel, Principal’s expenditure and Board expenditure.

Boards should consider the following before approving proposed expenditure:

  • Does the expenditure further the aims of the school?
  • Could the Board justify this expenditure to a taxpayer, parent or other interested party?
  • Would publicity over this spending adversely affect the school?
  • Could there be a perception of personal gain arising from this expenditure?
  • Does the expenditure represent the best value for money?
  • Is it in the budget?
  • Does this expenditure occur frequently?

Payroll

The 2018 payroll information provided to you for use in preparing your annual reporting will be similar to that provided for the 2017 year.  This will include a Payroll Certification letter, School Annual Accrual Report (SAAR), Leave Liability Report and several additional schedules indicating known errors with the payroll data (Funding Code errors, Stop Pays and Overpayments). We are planning to release the SAAR and associated schedules in the same manner as the 2017 year. We will send a reminder in early December 2018.

We encourage you to complete your draft financial statements once the SAAR report is available, as this will speed up the annual reporting process for you.

Borrowing

School Boards of Trustees can only borrow within the limits set by the replacement schedule 6 (clause 29) of the Education Act 1989 and the conditions specified in regulation 12 of the Crown Entities (Financial Powers) Regulations 2005. A school Board of Trustees can: “in any calendar year, borrow any amount it thinks fit from any source it thinks fit provided that the total annual cost to the Board of Trustees in repaying all outstanding borrowings (including both principal and interest repayments) is equal to or less than one-tenth of the value of the grants determined by the Minister of Education to be paid to the Board for operational activities for that year”.

What will create a breach of the borrowing limit?

Any new borrowing that causes a school’s total principal and interest repayments to exceed 10% of its operational funding in that year will cause a breach of the borrowing limit. The new borrowing may be a finance lease, long-term property maintenance contracts, overdraft or other loan. If a Board exceeds the limit and does not obtain prior ministerial approval then that Board is deemed to be in breach of the Education Act 1989 and retrospective approval cannot be given.

How can a school get approval to exceed the borrowing limit?

If a Board wants to borrow funds that will cause the school to exceed the 10% repayment threshold they must obtain prior joint approval from the Ministers of Education and Finance. The Board must submit a written application to the Ministry of Education, National Office. Please see detailed application process in section 2.4.5. of the Financial Information for Schools Handbook (FISH) [PDF, 1.7 MB].

Lending

In no case shall a Board approve a loan to any party.  This includes any staff, any trusts associated with the schools or any external parties. 

Securities

A security is any interest or right to invest in any capital, assets, earnings, royalties or other property of any person. There are two main types of securities:

  • debt securities - this is a right to be paid money that has been lent to someone else. The most common form of a debt security is a term deposit. Debt securities can also include debentures, debenture stock, bonds, notes, certificates of deposit and convertible notes.
  • equity securities - this is full or part ownership of a private or public company.

Section 161(1)(a) of the Crown Entities Act and the replacement schedule 6 (clause 28) of the Education Act, outline the restrictions relevant to securities.
Boards may not acquire securities other than:

  • a debt security in a registered bank or other credit worthy institution (seek advice on credit worthiness rather than make your own decision); and
  • bonds and stock issued by public bodies.

Boards cannot own shares in private or public companies (meaning companies listed on a stock exchange) and cannot invest overseas or in any currency other than New Zealand dollars.

Approval for securities that do not meet the conditions listed above require the joint approval of the Minister of Finance and the Minister of Education. Approval will only be given if there is no risk to Crown funds, and there is a significant level of benefit (educational or otherwise) for one or more Boards or their students. Please see details on how to apply for approval to acquire securitiesin section 2.4.6. of the Financial Information for Schools Handbook (FISH) [PDF, 1.7 MB].

Technical Accounting Guidance

Guidance on accounting for common transactions and arrangements can be found in the Guidance notes attached to the Kiwi Park Model.  The Financial Information for Schools Handbook (see  Financial Information for Schools Handbook (FISH) [PDF, 1.7 MB] is also a useful reference for technical advice.  Guidance on some specific matters has been included below and should be brought to the attention of the preparers of your financial statements.

Employee salary expenses

Privacy - Where a school has only one person employed in either Property or Administration roles, a Board may combine both salaries under Administration. This means that the individual’s privacy will be protected, as it will no longer be possible for an individual’s salary to be identified.

Banking Staffing

Banking Staffing gives Boards flexibility in timing the use of their staffing entitlement. Boards are sent fortnightly Banking Staffing reports along with their Staff Usage and Expenditure (SUE) reports to help them monitor usage. The banking staffing modeling spreadsheet allows schools to project staffing usage to the end of the year and model various scenarios. The Ministry monitors Boards’ usage and may contact schools at risk of significant overuse during the year.

Accounting for over-used staffing

Boards that overuse their staffing entitlement must repay the Ministry for the amount overused. Banking Staffing overused at the end of the year must be recorded in the annual financial statements as a teacher salaries expense with a corresponding accounts payable entry for the amount due to the Ministry. The amount recorded is GST exclusive. The time period for balancing the staffing usage is pay-periods 23 to 26 in respect of the Banking Staffing as at year ended pay-period 22. The amount due to the Ministry at the end of pay-period 26 will be recovered from the July operations grant payment. The value associated is calculated at the banking staffing recovery rate of $71,500 (ex GST). The amount recovered is GST inclusive.

Cash reimbursements for unused staffing

Schools can receive a cash reimbursement for roll-based staffing and additional staffing that they have been unable to use by the end of the staffing year. This will be limited to a maximum of 10% of the school’s total roll-based and additional staffing. If a school has received special reasons staffing during the year, the Full-Time Teacher Equivalent (FTTE) allocated will be deducted from the under-used staffing entitlement before the reimbursement calculation is made. The ‘reimbursement rate’ for unused staffing for the 2018 staffing year is $55,000 (ex GST).

For more information contact the Resourcing Contact Centre 04 463 8383.

Recognition of annual leave

Schools are required to report a liability in dollar terms for annual leave and long-service leave for their non-teaching staff. A Leave Liability report will be available through the Payroll system in February 2019.

The liability should be reported in the school’s Current Accounts Payable note to the Financial Statements (note 16 in the Kiwi Park Model Financial Statements).

Schools should be actively managing outstanding leave balances where the balance is high. This will assist in reducing the leave liability for which your school is required to account.

Please do not record a liability for sick leave. No provision is required to be recognised for sick leave for any teachers, irrespective of whether a school is above its teaching entitlement as in practice most teacher sick leave is grant funded by the Ministry.

Board contributions to capital works

It is the Board’s responsibility to ensure that capital works projects are completed within budget. Where projects are planned to be of greater value than the Ministry funding (i.e. when the Board wishes to contribute to the project from its own funds) the Board MUST obtain prior approval from the Ministry.

Contributions may be one of two types:

  • Donation – a contribution towards an upgrade of a Ministry-owned and maintained asset.  Where the contribution is a “Donation” the expenditure must be treated as a distribution to the Crown through the Statement of Changes in Net Assets/Equity, if material.
  • Investment – a contribution towards the creation of a new asset, or enhancement of an existing asset, which will be owned and maintained by the Board or owned and maintained jointly by the Ministry and the Board. The expenditure must be capitalised in the school’s fixed asset register.

Parent Donations

Ministry Circular Payments by Parents Circular 2018/01 provides advice on the rights of parents, students, Boards of Trustees, proprietors, and sponsors about requests for donations and other forms of payment in schools. It includes examples for schools and parents. This circular replaces the previous version issued July 2013, clarifying the position on parent donations. Parent donations are entirely voluntary and cannot be compelled to be paid; as such unpaid donations cannot be included in the accounts receivable figure and are therefore not an asset. Please take this into account when preparing your annual reports.

Issued by

Natasha Barnett,
Group Manager
Resourcing Sector Enablement and Support
Ministry of Education, National Office, Matauranga House, 33 Bowen Street,
P O Box 1666, Wellington, New Zealand, Phone 04-463 8000, Fax 04-463 8001

Appendix 1: Annual Report Timeline 2019

Month/DayTask
February Payroll end of year reports and error schedules will be made available to schools.
February/March The Board should approve the draft annual report and send it to their Auditor.
March 31

This is the statutory deadline for draft annual reports to be presented to the Auditor (Education Act 1989 Section 87A). To avoid the time of peak workload for your Auditor,  and to help speed up the auditing of your annual report, you should attempt to submit draft accounts and comprehensive working papers well before this date. 

The Ministry recommends that you agree to a timetable with your Auditor to ensure that audited accounts are with the Ministry by 31 May 2019. This timetable should allow for sufficient time to submit draft accounts and the variation report and work through any issues identified through the audit.

April/May When all audit adjustments have been made, the Board should adopt the annual report and sign the Statement of Responsibility. The Auditor signs the Audit Report after the Board signs the Statement of Responsibility.
May 31

This is the statutory deadline for the Annual Report, including audited financial statements, to be submitted to the Ministry using the School Data Portal (external link)

Boards must ensure its annual report is available to the public on an Internet site maintained by or on behalf of the Board (Education Act 1989 s87AB), as soon as possible after your audit is complete.

Boards of Trustees are reminded that the Board’s analysis of variance is required to be provided at the same time as the updated school charter, before 1 March. 

Appendix 2: Components of the Annual Report

Board Chair/Principal’s Report [Optional]2

In this report, the Chairperson and/or Principal can inform the school’s community about the achievements and successes of the academic year. It also provides an opportunity to tell staff, parents and students about the school’s goals for the coming year, and the risks and opportunities that may be encountered along the way.

It also provides the Principal with a chance to talk about the opportunities and challenges coming up in the year ahead. Each school works out what will be covered in the two reports (if there are two reports).

There are no samples provided of this kind of report in the Kiwi Park model, as there are no mandatory requirements about content.

Kiwisport [Essential]

Schools are asked to include a short statement in their annual reports on how they have used Kiwisport funding to increase students’ participation in organised sport. Use of the Kiwisport funding will also be monitored as part of schools’ regular Education Review Office reviews.

The Kiwisport report does not form part of the financial statements. Therefore it is not to be included as part of the notes to the financial statements but to be shown in a separate statement within the annual report.

Other reports on special and contestable funding [May be necessary]

During the year the school may have been the recipient of additional Government funding for specific purposes. The school may need to report on how it has used these funds to support student development.

Analysis of Variance [Essential]

This is a discussion of the outcomes achieved, compared to the outcomes planned, in areas of priority for the year. The Board will present an appraisal of the school’s performance based on its aims, objectives, directions, priorities or targets as set out in the annual section of the school charter. It will provide pointers to the Board’s on-going strategy. Some schools will choose to combine the Chairperson’s report, the Principal’s report and the Analysis of Variance.

Statement of Resources [Optional]

This report describes the financial and non-financial resources used by the school during the year.

Members of the Board of Trustees [Essential]

This list details the people who govern the school. It must include the name of each Trustee who served on the Board during the year, and the date on which that Trustee will finish their term on the Board.

Financial Statements

Statement of Responsibility [Essential]

This statement is signed by the Principal and the Chairperson of the Board. It acknowledges that the Board is responsible for the preparation and accuracy of the financial statements and states that the Board has established and maintained a system of internal control to safeguard the school’s assets.

Statement of Comprehensive Income [Essential]

This financial statement summarises the income and expenditure of the school over the financial year, showing whether the school has managed to operate within the funding received. The format of the Statement of Comprehensive Revenue and Expenditure is defined by Public Sector PBE financial reporting standards.

Statement of Changes in Net Equity/Assets [Essential]

This financial statement shows the value of the Government’s ‘investment’ in the school (for schools, this is known as ‘equity’) and shows any increases or decreases in the value of that investment over the course of the financial year. The format of the Statement of Changes in net Equity/Assets is defined by Public Sector PBE financial reporting standards.

Statement of Financial Position [Essential]

This financial statement shows everything the school owns (assets) and everything it owes (liabilities) at a specific date. The format of the Statement of Financial Position is defined by Public Sector PBE financial reporting standards.

Statement of Cash Flows [Essential]

A statement of cash flows shows all cash received and all cash paid by the school over the financial year.

Notes to the Financial Statements [Essential]

The notes to the financial statements provide an extra level of detail that supplements the information shown in the financial statements. They include the statement of significant accounting policies, contingencies and commitments that were previously separate statements.

Auditor’s Report [Essential]

This report is prepared by the school’s Auditor, and must be included in the annual report. It provides an opinion to the readers of the annual report about whether the financial statements comply with generally accepted accounting practice, and whether they fairly represent the school’s financial position, financial performance and cash flows.

Appendix 3: Annual Report Checklist

Make sure that you can check off each of the items below before you submit the single original PDF file of your Annual Report to the Ministry.

  1. Analysis of Variance
  2. List of Board of Trustees members (if a Board member has acted for part of the year, the date that they ceased office)
  3. Statement on Kiwisport funding
  4. Financial statements attached (all pages – please check)
  5. Statement of Responsibility signed and dated 
  6. Independent Auditor Report signed and dated (not the management letter)

Appendix 4: List of Guiding Legislation

Schools are defined as Crown Entities in section 7 of the Crown Entities Act 2004.  As Crown Entities, schools are subject to the requirements of the Education Act 1989 and the Crown Entities Act 2004. These Acts define the form and content of the financial statements that schools must present each year.

Education Act 1989

Section 87:

Outlines the requirements for preparing school annual reports, their contents, and the deadlines for completion.

Section 87(AB):

Specifies the annual report must be made available to the public on an Internet site maintained by or on behalf of the Board.

Section 87(3):

Specifies that financial statements are to be prepared in accordance with generally accepted accounting practice.

Section 87(3)(aa):

Specifies the Secretary for Education’s ability to request the specific format in which annual financial statements in the annual reports must be presented.

Section 87(4):

Requires the annual financial statements to be accompanied by a statement of responsibility that complies with section 155 of the Crown Entities Act 2004 but that is signed by the Chair of the Board and Principal.

Further information about the legal requirements governing school financial operations is available in the Financial Information for Schools Handbook.

Appendix 5: Advice and Support

If you have questions about preparing Annual Reports, or the requirements of this circular, please contact your local Ministry of Education School Finance Advisor. 

Contact details are as follows

Carmel Riordan, Te Tai Tokerau, Auckland
carmel.riordan@education.govt.nz or phone +64 9 632 9440  

Rebecca Cook, Te Tai Tokerau, Auckland
rebecca.cook@education.govt.nz or phone +64 9 632 9509

Margaret Pattullo, Bay of Plenty, Hawke’s Bay and Gisborne
margaret.pattullo@education.govt.nz or phone +64 6 833 6734

Chad Britton, Waikato, Bay of Plenty
chad.britton@education.govt.nz or phone +64 7 8373145

David Hyland, Taranaki to Wellington
david.hyland@education.govt.nz or phone + 64 4 463 8699

Andrew Seagar, Nelson, Wellington
andrew.seagar@education.govt.nz or phone +64 4 463 4825

Alexander Dieudonne, South Island
alex.dieudonne@education.govt.nz or phone +64 3 378 7373   

Your Board’s Accountant or Financial Service Provider may also be able to provide advice. 

Footnotes

1 Section 87 (3)(AA) of the Education Act 1989 states “The annual financial statements in the annual reports must be in the form (if any) determined by the Secretary after consultation with the Auditor General”. The Secretary for Education has determined that schools should report in the format set out in the Ministry’s Kiwi Park model.

2 The Principal’s report and Chairperson’s report can be combined into one report.

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