Manual for Financial Management

1
Manual for Financial Management

• Operation of the Financial Management Mechanism

• 16 November 2005

2
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Operation of the Financial Management Mechanism
Code of Practice
Long Term Financial Planning
Reporting
Annual Budgeting Budgetary Control
External Auditing
IMC
Independent Control
Accounting Disclosure
Internal Control
5
Long Term Financial Planning

• IMC should
• Establish its own long term school planning
• Develop long term strategic plans (for 3 to 5
  years) in a School Development Plan
• Further formulate Annual School Plan and School
  Budget
• Ensure Annual School Plan accounts for all
  existing school activities and provide to review
  the need for regular improvements

6
School Development Plan

• Key elements of a School Development Plan
• Schools vision and mission
• Intended outcomes/targets
• Major specific concerns based on individual
  school needs
• Implementation strategies for each major concern
• The time scale for each strategy

7
School Development Plan (Contd)

• A good School Development Plan should have the
  characteristics
• Prepared every 3 to 5 years and updated annually
  as required
• Integrated with performance measurement
• Approved by the IMC and Audit Committee regarding
  the financial aspect
• Included as an integral part of the budget
  justifications sent to EMB for information

8
Annual School Plan

• Key elements Include
• The school mission
• Major concerns determined by the IMC
• Tasks through which objectives can be achieved
• Laid down plan in actual practice
• Success criteria and methods of evaluation
• Personnel for implementation, monitoring progress
  and evaluation
• Budgetary summary
• Financial highlights

9
School Budgets

• Expression of the School Plan in monetary terms
• Facilitate effective cost benefit analysis
• Facilitate IMCs control over school expenditure
• Budget established to provide a tool to
• Measure current financial performance
• Identify significant transaction errors
• Direct substantial changes in circumstances or
  school operational conditions
• Categorized into long term budget (3 to 5 years)
  and
• short term budget (for the
  forthcoming year)

10
Annual Budgeting and Budgetary Control

• IMC should establish a financial budgetary
  mechanism by preparing budgets and monitoring
  budgetary control
• Financial budget should tie in with daily
  operations and School Development Plan
• Any significant departure (e.g. over 15) should
  be investigated, explained rectified
• Budget must be realistic, reasonable and
  attainable
• A long term budget from 3 to 5 years is an
  extension of the annual budget

11
Annual Budgeting and Budgetary Control (Contd)

• Prudent Financial Management
• IMC should exercise care in monitoring a balanced
  budget for the benefits of the students
• A deficit budget should not be allowed
• Subscriptions and donations should be used for
  those designated purposes only
• Funds reserved for major projects, capital
  expenditures, unexpected or contingent payments
• Should be used strictly in accordance with their
  set purposes
• Should not be used to finance regular (recurrent)
  expenditure for each year

12
Preparation of Budget

• Commence at least 6 months prior to the period
  (i.e. Feb 06 for 2006/07 Budget)
• Establish Budget Committee (comprised Principal,
  Treasurer, designated IMC Manager and Accounting
  staff) to
• Agree on a policy with regard to budgets
• Co-ordinate budgets
• Suggest revision to budgets
• Report to IMC

13
Step-By-Step to prepare Budget

• Included number of operation classes, manpower
  plan, all subventions, other income and all
  expenditures
• Detailed outlining and allocations on a
  line-by-line for income and expenditure
• Reasonable basis of estimation with realistic
  assumptions

14
Step-By-Step to prepare Budget (Contd)

• Income (including grants, fees and donations) and
  expenditure of a similar nature to be grouped
  under the same budget heading
• Review on all existing income and expenditure
  items
• Can refer to the actual amount of income and
  expenditure for the previous year

15
Step-By-Step to prepare Budget (Contd)

• Reference should also be made to the past three
  years average
• IMC should be prepared to answer any budget
  enquiries from other stakeholders
• Apportioned into four parts for each category of
  income and expenditure for each quarter of a year

16
Step-By-Step to prepare Budget (Contd)

• For those items that cannot be easily
  apportioned, judgment should be made to allocate
  the annual budgeted amount on a fair basis
• Basis of assumption should be clearly stated
• Budget Committee should compare the budget to
  actual income/expenditure for each quarter

17
Step-By-Step to prepare Budget (Contd)

• Explanatory notes should be used where necessary
  to account for
• Any expenditure not budgeted
• Expenses on non-recurring expenditures
• Significant variations (over/under 15 of the
  budgeted amount)
• Corrective action should be followed up if
  appropriate

18
Notification of the Draft Budget

• Budget Committee should
• Obtain comments on the draft budget from the
  Internal Auditors
• Consider briefing to explain the draft budget to
  Audit Committee and IMC
• Revise the draft budget after taking relevant
  parties comments and suggestions

19
Notification of the Draft Budget (Contd)

• After finalizing the budget, IMC should highlight
  the following in the budget
• Basis in preparing the budget
• Reference to School Development Plan
• Non-recurrent expenditure, together with a
  detailed breakdown
• Foreseeable significant variations from previous
  expenditure

20
Approval and Announcement of Budget

• IMC should
• Approve the final budget at least 3 months before
  the budgetary school year (i.e. 31 May)
• Upload the approved budget onto the schools own
  website

21
Approval and announcement of Budget

• The Budget Committee should
• Review and revised the budget if appropriate
• Provide variance analysis between the budgeted
  amounts and actual performance
• Actual amount budgeted amount
• Budgeted amount
• Determine any follow up or corrective action

Variances
X 100
22
Report Significant Variance

• The Budget Committee should
• Report to IMC through Quarterly Management Report
  within 2 months after quarter/year end
• Update actual income and expenditure
• Find out reasons for any significant variance
  (over 15 of the originally planned amounts)
• Take corrective actions for significant variance
• IMC should inform EMB about any
  abnormal/exceptional incidents

23
Internal Control

• Internal Control refers to processes and
  procedures
• designed to provide reasonable assurance
  regarding
• the achievement of objectives in
• Effectiveness and efficiency of operations
• Completeness, accuracy and reliability of
  financial reporting
• Compliance with applicable laws and regulations

24
Internal Control (Contd)

• Safeguarding assets
• Adherence to management policies
• Prevention and detection of errors and fraud
• In financial management control mechanism, the
• better the internal control of a school, the
  lesser the
• risks of errors and fraud in the organization

25
Delegation of Authority

• The delegation of authority should be properly
• governed by means of
• Financial limit that IMC manager can pay or
  commit on behalf of the school
• Limits of expenditure for authorized individual
  IMC managers
• Groups of IMC managers to approve purchases and
  expenditure
• Reference to circulars issued by EMB (e.g. EMBC
  30/1999)

26
Segregation and Rotation of Duties

• Accounting duties should be segregated or rotated
  to facilitate prevention and detection of errors
  and frauds
• Following duties to be segregated as best
  practice
• Initiating purchases
• Preparing of cheques for issue
• Approving expenditure
• Authorizing cheques

27
Segregation and Rotation of Duties (Contd)

• Reviewing bank statements
• Booking and recording of entries and compiling of
  accounts
• Keeping custodian of cheques and petty cash
• Reviewing and reporting errors in the internal
  control of the system
• Consideration to rotate the above duties for
  different personnel would be encouraged

28
Procurement of Goods and Services

• The IMC should observe the following principles
  in all procurement processes
• Designated purpose(s) of each grant must be met
• Openness
• All requirements and specifications to be clear
  and made known to possible suppliers and
  contractors
• Fairness
• All candidates have equal chance and footing to
  bid for the contract

29
Procurement of Goods and Services (Contd)

• Competitiveness
• The lowest offer which meets all the required
  specifications should be accepted. IMC should
  justify the reasons if the lowest offer has not
  been selected
• EMBs requirements on a schools procurements as
  set out in the COA or circulars issued by the EMB
  from time to time must be followed
• The procurement may be inspected by the Internal
  Auditors, Audit Committee and External Auditors

30
Procurement of Goods and Services (Contd)

• IMC should avoid any managers and staff having
  any conflict of interest to be involved in any
  procurement of goods and services
• IMC managers and school staff should make
  declaration to IMC in case of foreseeing any
  potential conflict of interest
• Quotation and tendering information should be
  kept confidential with restricted access on a
  need-to-know basis

31
Procurement of Goods and Services (Contd)

• IMC Schools should not allow their staff to
  benefit from suppliers and contractors
• IMC should inform suppliers and contractors any
  offer of personal benefits to IMC managers or
  school employees in connection with their
  official duties is illegal and forbidden

32
Solid Financial Management Control System

• Includes
• Assets owned by the IMC should be properly
  recorded and protected
• Accounting data should be accurate and reliable
• Funds should be spent only for purpose stated and
  within the limits approved by the EMB
• Monitoring by Audit Committee (on policies and
  exceptions) and Internal Auditors (on operating
  procedures and errors)

33
Solid Financial Management Control System (Contd)

• Exceptions or weaknesses on financial management
  control with explanations should be addressed in
  the Quarterly Management Report and reported to
  Audit Committee and IMC
• External Auditor should evaluate the adequacy and
  effectiveness of the system and report to IMC
  through Management Letter

34
Independent Control

• Internal Review (by Internal Auditors)
• Audit Committee

35
Internal Review

• Represents an independent party (e.g. Internal
  Auditor) checking that the compliance of the IMC
  with the resolutions of the IMC and the
  underlying accounting and operational policies
  and procedures are functioning effectively
• Facilitate transparency and enhance credibility
  of the IMC

36
Internal Auditors

• will consider
• Conducting of school operations
• Safeguarding of IMCs assets
• Prevention and detection of fraud
• Reviewing the assumptions of school budgets
• Adequacy and completeness of accounting records
• Timely preparation of reliable financial
  information
• Supporting the Audit Committee in monitoring and
  controlling the IMC schools behaviors and
  performance

37
Scope of Internal Review

• Internal Auditors should review the financial
• operations and internal controls of the IMC
  School to
• ensure
• Assurance of completeness, accuracy and
  reliability of accounting records and key
  information contained
• Design and implementation of internal control
  measures
• Efficient, effective and economical use of IMC
  resources

38
Scope of Internal Review (Contd)

• Proper delegation of authority and segregation of
  duties are in place
• IMC Schools financial management policies on
  accounting procedures have been complied with
• Income has been received promptly
• Debts collection has been followed up
  appropriately
• Receipts and payments have been properly
  authorized
• Accounting entries have been recorded properly

39
Scope of Internal Review (Contd)

• Accounting transactions and balances are accurate
  and properly supported
• Bank reconciliation statements have been properly
  prepared and reviewed with outstanding items
  being followed up promptly
• Capital items being properly recorded and
  maintained in the fixed asset register
• Budget, quarterly income and expenditure
  statements, Annual Accounts are properly prepared

40
Scope of Internal Review (Contd)

• All ledgers, accounts and supporting documents
  are properly maintained
• Tendering procedures on procurement of goods and
  services have been complied with circulars issued
  by EMB
• Reasons for any non-compliance of regulations
  have been explained and properly followed up by
  IMC

41
Audit Committee

• A subcommittee of the IMC
• Set up to review the completeness, accuracy and
  fairness of financial statements
• Consider the nature and scope of audit reviews
• Review the effectiveness of the internal control
  system
• Established with written terms of reference which
  clearly state its authority and duties

42
Audit Committee (Contd)

• Comprised of two or more IMC managers
• With accounting knowledge, skills and experience
• Not involved in the financial operation of the
  IMC School

43
Duties of the Audit Committee

• Recommend the appointment of the external auditor
• Determination of audit fee and scope
• Resolve any problems on the change of an
  auditors appointment
• Communicate with the external auditor and monitor
  the progress of the external audit, findings and
  actions taken following the audit
• Review the preparation of budgets and monitor
  budgetary control

44
Duties of the Audit Committee (Contd)

• Review the Annual Accounts before submission to
  the IMC and EMB
• Review the design and implementation of the
  schools financial management manual and internal
  control systems
• Preserve the quality of financial information and
  independence of the Internal Auditor
• Review internal audit programme and variance
  analysis

45
Duties of the Audit Committee (Contd)

• Ensure co-ordination between the internal and
  external auditors
• Consider the major findings of internal
  investigations and the IMCs response
• Review external auditors report and the IMCs
  response on the Management Letter
• Consider other special topics as defined by the
  IMC

46
Audit Committee Reporting to IMC

• Report directly to the IMC with written reports
  on a regular basis (preferably by end of each
  quarter)
• Disclose the followings in Annual Report
• Composition of the Audit Committee
• Work of the Audit Committee (including the review
  of operations)
• Number of times that Audit Committee meets during
  the year
• Findings of the Audit Committee
• Lines of reporting and terms of reference of the
  Audit Committee

47
External Auditing

• Audit Requirement
• In according with section 40BB (3) and (4) (c) of
  the EO, the IMC should appoint a practising
  Certified Public Accountant as an external
  auditor to submit the audited Annual Accounts
  together with the auditors report to the
  Permanent Secretary

48
Scope of External Audit Work

• External Auditors are expected to perform the
  following work
• Satisfy that the IMC has complied with the
  requirements of the COA, the relevant letters,
  circulars, guidelines and instructions issued by
  the Permanent Secretary from time to time
• Examine, on a test basis, the books and records
  of the IMC

49
Scope of External Audit Work (Contd)

• Assess significant estimates and judgments made
  by the IMC in the preparation of the Annual
  Accounts
• Assess whether the Annual accounts are free from
  material misstatements
• Report to managers of the IMC as to whether the
  Annual Accounts approved by the IMC present
  fairly the financial transactions and financial
  position of the IMC

50
Auditors express opinion in the Auditors Reports
whether

• The IMC has complied with the accounting
  requirements of the Code of Aid, the relevant
  letters, circulars and guidelines issued by the
  EMB, as amplified by instructions and notes for
  the guidance of Auditors issued by the EMB form
  time to time
• The IMC has used the government subventions in
  accordance with the rules and ambits of the
  grants as promulgated in the Code of Aid,
  relevant letters, circulars and guidelines issued
  by the EMB from time to time
• The balances of individual grant accounts are
  correct
• The accounts presented fairly the state of the
  IMCs affairs as of the school year end date of
  its results for the accounting year

51
Field Audit

• EMB has a supporting and monitoring role to
  manage any exception or malfunction of the IMC
  operation through the field audits
• IMC should be well prepared for the continuance
  of field audit on accounting books and records of
  the IMC as and when the EMB deems necessary
• IMC should also be prepared for other special
  reviews and Treasurer shall ensure that IMC
  complies with the relevant sections in the EO if
  such needs arise

52
Reporting

• Internal Reporting
• To Budget Committee
• To Audit Committee
• To IMC
• External Reporting to EMB
• Abnormal or exceptional incidents
• Annual School Plan
• External Auditors Report, Audited Annual
  Accounts, Management Letter, if any
• Quarterly Management Report

53
Reporting to All Stakeholders

• School Report
• School mission and vision
• About the school, teachers and students
• Learning and teaching
• Major concerns (achievement and reflections)
• Financial summary
• Composition of IMC

54
Thank you
Question and Answer