Financial compliance within the public schooling system of South Africa has seen a gradual decline over the last few years. This is largely driven by a lack of understanding of the requirements set out in the South African Schools Act as well as the skills gap, specifically in finance of school governing bodies (SGB’s), principals and bursars/treasurers. The schools’ ability to be audit compliant in terms of reporting is made more difficult by a lack of reporting standards or international guidance, which has led to disputes between the various role players both on the part of auditors and their auditees. While the lack of standards can be a stumbling block, financial compliance should be led by guiding principles which will allow principals and treasurers to ensure that their financial management is transparent. In this insight piece, we outline some of the basic constructs for financial management within a school environment and how you can be ‘Audit Ready’ in terms of the South African Schools Act. These are outlined in the following 5 areas:
A key principle on good corporate governance is effective oversight. While schools are not required to follow the King Code, the a finance committee should be established as a sub-committee of the School Governing Body which is legislated by Section 30(1)(b) of the South African Schools Act (SASA) and requires it be chaired by a member of the SGB. As the accounting officer of the school, the principal must be a member of the finance committee. This committee should be guided by a charter which delegates its functions and authority. Members of the committee should have basic financial management skills in order to provide adequate oversight. The SGB should set out a standard job description for each member on the committee and these members should meet periodically to review management accounts as well as ensuring timely completion of financial statements for audit purposes and ultimate submission to the department within six months of year end.
2. Policies and Standard Operating Procedures
It is important that a clear set of Policies which are principles that guide the school and a suite of Standard Operating Procedures for day to day operation are developed. This should start by setting a delegation of authority from who is allowed to authorize contracts to who is allowed to approve payments. Effectively, all powers should not lie solely in the Principal’s office. The finance committee should define how goods and services are procured. For example, a Principal should not be able to simply procure the first quotation received for any good or service. Rather, the delegation of authority should dictate when a procurement should invite three quotations, or be opened up for full tender. Similarly, payments above a certain threshold should be approved by the Head of the Finance Committee or the SGG Chairperson. These operating procedures should be clearly developed for each school while still taking into account any best practice from both the national and provincial Departments of Education.
3. Accounting Records
It is imperative that management put a system in place for effective management of accounting records as required by Section 42 of the South African Schools Act. Whether it is a contract, invoice for payment or even student exemptions, the schools administrative function should be set up so that information can be stored and accessed to create an effective audit trail. Schools should also consider the use of digitization where information can be scanned and stored either on their server (physical or cloud) as well as their accounting package. Accounting records should be filed by month and sequenced in alphabetical order.
4. Accounting Systems
There are multiple solutions on the market which can function as ERP systems for schools to enable them to capture transactions related to daily operations. It is important that schools choose systems which are publicly recommended and widely recognised for which the software vendor provides adequate and affordable after-sales support. All users of the system should amply be trained on the ERP system, and controls in line with the standard operating procedures should be configured when the system is installed.
5. Standard Reporting Framework
The preparation of annual financial statements is the responsibility of the Accounting Officer and not the Auditors. The challenge for schools is that there is no legislative standard stipulating how annual financial statements are to be prepared. It is paramount that the Finance Committee agree with the Auditors at the onset on the financial reporting standards that their financial statements are prepared. This standard is either dictated to the school by the province or schools can adopt the guidelines published by SAICA in conjunction with the National Department of Education.
While this publication has not been exhaustive, it has been prepared with a specific focus of getting the basics right so that schools can improve the overall time taken to undertake their audits in a timely and most efficient manner. Our team is available to assist South African schools in ensuring they meet the requirements of SASA.