Less is more  

  • 10th October 2024

Siobhan Holmes, an audit principal at accountancy firm haysmacintyre navigates the mysteries of the management account

 

Having set your budget for the year, it’s essential that there is regular monitoring of your school’s finances. We often see this in the form of monthly or termly management accounts that provide an analysis of income and expenditure, comparing against budget and forecasting an outturn for the year.

Management accounts shouldn’t just be a set of numbers on the page but instead be presented with an analysis to provide explanations for key variances and help tell the financial story of your school. Management accounts are very important, especially in times of significant change or uncertainty, and they are essential for good governance. The financial information helps you to monitor progress and performance, make effective decisions, and plan for the future.

How often should management accounts be prepared?  

The key for management accounts to be a useful tool is that they must be accurate, up to date and timely. I often see management accounts being prepared on a termly basis in schools as this will enable them to be shared at relevant governor meetings. However, depending on the circumstances of your school there may be a need to prepare these more regularly, and I have also seen an increasing trend for monthly management accounts.

What type of information should be included?

Management accounts should focus on relevant information. This usually includes:

  • A summary of performance and analysis of large variances, including unbudgeted items.
  • A comparison of actual income and expenditure to date against budget.
  • Forecast income and expenditure to year-end compared with budget.
  • A cash flow forecast.
  • Analysis of key performance indicators, such as current and projected pupil numbers, fee debts and bank loan covenant compliance.
  • A brief analysis of the balance sheet, for example, cash position, investments, assets and liabilities.
  • Analysis of restricted funds.

As mentioned above, there should be a narrative and analysis to sit alongside the figures to help tell the story of the financial position of the school. If there are any specific projects, such as a capital development programme, details on this should also be included.

It is crucial that the management accounts include the income and expenditure account, balance sheet and cash flow statement, and that these are internally consistent. This helps to ensure the management accounts are complete and accurate. I would also recommend that there’s an explanation of any difference between the year-end management accounts surplus or deficit and that reported in the statutory financial statements. This helps you to confirm the accuracy of information that you have been provided with throughout the year.

Management accounts should be presented clearly. I often stick to the mantra of less is more – having a dashboard of key information on the opening page with appendices to provide more detail in the background. Speak to your bursar to agree what information you want to see and make sure the information is accessible for all. Management accounts take time to prepare, so focus your time on reviewing relevant and appropriate information and analysis. It may take a few attempts to get the focus and balance right, but in the long term it will save you and your board time and ensure you have the relevant information to support decisions you make for the school. 

Who should review?  

As head you should always review the management accounts, but these should also be reviewed by your senior leadership team and the governors. This includes sharing the management accounts or extracts with your budget holders to ensure they have accurate information for cost management.

Management accounts need to be scrutinised and questions asked, it’s all part of good governance. For example, you may have questions on key variances or unbudgeted items. Most importantly, if you or anyone else reviewing the management accounts wants more information, have confidence to ask the question. In my view, no question is a silly question, and chances are that a question asked by you may well be asked by a governor too.

In conclusion, management accounts are vital for monitoring the financial performance of your school and facilitate good decision-making. Work with your bursar and governors to establish a document that is useful and contains the relevant and reliable information. Finally, always include a narrative commentary to tell the story behind the figures.

Siobhan Holmes

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