Section 3: Instalments of the budget share; banking arrangements

3.1 Frequency of instalments

3.2 Proportion of budget share payable at each instalment

3.3 Interest clawback

3.3.1 Interest on late budget share payments

3.4 Budget shares for closing schools

3.5 Bank and building society accounts

3.6 Restrictions on accounts

3.7 Borrowing by schools

3.8 Finance leases and hire purchase agreements

3.9 Other provisions

For the purposes of this section, Budget Share includes any place-led funding for special schools or pupil referral units.

3.1 Frequency of instalments

The Authority will ensure that schools receive their budget share allocation in monthly instalments sufficient to meet their reasonable cash-flow needs. Top-up payments for pupils with high needs will be made on a monthly basis unless alternative arrangements have been agreed with the provider. The Chief Finance Officer in consultation with the Director of Education will agree with individual schools an appropriate schedule of payment. Payments to individual school bank accounts will usually be by BACS.

3.2 Proportion of budget share payable at each instalment

Monthly budget share payments to schools will be made in accordance with the schedule of payment agreed with individual schools and the Chief Finance Officer. Where no prior agreement exists with a school and the Chief Finance Officer, then the budget share payable will be equal to one twelfth of the schools approved budget share. Payment will be made direct into the school's main bank account.

Schools wishing to revise their schedule of payment, changing either the frequency of each instalment or the proportion of budget share payable at each instalment are required to submit their request at least two weeks in advance in writing to the Chief Finance Officer.

Schools who use a payroll service that is external to that provided by the Authority will receive their budget share in instalments that reasonably take account of payroll costs. Those schools whose payroll is administered by the Authority will receive the instalments net of estimated payroll costs for the period to which the payment relates.

3.3 Interest clawback

Where a school requests and the Authority agrees to make available the budget share in advance (of what the Authority believes to be reasonable cash flow needs taking account of the pattern of expenditure of schools of that size, and any particular representations relating to the individual school's circumstances) the Authority may deduct from the budget share an amount equal to the estimated interest lost. The calculation basis as outlined in annex B (Interest charges on advances) may be at a rate up to 2% higher than the rate applicable to funds invested with the Authority on any amount advanced, although provided the Authority has agreed the business plan with the school that sets out the repayment regime, interest will usually be waived.

3.3.1 Interest on late budget share payments

The Authority will add interest to late payments of budget share instalments made after payroll run day each month, where such late payment is the result of Authority error. The interest rate to be used will be that used for clawback calculations as detailed above.

3.4 Budget shares for closing schools

Subject the agreement of the Director of Education and the Chief Finance Officer, the budget shares of schools for which approval for discontinuation has been secured, may be made available until closure of that school on a monthly basis net of estimated pay costs, even where some different basis was previously used.

3.5 Bank and building society accounts

All maintained schools must establish a main bank account to which the budget share will be paid. They must notify the Chief Finance Officer of the account and any proposals to change it. Schools shall be allowed to retain all interest payable on the account unless they choose to have an account within an authority contract which makes other provision.

When a school so changes its bank account, the previous account used to receive budget shares should be closed within 3 months, and any balance transferred to the new account. Any balance the Authority is holding in respect of the school's budget share (or if necessary an estimate, to be adjusted once the correct amount is determined), will also be transferred to the new account (or from it in the case of a deficit, subject to funds being available).

Schools shall also notify the Chief Finance Officer of other bank accounts they hold, although this is not necessary if the account is held by a separate legally constituted related legal body (e.g. a properly constituted charitable trust).

The operation of school bank accounts in this way will result in school balances being held in the nominated account at the year end, or one otherwise agreed with the Chief Finance Officer (subject to adjustments associated with estimated payroll costs, as mentioned in 3.2.).

3.6 Restrictions on accounts

Full details, including account details and authorised signatories (minimum of two) for all banking transactions, of all bank and/or building societies maintained by the school should be supplied in writing to the Chief Finance Officer. Schools are normally required to advise the Authority at least three months in advance of its intention to change its banking arrangement. Any school closing an account used to receive its budget share and opening another must agree the new bank or building society with the Chief Finance Officer, which must be consistent with the authority's Treasury Management policy.

Under section 49(5) of the Act, all monies paid by the Authority and held in such accounts shall remain to be the property of the Authority until spent.

Although accounts can be in the name of the school rather than the authority, wherever the school holds its bank account, the account mandate should provide that the Authority is the owner of the funds in the account, that it is entitled to receive statements, and that it can take control of the account if the school's right to a delegated budget is suspended by the Authority.

Where on-line banking is used, schools must ensure that sufficient controls are in place for authorisation of transactions.

3.7 Borrowing by schools

With the exception of loan schemes run by the Authority and outlined in the scheme, Governing Bodies may only borrow money (which includes the use of finance leases) with the written permission of the Secretary of State (who will only grant permission for borrowing in exceptional circumstances). Details of all such requests and subsequent approvals or otherwise should be supplied in writing to the Authority's Chief Finance Officer.

However, schools may be permitted to use any scheme that the Secretary of State has said is available to schools without specific approval, such as the Salix scheme which is designed to support energy saving.

Schools must not use interest bearing credit cards, as this is considered a form of borrowing. Procurement cards should be used for facilitating electronic purchases, and these must be set up to prevent cash withdrawals. Balances must be fully cleared on a monthly basis.

The restrictions do not apply to Trustees and Foundations, whose borrowing, as private bodies, makes no impact on government accounts, though such borrowing must not be serviced directly from the delegated budget.

3.8 Finance leases and hire purchase agreements

The Authority adopts the definition of leases in accordance with best accounting practice as described in the International Accounting Standard (IAS) 17.

IAS 17 classifies a lease as a finance lease if it 'transfers substantially all the risks and rewards incidental to ownership' to the lessee. A lease not classified as a finance lease is classified as an operating lease.

A finance lease is a form of borrowing and must not be entered into by a school without the agreement of the Authority. A hire purchase agreement is similar in substance to a finance lease and must not be entered into by a school.

IAS 17 states that 'whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract'.

IAS gives the following examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease: -
a) The lease transfers ownership of the asset to the lessee by the end of the lease term.
b) The lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair value at the date the option becomes exercisable such that, at the inception of the lease, it is reasonably certain that the option will be exercised.
c) The lease term is for the major part of the economic life of the asset even if title is not transferred.
d) At the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset.
e) The leased assets are of a specialised nature such that only the lessee can use them without major modifications being made.

The standard also provides indicators of situations that individually or in combination could result in a finance lease as follows: -
a) If the lessee can cancel the lease, the lessor's losses associated with the cancellation are borne by the lessee.
b) Gains and losses from the fluctuation in the fair value of the residual accrue to the lessee.
c) The lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.

Schools must seek an opinion from the Authority's professional advisors (financial or legal) or the Authority before entering into any significant lease agreement, where a significant lease agreement is defined as a lease agreement where an annual gross lease payment to a bank or banks exceeds £20,000 or total gross lease payments over the life of the lease exceed £60,000 and/or at a level at the discretion of the Chief Finance Officer. This must be done irrespective of any advice given by the leasing company on the nature of the lease.

Schools must not enter into a significant lease through the equipment vendor without the express agreement of the Authority.

Schools must provide information on all leases as at the year-end or as requested by the Chief Finance Officer.

3.9 Other provisions

All relevant provisions contained in the Authority's financial regulations or other appropriate financial guidance issued by the Authority shall be applicable to schools where those provisions impact on a school's banking arrangements.

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