So, today this letter dropped from the Education & Skills Funding Agency. It’s a bit of a boring one about budgeting and finance so won’t tend to get much attention. It should.
The key section is this one:
Let’s first of all consider the import of the final sentence. “We anticipate that in most cases the data required will be readily available from trusts’ own internal plans.” Bear in mind that the DfE hands over tens, and in some cases hundreds, of millions of pounds to Academy Trusts and they are suggesting that only in “most cases” are they properly carrying out the most basic of financial functions – budgeting. An organisation of that size that doesn’t attempt to look at least 3 years ahead, using a variety of assumption sets, isn’t, in my view, a reliable recipient of public funds.
Some may use the argument that schools don’t know their income from one year to the next. Whilst technically true, it is the case that they do know the numbers well enough to produce a forecast, albeit in the knowledge that the further out it gets the less reliable it becomes. This is a very standard practice for any significant organisation.
So it is a worry that up til now the DfE have been content to hand over funds without carrying out the most basic of due diligence into the organisations receiving it. Perhaps this is a sign that the DfE is starting to get to grips with some of the very basic deficiencies in the system they have “created”. Better late than never I guess.
It may also be worthwhile thinking about why this process has been instituted now. There are a number of possibilities, all of which may be true in whole or part.
Reason one would be the simple one. They now realise they should always have been doing it and are getting their act together. We can take that as good news.
Reasons two and three are more speculative, and contradictory.
Number two is that DfE need this information to provide them with some backing when they have their discussion with the Treasury about future funding. If they can put in front of them aggregated financial information that X% of the sector will be in deficit and sacking teachers in an election year they would expect to get a better settlement.
Number three is the thought that the DfE are expecting schools to do what schools always do. Try to make the best of a bad job. To present a budget that works. I fear that some might do this to avoid looking to the DfE as if they cannot manage their budgets properly. If too many do this the DfE would be able to claim there is no real financial crisis.
Whatever the reason my advice to Academies is simple.
Firstly, if you aren’t already doing so, prepare three-year budgets. My preference would be for five years (especially if you anticipate any degree of expansion or contraction in student numbers). This can be at a very high level but must include know changes and estimates for others (e.g. staff increment movement, inflation). Do this not just because you want to see the DfE requirement but because it is best practice. Personally Id put it more bluntly – not doing it is negligent.
Secondly, whatever this budget says, this is your budget. If it says in three years time you will have an un-fundable deficit then that is what you have. You will obviously have to start working on mitigating actions but that is the budget the DfE get. In short, you actions need to meet the needs of your budget, not the other way around.
Thirdly, remember that this is not a one-off exercise. When you update your annual budget (usually at the mid-year point) you should update the longer-term forecast. Because chaos theory. Small changes now can have a significant effect five year out.
Fourthly, don’t keep it a secret. Share the long-term budget with the trust board. They need to see it. They can’t make strategic decisions without it.
A good budget is not the end result of a chore, it’s the beating heart of any well run organisation.