Internal Audit
Schools Themed Review
Income and Banking
2011 / 12
18th April 2012
1
CONTENTS
Page
Overview
3
Key Findings
3
Other Weaknesses Identified
4
Risks from Key Findings
4
Actions Which can be Taken to Address These Risks
5
Financial Regulations and the Wiltshire Schools Finance Manual
6
Official and Unofficial Funds
7
Sources of Best Practice Guidance
8
Appendix 1 – Income Cash Book
9
Appendix 2 – Income Best Practice Notes
10
Appendix 3 – Income and Banking Procedures - Example
13
Distribution List
Report to:
Accounting and Budget Support
Head Teachers
Chairs of Governors
2
Overview
Internal Audit have carried out financial health check audits at twenty nine schools during the
current school year 2011 / 12. These financial health checks covered a number of key areas
of financial management and control, including:






Financial Administration and Governance
Financial Planning and Budget Setting
Budget Monitoring
Purchasing
Income
Banking
This is a themed report which focuses on the systems we found in place at these schools for
the control and proper accounting of the collection and banking of income.
The schools visited to date provide for primary aged pupils with numbers on the school roll
ranging from 50 to 500 pupils. However, most are small schools with limited finance office
resources, and many are rural and located at some distance from the local bank. In addition,
two schools had split sites which presented further issues with handling and transferring
income.
This report presents the key findings from the audits completed, together with a brief
summary of other issues arising. In addition, this report includes guidance to schools on:




Actions which can be taken to implement controls to ensure proper financial
administration.
Guidance on unofficial and official funds and differentiating between them.
Best practice guidance for receiving, processing and banking income.
Examples of core documents including income and banking procedures.
Key Findings
Across the schools visited, a variety of practices and procedures were found to be in place.
Many schools were found to employ best practice in several areas of their income and
banking procedures. However, a number of notable weaknesses were also found to be
prevalent across several schools. The key weaknesses found in practice were:




The audit trail was incomplete or could not be confirmed.
Separation of duties were limited or not in evidence.
Oversight of the income system was not in evidence.
VAT was not accounted for correctly.
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Other Weaknesses Identified
In addition to the four key control weaknesses identified, other failures in best practice were
found across some schools:







No charging policy exists for lettings or services.
Copy invoices are not retained.
Income transfers between staff are not recorded.
Income received is not recorded in SIMS Financial Management System (FMS) at the
time of receipt; in some cases, income was only recorded in the FMS following receipt of
the bank statement.
Official and unofficial funds are mixed and not kept separate.
Banking is undertaken infrequently leading to large sums being retained on site, and
greater risk to officers when making deliveries to the bank.
No debt recovery policy or procedure exists for chasing unpaid invoices.
Risks from Key Findings

The audit trail was incomplete or could not be confirmed.
Where an audit trail is incomplete, assurance cannot be given that all income due to the
school is collected and banked promptly and in full. The Head Teacher will therefore be
unable to reconcile income collected to sums deposited at the bank. This means that
there is a risk that funds could be either lost and / or not properly accounted for.

Separation of duties were limited or not in evidence.
Where there is a lack of separation of duties, tasks and responsibilities will not be
adequately separated to ensure that one officer does not have total control over the
income system. This means that checks are not being carried out to verify the accuracy,
completeness and regularity of income processing. This therefore presents a risk to the
security of the income and places the officer carrying out the tasks in a vulnerable
position.

Oversight of the income system was not in evidence.
A lack of oversight to an income system means that there is infrequent and irregular
checking against bank records. This means that assurance cannot be given that income
is always secure and that accounts are processed promptly.
4

VAT was not accounted for correctly
Failure to account correctly for VAT means that a school will not be discharging its
statutory responsibility to apply VAT to charges and income in accordance with the
Wiltshire Council Schools VAT Guide. The consequence of this is that financial penalties
could be levied by HMRC against the school for non-compliance with VAT law and / or
special dispensations could be removed, or restrictions could be imposed.
Actions Which Can be Taken to Address these Risks

The audit trail was incomplete or could not be confirmed.
In most cases it was found that the audit trail fell down at the start of the procedure
because the date when income is received was not recorded. For example, a lot of
income received by schools is parental contributions. The method of recording this
income has been through the maintenance of class lists which are ticked when the
income is received; however the date the income is received is not recorded. In order to
ensure that a complete audit trail is in place, schools should maintain an Income Cash
Book (Day Book) to record cash as it is received. Failure to ensure cash is recorded
upon receipt risks the opportunity for cash to go missing prior to any record of its
existence. An example of an Income Cash Book is provided at Appendix 1.

Separation of duties were limited or not in evidence.
In order to demonstrate separation of duties, at least two officers should be involved in
the income system, and sign and date documentation used in the process to evidence
this. Separating the various income tasks in a small school where there is one
Administrative or Finance Officer can make this difficult to achieve. However, as
governing bodies delegate their responsibility for the financial affairs of their school to
the Headteacher, then in small schools, the Headteacher may be the only other person
to be incorporated into the separation of duties. Where resources allow, however, the
Headteacher can delegate some tasks to another member of staff.

Oversight of the income system was not in evidence.
The Headteacher should ensure that they are able to have oversight of the income
system to ensure that all official income is identified, efficiently collected, properly
accounted for and promptly banked. As income is receivable from a number of sources,
an Income Cash Book would be the best document to refer to when comparing income
received with the income banked via the bank statements.
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In the absence of an Income Cash Book, Headteachers should sign and date the bank
paying–in book to confirm the entries are accurate. This provides the opportunity for any
queries to be raised. All other supporting income records should also be presented to
support the entries in the paying-in book.
Some Headteachers may also sign and date listings printed from the FMS (Receipts,
Paying-in Control Slips). Whilst this may show that the records in the FMS match the
income banked, and vice-versa, it will not show all income as some will not yet have
been recorded nor banked.

VAT was not accounted for correctly
All income input into the FMS should be entered with the correct VAT category code.
The system automatically defaults to code ‘X’ for exempt of VAT, however this may not
be the code that should be applied. The officer entering income should therefore ensure
that, they overwrite the ‘X’ with the correct VAT category code in line with the guidance
provided in the Wiltshire Schools VAT Manual. Where an officer is uncertain as to the
correct VAT treatment to apply, a VAT Advisor should be consulted through the
Council’s VAT Hotline. In addition, VAT Training can be provided to either individual
schools or through the Accounting and Budget Support Training programme.
Financial Regulations and the Wiltshire Schools Finance Manual
All schools under local authority control are required to comply with the Wiltshire Council
Financial Regulations as they pertain to financial management and administration within
schools.
The Wiltshire Schools Finance Manual (September 2008) is the primary document to which
schools should refer to when seeking guidance. For example, section 5 of this manual states
that:

Each Officer shall keep an accurate and chronological account of all monies received
and thereafter paid to the local bank account.
This requirement therefore relates to the key finding that the audit trail was
incomplete or could not be confirmed.

The Headteacher should report to the governing body on the costs of activities before
charges are set to ensure that the delegated budget does not subsidise non-school
activities.
This requirement therefore relates to the other weakness that official and unofficial funds
are mixed and not kept separate.
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Official and Unofficial Funds
All schools should have a clear policy on what funds should be paid into the school’s official
fund bank account, and what income can be paid into the voluntary funds account which is a
separate bank account.
Funds due to a school which have to be paid into the official fund bank account also have to
be recorded in the FMS. Income that is received and paid into the voluntary funds account
does not have to be entered in the FMS. Therefore, an alternative accounting system can be
used.
Income that should be collected in the official fund bank account includes:
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Lettings income – this applies to all maintained schools.
School trip money - this applies where special dispensation from HMRC is applicable,
as the school can recover input VAT on the expenses of ‘curriculum’ school trips.
Donations from Unofficial funds – this applies to purchases where agreed by governors
in order to recover VAT. *
Catering that is ‘incidental to the supply of education at no charge’ – this applies where
the provision meets the requirements for special dispensation from HMRC.
Rent or commission for vending machines.
Photocopy charges – this applies where the school owns or leases the photocopier.
Donations to the school, with or without conditions/benefit to the donor and sponsorship.
Parental contributions towards the supply of activities – this applies where the supplies
are made as part of education under the normal curriculum.
Charging for seconded staff.
Extended School Activities. *
Capital projects – Land & Buildings. *
* There are very specific VAT rules which apply to these practices so reference should be made to the
Schools VAT Manual.
It is a fundamental requirement for proper accounting for income that funds are not mixed.
For example, if income is legitimately channelled through the unofficial fund to avoid having
to declare VAT, associated expenditure cannot be put through the official fund in order to
recover VAT. So both the income and associated expenditure must be channelled through
either:


The school’s official fund, in which case all the income and expenditure is subject to
VAT rules, with the majority of VAT incurred on the expenditure being fully recoverable;
or
The school’s unofficial fund (unregistered for VAT), in which case no VAT needs to be
declared on the income, with no VAT incurred on the expenditure being recoverable.
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Schools should note that for income channelled through the official fund, VAT may not
necessarily be due. This is because any supply of goods and services that is closely related
to pupils’ education, and is necessary for and integral to that education, is ‘outside the
scope’ of VAT. School meals and catering for pupils are covered under this provision. Other
examples include:
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School uniform and sportswear for under 14s is zero-rated.
Fee paying community education classes are exempt.
Room lettings (excluding sports lettings) are exempt.
For further guidance on the VAT treatment of other school activities, reference should be
made to the Schools VAT Manual.
Sources of Best Practice Guidance
There are various sources of Best Practice Guidance available to Headteachers, Finance
and Administration Officers, as well as Governors. These include:





Schools Finance Manual
Keeping Your Balance
Financial Regulations / Wiltshire Schools Finance Manual
Bedfordshire School Finance Manual **
Academies Financial Handbook ***
** Dated 1 November 2001, this was formerly available on the FMSiS website and now on the Internet
(our appendices 1 and 3 have been based on this good practice).
*** Issued by DfE dated September 2006, and available on the Internet.
A review of these sources finds that there are themes and requirements which apply across
all of these guidance tools. The principle requirements of these sources fall into 5 key areas:

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Income key controls
Cash security
Separation of duties
Banking of income
Regular oversight and review
Examples of these requirements are detailed in Appendix 2.
In the first instance, schools need to ensure that they have clearly defined and documented
procedures for identifying and collecting income due. An example of a documented
procedure for identifying, collecting and banking income is provided at Appendix 3.
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APPENDIX 1
INCOME CASH BOOK
ANALYSIS OF INCOME
Date
Received from
Amount
Received
£ : p
Details of
Payment
Budget
Reference
VAT
Brought
forward
Carried
Forward
9
Other
head
ings
as
required
Total
Banked
£ : p
Date
Banked
APPENDIX 2
INCOME BEST PRACTICE NOTES
Income Key Controls

There are clearly defined and documented procedures for identifying and collecting
income due.

Income is clearly identified as to whether it should be processed through the Official
Funds or Unofficial Funds.

Invoices are issued promptly, i.e. within 30 days.

Official pre-numbered receipts are issued, or other formal documentation maintained, for
all income collected.

There is a separation of duties between responsibility for identifying and recording sums
due to the school and the responsibility for collecting and banking monies received.

Transfer of money between staff is signed for.

Cash and cheques are locked away to safeguard against loss or theft.

Income collected is paid promptly and in full into the appropriate bank account.

There is a regular and systematic review of actual receipts, including comparisons with
budget, to ensure that significant variations in the pattern of expected receipts can be
promptly investigated.

Income collected is reconciled to income banked. Bank paying-in slips show clearly the
split between cash and cheques.

The governing body gives approval to write off debts not collectable up to the value of
£500. Write-off of debts above £500 requires the prior approval of the Chief Finance
Officer.
Cash Security
A lot of small cash amounts are received as parental contributions towards trips and
activities, it is important to record when this income is received, the amount and from whom.
To do this, a pre-numbered receipt can be issued to the payee noting the date, the amount
and what it relates to. Although time consuming, this provides the start of an audit trail
against which discrepancies and queries can be addressed. Otherwise the details including
the date of receipt should be recorded in other formal documentation such as an Income
Cash Book.
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As monies are passed between officers at a school, a record of amounts collected at source
with evidence of transfers between staff needs to be completed. This ensures continuance of
the audit trail and protects staff handling monies, as the person receiving the monies can
check the amount before signing to confirm the record is accurate and the income received
is complete.
The securest place for school income is the bank, and so all monies should be banked
promptly.
Separation of Duties
The Wiltshire Schools Finance Manual states that officers who receive money on behalf of
the Council have to keep an accurate and chronological account of all monies received.
Further, a second officer, who is not collecting and banking the monies received, should
identify and record the income due to the school. For example, if the Finance Officer is
recording income due in FMS and the monies that are received, then the Admin Officer
should collect and record the monies in the bank paying-in book, write a receipt and /or
maintain other formal documentation.
In some smaller schools, such separation of duties may not be practicable, but the Head
Teacher should seek to achieve such separation wherever possible, and ensure that two
officers are party to the income receipting, recording and banking process. For example, this
can be achieved by delegating responsibility for overseeing the process to the Deputy Head
Teacher.
Banking of Income
It is good practice to bank income every week. However, this may not be practical or a good
use of resources depending on the distance to the school’s bank, the availability of staff, the
time it takes and amount of receipts collected at a given time. The frequency of banking
income should therefore be measured to reflect the risk involved. Therefore, if large sums of
income are due and parents tend to pay in cash, the frequency of banking should increase to
reflect this.
As a minimum, schools should observe the requirements of their insurance policy which
specifies the maximum amounts covered; this will depend on whether in cash or cheque,
and where monies are held. No school should hold monies which have a value in excess of
their insurance cover; any theft or loss of monies at this time would not be covered and
result in an unrecoverable loss. Also, the greater the amount of income that is retained at the
school then the greater the potential loss should a loss of income or theft occur.
All income should be held in a safe or secure lockable cabinet at all times following receipt
and processing, whilst awaiting transfer to the bank. Key holders should be kept to the
minimum, and be assigned to those with responsibilities for income, including the
Headteacher, with keys retained securely on site.
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All income should be recorded in the bank paying-in book showing the separation between
cheques and cash. Some banks also reflect the two income types in their statements.
Income should not be entered into the bank paying-in book over a number of days or weeks,
as has been found in some schools. An officer, other than the person who completes the
bank paying-in book, should check the entries are correct and enter the income into the
SIMS financial management system. These checks should be evidenced, in the bank
paying-in book, by a date and signature to demonstrate the regularity of the process and that
two officers have been involved.
For smaller schools, where there is only a single finance or admin officer, the Head Teacher
should check the income by reviewing the bank paying-in book, the bank statements and
records entered into the FMS as well as any manual records that are maintained. The Head
Teacher should sign and date one of the documents to demonstrate that this is carried out
regularly, and also the subsequent bank statements to show reconciliation of income
receipted to the bank.
Regular Oversight and Reconciliation of Income
The governing body is responsible for the proper administration of the school’s financial
affairs, as required by the Schools Finance Manual section 1.3. The Head Teacher is
responsible to the governing body for accounting for all income due and cash that is
collected, as described in Keeping Your Balance.
At some schools, the finance or admin officer keeps a record of all income received, which
may be in various forms, for example:

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
Manual system, such as a day book, which shows the amounts received in
chronological order.
Spreadsheet which is periodically printed and signed and dated as an accurate record.
Data base which is provided in the form of the SIMS FMS, although total reliance on the
FMS for recording all income requires diligent data inputting that is carried out as soon
as the income is received; any elapsing of time will affect the audit trail.
In order for the Head Teacher to ensure that all income due has been collected and banked,
the school should budget for all income due against the relevant ledger code/cost centres. A
report from the school’s financial management system can then be used to monitor income
received against expected income. The Head Teacher is then able to reconcile monthly the
sums collected with the sums deposited at the bank.
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APPENDIX 3
INCOME AND BANKING PROCEDURES - EXAMPLE
INTRODUCTION
1.
This document will be distributed to all relevant staff carrying out the functions detailed.
In addition and where appropriate, extracts from one or more of the following documents
will be appended to complete the picture of system procedures and staffing
responsibilities. This is the responsibility of (
), who will maintain a
record of the name of the member of staff, date and details of the documents supplied.



The Wiltshire Scheme for Funding Schools
The Wiltshire Schools Finance Manual
Wiltshire Council Schools VAT Manual
OVERALL RESPONSIBILITIES
2.
The Head Teacher will have overall responsibility for ensuring that all official income is
identified, efficiently collected, properly accounted for, securely stored and promptly
banked.
3.
The Governing Body has responsibility for establishing a charging policy and, when
appropriate, any associated scales of charges, reviewing the policy annually and
minuting that policy. The Head Teacher will submit a report each year to the Governing
Body to enable this review to be carried out.
4.
The Head Teacher has delegated certain responsibilities as defined in this document,
complying with the principles that the member of staff administering an income system
and issuing invoices shall not also be responsible for the receipt of that income.
5.
(
) will have overall responsibility for ensuring VAT is correctly
calculated and added to charges when appropriate, in accordance with the latest VAT
Guide i.e. Wiltshire Council Schools VAT Guide and other advice given. Where there is
uncertainty, (
) will seek guidance from the LEA.
INCOME RECORDS
6.
All official income received or collected locally will be summarised and entered promptly
in an Income Cash Book by (
), who will ensure all income is totalled
and banked in full by (
) as soon as possible. (
) will
be responsible for ensuring the safe custody of all income before banking and that the
sums held do not exceed insurance limits.
7.
The income will be entered in the school’s accounting system by (
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).
8.
Bank paying-in books will be obtained from the school’s banker and controlled by
(
).
9.
(
) is responsible for ensuring that subsidiary income records e.g.
sales books, are in use and are used to record the transactions undertaken.
10. All other income will be passed promptly to (
Income Cash Book and banking by (
) for recording in the
).
DEBTORS ACCOUNTS
11. Payment will normally be required in advance but in circumstances agreed by
(
) invoices will be issued to debtors. These circumstances are:
(
). Prior to extending the credit period through invoicing,
(
) will be responsible for considering whether the prospective debtor
will pay. The credit history of the debtor should be considered.
12. Only the school’s own official numbered invoices and numbered accounts will be used.
These accounts will be controlled by (
), who will not be directly
responsible for the receipt of the payment of the invoices.
13. The copy invoice will be filed by (
).
14. (
) is responsible for the monitoring of all outstanding debts to the
school and sending reminders to the debtor after payment is outstanding for more than
one month.
15. When invoices are paid, they are filed by (
) in invoice number order.
16. If further difficulty is encountered in recovering the income, (
) will
seek the advice of the LEA’s Legal Advisors in the first instance or follow the policy of
the Governing Body in relation to seeking legal advice, taking court action etc. in the
recovery of debts.
WRITE OFFS
17. (
) will be responsible for reporting debts due to the school’s budget
to the Governing Body for write-off approval up to the level stipulated in the Financial
Regulations for Schools. The Wiltshire Schools Finance Manual states ‘Governing
Bodies are able to write off debts to the value of £500’. For further details see section
5.2 of the SFM.
18. (
) will promptly supply the Chief Finance Officer with a copy of the
resolution of the Governing Body that debts have been written off.
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19. For debts over £500, (
) will refer details of the cases to the Chief
Finance Officer for consideration and approval.
LETTINGS
20. (
) produces a report for the Governing Body annually on a review of
the lettings policy and scale of charges for the next year.
21. All lettings will be approved in advance by (
22. The lettings diary is maintained by (
) using the standard form.
).
23. All out of school hours activities will be reported to (
the lettings diary to avoid double bookings.
) for inclusion in
24. (
) will receive provisional bookings and make an entry in the lettings
diary. The booking will be confirmed on receipt of a completed booking form.
25. A pre-numbered official invoice will be promptly raised by (
) and the
invoice number entered in the lettings diary and on the booking form. The copy invoice
will be filed by (
) in the Unpaid Invoice file until paid.
26. When payment is received by (
), the date will be recorded on the
invoice and the invoice filed in invoice number order by (
).
27. The site agent or manager / caretaker/ cleaner in charge will liaise with
(
) weekly on the lettings for the current week.
POSTAL REMITTANCES
28. Provision will be made by (
) for the receipt of remittances by post.
Post opening arrangements should involve the following member(s) of staff - (
and
).
29. Each remittance must be recorded by (
) in a Postal Remittance
Register, recording the date, name of sender, purpose, amount, nature of income and
signature of person opening the post.
30. At the end of the post opening process, the documentation accompanying the
remittances will be endorsed with the amount received by (
) and passed
to (
) who will sign for the income and arrange banking.
31. The associated remittances will be passed by (
for banking.
15
) to (
)
TRANSFERS OF MONEY
32. Any transfers of money belonging or due to the school between one member of staff
and another should be acknowledged by the issue of a receipt or, in appropriate cases,
by signatures in cash accounting records.
33. Cash should not be transferred between staff in the school by internal post systems or
similar means in circumstances where it is not in the personal custody of one member of
staff who has signed for it after checking the amount handed over.
RECEIPTS
34. Official Receipt Books will be obtained and kept securely by (
35. Receipts will be issued by (
such an acknowledgement is required.
).
) at the time income is received, when
36. Any stock of receipt books held in advance of issue to staff will be stored securely by
(
) who will maintain a record of such stocks and the issue of each book.
BANKING OF INCOME
37. All income collected must be banked in total without any deductions. (
) is
responsible for keeping the Income Cash Book and ensuring that bankings take place
regularly or before the insurance limit for the safe is reached if earlier. No personal
cheques are cashed from official income.
38. The paying-in book will be completed by (
), who agrees the total with
the Income Cash Book entry. All income received up to the date of banking will be
deposited intact with the paying in book signed by the person carrying out the banking.
39. All cheques received will be entered in detail on the bank paying-in slip and counterfoil,
showing the amount of each cheque and details of what it relates to.
SECURITY AND RETENTION OF DOCUMENTS
40. (
) will be responsible for ensuring that all documentation, including
bank statements, reconciliations, cheque books and counterfoils, paid cheques and
other bank account records are retained securely.
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