Funding the Future: Mastering Financial Management in Public Schools

Good financial management is the backbone of educational success. By managing finances well, schools can ensure that essential resources—like modern facilities, up-to-date technology, and skilled teachers—are adequately funded. This is especially important in South Africa, where education is key to future opportunities. Good financial practices help schools operate smoothly, adapt to new challenges, and offer consistent, high-quality education. Conversely, poor management can lead to shortages and lower educational standards.

Effective financial management is founded on transparency, accountability, accuracy, efficiency, and compliance. These principles ensure that every financial transaction is clear, stakeholders can hold the financial managers accountable, financial reports are precise, resources are utilised effectively, and all actions comply with the law.

But who is responsible for ensuring that public schools in South Africa follow good financial management practices? Below, we analyse the legislative requirements, key role players, their responsibilities and the challenges they face.

Structures and Processes for Good Financial Management

The South African Schools Act of 1996 (SASA) sets out stringent financial management protocols to ensure transparency, accountability, and the judicious use of funds. Key roleplayers responsible for implementation, include the School Governing Bodies (SGB), Treasurers, Accounting Officers, Auditors, and Reviewers.

The School Governing Body (SGB) comprises parents, teachers, the principal of the school and community members. The SGB’s responsibilities include overseeing the school’s financial and operational management, approving budgets, ensuring financial accountability, and setting financial policies that guide decisions. The Schools Act provides that the SGB should appoint a member as treasurer to assist with financial responsibilities.

Internal control systems and procedures

The SGB is tasked with implementing and overseeing adequate processes to safeguard the school’s assets, enhance the efficiency of operations, and ensure compliance with financial regulations. These include clear procedures for financial transactions, regular financial reporting, and strict adherence to budgets. This oversight aims to prevent fraud and mismanagement, enhances the accuracy of financial statements, and supports the overall financial health of the school.

Lack of Skills and Financial Literacy

The SASA has no additional guidance on how schools should implement adequate financial processes and prepare financial statements. The biggest obstacle for public schools in South Africa is the lack of in-house capacity for good financial management as SGBs struggle with a significant gap in financial skills and capacity. This often leads to mismanaged resources, unmet educational needs, and the inability to hold school administrations accountable. The problem is aggravated by the lack of funds to source in-house skills.

Audit, review or examination of the financial statements

Section 43 of the SASA outlines the rules for auditing or examining the financial records of public schools. It's mandatory for schools to set aside a specific budget for this purpose. The types of engagements that public schools may undertake as per SASA are:

• Audit: This is a full assurance engagement carried out by a registered auditor from IRBA, focusing on verifying the amounts reported in the financial statements and the transactions behind them.

• Independent Review: This is a limited scope or less comprehensive check that can be performed by a qualified professional, such as a BAP(SA) licensed to perform review engagements. It is performed following the International Standard on Review Engagements (ISRE 2400). CIBA members holding a valid license to perform independent reviews can perform these engagements.

• Financial examination: to be undertaken when an audit or a review is not feasible. It is performed following the International Standard on Related Services (ISRS4400) An examination differs from an audit as it offers less assurance but can still provide important insights into the school’s financial health and the effectiveness of its financial controls. An examination is performed by a qualified accounting officer as per the Close Corporations Act, or a person approved by a Member of the Executive Council.

The independence requirement

An important consideration for public schools is that auditors and reviewers should be independent of the public schools they audit or review. This means they should not get involved in setting up systems or compiling financial information and reports. Their work is limited to verifying the information included in the financial statements. Due to the risks associated with providing assurance, audits and reviews are expensive.

Common Misconceptions Regarding Audit Engagements

It is often believed that an audit is the answer to solve problems such as weak financial management. However, when we look at the work of auditors it is clear that this may not be the case.

1.      Internal controls

Auditors are not specifically mandated to look at systems and internal controls. Financial auditors can opt not to document financial controls as this is, due to the time it requires, not feasible. Evaluating the effectiveness of internal controls is not within the scope of a financial audit.

The audit opinion is based on inspecting documentation relating to financial statement disclosures, i.e., verifying accurate recording of expenses.

Furthermore, the limitation of auditors is that they are not allowed to assist the school in implementing better internal controls. This is due to the independence requirements of the standards.

2.      Fraud and misappropriation

Another common misconception is that auditors will discover fraud and non-compliance. This is incorrect, as auditors have a limited role in identifying and reporting the risk of fraud to management. Although high risk will mean more transactions will be looked at, there is no guarantee that an audit will pick up all fraudulent transactions.

3.      Identifying all non-compliance

Auditors should look at legislative requirements only to the extent that they materially impact the financial statements. Financial regulations prescribe controls, such as approvals and reconciliation etc. However, auditors only look at these to the extent they are deemed material.

4.      Auditors will solve all the problems

There is a general misconception that auditors will identify and resolve all financial issues schools face. This of course is not possible due to the independence requirements for auditors. Even when auditors know what the school needs to do to improve internal controls, they are not responsible nor allowed to assist schools in implementing them. This would require the know-how that must be internal to the public school.

The fact that audit engagements happen after the financial year-end adds to the challenge. Issues identified by auditors will be for the previous year, limiting the ability to  

The Need to Enhance Internal Capacity in Public Schools

Public schools need to build better internal capacity for financial management. Focus should be on recruiting and retaining qualified individuals as treasurers and finance managers, capable of compiling financial statements and establishing robust systems of internal controls. Having skilled personnel will enable schools to manage their resources better, reduce errors and eliminate misstatements. This proactive approach is crucial in cultivating a sustainable framework that supports the ongoing improvement of financial practices in public schools.