Financial Control and

Monitoring
Prof. ENRICO M. DALANGIN, Ph.D.
Course Facilitator
Discussion Question:
• Why is a robust financial control and monitoring
system fundamental to the effective governance and
management of educational institutions? How does it
impact the achievement of educational goals and
maintain public trust?
The Financial Control Framework
• The budget is a plan for expenditure and how it will be
financed, which should be informed by the relationship
between resource use and achieving the aims and objectives
of the school or college.
• The next stage of the budget cycle: implementation.
This requires proper financial control and monitoring of the
budget at regular intervals through the year.
The Financial Control Framework (cont’d.)
These processes are essential, not only to ensure that the
budget is neither over- nor underspent, but also that those
who are responsible for managing the budget can be held
accountable for its proper and efficient use.
At a minimum, accountancy procedures and accountability
processes must ensure probity (i.e., that the budget is not
subject to ill-considered decisions or, at worst, fraudulent
use).
This requires a clear financial control framework.
Discussion Question:
• How does a well-defined financial control framework
contribute to transparency, accountability, and
ethical conduct in educational resource
management, and what are the potential
consequences of its absence?
Key Elements of a Financial Control Framework (Based
on DfES Guidance)
Financial management information provided to governors and
staff meets their needs by being relevant, accurate, timely,
and user-friendly.
The school provides the local education authority with
accurate and up-to-date information in accordance with the
LEA's needs.
The school complies with consistent financial reporting
requirements on a timely basis.
Key Elements of a Financial Control Framework (Based
on DfES Guidance) (cont’d.)

The school has up-to-date, documented, and approved

financial regulations that are implemented consistently.
The school has up-to-date, documented, and approved
detailed financial procedures that are tailored to the
school's needs and implemented consistently in practice.
The school maintains proper accounting records throughout
the year.
The governors and staff have evidence that there is effective control over:
• Financial management systems

• Income received

• Payroll

• Purchasing

• The banking system

• Petty cash holdings and payments

• Taxation system

• Voluntary funds

• The school's assets

Discussion Question:

• Why are each of these elements crucial for

maintaining sound financial health and effective
resource allocation in an educational institution, and
how do they collectively contribute to probity?
Budget Implementation and Challenges
At the end of each financial year, when the final income and
expenditure figures have been produced, there is an opportunity
to see whether planning has been effective and whether the
budget has been used as a management tool.
The budget is a statement of intent, but over time it is possible
that changes are made and that resource purchasing is not
undertaken according to the plans.
There can be a variety of reasons for this, including:
Differences between the estimated and the actual price of
resources
Budget Implementation and Challenges (cont’d.)
Last-minute decisions to purchase items that have now
become essential
Response to external pressures (for example, from health and
safety inspectors)
Pragmatic responses to internal pressures (commonly called
crisis management!)
The reasons for changing a budget plan can all be valid.
Discussion Question:

• How can educational institutions develop robust

budget implementation strategies that allow for
necessary adjustments while maintaining overall
financial control and accountability?
Balancing Flexibility and Control
There is both a danger of too easily abandoning plans and failing to
keep the budget balanced, on the one hand, and, on the other, sticking
too rigidly to out-of-date plans because, as one headteacher
commented, 'We must recognize the sanctity of the budget'.
Holding to budget proposals in the light of changed circumstances can
actually inhibit the overall aim of making the best use of a school's or
college's resources for the benefit of students' learning.
Flexibility is possible, and desirable, providing that there is openness
and agreement between those who are responsible for resource
management and that the decisions contribute to using the budget
efficiently.
Discussion Question:

• What are the key factors that educational leaders

should consider when determining the appropriate
level of flexibility in budget management to optimize
resource allocation and student outcomes?
Financial Control and Monitoring: Addressing the Gap
Most management authorities consider that there will be
some variation because the budget is essentially forecast at
least a few months before implementation, and revenues and
costs are subject meanwhile to change.
Nevertheless, the difference between what is intended and
what actually transpires should be investigated and
explained.
In this way, mismanagement can be controlled and steps taken
to try to make the budget a more realistic document to assist
planning, implementation, and review in future years.
Financial Control and Monitoring: Addressing the Gap
(cont’d.)
This is not just at one level. Anthony and Herzlinger (1989)
suggest that there are differing levels of management
planning and management control.
Strategic planning and control is concerned with the goals of
the organization and the broad strategies for attaining them.
Management planning or control puts these into practice at a
middle level, while operational control applies to the day-to-
day issues, routines, and processes.
Discussion Question:

• How does understanding the different levels of

management planning and control contribute to more
effective financial oversight and resource allocation in
educational institutions?
Levels of Budget Concerns (Examples)
Thinking back to budget preparation, the strategic level would be a stated
objective, such as improving boys' attainment compared with that of girls.
The management level would be concerned to develop departmental plans
to meet these aims, and the operational level would be concerned with
securing the resources through ordering, checking, and adding goods to
inventories.
In strategic terms, there will be concerns as to whether the budget, as
planned, has been effective in securing the aims and objectives of the school
or college.
This may be judged variously, but requires consideration of whether value for
money, efficiency, and effectiveness have been achieved through resource
use.
Levels of Budget Concerns (Examples) (cont’d.)

The budget also exists at a functional level - operational control - to

ensure that all the elements within the organization work within an
overall plan and do not make purchasing decisions at any level that
would inhibit organizational effectiveness.
At its simplest, and as part of operational control, there may be
concerns that the financial resources have been misappropriated either
by accident or design.
If there is concern for the probity of the system, it may be that the
system requires tightening.
Discussion Question:

• How can educational institutions ensure that financial

controls are implemented and monitored effectively
at each level of the organization to safeguard
resources and promote accountability?
Probity and Mismanagement: Examples
The public press is always ready to share the horror reports of
misappropriated funds.
In a UK newspaper report in 2019, a governor of a large school was found to
have purchased services from a relative of Mr. X costing £800 during 2015-
16, which were not disclosed in financial statements.
The report also says the chief finance officer was receiving an annual
payment of £22,600 referred to as an honorarium - a payment for
professional services rendered nominally without charge - approved by Mr. X
and in breach of the trust's pay and appraisal policy.
Value for money and other potential irregularities were found. According to
the report, the trust spent more than £42,000 with a sports therapy and
training contractor.
Probity and Mismanagement: Examples (cont’d.)
Staff could use services without any authorization and the costs were unknown
until the supplier provided an invoice.

However, probity has also been subject to more detailed research scrutiny.

Rafindadi and Ogidan (2018: 55) as part of an investigation into misused public
funds in Nigeria commented: "The study discovered that
corruption/embezzlement, poor public finance management, misplacement of
priority and lack of accountability contribute a lot to the extent of public sector
decay."

The other enumerated factors: bad leadership, institutional problem, political

instability, staff absenteeism and late coming to work, abuse of public property,
leaking and/or abuse of government information and lack of political will, also
account for the extent of the public sector decay.
Discussion Question:

• What are the various forms that financial

mismanagement and corruption can take in
educational institutions, and what are the systemic
factors that contribute to their occurrence?
Guidance for Governing Bodies (from the
National Audit Office)
Guidance to the governing bodies of all English schools asks:
Do the school leaders and governors collectively have the financial
management skills needed to manage budgets that extend over several
years?
Do staff and governors have a shared understanding of their financial
management roles and responsibilities?
Does the school have a realistic and affordable yearly budget that is
consistent with longer-term financial plans and development plans?
Guidance for Governing Bodies (from the
National Audit Office) (cont’d.)
Do governors provide effective challenge where overspending or
excessive underspending is carried forward into future years?
Does the school keep proper accounting records through the year,
and meet the Financial Management Standard in Schools
(FMSIS)?
Does the governing body compare the school's financial
performance with that of similar schools locally and nationally?
(NAO, 2013: 8).
Discussion Question:

• How can governing bodies ensure that they possess

the necessary skills and knowledge to effectively
oversee the financial management of educational
institutions, and what mechanisms are in place to
support their ongoing development?
Financial Control: Monitoring vs. Evaluation
There are two elements to financial control. Although the phrase 'monitoring and
evaluation' is used fairly readily, it is important to distinguish between the two.
Monitoring is a more limited activity than evaluation and involves checking that
what was planned has actually occurred.
Evaluation is a broader and more demanding activity that requires judgements to
be made about the value of resource expenditure and of the activities to the
organization or other stakeholders.
Evaluation of the budget is the subject of Chapter 8: here we concentrate on
monitoring the budget.
Monitoring is undertaken through regular checks of the intended expenditure at a
stage in the year under any subjective heading and the actual expenditure at that
time.
Financial Control: Monitoring vs. Evaluation
(cont’d.)
In order to monitor properly, it is first necessary to profile the budget.
Profiling means entering commitments to spend in each month as they are likely to
occur.
Hence heating costs will be larger in winter than in summer, whereas the salary bill
will be anticipated to be the same per month until the month when annual
increments are due.
Having undertaken a proper profile, it is possible to examine discrepancies between
planned and actual expenditure (where the latter includes commitments to
spend).
Discussion Question:

• What are the key distinctions between financial

monitoring and evaluation, and how do these
processes contribute to effective financial control and
decision-making in educational institutions?
Discrepancies in Expenditure: Causes
Where discrepancies occur, they may be due to:
Incorrect 'posting' of payments by wrongly entering data;
A mismatch between order and payment so that the payment is posted
to a later period or to the wrong budget code;
A failure to order in accordance with the budget, and
An overspend related to cost increases or purchasing greater quantities
than planned.
The answer to the question of mismatch is indicative of the need for
tighter management of the budget.
Discussion Question:

• What are the most common causes of discrepancies in

expenditure in educational institutions, and what
internal control measures can be implemented to
prevent or mitigate them?
Supportive Data for Monitoring
There is an increasing amount of supportive data that can help
schools and colleges to understand fluctuations shown in
monitoring.
These include:
• The use of spreadsheets or commercial programs to date orders,
amount, invoice total, and payment dates;
• Monitoring cash collection and banking procedures;
• Tracking the progress of budgetary intentions (for example, in
staff advertising);
Supportive Data for Monitoring (cont’d.)

• Noting over- and under-use of resources to overcome waste,

and
• The use of unit costing for comparable outcomes (for example,
does one examination pass in history cost more or less than one
in geography?)
The concept of economy can be relevant to financial monitoring
and used as a management control because it is about making
sure that the purchasing and use of resources is done at least cost,
ideally for given quality.
Despite the best of intentions, this can go wrong.
Discussion Question:

• How can educational institutions effectively utilize

data and technology to enhance the accuracy and
efficiency of budget monitoring, and how can the
concept of "economy" be integrated into these
practices?
Avoiding Poor Decisions: Case Study
During the last 10 years of the twentieth century, many English schools
became self-governing and were totally responsible for using the funds
paid directly by the government.
They are, however, regulated - via instruments of government,
including those for finance.
Inexperience and failure to follow proper procedures meant that some
schools encountered problems because they did not understand
commercial practice.
One such school had problems with a flat roof over its gymnasium.
Avoiding Poor Decisions: Case Study (cont’d.)
One of the governors spoke to a friend of his who had a small
business repairing flat garage roofs and he agreed to undertake
the work on the gymnasium.
The problems, however, were greater than had been anticipated,
the scale of the operation was much larger than the contractor
had envisaged and the workers were unused to the techniques
needed for such a large area of repair.
In the event, the roof collapsed, leaving the school to find a much
greater amount of money than had originally been set aside for
the work and the budget for the coming three years was adversely
affected.
Discussion Question:

• What lessons can be learned from the case study

about the importance of adhering to proper
procedures and seeking appropriate expertise in
financial decision-making within educational
institutions?
Schools with good monitoring systems will ensure that orders for
goods are only placed after the robustness of materials has been
checked to ensure that no better quality could be obtained for the
same price.
There are problems where the curriculum is centralized to the
extent that specified textbooks are required with no scope for
competitive purchases, but many school materials can be subject
to competitive tendering to ensure the best value for money.
That said, there are opportunity costs involved - schools with
purchasing committees sometimes spend long hours considering
alternative suppliers and specifications for only minimal
improvements in quality for price.
Centralized purchasing systems or consortia of schools may
overcome these problems because they:
Are more likely to have specialist knowledge of producers and
products
Are more likely to have the advantages of large-scale
purchasing
Can more readily pursue a cause when goods do not come up
to expectations.
So far it is clear that economy is best achieved in the purchase of goods, but
there are similar advantages in pursuing economy in purchasing services.
In attempts to secure better value for money some countries require that
services are put out to tender and then judged according to the
specifications given in the tender document.
School cleaning, catering and maintenance are typical examples, but
enhanced entrepreneurialism has led to supply staff to cover for absent
teachers and advisory services to be similarly organized.
In some situations schools' ability to search for best value service contracts
can be severely limited as in the case of English schools subject to PFI
(private finance initiative) contracts that include services over which the
school has no control.
Discussion Question:

• What are the advantages and disadvantages of

centralized purchasing systems for educational
resources, and how can institutions optimize their
purchasing practices to ensure value for money?
Procedures and Processes for Financial Control
As we have already said, financial control is essential to ensure that there is no
mismanagement of resources.
This requires probity, a combination of transparency and administrative practice that can
track how and where resources have been used.
Whatever the criteria for the relationship between resources and outcomes, there is a
requirement that the funds are managed in the right way.
Operational financial management is concerned with ensuring that money allocated in the
budget is properly spent on authorized purchases.
It also endeavours to monitor the implementation of spending plans according to the
budget or, with good reason, as a deviation from the budget.
Financial control is shown in the following areas of administration:
Purchasing goods and contracting services
Procedures and Processes for Financial Control (cont’d.)
Banking funds paid into and by the school or college
Managing the payroll for all employees
Security of assets
Maintaining petty cash accounts
Maintaining voluntary funds
Insurance matters
Increasingly, ensuring data security to prevent the misuse of
information.
Discussion Question:

• What are the key procedures and processes that

educational institutions should implement to ensure
robust financial control and prevent mismanagement
of resources across various administrative areas?
Virement
One method of financial control used by some education authorities is to make it
impossible or difficult to change the amount spent in the course of the year in each
budget line from the amount planned in the school budget at the beginning of the
financial year.

The ability to switch money from one budget line, for example for heating, to
another, say stationery, is called virement.

While forbidding virement enhances control, it does so at the expense of efficiency

and effectiveness.

So if a school ends up spending less than originally planned on heating, it cannot

switch the savings to spend more on, say, stationery.
Virement (cont’d.)
In some systems the unspent money is returned to the funding
authority, as noted in field notes following research in Azerbaijan.
In the Pakistani province of Punjab, virement is permitted but requires
authorization by the assistant education officer after a quarterly
monitoring meeting and the submission of a revised school-based
action plan.
In contrast, in England schools are free to vire money from one budget
line to another within the total of budget planned expenditure.
Virement (cont’d.)
Although it is assumed in countries with overall low levels of corruption
that all those involved in education are of the highest moral character,
even in these countries financial mismanagement occurs on occasion in
schools and colleges.
This may not be a deliberate act but could be the result of a failure to
check details, carelessness in putting money into the office or a bank,
or the use of 'short cuts' that appear to be cheaper than the
recommended purchasing procedure.
It also arises from deliberate fraud by employees, usually the financial
administrator or headteacher.
Virement (cont’d.)
Problems may also arise because of the complexity of the
organization.
Knight (1993) pointed out that the growth of self-
management has increased the opportunity for
mismanagement through:
Enhanced opportunity for fraud because of the greater size of
locally managed financial resources
Virement (cont’d.)
Minimizing of audit controls in schools in order to lower the
overhead costs of administration
Decentralizing of functions to cost centers makes separation of
duties more difficult to achieve in a one-person subject
department, for example, the same person deals with ordering
and receiving goods
Local processing of orders and payments may not be noted by
central controls, especially where administrators are under great
pressure.
Discussion Question:

• What are the advantages and disadvantages of

different virement policies in educational institutions,
and how do these policies impact financial control and
flexibility?
Examples of Financial Mismanagement
In a report on the opportunities for financial mismanagement in Texas, auditors
noted that:
Goods were being ordered from 'friendly' suppliers who were then making a
payment to the head;
That students were paying bribes to teachers to ensure good marks for project
work;
That payments were being made to headteachers of schools that were perceived to
be 'good' to ensure admission, and
That school equipment was being hired out, or even sold off, once it had been
delivered to the school (Penton Media, 2007).
Petty Cash
Sometimes it is simpler to make small purchases with petty cash,
the fund from which minor payments are made to teaching and
administrative staff.
Guidance points to the need for a robust control system because
petty cash is a portable and attractive asset and subject to
fraudulent misuse.
Fraud is not, however, the only risk associated with petty cash.
Petty Cash (cont’d.)
The major potential risks associated with the use of
petty cash are that:
Normal payment procedures may be bypassed
Duplicate payments may be made
It is used for the cashing of personal cheques
It may be stolen.
Petty Cash (cont’d.)
Key control should therefore be in place covering the:
• Authorization of the use of petty cash
• Recording of petty cash transactions
• Secure storage of petty cash.
Petty Cash (cont’d.)
As with other payments and transactions, those involving petty
cash should be subject to the same principles of probity and
accountability.
One person should not be responsible for all aspects of
administration of petty cash, such as authorization of usage,
making payments, reconciliation of the petty cash account, etc.: 'It
is also important that the responsibilities and authorization limits
of those with delegated responsibility for the petty cash account
are clear and known by all school staff.' (Audit Commission and
DfES 2000: 6).
Discussion Question:

• What are the specific risks associated with petty cash

in educational institutions, and what internal controls
are essential to mitigate these risks and ensure
accountability?