The Board’s Role in School Budgeting
by Ed Noot, SCSBC Executive Director, and Tim Williams, SCSBC Director of Finance ◊
If you’ve read a book or attended a workshop on board governance, you’ve no doubt heard that fiduciary oversight is an important and inherent board responsibility. Board members are caretakers. They have been entrusted with the school they govern, including the money and property of the school. Board members are trustees who are charged with protecting the school – its mission and vision, its integrity and its financial wellbeing and sustainability. This trust is an integral obligation to all board members, not just the treasurer or finance committee.
At the same time, SCSBC is keen to remind board members that governing is best exercised from the crow’s nest. The metaphor comes from sailing ships before the advent of radar or GPS. The person in the crow’s nest guided the ship with a long view, protecting it from hazards, and charting a course that protected passengers and crew, ensuring they arrive safely at their destination. Boards shouldn’t micromanage the school’s administration staff unless there are problems on board the ship.
How does a school board appropriately exercise its fiduciary responsibility? One way is by establishing an excellent budgeting framework and process.
Q: Why did the accountant have a pencil stuck up his nose?
A: Because he couldn’t budge-it.
School budgeting is no joke. It is often a difficult process, and one that requires appropriate governance oversight. Christian schools have a very tricky situation to manage when they attempt to budget for the coming school year. It is hard to predict how much revenue a school will bring in. Firstly, the number of children that will arrive for school in September is an educated guess that makes projecting tuition revenue difficult. Secondly, the provincial government grant that will be received is usually not a guaranteed figure when schools are setting their budgets.
It gets more complicated yet. Based on these educated guesses regarding income and enrolment, a school then needs to commit to teacher contracts many months in advance of the beginning of the school year, usually around April. This is important for teacher morale and so that the school can hire the very best new teachers as they graduate.
In summary, the dilemma is that schools tend to have relatively fixed budgeted cost structures and their revenue can be a little fuzzy. Any budget agreed to by a board or society in May or June has a 100% probability of being different from the September reality.
How can a board effectively and appropriately engage in the budgeting process? Follow a healthy and timely process, and establish realistic parameters – parameters that move the school to a position of financial health and sustainability.
Best practice in the budgeting process
- Understand your school’s budgeting goals (with a long-term view) and set clear budget parameters for staff and committees.
- SCSBC suggests that your goal should be to achieve an education operational surplus i.e. educational income less expenses should be positive after including depreciation, interest and all school costs. This ensures there is a buffer if some of your projected income doesn’t materialize and ensures funds are set aside to replace equipment and buildings.
- If you are not able to achieve this ideal scenario in the short run, then what is your timeline to get there, and what concrete steps will you take on a year by year basis to move your school towards a position of financial health?
- SCSBC suggests that schools never use donations or fundraising to balance the school budget. Ideally, these funds should be set aside for strategic purposes.
- Set a clear budget development timeline and monitor progress.
- Who is responsible for what and when?
- At which board and committee meetings during the year will you expect to discuss budget matters such as tuition increases, projected enrollment, staff wage increases, capital asset replacement?
- Start the process early. Ideally, a January board meeting should have an early draft of the next school year’s budget. A January board meeting should be deciding what the tuition fee increase will be for the next school year so that potential new parents have some certainty regarding what tuition fees they will be paying. Your development staff will really appreciate this. Tuition fee increases are a reality because expenses rise every year. Also at this meeting, the board should be reviewing SCSBC’s recommendations for staff wage increases.
- Ensure that you also have a capital budget for all the new and expected replacements that will be needed for the next year. Your facility staff, IT staff, athletics staff and others will need to provide input regarding these costs for the next year.
- In March or before, ensure there is a re-enrollment process where the parents provide an early commitment for their children to attend the next year. Clearly, you want to give existing families the first available places for their children and for development staff know how many students they need to recruit in each grade. These early numbers give the board confidence regarding how many teachers to offer contracts to in the next year. It is important for teachers to know as early as possible if their contracts are being renewed. Firstly, it enhances staff morale. Secondly, if a teacher contract is not being renewed due to falling enrollment, it gives the teacher time to look for a new position at another school. Lastly, in a growing school, it allows the board to know how many new teachers to hire.
- In the June society meeting, ensure that your society members understand that any budget being brought to members is actually a draft budget that will need to change in September when more concrete information is known. Also, help your society members and staff to understand the parameters of how the school’s budget is formulated. Transparency is a good thing. Helping everyone understand why it is important for a school to have a healthy surplus every year to build resources to replace assets, pay off debts and allow for growth will provide confidence in your board’s leadership of the school.
- At the September board meeting, ensure that the budget has been updated with accurate student numbers and approve the final budget for the next school year. We also recommend a budget template that provides a projected monthly cash position of the school throughout the year.
- Every month, ensure that your administration team and the board are receiving budget vs actual financial data to confirm that your school is on track financially. This also ensures that the treasurer and directors fulfill their fiduciary responsibility as board members. Board members should ask the reason for variances and should expect an answer from administrators.
As you read this article, your school may have only a few months to set a course for the 2017-18 school budget year. Experience shows that school boards have really only two major variables that can materially influence the budget outcome: firstly, tuition increases and secondly, staff efficiency ratios i.e. student per staff levels. Experience also shows that boards are reluctant to tell parents their fees need to go up, and reluctant to tell administrators their staffing levels need to go down. Therefore, very careful planning is needed if your school is to avoid the “deficit trap.”
SCSBC is happy to assist schools to develop best practices in budgeting.