Requirements and Guidelines for Submission of Financial Statements 2013 CGP Application Round
Financial Statement Requirements Schools are required to provide the BGA with a copy of their audited financial statements for the 12 months ending 31 December, 2012. These statements must also include comparative figures for the 12 months ending 31 December 2011. The financial statements must also be signed by the relevant members of the school Board. The BGA receives between 60 80 applications annually so to assist with the timely assessment of all applications, where financial statements have not been provided by 30 April 2013 the school s application may lapse and the school will be contacted if that is the case. Schools must ensure their audited financial statements are received by the BGA by April 30 each year. This may require the school to hold a Board meeting in April to consider the financial statements, and sign them prior to the April 30 lodgement deadline. The BGA stipulates General Purpose Financial Statements are to be submitted with each application to ensure all financial information required for a fair and equitable financial assessment is included. These must be based on Australian Accounting Standards and other mandatory reporting requirements. We understand that some school boards may have historically only prepared Special Purpose Financial Statements so the requirement for General Purpose Financial Statements may represent an additional cost for no perceived benefit. However the quality of financial statements from schools presenting only Special Purpose Financial Statements is quite poor and mostly inadequate for our purposes as each school determines what information it thinks the BGA should see. This often differs markedly from the information we need to see. We also acknowledge that some schools that might be incorporated associations, may come under the control of the NSW Department of Fair Trading and do not have to lodge their financial statements with ASIC nor comply with the Corporations Act with respect to AGM timing, financial statement inclusions or format. However, the majority of schools (80%) are companies limited by guarantee and have much stricter reporting requirements. It isn t equitable to allow a lesser standard of information for a small group of schools, so if your school is in this group, you will need to provide financial statements that comply with the Corporations Act and apply all the measurement and recognition principles, and disclosure requirements of the AASB statements. 2
In summary, if your school intends to apply for a Capital Grant in 2013 and future years, you will need to provide general purpose financial statements to support the application. This requirement was communicated to you in November 2012 so you have had ample time to instruct your auditors of your requirements. We have provided a sample set of general purpose financial statements prepared by Nexia on the BGA website to assist you and your auditors better understand the scope of the required document. These are noted in the first table below: AASB 101: AASB 107: AASB 108: AASB 110: AASB 1031: Presentation of Financial Statements Cash Flow Statements Accounting Policies, Changes in Accounting Estimates and Errors Events after the Balance Sheet Date Materiality The BGA also requires the following additional disclosures in order to ascertain other financial commitments and aspects of the school s operations. These additional AASB statements are noted in the table below. AASB 116: AASB 117: AASB 118: AASB 119: AASB 124: AASB 137: Capital Commitments Leases Revenue Employee Remuneration Related Party Disclosure Provisions, Contingent Liabilities and Contingent Assets Further to AASB 118 (Revenue), the BGA will also require the following items separately disclosed in your accounts in either the Revenue section or in a Separate Note: 3
1. Federal Government recurrent grants (per capita) 2. State Government recurrent grants (per capita) 3. State Government interest subsidy 4. Federal Government targeted grants (eg Language, Literacy/Numeracy & Special Learning Needs, National Partnerships, AGQTP, VET) 5. Federal Government Digital Education Revolution (DER) grants 6. Federal Government Building the Education Revolution (BER) grants (P21, NSP, SLC) 7. Federal Government BGA grants (IOSP, Capital Grants Program, IBIP) 8. State Government BGA grants (Capital Grants Program) 9. Federal Government Trade Training Centre grants (TTC) 10. Federal Government Secure Schools Grants 11. Federal Government National Solar Scheme Grants Other required inclusions and grants may vary from year to year according to new ASIC and AASB announcements. These will be communicated to the schools prior to the application opening date. A checklist has been provided at the end of the document to assist your school board and auditors to comply with the financial data submission requirements. Schools with Multiple Entities Many schools have complicated financial structures with separate accounts for the Primary School, the Secondary School, the Day Care Centre, possibly even a Property Trust. Schools applying for a Capital Grant Program grant must ensure that: 1. the financial data entered in the application aligns with an audited set of financial accounts submitted; 2. details of the nature of operations for each entity must be provided;
3. each set of financial statements is audited. This would entail auditing the subsidiary schools as well as the parent entity; 4. a consolidated set of financial statements is submitted which captures the entire financial operations of the school. Where the consolidated financials include entities that are ineligible for funding # (such as Child Care Centres), a reconciliation must be provided that segments school operations from other ineligible operations. This will facilitate assessment on only those operations relevant to the application; 5. if there are ineligible subsidiaries that make continual losses, you will need to provide evidence that these subsidiaries are not being subsidised by the school operations which are receiving Government funding. # Some schools have students that are not eligible for recurrent Government funding such as pre Kindergarten or overseas students. The Capital Grants program can only assess the application based on the funded students. School Systems and Groups School systems (such as Pared, SDA Conferences, Sydney Anglican Schools Corp, St Philips Christian Schools) must ensure that each school applying for a grant includes a complete set of audited financial statements for that individual school. In addition the BGA requires a consolidated financial statement for the head office that shows central operations income and expenditure. Often the assets or loans for schools that are part of a system are held in a separate Property Trust. This makes an equitable assessment difficult as the application data (for example, with respect to debt/pupil ratios) often doesn t align with the financial statements. If this is the case, the individual school financial statements must include in the Notes to the Financial Statements, details of those assets and liabilities relevant to the applying school, (we suggest including them in the Non Current Assets and Borrowings notes respectively). This will facilitate easy checking with the application data and mitigate the need for follow up documentation or delays in the assessment. Schools with For Profit Parent Companies Some applications are from schools which may be the not for profit subsidiary of a for profit entity. If the school in this arrangement is applying for a grant, the school must submit both the school financial statements and the parent (consolidated) company financial statements. Both sets must be audited to the standards set out above. The school may also need to provide evidence as to why the for profit parent entity (which may be quite profitable), is unable to fund the project for the not for profit school. 5
Schools with land owned by Directors or Related Entities Some schools are situated on land that is owned by a related entity or a corporation comprised of Directors of the school Board. This may occur as the Directors or related entity have contributed funds so that the school could commence. It will also often mean there is a lease for the school site so that those Directors or the related entity can receive a return on that investment. The issue for the BGA is that there is a perceived conflict of interest here as the rent negotiated may be on terms or yields detrimental to the school, and as the school Board and the landlord may be similar, or the related entity can bring to bear significant influence, there may be little debate between the 2 parties over the terms of the lease. If this is the case, the BGA will require from the school the following: 1. a registered lease (where the lease is greater than 3 years); 2. a current valuation of the school property from an accredited external valuer, noting the methodology for valuation and if using an average of recent land sales to justify the dollars per square metre cost, copies of relevant land title documents. The valuation should reflect not just gross value (from land sales) but may need to be reduced to take into account those costs required to be expended to convert the school land into residential lots or some other use, such as: a. Cost of Rezoning b. Infrastructure costs such as Roads, Sewerage, and Electricity c. Cost of Finance d. Profit Risk factor 3. a rationale for the yield premium above the risk free rate (3%) that reflects the risks of leasing to the school. If the school can not adequately support the amount charged for rent to the school, the BGA financial assessment committee may at its discretion, disregard that portion of the rental charge in excess of what it considers reasonable for rental of the school site, and consider that excess amount as additional surplus funds and available to fund the project. Other Related Party Transactions If the school pays management fees or service fees to a related party (such as a parent body), these will need to be substantiated as part of the financial assessment process. To facilitate this, in addition to the application documents referred to elsewhere in this 6
document, you must provide a breakdown of the components of the management fee, including the services provided by the related party, the personnel costs therefore not required by the school, the costs for each position/service and the basis for the costing. Demonstrating Financial Need As the raison d etre for your school s grant application is to provide needed facilities for the start of 2015, the cash flow estimates are based on the calendar years 2012 2015. The premise of the school applying for a grant is that the school is unable to provide the entire funding from their own cash flow and borrowing capacity (which of course must be serviced from surpluses and budgeting). Accordingly, if the school has planned (but not yet contracted) multiple high value construction projects in the future (for example new campuses), it has the discretion to alter the sequencing of the projects to complete the applied for project before the remainder of the projects. In these circumstances, the school will need to provide a comprehensive capex cash flow forecast clearly describing each project and how it will be funded. Please remember that the Capital Grants Program is not one of entitlement, but one of need, and the Capital Grants Financial Assessment Committee will closely scrutinise the forward funding estimates. Borrowing Capacity Many schools make an application for the Capital Grants Program without first discussing with their lender the prospects of obtaining a loan only to find out later the bank is unwilling to lend the amount needed. We strongly recommend you discuss your funding requirements with your bank BEFORE you apply for a grant to avoid delays or possibly forfeiture of the grant funding should the school not be able to secure finance. School Contribution The Commonwealth Administrative Guidelines require the BGA to assess each capital grant program application and consider the level of grant offered using a basic principle of minimising the Commonwealth s contribution. Apart from borrowing (referred to above), most schools will fund their portion of the project cost from either donations or operational cashflow. With respect to the former, we note many schools dramatically overestimate their community s willingness to donate so please be aware the BGA Assessment Committee may require evidence of previous donation levels to support a school contribution with a significant donation included. With respect to the latter, the Financial Assessment Committee reviews the results of the school s forward budgeting estimates to gauge the likely level of free cash flow that could be used for the school s contribution. We note that some schools take very little 7
care with these forward estimates which can sometimes provide results that don t show the school in the best light due to either excessive surpluses or excessive losses. Please be aware it is the Assessment Committee s role to review the information submitted, not to advise you how to prepare budgets. They can only make a determination on the data submitted even if the data presented may be incorrect. We can t stress strongly enough that your school apply appropriate technical resources and expertise to the Capital Grant application to give your school the best chance of achieving a grant. 8
Checklist please ensure all of these items have been addressed in your audited financial statements General Purpose Financial Statements... Directors Report... Director s Names... Director s Credentials and Experience... Short & Long Term Objectives and Strategies... Strategies to Achieve Those Objectives... Number of Meetings (including those Directors attended)... Auditors Independent Declaration... Directors Declaration... Consolidated Statement of Financial Position(AASB 101)... 4 Statement of Comprehensive Income (AASB 101)... Consolidated Statement of Changes in Equity (AASB 101)... Consolidated Statement of Cash Flows (AASB 107)... Notes to the Consolidated Financial Statements... Summary of Accounting Policies... Revenue (AASB 118)... Operating Expenses... Detailed Grants Received... Intangible Assets (AASB 138)... Property, Plant and Equipment (AASB 116)... Leases(AASB 117)... Financial Assets and Liabilities (AASB 7)... Other Current Assets Inventories (AASB 101)... Cash and Cash Equivalents (AASB 7)... Trade Receivables (AASB 101)... Employee Remunerations (AASB119)... Other Current Liabilities Borrowings (AASB 7)...
Trade and Other Payables (AASB 7)... Deferred Income (AASB 7)... Provisions (AASB 101)... Reserves (AASB 101)... Contingent Liabilities (AASB 137)... Capital Committments (AASB 116)... Economic Dependence... Related Party Transactions (AASB 124)... Transactions with Key Management Personnel (AASB 124)... Independent Auditors Report... AIS NSW Block Grant Authority Limited Level 12, 99 York Street Sydney NSW 2000 www.aisnsw.edu.au/fundedprograms/capitalgrants/ David Buley Chief Financial Officer Capital Grants Program Director dbuley@aisnsw.edu.au Wendy Godden Assistant Director Grants Management wgodden@aisnsw.edu.au Nick Evans Projects Officer Grants Management nevans@aisnsw.edu.au Emma Christie Projects Officer Grants Management echristie@aisnsw.edu.au