Understanding Cyclical Maintenance

Cyclical maintenance in schools refers to the significant property maintenance work that schools do on a regular basis to maintain quality and to prevent small problems becoming larger ones that will become more costly to remediate. The most common example is external painting of school buildings which needs to happen on a regular basis over a period of 7-10 years.  

Schools receive a Property Maintenance Grant from the Ministry as part of their operational funding. As this is paid quarterly, a portion must be set aside each year to build up a fund for large maintenance projects that will need to happen over the next few years. Determining how much funding needs to be set aside each year is where the Cyclical Maintenance Calculation comes in.

This should not be confused with the MoE 10-Year Property Plan (10YPP) funding, which is not part of the operational grant. However, it is now expected that planning for cyclical maintenance will be integrated within the overall 10YPP, even though the Board has to meet these costs. 

The starting point for the calculation is the 10YPP as this identifies the property projects that need to be completed over a 10-year time frame to ensure that school buildings are maintained and meet the learning and teaching needs of the school.  

The calculation spreadsheet is then used to itemise each project with the quoted or estimated costs. The calculation total then becomes a liability in the balance sheet as the provision for cyclical maintenance. The amount of the provision is split annually between current projects, those that will be carried out in the following year, and future or non-current projects. 

The provision made for cyclical maintenance is one of the key areas of focus for the 2021 audit. The auditors are tasked with auditing the reliability of the estimates and assumptions that underpin the calculation. In doing this they need to check that: 

• The 10YPP includes cyclical maintenance projects with a level of detail that matches the descriptions in the calculation. 

• There is alignment between the plan and the calculation. 

• There is evidence to show that the 10YPP has been reviewed by a property expert within the last 3 years. 

• Any painting planned for 2022 is included in the calculation as a current project. 

• There is no duplication or overlap between the cyclical maintenance calculation and 5 Year Agreement (5YA) funding held for capital works projects. If there is, then the project should remain in the calculation but with a nil cost.  

• School managers and the Board have reviewed the calculation with consideration given to possible/likely increases to the projected cost of future projects.  

• The calculation has been approved by the Board.  

What is a 'safe' level of working capital for your school?

That depends! There are some helpful formulae which you can use to as a quick safety check. Some sources say at least $1,000 per student’ which is certainly helpful. Or you could check the ratio between your debts and assets.

It’s a good idea to hold at least twice the amount you owe - double the amount you need to pay all your debts should they all come in a once.

Why hold working capital?

• To ensure the school can respond to any foreseen risks, such as gradual roll drop or deliberate overstaffing,

• To allow for a safety margin respond strategically to any unforeseen financial events – such as a long run of staff sickness, sudden roll drop, or major staffing liability issues,

• To give the board the capacity to invest and develop the school in areas where alternative funding is not available or not enough (e.g., Shade3 sails).

We are working with some Boards and Principals to help build a shared understanding  about the safe level for their school. Once the Board has  agreed a minimum ‘safe’ level,  then it becomes easier to plan,  either to build their working capital up  to a safer level or to  know how much they can use for new projects.

Some  schools might have a good margin of working capital to use for  new projects, but not enough for a ‘big ticket item’ in which case they might adopt a strategy to grow the working capital over the medium term, whilst bearing in mind the importance of maximising alternative finding streams for property projects.  

Recently we peer reviewed some business cases for Boards to given them confidence about their strategy to use available levels for working capital over the medium term. We believe that many schools benefit from expert strategic advice and assurance beyond simple financial  services, the reason so many of our accountants are Chartered.

To lease or purchase . . . . . . . that is the question

Is it better to buy equipment outright or to lease it?

What are the factors that need to be considered?

Questions for reflection include:

• How much cash do you have on hand?

  If the school has healthy working capital, then it might be worth using some of it to purchase assets outright -  and vice versa. Leases can be good  a way of providing quality learning experiences whilst working away from a working capital deficit position.

•  Does the school usually get long life from the assets in question?

  Most schools do, but if the assets – especially chrome books and  iPads – tend to be damaged, lost or potentially  vulnerable to theft, then a lease arrangement might be indicated.

•  How many leases are too many?  

  Does the school have a lot of other leases? The MOE has a guidance tool which can be helpful. It considers and compares the cost of leasing vs buying over time. The tool can be downloaded here. The MoE borrowing limit is 10% of the annual Ops Grant, though most schools are well within this. 

•  Is depreciation also a factor?

  For instance, if the school purchased 100 iPads ( about $100,000 ) at the same time, then they would then all be depreciated off the Asset register at the same time with a consequential increase in depreciation allowances. It can be helpful to purchase significant IT assets in batches over the medium term.  

• Is there a clear link to learning outcomes in the strategic plan?

  Some suggestion of likely impact can be very helpful, especially at audit time.

•  Does the Board have any preferences or policy about lease commitments? 

  This is another area where the expertise, assurance and advice of a Chartered Accountant can be very helpful.

Welcome Paul and Julian

We are delighted to welcome Paul Wright to Edtech.  Paul joins us as our new Tumuaki/CEO working alongside Jeff Stirling. 

As a very experienced principal and an Edtech client for many years, Paul brings a fresh customer perspective to the company and a wide network of relationships within the sector. He understands that where school finances are concerned, surprise is not a wonderful thing and is keen to extend our advisory services for principals and finance officers.

Paul will be out and about in the coming weeks and is really looking forward to meeting with our client schools.

This term we also welcomed Julian Austin. Julian is an experienced business manager with an extensive background in accounting, administration and operations in both private and public sector organisations.  He has a depth of understanding in all aspects of school finances - from planning, execution and management as long-serving Business Manager at Pukekohe High School, through to oversight and governance responsibilities in his 15 years as Board Chair of his local primary schools.

Hubdoc now included in your Xero subscription

Term 2 in distance mode is underway this week and we know that this is an immensely challenging time for all schools. One small piece of good news is that Hubdoc, Xero’s automated data processing app, is now included in your Xero subscription.

Hubdoc is a great productivity tool. It makes it easy to get your bills and receipts into Xero by sending them directly to your personal Hubdoc email address, by drag-and-drop from your desktop  or by scanning them from the mobile app. Once uploaded the data is automatically extracted and the transaction published to Xero. Transactions are accurately categorised to make it easy to match them with your bank feed in Xero.

Not only does Hubdoc reduce data entry and processing time significantly, it also stores copies of the original documents in one secure location so that they can be easily viewed for future reference and audit purposes. It can also push copies to a connected cloud platform if required so there is no longer any need to keep paper copies on file.

For familiarisation, Xero Central has a modules to help you put Hubdoc into practice and an introductory webinar next scheduled to run on 22 April. Edtech also offers a training module if you would prefer one-to-one guidance.

Now that cost is no longer a barrier we strongly encourage all our Xero clients to proceed with implementation. Set up is a simple process – just let your consultant know that you would like to go ahead and they will action this for you.

COVID-19 response

In response to the COVID-19 outbreak, our staff are following Ministry of Health guidelines. They are aware of, and taking, the necessary hygiene precautions.

Should a staff member become unwell or know they have been in contact with anyone who has tested positive for the virus, they will stay home and self-isolate for the required period of time.

It is also possible that movements of personnel between schools may add an extra element of risk. If any of our staff are concerned that the nature of their role places them at greater risk of exposure, their request to work from home will be granted. If, for similar reasons, schools place restrictions on visitors, our staff will understand.

Regardless of the circumstances, all Edtech staff are able to work remotely online from either our offices or from home. We can therefore provide assurance that there will be no impact on your accounting processes and no loss of continuity should we be unable to maintain our regular schedule of visits.

A great day at the Xero Roadshow

The Xero NZ Roadshow is in town and last week a group of Edtech staff headed to the the Manukau City Events Centre to hear first hand about the latest news and updates.

Key takes for us were:

• How Xero is capitalising on artificial intelligence to make things simple, seamless and smarter.

• The latest updates to the platform.

• The features progressively being added to the mobile app.

• Xero’s new online learning platform which consolidates all their education resources in one place helping both us as advisors and you as clients to become more confident and knowledgeable.

Don’t forget to check out the seminars and workshops on our website if you would like our help to build your confidence with Xero.

Welcome Susie and Tim

We are delighted to welcome Susie Lo and Tim Merriott to the Edtech team.

Susie joined us at the end of June when her young son started school. She is an experienced accountant who has worked in chartered and non-chartered accounting firms for many years. Susie has a Bachelor in Business from Auckland University of Technology and is Xero certified. As a busy working mum Susie continues to give back to the community in her role as treasurer for the Central Auckland Parents Centre.

Tim is a Chartered Accountant with an MBA from Southern Cross University in Australia. During his career Tim has been responsible for financial management and planning at the Faculty of Health Science at Auckland University, has worked for various local authorities in London and southern England, and held positions in the corporate sector in Auckland. Tim has had a hands-on role raising his two sons and has used his accounting expertise to contribute much in a volunteer capacity to Mangere Bridge School and the Scouts association.

Join our Free Trial

Receipt Bank is a wonderful productivity tool. It integrates directly with Xero to create an end-to-end bookkeeping solution.

Just send your receipts, bills and invoices to your personal Receipt Bank email address or scan them with the handy mobile app and publish them to Xero in one click. The data syncs with your Xero Chart of Accounts and pushes the extracted information to your Purchase Ledger or Bank Account for effortless reconciliation.

Not only does receipt bank reduce data entry time, every creditor transaction has a PDF copy of the authorised invoice attached for future reference and audit purposes. These can then be easily accessed by school staff, your Edtech consultant and the auditors.

If you are using Xero and would like to trial Receipt Bank at no cost for 2 months just let your consultant know or drop us an email to enquiries@edtech.co.nz .