You might ask why it is important that my finance function is mature and what does that even mean?

The governance and financial sustainability requirements placed on schools is forever increasing in seeking to achieve more with less within an increasingly costly and complex environment. These pressures arise from external as well as internal influences including from funding arrangements, legislative instruments and the community of members and parents. This is reflected in financial pressures to keep fee increases low, reductions in Government funding in real terms and upwards pressure from community and educators to have the newest and latest technology and infrastructure as well as highly skilled staff.

All of makes it critical that the finance function remains relevant, efficient and effective to ensure that the school can meet its financial requirements both now and in the future. In addition today's school leaders and boards are expecting finance functions to deliver greater business value as well as partner with them in setting and managing strategy. Only mature finance functions will be able to deliver on these high expectations whilst remaining cost effective and efficient.

How can a Business Manager / Finance Committee assess the financial maturity of its finance function?

The following financial maturity model can be used to help assess how mature you finance function is.

Financial Maturity Model
  • Strong analytical capabilities and tools
  • Long term financial planning capabilities
  • Financial strategy linked to overall School strategy
  • Proactive forward looking finance function
  • Participates in overall school strategy
  • Lead indicators monitored to assist with financial management

  • Integrated financial systems
  • End-to-end process designs
  • Analytical skills within finance function
  • Standardised Measures and regular reporting
  • Key Performance Indicators agreed and measured
  • Integrated readily accessible data
  • Annual financial plan completed
  • Streamlined management processes
  • Focused on transactional processes and controls
  • Chart of accounts not standardised and optimised
  • Significant reconciliations and manual journal entry
  • Systems not integrated
  • No finance strategy
  • Bookkeeping activities
  • Basic non-integrated and / or manual systems and processes
  • Reconciliation focused
  • Limited reporting, mostly annually

What are the key issues we have noted in finance functions not considered high on the maturity scale?

Strategy

  • No or ineffective finance strategy
  • Finance strategy not linked to overall school strategy
  • No or ineffective management of financial risks

Information Technology (IT)

  • Outdated and/ or underutilised IT systems
  • Lack of systems integration
  • Poor data quality

Reporting

  • No or irregular reporting
  • Poor quality or incomplete information provided to the board
  • No key performance indicators set and measured

Policy

  • Lack of standardised effective policies
  • Policies not implemented and complied with

Processes

  • Inefficient processes
  • Inconsistent application of processes
  • Lack of processes design

Staffing

  • Staff skills gap
  • Ineffective organisational design

Business Managers need comprehensive approaches to managing core finance activities to address the growing needs and expectations of the school. Answering the following questions can help determine how well positioned your finance function is to becoming an effective strategic partner;

  • Is your finance function able to reliably produce timely, accurate and relevant financial performance information for management and the board (without stress)?
  • Does your school senior team utilise financial analysis undertaken by the finance function to assist them in making critical decisions?
  • Are you spending significantly more time on transactional activities as compared to financial analysis, benchmark data and strategy?
  • Do you benchmark your school against other schools and how does your costing structures compare and do you clearly understand the differences and their drivers?
  • Are you confident your processes, systems and controls are adequate to meet current and future business requirements?
  • Do you routinely make large numbers of journal entries after the general ledger is closed?
  • Do you spend significant time debating the reliability and integrity of your financial records with your external auditor?
  • Is your board reporting linked to strategy? Do you spend most of your time at finance committee / board meetings discussing these strategic aspects?
  • Is risk management robust enough across the school?

How to improve your finance function's maturity?

So if your finance function is not currently mature the following key pointers will assist you in transforming your finance function into a high performing business partner:

  • Create the right finance structure
  • Build the right team
  • Complete a finance strategy linked to your school's strategy
  • Complete a financial risk assessment
  • Implement a concise yet sufficient financial policy manual
  • Mandate use of a single financial system in the school and integrate all critical processes
    • Look at options to automate and link processes related to all transaction types; examples might include employee leave activity, receipts from parents, payments and monthly reporting.
  • Create a five/ten year financial forecast that is linked to school strategy and master plans. Stress test this forecast through several scenarios including:
    • Changes in student numbers and fees
    • Different capital projects and timing of projects
    • Different funding options through loans or investments.
  • Link annual budget back to forecast to ensure school remains financially sustainable.
  • Create annual, quarterly and monthly financial targets and report against those targets.

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