How can a purchase order process help schools to manage their budgets?

A lot of planning goes into setting the budget for the financial or academic year, so that overall you can set a balanced budget and are able to provide the curriculum you need to and meet the objectives set out in the School Development Plan.   

Once the budgets have been input onto the Financial Management System, how do you keep a track of spend and balances to make sure you do not go over budget and keep within the overall projected net expenditure as agreed by Governors? 

Have a read of the following scenario – does it seem a familiar situation to you? 

Scenario

Question

Teacher ‘B’ would like to order some books for her class at a total cost of £850.   The budget set for Resources is £5,000.     Expenditure to date is showing as £3,750 and there are no other orders entered on the financial management system.     You seem to recall that Teacher ‘A’ verbally requested some resources last week, which you agreed to, but can’t remember the value of the order.  No further details have been submitted.

Do you have enough budget to cover the cost of Teacher ‘B’s’ request?

The answer is, you don’t know. Without having any data from Teacher ‘A,’ you have no idea what the cost of the resources will be and therefore do not know if you are going to overspend in your resources budget. 

But you can put a system in place to ensure that you will have up-to-date balances on your finance system at any given time, and more control of your expenditure by implementing and adhering to the Purchase Order Process. 

The purchase order process is the key, most fundamental process to follow in ordering goods and services for the school.  If followed correctly, it can save time and errors on ordering, whilst ensuring value for money, budgets don’t go overspent, and better control of financial outturn. 

A purchase order is an agreement between the school and a supplier to deliver items as requested, at the price requested.  Once a staff member has identified what they would like to order, they would fill in a form (purchase requisition) and get the expenditure signed off/agreed by the budget holder (which is usually the headteacher).  The Business Manager will then input the purchase order onto the financial management system to record the goods in the relevant cost centre and produce a computerised purchase order number to give to the supplier.  That way it is easier to match to the invoice, if the supplier quotes the purchase order number. 

When the order has been entered onto FMS it will show as a ‘commitment’ to say that x amount of £’s is committed and waiting for delivery.  This will reduce the balance available in that cost centre, along with what has already been spent, to provide a revised balance available in the cost centre. 

The information below runs through what the purchase order process is, the statutory requirements for the process and how to implement the process in your school. 

The Purchase Order Process

Before ordering goods and services for the school, the following procedures should be adhered to: 

• No goods or services should be ordered without the approval or knowledge of the Headteacher, member of the Senior Leadership Team or Business/Finance Manager. 
• Staff should not purchase items for the school using their own credit card or store loyalty card or Amazon account. 
• Staff should not purchase items via email or the internet unless they have the authority within the finance structure of the school. 
• Internet orders should only be placed with reputable companies that use secure transmission of data called SSL, they can provide a VAT invoice, the website should provide supplier details and be UK based. Terms and conditions include the right to cancel the order and arrangements for returns/refunds. 
• All internet orders should follow the purchase order process too. 

Purchase Order 

• Staff should complete a requisition form, including the supplier’s name, description of product, part number, cost per unit and number of items required.  Staff are expected to purchase objectively using catalogues and written quotations to ensure best value for money. 
• The purchase order should be authorised by the Head Teacher or a member of the leadership team with authority to sign orders off. 
• Approved requisition forms should be passed to the Finance/Business manager so that a computerised order number can be generated.  The goods can then be ordered and the purchase order number quoted.  
• The computerised order is attached to the original requisition. 
• No goods or services should be ordered without the approval or knowledge of the Headteacher or Business/Finance Manager. 

Receipt of Goods 

• All goods received should be delivered to the school reception.  The school receptionist or other member of staff will carry out a brief inspection prior to signing for delivery and check the delivery is complete. 
• The delivery note and goods are sent to the person requesting the order, for checking against the order and signature of receipt. 
• Any shortages or defective items in goods supplied must be clearly indicated on the delivery note and discussed with the Finance Officer.  Any goods that need to be returned must only be arranged after prior agreement with the Headteacher. 
• The delivery note is given to the Finance Officer as proof of delivery/supporting paperwork for when the invoice arrives. 

Invoices 

• All purchase invoices are handed immediately to the Finance Officer. The invoice is checked against the original order.  
• The invoice number, date received and initials of the person the invoice is to be sent to for approval is recorded on the computerised printed order by the Finance Officer. If there is a price difference to the original requisition, the Finance Officer identifies the reason (e.g. carriage) and also notes on the invoice for approval.   
• The invoice is sent for approval to the person who raised the order. 
• If there are price differences to the requisition, the School Business Manager is responsible for approving differences up to 10%, prior to payment. The School Business Manager can approve price differences over 10% for energy as these are estimated orders. Any price differences over 10% for other goods or services should be approved by the Headteacher or Deputy Headteacher. 
• No person who has signed an order will also certify the invoice for payment in respect of that order or certify the actual receipt of the goods. Price difference approval is not the same as certifying an invoice for payment. 
• Once the invoice is approved for payment and returned to the Finance Office, the Finance Officer attaches the invoice to the order and files.
• Suppliers’ statements are regularly reconciled to outstanding invoices by the Finance Officer. 
• Where goods received were short or defective in some respect, and this still has not yet been rectified, this must be clearly noted on the invoice by the budget holder or representative so that payment is not made until either a credit note is received or the delivery is put right.  

The above process is a typical Purchase Order Process for any establishment, but you may wish to vary it for your school.  For example, where the ‘invoice is sent for approval to the person who raised the order’ may work for some organisations, staff availability, such as teachers, is limited and there may be delays in signing off the paperwork.  In this case, you may wish to appoint another member of the Senior Leadership Team to sign off invoices.   

As long as you have the segregation of duties all paperwork is checked to support the invoice and a thorough process in place, you can amend the process to suit your school. 

Statutory Requirements

As per the Scheme for Financing Schools, which is an agreement between the Local Authority and maintained schools on the spending of public money, you should adhere to a Purchase Order Process with key requirements as follows: 

Segregation of duties. 

There should be clear designated roles to ensure separation of duties between staff responsible for making buying decisions and making payments. 

The purchase order process should be included in the school’s financial procedure manual with clear details of segregation of duties. 

Procurement 

As per the ‘Scheme for Financing Schools’, schools must abide by the Local Authority’s Financial Regulations and Contract Procedure rules in purchasing, tendering and contracting matters. 

Process by value of goods as follows: 

• Low Value Procurement – For contracts or orders with an estimated value of less than £5,000 at least 3 written quotations must be obtained and full details must be retained at the school. 
• Intermediate Value Procurement – For contracts or orders with an estimated value of between £5,000 and £49,999 at least three written quotations must be obtained and full details be retained at the school. 
• High Value Procurement – For contracts or orders with an estimated value of between £50,000 and up.  Follow tender process. 

Where possible use the Local Authorities approved suppliers and contractors. 

Best value for money is defined as the most advantageous combination of cost, quality and sustainability to meet customer requirements. 

School Financial Value Standard (SFVS).   

There is a key question in the SFVS which asks if you have procedures in place for purchasing goods and services that both meet legal requirements and value for money to ensure you are spending public money appropriately. 

If you ever have an internal audit completed by the Local Authority, they follow the SFVS and will look into your processes. 

Implementing the Purchase Order Process

The key to a robust purchase order process is communicating the process to staff and ensuring there are clear guidelines in place, and it is easy to follow. 

Staff can be put off by adhering to the purchase order process as they think it unnecessary admin time, but it can be introduced as part of lesson planning.  They already will have spent time looking for the products they need, so why not have the purchase order requisition to hand and fill it in at the same time? 

First, you need to decide on the segregation of duties, who will sign off purchase orders, invoices, and the cheques. 

Secondly, you will need a hard copy template of a purchase order requisition.  Your school may already have one, but if not, you can contact your Finance Consultant who can send a template to you. 

Lastly, communicate the process to your staff.  Either email them the process or discuss as part of a staff meeting.  You may wish to print off and put the Purchase Order Process Flowchart in the staffroom, to remind staff of the process to follow and where they can easily access a copy of the Purchase Order Requisition. 

Summary

The Purchase Order Process is a statutory obligation for all schools to ensure public money is spent appropriately, that there is no one person ordering the goods, approving the goods and paying for the goods (segregation of duties), and that the school ensures best value for money when purchasing. 

A streamlined process only works if staff are fully informed of the process and understand their role within it.  It should be communicated to all staff regularly and the Purchase Requisition Form made easily available for them to use. 

In small schools, the main budget holder will be the Headteacher who will monitor the budget and balances regularly.  However, in a larger school the Head may wish to designate a budget to a curriculum lead member, for example the English budget, who would take on the monitoring and responsibility for approving orders for that budget heading.   

Save admin time, delivery costs, and make use of cost savings by bulk ordering.  Try not to allow small item orders every other day or week and ask staff to plan purchases in advance.   

Once the process is in place and staff are used to the procedures, your budgets will be much easier to monitor and manage, which makes decision making for expenditure more accurate.