Policy 19	Review Date	March 2009
Reserves Policy

 

Introduction

 

 

The Cottage is organised and run as a `not for profit’ setting and consequently is bound by the rules of the charity commission. This means that any profits are directed back into the setting. Making a loss may jeopardise the long term viability of the setting and mean it may have to close if action is not taken to remedy the loss by prudent financial planning.

 

 

 

In practice, the committee should seek to steer a middle ground between not making a loss and not making unjustified profit. The history of the setting is one of affordable childcare and so a small surplus each year gives the confidence to offer pay rises, add a little to reserves and improve the equipment and fabric of the building. The Financial Year runs from 1^st Sept to 31^st August and it is important that the committee aims to keep expenditure in the correct financial year and not defer expenditure or income into the next year as this makes it difficult to make accurate financial comparisons between each year.

 

 

 

Each year the treasurer arranges to have our accounts audited and then submits them to the charity commission for publication on their web site. In addition, a copy of the accounts is presented at the AGM in the autumn term.

 

 

 

Accounts

 

 

 

The administrator maintains an accurate profit/ loss account and balance sheet. Monies are reconciled monthly with each of our three bank accounts:

 

 

 

Main Account: All income and expenditure is channelled through this account. It is used for day to day expenditure. This account does not earn any interest.

 

 

 

Reserves Account: This holds our `Reserves’ and should hold sufficient money to meet all outstanding liabilities. See further information on Reserves later in this policy.  This is an interest earning account.

 

 

 

Fundraising Account. Money raised through fund raising and other related activities is stored here for use on that specific project. This is an interest earning account

 

 

 

All accounts are dual signatory and the signatories must be updated annually to reflect new committee members – there are usually 3 signatories, the administrator being one of them.

 

 

 

The bank accounts are registered for on line banking, which means that monies can be moved between accounts ‘on line’ but not withdrawn. The treasurer controls this facility.

 

 

 

VAT

 

 

There is no requirement to either register for or charge VAT on services that we provide as they are VAT exempt. The reference for this is VAT Notice 701/2 which can be found by using the search facility at www.hmrc.gov.uk . The specific paragraphs are 2.2.1 and 2.2.2 within VAT notice 701/2.

 

 

 

 

 

Financial Phasing through the year

 

 

Expenditure

 

 

Wages represent the single largest expenditure for The Cottage and the annual wage bill is split into 12 equal monthly payments (plus any extra hours) which are paid at the end of each calendar month.  Extra hours are paid at the end of the following month e.g. extra hours worked in September are paid at the end of October.  The payments made to staff for their holiday entitlement are divided into 12 equal monthly payments and paid with normal wages.  Wages are paid through a system called ‘telepay’  (run by Lloyds TSB) which pays directly into the staff’s bank accounts.  The wages are calculated by the Administrator and then faxed monthly to telepay.  The total monthly wage bill can not exceed £5,000 unless this is notified in writing to telepay.

 

 

 

In particular, at the end of the school year (mid July), there should be at least the equivalent of two months wages (plus holiday pay) and anticipated wages for Holiday Club in the main account to pay for wages on 31^st July and 31^st August. This is prior to the start of the new school year when income starts to be received again.

 

 

 

Extra hours

 

 

All staff are contracted for a set number of hours per week and so it is straightforward to calculate basic staff costs and holiday pay. In order to calculate extra hours, the administrator uses an extra hours sheet that each member of staff submits for payment the following month. It is important that any requests for extra hours payments are accompanied by the reason for those hours. (cover for sickness/course/unpaid absence etc) and equally that time off is also documented accurately. These sheets must be reconciled monthly by the nominated Team Leader and then passed to the administrator for action via payroll. These sheets should then be retained by the administrator as a record of variances to contracted staff hours.

 

 

 

Income

 

 

The income that ensures there are sufficient funds to pay the wages comes in at irregular intervals from different sources and so, in priority order, care needs to be taken in the following areas to ensure we receive the correct income:

 

 

 

1.      Pre-School voucher payments should be received at the beginning of each half term based on child numbers that the Administrator submits using a form to the local authority.

 

2.      Invoices for all other sessions are calculated by the administrator based on attendance and submitted to parents half termly for payment by a due date.  Some parents choose to pay weekly.  Most payments are made using internet banking due to bank charges for cheques.

 

3.      Child Care Vouchers.  These can be electronic or paper.  Parents are able to pay their invoices online straight into our account or with paper vouchers which once submitted (by administrator) also go straight into our bank account.  We are registered for Accor Services & Care-4 and are happy to become registered for any other voucher providers.

 

4.      Income from Fund Raising Activities.

 

 

 

Child Numbers

 

 

 

As income is wholly dependent on child numbers, a close eye must be kept on numbers attending.  A Team Leader updates lists of children attending and it is reasonable to ask for these numbers in preparation for a committee meeting or other review.

 

 

 

The following are a guide for the committee about ideal numbers each week.

 

 

 

Sessions in financial   PRIORITY ORDER	Autumn Term   14 weeks	Spring Term   11 weeks		Summer Term   13 weeks
1. Morning Pre-School	Average 50 sessions per week	Average 70 sessions per week		Average 90 sessions per week
2. After School Club	Average of 125 one hour sessions per week
3. Caterpillars	Between 24 and 32 sessions per week
4. Lunch Club	40 per week	25 per week	30 per week
5. Holiday Club	Fee income should be greater than wage expenditure.

 

 

Actual income derived from these numbers will depend on the fees charged and the value of the Pre-School Voucher.

 

 

 

Early Birds and Breakfast Club are two other services that generate income and which may need to be promoted from time to time depending on numbers attending.

 

 

 

Reserves

 

 

This Deposit bank account holds our `Reserves’ and should hold sufficient money to meet all outstanding liabilities. In practice, this is an amount equal to at least 3 months wages for the entire staff in the event of redundancy plus any money set aside for long term repairs or improvements to the building (eg new roof).

 

 

 

Main Requirement for Reserves

 

 

 

St James’ Cottage Nursery is located in a timber frame sectional building on brick plinths with shiplap style wood cladding and a corrugated roof on the site of St James First School.  The site is considered secure although it is possible that the building could be vandalised or burnt down. Insurance to the value of the building and contents must be in place for this eventuality but we might need to make all the staff redundant while a new building is constructed and then rehire staff when the new building is completed.

 

 

 

Range of Reserves

 

 

Following careful consideration of the reasons stated above and general risks of operating in childcare, a reserves target of between three and four months staff wages (incl. holiday pay) plus any intended capital expenditure has been agreed.  At time of writing this represents a range of £9000 to £12000 excluding any capital expenditure planned.  This range will cover perceived risks in allowing expenditure to be met and ensure best bank rates whilst ensuring money is not being held inappropriately.

 

 

 

 

 

Maintaining Reserves

 

 

Should reserves go above maximum then the following action would be taken:

 

 

 

·        Reduce or maintain fees as appropriate

 

·        Purchase specialist equipment

 

·        Decorate and improve facilities

 

·        Take account of excess reserves when agreeing staff pay rises each year.

 

 

 

Should reserves drop below minimum then the following will be undertaken:

 

 

 

·        Reduce costs where possible without affecting quality of provision (Look carefully at staffing ratios for each session)

 

·        Increase fees where possible taking into account the local market

 

·        Fundraise

 

 

 

Principles of charging for child care

 

 

A Finance Sub Committee is elected at the meeting following the AGM.  They meet once a year, usually in the summer term to decide on fee increases and pay rises plus any other major financial decisions that need to be made.  These meetings are confidential and a summary is then given at the next committee meeting. The Finance committee with the authority of the full committee has the discretion to recommend changes to fees and fee structure that it feels are necessary to meet ongoing expenditure. In practice this means being conscious of the local market and prices charged by other provisions as well as maintaining competitive salary ranges that meet legislation. 

 

 

 

Fees are published in both the prospectus and on the web site and any changes to the fee structure must be notified to Cottage Users by newsletter in advance of the fees changing.

 

 

 

When arranging special events such as Sports Day, Leavers Party, Xmas party, Nativity Play, Easter Bonnet etc then all children attending should be charged the appropriate rate for that session if they are in attendance between 9am and 12 noon.

 

 

 

Where children attend purely for a fund raising/ social event or for a small portion of a session then a nominal fee will be charged for attendance.

 

 

 

Holiday Pay

 

 

 

In 2007, changes to holiday pay legislation were implemented that meant staff should receive a minimum of 5 weeks holiday pay per year, rising to 5.6 weeks in April 2009. St James Cottage has amended employment contracts to reflect this change for permanent members of staff but care must be taken when employing staff on a short temporary contract or when employed just for Holiday Club to ensure that they receive their pro-rata allocation of the full holiday entitlement. It is recommended that for these staff, holiday pay is calculated either at the end of the temporary contract or in the case of Holiday Club staff, in the August pay packet. The calculation is as follows:

 

 

 

Number of weeks worked in the year    X    Average hours worked per week  X Holiday Entitlement X  Hourly Rate

 

                  38 weeks

 

 

 

Example A:  In 2008, for a member of staff  working 7 full weeks of holiday club, 5.25 hours each day at the ‘unqualified’ rate, the holiday pay calculation would be as follows:

 

 

 

                          7                           X    26.25 hours  X 5 weeks X  £5.56 = £134.42

 

                  38 weeks

 

 

 

Example B:  In 2010, for a member of staff working two terms contract as SEN support  (25 weeks), 3 hours each week day at the ‘qualified’ rate, the holiday pay calculation would be as follows:

 

 

 

                          25                          X    15  hours  X 5.6 weeks X  £5.77 = £318.87

 

                  38 weeks

 

 

 

NB. In example B, the rate of pay may have been increased by 2010 .

 

 

 

 

 

 

 

 

 

 

 

 

 

Routines of the Financial Year

 

 

For Presentation at Each committee Meeting
Check numbers per session against predicted numbers	Treasurer
Produce all bank account balances	Treasurer
State any expenditure over £100 since last meeting	Treasurer
Weekly
Bank all monies	Administrator
Prepare supplier invoices & cheques	Administrator
Countersign cheques	Treasurer
Monthly
Maintain up to date register and waiting list for all childcare sessions	Administrator and Team Leaders
Reconcile bank statements with cheque book and quick books software	Treasurer
Complete extra duty / absence sheets for month	Staff
Reconcile extra duty/ absence sheets & pass to administrator for payment	Sue Lambert
Payroll to be prepared including calculating extra hours, sick leave and other absence. Retain extra duty sheets as a record of variances to contracted staff hours.	Administrator
Payroll faxed to telepay	Administrator
Check and sign payroll	Treasurer
Distribute payslips	Administrator
Check staff wage spreadsheet	Treasurer
Send a copy of bank statements to chairperson	Treasurer
Beginning of Half term
Submit pre-school voucher forms	Administrator
Calculate child care fees for the half term (and some weekly) and send out invoices with a due date	Administrator
Collect and bank all payments	Administrator
Follow up any late payments in line with Late Payment Policy	Administrator
At Half Term
Profit/loss report with comparison to the year before & send Copy to chairperson	Treasurer
End of Term
Maintain cash flow forecast for current financial year	Treasurer
Profit/loss report with comparison to the year before & send Copy to chairperson	Treasurer
Summer term – Finance Sub Committee
Chair meeting of 4-5 members primarily to agree % rise for staff for next year and any changes to session fees	Treasurer
Wages are confidential to finance committee so only % increase given at full committee meeting not actual amounts	Treasurer
Check that Income predictions are in line with anticipated child numbers	Treasurer
Check Expenditure prediction with suggested fee increases and wage increases	Treasurer
Check staff hours for the coming September to ensure correct ratio of staff to children	Chairperson and Treasurer
Check minimum wage increase and any other changes to legislation that may affect wages for following year.	Treasurer
Check local nursery charges for comparison with St James’ Cottage	Treasurer
Yearly
Complete Charities return which has to be independently audited and returned by the end of June for previous financial year.  Required for audit:  receipts for relevant year, cheque books, paying in books, bank statements, computerised accounts, forms CC16 from Charities Commission, Income tax yellow books.	Treasurer
Aim to add £2k per year to Reserves to help with larger building work in the future	Treasurer/ Committee
Update policies and procedures for the setting	Administrator and committee
Review Finances	Committee