Update on reporting payroll matters in Annual Financial Statements 30 January 2015 The purpose of this update is to provide you with some general information regarding the process for reporting payroll matters in your school’s Annual Financial Statements for FY2014. This update also describes the payroll information that you can expect to receive from the Ministry. There are some improvements to the way information will be provided to you this year so we would appreciate it if you could take the time to familiarise yourself with the contents of this update. Key dates: 27 February 2015 31 March 2015 2 June 2015 School Annual Accrual Report, leave liability reports and payroll error schedules with overpayments, stop pays and any other known errors will be available on Novopay Online Financial Statements should be with auditors Annual Reports to be submitted to the Ministry (the statutory deadline is 31 May, but this falls on the Queen’s irthday weekend in 2015) We would encourage boards to send their draft Financial Statements to their auditor well before the 31 March deadline. The reports you will receive are:      School Annual Accrual Report (SAAR) Leave Liability Reports Overpayments Error Schedule Stop Pays Error Schedule Funding Code Error Schedule This year, all these reports will be available for download from Novopay Online. They can be found in My Reporting > School Reports. Copies of these reports can also be requested directly from the Ministry of Education from 27 February 2015. As per last year, the Ministry has been reviewing the quality of data over the past few months. In support of the Ministry’s process, Ernst & Young, in their role as the AuditorGeneral’s appointed audit service provider to the Ministry, are conducting independent and objective assurance procedures across the payroll service, with the exception of the maintenance of leave utilisation records by schools. We believe this should increase confidence in the payroll reports. As part of this work, some schools will also receive an Exception report highlighting payroll issues or anomalies identified centrally that need explanation at school level. This report will be sent to schools before the end of March. School Annual Accrual Report (SAAR) The report contains summarised salary and wage information from your Staff Usage and Expenditure (SUE) reports for your employees from 28 January 2014 to 27 January 2015. It also contains specific financial data you require for the completion of your financial statements (e.g. estimated ACC Levy data). The accrual report will still need to be checked by boards and any required changes made. Guidance on checking the report will be provided in detail in the instructions issued with the reports. The error schedules will include the following known errors in the payroll:  Overpayments  Stop Pays  Payments from incorrect funding code(s) Because these errors have not been adjusted within your fortnightly SUE reports they have been carried into the SAAR, which sums your SUE data into a single report, and therefore require correction in the financial statements. Subject to the error schedules and the school’s own checks, boards may have confidence in relying on the annual accrual report. How to get from your SAAR to your Financial Statement Your principal and chairperson, on behalf of the Board of Trustees (board), should review this report and confirm the reasonableness of the contents of the SAAR by completing the following actions: 1. Review your School Annual Accrual Report 2. Review your leave liability reports and confirm these reflect the correct leave balances and subsequent liabilities 3. Review your error schedules and confirm these reflect all known errors 4. Record any errors you have identified that have not been included on the SAAR or error schedules on the payroll certification form 5. Confirm that the employees shown on your SAAR were employed by your board during the year and the amounts shown against each employee are substantially correct. Where this is not the case these should be recorded on the payroll certification form 6. Complete and sign the payroll certification form and show it to your auditor as part of the audit process 7. The payroll certification form should be retained on the school’s payroll file for the year. Overpayments This error schedule will contain a list of all overpayments where the earnings data has not been adjusted in the payroll, by funding stream. This list will be split by calendar year and will provide:     The Gross amount of the overpayment – this is the full amount paid including all tax and deductions The Net amount – this is the amount that was paid to the employee after tax and other deductions were taken off; this is what is owed by the employee Repayments made to date Details of any refunds to the school for PAYE, KiwiSaver and Student Loan components of the overpayment Full details of the actions to be undertaken using these amounts will be included in the instructions issued with this report. If the overpayments are not material or the board is uncertain as to whether the outstanding debt is recoverable from an employee they should include it as a contingent asset instead. A disclosure note will need to be added to the financial statements in the form of, “The Board has a contingent asset in the form of accounts receivable (debtors) due to overpayments made to staff from Operating Grants. The exact amount of realisable recovery on these is unable to be reliably estimated and has therefore not been included.“ Debts forgiven by the Ministry These debts by their very nature (being less than $100 gross value) should have no material impact on School Financial Statements. As the debts have been forgiven by the Ministry and schools subsequently reimbursed for the gross amount of the forgiven debt, these transactions do not affect the data provided in the SAAR. Further information on the forgiveness policy can be found at this link: http://www.novopay.govt.nz/Site/Tools_to_help_you/default.aspx Stop Pays Stop pays occur when an error is discovered after the pay is run; the payment is deleted from the bank file and the staff member is not paid; however, the gross amount is still deducted from the school’s bank account and recorded in the school’s SUE/SAAR. Generally, the net amount for these has been reimbursed to the school immediately, but for payments towards the end of the year the gross amount may be outstanding at December 2014. In most cases only the tax and deductions will be outstanding (gross minus net) which will be reimbursed to schools by the Ministry once calculations have been finalised. These amounts may be immaterial and if so no adjustment will be required. If the net amount has not been reimbursed, however, or if the tax and deductions component is material, then there will need to be an adjustment made for the amount outstanding. These should be accounted for in Accounts Receivable in the same manner as Overpayments (see above). Full details of the actions to be undertaken using these amounts will be included in the instructions issued with this report. Funding code errors Funding code errors cause amounts to be incorrectly charged to schools when they should have been charged to the Ministry and vice versa. For affected schools their Bulk Grant will be increased/decreased to take into account these amounts. This adjustment will not be reflected in the SAAR and an adjustment will be required. We will provide a list of transactions with incorrect funding codes indicating whether these have been taken from or added to the school’s funds. Your school will need to account for this in their 2014 Financial Statements. Full details of the actions to be undertaken using these amounts will be included in the instructions issued with this report. School advances If your school has made a payment to an employee (when they have not received their fortnightly pay), but has not completed the appropriate note for Novopay to deduct the advance payment amount (a Novo33 form), then this amount is a debt owed to the school. This should be accounted for as a current asset as part of Accounts Receivables under ‘Debtors’ and should be included on the payroll certification form as an adjustment. The form can be found at the following link: http://www.novopay.govt.nz/Site/Forms/NOVO-forms/default.aspx Leave liability accruals Boards are required to report a liability in dollar terms for annual leave and long-service leave for their non-teaching staff. The leave liability reports will show the value of outstanding leave balances as at the end of the pay fortnight immediately following 31 December 2014. Boards should ensure leave liability reports are checked to ensure they are accurate. The liability should be reported in the school’s urrent !ccounts Payable note to the Financial Statements. Full details of the actions to be undertaken using these amounts will be included in the instructions issued with these reports. If there are errors identified your school should make every effort to reconcile these into the liability figures provided by the Ministry. While some errors may be caused by the system, others could be due to leave taken not having been recorded, which cannot be identified by the Ministry’s centralised assurance procedures. If leave taken has not been recorded or other errors have been identified then the school will need to apply an adjustment to the liability for the relevant employee(s). If the leave liability has been adjusted you will need to provide your auditor with suitable leave records to support the amended balance. If, even after these checks and efforts made to reconcile the liability the Board still considers the data too unreliable or the school does not have appropriate records held locally to support the leave liability, then a liability should not be included in the financial statements. This will need to be disclosed as a contingent liability in the notes to the financial statements in the form of, “The Board has a liability for leave for {who and type of leave} which has not been able to be quantified due to the unreliability of the underlying leave records for these staff. Accordingly no liability has been included in the financial statements. If the leave accrual has not previously been recognised due to unreliable underlying information then the full amount of the leave should be charged to expenditure in 2014. We would encourage the initial recognition of a leave liability to be separately disclosed. Banking staffing If you have any queries about the implications of banking staffing on your annual financial statements, please contact your Senior Regional Financial Advisor. If you have any queries about the banking staffing scheme in general, please email the Ministry of Education at [email protected] Additional errors not identified All error schedules produced by the Ministry are on the basis of data the Ministry holds. Where a school has notified Novopay of an issue but the issue is yet to be addressed this should be included on the payroll certification form, unless the amount is under $500. Document retention Boards are reminded that all payroll documentation should be retained and available for review by your school’s auditor. Guidelines for document retention are available on the Novopay website and can be found at this link: www.novopay.govt.nz/Site/Best_Practice/Responsibilities/Payroll_record_keeping.aspx Payroll certification An updated Payroll Certification form for 2014 will be available on the Ministry’s website. Further advice and guidance If school administrators have payroll-specific questions, they should contact the Novopay Service Centre in the first instance on 0508 NOVOPAY (0508 668 6729) or by email to [email protected]. If schools, financial service providers or auditors have specific questions about preparing the annual financial statements, they should contact their Regional Senior Financial Advisor in the Ministry, as below: Carmel Riordan Northern Region Phone: 09 632 9440 Email: [email protected] Ann Clarke Central North Region Phone: 06 833 6734 Email: [email protected] David Hyland Central South Region Phone: 04 463 8673 Email: [email protected] Fiona Hollingworth Southern Region Phone: 03 378 7373 Email: [email protected]