Local education authorities and schools should be encouraged to makes use of school surplus money in line with local needs, according to the National Audit Office in a report today. It says the Department for Children, Schools and Families has made progress in improving its financial management but needs to encourage better financial management in schools.

The report says that reaching a high standard of financial management depends partly on the Department working successfully with local authorities, other partner organisations, and the schools themselves. The Department faces specific challenges, including the need for better strategic management of its large capital programme.

The NAO found that in March 2008, schools in England had a net surplus of 1.9 billion pounds and that only one in five local authorities reduced their total net school surplus during 2007/08. It says local authorities are accountable for school spending but the Department should encourage them to redistribute excessive uncommitted surpluses in line with local needs.

The Department had built up a large capital underspend, which increased from £1.9 billion pounds at the end of March 2008 to around 2.4 billion at the end of March this year. The report goes on to say that its capital expenditure programme will need to be carefully managed given the history of underspending and the need to bring forward more than 900 million pounds of expenditure from 2010/11 to this financial year as part of the Government’s fiscal stimulus measures.

Tim Burr, head of the NAO, said: “The Department could usefully consult further with delivery organisations such as local authorities to see what might be done here. It also needs to improve its management of financial risks, and to use the introduction of new finance systems to improve financial reporting and forecasting.”