Part D4: Appendix – Common transactions and areas of operation – School financial operations and community engagement
D4.1 Credit/loans
A school may lend money to other schools or entities and remain eligible for NSW funding, however, any such loan must be for the operation of the school that is lending the money. In most circumstances loans or credit provided by a school to a non-school entity or third party (including a staff member) will not comply with the not for profit requirements because it is unlikely it will be for the operation of the school.
If loaning money to other schools or entities, to remain compliant with the not for profit requirements schools should:
- ensure the rate of interest on the loan is not lower than the reasonable market rate for comparable loans
- maintain evidence demonstrating that the loan, or any income generated from it, directly supports the operation of the lending school.
- Where the loan is purely a financial investment (in contrast to a loan relating to, for example, joint use of facilities), documented market research on options available to the school in respect of investing any excess funds.
- Documentary evidence that conflicts of interest and any related party relationships (if any) have been appropriately identified and managed.
- A written loan agreement that contains provisions including: (a) the loan term; (b) the payment of interest; (c) repayment schedules; (d) adequate security over the loan, taking into account the risks of non-payment; and (e) debt recovery.
- Business records demonstrating governing body approval for the provision of the credit/loan.
- Written agreement on joint use of facilities when the school loaning the money gains rights with respect to the other party’s premises (if appropriate).
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D4.2 Outstanding debts
Proprietors/schools may consider writing-off or selling outstanding debts in accordance with an appropriate policy or procedure dealing with debt recovery/management.
Generally speaking, in order to remain eligible for NSW funding, proprietors/schools need to demonstrate that adequate efforts have been made to recover outstanding debts or that the cost of recovery of the debt would outweigh the benefit of receiving the outstanding debt prior to making a decision not to pursue a debtor.
- A policy or procedure for writing-off or selling outstanding debts.
- Documents demonstrating governing body decisions to write off or cease recovery proceedings made in the context of exceptional facts and circumstances Written documentation supporting that debts were written off after options for recovery had been exhausted or that the costs of debt recovery outweighed the benefits of receiving the outstanding debt.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
Student fee concessions
Proprietors/schools may offer fee concessions or remissions to existing or prospective students of the school, based on clear and documented criteria, including in circumstances of financial hardship.
Each case should be assessed on its individual merits and supported by appropriate documentation to demonstrate that the use of income is for the purpose of the operation of the school.
- Policies and procedures supporting any student fee concessions, remissions or other adjustment to fees and charges offered by the school.
- Complete records and approvals, in line with policies and procedures, on all student fee concessions and remissions.
- Documentary evidence that any conflicts of interest (if any) have been appropriately managed.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
D4.3 Investing school income
A school’s proprietor may invest income that arises from the operation of the school and remain eligible for NSW funding, provided that the purpose of the investment is for the operation of the school or, where the income is used to acquire property, goods or services (such as shares).
All the circumstances of a particular transaction will be considered when determining whether an investment complies with the not for profit requirements. For example, it may be relevant that the investment is being made to generate income for a specific purpose connected to the operation of the school (such as acquiring an asset); or that the investment is part of a broader financial strategy to ensure the security and financial stability of the school (such as securities or other financial instruments to protect the school’s financial position). The level of risk associated with the investment is also taken into consideration in determining whether a particular investment is for the purpose of the operation of the school, or otherwise constitutes operating for profit.
- Investment approach advice from suitably qualified professionals.
- Documents clearly stating the purpose of the investment and how it supports the operation of the school.
- Documents demonstrating governing body consideration and approval of the investment approach.
- Investment plans and policies of the school related to how the school manages funds responsibly.
- Details of the investment, such as contracts, purchase records, or share certificates.
- Documents showing income earned from the investment and how it was used for the operation of the school.
- Any advice or risk assessment received before making the investment.
- Records showing the investment was made on fair terms, especially if a related party is involved.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
Investment and recognised education and care services
Proprietors/schools may use school income and assets and make payments to build/refurbish school assets and to operate recognised education and care services through third parties as an investment approach without operating for profit. Proprietors/schools must demonstrate that the investment is part of a genuine financial strategy to generate income for the operation of the school.
If proprietors are operating education and care services themselves for current or future learners of the school, see B5.3.
- Lease/licensing arrangements with the third-party provider that are at least at reasonable market value.
- Documentation to demonstrate how the investment will generate income for the operation of the school (i.e. modelling to demonstrate how it will increase enrolment growth that will provide a source of income for the school or how the lease will create an income stream for the school).
- Documentation that demonstrates how risks associated with the investment are being managed.
- Documentation that conflicts of interest and any related party relationships (if any) have been appropriately identified and managed.
- Documentation to demonstrate appropriate consideration and approval of the approach by the school's governing body.
Note: This list is only a guide. It is not intended to be exhaustive or prescriptive. For further detail read our section on Records to demonstrate compliance.
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