Laws, Rules, and Regulations Compliance For School Finance and Budgets

Schools are subject to some of the toughest rules and regulations of any institution. We often think these primarily apply to things like safeguarding or data collection. However, even school budgets and finances are governed by numerous laws, rules, and regulations.

The governing body and headteacher hold ultimate responsibility for effective financial management. But it helps if every member of staff is involved in the school budget in some manner, not just the school finance manager, whether that’s planning lessons or using resources.

Non-compliance with school finance rules can lead to legal penalties, audits, and funding issues. Ofsted, as the UK regulator for schools, inspects financial management of schools, ensuring money is spent wisely.

In this article we'll explore:

• Understanding Key Laws in School Finance

• Budget Planning to Stay Within Legal Boundaries

• Accounting Rules and Best Practices for Schools

• Education Setting Monitoring and Reporting Obligations

• Internal Controls and Risk Management Your School Needs

• Professional Development for School Finance Teams

• How to Ensure Compliance with a Sustainable School Budget

Understanding Key Laws in School Finance

School finances in the UK aren’t controlled by a single rulebook. They’re governed by a mix of legislation, regulations, and binding guidance, depending on whether a school operates as an academy or is maintained by a local authority.

The main laws and regulations related to school finances include:

• Education Act 1996 – sets out the duty to fund schools and how money flows through local authorities.

• School Standards and Framework Act 1998 – gives governing bodies responsibility for managing delegated budgets.

• Academies Act 2010 – lets schools become academies, funded directly by the government instead of councils.

• School and Early Years Finance Regulations – updated each year, these define how local authorities distribute funding.

• Academy Trust Handbook – a rulebook for academies covering financial controls, pay, and audits.

Each local authority may have specific rules related to school budgets. Academies operate slightly differently, functionally as charitable companies accountable to the Department for Education (DfE) and the Education and Skills Funding Agency (ESFA).

Budget Planning to Stay Within Legal Boundaries

Building a school budget isn’t just about balancing numbers as you’ve got to stay within the law. No matter your funding source, it comes with statutory conditions and restricted use rules. As you know, you can’t just buy whatever you want. Ignore these rules, and you can face clawbacks alongside damaging your school’s reputation.

For compliance in schools, ​when planning your budget, you need to allocate restricted funds (like SEN or sports funding) only for their intended purpose. The same is true for grants and earmarked allocations. You can’t shift the money to another part of the school due to a shortfall.

Spending decisions should be clearly detailed (in line with governance approvals and DfE guidance). Good financial planning also means following budget forecasts and performing reviews throughout the year.

Learn more about effective budgeting with flick’s Budgeting Effectively in Early Years Training.

Accounting Rules and Best Practices for Schools

Bought a new set of computers? Upgraded the staff room? Or just purchased a new set of highlighters? No matter how big or small, every transaction must be recorded, reported, and audited, from the classroom supplies to payroll.

The Academies Chart of Accounts provides a national framework for academies finances. Unlike other schools, academies have a degree of independence. That means they’re under extra scrutiny when it comes to accounting for every penny spent.

It’s smart to use consistent account codes (that match national reporting standards), perform monthly audits, and maintain clear audit trails. That way, you’re never at risk of going awry.

Of course, what happens when the rules change? Check out our post: How to Keep Up With Changing Education Laws and Regulations.

Education Setting Monitoring and Reporting Obligations

A big part of school finances is submitting financial reports. You’ll need to compile all the relevant information, sending it to school boards, local authorities, and other relevant organisations when requested.

Whether it’s a local authority or the DfE, deadlines and accuracy are non-negotiable. Give yourself enough time to get all the information together, as governance and trustees will need to review and sign off on budgets and statements.

There are also independent audits and reviews to consider, so don’t wait until the last minute to get your documentation in order. Keep records ready and prepped, so you’re not caught off guard.

Internal Controls and Risk Management Your School Needs

Even the most careful budgets can go off track without strong internal controls. Schools are legally required to safeguard public funds.

No one wants to discover a school blew money on a new set of smartboards when basic facilities weren’t up to standard. Or worse, that money was stolen or fraudulently used. Schools must have clear, documented systems in place to prevent misuse.

Every school should:

• Establish policies and authorisation limits for spending and procurement.

• Conduct regular internal reviews and spot checks to identify risks early.

• Maintain a clear separation of duties between those who authorise, record, and reconcile transactions.

• Prepare for external audits by keeping full records and documentation.

These safeguards don’t just protect the school. Staff are shielded from unwarranted criticism, demonstrate integrity, and practice sensible money management.

Professional Development for School Finance Teams

Regulations are always changing. That’s true for the rules regarding school budgets and finances.

Regular training of your team means everyone is aware of the latest updates and compliance best practices. That could be in-person training sessions. However, it’s it's best to use e-learning courses on a learning management system, so your team can revisit the course if they want to refresh their memory.

Also, invest in software tools like reporting and compliance tracking. It simplifies the budgeting process and reduces the risk of errors.

How to Ensure Compliance with a Sustainable School Budget

Good compliance is about trust, responsibility, and due diligence. It’s not just a tick box exercise. When it comes to school finances, following best practices ensures your team understands the rules, manages money transparently, and plans ahead.

So, what’s the secret?

It’s all down to the system you put in place. Ensure your staff are trained on the latest guidance, create a routine for internal audits, define clear documentation practices, and invest in software that supports your team. Together, these practices reassure governors, parents, and staff that every decision serves pupils first.

flick’s training makes it easy to stay compliant, confident, and in control. Explore their budgeting and compliance courses and give your team the tools to keep every penny working where it matters most.

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