Circular 2005/07 - School bank accounts

This circular is about banking requirements for schools under the recently introduced Crown Entities Act.

Date : 3 June 2005
Circular Number : 2005/07
Category : Finance

School bank accounts

This circular is about: Schools' banking requirements under the recently introduced Crown Entities Act.

The action required is : Ensure your school follows the new bank account rules.
Ensure the Ministry is notified with any new bank account numbers.

It is intended for:

• Chairpersons of Boards of Trustees, all trustees and principals of all state and state integrated schools.
• All those preparing school annual financial statements.
• Appointed auditors of schools.

For further information: Direct any enquiries about this circular to your school accounting service provider, your local Ministry of Education Financial AdvisorMinistry of Education Financial Advisor , or your school auditor.

Introduction

This circular provides guidance on the new rules for school bank accounts and the relevant references to the Crown Entities Act 2004.

Changes to school banking arrangements

The introduction of the Crown Entities Act 2004 means that your school Board of Trustees (Board) will have to follow new rules for using your bank accounts.

This circular outlines the main provisions of the Act and how they will apply to your banking arrangements. Please take the time to review your school's banking arrangements and make any necessary changes.

The relevant references from section 158 of the Crown Entities Act and associated regulations are included in Appendix C. .

The new provisions apply from 25 July 2005

This means that by 25 July this year your school's banking arrangements must comply with the new provisions.

Ministry deadlines

Where necessary, please email Raewyn Glover at raewyn.glover@education.govt.nz . to obtain change of bank account forms and return these to the Ministry by July 21.

The new provisions apply to all school bank accounts

The new provisions apply to all of your school bank accounts.

The main provisions

1. Your school bank accounts must be in the name of the school only
2. If your Board has any bank accounts that include the name of a service provider, then new bank accounts in the school's own name must be established before 25 July 2005
3. Your school bank accounts must be opened and be used, only by the Board
4. Your Board may grant a power of attorney to a service provider to use the bank account but your Board will still be responsible for that account
   Note: Service provider current trust account-type arrangements for all school banking have to change.
5. Your board must make sure that all money received by your school is paid into the school's bank account as soon as possible
6. No income for the school can be paid directly to a service provider trust account, proprietor or any other third party
7. All bank accounts must be in New Zealand dollars

The Act also has provisions about:

• Credit ratings
• TSB Bank Limited
• Banks outside New Zealand
• Other banks
• Changes in credit ratings

Credit rating tests

All bank accounts must be with a registered bank or registered building society that has the following credit rating:

• Standard & Poor's Ratings of "A-" or higher, or "A-1" or higher for short- term debt securities (term deposits or investments); or
• Moody's Investors Service rating of "A3" or higher, or "Prime-1" or higher for short-term debt securities (term deposits or investments)

The list of registered banks in New Zealand and their credit rating is included in Appendix B .

TSB Bank Limited, Taranaki

Schools should continue banking with TSB Bank pending a final decision on whether the TSB bank will be given a relevant approval from the Minister of Finance which is currently in progress.

Bank accounts at banks outside New Zealand

If you use a bank account in a bank outside New Zealand, this bank account must be in NZ dollars and meet the credit rating tests for registered banks.

Other banks

The Minister of Finance may approve "other" registered banks or building societies.

Changes in credit ratings

Your school's bank account may not meet the credit rating tests in the future. If this happens there is a two month period to close the account and transfer to another bank that does meet the credit rating tests. tests.

Powers of Attorney

Your school may grant a power of attorney to a service provider to make payments or withdrawals from your bank accounts. The power of attorney will need to specify clearly the withdrawals or payments that are being delegated to the service provider.

For example: authorise payment of creditors, payroll, investments, GST payments, and transfer between accounts.

If your school gives a power of attorney to a service provider then your school is responsible to check bank statements regularly to ensure the amount withdrawn by the service provider is correct.

Term deposits in banks

Term deposit in banks must be also in the name of the school only. The term deposit account must be in New Zealand dollars and be held with a registered bank or other entity that meets the credit rating tests noted above.

What you need to do next

Your board should now:

1. Ensure your school's bank accounts are in the name of the school only
2. Ensure your school's bank accounts are held in a registered bank or building society and meets the credit rating tests
3. Ensure all money received by your school is paid in full into the school's bank accounts
4. Where necessary, advise the Ministry of any change to bank account numbers by emailing Raewyn Glover, raewyn.glover@education.govt.nz to obtain change of bank account forms and return these to the Ministry by July 21.
5. Where necessary, ensure that any service provider current arrangements for your banking are changed.
6. Organise a power of attorney if your school wants to use a service provider to use the bank accounts.
7. Check your bank statements to ensure the authorised payment that your school has given the service provider through the power of attorney agrees with the amount withdrawn by the service provider.
8. If your school has an account with registered bank or building society which does not meet the credit rating tests, make an application and forward to:
   Raewyn Glover
   Senior Financial Advisor
   Ministry of Education
   PO Box 1666
   Wellington

Further information

You can obtain further assistance by contacting your Regional Financial Advisor as listed in Appendix A. .

Issued by

Raewyn Glover
Senior Financial Advisor
National Office
45 – 47 Pipitea Street, Thorndon
P O Box 1666, Wellington, New Zealand
Phone 04-463 8000
Fax 0-4-463 8001 8001

Appendix A

Ministry Regional Financial Advisor contact list

Appendix B

List of registered banks in New Zealand and their credit ratings

Banks marked (B) operate in New Zealand as branches of overseas incorporated banks. All other banks are incorporated in New Zealand.

What ratings mean

Standard & Poor's

AAA is the highest rating. A- or above passes the credit rating test for bank accounts.

Moody's

A1 is the highest rating and anything above A3 passes the credit rating test for bank accounts. "aa" is higher than "a" beside the rating for short term investments.

Total number of registered banks = 16

* Note:you will have to register to use the Moody's website.

Last updated: 21 April 2005. 2005.

Appendix C

A. Crown Entities Act 2004

Core Provision

Section 158 — Bank accounts of Crown entities

(1) A Crown entity must ensure that all money received by the Crown entity is paid, as soon as practicable after it is received, into 1 or more bank accounts that are established, maintained, and operated by the Crown entity at 1 or more of the following:

1. a registered bank or registered building society that satisfies a relevant credit-rating test specified in either regulations made under this Part or a notice in the Gazette published by the Minister of Finance; or
2. a registered bank or registered building society that meets the conditions of any relevant approval given by the Minister of Finance by notice in the Gazette; or
3. a bank outside New Zealand that meets the conditions of any relevant approval given by the Minister of Finance by notice in the Gazette; or
4. a bank outside New Zealand if the conditions specified in subsection (2) are met.

(2) The conditions referred to in subsection (1)(d) are —

(a) the Crown entity, or the class of Crown entities to which the Crown entity belongs, must be authorised to establish, maintain, and operate 1 or more bank accounts at 1 or more banks outside New Zealand by —

1. the Minister of Finance in writing; or
2. any regulations made under this Part; and

(b) the bank account or bank accounts must be of a type approved by —

1. the Minister of Finance in writing; or
2. any regulations made under this Part.

(2A) A Crown entity must establish, maintain, and operate a bank account referred to in subsection (2) subject to —

1. any regulations made under this Part; and
2. if applicable, any conditions of the authorisation or approval given by the Minister of Finance; and
3. the entity’s Act.

(3) The Minister of Finance must notify in the Gazette an authorisation or approval given under subsection (2)(a)(i) or, as the case may be, subsection (2)(b)(i).

(4) A Crown entity must ensure that it does not establish, maintain, or operate a bank account other than as provided for in subsection (1).

(5) All money in a bank account at a registered bank or registered building society must be denominated in New Zealand dollars unless the Minister of Finance allows otherwise.

(6) A Crown entity must properly authorise the withdrawal or payment of money from a bank account of the Crown entity.

(7) There is a period of grace if a bank account ceases to qualify under subsection (1), and:

1. during that period the Crown entity may continue to pay money into the bank account; but
2. by the end of the period the Crown entity must have closed the account and paid all the money in the account into another bank account that does qualify under subsection (1).

(8) The period of grace ends on the earlier of —

1. 2 months after the bank account ceases to qualify under subsection (1); or
2. a date specified by the Minister of Finance and notified to the Crown entity.
   Compare: 1989 No 44 s 24

Transitional Provision

Section 195 — Existing bank accounts

There is a period of grace of 6 months after section 158 comes into force during which:

1. a Crown entity must continue to comply with section 24 of the Public Finance Act 1989, and (or, as the case may be, or) its entity’s Act (if relevant), as if this Act and Part 1 had not been passed; and
2. neither section 158, nor any amendment of an entity’s Act in relation to bank accounts in Schedule 6 of this Act, apply to a Crown entity.

Definitions

(a) Crown Entities Act 2004

Section 136 — Interpretation for this Part [4]

registered bank has the meaning set out in section 2 of the Reserve Bank of New Zealand Act 1989.

registered building society means a building society within the meaning of the Building Societies Act 1956 that is registered on the register of building societies under that Act.

(b) Reserve Bank Act 1989

Section 2 — Interpretation

Registered bank means a person whose name is entered in the register maintained under section 69 of this Act or who continues to be a registered bank by virtue of the provisions of section 76 of this Act. Act.

B. Crown Entities (Financial Powers) Regulations 2005

Regulation 2 - Commencement

These regulations come into force on 1 April 2005.

Regulation 3 — Interpretation

In these regulations, unless the context otherwise requires, Act means the Crown Entities Act 2004.

Bank accounts

Regulation 4 — Purpose of regulations 5 to 8

The purpose of regulations 5 to 8 is to provide for the establishment, maintenance, and operation of bank accounts by Crown entities.

Regulation 5 — Minimum requirement for bank accounts

(1) The minimum requirement in order to be a bank account under these regulations and sections 158 and 161 of the Act is that there is a contract with a registered bank, registered building society, or a bank outside New Zealand that —

(a) contains a covenant by the bank or building society to keep a record of the amount it owes its account customer by reason of the deposit of money with the bank or building society for the account of its account customer; and

(b) provides that that amount is repayable in whole or in any part upon demand by the account customer; and

(c) does not comprise —

1. a cash or term deposit; or
2. a fund; or
3. any other form of investment in the debt securities of the bank or building society consisting of a specified amount of debt that is repayable only in whole.

(2) Other contracts or accounts are not bank accounts for the purposes of these regulations or sections 158 and 161 of the Act. Act.

Regulation 6 — Minimum requirement for banks outside New Zealand

(1) The minimum requirement in order to be a bank outside New Zealand under these regulations and section 158 of the Act is that the financial institution must be entitled by the laws of the jurisdictions in which it operates to include, in its name or title, —

1. the word ‘‘bank’’, ‘‘banker’’, or ‘‘banking’’; or
2. any of those words as part of another word; or
3. a translation of those words into another language (whether or not the translation of those words is part of any other word).

(2) Other financial institutions are not banks outside New Zealand for the purposes of these regulations or section 158 of the Act.

Regulation 7 — Credit-rating test for registered banks and registered building societies

(1) A registered bank or registered building society satisfies the credit-rating test referred to in section 158(1)(a) of the Act only if —

1. it satisfies 1 of the specified tests and does not have a credit rating assigned to it by any other specified credit rating organisation; or
2. it satisfies the specified test that applies to each of the specified credit-rating organisations that have assigned a credit rating to it.

(2) The following are specified tests for the purposes of section 158 of the Act:

1. Standard & Poor’s Ratings Group (or its successors or assigns) rates the credit of the relevant registered bank or registered building society ‘‘A-’’ or higher or, if that credit is short term, ‘‘A-1’’ or higher; or
2. Moody’s Investors Service, Inc (or its successors or assigns) rates the credit of the relevant registered bank or registered building society ‘‘A3’’ or higher or, if that credit is short term, ‘‘Prime-1’’ or higher.

(3) In this regulation, —

credit means —

1. subclause (2); or
2. a notice in the Gazette published by the Minister of Finance under section 158(1)(a) of the Act. Act.

Regulation 8 — Bank account at bank outside New Zealand

(1) A bank account at a bank outside New Zealand is approved for the purposes of section 158(2)(b)(ii) of the Act if —

1. the bank account comprises debt owed and payable in New Zealand currency; and
2. except as set out in subclause (2), the credit of the bank satisfies the credit-rating test for registered banks and registered building societies stipulated in regulation 7(1) as if it were a registered bank or a registered building society; and
3. the laws of the jurisdiction under which the bank operates the bank account do not discriminate between classes of unsecured creditors except upon grounds, and only to the extent, set out in a subordination covenant; and
4. the central bank of the jurisdiction in which the bank operates the bank account is a shareholder in the Bank for International Settlements.

(2) In subclause (1)(b), credit means —

1. long-term unsubordinated unsecured foreign currency debt obligations payable in the home jurisdiction of that foreign currency; or
2. if a bank outside New Zealand does not issue long-term debt as set out in paragraph (a), short-term unsubordinated unsecured foreign currency debt obligations payable in the home jurisdiction of that foreign currency