The South Australian State Department of Education, Training and Employment allocates funding to schools in much the way that the literature suggests is a generic basis for funding schools. This includes per school base funding, per student funding for all students, additional per student allocations based on year levels, and additional per student allocations based on learning needs of students. An analysis of departmental ledger information for the 1997/98 financial year established the department's implicit policy of allocating resources within country and metropolitan schools. It is clear that the basis for allocating resources at the system level is not congruent with how schools themselves allocate resources. The particular policy implication of this mismatch for rural schools relates to the allocation of resources to senior secondary students. The system assumes that senior secondary students require significantly more resources than schools actually allocate. Schools reallocate these surplus resources back to junior secondary students in both country and metropolitan areas. Country schools tend to have relatively lower retention to year 12 and thus have less surplus resources to reallocate compared to metropolitan schools. (Contains 19 references.) (TD)