ESFA has released the 2018/19 Academy Accounts Direction, and as expected, there are relatively few changes this year.
A key point to note, is that clarification has finally been issued to confirm irregular expenditure includes all alcohol and unrestricted gifts – even if purchased from unrestricted funds.
The focus on governance has continued, and Trusts should expect that their auditors will be asking more questions in order to arrive issue an opinion on regularity. In particular, confirming:
- the academy trust has a minimum of three members
- the board of trustees has met at least three times in the year. Where the board has met less than six times a year, there is a description in its governance statement, accompanying its annual accounts, how it maintained effective oversight of funds
- new academy trusts have reviewed and developed their governance structure and composition of the board
- there is a written scheme of delegation of the Board’s financial powers that maintains robust internal controls
- management accounts are shared with the chair of trustees monthly, with other trustees six times a year and considered by the board when it meets
- there is a risk register in place
- there is Board oversight of capital expenditure and funding, ensuring it is used appropriately for capital purposes
- the academy has established an audit committee or a committee fulfilling the functions of an audit committee whose activities are underpinned by written terms of reference 153
- provision for internal scrutiny is independent and objective
- the audit committee or equivalent has received reports on the effectiveness of internal control
- factors determining executive pay are clear and recorded
- there are whistleblowing procedures approved by the trustees
- minutes of the various committees, and management accounts, have been reviewed for indications of irregular transactions
- the board of trustees and accounting officer have given formal representations of their responsibilities
The Accounts Direction reminds Trusts of the newly introduced requirement to notify ESFA of all related parties transaction in advance, and where necessary obtain approval in advance of the transaction occurring.
As always, there are some additional requirements this year:
- The annual report and financial statements to be sent to every member, and every person entitled to receive notice of general meetings. This reflects the requirements of the Companies Act 2006.
- Comparative information required in respect of agency arrangements and events after the reporting date, with an update as to the current position, including, where relevant details of any contingent liabilities, guarantees, letters of comfort or indemnities arising. This provides additional clarity and may arise from an increased number of academies facing financial challenges.
Unusually, there are some disclosures which are no longer required within the financial statements:
- Dates of payments of non-statutory or non-contractual severance payment.
- Combined two-year funds note. This was introduced in 2018 but acknowledged by ESFA as being a misunderstanding of Charity Accounting standards.
Whilst there are a number of small changes to the AAD, these are unlikely to affect the majority of Trusts:
- Categories of Fixed Assets have been altered to reflect those in the SARA, potentially requiring some Trusts to realign their fixed asset categories.
- Where a trust wishes to recognise the use of premises which are occupied rent-free, it should reflect the future notional donation as a debtor, with the notional future cost recognised as a creditor. This will primarily apply to Trusts who occupy Diocese owned land and buildings under licence.
The AAD also includes a number of clarifications, which again are unlikely to affect the majority of Trusts:
- Confirmation that donations from a trading subsidiary are only to be accrued for where a legal obligation to make the payment exists. This is in line with existing charity accounting.
- The pension note now confirms that the government underwriting of the LGPS Scheme is in respect of Academy Trusts, not individual academies. TPS element of the pension note reflects anticipated employer contribution increases taking effect from 1 September 2019.
- Where an asset has components which have significantly differing estimated lives, each element should be depreciated separately over its estimated life. This would rely on Trusts having accurate valuation of each component, and Trusts may wish to discuss with their auditor.
- Grants received for capital purposes must be spent in accordance with the terms and conditions of the grant.
There are only a small number of changes to the AAD this year, those which have been introduced reflect ESFA’s continued focus on governance and transparency. If you would like to discuss any of the issues noted above, please contact Brian Laidlaw or Beth Ramsden.