Letter to academy trust accounting officers – July 2020

Eileen Milner, chief executive and accounting officer of the Education and Skills Funding Agency (ESFA), has written to the accounting officers of academy trusts.

The letter outlines information regarding the further actions that ESFA are taking in relation to academy trusts’ financial management during the COVID-19 pandemic, and includes advice to help academy trusts in maintaining sound governance, good financial systems and a healthy and safe school environment.

Read here:

Letter to academy trust accounting officers

Contact us

For further advice, please contact Brian Laidlaw or Marc Breeze.

New Academies Financial Handbook 2020 – everything you need to know

The 2020 Academies Financial Handbook has been published by ESFA. This version will come into effect on 1 September 2020, which will replace the 2019 version.

ESFA’s focus over the last year has been amendments and clarifications within the handbook, reflecting the departments belief that good governance and strong financial management are critical to an academy trust’s success. However, the radical and sweeping changes that had been called for from some quarters have taken a back seat in light of the current global pandemic.

The 2020 Academies Financial Handbook continues to emphasise the need for high standards of governance to be applied by all those involved in the management of academies. As expected, there are several changes to this edition which focus on this.

Governance

  • The trustees must also take ownership of the trust’s financial sustainability and its ability to operate as a going concern
  • Confirmation that members must not be employees or occupy unpaid staff roles
  • Members must remain informed about trust business
  • Trusts must appoint a clerk to the board (previously a ‘should’ requirement)
  • Trusts must keep their register of interests up to date

Executive Team

  • Both the accounting officer and chief financial officer (CFO) should be employees, and a requirement for ESFA approval if, exceptionally, they are not
  • Also encouraging larger trusts to consider relevant accountancy qualifications for their CFO, and for all CFOs to maintain professional development

General Controls and Transparency

  • Updated clarifications including maintenance of a fixed asset register
  • Termly review of pupil number projections
  • Use of integrated curriculum and financial planning
  • Avoidance of overdrafts
  • Publication of information about high pay and whistleblowing
  • Confirmation that the trust’s funds must not be used to purchase alcohol
  • Updated board and committee responsibilities for risk management
  • Completion of the School resource management self-assessment tool

Internal Scrutiny

  • Updated text including clarification that internal scrutiny covers both financial and non-financial controls
  • Removal of the option for internal audit to be performed by the external auditor
  • Confirmation that trusts can use additional individuals or organisations to support internal scrutiny where specialist nonfinancial knowledge is required

Annual Accounts

  • More on the audit and risk committee’s role in relation to external audit

ESFA are seeking to ensure that academies are once again achieving the high standards of governance and financial management expected by public bodies. The changes and clarifications to this version of the handbook are a clear statement of this intent, and therefore Trust’s need to ensure that their processes and procedures meet these standards.

Contact us

If you’d like to discuss the implications for your trust, please contact Brian Laidlaw or Marc Breeze on 0191 285 0321 or email advice@taitwalker.co.uk

The Academies Accounts Direction 19/20 has been published

The Government has published its detailed guidance for academy trusts and auditors on preparing and auditing academy trusts’ annual financial statements.

The Academies Accounts Direction is the reference pack for academy trusts and their auditors to use when preparing and auditing financial statements for the accounting period ending on 31 August annually.

It explains the elements you must include in your academy trust’s annual report and financial statements and the accounting treatments required. It also provides a model format for the report and the financial statements and ensures consistency of treatment between academy trusts.

The Accounts Direction outlines the requirements for each academy trust to:

  • Prepare an annual report and financial statements to 31 August
  • Have these accounts audited annually by independent registered auditors
  • Produce a statement of regularity, propriety and compliance and obtain a regularity assurance report on this statement from the auditor
  • Submit the audited accounts and auditor’s regularity assurance report to ESFA within 4 months of its year end, usually by 31 December
  • File the accounts with the Companies Registrar as required under the Companies Act 2006
  • Publish the audited accounts on the trust’s website, usually by 31 January

You can read the full document here: https://www.gov.uk/guidance/academies-accounts-direction

Contact us

As always, we are here to help and guide you through this process. For further information please contact Brian Laidlaw on 0191 226 8329 or email brian.laidlaw@taitwalker.co.uk

The Department for Education (DfE) cancels academies budget forecast return outturn

Each year, Academy Trusts are required to submit the financial outturn as at the end of March.

This information will allow the Education and Skills Funding Agency to ensure that the academy sector can accurately report its financial data to HM Treasury. The online form was due to be made available the week commencing 20 April.

Following the outbreak of the coronavirus, there has been added demands on schools and academies, as well as the difficulties encountered with remote working by some staff.

As a result of this, on 17 April The Department for Education have announced that the budget forecast return outturn will not be required this year.

At the time of writing, the budget forecast return 3 year is still required to be completed. The online form is scheduled to go live on 23 June.

Contact us

If you would like to find out how we can support your Trust in meeting ESFA requirements, please contact our specialists:

Brian Laidlaw, Business Services Partner
T: 0191 285 0321
E: brian.laidlaw@taitwalker.co.uk

Marc Breeze, Business Services Academy Manager
T: 0191 285 0321
E: marc.breeze@taitwalker.co.uk

New Academies Financial Handbook 2019 – everything you need to know

The 2019 Academies Financial Handbook has been published by ESFA. This version will come into effect on 1 September 2019, which will replace the 2018 version.

Given ESFA’s focus over the last year, the changes and clarifications within the handbook are not unexpected and reflect the departments (and particularly Lord Agnew)’s belief that good governance and strong financial management are critical to an academy trust’s success.

Governance

The 2019 Academies Financial continues to emphasize the need for high standards of governance to be applied by all those involved in the management of academies. As expected, there are several changes to this edition which focus on this.

  • The handbook emphasizes the need for Trustees to ensure that robust governance is applied, through:
  1. Strategic leadership
  2. Accountability
  3. People with the right skills
  4. Clearly defined roles and responsibilities
  5. Compliance with statutory and contractual requirements
  6. Evaluation of governance
  • Appointing a clerk to the board is a new ‘should’ recommendation of the handbook, which emphasises the value that an appropriately experienced and knowledgeable clerk can bring to the trust.
  • Direct contract details for all members, trustees, the Accounting Officer and the Chief Financial Register are required to be added into the ‘Get Information About School’ (GIAS) register.
  • The board should act quickly where there are concerns over financial performance and have the financial skills to do so.
  • Trusts with over 250 employees are reminded of their responsibility to publish gender pay gap details on the government website, as well as the Trust’s own website.
  • Audited accounts must be provided to all the Trust’s members.
  • Trusts are reminded that they must be aware of the limits of their delegated powers and seek ESFA approval for any transactions which fall outside these powers.

Internal Scrutiny

  • All trusts must have a programme of internal scrutiny in place, to provide independent assurance to the board.
  • It is the trust’s responsibility to identify on a risk-basis, with reference to the risk register the areas to be reviewed each year.
  • Oversight must ensure that information submitted to ESFA which affects funding is accurate and complies with funding criteria.
  • A short report of work undertaken should be provided to the audit committee (or committee undertaking the functions of the audit committee) on a regular basis. In addition, an annual summary should be provided to the audit committee, and this should also be submitted to ESFA with the annual accounts. This will first apply from December 2020, in relation to the 2019/20 academic year.

Findings of internal scrutiny reports must be made available to all trustees, and not just the audit committee.

Executive (Senior Management) Pay

  • This continues to be a contentious area, decisions regarding executive pay should consider not just salary, but any other remuneration, such as pension contributions. Decisions taken should be taken having followed a robust, evidence-based process considering each individual’s role and responsibilities. The board must ensure that their approach is transparent, proportionate and justifiable. Details of considerations can be found at AFH 2.31.
  • All senior managers with significant financial responsibilities must be included on the Trust’s payroll. Non-compliance with this requirement may result in a fine from HM Treasury.

Budgeting

  • Budgeting requirements have been expanded to include consideration of estate management, particularly important for larger trusts. AFH 2.14 refers to a number of useful guides which can aid trusts with this responsibility

Risk Register

  • It is now a ‘must’ requirement for trusts to maintain a risk register

Whistle Blowing

  • Trusts are reminded that they must have a whistle blowing policy in place which has been agreed by Trustees. Trusts must ensure that staff are aware of the whistleblowing process and how their concerns will be managed.

Clarifications

  • Management accounts should include the following; income and expenditure account, balance sheet, variation to budget report and cash flow. These must be prepared monthly and shared with the chair of trustees every month. All other trustees must receive management accounts at least six times per year.
  • Related party transactions must be notified to ESFA before they occur. In addition, permission must be obtained from ESFA before a related party transaction occurs in any of the following instances:
  • A contract or other agreement exceeds £20,000
  • A contract or other agreement of any value that would mean the cumulative value of contracts and other agreements with the related party exceeds, or continues to exceed, £20,000, in the same financial year ending 31 August.
  • The above do not include salaries and other payments made by a trust to a person under a contract of employment through the trust’s payroll.
  • The handbook clarifies the Secretary of States powers where there are concerns of an individual involved with the management of a trust. These include, but are not limited to:
  • Requiring the trust to remove the individual from their position and preventing them from undertaking such a role in the future. In addition, the Secretary of State may also refer trusts to the Charity Commission or Insolvency Service, where considered appropriate.

Financial Notice to Improve

  • Trusts which receive a financial notice to improve are now required to publish this on their website. Trusts in this position have a number of their delegated authorities revoked, and details of these can be found in AFH 6.17.

ESFA are seeking to ensure that academies are achieving the high standards of governance and financial management expected by public bodies. The changes and clarifications to this version of the handbook are a clear statement of this intent, and therefore Trust’s need to ensure that their processes and procedures meet these standards.

If you’d like to discuss the implications for your trust, contact Brian Laidlaw or Marc Breeze on 0191 285 0321 or email advice@taitwalker.co.uk

ESFA releases 2018/19 Academy Accounts Direction

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.