2020 Autumn Term 2

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ASCL Business Leadership Specialist Hayley Dunn highlights the learning points for academies from the Education and Skills Funding Agency (ESFA) assurance findings.

Checks and balances

The ESFA recently published information on common themes arising from ESFA’s assurance work in 2019 to 2020 (https://tinyurl.com/y4wdmtzz), which incorporates key findings from its reviews of academy trust financial statements, financial management and governance reviews and academy funding audits. We think it would be useful for academies to be aware of the key findings and the latest ESFA internal scrutiny good practice guide, as they work on their future business improvement planning and audit action plans. 

The findings stated that the percentage of accounts received on time had risen to 98%, with the main reason given for delays being where academy trusts had closed in year and not submitted accounts as part of the process, and from those in intervention.

Audit qualification

As part of the external audit process, financial statements can be ‘qualified’ and of the small percentage that were, the main reasons were accounting treatment of land and buildings or valuations and Local Government Pension Scheme (LGPS) actuarial valuations (the report that assesses the status of the pension fund at a point in time). There was a small decrease in the ‘emphasis of matter’ or ‘material uncertainty’ opinions (the main reason for the latter continues to be under the ‘going concern’ concept). 

The percentage of modified regularity opinions increased slightly; the rise appears to mainly be due to the new requirement prohibiting any purchase of alcohol. The Academies Financial Handbook (AFH) 2020 states, “2.35 The trust’s funds must not be used to purchase alcohol for consumption, except where it is to be used in religious services”. The purchase of alcohol is an issue that ASCL raised with the ESFA, asking it to consider circumstances where academies have venues that host events, but the only waiver is for religious services. 

Internal financial reporting was identified as an area under modified regularity opinions, with issues including monthly management accounts not being shared with the trust board; weaknesses in the information presented; no or inaccurate bank reconciliations; concerns about cash management, budgeting and/or maintenance of risk registers; and ESFA deadlines being missed. 

The other significant area was insufficient independent checks of controls, with issues including no internal audit work completed, the process being inadequate or not robust enough. There were other issues pertinent to procurement, related party transactions, leases, fraud, non-contractual payments, accounting policies, breach of delegates powers and capital transactions. 

Funding checks

The error rates on census data and free school meal entitlement checked as part of academy funding audits was reported as remaining low, although the ESFA stated there were circumstances where evidence had not been retained to show a learner’s entitlement had been checked at census.

Weaknesses found in the audit of student bursary funding included evidence being deemed insufficient in support of payment decisions and not retaining evidence to support discretionary bursaries eligibility.

Internal scrutiny

The ESFA also stated that it saw very little detail of internal scrutiny practices of the findings from this type of work within the programme information submitted. 

The ESFA has published an internal scrutiny good practice guide (https://tinyurl.com/ycjhty2w). It is important to note that the ‘good practice’ guides do not replace or modify the requirements set out in the AFH, nor the Academies Accounts Direction; they are suggestions of good practice. The options available to trusts enabling them to deliver internal scrutiny are set out in the AFH. 

The good practice guide sets out what the AFH says about internal scrutiny, including the link with risk management, internal scrutiny options (as set out in the AFH), advice on the option to choose, what to cover, a suggested process for a risk-based approach to internal scrutiny and reporting findings. 

The AFH requires the internal scrutineer to provide a trust’s audit and risk committee with an annual internal scrutiny report. Academies are required to submit a copy of their annual report to the ESFA by 31 December each year. The report needs to summarise the areas reviewed, key findings, recommendations, management response and the overall conclusions. Within the good practice guide’s annexes, there is a suggested terms for reference for an academy trust’s audit and risk committee, suggested areas of coverage and a suggested format for the internal scrutiny annual report.

Hayley Dunn
ASCL Business Leadership Specialist