2019 Autumn Term 2

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While the new Academies Financial Handbook adds more regularity burdens on trusts, if employed correctly, the scrutiny undertaken can add significant value to trusts and reassure trustees that key risks are being mitigated effectively, says James Taylor from Cooper Parry.

Internal scrutiny

The latest edition of the Academies Financial Handbook 2019 (AFH 2019) has significantly strengthened the requirement for independent assurance to be sought by trustees to ensure that financial controls and risk-management procedures are operating effectively within their academy trust. This assurance, known as ‘internal scrutiny’, applies to all academy trusts.

Process for effective internal scrutiny

AFH 2019 states that an academy trust must establish an audit committee, appointed by the board, which will direct the work to support internal scrutiny. 

A trust with an annual income under £50 million can combine the role of the audit committee with another subcommittee; otherwise it is mandatory for the audit committee to sit separately and meet at least three times a year. 

The trust must deliver internal scrutiny in a way best suited to the complexity and requirements of the individual trust. Those carrying out the work could include any of the following:

  • an employed in-house internal auditor who is a member of a relevant professional body
  • a bought-in internal audit service from an appropriately qualified firm
  • a non-employed trustee or a peer review by a chief finance officer from another trust with a suitable finance, accounting or audit qualification

Link to risk register

Part of the role of the audit committee is to review the risk register, which details the risks facing the trust and the steps to mitigate them. A good risk register will help inform the work to be undertaken by those delivering internal scrutiny. Trustees should assess and reflect upon risks identified and ask:

  • What are the highest perceived risks to the academy trust?
  • How are these risks being mitigated?
  • Do we have independent assurance, or can we externally corroborate that we are sufficiently mitigating the risk?
  • Do the controls work effectively?

The ESFA does not expect all risks to have an independent review immediately and accepts this will take time. However, it does expect a timetable of work be put in place to address risks identified, with an expectation that higher risk areas are reviewed as a priority. This work, when completed, should then be reported to the full trustee board by the audit committee.

Work to add value

An example of what a good internal scrutiny structure might look like, which sits alongside the external audit process, is illustrated below. It identifies that simple day-to-day transactions are best tested by peer or trustee reviews that can be completed free of charge. This allows an external party to assist with the strategic risks a trust might have, such as a review of the trust governance structure, the onboarding process for new schools into the trust or the scalability of central support services in the trust.

This internal scrutiny work is considered by the external auditor who will use all the information available to provide a risk assessment of the internal control environment. This will then allow for the year-end statutory audit to focus testing accordingly and provide the regularity assurance report and a management letter that can support the recommendations picked up during the programme of internal scrutiny work.


The trustee board needs to be provided with findings on a timely basis once internal scrutiny work has been completed. The work will also be reported externally in the governance statement within the annual accounts as it has done in previous years.

For the year ending 31 August 2020, an annual summary report needs to be provided to the Education and Skills Funding Agency (ESFA), together with the submitted annual accounts and management letter, by 31 December.

This is a new reporting requirement and requires the summary report to cover the areas reviewed, key findings, recommendations and conclusions. The ESFA may also request individual internal scrutiny reports if required. 

See the full guidance paper at www.ascl.org.uk/InternalScrutiny

James Taylor
Senior Audit Manager at Cooper Parry