Written by Alex Bottom, Audit Principal
With a big welcome back at the start of term, now is a good time to focus on the updates the ESFA have sent out over the summer and to look ahead to the impending year end finalisation and audit process.
Please remember to get FRS 102 valuations from your local LGPS provider. Remember if you have more than one school, to get one for every school, and that you may have schools in different LGPS schemes. For MATs please remember to get opening FRS 102 valuations for all schools that have joined your Academy Trust during the financial year.
All new schools joining MATs/SATs should also ensure they have a Land and Buildings valuation of some sort for their main inherited asset. This can either be from the local authority (if you can get it), an ESFA valuation, or a paid for Valuation from a Surveyor. For more information please speak to me or your audit manager about what is required. (See section 8.7, pp 116-121 in the Academies Accounts Direction).
All new schools entering a Trust should also identify other inherited assets, though these are often as simple as agreeing the surplus (or deficit) with the predecessor organisation.
Academies Financial Handbook 2018
The new AFH 2018 is live from the 1st September 2018. If you or your trustees have not yet read this you can follow this link here.
As you all know the AFH sets a number of the rules (and guidance) on how an academy trust should be run from both a governance and financial point of view. It sits on top of the rules that exist in the Academies Trust Memorandum & Articles of Association (the rules of the company itself), and the generic legislation of the Companies Act and the Academies Act.
The AFH is updated annually and changes reflect the current concerns of government and the issues that have arisen in the previous year. The themes that dominate continue to be about strengthening governance, and minimising the risk of bad publicity due to theft and fraud.
Examples of ESFA investigations into Trusts where things have gone wrong provide a useful insight in to government thinking and the list of recent published reports can be found here.
Key changes include:
- Expected minimum number of Board/Trustees meetings (minimum of six – see 2.1)) and reporting thereon.
- Removal of ex-officio descriptor of Chief Executive/Head Teacher (a shift in emphasis removing employed staff from Trust boards (see 1.3.6) – this is much more like the traditional charity model)
- Beefing up the role of the Chair of Trustees (see 1.3.5)
- Explaining further, and encouraging the separation of the role of Trustee (Director) & Member (shareholder equivalent – see section 1.4)), and ensuring Trustees remain in control on sub-committees (see 1.3.7)
- Emphasis on the importance of procedures for whistleblowers (this is how most issues at Academy Trusts are spotted). See 2.7.
- Audit & Finance committees are again flagged (se 2.9) and their responsibility for checking returns to the ESFA (e.g. pupil numbers), as well as providing oversight across the Trust (i.e. all schools financial procedures in a MAT)
- Emphasising cash management and strong budgeting process (challenging the executive team and evidencing that see 2.3)
- Encouraging use of the newly launched national deals for schools in the hope this leads to better value (cheaper) purchasing results.
- Clarifying (encouraging) RPA arrangements
- Encouraging more thought from Trustees on internal audit functions, especially as MATs become more common and more complex.
- Delegated authority limitations are important (see Annex B), but anything unusual (or novel, contentious and repercussive in the lingo) should always be referred to the ESFA in advance (see 3.2). In particular
Related party disclosures & Executive pay
Both remain a key concern of the ESFA, and there are now additional rules and thresholds around this.
Executive pay decisions must be evidence based and on payroll (the ESFA has been writing to outlier Trusts over the summer for justification of levels of pay for the SLTs). See 2.4.3 to 2.4.6.
Related party transactions (see section 3.10 – nearly 5 pages of guidance) continue to have to be at cost (unless below £2,500), but new rules require ESFA prior approval if contract(s) values exceed £20,000 in a financial year. Related party disclosures will continue to be required.
There is some clarification about the powers of the ESFA to intervene in both governance and financial issues.
The ESFA now has a name and shame policy for those Academy Trusts filing information late (two strikes and you’re out)
Academies Accounts Direction for year ended 31 August 2018
The AAD is a mighty 160 pages long, which I’m sure helps make the financial statements, at around 55 pages, seem short and concise. In reality Academy Trust accounts continue to be longer than the norm even in comparison to other charitable companies. A copy is available here.
- The accounts are audited (a true and fair audit opinion)
- There continues to be a regularity sign off as well (both by the Accounting Officer, and the external audit)
- The accounts must follow the format of the AAD
- No size exemptions are available to Academy Trusts even if they qualify for them
- MATs continue to disclose some information per school (see pp 104-108)
Key changes to prior years:
- There is a new disclosure requirement around trade union facility time (note, this information should already have been uploaded to the ESFA – see guidance here) (see page 20/21 of AAD guidance for format of new disclosures
There is a new disclosure on fundraising practices (see page 24)
Additional disclosures on expenditure to raise funds
An even larger funds note (see note 19 in Coketown (pp.54 – 55))
A redesigned fixed asset note to help reconcile to the AAR (note 14)
A redesigned related party transaction note to aid consistent (and detailed) disclosures (see note 31 (pp.62-63))
Additional disclosures for teaching schools (note 36, p.65)
Flagging expenditure on alcohol and excessive gifts as irregular expenditure (see. S9.1.20)
- Year end date 31 August 2018
- Deadline to file the accounts with the ESFA by 31 December 2018 (including the Auditor’s management letter/findings report). Online submission process.
- Deadline to file the AAR online 21 January 2019. Online submission process.
- Deadline to publish the Trust’s financial statements on your website 31 January 2019
We’re not going to concentrate on the AAR here, but there are 4 new reporting requirements this year. The main guidance is here.
The new items are:
- Number of employees whose emoluments exceed £100k
- Gender analysis (on an average full time equivalent basis)
- Related party transactions (by value category
- Number and type of auditor recommendations
And that’s plenty for this newsletter! If you have any concerns over anything mentioned above, then please do not hesitate to get in touch with myself or your audit manager and we’ll be happy to help.