The updated Academies Financial Handbook now places greater emphasis on internal scrutiny, introducing more robust and prescriptive requirements on trustees. The changes will hold academy trusts to a higher level of internal scrutiny and introduce greater consistency across schools.
Our expert Liz Wicks explains the new changes and what they will mean for academy schools.
The overarching aim of the new guidance is to ensure that all academy trusts have a programme of internal scrutiny that provides independent assurance that its financial controls and risk management procedures are operating effectively.
The new Handbook introduces measures that academy trusts must now adhere to, that in previous editions were only recommendations.
In terms of the general approach, internal scrutiny now must focus on three broad areas:
- Evaluating the suitability and level of compliance with financial and other controls, including whether procedures are effective and working;
- Offering insight to the board on how to address weakness in financial and other controls; and
- Ensuring all categories of risk are identified, reported and managed.
Internal scrutiny will fall under the remit of the Audit Committee. Where an academy trust’s turnover exceeds £50m it will need to establish a standalone Audit Committee, otherwise trusts can combine the Audit Committee with another. Members cannot be employees of the trust, but the CEO and the CFO should attend to provide information and participate in discussions.
There are a number of operating principles that the committee must now observe. These include:
- Having written terms of reference that describe its remit;
- Agreeing a programme of work to deliver internal scrutiny that provides coverage across the year;
- Reviewing and modify the risks register;
- Agreeing who will perform the work;
- Reviewing progress on recommendations; and
- Considering outputs from third parties, such as the ESFA.
The handbook is also prescriptive in how the committee should deliver internal scrutiny. Internal scrutiny now must:
- Be independent and objective, meaning responsibility cannot rest with a member of an academy trust’s own financial team;
- Be someone suitable qualified and experienced;
- Be timely, with work spread over the course of a year;
- Including regular updates to the audit committee, and an annual summary to the audit committee that outlines areas reviewed, findings and recommendations.
It is outlined who should lead internal scrutiny, recommending one or any combination of the following:
- Employing an in-house internal auditor;
- A brought-in internal audit service;
- The appointment of a non-employed trustee; or
- A peer review by the CFO or other member of the finance team from another academy trust.
Internal scrutiny now needs to be kept under constant review and must report annually to the ESFA (by 31 December) a summary report of areas reviewed, any recommendations and conclusions.
Putting it into practice
The changes introduced in the latest edition of the handbook will require considerably more scrutiny than previously undertaken, which is evidenced and acted upon. Internal scrutiny is obviously important, and the requirements introduced in this edition of the Handbook are all sensible inclusions.
Yet, they come at a time when trustees are being asked to take on ever more responsibility and when fewer people are prepared to freely give up their time.
Ideally, a committee will want to draw upon a wide range of skills – a lawyer, accountant, those with an education or charities background, or businessmen and women – who are trained and supported to understand the new scrutiny requirements. Yet academy trusts are finding it increasingly difficult to find trustees that are suitably skilled enough to take on the role.
Academy trusts, particularly multi academy trusts, need to better publicise these roles more widely amongst parents to secure the support needed. It is without doubt a challenging role, with committees meeting at least three times a year, but one that is ultimately rewarding that supports future generations.
There is not a one size fits all approach to internal scrutiny with the EFSA recommending academy trusts find the approach that best meets their own needs. It wants schools to have the right processes in place, that are acted upon, and, through more detailed reporting, the ability to better understand how they are doing.
How can we help
We have a long tradition in providing advice and support to academy trusts. Naturally, you will want to invest your funds wisely and get the best value for money and most effective services for your academy. Our academy team provide high quality internal audit services along with expert advice and support to primary and secondary schools, and multi school trusts. We understand that your academy has its own individual needs, and we work closely with you to provide you with the help and support you need to achieve your goals. We can help academy trusts highlight risk areas and can offer recommendations that balance efficiencies against effective controls.
Five questions Trustees need to ask themselves;
- Does your trust have a robust annual programme of works that provides coverage across the year?
- Do you review your risk register and incorporate this into the programme of works?
- Are your key concerns being addressed by this programme of works?
- Do you have prompt and detailed feedback from your internal scrutiny visits?
- Are you discussing this feedback with the management team and devising a strategy to implement improvements?