Guidance

Academy trust management accounting

Updated 14 February 2024

Applies to England

This content was last updated 31 March 2019.

1. Background

As the trust chief financial officer (CFO), you will likely be producing the management accounts and reports, or you will be leading on the development work either within the school or with accounting partners.

The role of management accounting in schools is crucial for understanding the status of accounting reports, and for strategic level decision making on resources. Where there has been an enormous amount of changes within the schools system over the last few years, knowing how to decide on all kinds of resources and having those tools in place is critical.

Regular management accounts enable good management. Regular reports on trusts' financial position enable trustees to scrutinise accordingly and are essential to good governance.

This factsheet outlines statutory obligations and provides hints and tips on setting up overall management accounts. The following section then outlines guidance for monthly management accounts.

2. Regulatory obligations

The Academies Financial Handbook (AFH) requires that the academy trust must have in place sound internal control, risk management and assurance processes. The AFH sets out what the trusts' internal framework must include. In terms of aspects relating to finances this includes:

• co-ordinating the planning and budgeting processes
• applying discipline in financial management, including managing banking, debt and cash flow, with appropriate segregation of duties
• preparation of monthly budget monitoring reports

These statutory obligations can be viewed as a hindrance to trusts, however there are a number of benefits from adhering to them. By applying the above requirements, the academy will be producing monthly management information, the financial part of which is referred to as management accounts. Management accounts and reports are a powerful source of information: actual results can be compared to budgets to establish where the trust may have over/under spent during the period, allowing for an effective review of its forecast for the year. Regular re-forecasts allow the trust to look ahead and determine where costs are too high, and therefore may need reducing, together with where there may be opportunities to capitalise on a better-than-expected income stream. Other benefits include:

• an understanding of why variances have arisen
• providing information about the level of costs, such as staff costs in relation to income and whether this is at a reasonable and sustainable level
• the provision of information to trustees on the current financial performance of the trust

3. Automation

As a basic guide, management accounts should include an income and expenditure account, a cash flow and balance sheet. Trying to automate this process as much as possible would reduce the time taken to prepare the monthly accounts; many finance packages will have an in-built feature which will allow CFOs to produce the relevant reports.

3.1 Hints and tips

It is worth thinking about how your financial package can work for you. For example, whether your chart of accounts is set up in a way that aids your preparation of the year end accounts. Could you tailor the reports the package produces to make them more relevant to the trust? Can you automate your fixed asset register and determine depreciation rates to be used on each asset class?

4. Steps to take when producing management accounts

If the process is automated, it should be a simple case of requesting the relevant reports from the system such as income and expenditure accounts, balance sheets, trial balances, and any other reports that the CFO believes will aid understanding of the financial results. While producing the management accounts, the following actions should be taken. The table details the actions which should be taken prior to producing a set of management accounts. It is not exhaustive, but does cover the main points.

Action required	Completed
Reconciliation of the bank accounts (including credit cards)	Yes/No
Reconciliation of the VAT account	Yes/No
Reconciliation of payrollIf payroll is calculated by an external provider, have the journals for the month being reviewed and signed as authorised?	Yes/No
Calculation of necessary prepayments/accrualsHave the relevant journals been entered onto the finance systems?	Yes/No
Reconciliation of debtors and creditors accountPrint aged debtors/aged creditors report	Yes/No
Is the fixed asset register up to date?Has depreciation been calculated for the month and a relevant journal been entered onto the system?	Yes/No
Run a trial balance	Yes/No
Run an income and expenditure report	Yes/No

5. Format of management accounts

As stated initially, the main benefit to producing management accounts is that it allows a trust to monitor its financial results and have a more realistic outlook as to whether the budget will be met.

In order to gain a better understanding of the financial results, it may be beneficial to export the data collected by the finance system onto Excel. This will give CFOs the freedom to present the data in a way that works for them. There is no prescribed format for a set of management accounts. A basic format for a set of management accounts is available on the ISBL ESFA Academies Library along with a cashflow statement.

There are also a good deal of internet-based resources and management accountancy wizards. It is perhaps worth looking at these: http://www.manager.io/ or http://www.sage.co.uk/software-and-services/accounting-and-finance are examples

The AFH sets out the overarching requirements of what needs to be included in the monthly management accounts. They should set out the trust's financial performance (income and expenditure) and position (balances), comprising budget variance reports and cash flow forecasts with sufficient information to manage cash, debtors and creditors. The CFO should regularly discuss the format of the management accounts with the users: generally, the senior leadership team (SLT) and the trustees. It may be that the information included within the management accounts is presented differently to these 2 groups. The more detailed version may be more beneficial to the SLT as this group will require a sufficient level of detail to understand which areas are over/under budget. A more summarised version may suffice for the trustees. Some trustees may not be too concerned with all the detail and, if they have no financial background, may be overwhelmed by all of the financial data. However, it is important to understand their requirements and to present the information in such a way that it enables them to perform effective oversight.

It is important to include commentary within the management accounts explaining any significant variances, noting any common trends or highlighting any potential areas of risk. Again, the users of the management accounts should be kept in mind and the commentary should remain as informative as possible but without using too much financial language.

6. Monthly management accounts

The AFH requires that the monthly management accounts are sent to the chair of the trust every month and to all other trustees not less than six times a year.

The latest management accounts should be presented to each finance committee meeting and (in an appropriately summarised form) to each trust meeting.

As best practice, individual budget holders should also be provided with monthly income and expenditure accounts and/or transaction lists relating to their departments, for reconciliation.

6.1 Income and expenditure report

This should set out:

• budget for the month just ended against actual results for the month, and variance (value and percentage)
• budget for the academic year to date against actual results to date, and variance (value and percentage)
• budget for the full academic year against latest forecast outturn for full year, and variance (value and percentage).

There should be separate income and expenditure accounts for recurrent and capital funds.

Areas to review:

• ensure that a supporting narrative is produced which adequately explains the reasons for any significant variances from the budget
• there is no set amount for salary costs however guidance has suggested that staff costs are generally 70% to 80% of income with anything higher likely to be unsustainable
• supply cover – review levels of sick leave (long and short term), maternity leave and other absences and consider whether action is needed to reduce cover costs
• repairs, renewals and energy costs - consider whether sufficient provision is being made for these potentially significant items
• consider whether private income is being generated as forecast (such as lettings / sales)
• consider where any activities should be extended or reduced in light of latest budget projections
• If a deficit revenue budget is set and there are no sufficient reserves to cover it, per paragraph 2.2.5 of the AFH, the trust must notify the ESFA within 14 days of the deficit revenue budget being set.

6.2 Balance sheet

Areas to review:

• debtors – this figure should represent monies due to the trust but not yet received. Ensure that a separate "aged debtor" analysis of this figure is provided and that appropriate action is being taken to pursue significant overdue amounts
• cash at bank - check that the actual cash at bank physical balance is not overdrawn (academies can not borrow – this includes overdrafts)
• creditors and accruals – these should include invoices received and payable by the trust plus commitments made where the invoice has not yet been received. There may be anomalies some months which result in creditors being in excess of 20% of one month's GAG
• net current assets (current assets minus current liabilities) – check that these are positive. A negative balance is indicative of potential cash flow problems
• pension scheme liabilities – the pension scheme actuary should be asked for a statement of liabilities each year when the annual accounts are being produced. Ensure that the impact of any change (for example, a revised monthly pension contribution rate) is reflected in the income and expenditure budget. Since pension costs are outside the control of trusts, it may be better to consider excluding the overall liability from management accounts.

6.3 Cashflows

A cashflow statement can be the most difficult part of producing management accounts, but it is an important tool in understanding where cash is being spent, whether the trust has the potential to run out of cash during the year and identifying any months in which the cash balance could be low.

The ISBL ESFA Academies Library contains a model cashflow forecast, as well as other financial management models.

6.4 Annual accounts

These must be completed, audited, signed off and submitted to the DfE currently by 31 December each year.

Points to consider:

• ensure that an audit site visit has been arranged to review the draft accounts and underlying records (should be Oct/Nov)
• ensure that responsibility is assigned to write the accompanying trustees report
• ensure well in advance that a date has been set for the trust to authorise the accounts (should be Nov/Dec)
• ensure that any feedback from the auditors is acted upon (should be received before the trust authorises the accounts)
• review the appointment of auditors for the following year (at the authorisation meeting). Auditors are appointed for one year at a time, though if the appointment is made by the members the re-appointment will be automatic unless there is a decision to the contrary. A full re-tendering exercise should be carried out periodically (for example, every 5 years).

7. Acknowledgements

Special thanks to the Institute of School Business Leadership.

ESFA will review update this guide by March 2021.