Guidance

Academies financial assurance

This guide helps academy trusts to understand and comply with the financial accountability framework and assurance arrangements.

Introduction

Academy trusts are independent charitable companies. They are also classified by the Office for National Statistics as central government public sector bodies. While academies are responsible for their own financial management, they are subject to public standards of accountability. The Department for Education, rather than the Charity Commission, is the principal regulator of academies and is responsible for overseeing their compliance with the financial accountability framework and with charity law.

The Education Funding Agency (EFA) oversees the arrangements that provide Parliament with assurance that academies operate to high standards of propriety and regularity. It aims to keep a reasonable balance between academy trusts’ independence and the need to account for public money, and it has worked with a steering group of academy trusts to achieve a position where the accountability requirements are satisfied while the administrative burden is minimised.

The main components of the financial accountability framework and assurance arrangements are set out below.

Who this guide is for

This guide is for academy trust accounting officers, finance staff and trustees. Auditors of academy trust accounts may also find it helpful.

The Academies Financial Handbook

The Academies Financial Handbook sets out the basic financial management, control and reporting requirements that apply to academy trusts. It describes a financial framework for trusts that reflects their accountability to Parliament and the public, and the freedoms that they can exercise in their day-to-day business. Compliance with the handbook is a condition of an academy trust’s funding agreement.

The handbook also describes the delegated financial authority levels that the Secretary of State for Education has given to academy trusts and the circumstances when trusts must seek the Secretary of State’s consent.

EFA worked collaboratively with the academies finance and assurance steering group and its working groups of academy staff to develop the handbook, which is focused on principles rather than detailed guidance.

EFA published the 2015 edition of the handbook in July 2015, and it is effective from 1 September 2015. This strengthens the requirements on academy trust governance, and emphasises that trusts must publish details of their governance arrangements in a readily accessible format (directly onto web pages). It also further reduces burdens on trusts by simplifying the arrangements for reporting on value for money, and provides more flexibility around establishing an audit committee. The main changes are summarised on pages 5 and 6 of the handbook.

Trading with connected parties

Section 3.2 of the handbook sets out the principles academy trusts must adopt when trading with connected parties. Additional guidance on charging for overheads is below:

Overhead charges should be proportionate to the amount of work the supplier is doing for the trust. For example, if 10% of the connected supplier’s activity is for the trust, then that trust should pick up no more than 10% of the supplier’s total overheads. However, if at the end of the academy financial year, the charges for overheads recouped by the supplier exceed the total the supplier paid for overheads, the supplier should reduce the charges to the trust in the next academy financial year. This will ensure:

  • that the trust is complying fully with the ’not for profit’ principles set out in the handbook by paying no more than the proportionate sum for the services received
  • that the supplier is not drawing inadvertent profits

Financial Management and Governance Self-Assessment (FMGS)

The FMGS is a short online self-assessment checklist that highlights the main requirements new academy trusts must have in place soon after opening. The requirements within the checklist apply from the date on which the funding agreement was signed, so trusts should ideally consider an FMGS before opening. It provides a simple way for you and EFA to gain assurance that your academy trust’s financial management and governance arrangements meet these requirements.

As part of EFA’s assurance programme, it may choose to visit your academy to review the evidence used to inform your self-assessment.

You will need to get your FMGS endorsed by your board of trustees or an appropriate delegated committee and submit it to EFA using the online form within 4 months of opening.

Alternatives to the FMGS

  • If you are joining an existing multi-academy trust which has previously prepared audited accounts and you plan to adopt the same financial management and governance arrangements, your accounting officer will need to confirm this on the online form. EFA will then seek assurance from the audited accounts received.

  • You may appoint an auditor to assess compliance with mandatory financial management and governance requirements. The report will need to be sent to EFA within 4 months of the academy opening, and you should let EFA know by completing the enquiry form linked at the end of the page.

The Academies Accounts Direction

The Academies Accounts Direction is the reference pack for academy trusts and their auditors to use when preparing and auditing financial statements for the accounting period ending on 31 August annually. It supplements the Academies Financial Handbook. In producing the Accounts Direction, EFA takes requirements set out by the Charity Commission in its Statement Of Recommended Practice (SORP) and translates them into a form applicable to academy trusts.

The Accounts Direction outlines the requirements set out in academy trusts’ funding agreements with the Secretary of State where each academy trust must:

  • prepare an annual report and financial statements to 31 August
  • have these accounts audited annually by independent registered auditors
  • produce a statement of regularity, propriety and compliance and obtain a regularity assurance report on this statement from the auditor
  • submit the audited accounts and auditor’s regularity assurance report to the EFA by 31 December
  • file the accounts with the Companies Registrar as required under the Companies Act 2006
  • publish the audited accounts on the trust’s website by 31 January.

New academy trusts incorporated on or after 1 March may, if they wish, defer preparation of their first accounts until 31 August the following year. Trusts must contact EFA if they intend to do this, or if they intend to prepare dormant accounts.

The Accounts Direction explains the elements you must include in your academy trust’s annual report and financial statements and the accounting treatments required. It also provides a model format for the report and the financial statements and ensures consistency of treatment between academy trusts.

In addition to the audited financial statements, you will be required to submit financial returns to EFA annually. You can find out how to submit these in the detailed guide to academies financial returns.

Academy auditors

The National Audit Office (NAO), auditor of the department’s group accounts which include academies’ consolidated financial statements, has produced a set of group communications for academy auditors setting out in detail:

  • the academy auditor’s role in the department’s group accounts
  • NAO’s expectations of academy auditors
  • the risks of material misstatement in the group financial statements

Fraud and financial irregularities in academies

EFA has published resources to support academy trust accounting officers to manage their finances in a transparent and effective way, and to reduce the risk of fraud or financial irregularities. These include a list of generic indicators of potential fraud and a checklist to help you review your academy trust’s arrangements for preventing, detecting and dealing with fraud should it occur.

As a starting point, you may wish to complete a self-assessment of your academy trust’s financial controls using the questions posed in the 17 June 2013 letter to accounting officers from EFA Chief Executive Peter Lauener.

To reduce the risk of fraud you could consider the following actions:

  • ensure anti-fraud and whistleblowing policies are in place and regularly update these and communicate them to staff
  • conduct regular anti-fraud awareness training events for finance staff
  • highlight to staff that they can also contact the EFA with any concerns of possible irregularity or fraud
  • management communications to pursue identified incidents of fraud
  • ensure your financial controls are regularly assessed and are well designed/implemented
  • ensure that there is appropriate segregation of duties in your controls
  • review your processes for references and background checks on new employees
  • scrutinise significant business transactions and personal relationships to avoid possible conflicts of interest
  • install a physical security system to protect your academy’s assets

View EFA’s training videos and recorded webinars on the financial framework and completing your financial returns.

EFA enquiries

For all enquiries for the Education Funding Agency