This guide helps academy trusts to understand and comply with the financial accountability framework and assurance arrangements.
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.
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 academy 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 you must seek the Secretary of State’s consent before making a financial transaction. The handbook is updated annually in June and comes into effect on 1 September each year.
EFA developed the current (2013) edition following extensive consultation across the sector through the academies finance and assurance steering group. It maintains the shorter format introduced in 2012, with a focus on the rules rather than detailed guidance. It also emphasises the accounting officer’s personal responsibility to secure regularity, propriety and value for money in the conduct of the academy trust’s financial management. The handbook sets out the requirement for the accounting officer to complete and sign an annual value for money statement. EFA published an update to the 2013 handbook on 31 October 2013 and the changes are explained in the accompanying factsheet.
Financial Management and Governance Self-Assessment (FMGS)
The FMGS is a short 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. 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 self-assessment endorsed by your board of trustees or an appropriate delegated committee and email it to EFA at AcademiesFinancialMonitoring.firstname.lastname@example.org within 4 months of opening or contact us to agree an alternative method of providing assurance.
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 that apply across the trust, your accounting officer may write to EFA to confirm this. EFA will then seek to assurance from the audited accounts received.
You can appoint your auditor to assess compliance with mandatory financial management and governance requirements and send EFA the report.
The Academies Accounts Direction
The Academies Accounts Direction is the reference pack for academy trusts and their auditors to use when preparing and auditing annual reports and financial statements for the accounting periods ending on 31 August annually. It supplements the Academies Financial Handbook.
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
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.
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.
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