Guidance

Common themes arising from ESFA's assurance work in 2020 to 2021

Updated 13 September 2023

Applies to England

1. Objective

This briefing note provides an overview of the key assurance findings from the ESFA assurance year 2020 to 2021, including the review of academy trust financial statements, academy funding audits, financial management and governance reviews, SRMSAT.

2. Academy trust financial statements

2.1 Overall findings

This year due to the pandemic, the deadline for trusts to submit their financial statements had been extended by one month from the 31 December 2020 to the 31 January 2021. Trusts were required to submit three returns, their audited financial statements, the auditor’s management letter and their annual summary internal scrutiny report.

We found that:

• The percentage of accounts received by 31 January for the 2019 to 2020 trust financial year was 97% (2018 to 2019 with the deadline 31 December: 98%).
• The main reasons for delays were similar to previous years, trusts closed during the year and had not submitted accounts as part of the closure process. In addition, several trusts, which were in intervention, had not submitted their accounts by the deadline. At the date of publication, there are 2 trusts, which have not submitted their audited financial statements.
• The percentage of qualified financial statements for the 2019 to 2020 year was 0.5% (2018 to 2019: 0.7%). The main reasons for the qualified opinions were accounting treatment for land and buildings and inadequate accounting records.
• There was a 1.2% decrease in ‘emphasis of matter’ or ‘material uncertainty’ opinions. The main reason for the emphasis of matter opinions continues to be ‘going concern’ because of the trust having closed or proposing to close within the following 12 months. However, this has decreased by 0.6% from the previous year.
• The percentage of modified regularity opinions in the 2019 to 2020 year was 8.5%, which was higher than in the previous year, (2018 to 2019: 7.1%). Of the total number of reasons for the modifications, just under 14% were directly attributed to the COVID-19 pandemic. The main issues for the regularity modifications due to the pandemic were, no internal scrutiny reviews having been carried out, management accounts not produced and trusts not being able to hold the required number of board and / or finance meetings.

2.2 Financial statements regularity opinions

Figure 1: Breakdown of the reasons for qualified and emphasis of matters opinions

2.3 Financial statements regularity opinions

The highest number of modified regularity opinions was in relation to internal financial reporting. This is broken down into the following areas:

• Management accounts (issues include not sharing with the Board, not produced at all and adequacy of the information being presented).
• Financial management (issues include either no or inaccurate bank reconciliations, value for money concerns, lack of payroll authorisation and payments made without appropriate approval).
• Governance (issues include Get Information About Schools (GIAS) not being updated and financial statements not being published on the trusts website).

The second highest number of modified regularity opinions was in relation to related party transactions. This is broken down into the following areas:

• Prior approval not sought (not obtained from ESFA for RPTs greater than £20k).
• ‘At cost’ policy not adhered to.
• Conflict of interests (main issue, failure to identify and document conflicts of interest appropriately).

Figure 2: Breakdown of the reasons for modified regularity opinions

2.4 Internal scrutiny

Trusts are required to submit an annual summary internal scrutiny report to contain the areas reviewed, key findings, recommendations and conclusions.

For some trusts, an annual summary report was either not submitted, or what was submitted did not meet the minimum requirements, as noted above. Examples of documents submitted that were non-compliant included:

• An extract copied from the governance statement, taken directly from the accounts.
• An extract from the external auditor management letter.
• Minutes from a committee meeting.

3. Financial management and governance reviews

Our assurance findings showed that all academy trusts reviewed, were making good progress towards compliance with the Academies Financial Handbook (AFH) (now known as the Academies Trust Handbook). The areas where further development is required include:

• Establishing an audit and risk committee, to agree a programme of work to address risks to financial control (internal scrutiny).
• Delivery of an appropriate internal scrutiny programme and oversight of the findings.
• Management accounts, ensuring they contain all required elements, are shared with all trustees six times a year and support appropriate board action, to review and maintain financial viability.
• Trusts publishing the pecuniary interest of its’ trustees and governing structure on their website.
• Sound internal control framework, with clearly communicated procedures and appropriate day to day supervision, with regular management checks.

4. Academy funding audits

The levels of errors relating to both census data and free school meal (FSM) entitlement remained low, which is consistent with previous years.

Using funding errors based on the number of learner errors within the sample, the General Annual Grant (GAG) and Free School Meals (FSM) error rates for census was 0.11% (2019-20: 0.05%), and for FSM 0.13%, (2019-20 0.34%). The error on GAG related to post 16 pupils who had registered with two establishments.

In relation to the FSM error the academies failed to retain evidence to demonstrate that learners’ entitlement to free school meals had been checked at the census point. In some instances, academies were relying on the records held by the previous school.

As part of our funding audit programme we test a small sample of bursary funds. Through this work the following weaknesses were identified:

• Insufficient evidence supporting payments decisions.
• Evidence to support eligibility for discretionary bursaries not retained.

5. Schools Resource Management Self-Assessment Tool (SRMSAT)

This year the SRMSAT submission deadline date moved to 15 March 2021, which will be the fixed return date for future years. Due to the pandemic, the deadline was extended to 15 April 2021.

Of the 2,598 academy trusts expected to submit their SRMSAT, 2,152 (82.8%) submitted by the deadline of 15 April 2021. The return rate is slightly less than the previous SRMSAT (return date 14 November 2019) which was 87.2%. We acknowledge the disruption in schools due to the pandemic contributed to this.

We have now received 2,581 (99.4%) of all expected SRMSAT returns.