Guidance

Common themes arising from ESFA's assurance work in 2022 to 2023

Updated 13 September 2023

Applies to England

1. Introduction

This briefing note provides an overview of the key findings from the ESFA’s 2022 to 2023 assurance programme, including the review of academy trust financial statements, academy funding audits, financial management and governance reviews, the School Resource Management Self-Assessment Checklist (SRMSAC) and the Educational Recovery Grants.

2. Review of academy trust financial statements

2.1 Overall findings

We review trusts’ financial statements and auditors’ reports thereon to provide assurance that funds provided to trusts have been used for the purposes intended.

The deadline for trusts to submit their 2021 to 2022 financial statements was 31 December 2022. By this date 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 2021 to 2022 financial statements received by 31 December was just under 96% (for 2020 to 2021 just under 97%).
• 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 and trusts, which were in intervention, had not submitted their accounts by the deadline. At the date of publication, there are 7 trusts, which have not submitted their 2021 to 2022 audited financial statements.
• the percentage of qualified 2021 to 2022 financial statements was 0.2% (2020 to 2021: 0.5%). The reasons for the qualified opinions were Local Government Pension Scheme (LGPS) valuations and the accounting treatment for land and buildings.
• there was a 0.4% increase in ‘emphasis of matter’ or ‘material uncertainty’ opinions. This increase was predominantly due to those trusts reporting an ‘emphasis of matter’ or ‘material uncertainty’ opinion due to financial health concerns. However, the main reason for the emphasis of matter opinions (75% of all cases) continues to be ‘going concern’ because the trust had closed or proposed to close within the following 12 months.
• the percentage of modified regularity opinions on the 2021 to 2022 financial statements was 8.1%, which was slightly higher than in the previous year (2020 to 2021: 7.9%). The main issues for the regularity modifications were internal financial reporting and trusts not adhering to the pre-approval requirement for related party transactions with a monetary value of £20,000 or more.

2.2 Financial statements and audit opinions

Figure 1: reasons for qualified opinion

Figure 2: reasons for material uncertainty opinions

2.3 Financial statements regularity opinions

The highest number of reasons for the modified regularity opinions on 2021 to 2022 financial statements related to internal financial reporting (as 2020 to 2021). The reasons comprised:

• Management accounts issues, including not sharing with the Board, not produced at all, timeliness of preparation and key sections missing (for example the cash-flow and / or balance sheet omitted from the information provided to the Board).
• Website and ESFA financial returns deadlines issues, including trusts’ websites not updated in a timely manner, and trusts not meeting the financial statements 31 December submission deadline.
• Financial controls issues, including monthly bank and balance sheet reconciliations not being performed, fixed asset registers not being updated.
• Trust senior leader issues including, chief financial officers and accounting officers not being in place for a period of time and payments made to consultants to accommodate long-term absenteeism.

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

• Prior approvals and declarations issues including, prior approval not sought from ESFA before entering into a related party transaction or, where less than £20,000, no disclosure having been made.
• Conflicts of interest issues including, trusts failing to manage conflicts of interest appropriately.
• Rejections including, prior approval sought from the ESFA, however the related party transaction was subsequently rejected.
• ‘At cost’ policy issues including, the ‘at cost’ requirement had not been adhered to.

Figure 3: reasons for modified regularity opinions

2.4 Internal scrutiny

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

The main common issues identified and therefore reported by auditors as regularity opinion modifications were:

• no internal scrutiny having taken place during the year
• no evidence of a risk-based programme of work
• no information provided to the Audit and Risk Committee.

There continues to be a wide range in the quality of the annual summary internal scrutiny reports submitted.

3. Financial management and governance reviews

Our reviews are designed to provide assurance that trusts have appropriate financial management and governance arrangements and that those arrangements ensure trusts’ compliance with the Academy Trust Handbook (ATH). Our assurance findings indicated that most academy trusts reviewed were making good progress towards compliance with the ATH.

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 implementation of recommendations
• monitoring the budget – including the production of 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’ maintaining and publishing the register of business and pecuniary interests of its’ trustees and governing structure on their website
• oversight of risk and regular review of the risk register
• publication of governance arrangements

4. Academy funding audits

Our funding audits provide assurance that pre-16 grants have been properly claimed and used for the purposes intended. They check for errors relating to both the pupil census numbers, which are used to calculate the main school funding blocks (pre-16 and post-16) and the entitlement to free school meals (FSM) numbers, which is the main factor in determining pupil premium funding (PP).

The funding factors evaluated as part of our assurance work included:

• the basic per pupil funding factor (Age Weighted Pupil Funding - AWPU) confirmed by pupil existence and eligibility testing
• FSM eligibility
• EAL (English as an additional language) Factor
• High Value and Premium Course Factors
• PLAC (Post Looked After Children) and Service Children Factors

In line with previous years, the levels of errors identified were low.

The pre-16 census data random error rate was 0.032% (2021 to 2022: 0.033%) and the post-16 census data random error rate was 0.027% (2021 to 2022: 0.13%). Pupil premium grant continues to be the funding stream where we identify the highest error rate, which was 0.314% (2021 to 2022: 0.87%).

The main reason for errors was where academies retained insufficient evidence to support the census data returns for FSM and Service Children. However, the error rate remains low.

5. Schools Resource Management Self-Assessment Checklist

The Schools Resource Management Self-Assessment Checklist (SRMSAC) helps academy trusts check they are managing resources effectively and identify any adjustments they need to make.

Of the 2,436[1] academy trusts expected to submit their SRMSAC, 2,116 (86.9%) submitted by the deadline of 15 March 2023. The deadline date response rate has fallen since the previous year (2021 to 2022: 88.9%) and continues to have a lower response rate than other financial returns.

As part of the FM&G review process, we carried out a validation exercise to compare the findings from our work to the responses provided by the trust on the SRMSAC.

We found that, generally, the SRMSAC was completed accurately, except for the following two areas, where our assessment differed from the trusts’ assessment:

• trusts publishing governance arrangements on its website
• internal scrutiny requirements being adhered to

The main areas where trusts did not self-assess themselves as compliant were:

• trusts being able to evidence that their 3-year financial forecast has been reviewed by the trustees before approval
• trust balances are assessed at a reasonable level and having a clear plan for using the money held in balances at the end of each year
• trustees being able to confirm there are no outstanding matters from audit reports

At the date of publication, we have received 2,425 (99.5%) of all expected returns.

6. Education recovery grant reviews

Our reviews provide assurance that National Tutoring Programme (NTP) grants have been properly claimed and used for the purposes intended. Our assurance reviews focused on testing the evidence which underpinned schools’ year-end reconciliation statements.

The error rate, based upon a random sample of academies was 10.96%.

The issues identified were insufficient evidence being retained, both in relation to the study hours delivered and the expenditure incurred. Examples of poor record keeping included:

• incomplete or missing timetables or attendance records to support tutoring hours delivered to pupils
• insufficient evidence to support the total cost of delivery
• limited reconciliation of supporting evidence to final statements

We will be performing further assurance work in the forthcoming assurance year.

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[1] 2,453 academy trusts with an open academy on 31 December 2022 less 17 academy trusts that closed after 1 January 2023