Guidance

Management accounts: good practice guide for colleges

Updated 28 March 2025

Applies to England

This is a guide to help the further education sector improve the in-year reporting of financial performance. It is advisory. You should also read the:

• college financial handbook
• statement of recommended practice: accounting for further and higher education
• requirements of the Department for Education (DfE) as summarised in any letters addressed to accounting officers

Colleges should also be aware of the principles of managing public money (MPM).

College finance directors and chief finance officers should:

• periodically review the format and content of their management accounts
• consult governors and senior leaders on whether they meet their needs

 You should tailor these reports to local requirements.

Purpose of management accounts

College boards and senior leaders need the management accounts for financial oversight and control. Other groups may need management accounts, such as:

• external stakeholders, like banks or lenders
• DfE (for example, in intervention cases)
• the Further Education Commissioner

The format and content of the management accounts will often be the same for all audiences. Some colleges provide fuller and more detailed reports for senior leaders and middle managers. If you do provide different reports to different users, you must ensure:

• data and important messages are consistent
• you can provide governors and other users with supplementary information if they need it

Your management accounts should serve 2 main purposes:

• control performance against your budget in good time and effectively, by reporting on actual financial performance to date compared with budget to date 

• forecast your finances reliably, by projecting the forecast financial out-turn for the year, taking into account actual performance to date

You should balance the 2 objectives to make sure:

• there is accountability for actual performance to date
• you can see any actions you might need to take to achieve full-year targets and objectives

Meeting new requirements following reclassification

College finance directors and chief financial officers need to be aware of the requirements of managing public money when producing monthly management accounts.

You should consider how this can impact:

• the financial control framework
• financial decision making

We recommend that you review each set of accounts for any issues which are relevant to managing public money.

Part 5 of the college financial handbook has more information. You can also use its contents as a monthly checklist for potential issues.

What to include in the monthly management accounts

You should include the right level of detail in the management accounts because:

• too much detail can make them less clear and too long
• too little detail can make it harder to scrutinise performance and can rely too much on the finance director or management accountant’s interpretation

The management accounts should set out elements of financial performance for management, governors and third parties to assess.

Surplus or deficit

The accounts should include

• the surplus or deficit for the period
• the surplus or deficit for the financial year to date
• the forecast surplus or deficit to the end of the financial year

This should typically include both operating performance and earnings before interest, taxation, depreciation and amortisation (EBITDA).

The accounts should also say:

• how the surplus or deficits have been calculated
• how and why the surplus or deficits vary from the budgets, and what needs to be done to rectify this

Financial position

The accounts should include:

• the actual financial position of the college at the month end
• the forecast financial position of the college for the year as a whole
• whether the college’s control of assets and liabilities, solvency and financial stability is satisfactory

Cash flow

The accounts should include the cash flow:

• for the period
• for the financial year to date
• forecast for the remainder of the financial year, and at least the next 12 months

More information

The accounts should also include:

• actual and forecast compliance with any loan covenants
• forecast financial health for the year end
• a schedule of planned and actual capital expenditure
• any more information which you consider relevant to users

How to write the management accounts commentary

There is not a suggested word limit, but the management accounts commentary should not be too long. External users such as banks and DfE often ask for shorter commentaries.

You should also:

• avoid complete reliance on tables and graphs
• avoid lengthy blocks of text
• avoid or fully explain terminology and abbreviations (both financial and college-related)
• fully explain tables and graphs
• provide the source of information where appropriate

Some effective ways to present the commentary, which are not compulsory, include:

• a visual display like a PowerPoint that uses traffic light colours for analysis and observations
• a short 1 to 2 page summary of the main points at the start of the management accounts
• a bridge or waterfall analysis to explain differences between budget and forecast performance without needing long commentary

Non-financial information to include

Some non-financial data can help your readers understand the financial performance alongside other data, but avoid:

• repeating information that is in other reports
• overloading your readers with too much detail

Two good examples of non-financial data to include are:

• student numbers by funding type compared with the full year budget, full year forecast and the full year actuals from the previous year
• staff numbers or full-time equivalent numbers month by month for the preceding 12 months, broken down by functional headings or by department

You can also include information about risk. You could include either:

• specific risks that correspond with the risk register
• a separate set of RAG ratings (traffic light risk ratings), which reduces the potential for repetition or duplication with the risk register

Take care wherever possible to use consistent and objective methodologies for RAG ratings.

Key performance indicators (KPIs) to include

You can include a range of KPIs to summarise the overall performance to date and the forecast out-turn for the year.

You need to consider which KPIs to include, as some may already be reported on elsewhere, particularly if they are not primarily financial KPIs.

You should try to create a relevant and balanced set of KPIs which look at all aspects of financial performance.

Some KPIs you can include are:

• turnover
• operating surplus or deficit (including as a percentage of turnover)
• education EBITDA (including as a percentage of turnover)
• cash reserves
• cash days in hand
• forecast cash from operations
• loan balance
• staff numbers
• pay costs as percentage of turnover
• debtor days
• creditor days
• forecast financial health

Loan covenant compliance

The majority of colleges have long-term loans with defined covenants attached that are measured monthly, quarterly or annually.

Failure to comply with loan covenants can result in the lender reserving rights. This means the lender has not waived a breach of covenant, and they are notifying you that they may take any further action open to them under the loan agreement as a result of the breach.

This could include demanding full repayment of the loan.

It can also result in the reclassification of loans as current liabilities.

It can be serious if you miss the opportunity to secure a waiver, or an agreement not to measure the covenants, before the balance sheet date.

You should report on actual and forecast covenant compliance in the monthly management accounts. This will:

• keep users aware of covenants
• give advance warning of the risk of breach

Finance directors and chief financial officers should use discretion on how much detail to give in the management accounts but, as a minimum, reports should set out:

• whether the college expects to remain covenant compliant
• the degree of headroom before the risk of a breach of covenant

Where you report an actual or forecast breach you should set out:

• the implications
• any actions you are taking to address the issue

You must get DfE’s written consent before amending arrangements for existing borrowing in the scope of MPM. This includes any changes to loan terms relating to interest rates.

Financial health

DfE’s financial health scores play an important role in college oversight and intervention policy. They also give a useful indicator of colleges’ general financial performance and sustainability.

We recommend that colleges report regularly in their management accounts on their:

• forecast financial health autoscore
• financial health score self-assessment

Reports should also set out any risk of a decline in financial health and any implications of this.

When reporting financial health it is important to focus on the forecast out-turn position. In-year measurement alone can be misleading.

Income and expenditure forecasts

As part of management reporting, you should give a forward view of the projected out-turn for the whole year.  We advise that you start this process as soon as possible in the relevant year. To achieve this, you should:

• do a monthly review and update of the forecast out-turn with appropriate involvement of budget holders to improve accuracy and ensure ownership
• reference forward implications for future years in your forecasts where appropriate

You could also do a more comprehensive mid-year review to:

• test the forecast in more depth
• provide a baselining exercise for budget preparation for the year ahead

If you revise budgets during the year, it can be difficult to report transparently on how far the college has met the original budget targets set at the start of the year.

Avoid making in-year revisions to budget targets and report actuals against the original budget.

You can use the forecast out-turn process to highlight material variances in financial performance as well as, but not instead of, original budget. Accounts should include:

• a report of performance against original budget
• a reforecast final out-turn

Ideally, forecasts should be used to update:

• the statement of income and expenditure
• the cash flow forecast
• the projected balance sheet for year-end

You can use integrated financial reporting tools, such as the CFFR, in this process, as long as data integrity is maintained.

Key forecasting assumptions should be:

• clearly explained in the commentary to the management accounts
• referenced to actual performance to date and relevant non-financial data

Where there is material uncertainty regarding the out-turn position, you could set out a range of potential scenarios – for example, best case, worse case and base case. Take care not to undermine accountability for under-performance if you do this. At the same time, you should reflect material risks of underperformance in updates to the college’s risk register.

Cashflow forecasting

You should keep an up-to-date rolling cashflow forecast and report this in each month’s accounts. Projecting forward 24 months is good practice. The forecast should include a projection of at least 12 months.

You should capture cash flows at the level of forecast months as a minimum. In practice you will also usually have more detailed weekly or daily short-term forecasts.

DfE reporting returns offer an integrated model of cash flow forecasting. Using these may complement direct cash flow forecasts.

Whether you use an integrated forecasting tool or not, give careful attention to the profiling of income and costs. Avoid blanket or over-simplistic flat monthly profiles.

Colleges should not rely only on graphs of the cash flow forecast in their management accounts. Graphs can highlight trends and projections, but you should also use:

• appropriate commentary
• a summary cash flow forecast, containing figures, in the appendices so the reader can isolate critical variables, milestones and transactions such as one-off capital receipts and funding recoveries

Where the cash flow forecast is not driven by an integrated forecasting tool, you should run checks to ensure important control totals, such as the monthly overall cash balance and forecast year end cash, reconcile to the balance sheet.

Colleges should routinely:

• measure and report cash days in hand
• model transparently the extent of cash headroom

Where forecasts assume any material plans to stretch creditors, make these assumptions and the associated risks clear.

Take appropriate account of MPM, and the duties on public sector bodies regarding supplier payments. MPM Annex 4.8 and the prompt payment code explain more.

Reflect any risk of a shortfall in working capital in the updated risk register with proposed mitigations. Sensitised forecasts may also be appropriate.

Information you should include about capital

Colleges often do not report on capital expenditure with enough detail. This is despite the potential for large differences between planned and actual expenditure and the consequential cash impact.

You should report on capital expenditure for each main project or scheme. As a minimum, you should include:

• actual expenditure to date
• committed expenditure to date
• full-year budget
• balance uncommitted or overspent

We recommend that you show any capital grant funding received in advance of related capital expenditure as restricted cash in the balance sheet. This ensures it can be tracked separately in the cash flow forecast until you spend it. Users of the management accounts can then assess the college’s ordinary operating liquidity.

If your capital project is large and complex, you can create a separate progress report to accompany the management accounts. It can include:

• costs
• cost variations
• claims
• percentage completion by stage and timescales against plans

For major capital projects, you may decide to recognise expenditure based on valuation certificates. This could be more relevant if both:

• the valuation takes place before the period end
• it is likely that the contractor will not submit the invoice or application for payment until after the period end, when the accounts have been closed

This approach also ensures that project retentions are accrued.

Contribution analysis and trading performance

All colleges should have robust curriculum planning and costing processes. As a minimum, consider this information as part of the budget preparation and curriculum planning process. This is to inform decisions about:

• course viability
• the college’s capacity to meet funding targets
• strategies to ensure the best use of staff

Monthly reporting of contribution analysis is optional. You could include summary level contribution analysis as part of your monthly management accounts if it is useful. But you should consider that this can:

• add to the overall volume of the monthly reports
• present information that changes only at the margins from one month to the next in some cases

You should at least periodically report on actual contribution rates compared to the original budget and curriculum plans. We recommend you have this information available by:

• subject sector area
• funding stream

Multi-campus colleges or groups should also consider the benefit of contribution analysis by site. In some cases, it will help to include this in the monthly management accounts. As a minimum, use such analysis to inform:

• annual budget setting
• forward financial planning

If your college operates discrete trading units with material volumes of activity, the management accounts should provide enough information to enable their overall financial performance to be regularly monitored.

Where this does not include a full apportionment of indirect overhead costs, make this clear.

Accounting concepts and policies

The fundamental accounting concepts of:

• matching
• prudence
• accruals
• consistency

should be applied to management accounts, so far as practical.

To avoid misunderstanding, use the accounting policies employed for the college’s annual financial statements for management accounts as far as possible and applicable.

This does not mean the format of the management accounts must follow those of the annual financial statements in every way.

For example, it is difficult to report FRS102 pensions adjustments in year accurately. These can swing dramatically at year end because of factors outside a college’s control. For this reason, colleges may:

• exclude FRS102 pension adjustments from their management accounts
• decide to include the last reported pension liability in the balance sheet – net assets and reserves should be shown both before and after FRS102 adjustment

Where accounting treatment in the management accounts differs from the financial statements, properly disclose and explain this. At year end when you finalise the provisional financial out-turn, you should:

• provide bridge analysis to compare the final out-turn forecast with the provisional statutory accounts
• highlight the various adjustments, such as FRS102
• explain the impact of key movements after year end

Income recognition

You should carry out regular checks as part of the management accounts preparation process to make sure income recognition is in line with learner recruitment and completions.

It is particularly important to do this where payment is made on profile, such as adult skills fund (ASF) with a retrospective reconciliation process at year end. Material underperformance should, therefore, be highlighted in year.

Colleges may report separately on enrolment and funding performance, but we recommend you provide at least summary performance in the management accounts. This is to show consistency between operational and financial performance indicators.

Increasingly elements of ASF delivery are devolved to local authorities, who may apply different performance rules. You should:

• take care to reflect this in reporting
• check if you need separate performance monitoring for centrally-funded ASF and devolved ASF delivery for clarity

In accordance with the 2019 SORP, you should spread the following over the relevant periods of expected activity:

• tuition fees
• fees for full cost activity
• education contract income

This can be an issue for colleges with:

• programmes of varying length
• significant employer engagement initiatives where sales teams may expect you to recognise credit in the management accounts at the time the sale is secured

The period in which costs are expended should determine when income will be recognised in the case of education contract income. Preparers of management accounts may need to:

• adopt appropriate estimation techniques
• consider the prudence of recognising any income that has not yet been paid

Clearly explain, and consistently apply, any basis for income recognition that you have adopted.

Expenditure

Pay costs will generally be accounted for in accordance with the payroll period. Exceptions will arise in the form of:

• holiday pay accruals
• periods when either hourly paid staff have not been working or when timesheets may be submitted after payroll deadlines – you could make accrual for these pay costs, if significant

Colleges operating bonus schemes should follow interim reporting principles, for example, to accrue pro rata in management accounts if there is a contractual or performance-related entitlement, but with no accrual for discretionary bonuses.

You should take care to ensure:

• you classify sessional, agency and consultancy staff in pay (not in non-pay costs) correctly
• staff restructuring costs, and inclusion (or not) of FRS102 pension adjustments, are clear

When these transaction types are above financial limits set out in Part 5 of the college financial handbook, you need DfE consent before making them:

• special severance payments
• compensation payments
• write-offs

All ex-gratia payments require DfE consent.

Transactions by colleges or their subsidiaries that may be considered novel, contentious or repercussive must always be referred to DfE for prior approval. Further information is available in Part 5 of the college financial handbook.

Some colleges accrue costs based on purchase orders in accounting for non-pay expenditure. If significant orders distort the results for the month, it may be appropriate to reverse all or part of the cost if:

• the goods have not been delivered or included in stock
• services have not been performed

This situation may arise with blanket orders – for example, for supplies to be delivered over a period of several months.

You may need to prepay some significant costs, such as:

• premises rents
• insurances
• annual maintenance contracts
• annual licences

On the other hand, you should review certain individual accounts for significant missing accruals at the period end, for example:

• utilities
• service charges

Sometimes there are significant expense areas where there are inevitable timing differences between supplier payment and the cost being incurred – for example, examinations costs or bus contract costs.  For these, we recommend that you spread the estimated cost over the period of study, but with regular revisions of the total estimated cost.

To decide if you need to make a revision, think about actual costs paid and other available data – for example, student numbers.

We recommend that colleges with their own catering, retail operations and franchising check if the margins for the accounting period for these activities are in line with expectation. You may find significant differences because of cut-off issues. Adjust for these before publishing the management accounts.

Timing

If your management accounts are to inform actions to address underperformance, you need to produce them early enough to allow time for this.

Management accounts should be available within 15 working days or less of month end. Exceptional factors may delay this from time to time.

There should be a clear, documented month end closedown process in place as part of the production cycle for the management accounts.

Most colleges should, as a matter of course, produce monthly rather than quarterly or half-yearly management accounts.

Some colleges publish the first full set of management accounts for September (such as period 2) rather than August. The exceptional pattern of delivery during August can give an unrepresentative picture of financial performance.

Colleges should use discretion over whether to publish their August management accounts. They should consider:

• the competing priority with preparations for external audit
• finalisation of the financial statements for the preceding year

It is still important to maintain financial controls and month end closedown routines for all periods, including period 1.