Guidance

Assurance framework for high needs funding

Published 10 March 2014

This guidance was withdrawn on 8 February 2017

Please visit the high needs funding arrangements page for the latest information.

Introduction

1 This paper provides the framework for local authorities (LAs) and information for providers on the assurance arrangements over the funding of high needs students (HNS). Under the funding arrangements set out in the Department for Education (DfE) Schools Funding Reform paper and the Education Funding Agency (EFA) guidance on funding for post-16 high needs students, EFA will fund elements 1 and 2 of high needs provision and LAs will commission and fund element 3.

2 The following assurance arrangements are based on the Joint Audit Code of Practice (JACOP) principle of ‘one provider, one lead assurer’. These arrangements cover financial health assessments and assurance over providers’ use of funds.

3 The agreed approach, which has been developed in conjunction with representatives from the Local Government Association (LGA) and LAs, is that:

• LAs will be the lead assurer for financial health and use of funds assurance over funding in maintained provision
• EFA / Skills Funding Agency (SFA) will be the lead assurer for financial health and use of funds assurance for other provision

4 The principal exception to this arrangement is non-maintained special schools (NMSS). For this type of provider, EFA will take the lead for financial health assessments while LAs lead on the use of funds assurance.

Financial Health Assessments

5 The lead assurer will undertake financial health assessment work over the providers for which they are the lead, in order to consider their financial viability: this informs future allocation and contracting decisions.

6 Since LAs will commission and fund provision (from element 3) with NMSS and special post-16 institutions (SPIs), EFA will share the results of its financial health assessments of these providers. The next section details the approach EFA will adopt to carry out this work and to inform LAs of the results.

NMSS and SPI

7 EFA will undertake annual financial health assessments for NMSS and SPIs. These will be based on a review of the provider’s most recent financial statements, using EFA’s normal methodology, which is designed to support an annual contracting timescale.

8 The formula-based assessment will categorise providers’ financial health as outstanding, good, satisfactory, or inadequate. These categories are based on a scoring of three ratios: solvency (current ratio), sustainability (surplus divided by income), and status (debt as a percentage of reserves). Some providers may be determined as outside the scope of financial assessment where it is deemed unnecessary (for example major national charities).

9 For providers falling into the satisfactory and inadequate categories, EFA may request further financial information (normally a budget for the current / following financial year) from the provider in order to provide additional evidence over their financial viability and to inform an assessment of the risks of contracting with the provider. EFA’s normal approach to providers where their financial health is classified as inadequate is to recommend not to contract, unless a sound business case for doing so can be made. Subject to contracting decisions and the level of funding, the risk assessment may also lead to EFA undertaking additional in-year financial monitoring of providers.

10 EFA will give LAs access to the results of their assessments, once completed, via the EFA Information Exchange. This will include the category scored, the date of the accounts used in the assessment, any particular factors that have influenced the scoring and, where appropriate, details of the additional information that has been obtained from the provider to inform the assessment. In addition, in cases where the results indicate that a provider presents a particularly high viability risk, EFA will directly inform all commissioning LAs.

11 When seeking to place a learner with an appropriate provider, LAs should consider the financial health ratings for the provider to form a view on the level of financial risk to element 3 funding presented by that provider. EFA territorial teams will also use this information to inform future element 1 and element 2 contracting decisions, the appropriate level of financial monitoring of providers when contracts have been entered into, and will liaise with LAs as necessary.

12 Where providers have submitted business cases to EFA because they believe their overall allocation may lead to them becoming non-viable, the above assessment process will be tailored accordingly.

Use of funds assurance

13 The JACOP principle of “one provider, one lead assurer’ requires that only one organisation is involved in assurance work for a specific learning provider, and that body takes the lead for assurance matters on behalf of the other funding bodies. The table below provides details of assurance arrangements for each provider type based on JACOP.

Provider type	Assurance lead	Assurance arrangements	Assurance reporting
Commercial and charitable providers (C&CPs)	Assurance responsibility will be split between SFA and EFA determined by the size of the contract held by each agency, as is current practice.	The assurance approach is risk-based funding audits at a small sample of providers and review of financial statements.	EFA/SFA will not routinely report assurance outcomes to LAs, who will be expected to gain sufficient evidence from their learner placement reviews.
SPIs	EFA	On an annual basis funding audits will be carried out on a limited sample of providers using a risk-based approach. SPIs’ financial health will be reviewed based on financial statements.	Should any relevant issues come to the attention of EFA they will be reported to the home LA.
NMSS	Commissioning LA	Assurance will be derived by LAs through the annual review of learner placements.	LAs to provide assurance over their element 3 funding to EFA via DSG returns, with a supplementary reference to element 1 and 2 funding.
General further education (GFE) colleges	SFA	Overall assurance will be derived from regularity audit opinions for all GFE colleges and funding audits at a sample of GFE colleges, as is current practice.	SFA to provide assurance to EFA. Regularity issues may be shared by EFA with the home LA by exception.
Sixth-form colleges (SFCs)	EFA	Overall assurance will be derived from regularity assurance reports for all SFCs and funding audits at a sample of SFCs, as is current practice.	Regularity issues may be shared by EFA with the home LA by exception.
Maintained schools and maintained special schools	LAs	LAs to determine their own approach.	LAs to gain assurance over all elements of funding and provide assurance to EFA via DSG returns.
Academies	EFA	Overall assurance will be provided in the form of regularity audits at all academies and funding audits at a sample of academies using a risk-based approach.	Regularity issues may be shared by EFA with the home LA by exception.

NMSS

14 Each LA will take the lead for assurance over the use of funds for the places it commissions. This assurance responsibility will be met through their annual review of learner placements. By obtaining evidence that a learner is receiving the services commissioned and working towards delivering agreed outcomes, the LA should be able to gain assurance that all elements of funding have been used for the purposes intended for that learner. In relation to element 1 and 2 funding this will cover:

• confirmation of the existence of the learner
• confirmation that the basic components of the agreed programme are being delivered

Colleges, academies and commercial and C&CPs

15 It is expected that in further education (FE) colleges, sixth-form colleges, academies, and C&CPs, LAs’ own assurance needs over their element 3 funding will also be met through their own learner placement reviews (contract management arrangements) rather than formal audit. However, by exception, LAs may be able to raise issues of regularity through EFA to inform briefings for regularity auditors in colleges and academies, and any relevant issues arising from regularity audit opinions would be shared with LAs.

SPIs

16 EFA retains lead assurer role for SPIs. However, it is not practical to provide assurance to LAs solely on element 3 funding because of the variety of approaches likely to be adopted by LAs, so this will be obtained through LAs own monitoring of their individual placement agreements. Should any relevant issues come to the attention of EFA they will be reported to the home LA.

Reporting to EFA

17 LAs are currently required to submit annual Dedicated Schools Grant (DSG) returns and separate 16 to 19 grant returns to EFA under JACOP. The scope of these returns will include reference to the summary outcomes of LAs’ assurance work (in the form of learner placement reviews) undertaken on element 3 funding, extended to provide overview assurance over EFA’s element 1 and 2 funding in the providers where LAs have lead responsibility. These outcomes will be referenced on an exception basis in a supplementary note to the commissioning LAs’ DSG returns, and will be a source of assurance to EFA. In practice, the scope of the return will be to note that in conducting individual placement reviews LAs did not identify any material issues on learners’ existence and the delivery of their programmes to indicate that funding was invalid.

18 In addition the lead assurers should inform each other where significant concerns or regularity issues are identified with particular providers as a result of their assurance work or individual placement reviews. LAs are asked to contact their local EFA territorial team should this arise.

Reporting to LAs

19 Any concerns or regularity issues that are identified through the assurance work of the lead will as soon as practicable be notified to the home LA in which the provider is located in order to consider how the issue should be taken forward and communicated further.