Hayley Dunn asks is it time to simplify academy financial oversight and assurance?

Keep it simple

The Education and Skills Funding Agency (ESFA) has published a summary of findings from its assurance work in 2021/22 (tinyurl.com/5yf974mm), setting out the compliance rates and areas of non-compliance relating to financial oversight and assurance activities. With the workload burden and cost of financial oversight, and assurance ever increasing, is it time for the ESFA to review and simplify requirements? Below is an analysis of the findings and where I think time could be well spent. 

The ESFA summary incorporates key findings from its assurance work of its review of academy trust financial statements, academy funding audits, financial management and governance reviews and the schools resource management self-assessment checklist (SRM SAC). Their findings paint a positive picture, demonstrating rates of high compliance and low errors. Here are some of the statistics: 

• The percentage of audited financial statements received on time (by 31 December) was just under 97%.
• The percentage of qualified financial statements was 0.5%, with the main reasons being Local Government Pension Scheme (LGPS) valuations and the accounting treatment for land and buildings.
• There was a rise of 0.5% in what are called ‘emphasis of matter’ or ‘material uncertainty’ auditor opinions, with the main reason for the emphasis of matter opinions continuing to be ‘going concern’ because of a trust having closed or proposing to close within the following 12 months.
• The percentage of modified regularity opinions was 7.9%, lower than the previous year’s 8.5%, with the main issues being that no internal scrutiny reviews had been carried out, management accounts had not been produced and trusts were not adhering to the pre-approval requirement for related party transactions with a monetary value of £20,000 or greater. 

It’s worth noting that in the previous accounting year, the submission deadline was extended by one month to 31 January 2021, due to the recognition of the pressures from Covid. Therefore, it is impressive that despite continuing operational challenges at the time, auditors and academies worked at pace to ensure compliance with the requirements. At the time of publishing the findings, only three trusts had not submitted their audited financial statements. 

The other areas reviewed also confirmed good levels of compliance:

• Financial management and governance reviews showed all academies reviewed were making good progress.
• Funding audit factors were expanded to include English as an additional language, high-value and premium courses, post-looked-after children and service children. And, even with these additional areas added, testing errors remained low and consistent with previous years.
• More academies submitted the schools resource management self-assessment checklist (SRM SAC) by the deadline. 

A more recent development in academy reporting is the requirement for an annual summary report of internal scrutiny – this is in addition to the requirement for an external audit. The summary should contain the areas reviewed, key findings, recommendations and conclusions. As with the previous year, some academies did not submit a summary or what they provided did not meet minimum expectations. Those that were deemed non-compliant included minutes from a committee meeting, extracts copied from a governance statement or copied from the external auditor’s management letters. 

It’s important that the government recognises that new requirements sometimes need more detailed guidance and time to embed. I represent ASCL members on the ESFA Academies Finance and Assurance Steering Group (AFASG) and linked working groups and, as representatives, I and others flagged internal scrutiny as an area that would benefit from further guidance. Subsequently, the groups supported improving the ESFA’s good practice guidance (tinyurl.com/yprmns7w) on internal scrutiny in academy trusts, including a suggested format for the internal scrutiny annual report. 

It’s clear that the findings overall show a continuation of high rates of compliance and low frequency of errors, with a very small minority not meeting deadlines. However, that doesn’t mean there isn’t a significant workload burden and sometimes the timings are out of kilter. A key case in point was the government’s announcement on pay awards that came after academies had submitted their 2022 budget forecast return. 

It’s timely for the ESFA to review requirements as the amount, size and complexity of academies has grown. Given the findings, it would seem sensible to review the requirements for related party transactions, internal audit and to ensure the timings of when and how the ESFA asks academies to complete returns, align.

Hayley Dunn
ASCL Business Leadership Specialist
@ShropshireSBM

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