Checks and Balances: Learning points for academies from ESFA assurance findings

By Hayley Dunn, ASCL Business Leadership Specialist

The Education and Skills Funding Agency (ESFA) has issued a report of the common themes arising from their assurance work in 2020 to 2021, which incorporates key findings from its review of academy trust financial statements, academy funding audits, financial management and governance reviews, and schools resource management self-assessment tool (SRMSAT).

The findings state that the percentage of audited financial statements received on time was 97% (a slight decrease to the previous year 2018 to 2019 of 98%), with the main reason given for delays being where trusts had closed during the year and had not submitted accounts as part of the closedown process. At the date of publication there were only two academy trusts that had not submitted their audited accounts.

82.8% of academy trusts submitted their SRMSAT return by the extended deadline of 15 April 2021. The return rate was slightly lower than the previous year. It was good to see the ESFA acknowledged the disruption in schools due to the pandemic was a contributing factor.

Audit qualification and opinion
As part of the external audit process, academy financial statements can be deemed what’s called ‘qualified’ and of the small percentage that were, the main reasons cited were the accounting treatment for land and buildings and inadequate accounting records. 

There was a significant decrease from the previous year in ‘emphasis of matter’ or ‘material uncertainty’ audit opinions, again the main reason given here was closure or proposed closure of trusts. 

The percentage of modified regularity audit options rose, with the highest number due to internal financial reporting, and circa 14% directly attributed to the Covid-19 pandemic. 

The ESFA gave a long list of reported reasons for regularity opinion which is useful for trust leaders and trustees to be aware of for their own involvement in oversight and scrutiny. The reasons included management accounts not being produced and information provided being inadequate, no or inaccurate bank reconciliations, value for money concerns, lack of payroll authorisation, payments without approval, information out of date on the Get Information About Schools (GIAS), financial statements not published on the trust website, and issues with related party transactions.

It is reasonable to assume that the pandemic was a contributing factor in some cases but looking at the reasons given here, some are fairly basic finance and accounting functions that should be addressed.

Funding checks and balances
The error rates on census data and free school meal entitlement were consistent with previous years and remained low. It’s important to note that academies cannot rely on free school meal records held by a previous school. 

Weaknesses found in the audit of student bursary funding was also similar to previous years, with instances where evidence was deemed insufficient for supporting payment decisions and not retaining evidence to demonstrate eligibility for discretionary bursaries.  

Internal scrutiny
A more recent development in academy reporting is the requirement for an annual summary report of internal scrutiny. As a minimum, the summary report is expected to cover the areas reviewed, key findings, recommendations, and conclusions. Some trusts did not submit a report and others did not meet the minimum requirements. In cases where the summary was non-compliant, trusts reportedly used direct extracts copied from the governance statement in the financial statements, an extract from the external auditor management letter, or minutes from a committee meeting.

The issues with internal scrutiny were also reflected in the reported findings of the ESFA’s financial management and governance reviews, which checked for compliance with the Academies Financial Handbook (recently renamed the Academy Trust Handbook). They identified a number of areas requiring development, including establishing an audit and risk committee that agrees a scheme of work which is delivered, and with oversight of the findings.

Further reading
ESFA Good Practice Guide: Internal scrutiny in academy trusts - GOV.UK 
ASCL Information Paper: ASCL - Trusts: Understanding the basic principles of annual financial statements
ASCL Information Paper: ASCL - Increasing the internal scrutiny of academy trusts

Hayley Dunn is ASCL’s Business Leadership Specialist. She is leading a series of Leading On webinars this autumn on Business and Operations in Schools and Trusts (four-part series with Louise Hatswell, ASCL Conditions of Employment Specialist: Pay ), and New to Finance: Funding for non-financial leaders (two-part series with ASCL Funding Specialist Julia Harnden).
Posted: 01/10/2021 12:27:18