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The Academies Financial Handbook has recently been reviewed by the Government (on 23 June 2020), resulting in a number of key amendments which will take effect from 1 September 2020. Academy Trusts must take note of the latest edition of the Academies Financial Handbook 2020 which sets out the main changes regrouped into the following categories: governance, executive team, general controls and transparency, internal scrutiny and annual accounts. These key amendments are as follows:
Governance
1. The Trustees must ensure that the Academy Trust is operated as a going concern (paragraphs 1.14, 2.5 and 2.9). Although this is not a new requirement (since this has always been expected of Trustees as directors under Company Law), this requirement can be supported by the Trust’s finance committee and Trustees may wish to consider the ESFA’s practice guide on Operating an academy trust as a going concern.
2. Although Members have previously been able to be employees or occupy unpaid staff roles where permitted by the Trust’s articles of association, this possibility has now been removed. This change will be effective from 1 March 2021 (paragraph 1.4) and as such Trusts should review the roles of their Members in the near future.
3. The Members must be kept informed about Trust business (paragraph 1.8), which includes being provided with the Trust’s audited annual report and accounts. To comply with this requirement we would recommend a regular dialogue between the Trustees and the Board.
4. The Academies Financial Handbook 2020 now makes it a requirement for a clerk to be appointed to support the Trustees. Trusts must ensure that the appointed clerk is not a Trustee, principal or chief executive of the Trust. Since this requirement was previously a “should” it is likely that many Trusts already have a clerk who assists the Trustees by providing administrative and organisational support amongst other things (paragraph 1.40). However, now that this is a “must” Trusts will need to fill this position.
5. The Trust’s register of interests must be regularly updated (paragraph 5.46). We would recommend that a Trust does this more frequently than on an annual basis, for instance it may decide to do this as an item on the agenda of its meetings.
Executive Team
6. The Trust’s Accounting Officer and Chief Financial Officer (CFO) should be employees of the Trust. Nevertheless, in exceptional circumstances, such as where these roles are filled on an interim or consultancy basis, the Accounting Officer and CFO may be non-employees provided that the Trust has obtained prior ESFA approval before making the appointment (paragraphs 1.26 and 1.36).
7. The Academies Financial Handbook has raised the bar on what is expected from CFOs in large Trusts, such as those with over 3,000 pupils. Trusts are expected to ensure that their CFO and finance staff have the appropriate qualifications and / or experience (paragraph 1.37). As such, a Trust should consider whether its CFO has a business or accountancy qualification and whether they are a member of a relevant professional body such as the Institute of Chartered Accountants of England and Wales, the Association of Chartered Certified Accountants, the Chartered Institute of Management Accountants or the Chartered Institute of Public Finance and Accountancy. Nevertheless, possessing these qualifications is not enough on its own, the Trust CFO is expected to maintain their professional development and undertake ongoing training (paragraph 1.38).
General Controls and Transparency
8. Trusts must now maintain a fixed asset register (paragraph 2.7).
9. Trusts are expected to review and challenge pupil number projections on a termly basis (paragraph 2.12).
10. Trusts are encouraged to take an integrated approach to the curriculum and financial planning (paragraph 2.13). The Government has published guidance on this management process with the aim that this integrated approach will provide the Trust with confidence when planning the best curriculum for its pupils and when delivering its educational priorities using its available funding.
11. Trusts must avoid the use of overdrafts on any account to comply with its restrictions on borrowing (paragraph 2.24). It is important to note that where there are concerns about financial management the Trust may be required to report its cash position to the ESFA.
12. The Trust’s website must disclose any employee benefits (including gross pay, other taxable benefits and termination payments, but not the Trust’s own pension costs) which exceed £100,000 in £10,000 bandings as an extract from its financial statements for the proceeding accounting year (paragraph 2.32). Therefore, as of 1 September 2020 where such employee benefits existed in the Trust’s 2019 accounting period these will need to be disclosed until the Trust’s 2020 financial statements are published.
13. The Trust must also publish on its website its agreed whistleblowing procedure (paragraph 2.44).
14. The Academies Financial Handbook maintains that the Trust must not use its funds to purchase alcohol for consumption, however there is now an exception where this is for religious services (paragraph 2.35).
15. The Trustees retain overall responsibility for the Trust’s risk register and must review this at least annually (paragraph 2.38). The Trustees must also establish an audit and risk committee who should meet at least three times a year to support the Trustees. It is important to note that the committee may only support the Trustees, responsibility should not be delegated to it (paragraphs 3.6 – 3.8).
16. Trusts must complete the school resource management self-assessment tool by the specified annual deadline to ensure that they are effectively managing resources and that adjustments can be made where necessary (paragraph 6.8).
Internal Scrutiny
17. The Trust’s internal scrutiny should cover both financial and non-financial controls and risk management procedures (paragraph 3.1).
18. From 1 September 2020, a Trust’s internal audit must not be performed by an external auditor in accordance with the Financial Reporting Council’s latest Ethical Standard. As such Trusts review their internal audit arrangements, for instance by appointing an in-house internal auditor, in situations where the internal and external audits were carried out by an external auditor (paragraphs 3.17 and 3.20).
19. A Trust’s internal scrutiny should not be limited to input from persons with financial expertise, rather Trusts are encouraged to call on the non-financial knowledge of additional individuals or organisations (paragraph 3.18). There is a continued obligation for Trusts to submit an annual summary report. As such, when submitting its annual summary report on the internal scrutiny work carried out (including the areas reviewed, key findings, recommendations and conclusions), the Trust should consider the ESFA’s guidance on internal scrutiny in academy trusts. This report should be submitted by 31 December each year (paragraph 3.23).
Annual Accounts
20. The Academies Financial Handbook 2020 provides further detail on the Trust’s audit and risk committee’s role in relation to assessing the effectiveness and resources of the external auditor to provide a basis for decisions by the Members about the auditor’s reappointment, dismissal or rendering. For instance, the audit and risk committee should take into account considerations such as the auditor’s sector expertise, their understanding of the Trust and its activities and the auditor’s use of technology (paragraph 4.17). Furthermore, in June 2020 the ESFA issued the Academies Accounts Direction 2019 to 2020 which is relevant for accounting periods ending 31 August 2020. Trusts should be aware that this direction incorporates some minor updates and additional reporting requirements for large Trusts.
Conclusion
The above changes to the Academies Financial Handbook are not to be ignored by Academy Trusts. There are numerous new obligations imposed following a number of switches from “should” to “must“. As such, we would recommend that all Academy Trusts, if they have not already, should familiarise themselves with the amendments to the governance and financial management obligations and contemplate those which need to be implemented going forward.
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