6 July 2017
The recent Dear Accounting Officer letter contained a reminder about the forthcoming 28 July deadline for this year's Budget Forecast Return (BFR).
We are sure by now most academy trusts have these in hand, but we'll take the opportunity to remind you that the full board of trustees does need to approve the 2017/18 budget. The BFR itself does not need approval by the board but the budget from which the return is based does need to be approved at this level.
Towards the end of the letter from Peter Lauener there was a paragraph intimating a possible move to a three-year forecast in the future. The Education and Skills Funding Agency (ESFA) appear to be assessing the benefits of moving to a three-year return and they will be undertaking some pilot work on this in the coming months.
This would be an interesting development following on from the change earlier in 2017 to introduce the May BFRO return (to collect information on likely current year outturns earlier) in addition to the usual July BFR.
One can assume that by going public on their intentions at this stage the three-year forecast is very much the ESFA's preference, and it is now probable that this will be introduced.
Many academy trusts will already prepare longer term forecasts, since this is very much best practice, and some even stretch to five years. A forecast extending to three years is, in our view, vital and especially so for any trust that is not blessed with a high level of reserves and cash.
Despite the advantages there are some trusts that do not prepare forecasts for longer than a year, and it is surely a good thing that they will be forced into doing so.
Feedback from clients we have spoken to on this subject have been mixed. Understandably some are concerned about the prospect of the additional workload of completing the extended return, even if they do have the three-year data to hand.
Others have indicated they believe it would be a good thing. Any trust predicting a revenue deficit in the forthcoming year would find it useful to follow this up with a 'year two' showing a surplus if this is showing an improved financial position.
Of course the challenge with any forecast - and particularly a longer term one - is ensuring the data and assumptions are as accurate as possible. When academy income is so driven by pupil numbers which cannot be guaranteed from one year to the next this can be difficult, but forecasts can only be based on the information available at the time of preparation and best estimates where necessary (often based on historical information).
It is often helpful to have more than one version of a forecast where there are underlying uncertainties in any assumptions. You may choose to produce a prudent worst case budget, a best case, and maybe one in between.
A sensitivity analysis can also be useful. If the software or spreadsheet used to prepare the forecast can be set up so that any figure can easily be flexed in terms of actual number or a percentage change, then it is much easier to see the overall impact of individual variations.
Preparing an accurate budget takes some time. We are often asked to assist our academy clients with the preparation of their budgets; sometimes this is just a desktop review to ensure reasonableness and in other cases we are called onsite to sit with the finance team to help them compile the detail.
If you have any questions regarding the preparation of budgets for your trust please contact me or your local UHY academy specialist.
