As we enter the 2025–26 academic year, academy trusts are facing renewed scrutiny over how they receive, manage and report public funds.
From ring-fenced initiatives of the PE & Sport Premium and 16–19 Bursary Fund, to the new working-parent childcare funding for nurseries, each stream carries strict compliance requirements - and potential clawback risks if not managed correctly.
Academy sector grants with specific restrictions
Most other Department for Education (DfE) grants are provided as a contribution to the increasing staffing costs in the sector, from rising salaries, employer pension contributions and most recently, from April 2025 the increase in employer national insurance contributions by rate and from when payable. As these funding sources are formula driven, and linked to the number of pupils in a trust, there are winners and losers to these new funding income streams. The funding impact being dependent on the staffing structure and experience profile. Experienced staff are expensive but needed to maintain standards for Ofsted, vs the cost savings form employing newly qualified teachers. It is a balancing act between quality and experience of staff retained, and developing new staff for the future, without impacting on the education outcomes.
For primary schools, the grant with the most restrictions is the PE & Sport Premium funding, and for secondary schools with a 16-19 provision, it is the 16-19 Bursary funding. With both of these grants, if the funding is not justifiably spent in accordance with the intended purpose of the funding, then amounts require returning to the DfE.
Academy funding clawback and compliance risks in 2025-26
Just because funding arrives does not mean it’s “free to use anywhere.” Compliance is embedded in the conditions.
PE & Sport Premium: unspent balances & reporting risk
- Primary academies must spend their allocated PE & Sport Premium within the year and submit a digital expenditure report to the DfE by 31 July. Failure to comply, or evidence of misuse, can trigger repayment (clawback) by the Secretary of State.
- Unspent balances or incorrectly used funds (outside permitted purposes) are at risk of being required to be returned.
Trusts should monitor usage in-year to catch under-utilisation early and avoid last-minute ‘dash to spend’ that lacks oversight and will not provide relevant outcomes for the pupils the funding is intended for.
16–19 Bursary / Free Meals Funding (when acting as agent)
- under the 16 to 19 Bursary Fund rules, unspent funds may be carried forward only for one academic year
- any unspent funds beyond that window or relating to prior years must be returned to DfE
- institutions must self-notify to the DfE the amounts to be reclaimed, with details of academic years involved, by 31 March.
Other compliance risks
- misapplication of grant funding (using it for non-permitted costs)
- failing to publish required reports (publication of the submitted form to the DfE on PE & Sport premium spending by 31 July)
- weak internal controls, poor governance or lack of audit trail evidence of effect spend
- breach of Funding Agreement and Academy Trust Handbook obligations - The DfE has intervention powers in cases of systemic non-compliance.
Nursery provision & working-parent entitlement expansions: heightened risk area
From April 2024, the government extended funded childcare entitlements for working parents, which has created a more complex environment for nursery providers - including those operated by academy trusts.
Below are instances that commonly lead to non-compliance and clawback exposure at the nursery / early years level:
Eligibility and evidence failures
- accepting children without valid HMRC eligibility codes or failing to retain and verify the parent’s National Insurance number and reconfirmation evidence
- not properly checking that the entitlement (eg. 15 hours for certain two-year-olds, or future rollout of 30 hours to younger ages) is valid for the child/parent in a given term
- lapses in the reconfirmation window (parents must revalidate eligibility) can lead to ineligible claims.
Incomplete or inconsistent attendance registers and parent declarations
- claims that lack signed parental agreements, or where daily registers are missing or misaligned to claimed hours
- if claimed hours do not reconcile with actual attendance, overclaim becomes evident - and those overpaid amounts may be reclaimed
- failure to reconcile attendance vs. claims in periodic audits.
Charging for funded entitlement hours or confusing invoicing
- providers must not charge for the funded hours - if parents are invoiced (or fees are hidden or misclassified), that is a breach of the provider agreement
- invoices must transparently distinguish between funded and non-funded hours - ambiguity can expose the provider to clawback.
Incorrect timing or year claims
- claiming funding outside the permitted period (eg. ahead of eligibility, or wrongly attributing hours to prior funding years)
- not applying carry-forward rules (where applicable) properly or exceeding allowable carry-over windows.
Non-compliance with local provider / contract agreements
- each local authority / provider agreement may impose additional requirements (submission of reports, evidence or quality checks) - failing to adhere to these can trigger reductions or repayments
- local audits may sample provider claims, and uncompliant providers may be asked to repay funds.
These risks have been flagged in recent reviews: internal audit reports often emphasise the need for robust record keeping, accurate attendance-based funding calculation and proper oversight.
Moreover, the National Audit Office has warned that the expansion of working-parent entitlements is ambitious, and that many local authorities and providers may struggle to ensure consistent compliance, due to timing pressures, resource constraints and administrative complexity.
Practical mitigation steps and best practice
| Focus area | Recommended actions |
| In-year grant monitoring & forecasting | Track each targeted grant (eg. PE premium, bursaries, early years entitlements) using separate ledger codes; produce monthly variance reports. |
| Early flagging of unspent balances | When spending trends show under-utilisation, escalate to senior finance / board level to adjust plans or reallocate within permitted scope. |
| Eligibility / entitlement evidence systems | Maintain a secure eligibility file (codes, National Insurance no.s, reconfirmation logs), and periodically sample-check for integrity. |
| Robust attendance & claiming reconciliation | Routinely cross-check registers, ensure signed parent agreements, and reconcile claimed hours with actual usage. |
| Transparent invoicing & pricing | Segregate funded versus non-funded hours clearly in billing; confirm no charge to parents for funded entitlement hours. |
| Governance & oversight | Ensure trustees and finance committees review targeted grant risk, review compliance dashboards, and challenge end-of-year spending pressure. |
| Prompt engagement with DfE/LA | If unspent or misallocations emerge, notify the DfE or LA early, propose remediation rather than reacting to post-closure enquiries. |
| Audit trails & documentation | Maintain detailed supporting records (invoices, contracts, evidence of impact) and document decision-making around grant reallocations or underspends |
| Training & capacity-building | Equip finance and operational staff with grant-specific training; build a culture of compliance and early risk detection. |
As the funding environment intensifies, academy trusts must recognise that grant compliance is not optional. Every pound received under public funding comes with a compliance footprint and failure to track, evidence or report correctly can lead to financial recovery and reputational risk.
Trusts that embed compliance into their culture, from finance to governance to nursery level delivery, will not only safeguard their funding but also demonstrate the public value and integrity our sector stands for.
Useful links and next steps
Should you wish to discuss your upcoming audit, please do not hesitate to reach out to Luke Grubb, or your usual UHY academy adviser.
