11 July 2018
It only seems like yesterday that we were all busy compiling the Budget Forecast Return Outturn (BFRO), yet here we are less than two months later with the deadline looming of 30 July for the Budget Forecast Return (BFR – not to be confused with BFRO).
Every trust will have received the letter from the ESFA chief executive Eileen Milner on 5 March 2018, announcing the new requirement for a three-year budget forecast to 2020/21 as part of the BFR, intended to promote good practice and emphasise the importance of financial forecasting, in accordance with the academies financial handbook.
Many schools have, however, raised a large eyebrow over this new requirement, especially during the current challenging financial times, with the feedback from some schools being less than positive about its actual benefits given so much uncertainty.
Unsurprisingly, we have received numerous telephone calls about this extended forecast and the assumptions that should be used to prepare it.
Some of these common questions have been:
- What should we use as inflation over the years?
- What will teachers’ pay increases be next year? (Let alone the two years after?)
- Will TPS pension contributions increase and if so by how much?
- My forecast shows a large deficit in year three, should I be concerned?
The difficulty is that some of these questions are impossible to answer with any certainty. We don’t yet know if teachers’ pay will increase beyond the previously fixed rates nor if any additional funding will be given to support such an increase.
All whilst other costs seem to increase year on year and with the well-publicised comments of a sector in financial crisis. Sadly, we don’t know if more money will be allocated into the system to help ease the pressure over the next few years.
What we do know is that forecasting isn’t an exact science; what may be correct today could change significantly tomorrow. You forecast using the information you have, your own financial knowledge and experience of your trust; to assist and support any assumptions you make. This forms the backbone of the BFR.
Unfortunately, little guidance is given here from the EFSA, they state; ‘’you are the best people to agree your assumptions as you have the detailed operational knowledge. This will include, for example, local area trends and local authority planning for pupil numbers. ESFA cannot give advice on how trusts should manage their assumptions. This is for the trust to decide and is a critical element of your trust's financial governance and risk management arrangements.’’
What is clear is you should justify your assumptions and assess the impact of the financial outcomes.
Many of those outcomes are reports of financial deficits at some point over the next three years, often significant amounts. Whilst action may not need to be taken immediately, the forecast is there so you can put plans in place in case you need them at some point down the road. These difficult decisions are becoming more common in today’s economic climate.
If you would like to know more on how this may affect you, then contact your local UHY academy expert or visit our contact us page and remember the deadline for submission of the BFR is 30 July 2018.
Alternatively, to read more academy schools blogs click here.
