The Academies Financial Handbook 2018: a reminder

25 September 2018

In June 2018 the Education & Skills Funding Agency (ESFA) released the anticipated annual update to the Academies Financial Handbook (AFH), which came into effect on 1 September 2018.

This is an important document for academies and one which all trustees, members, accounting officers, chief financial officers and auditors should familiarise themselves with.

As the AFH was released towards the end of the summer term we thought it would be useful to offer a reminder of the key changes that academies need to be aware of, so any changes in order to comply with ‘must do’ (and ‘should do’) requirements can be implemented at the earliest opportunity within the 2018/19 financial year.

The key actions academy trusts need to take are summarised as follows:

Delegated authorities for related party transactions

  • From 1 April 2019 trusts will be required to report all transactions (income and expenditure) with related parties in advance of the transaction taking place, via the ESFA’s online form.
  • If the trust does not report, or seek approval for a transaction this should be reported in the Accounting Officer’s regularity and propriety statement in the annual financial statements.
  • If a single contract, or the sum of all contracts held, with a related party in the same financial year is above £20,000 in value then the trust must seek prior approval from the ESFA.

Management accounts

  • From 1 September 2018 all trusts must prepare management accounts every month which set out financial performance (a Statement of Financial Activities or Income & Expenditure Account), position (a Balance Sheet), budget variance reports and cash flow forecasts.
  • The management accounts must be issued to the Chair of Trustees and with the other trustees six times a year.
  • Trusts must select and use key financial performance indicators (KPIs) and measure performance against them regularly.

Frequency of full board meetings

  • Boards must meet at least three times per annum, but if they meet fewer than six times per annum they must disclose in the governance statement within the annual accounts how the board maintained effective oversight with fewer meetings.
  • Trusts should consider whether meeting fewer than six times may be viewed unfavourably by ESFA should the trust face financial difficulties.

Financial and governance requirements

  • Trusts must implement a robust control framework and a strong, accurate budgeting process with regards to cash management and must avoid going overdrawn.
  • Both the Budget Forecast Return Outturn and the 3-year Budget Forecast Return must be approved by trustees before submission.
  • Trusts should budget accurately, using realistic assumptions, and reflect lessons learned from previous years.
  • Pupil numbers are important as they underpin the revenue forecasts and should be challenged to ensure they are accurate.
  • Boards are encouraged to consider Integrated Curriculum Financial Planning (ICFP).
  • Trusts should review the various procurement tools (see links in the AFH) available to help achieve value for money.
  • Trusts need to be able to justify higher levels of remuneration, and boards should maintain strong written records that document their decisions and how these were reached.
  • We recommend that boards benchmark their executive pay levels, particularly for the CEO/Accounting Officer, against other local trusts of a similar size.
  • Trusts must ensure that all concerns raised with them by whistle-blowers are responded to properly and fairly.
  • The findings of the internal challenge (internal audit) work must be made available to all trustees promptly following the review.

Audit requirements

  • There must be an appropriate, reasonable and timely response to any findings by auditors (see your auditors’ year-end management letter).
  • The ESFA may conduct investigations if information is delivered late or is submitted but is not of acceptable quality, so Trusts should ensure they are aware of all returns and have proper processes in place to prepare and review them prior to submission.
  • Annex C to the Handbook is a very useful list of all the ‘must’ requirements and we recommend that this is circulated to all trustees and key finance staff as a reminder of the Handbook requirements.

UHY’s formal summary of the AFH 2018 can be found here.

The Academies Financial Handbook 2018 can be found here.

If you have any questions about the AFH requirements please contact me or your nearest UHY academy specialist.

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