The Academies Financial Handbook 2019 – What's New?

We look here at the key changes included in the Academies Financial Handbook 2019 and what this means for the sector.

The Academies Financial Handbook 2019, which is effective from 1^st September 2019, continues as before with an unrelenting focus on high standards of governance, financial control and accountability. This time, though, it adds weight to internal scrutiny, risk registers, whistleblowing, executive pay and financial notices to improve – to name a few - while referencing guidance and resources to promote good practice. It therefore reinforces a 'stick' and 'nudge' approach to compliance and use of central support, meaning the ESFA will be less forgiving of academy trusts where it identifies concerns.

Internal scrutiny

While the current Handbook already includes requirements and minimum expectations for internal scrutiny, the new Handbook extends this by requiring all academy trusts to have a programme of internal scrutiny to provide independent assurance to the board that financial and other controls and risk management procedures are operating effectively. In particular, internal scrutiny must: evaluate the suitability and compliance with financial and other controls; offer advice and insight to the board on addressing weaknesses; ensure all categories of risk are identified, reported and managed; and be independent and objective, with direct reporting to a committee of the board. Further, internal scrutiny must be: conducted by someone suitably qualified and experienced; covered by a scheme of work; and timely, with high risk areas reviewed in good time. An academy trust must also identify the areas it will review each year.

The audit committee has a clear role to play in securing these outcomes and must: have written terms of reference; agree a programme of work and who will perform it; review the risk register; consider reports and progress against recommendations; and have access to those undertaking internal scrutiny, as well as external audit.

Where the rubber hits the road, though, is in transparency and external reporting. Here, the annual summary report of areas reviewed, key findings and recommendations and conclusions (as presented to the audit committee) must be submitted to the ESFA by 31^st December. The annual governance statement, which accompanies the annual accounts, must also confirm who has undertaken the internal scrutiny and why. Meanwhile, the outcome of the internal scrutiny must inform the accounting officer's statement of regularity in the annual accounts.

These changes place internal scrutiny well and truly in the spotlight, meaning academy trusts must ensure their governance, reporting and contracting arrangements are fit-for-purpose for 1^st September. If these are areas where you need advice and support, do get in touch.

Risk Register 

To reinforce internal scrutiny, the new Handbook requires academy trusts to maintain a risk register.

Internal control 

Internal scrutiny is also bolstered by a new requirement on academy trusts to have sound internal control, risk management and assurance processes.

Accounts

Meanwhile, the new Handbook stipulates that management accounts must include an income and expenditure account, variation to budget report, cash flows and balance sheet and that audited accounts must be provided to the members of the academy trust.

Financial transactions

The Handbook also confirms that academy trusts must obtain ESFA approval before they borrow or approve staff severance, compensation or ex gratia payments, write off debts or acquire or dispose of freehold or leasehold property beyond the limits already set out in the Handbook.

Financial performance

Where the board has concerns about financial performance, it should (i.e. as minimum good practice) act quickly, ensuring the academy trust has adequate financial skills in place.

Financial Notices to Improve

The new Handbook also turns the spotlight on Financial Notices to Improve ("FNtI") by requiring academy trusts that are subject to an FNtI" to publish this on their website within 14 days of issue and retain it there until it is lifted by the ESFA. While FNtIs are already published by the ESFA, it is fair to say that most parents/carers will not know how to access this level of information on their child's academy. The new requirement for academy trusts to publish an FNtI on their website will therefore make the FNtL more readily available with the risk that parents/carers will move their children elsewhere, compounding the situation for the academy trust and meaning only the strongest academy trusts will survive. Academy trusts will therefore need to ensure that their financial management and governance arrangements are in order. Governance reviews and spot checks are a good way of testing the strength of governance arrangements and are areas where we provide expertise to academy trusts.

A knowledgeable clerk

In terms of governance, the Handbook confirms that a knowledgeable clerk is fundamental to the effective functioning of the board by providing: administrative support; guidance to ensure compliance with the legal and regulatory framework; and advice on procedural matters. We already provide support to a number of national clerks networks and so provide clerks with advice to ensure effective governance in keeping with the Clerking Competency Framework and the Governance Handbook.

Whistleblowing

Alongside effective governance, the new Handbook now requires academy trusts to have a whistleblowing procedure.

Executive pay

The board of an academy trust must also ensure that its decisions about executive pay extend to pay and benefits and are reasonable, defensible and good value-for-money and are sighted on broader business interests held by senior executives, such as private companies in which they have an interest which provide services to the education sector.

In summary

It's fair to say that the new Handbook turns the screw again on academy trusts, at a time when resources are stretched. Academy trusts are already struggling to make ends meet and will find the new requirements a challenge, particularly when it comes to internal scrutiny. When combined with the references to guidance and resources to promote good practice, meaning the ESFA will be less forgiving of academy trusts where there are concerns, this will only push more academy trusts towards re-brokerage, if not insolvency.