Understanding the Academies Accountability Framework

Academies Accounts Direction 2013 to 2014

Purpose of session To provide an overview of reporting requirements under the Academies

Accounts Direction (AAD)

To provide an update on key changes in the 2014 edition of the Accounts Direction

To consider regularity issues impacting on trusts’ financial statements, using illustrative case studies

To identify the key dates for preparing financial statements

What is the Accounts Direction?

A reference pack for academy trusts and auditors when preparing and auditing financial

statements

Supplements the Academies Financial Handbook (AFH) derived from requirement in funding agreements to submit audited

accounts to the Secretary of State for Education by 31 December each year

Based on format of accounts in the Charities SORP interpreted for academies and to meet our additional reporting needs

A collaborative process

Working with stakeholders Accounts Direction produced after extensive consultation with

academy/auditor working groups

also consulted with professional bodies – ICAEW

Giving notice issued in May 2014 to give academies and auditors time to plan their

approach to accounts preparation and audit, and agree timescales for their work

Published at www.gov.uk/academies-financial-assurance

Changes to the Accounts Direction

Described on pages 5 to 9 of the Accounts Direction

Includes modest restructure of trustees’ report

Some revisions to the notes to the accounts

Refresh of the regularity section (part 10)

Trustees’ report Should be a narrative of the trust’s performance including:

objectives achievements in the year future plans

Not just financial analysis, but also educational, and requires wider input from the senior leadership team and trustees

Must be signed by a trustee

What’s new for 2014? The business review has been replaced with a strategic report including

analysis against key performance indicators (KPIs)

Governance statement Should address:

governance structure – names, committees, trustee attendance, any challenges

internal controls approach to risk management control issues arising

Should reflect the trust’s circumstances - not a ‘boilerplate’ statement

What’s new for 2014? Greater emphasis on including the outcome of governance reviews

within this statement

Financial statements Model ‘Coketown’ accounts - must be used as the basis for your accounts

(part 3 of AAD)

Restricted and unrestricted funds – must be identified

Components of the accounts – are described in part 6

Disclosure notes for the accounts – are described in part 7

Common accounting issues – are described in part 8 land and buildings government grants issues for new trusts – more detail given this year subsidiary companies

Disclosures for multi-academy trusts Part 8 describes the additional disclosures for multi-academy trusts (MATs)

Disclosure of central services separate note must detail the types of services provided, the trust’s

policy for charging e.g. flat % or pupil numbers, and the actual charges

Funds note set out the year-end funds attributable to each academy, and any

action taken to address a deficit

show headline expenditure for each academy

GAG if you’re subject to a 12% carry over limit, disclose the amount

carried over by each academy

Disclosure of individual transactions

Some transactions must be disclosed in the accounts individually if over £5k, per section 2.4.33 of the Academies Financial Handbook

Layout now illustrated in the ‘Coketown’ model in the Accounts Direction at:

note 7 - ex-gratia/compensation payments, gifts made, losses note 10 - staff severance payments note 13 - land and buildings, heritage assets note 25 - indemnities

Disclosure of staff restructuring costs

The disclosures for severance payments are discussed in section 7.5.1.

Some other disclosure updates Charitable Expenditure and Governance Costs (notes 8 and 9) –

simplified with fewer columns

Teachers Pension Scheme (note 28) – text updated to reflect scheme reforms

Local Government Pension Scheme (note 28) – closure guarantee noted

Related party transactions (note 29) – explain how you managed the transaction to evidence it was even-handed

Review the full list - in the introduction to the Accounts Direction

Other updates for 2014

List of members - to assist with transparency, the accounts must now contain the names of the trust’s members including any changes

Absence of key signatories - the board must consider arrangements for the departure or long term absence of key signatories (section 1.6.7)

Submission of accounts to EFA - method to be confirmed nearer the deadline

Regularity: reporting requirements The academy trust’s accounting officer (AO) must make a formal declaration

that he/she has met their responsibilities for regularity, propriety and compliance of regulations over income and expenditure, noting instances of irregularity

The reporting accountant (this must be the ‘true and fair’ auditor) provides a report on the accounting officer’s statement confirming ‘nothing has come to their attention’

Irregularity and fraud is rare in the academy sector but does happen; examples on gov.uk website

Fraudulent transactions over £5000 and unusual or systematic fraud (regardless of value) must be reported to the EFA

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Q The wife of the chair of trustees was recruited as a teacher. The post was advertised externally and a number of candidates were interviewed on a fair basis?

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Q The wife of the chair of trustees was recruited as a teacher. The post was advertised externally and a number of candidates were interviewed on a fair basis?

A Regular as the correct process was followed

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Q The wife of the chair of trustees was recruited as a teacher. The post was advertised externally and a number of candidates were interviewed on a fair basis?

A Regular as the correct process was followed

Q The academy paid £45,000 plus VAT for the refurbishment of a flat at one of the academy sites. The flat remains unoccupied and its use is still undetermined?

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Q The wife of the chair of trustees was recruited as a teacher. The post was advertised externally and a number of candidates were interviewed on a fair basis?

A Regular as the correct process was followed

Q The academy paid £45,000 plus VAT for the refurbishment of a flat at one of the academy sites. The flat remains unoccupied and its use is still undetermined?

A Irregular as the expenditure does not appear to be for educational purposes

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Q The wife of the chair of trustees was recruited as a teacher. The post was advertised externally and a number of candidates were interviewed on a fair basis?

A Regular as the correct process was followed

Q The academy paid £45,000 plus VAT for the refurbishment of a flat at one of the academy sites. The flat remains unoccupied and its use is still undetermined?

A Irregular as the expenditure does not appear to be for educational purposes

Q The academy paid an invoice for tax advice fees relating to the principal’s personal tax issue regarding benefits in kind from the academy?

Regularity: case studiesQ The academy principal uses academy credit cards for personal expenses (receipts

are not retained to support purchases made using the credit cards?)A This would be irregular as it constitutes personal expenditure

Q The wife of the chair of trustees was recruited as a teacher. The post was advertised externally and a number of candidates were interviewed on a fair basis?

A Regular as the correct process was followed

Q The academy paid £45,000 plus VAT for the refurbishment of a flat at one of the academy sites. The flat remains unoccupied and its use is still undetermined?

A Irregular as the expenditure does not appear to be for educational purposes

Q The academy paid an invoice for tax advice fees relating to the principal’s personal tax issue regarding benefits in kind from the academy?

A This would be irregular as it constitutes personal expenditure

Regularity: thoughts on delegated authorities

S2.4.5 to S2.4.31 of the 2013 AFH stipulate the freedoms that an academy trust has

A trust needs to obtain prior approval from EFA, through academy questions, where transactions are over the delegated amounts

Auditors are required to test compliance with the AFH

If there is evidence of non-compliance this will need to be referenced firstly in the AO’s statement on ‘regularity, propriety and compliance’

Further discussion may be made within the auditor’s regularity conclusion

Regularity: thoughts on severance payments For non-contractual severance payments of £50k or more, trusts must

obtain prior approval from the EFA

If prior approval has not been obtained, the trust has breached the requirements of the AFH

Considerations for severance payments: management procedures justification for special payment legal assessment value for money wider impact accounting officer sign off

Further guidance for both academies and auditors is on the gov.uk website

Regularity: case studies on delegated authoritiesQ An academy trust wants to grant a lease to its subsidiary company for the use of one

of its buildings. The lease amounts to £22,000 pa

Regularity: case studies on delegated authoritiesQ An academy trust wants to grant a lease to its subsidiary company for the use of one

of its buildings. The lease amounts to £22,000 paA Secretary of State approval required as grant of a lease (S2.4.28) and need to

demonstrate at market value

Regularity: case studies on delegated authoritiesQ An academy trust wants to grant a lease to its subsidiary company for the use of one

of its buildings. The lease amounts to £22,000 paA Secretary of State approval required as grant of a lease (S2.4.28) and need to

demonstrate at market value

Q A year 2 teacher has been a disruptive influence in the academy. There have been allegations of bullying made by other members of staff and she has been through a disciplinary process. In a bid to remove her from the school she has been paid her normal contractual severance pay and after discussions with the union representative a further £10,000 is paid. No legal advice has been taken.

Regularity: case studies on delegated authoritiesQ An academy trust wants to grant a lease to its subsidiary company for the use of one

of its buildings. The lease amounts to £22,000 paA Secretary of State approval required as grant of a lease (S2.4.28) and need to

demonstrate at market value

Q A year 2 teacher has been a disruptive influence in the academy. There have been allegations of bullying made by other members of staff and she has been through a disciplinary process. In a bid to remove her from the school she has been paid her normal contractual severance pay and after discussions with the union representative a further £10,000 is paid. No legal advice has been taken.

A Whilst this is under the £50k limit it is potentially gross misconduct and therefore goes against the principles of the handbook (S2.4.16). Legal advice should be taken and a full appraisal of costs before payment is made.

Regularity: case studies on delegated authoritiesQ An academy trust wants to grant a lease to its subsidiary company for the use of one

of its buildings. The lease amounts to £22,000 paA Secretary of State approval required as grant of a lease (S2.4.28) and need to

demonstrate at market value

Q A year 2 teacher has been a disruptive influence in the academy. There have been allegations of bullying made by other members of staff and she has been through a disciplinary process. In a bid to remove her from the school she has been paid her normal contractual severance pay and after discussions with the union representative a further £10,000 is paid. No legal advice has been taken.

A Whilst this is under the £50k limit it is potentially gross misconduct and therefore goes against the principles of the handbook (S2.4.16). Legal advice should be taken and a full appraisal of costs before payment is made.

Q An academy trust wishes to write off of a bad debt from an association that used the schools facilities, totalling £5,000.

Regularity: case studies on delegated authoritiesQ An academy trust wants to grant a lease to its subsidiary company for the use of one

of its buildings. The lease amounts to £22,000 paA Secretary of State approval required as grant of a lease (S2.4.28) and need to

demonstrate at market value

Q A year 2 teacher has been a disruptive influence in the academy. There have been allegations of bullying made by other members of staff and she has been through a disciplinary process. In a bid to remove her from the school she has been paid her normal contractual severance pay and after discussions with the union representative a further £10,000 is paid. No legal advice has been taken.

A Whilst this is under the £50k limit it is potentially gross misconduct and therefore goes against the principles of the handbook (S2.4.16). Legal advice should be taken and a full appraisal of costs before payment is made.

Q An academy trust wishes to write off of a bad debt from an association that used the schools facilities, totalling £5,000.

A S2.4.10 defines the delegated limits for write offs and liabilities. In the first instance it can be the smaller of 1% total annual income of £45k. Therefore, if the academy had income over £500k they would be able to self-approve the write off.

Regularity: evidence to support the regularity report

S10.2.12 and S10.4 details tests that can be performed to provide evidence for the regularity report

Whilst there is no requirement for the AO to retain documentation supporting their statement it may assist the audit process

The tests are not mandatory and EFA expects auditors to review each trust individually and tailor work programmes accordingly

Auditor considerations Long periods of account will be subject to more than one AFH (S10.3.17)

Risk assessment of an academy needs to include attitudes and any changes to SLT or accounting systems

Any breach of values against delegated authorities are deemed material

Reliance on internal audit or other independent checking work must be properly appraised

Regularity issues should be highlighted within the management letter

Summary - what you should do

Read, understand and comply with the requirements and timetable in the Accounts Direction

Decide who will prepare the accounts (academy or auditor)

Decide who will draft the reports (finance director, trustee or AO)

Ensure timetable agreed between academy and auditors early

Get trustees to contribute and lined up to approve – are trustee meetings scheduled at a time that will allow them to review and sign off the reports and accounts before deadline?

Moving forward Accounting requirements:

FRS102 implemented from 1 January 2015

Charities SORP due July 2014, with implications from 1 January 2015

Accounts Direction and further guidance will cover changes

EFA is currently looking into the effects of the reporting changes and will communicate these as appropriate

Key datesAccounting reference date Must be 31 August. If not a change of

accounting reference date form must be submitted to Companies House

Preparing dormant accounts or extending first period of accounts

By 30 September 2014 to academy.questions@education.gsi.gov.uk

2013/14 accounts and management letter (incl. regularity opinion) to EFA

By 31 December 2014 (submission method to EFA to be confirmed)

Publication of the 2013/14 accounts on the academy’s website

By 31 January 2015

Submission of the 2013/14 accounts to Companies House

By 31 May 2015

EFA’s main channel of communication is through the e-bulletin. To subscribe please email efa.bulletin@education.gsi.gov.uk

Webinar timetable

You can register for the webinars at https://registration.livegroup.co.uk/academyfinance/

• You can submit questions for the panel in advance when you register, or log back in later and submit your questions

• If you can’t attend on 15 July, you can watch a recording of the webinar online after the event

Interactive webinars DateAcademies Financial Framework (academies) 15 July 2014 at 11am

Academies Financial Framework (auditors) 15 July 2014 at 2pm

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