The report focusses on the outcomes from their assurance work on the financial management and governance of the academies sector in 2023 to 2024 and the use of public funds.

The review of academy trust financial statements

In relation to the filing of financial statements by the deadline of 31 December 2023, there was a slight reduction in the submission levels with just over 95% meeting the deadline compared to just under 96% for 2022. The main causes for the delays were consistent with previous years and mainly related to trusts that had closed in the year or trusts that were in ‘intervention’.

The number of qualified audit reports for the 2023 year end crept up to 0.4% from the 0.2% made in 2022. The main reason for the qualifications related to the assumptions applied to the local government pension scheme valuations.

There was a slight decrease in the number of modified regularity conclusions with a drop from 8.1% to 7.7%. The main cause for the modifications continued to be that of trusts not adhering to internal financial reporting requirements and not seeking approval for related party transactions that have a monetary value of £20,000 or more. With regards to the latter, this number may decrease in the future given that the ESFA increased the approval limit to £40,000 from the 1 September 2023; however, any changes resulting from the ESFA’s recent reclarification paper won’t be seen until 2025 year ends and beyond.

One of the reasons for trusts receiving modified regularity opinions related to issues with their management accounts. The issues included:

• Not sharing them with the board.
  
• Not being produced at all.
  
• The timeliness of their preparation.
  
• Key sections were missing - for example, the cash-flow or balance sheet had been omitted from the information provided to the board.

This not only highlights the need to produce accurate and complete management accounts on a timely basis, but to also ensure that the circulation of them to the board can be evidenced, and the narrative surrounding their discussion is recorded in the minutes of meetings where they are presented.

Financial management and governance reviews

The focus of the ESFA’s financial management and governance reviews was to provide assurance that trusts have appropriate financial management and governance arrangements and that those arrangements ensure trusts’ compliance with the Academy Trust Handbook. Whilst the ESFA noted that of the trusts reviewed 98% were either fully compliant or making good progress to being fully compliant, there were several common development points that were raised which we believe would be good for trusts to review as part of their ongoing governance arrangements:

• Agreeing and documenting a programme of internal scrutiny works and to address risks to both financial and non-financial controls.
  
• The delivery of an appropriate internal scrutiny programme and oversight of the implementation of recommendations from that work.
  
• Monitoring the budget.
  
• Trusts’ maintaining and publishing the register of business and pecuniary interests of its’ trustees and governing structure on their website.
  
• Oversight of risk and regular review of the risk register.
  
• Publication of governance arrangements.
  
• The setting of executive pay.

Other areas

The ESFA summarised the results from other areas of their reviews, including their work on funding audits and the schools resource management self-assessment checklist (SRMSAC).

The main area of error in the funding audits related to pupil premium and there being insufficient evidence to support the census data returns for service children, post looked after children and entitlement to free school meals.

The overall conclusion on the SRMSAC’s was that they had been, in the main, completed accurately, but adherence to the internal scrutiny requirements was an area where ESFA assessments differed from the Trusts. This part of the report did not expand on why there was a difference in the assessments made but it would be reasonable to conclude that the areas for development identified in the previous section are where the Trusts and the ESFA disagree.

The common areas where trusts did not self-assess themselves as compliant were:

• Trusts not publishing on their website the number of employees whose total benefits exceeded £100,000 for the previous year ending 31 August.
• Trust balances are assessed at a reasonable level and having a clear plan for using the money held in balances at the end of each year.
• Trustees being able to confirm there are no outstanding matters from audit reports.

Conclusion

It is clear from the ESFA’s report that as the academy sector has matured, findings from their reviews are broadly levelling out both in terms of compliance with deadlines and the quantum of modifications/ qualifications made in relation to those filings. Related party transactions continued to be an area where compliance improvements need to be made, but the ESFA has recently issued new guidance to provide more clarity in this area which may reduce future issues.

Whilst there is no apparent theme between the other areas identified as needing improvement and development, there is a commonality in that these are areas where both the responsibility and accountability for compliance is borne by both management and those charged with governance; as a result, it is important for Trusts to ensure that they not only comply with the requirements, but evidence is kept to support that they have complied. Such evidence may come in a variety of forms but, as ever, it is important to document discussions in the form of meeting minutes, without which it may prove difficult to demonstrate that items have been presented, discussed, challenged and approved.