Understanding the Academies Accountability Framework Academies Accounts Direction 2013 to 2014

1. Understanding the Academies Accountability Framework Academies Accounts Direction 2013 to 2014

2. 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

3. 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

4. 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

5. 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)

6. 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)

7. 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

8. 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

9. 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

10. 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

11. Disclosure of staff restructuring costs • The disclosures for severance payments are discussed in section 7.5.1.

12. 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

13. 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

14. 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

15. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?)

16. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure

17. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure • 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?

18. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure • 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? • Regular as the correct process was followed

19. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure • 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? • Regular as the correct process was followed • 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?

20. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure • 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? • Regular as the correct process was followed • 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? • Irregular as the expenditure does not appear to be for educational purposes

21. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure • 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? • Regular as the correct process was followed • 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? • Irregular as the expenditure does not appear to be for educational purposes • The academy paid an invoice for tax advice fees relating to the principal’s personal tax issue regarding benefits in kind from the academy?

22. Regularity: case studies • The academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) • This would be irregular as it constitutes personal expenditure • 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? • Regular as the correct process was followed • 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? • Irregular as the expenditure does not appear to be for educational purposes • The academy paid an invoice for tax advice fees relating to the principal’s personal tax issue regarding benefits in kind from the academy? • This would be irregular as it constitutes personal expenditure

23. Regularity: thoughts on delegated authorities • S2.4.5 to S2.4.31 of the 2013 AFHstipulate 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

24. 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

25. Regularity: case studies on delegated authorities • 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

26. Regularity: case studies on delegated authorities • 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 • Secretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value

27. Regularity: case studies on delegated authorities • 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 • Secretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value • 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.

28. Regularity: case studies on delegated authorities • 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 • Secretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value • 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. • 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.

29. Regularity: case studies on delegated authorities • 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 • Secretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value • 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. • 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. • An academy trust wishes to write off of a bad debt from an association that used the schools facilities, totalling £5,000.

30. Regularity: case studies on delegated authorities • 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 • Secretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value • 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. • 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. • An academy trust wishes to write off of a bad debt from an association that used the schools facilities, totalling £5,000. • 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.

31. 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

32. 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

33. 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?

34. 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

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

36. 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

37. Thank you for watching