Better financial reporting for academy trusts

The Department for Education has launched a new academies chart of accounts as the first step to automated financial reporting.

The new academies chart of accounts will be used as the standard for financial data that underpins the academies accounts return and budget forecast returns. Adopting it will lead to significant future benefits for trusts, with the Education and Skills Funding Agency saying that approximately 65 per cent of the accounts return comes from data within a trial balance. Being able to have that data pre-populated will be extremely helpful to trusts.

It also means that the Department for Education can provide more accurate financial benchmarking information, which

will allow academies to compare their finances with other similar academies with greater confidence. Adopting the academies chart of accounts is voluntary.

Lord Agnew, Parliamentary Under Secretary of State for the School System, said: “Our better financial reporting programme is a great step forward in our work to improve efficiency in schools. We have recognised that the current system of submitting financial data to the department is timeconsuming and offers insufficient benefit to academy trusts.

“By having a standard chart of accounts, we create the essential building blocks for the new system as it provides a consistent way of recording financial data for all academy trusts. This will allow us to reduce the burden on trusts through the electronic submission of financial data directly from finance systems and adding greater value to trusts by enabling us to create new financial efficiency tools as well as improve the timeliness and quality of the existing tools.”

Adopting the chart of accounts means using the ledger codes in the chart of accounts. The academy’s cost centres do not need to change. Academies can map their existing ledger codes but they will need to consider whether their existing ledger code structure has enough detail for full automation, particularly balance sheet reporting in the accounts return.

If the existing chart of accounts doesn’t have enough detail, the academy may still need to enter data manually using the accounts return online form.

The balance sheet codes in the chart of accounts reflect the full range of DfE’s fixed assets, investments and disposals. Most academy trusts will not need to use all of these. You can mark these inactive in your finance system and activate them if you need them in the future. By using the chart of accounts, the DfE will be able to understand your data and automatically match it to the right part of the online forms when it introduces automation. The DfE expects that this will significantly reduce the amount of time it takes to currently fill out online forms.

Academies minister Lord Agnew has written a letter to auditors of and accounting officers at academy trusts, saying that mid-year financial audit reviews would avoid failings going onto the public record.

This would give management teams the time to resolve the issues before the accounts have to be signed, the letter says. Agnew says that management letters – which must be signed to confirm an academies finances are accurate – are being increasingly used to help the DfE assess the quality of governance and control frameworks in trusts.

The letter says: “If you identify serious concerns about an academy trust, we would always encourage you to speak to us early in the process. Whilst this is a matter for your professional judgment, there may be rare occasions where delay, and reliance on the standard channels for reporting audit findings, runs the risk of significant irregularity or impropriety.

“At the other end of the spectrum, whilst management letters containing no recommendations can be a sign that a trust’s financial management and governance is in good shape, we will still look at these cases for indications of concern elsewhere. We will consider the volume and nature of adjusted and unadjusted errors that you report, to gain an insight into the quality and rigour of the trust’s financial accounting procedures.

“We are particularly concerned where we see issues raised in one year that remain unresolved in the following year. Our view is that a simple way to avoid these failings going onto the public record is through mid-year audit reviews. This gives management teams the time to resolve them before the accounts have to be signed. Siren voices that complain about the cost of this action should be cause for concern in itself. Normally the failings identified will have a cost well in excess of an audit review. The sooner they are rectified the less risk and cost to the trust.”

The letter says that the DfE will be bringing a sharper focus on governance including the need for financial statements, under ISAs700 and 720, to state explicitly that the trust’s governance statement has been reviewed and whether it is materially inconsistent with the financial statements or knowledge obtained during the audit. L

To see the academies chart of accounts, go to tinyurl.com/y5trsz4q