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The government’s Academies Financial Handbook 2016 was released on 6 July 2016. As always changes have been made, although most are fairly minor and tend to stress the need for clarity rather than introducing significant new items. There is however a stronger emphasis on financial management and efficiency, which CIPFA welcomes. This is likely due, in part, to recent financial mismanagement cases in academies that have been gleefully picked up the media. Some of the changes to note are:
This highlights the Education Funding Agency’s (EFA’s) expectation (and comments from both the National Audit Office and Ofsted) that governors should provide effective and informed challenge in budgetary matters, and that the academy finance officers should be able to respond with understanding, explanations and solutions. We suspect the skills issue in terms of capacity and capability is one that will continue to be high profile.
This emphasis on strong financial management is further addressed by the point “where the EFA has concerns about financial management, they may require the trust to report on its cash position” (paragraph 2.2.14). The EFA is concerned that budget scrutiny may not be robust enough and that deficits, potential or real, are tackled with speed.
As austerity continues to bite, academies will be looking at a variety of ways to generate additional income streams and investments products may seem like a suitable option. Given some of the spectacular crashes we have seen in recent years, notably the Icelandic crisis, academies must ensure that security of their funds is paramount. Robust treasury management procedures, together with an understanding of the financial investment market, may be a new area for many academies and so it is critical that adequate training and knowledge is in place before embarking on this option. The volatility of the market post-Brexit may however limit the numbers pursuing this option!
The risk audit is undertaken when an academy enters into the EFA’s risk protection arrangement (RPA) and the implementation of any recommendations made from this are now mandatory. The aim is to avoid any breaches in legislation that may impact on the academy in later months or years if they need to make claims.
The rationale behind this is that the EFA has received incorrect pupil forecasts and therefore incorrect funding claims from some trusts. These issues have played a role in the issuing of ‘financial notices to improve’ to certain trusts. This places a spotlight on the effectiveness of the trusts' internal audit procedures and the robustness of challenge from the audit committee.
The above is not a complete list of the changes within the 2016 handbook, however they do highlight the DfE’s drive to improve financial management and governance in trusts.
As schools become academies they gain greater autonomy than that allowed under the local authority. However with this autonomy comes greater responsibility, particularly around sound financial management and strong governance. Past experience has shown us that this is not always the case! The 2016 Handbook aims to rectify this and has provided a new more robust and others would argue prescriptive list of ‘musts’ and ‘shoulds’ that trusts need to adhere to.