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Academies Financial Handbook: changes from September 2019
Read about the major changes that you should be aware of, including new requirements for audit committees and whistle-blowing procedures.
- Audit committee: more details on what it must do
- Whistle-blowing procedures: new requirements
- Internal scrutiny (aka internal audit): new principles
- Executive pay: new considerations when setting
- Publishing financial notices to improve
- Risk registers are now a 'must', not just a 'should'
- Publishing contact details for all trustees and members
- Other, minor changes introduced in the handbook
Throughout the article we refer to the 2019 Academies Financial Handbook.
Audit committee: more details on what it must do
The requirement to have an audit committee isn't new, but the 2019 handbook includes more detail on what the committee must do (pages 26 to 27). The committee must:
- Have a written terms of reference describing its remit
- Agree an annual programme of work
- Review the risk register to inform the programme of work, making sure checks are changed as appropriate each year
- Agree who'll perform the work
- Reports at each meeting from those doing the work
- Progress in addressing recommendations
- Outputs from other assurance activities by third parties, e.g. ESFA financial management and governance reviews, funding audits
- Have access to, and consider the quality of, the external auditor and those carrying out internal scrutiny
It's not a requirement, but the handbook also now recommends that the audit committee meet at least 3 times a year. It also says the chair of trustees shouldn't be the chair of the audit committee.
Whistle-blowing procedures: new requirements
The requirement to have whistle-blowing procedures, and for you to respond to concerns raised under them "properly and fairly", isn't new. However, there's more detail on what you must have in your procedures and what you should tell staff.
From September 2019, you need to (page 22):
- Have trustees agree the procedure
- Make sure all staff are aware of the procedures, and how concerns will be managed
In addition, you should appoint at least one trustee and one member of staff who staff can report concerns to.
All staff should know what protection is available to them if they report a concern, what type of wrongdoing is covered by whistle-blowing procedures and who they can approach.
Internal scrutiny (aka internal audit): new principles
The options for internal scrutiny remain the same, i.e. employ an in-house internal auditor, a bought-in service, a non-employed trustee or peer review from another trust CFO or finance staff.
However, there's a new set of principles you must meet from September (pages 27 to 28). These say that your internal scrutiny must:
- Be independent and objective, and not performed by your accounting officer, CFO or other member of the finance team
- Be done by someone "suitably qualified and experienced" and "able to draw on technical expertise as required"
- Be covered by a scheme of work set by the audit committee and informed by risk
- Be timely, with work spread appropriately over the year so higher risk areas are reviewed in good time
- Include regular updates to the audit committee, with a report to each of the committee's meeting and an annual report
You must also keep your approach to internal scrutiny under review, considering whether the approach remains suitable if you change in size, complexity or risk profile.
New requirement to submit internal audit report to the ESFA
Whoever carries out the internal scrutiny work must also submit an annual summary report to the ESFA alongside your audited annual accounts. It should cover the areas reviewed, key findings, recommendations and conclusions. You must also provide the ESFA with any other internal scrutiny reports if requested.
Executive pay: new considerations when setting
This section isn't very different, but there are a couple of changes on making executive pay decisions (page 20):
- The handbook adds that these decisions should include "salary and any other benefits" ('other benefits' isn't clarified in the 2018 handbook)
- The board need to make sure they're aware of the broader business interests held by senior executives, and that any payments to executives in relation to such interests meet the transparency requirements in the academy accounts direction
Publishing financial notices to improve
From September, if you're issued a financial notice to improve, you'll have to publish it on your website within 14 days of its issue. You can take it down when the ESFA lifts the notice (page 47).
Risk registers are now a 'must', not just a 'should'
This isn't hugely different, as you were still required to manage risks under the 2018 handbook. However, the risk register itself is now a requirement too (page 21).
The requirement for risk management to include contingency and business continuity planning is still in place as part of this.
Publishing contact details for all trustees and members
From September, contact details for all trustees and members of an academy trust must be published to get information about schools (pages 26 to 27). The ESFA clarified this in its letter to academy trusts dated 19 July.
Other, minor changes introduced in the handbook
The other changes from the 2018 to 2019 handbook are relatively minor - they mostly either add additional details or change the wording of certain paragraphs.
We've listed these changes below so you know what else is different.
The minor changes
- There's more detail on what you need to include in your monthly management accounts, namely: an income and expenditure account, variation to budget report, cash flows and balance sheet (paragraph 2.21)
- You need to report your gender pay gap information on the government reporting website, as well as on your own website (if you have over 250 employees) (2.32)
- You must provide audited accounts to your members - this was already a requirement under the Companies Act, but the 2018 handbook didn't say explicitly to provide the accounts to members (4.4)
- As part of the ESFA's intervention powers, there's a new paragraph on how they may work with the insolvency service (6.23)
The really minor changes
- There's a tweak to the wording on one of the governance requirements, which isn't much different in practice but adds the need to "ensure robust governance" alongside the existing requirement to apply the highest standards of conduct (1.11)
- There's some extra information on what support a clerk to the board can provide (1.38)
- The paragraph stating that senior employees' payroll arrangements fully meet tax obligations has some more detail in it, but only reiterating what was already required in the treasury guidance it links to (2.33)
- It now specifies the records required in get information about schools for all academies in a MAT, though this information should be on the service for these schools anyway (paragraph 2.55)
- There's now a requirement for you to make sure you're familiar with the rules on obtaining ESFA approval prior to certain transactions with delegated authority limits. It also says the ESFA may intervene if you don't seek the approval in advance where you need to (5.1)
- There are some wording changes in the paragraphs on related party transactions, but nothing new from the requirements that came in from 1 April this year (5.40 to 5.43)
- The handbook now lists the transactions that trusts with a financial notice to improve must seek approval on, but this is just a more concise summary of the existing requirement (6.17)
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