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

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Presentation on theme: "Understanding the Academies Accountability Framework Academies Accounts Direction 2013 to 2014."— Presentation transcript:

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)Academies Financial Handbook  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 

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 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

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 QThe 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 QThe academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) AThis would be irregular as it constitutes personal expenditure

17 Regularity: case studies QThe academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) AThis would be irregular as it constitutes personal expenditure QThe 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 QThe academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) AThis would be irregular as it constitutes personal expenditure QThe 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? ARegular as the correct process was followed

19 Regularity: case studies QThe academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) AThis would be irregular as it constitutes personal expenditure QThe 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? ARegular as the correct process was followed QThe 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 QThe academy principal uses academy credit cards for personal expenses (receipts are not retained to support purchases made using the credit cards?) AThis would be irregular as it constitutes personal expenditure QThe 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? ARegular as the correct process was followed QThe 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? AIrregular as the expenditure does not appear to be for educational purposes

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

23 Regularity: thoughts on delegated authorities  S2.4.5 to S of the 2013 AFH stipulate 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 amountsacademy questions  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 websitegov.uk website

25 Regularity: case studies on delegated authorities QAn 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 QAn 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 ASecretary 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 QAn 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 ASecretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value QA 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 QAn 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 ASecretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value QA 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. AWhilst 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 QAn 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 ASecretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value QA 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. AWhilst 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. QAn 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 QAn 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 ASecretary of State approval required as grant of a lease (S2.4.28) and need to demonstrate at market value QA 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. AWhilst 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. QAn academy trust wishes to write off of a bad debt from an association that used the schools facilities, totalling £5,000. AS 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  S 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 (S )  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 Accounting reference dateMust be 31 August. If not a change of accounting reference date form must be submitted to Companies House Preparing dormant accounts or extending first period of accounts By 30 September 2014 to 2013/14 accounts and management letter (incl. regularity opinion) to EFA By 31 December 2014 (submission method to EFA to be confirmed) Publication of the 2013/14 accounts on the academy’s website By 31 January 2015 Submission of the 2013/14 accounts to Companies House By 31 May 2015  EFA’s main channel of communication is through the e-bulletin. To subscribe please

36 Webinar timetable  You can register for the webinars at https://registration.livegroup.co.uk/academyfinance/ 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 Interactive webinarsDate Academies Financial Framework (academies)15 July 2014 at 11am Academies Financial Framework (auditors)15 July 2014 at 2pm

37 Thank you for watching


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