ESFA’s assurance work & findings 2023-24

The ESFA have recently published their annual findings from their assurance work completed on the 2022-23 financial statements.  Melanie Bailey, Head of Academy Services, has reviewed these findings and summarised the key points of interest below.

Increase in the number of late submissions

Just over 95% of trusts submitted their 2022-23 financial statements by 31 December (2021-22: just under 96%).  The main reasons for the delays were similar to previous years, being trusts that had closed during the year but not submitted accounts on time and trusts which were in intervention not submitting their accounts on time.  As of 11 September 2024, there were still 10 academy trusts that had not submitted their 2022-23 audited financial statements.

Increase in the number of qualified audit reports

The percentage of qualified 2022-23 financial statements was 0.4% (2021 to 2022: 0.2%) – the main reason for the qualified opinions was due to local government pension scheme (LGPS) valuations.

There has been a 3% increase in ‘emphasis of matter’ or ‘material uncertainty’ opinions, compared with 2021-22.  This increase was again predominantly due to the LGPS actuarial valuations, where some audit firms’ approach was to report as an emphasis of matter opinion, that the LGPS present value of the asset or liability was based on assumptions and calculated on an actuarial basis.

Reduction in the number of qualified regularity audit reports

The percentage of modified regularity conclusions on the 2022-23 financial statements, 7.7%, was slightly lower than in the previous year (2021-22: 8.1%).  The main issues for the regularity modifications were consistent with the previous year, being internal financial reporting and trusts not adhering to the pre-approval requirement for related party transactions with a monetary value of £20,000 or more.

Regularity audit findings

The highest number of reasons for the modified regularity conclusions in 2022-23 financial statements related to financial management and reporting.  This was also the main cause of modified regularity reports in 2021-22.

The reasons behind the regularity report modification on financial management and reporting were:

1. Management accounts issues, including:
   a. Not being shared with the board of trustees.
   b. Not being produced,
   c. Timeliness of preparation,
   d. Key sections missing e.g. cash flow or balance sheet omitted from the information provided to the board.
2. Oversight of financial management – main issues being poor internal control frameworks or inadequate financial management.
3. Key ESFA reporting deadlines not being met.
4. Accounting records and financial documentation not being kept up to date.

The second highest number of modified regularity conclusions was in relation to related party transactions, with the following issues identified:

1. Prior approvals and declarations – prior approval was not sought from the ESFA before entering into a related party transaction, or where less than £20,000, no disclosure had been made.
2. Conflicts of interest – where trusts had failed to manage related party transactions and conflicts of interest appropriately.
3. “At cost” requirement – trusts did not have evidence to confirm compliance with this requirement.

Other reasons for modified regularity reports included:

1. Internal scrutiny
2. Purchase of alcohol
3. Procurement/tendering procedures not followed
4. Fraud/theft
5. Financial health
6. Non-contractual payments, severance or honoraria
7. Breach of delegated powers

Internal scrutiny

Alongside the ESFA’s review of the audited financial statements, they also completed a review of internal scrutiny reports.  The common issues identified and, therefore, reported by auditors as regularity conclusion modifications were:

1. No internal scrutiny having taken place,
2. The audit and risk committee did not agree the work programme for internal scrutiny,
3. Recommendations from the previous year’s audit had not been implemented and remained unresolved.

Compliance with the Academy Trust Handbook

The reviews completed by the ESFA are designed to provide assurance that trusts have appropriate financial management and governance arrangements, and that those arrangements ensure trusts’ compliance with the Academy Trust Handbook (ATH).

The ESFA’s assurance findings concluded that most academy trusts reviewed were making good progress towards compliance with the ATH – 98% of trusts reviewed fell within the ‘fully compliant’, ‘good’ and ‘satisfactory’ progression towards compliance categories, being a similar position to the previous year (97%).

The areas where further development was found to be required include:

1. Establishing an audit and risk committee, to agree an internal scrutiny programme of work and to address risks to both financial and non-financial controls,
2. Delivery of an appropriate internal scrutiny programme and oversight of the implementation of recommendations,
3. Monitoring the budget – including the production of management accounts, ensuring they contain all required elements, and support appropriate board action to review and maintain financial viability,
4. Trusts’ maintaining and publishing the register of business and pecuniary interests of its’ trustees and governing structure on their website,
5. Oversight of risk and regular review of the risk register,
6. Publication of governance arrangements on the academy trust’s website, and
7. The setting of executive pay.

School resource management self-assessment checklist

The deadline date response rate has fallen since the previous year to 84.8% (2022-23: 86.9%) and continues to have a lower response rate than other financial returns.

The ESFA carried out a validation exercise to compare the findings from their work to the responses provided by trusts on the SRMSAC.  The ESFA found that, generally, the SRMSAC was completed accurately, except for one area – internal scrutiny requirements being adhered to – where the ESFA assessment differed from the trusts’ assessment.

The main areas where trusts did not self-assess themselves as compliant were:

1. Trusts not publishing on their website the number of employees whose total benefits exceeded £100,000 for the previous year ending 31 August,
2. Trust balances being assessed at a reasonable level and having a clear plan for using the money held in balances at the end of each year,
3. Trustees being able to confirm there are no outstanding matters from audit reports.

It is recommended that the ESFA’s assurance review findings are shared with your trustees and any of the above areas identified by the ESFA as areas for improvement are reviewed to ensure your academy trust is compliant in these matters.

If you would like to find out more about our internal scrutiny services offered to academy trusts, and how we can help you remain compliant with the Academy Trust Handbook, please don’t hesitate to contact us.