Education update: Education and Skills Funding Agency (ESFA) update

Each year we summarise the key changes that are likely to impact academies in advance of year end reporting to ensure that everyone is prepared. Here is our summary of the significant factors that might impact academies.

Academy Accounts Direction (AAD) 2023-24

The Academies Accounts Direction (AAD) 2023 to 2024 was published in March 2024, providing guidance for academy trust’s annual financial statements for the 2024 financial year. We have summarised the key changes here:

• The relationship between the Financial Statements and the Academies Accounts Return (AAR) has been highlighted and it is acknowledged that there can be consistency problems due to the different timing and requirements of the two financial returns (prepared under different frameworks). The AAD is advising academies to check their accounts against the AAR guidance and validation rules before the annual accounts are finalised, to help minimise AAR validation errors. We already have controls in place to ensure minimal validation issues when preparing and submitting the AAR.
• The review of effectiveness of the system of internal control within the Governance Statement has been expanded to include a mandatory conclusion on whether the Academy has an adequate and effective framework for governance, risk management and control, as well as value for money. If not considered adequate and effective, details of a plan for improvement should be provided.
• Guidance on the Statement on regularity, propriety and compliance has been updated to give a further example of work the accounting officer can perform to come to their conclusion on whether the Academy is working within the boundaries of regularity and propriety. The addition is to include the review of other external sources of assurance available to the academy trust over the year, for example specialist reviews or inspections.
• There is now confirmation that the 16-19 core education funding should be disclosed as an individually material grant under “Other DfE/ESFA grants” within the ‘Educational Operations’ note.
• Staff costs should separately identify ‘other employee benefits’ in addition to the existing disclosure requirements. FRS102 defines employee benefits as – “All forms of consideration given by an entity in exchange for services rendered by employees” and examples provided in FRS 102 (other than wages, salaries, social security and pension costs) include non-monetary benefits such as medical care, housing, cars.
• For academies that have school premises under a lease, typically those that converted from a former Local Authority school, those properties are recognised in the financial statements as a ‘right to use’ asset and should be included at their fair value for initial recognition. Guidance on determining an appropriate fair value has been added to the AAD. The most accurate methods are to obtain a valuation from a chartered surveyor, the relevant local authority or from the construction company. If an alternative valuation assessment has been obtained, the valuation certificate provided by the DfE may be helpful to benchmark this and check for reasonableness. The AAD confirms that insurance valuations are unlikely to be appropriate as they represent the rebuilding cost of the asset rather than its fair value.
  Regardless of the valuation source and method applied, the academy is responsible for appraising the valuation method adopted to ensure it is complete, appropriate and complies with FRS 102.
• Each year the ESFA reviews academy accounts, audit findings reports and internal scrutiny reports in order to be able to provide Parliament with assurance that academies operate to high standards of propriety and regularity. Following this review, a report is published highlighted the key themes arising. Examples of areas that have been identified as issues by the ESFA this year are:
  • The wording in the trustees’ report does not always represent the academy’s current circumstances and has been copied from the model accounts or previous year without being amended or updated.
  • High risk recommendations from the audit findings letter are not always actioned in a timely manner resulting in significant weaknesses in internal controls or procedures not being rectified. We follow up on any control points raised and included in our Presentation of Audit Findings report from the prior year audit during the planning phase of the current audit with our clients.
  • Compliance with the AAD and model accounts is a requirement of the funding agreement conditions and new statements are not always included as required.
  • Submission deadlines are not always met and can be due to changes of staff, particularly the accounting officer. Handovers should be carried out on a timely basis and planned early. We contact our clients ahead of the summer break to ensure any changes in contacts are identified and reporting timetables shared early to ensure a well planned and smoothly run audit.
• The illustrative text for the disclosure of Agency Arrangements has been updated to include the cumulative unspent fund balances.

The full guidance can be found here.

Model Accounts 2023-24

The following areas have been updated in the latest model accounts (published in March 2024):

• Within the Governance Statement, the risk and control framework must now refer to internal control. The conclusion mentioned above must also be included to either confirm the effective framework or explain the plan for improvement.
• Also within the Governance Statement, the requirement to describe how the board maintains effective oversight, if it meets less than six times a year, has been removed.
• A number of LGPS pension schemes were in a net asset position as at 31 August 2023. In these instances we concluded that the likelihood of recovering the asset was considered unlikely and therefore the asset was not recognised on the balance sheet. The model accounts have highlighted that this assessment (regardless of the outcome) is a significant judgement and should be referenced in the accounting policies.
• As noted above, the AAD has now clarified that the 16-19 core education funding should be disclosed as a separate line where material. This will be listed under “Other DfE/ESFA grants” along with the other material grants such as Pupil Premium, UIFSM, Teachers’ Pay Grant and PE and Sports Grant.
• The staff costs note may also now have an additional line for ‘other staff benefits’ depending on whether the Academy incurs such costs, see details above.
• The narrative in relation to the Teachers Pension Scheme has been updated to reflect the latest actuarial results.

We provide template Financial Statements to our clients that flag any changes / areas for consideration in advance of the summer break so they can easily be identified where they are included.

Academy Trust Handbook 2023

The Academy Trust Handbook for years starting 1 September 2023 was released in July 2023 and will have likely been a useful tool throughout the year so far.

Some changes to the handbook this year are:

• Confirming that trusts no longer need to provide an explanation in their governance statement where the board has not met at least 6 times in the year. Please note that Board meetings must take place at least three times a year, although trusts should consider meeting more frequently to discharge their responsibilities.
• Explaining that the roles of Accounting Officer and Chief Financial Officer should not be occupied by the same person.
• Confirming that electric vehicle salary sacrifice schemes do not need ESFA approval where no liability falls on the Academy if an employee does not fulfil their contractual obligations with the scheme provider. Otherwise, prior ESFA approval must be obtained.
• Refining the approval threshold for related party transactions. Academies must obtain ESFA’s prior approval, using ESFA’s related party on-line form, for contracts and other agreements for the supply of goods or services to the trust by a related party agreed on or after 1 September 2023 where a contract or other agreement exceeds £40,000 in the same financial year.

The full guidance can be found here.

Other useful information