Education CommitteeFurther written evidence submitted by the Department for Education
Accountability Statement
http://www.education.gov.uk/aboutdfe/departmentalinformation/reports/a00214167/system-statements
Paragraphs 6–10 provide an overview of how for maintained schools the Department relies “on accountability through LAs, underpinned by local democracy, with intervention from central government used in extremis. These systems of accountability through LAs and elected members have long been used to drive regularity, propriety and value for money. It is right that we continue to trust local government and local democratic accountability where services are coordinated and funded through this route.” These paragraphs also explain that “Academies are outside the LA accountability framework and so we have created a clear chain of accountability between each academy trust, the Education Funding Agency, and the Department. We have also increased the transparency and accountability of these providers, bringing them into a proper externally audited system.”
Introduction
For Academy Trusts (ATs), which includes Free Schools, University Technical Colleges and Studio Schools, the Education Funding Agency (EFA), has developed strong accountability mechanisms which reflect the greater financial responsibilities ATs have in being funding directly from the Department through the EFA. There are a number of features which apply over and above those relating to Local Authority Maintained Schools and the system is therefore more robust.
As charitable trusts and companies limited by guarantee ATs have to produce and publish a statutory annual report and accounts which have been independently audited.
As public bodies each AT has an Accounting Officer who forms a key link in the chain of financial accountability ensuring that each AT is managing its resources appropriately and achieving value for money.
The financial relationship between the EFA and ATs is set out in a funding agreement, of which the Academies Financial Handbook (AFH) forms part.
The AFH sets out all of the accountability requirements for ATs so that there can be no ambiguity about what is expected of them. It was last updated by the EFA in September 2012. It contains statutory and regulatory guidance with which the academies must comply.
The AFH provides guidance for the Accounting Officer who in AT 2011–12 accounts were required to provide a statement relating to their responsibilities for regularity, propriety and compliance with the terms and conditions on their use of public funds.
The AFH also ensures audit access rights for both EFA staff and the NAO to the Trust’s records.
AT Budgets
ATs are required under their funding agreement to submit an annual plan of expected income and expenditure for the forthcoming year, which is reviewed by the EFA.
The AFH provides under section 2.1 Financial Oversight that the full board of trustees must approve the budget and this approval must be minuted.
The AFH provides under section 2.2 Financial Planning that:
The board of trustees of the Academy Trust must approve a balanced budget for the financial year, and
The Academy Trust must submit to the Education Funding Agency (EFA) a copy of the budget in a form and by a date specified by the EFA, and
That any significant changes to budget plans must be notified to the EFA.
This requires the governing board of the AT to be fully engaged with the budget position and ensures that EFA are informed of the budget and updated on any significant changes to those budgets.
For 2012–13 the specified budget forms had to be sent to the EFA by 28 September 2012 for existing academies. New academies had to return their forms within six weeks of the academy receiving its final funding letter.
On receipt, the budget forms were reviewed by financially qualified staff and issues followed up. Late returners were also followed up and the data from the forms and the checks recorded in a database.
EFA’s scrutiny of the budget forms provides EFA with early assurance by taking a forward look at the financial health of an academy.
Annual Accounts and Audit
ATs are required by law (as companies and charitable trusts) to produce and submit annual accounts setting out their actual financial performance for the previous year. These are submitted to the EFA acting on behalf of the Secretary of State as charitable regulator.
Section 1.4 of the AFH provides a reminder to the statutory requirement and states As companies, and under their Funding Agreement, ATs must produce audited company accounts.
AT’s were required to have their 2011–12 accounts for 2011–12 independently audited and sent to EFA by 31 December 2012. ATs were also required to publish their accounts on their website.
EFA places reliance on the professional opinion of the auditor in a number of respects, including assurance that the AT remains a going concern, and that proper accounting records have been kept. For the first time in 2011–12 external auditors also provided an opinion confirming the proper and regular use of public funds.
On receipt the accounts are examined by suitably financially qualified staff who complete a series of checks on the contents, recording their findings in a database. This includes specific checks that look at the proper use of public money including staff severance payments, payments to trustees/governors, instances of fraud and the proper use of public funds. .Any issues identified are followed up with the AT and/or the auditors.
In the event that poor financial health or poor financial management and governance is identified the EFA may issue a Financial Notice to Improve (FNtI) to the AT and/or intervene to facilitate a return to a satisfactory financial position.
This scrutiny of the content of the accounts and the auditors’ opinion provides the main assurance on the financial health of academies and their proper use of public funds.
Staff Payments
The AFH provides under section 2.4 Financial Monitoring and Management that:
If an AT is considering making a compensation payment it must consider whether the proposed payment is based on a careful appraisal of the facts, including legal advice and that value for money will be achieved, and that any novel and contentious payments must always be referred to the EFA for explicit approval prior authorisation.
The AFH also provides in Section 2.5 that the Academy Trust must ensure that:
Spending has been for the purpose intended;
No trustee, governor, employee or related party has benefited personally from the use of funds;
All trustees have completed the register of business interests kept by the AT and there are measures in place to manage any conflicts of interest;
There are no payment(s) to any Trustee unless such payment(s) is/are permitted by the Articles and (where applicable) comply with the terms of any relevant agreement entered into with the Secretary of State. The latter includes situations where payments are made to other business entities who employ the trustee, are owned by the trustee, or in which the trustee holds a controlling interest;
Their senior officers’ payroll arrangements fully meet their tax obligations and comply with the Secretary of State’s directions regarding the employment and contract arrangements of individuals on the avoidance of tax (Please see HM Treasury’s Review of off-payroll payment to public servants);
There is probity in the use of public funds;
A competitive tendering policy is in place and applied; and
There is no disposal of public funded assets (subject to the thresholds set out in Part 2.4 of this Handbook) without the Secretary of State’s consent (through the EFA).
Additional Assurances
As well as the processes mentioned above EFA’s assurance is enhanced by a series of other returns from and audit visits to ATs.
New ATs that have not been open long enough to produce annual accounts are required to submit a self-assessment questionnaire to the EFA stating whether they have are complying with the key requirements of the AFH. The EFA desk-reviews all returns and carries out sample validation visits and visits to those indicating significant non-compliance with the AFH.
EFA also carry out a sample of funding audit visits to ATs to obtain assurance that the pupil number census returns which determine the funding were accurate.
EFA also acts on intelligence received in the normal course of business or by whistle-blowers and takes appropriate action to work with ATs to safeguard public funds.
April 2013