The thought of a financial audit can be intimidating, but it can reveal important information about the financial position of an organisation. Su Johal, director and co-founder of SAAF Education, discusses how schools can better prepare for audits and manage their accounting and reporting more efficiently
Schools vs academies
Maintained schools are not obliged to publish accounts, but are required to submit a return to their local authority (LA).
This information is used by the LA to consolidate their accounts for submission to central government. The DfE also use this information to populate the schools’ financial benchmarking website and, since January 2011, the DfE publish all schools’ financial data due to the coalition’s data transparency agenda.
In comparison, academies are charitable trusts and companies limited by guarantee. They’re required to submit audited annual financial statements to Companies House and report to an August 31 financial year-end.
Preparing for audits
So where do you begin when it comes to auditing?
Consider the following:
- Find out what information the auditors need and structure your filing system to reflect this, ensuring you have both electronic and paper copies
- Complete month end in a timely manner and investigate variances immediately
- Ensure actions from governing body meetings are minuted accurately recorded and completed within prescribed deadlines
- Ensure income and expenditure is coded to the correct financial year
- Follow the procedures within your finance policy throughout the year
- Ensure employees are available to support auditors and respond to queries.
Managing accounting and reporting
Many schools present simple income and expenditure accounts that are generated from computerised accounting packages.
The income side of the accounts records the school’s sources of funding, and the expenditure provides a breakdown of the items the school spends its income on.
For academies, it’s very different.
Academies account management
As part of their requirements, academies will follow the Academies Financial Handbook which outlines the financial management and control requirements for academy trusts.
- Financial statements to be prepared each year that give a ‘true and fair’ view of the academy’s financial position
- Details of the financial activities and cash flows
- Information on incoming resources from all sources, resources expended on all activities, all assets and liability of the academy, all cash received and expended, and notes to the accounts.
For academies that have a separate company as a subsidiary to carry out activities to make extra profit – such as renting out their school facilities after school hours – they’ll also have to produce consolidated accounts outlining the subsidiary results.
Steps of the annual report and financial statements
The Academies Act 2010 states that to qualify as an academy, the proprietor has to be a charity and a limited liability company registered under the Companies Act 2006.
This means that academies are required to follow company law requirements, which involves conducting annual:
Governors’ reports: This describes what the academy is trying to do and how it is going to achieve it, outlining objectives for the year and plans for the future.
Independent auditors’ reports: This outlines whether or not an auditor believes the financial statements give a true, fair view of the academy’s finances, and if the accounts have been prepared correctly.
Statements of financial performance: This includes:
- Statement of financial activities
- Summary income and expenditure account
- Statement of total recognised gains and losses (STRGL).
Balance sheets: This shows the financial position of an academy and will include assets, liabilities and ownership interest (its funds).
Cash flow statements: This reports on financial performance in “cash terms”, which refers to all types of funds coming into the school through bank transfers.
Accounting policies and notes to the accounts: Whilst accounting is a very precise activity, there’s a significant degree of judgement involved. Figures presented in reports will be affected by the academy’s choice of accounting policies and estimation techniques.
Therefore, academies must provide notes or breakdowns on their workings out.
Supplementary detailed income and expenditure accounts: This gives a further analysis of the financial information provided in the summary income and expenditure account.