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AIA

Accounting for academies: tips and advice

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15th Jul 2013
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The Academies Act 2010 stimulated a surge in schools converting to academy status - and an increase in specialist accountancy work. Rachael Power reports on a recent technical update.

As Steve Collings noted in a previous article the act encouraged a large number of schools to convert academy status.

At the UK200 charities training day in London last month, BDO partner and national head of education James Aston MBE updated practitioners on issues they should be aware of and offered more general advice on accounting for academies.

Academies are even still growing in numbers, according to Aston, who touched on areas including:

Many of the academies coming through now are smaller organisations, which can “quite tricky” in compliance areas, said Aston.

They are bodies that require complex, or at least multiple engagements, including, but not limited to:

  • Audit
  • Accounts preparation
  • Responsible Officer work
  • Teachers pension (EOYC work and sign-off)
  • Budgets (2012 grant backed)
  • Annual return (2012 grant backed)
  • MATs and additional returns in year for new schools
  • Regularity opinion.

The legal framework under which an academy operates includes the master funding agreement, supplementary funding agreements, its memorandum and articles and tri-partite sponsorship agreements.

Accountants need to be aware of the requirements and guidance issued by the Education Funding Agency (EFA); this material include the academies handbook, annual accounts direction and e-bulletins, which Aston said are a very handy way to keep up to date.

When practitioners take on an academy client, they must take a view on how good the accounting is going to be, Aston advised.

Within smaller organisations there may be a segregation of duties issue for the auditor when it comes to internal controls. Know your client and make sure you understand the legislative framework, as there is “tons” of it, he added.

Opening transactions and assets recognition

First, when opening a new academy, the organisation is required to prepare a budget and send it to the EFA within six weeks of its final funding letter.

As an academy is a school, practitioners need to consider the same things for both when looking at the opening transactions.

Land and property need to be valued and any fixtures and fittings, stock and local government pension schemes need to be considered.

Multi-academy trusts (MATs)

If an academy is within a MAT, it is governed by one trust and a board of directors. There must be at least three members, who appoint the governors.

The MAT holds responsibility for all decisions in relation to running the individual academies, from HR to the curriculum, but many of the decisions are left to the academies themselves - but the MAT is responsible for the performance of schools collectively.

It is a single employer and the general annual grant (GAG) is still school-by-school at a 12.5% GAG sign off, with surpluses accountable at school level (though this has been removed for new academies from August 2013).

Aston also mentioned that a staff governor is commonly on the board of a MAT, and there is a mandatory disclosure, which the EFA is going to “go hard” on, one of the several areas it is toughening up on this year.

SORP v accounts direction v annual return

Academies must prepare accounts under the charities statement of recommended practice 2005 (SORP); this is a requirement in their funding agreements.

The accounts direction is a clarifying document for academies, for example, the 2012 accounts direction.

A regularity opinion will also need to be signed by the auditors, and tri-partied with the EFA. According to Aston, this is potentially anti-competitive because of the PII cover mandated at £1m per school within a MAT. An audit firm would have to carry a minimum of £25m PII in order to accept an appointment to a MAT with 25 schools in it.

He warned that there has been and will be more fraud coming to light in this sector, due to more scrutiny in the area. This is linked in part to the audit scrutiny issue; in this case auditors are required to be more rigorous.

Academies are moving targets, so read the EFA e-bulletins and keep up to date, he advised.

Accounts return 

The main annual return for academies this year is due by the end of January 2014, with the financial statements.

Academies should be notified no later than 31 July 2013 on what is expected, but in some cases this might not be until the autumn.

You must also separate engagement and regularity and include an express opinion.

Regularity opinion

This is a tri-partite engagement with the client, whether a MAT or academy and the EFA.

According to the academy trust independent auditor’s report on regularity 2011/12:  “…the total aggregate liability of the accountant, whether to the academy trust or to the EFA or both, arising on any basis, whether in contract, tort (including negligence) or otherwise, arising from or in any way connected with this engagement (including any addition or variation to the work), may be limited to a sum that would not be below £1m per academy in each trust. For a multi-academy trust, liability would amount to £1m multiplied by the number of individual academies within the trust.”

Two cases currently in the spotlight relating to regularity that Aston mentioned were:

  • Lincoln academy group investigation found CEO’s inappropriate spending (Priory Federation of Academies Trust, April 2012)
  • Extravagant academy school bosses blow thousands on luxury hotels and first-class travel. A major chain of academy schools blew huge sums of taxpayers’ money on first-class travel, hotels, expensive dinners and four-figure drinks bills, an official investigation found.” (E-Act, May 2013)

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collings
By Steven Collings
15th Jul 2013 19:14

Accounts Direction

The Accounts Direction for the 2013 audits was published in May 2013 (much earlier than the 2012 AAD thankfully) and is available from the EFA's website.  There are a number of differences from the 2012 AAD, such as the GAG c/fwd requirements, clarification of member, trustee, governor and director and a new requirement for Academies to publish their accounts on their website by 31 May 2014 (there was a requirement to publish accounts on academies' websites in 2012 but the date hadn't actually been clarified) and further guidance has been extended in the 2013 AAD to support the independent audit of regularity.

I'll cover the changes in articles over the next couple of months and how they will impact audit firms.

Regards

Steve 

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By malcolmrichards
16th Jul 2013 11:38

PII implications

 As the Chair of the  Worcestershire Association of Governors: www.waguk.org I am often asked to advise GB's considering Academy status. As a Professional Indemnity Underwriter I always advise our insured's to notify if they act for Academies and adjust their Indemnity limits if needed. Whilst the 'overhaul' of the Education System maybe an 'economic opportunity' for the Accountancy Profession, you should be aware of the potential pitfalls.

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02nd Feb 2016 10:08

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