20th July 2020

On the 23rd June, the Education and Skills Funding Agency (ESFA) published the Academies Financial Handbook (AFH) for the 2020/21 academic year. The changes, which are all summarised into one section as normal, are all geared towards improving the transparency and accountability of Trusts, through improved governance and financial management. The full list of changes is appended to this article.

The biggest practical change is in the area of internal assurance, which has been gradually amended and expanded in recent years. Seasoned workers in the sector will recall that in early editions of the AFH, internal assurance was largely limited to ensuring basic financial controls were being carried out on the timely basis. The requirement back in the 2013 AFH merely stated that every academy trust must have in place a process for independent checking of financial controls, systems, transactions, and risks.  Over the last few iterations of the handbook, there has been a noticeable shift both in scope and in the level of skill required to perform the role. By the 2019 handbook, the scope for internal scrutiny had expanded to this…

All academy trusts must have a programme of internal scrutiny to provide independent assurance to the board that its financial and others controls, and risk management procedures, are operating effectively.

In the 2020 edition, whilst this has been subtly altered to amend “other controls” to “non-financial controls” the approach remains the same – Internal scrutiny must evaluate the control environment, provide advice and insight to the board, and ensure all risks are being adequately identified, reported and managed.

The job of managing the work undertaken to fulfil this requirement falls to the Audit and Risk Committee, which is a mandatory committee for all trusts, although it may be combined with another committee in smaller trusts. The requirement for an Audit and Risk Committee is not new in 2020, but its remit in relation to internal scrutiny has been expanded from just directing the programme of work and reporting to the board, to also ensuring that risks are being addressed appropriately through internal scrutiny. This puts greater responsibility on the committee around directing the internal assurance work in line with the Trust’s own assessment of risk.

The biggest practical change for 2020, largely as a result of changes to the Financial Reporting Council’s Ethical Standard for auditors, is that Academy Trusts can no longer use the same provider for both internal scrutiny and external audit. This has been common practice in the sector for a number of years, although many have argued for some time that it is not good governance, as it was permitted by the AFH.

When you couple this with the increased requirements in scope for internal scrutiny and, from 2019 onwards, the increased reporting requirements over the work of internal assurance, we expect to see more focus in Trusts of all sizes over the work and accountability of their internal assurance provider, and an increase in parts of the work being handed to more specialist providers for areas of non-financial risk, such as safeguarding controls. Carrying out the same termly programme covering the bank reconciliation and payroll controls is definitely a thing of the past.

If you would like to discuss your internal or external assurance requirements, or require any further guidance on how to implement the current requirements in your Trust please do not hesitate to contact our charity and not-for-profit partner, Anne Hallowell, on annehallowell@unw.co.uk or 07785 612251.

Changes in the new edition


Further information on governance arrangements including trustees’ responsibility to maintain the trust as a going concern, confirmation that members must not be employees or occupy unpaid staff roles, that members must remain informed about trust business and that trusts must appoint a clerk to the board. Also clarifying that trusts must keep their register of interests up to date.

Executive team

Confirmation that both the accounting officer and chief financial officer (CFO) should be employees, and a requirement for ESFA approval if, exceptionally, they are not. Also encouraging larger trusts (i.e. over 3,000 pupils) to consider relevant accountancy qualifications for their CFO, and for all CFOs to maintain professional development.

General controls and transparency

Updated clarifications including maintenance of a fixed asset register, termly review of pupil number projections, use of integrated curriculum and financial planning, avoidance of overdrafts, publication of information about high pay and whistleblowing, confirmation that the trust’s funds must not be used to purchase alcohol, board and committee responsibilities for risk management and completion of the School resource management self-assessment tool.

Internal scrutiny

Updated text including clarification that internal scrutiny covers both financial and non-financial controls, removal of the option for internal audit to be performed by the external auditor and confirmation that trusts can use additional individuals or organisations to support internal scrutiny where specialist non-financial knowledge is required.

Annual accounts

More on the audit and risk committee’s role in relation to external audit.

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