As academy external audit season has drawn to a close and the rush to file AARs is over, we take time to reflect on the key outcomes of the 2024 audits.
Across our client base of trusts, there are some common themes being reported on internal controls and regularity issues. Below we discuss each area and recommend how your trust can avoid these issues occurring in 2025.
Related parties
The most common area where issues were identified centre around related parties. Both the identification of related parties and also reporting of transactions.
On review of register of interest forms, interests of trustees were often incomplete when comparing to data held at Companies House. In some cases, register of interest forms were not readily available or not updated by the trust on an annual basis.
Looking to regularity issues, we came across numerous instances where a related party transaction had taken place, but this had either not been notified to the ESFA via the portal or, more commonly, only notified after the transaction had taken place.
We recommend trustees are trained on appointment, and annually, on the importance of identifying related party relationships on ROI forms. When completed forms are received, we recommend that management check the information documented against public records available at Companies House to confirm it’s completeness.
Where transactions with related parties are proposed, ensure these are notified on the ESFA portal in line with the Academy Trust Handbook before any transactions take place and advance approval obtained where necessary. The ESFA take related party transactions very seriously and any breaches of the rules have to be reported in the annual financial statements.
Salaries and HR
The second most common area of internal control weaknesses were around employee salary documentation, including employment contracts and notifications of changes in pay rates.
We found most trusts have a strong control environment built into software programmes used to track employee details and rates of pay. However, information on file for longstanding members of staff or staff transferred in from a new school joining the trust often led to inconsistencies in the data retained.
All employees should have relevant, up to date employment contracts with the trust and each employee should have access to documentation supporting their rate of pay and other benefits.
Similarly, trust management should at any one time have access to authorised rates of pay and be able to access an individual’s salary and benefits data, whether it be contracts of employments or pay change letters.
When asked the question – “How do you know employee A is being paid at the correct authorised rate?” a trust’s management should be confident that they can answer the question and provide documentation to support as such.
Fixed asset registers and policies
Finally, a number of internal control observations were raised around the recording of fixed assets and relevant policies.
In summary:
- Fixed assets registers often contained old assets at nil book value and trusts had not reviewed if these assets were still used by the trust.
- Discrepancies occurred between categories used in fixed asset registers and those analysed in the financial statements.
- Depreciation rates used in the fixed asset registers differed to the policies recorded in the financial statements.
- Formula errors or manual overtyping on the registers led to incorrect calculations of depreciation.
- Items had been capitalised which were below the capitalisation limit in the accounting policy or visa versa.
Trusts should ensure the policies set for capitalisation of assets and depreciation rates are fit for purpose based on the size of the trust and value of assets held.
We would also recommend the fixed asset register is integrity checked at regular intervals such as bi-annually or during the monthly management accounts process.
Other areas
A smaller number of points were also raised in relation to:
- Non-reconciliation of control accounts e.g. PAYE and VAT – these should be reconciled each month and any discrepancies corrected.
- VAT partial exemption calculations not reassessed – where VAT is being accounted for under the partial exemption rules, the rates used should be reassessed annually to ensure the rate being used is still appropriate. This is particularly important where changes have occurred to the size of the trust or mix of activities.
- Some trusts Get Information About Schools (GIAS) data was out of date
- A few trusts had member numbers less than the recommended 5 per the best practice guidance. Although it should be noted in each case, the trusts were actively trying to recruit further members.
The positive news!
When compared with the 2023 audit season, we saw a decrease in the number of control issues raised around procurement processes and authorisation of expenditure. We generally found all policies in this area were being complied with.
The vast majority of trusts had implemented controls recommended from 2023 audits reducing the controls points being raised again in 2024. Similarly, most findings from financial internal audit scrutiny had been appropriately followed up by trusts.
It feels as though trusts have really got their houses in order when it comes to governance and financial controls. They are more established and stable than when compared to say 10 years ago. Working on the few common areas of issues identified above will really tick all the final boxes when it comes to safeguarding your trust’s finances and reputation.
If you would like any further guidance on internal controls relevant to your trust, please contact a member of our specialist academies team.
