Guidance

Academy trust management accounting: good practice guide

Published 23 October 2024

Applies to England

1. Who is this good practice guide for

1.1. This good practice guide is for:

• chief financial officers (CFOs)
• finance managers
• anyone responsible for managing accounts in academy trusts

1.2. It provides suggestions for presenting management accounts that meet the requirements of the academy trust handbook (ATH).

1.3. Management accounts are an important tool, forming a basis for discussion and decision making.

1.4. The guide does not replace or modify any of the ATH’s requirements.

2. Background

2.1. The ATH describes a broad range of financial controls to help trusts establish the right systems for spending, recording, reporting and analysing their funding. This includes:

• co-ordinating the planning and budgeting processes
• managing debtors, creditors, cash flow and bank accounts
• preparation of monthly budget monitoring reports (management accounts)

2.2. Preparing regular management accounts is essential to good governance as they enable trustees to scrutinise their trust’s financial performance, health and operational efficiency.

2.3. Actual results can be compared to budgets to establish where the trust may have over or under spent during the period, allowing for an effective review of its forecast for the year. Regular re-forecasts allow the trust to look ahead and determine where costs are too high, and therefore may need reducing, together with where there may be opportunities to capitalise on a better-than-expected income stream. Other benefits include:

• an understanding of why variances have arisen
• providing information about the level of costs, such as staff costs in relation to income and whether this is at a reasonable and sustainable level
• the provision of information to trustees on the current financial performance of the trust
• assessing separately the position with those sources of income where use is restricted to a particular purpose

2.4. The trust’s CFO will lead the development of management accounts and reports.

2.5. While carrying out the management accounts process you may want to review your investments or reserves in accordance with your policies.

We have published a suggested management accounts layout template for monthly management accounts.

You do not need to follow this but can use it as a basis to form your own format specific to your circumstances. For example, you may have preferences for the number of income and expenditure categories appearing in your management accounts.

3.   Steps to take when producing management accounts

3.1. When producing the management accounts, you should take the following actions:

• reconcile all bank accounts (including credit cards)
• reconcile the VAT account
• reconcile payroll – have the journals for the month being reviewed been signed as authorised
• calculate necessary prepayments or accruals – have the relevant journals been entered onto the finance systems
• reconcile the debtors and creditors accounts
• update the fixed asset register – has depreciation been calculated for the month and a relevant journal been entered onto the system
• run a trial balance
• run an income and expenditure report

3.2. This list is not exhaustive, but does cover the main points. It is good practice for reconciliations to be independently reviewed and to keep evidence to support this.

4.   Format of management accounts

4.1. The ATH sets out the overarching requirements of what needs to be included in the monthly management accounts. They must include:

• an income and expenditure account
• a variation to budget report
• rolling cash flow forecasts
• a balance sheet every month setting out your financial performance and position

4.2. The CFO should make sure that the format of the management accounts continues to reflect the needs of the trust.

4.3. To ensure effective discussion and decision making, CFOs should consider the level of detail provided based on the audience. It may be that the information included within the management accounts is presented differently to individual managers and the trustees.

4.4. It is important to include commentary within the management accounts:

• explaining any significant variances between the budget and the actual position
• noting any common trends
• highlighting any potential areas of risk

5.   Preparing monthly management accounts

5.1. The ATH requires that the monthly management accounts must be shared with the chair of the trust every month. You may also wish to consider who else to share the monthly management accounts with. For example, the chair of the finance committee, finance committee members and board members.

5.2. The board must consider the latest management accounts when it meets and be assured that it has appropriate oversight of the trust’s financial position.

5.3. The board must ensure appropriate and timely action is being taken to maintain financial viability. This includes addressing variances between the budget and actual income and expenditure.

5.4. It is recommended that Individual budget holders are provided with monthly income and expenditure accounts or transaction lists relating to their departments, for reconciliation and to aid departmental decision making.

Income and expenditure report

5.5. It is recommended that there are separate income and expenditure accounts for recurrent and capital funds. Your monitoring of capital funds will present you with a judgement to make including:

• how to monitor actual payments for capital items
• whether to track depreciation

5.6. This should set out:

• the actual results against budget for the month just ended, and variance (value and percentage)
• the actual results against budget for the academic year to date, and variance (value and percentage)
• the latest forecast outturn against budget for the full academic year, and variance (value and percentage).

5.7. Trustees may wish to set a threshold beyond which variances are to be explained.

5.8. Trustees will develop an understanding of the trust’s budget position:

• by reviewing the budget statements and narratives which form the management accounts
• though discussions with the management team at board or committee meetings

5.9. Trustees reviewing accounts may wish to:

• identify which variances they want to explore
• understand the reasons for those variances
• decide whether any action needs to be taken to address those variances
• decide if they are happy with any action that is underway
• review actions and consider whether they may be extended or reduced considering the latest budget projections
• develop an understanding of budget lines that are naturally more unpredictable for example, but not limited to, supply cover, repairs renewals and energy costs
• develop an understanding of income beyond core grants for example, school trips, lettings and sales, and whether any anomalies are present
• identify whether a deficit revenue budget is set and whether the trust can balance the budget as required by the ATH – if the trust is unable to balance the budget, then make sure that the DfE and  Education and Skills Funding Agency (ESFA) are notified

Balance sheet

5.10. Areas to review include:

• debtors – include a separate ‘aged debtor’ analysis of this figure (an example of this is provided in the suggested management accounts layout) and that appropriate action is being taken to pursue overdue amounts and assess recoverability
• cash at bank – check that the bank balance has not been overdrawn during the period
• creditors and accruals – consider invoices received and payable by the trust plus commitments made where the invoice has not yet been received
• net current assets – check that these are positive, a negative balance is indicative of potential cash flow problems
• pension scheme liabilities – in any month where a change in the statement of liabilities arises, make sure that the impact of any change (specifically, a revised monthly pension contribution rate) is reflected in the income and expenditure budget (ordinarily such a change would not occur often, usually no more than once a year)

This list is not exhaustive, but does cover some of the main points. Trusts may identify further relevant or appropriate areas to review.

Cashflows

5.11. A cashflow forecast is an important tool in:

• understanding whether the trust has sufficient cash to operate throughout the year
• identifying any months in which the cash balance could be low or unduly high

5.12. Forecasts will cover a rolling 12 month period which will flow over more than one financial year. Some degree of estimation of receipts and payments may be required at the end of the 12 month cash flow period.

5.13. You should review cashflows to make sure that:

• a cash buffer is being maintained in line with the trust’s cash in bank policy
• cash movements are in line with predictions
• trends, such as cash balances continually moving away from predictions are investigated and addressed.

6.   Automation

6.1. Trying to automate this process as much as possible would reduce the time taken to prepare the monthly accounts. Some finance packages will have an in-built feature which will allow CFOs to produce the relevant reports.

6.2. It is worth thinking about how your financial package can work for you. For example, whether your chart of accounts is set up in a way that helps you prepare not only the monthly management accounts but also the year end accounts. Consider whether you could tailor the reports the package produces to make them more relevant to the trust.