Corporate report

Common themes arising from ESFA's assurance work in 2023 to 2024

Updated 11 September 2024

Applies to England

1. Introduction

1.1: This report provides an overview of the key findings from the ESFA’s 2023 to 2024 assurance programme, including the review of:

• academy trust financial statements
• academy funding audits
• financial management and governance reviews
• the school resource management self-assessment checklist (SRMSAC)

2. Review of academy trust statements

Overall findings

2.1: We review trusts’ financial statements and auditors’ reports, to provide assurance that funds provided to trusts have been used for the purposes intended.

2.2: The deadline for trusts to submit their 2022 to 2023 financial statements was 31 December 2023. By this date trusts were required to submit 3 returns:

• their audited financial statements
• the auditor’s management letter
• their annual summary internal scrutiny report

2.3: We found that:

• just over 95% of trusts submitted their 2022 to 2023 financial statements by 31 December (2021 to 2022: just under 96%)
• the main reasons for the delays were similar to previous years:
  • trusts closed during the year and had not submitted accounts as part of the closure process
  • trusts, which were in intervention, had not submitted their accounts by the deadline

At the date of publication, there are 10 trusts which have not submitted their 2022 to 2023 audited financial statements.

• the percentage of qualified 2022 to 2023 financial statements was 0.4% (2021 to 2022: 0.2%) - the main reason for the qualified opinions was due to local government pension scheme (LGPS) valuations
• there has been a 3% increase in ‘emphasis of matter’ or ‘material uncertainty’ opinions, compared with 2021 to 2022 - this increase was again predominantly due to the LGPS actuarial valuations, where some audit firms’ approach was to report as an emphasis of matter opinion, that the LGPS present value of the asset or liability was based on assumptions and calculated on an actuarial basis
• the percentage of modified regularity conclusions on the 2022 to 2023 financial statements, 7.7%, was slightly lower than in the previous year (2021 to 2022: 8.1%) - the main issues for the regularity modifications were consistent with the previous year, internal financial reporting and trusts not adhering to the pre-approval requirement for related party transactions with a monetary value of £20,000 or more

Financial statements audit opinions

Figure 1: Reasons for qualified opinions

Auditor opinion reason	2021 to 2022	2022 to 2023
LGPS actuarial valuation	4	5
Accounting treatment land and buildings	2	1
Other	0	4

Figure 2: Reasons for material uncertainty opinions

Reasons for material uncertainty	2021 to 2022	2022 to 2023
Going concern - closing or transferring	135	166
Going concern - financial issue	39	32
LGPS actuarial valuation	0	41
Accounting treatment for land and buildings valuations	1	4
Other	5	3

Financial statements regularity conclusions

2.4: The highest number of reasons for the modified regularity conclusions in 2022 to 2023 financial statements related to financial management and reporting (as 2021 to 2022). The reasons comprised:

• management accounts issues, including:
  • not sharing with the board
  • not produced at all
  • timeliness of preparation
  • key sections missing - for example, the cash-flow or balance sheet omitted from the information provided to the board
• oversight of financial management - main issues include poor internal control frameworks or inadequate financial management
• ESFA submissions - main issue, key ESFA deadlines not met
• accounting records - main issue, financial documentation and records not being kept up to date

2.5: The second highest number of modified regularity conclusions was in relation to related party transactions. This is broken down into the following areas:

• prior approvals and declarations - prior approval not sought from ESFA before entering into a related party transaction or where less than £20,000, no disclosure having been made in the financial statements
• conflicts of interest - main issues were where trusts had failed to manage related parties and conflicts of interest appropriately
• ‘at cost’ policy - main issue was where the ‘at cost’ requirement was a mandatory requirement, but trusts did not have the evidence to confirm compliance

Figure 3: Reasons for modified regularity conclusions

Reasons for modified regularity conclusions	2021 to 2022	2022 to 2023
Financial management or reporting	72	68
Related party transactions	57	52
Other control weaknesses	43	32
Internal scrutiny	13	23
Alcohol	22	17
Procurement or tendering	22	16
Fraud or theft	11	15
Borrowing or finance leases	11	11
Financial health	4	6
No independent check of controls	6	5
Capital funding or capital expenditure	4	5
Non-contractual payments, severance or honoraria	3	1
Land and buildings	0	1
Breach of delegated powers	2	0
Accounting policies	1	0
COVID-19	1	0

Internal scrutiny

2.6: Trusts are required to submit to the ESFA their annual summary internal scrutiny report, which should contain the areas reviewed, key findings, recommendations and conclusions.

2.7: The main common issues identified and, therefore, reported by auditors as regularity conclusion modifications were:

• no internal scrutiny having taken place
• the audit and risk committee did not agree the work programme for internal scrutiny
• recommendations from the previous year’s audit had not been implemented and remained unresolved

2.8: There continues to be a wide range in the quality of the annual summary internal scrutiny reports submitted.

3. Financial management and governance reviews

3.1: Our reviews are designed to provide assurance that trusts have appropriate financial management and governance arrangements and that those arrangements ensure trusts’ compliance with the Academy trust handbook (ATH). Our assurance findings indicated that most academy trusts reviewed were making good progress towards compliance with the ATH. 98% of trusts reviewed fell within the ‘fully compliant’, ‘good’ and ‘satisfactory’ progression towards compliance categories, a similar position to the previous year (97%).

3.2: The areas where further development is required include:

• establishing an audit and risk committee, to agree a programme of work and to address risks to both financial and non-financial controls
• delivery of an appropriate internal scrutiny programme and oversight of the implementation of recommendations
• monitoring the budget – including the production of management accounts, ensuring they contain all required elements, and support appropriate board action to review and maintain financial viability
• trusts’ maintaining and publishing the register of business and pecuniary interests of its’ trustees and governing structure on their website
• oversight of risk and regular review of the risk register
• publication of governance arrangements
• the setting of executive pay

4. Academy funding audits

4.1: Our funding audits provide assurance that pre-16 grants have been properly claimed and used for the purposes intended. They check for errors relating to both the pupil census numbers, which are used to calculate the main school funding blocks (pre-16 and post-16) and the entitlement to free school meals (FSM) numbers, which is the main factor in determining pupil premium funding (PP).

4.2: The funding factors evaluated as part of our assurance work included:

• the basic per pupil funding factor (age weighted pupil funding (AWPU)) confirmed by pupil existence and eligibility testing
• FSM eligibility
• English as an additional language (EAL) factor
• high value and premium course factors
• post looked after children (PLAC) and service children factors

4.3: In line with previous years, the levels of errors identified were low. The:

• pre-16 census data random error rate was 0.033% (2022 to 2023: 0.032%)
• post-16 census data random error rate was 0.0195% (2022 to 2023: 0.027%)

Pupil premium grant continues to be the funding stream where we identify the highest error rate, which was 0.605% (2022 to 2023: 0.315%).

4.4: The main reason for the pupil premium errors was where academies retained insufficient evidence to support the census data returns, including evidence of being, for:

• service children
• post looked after children
• entitlement to free school meals

Although the error rate has increased over the year, it still remains very low.

5. Schools resource management self-assessment checklist

5.1: The SRMSAC helps academy trusts check they are managing their resources effectively and identify any areas for improvement.

5.2: Of the 2,321^{[footnote 1]} academy trusts expected to submit their SRMSAC, 1,969 (84.8%) submitted by the deadline of 15 March 2024. The deadline date response rate has fallen since the previous year (2022 to 2023: 86.9%) and continues to have a lower response rate than other financial returns.

5.3: As part of the financial management and governance (FMG) review process, we carried out a validation exercise to compare the findings from our work to the responses provided by trusts on the SRMSAC.

5.4: We found that, generally, the SRMSAC was completed accurately, except for one area, internal scrutiny requirements being adhered to, where the ESFA assessment differed from the trusts’ assessment.

5.5: The main areas where trusts did not self-assess themselves as compliant were:

• trusts not publishing on their website the number of employees whose total benefits exceeded £100,000 for the previous year ending 31 August
• trust balances are assessed at a reasonable level and having a clear plan for using the money held in balances at the end of each year
• trustees being able to confirm there are no outstanding matters from audit reports

5.6: At the date of publication, excluding those trusts that have closed, we have received 2,313 (99.7%) of all expected returns.

1. 2,321 academy trusts with an open academy on 31 December 2022 less 27 academy trusts that closed after 1 January 2023. ↩