Academies Financial Handbook (AFH) 2019 update

The ESFA have recently published their new Academies Financial Handbook (AFH).

The AFH comes into effect from 1 September 2019 with more emphasis on internal scrutiny and controls, reporting related party transactions and the importance of an audit committee.

A MUST in the AFH means that the academy trust has to comply with the requirements or be in breach of its funding agreement, potentially putting at risk the ESFA funding.

Here is a summary of some of the key changes;

• The board must appoint an audit committee, or combine it with another committee, to advise on the adequacy of financial and other controls and direct a programme of internal scrutiny on a risk-basis with reference to its risk register. So, trusts need to have internal scrutiny reviews carried out by an independent, suitable person. A trust with an annual income over £50 million must have a dedicated audit committee. Smaller trusts can, for example, combine the audit and finance committee if appropriate.
• The trust must submit its annual summary report key internal scrutiny findings, recommendations and conclusions to the ESFA by 31 December each year with its audited annual accounts. We believe this will be from 31 August 2020 period ends onwards.
• The trust must prepare monthly management accounts, including an income and expenditure account, variation to budget report, cash flows and balance sheet. Key Performance Indicators (KPIs) must be used and the management accounts must be shared with the Chair every month and other Trustee’s six times a year.
• The board of trustees must ensure its decisions about levels of executive pay (including salary and other benefits) follow a robust evidence-based process and are a reasonable and defensible reflection of the individual’s role and responsibilities. The decisions about levels of executive pay are a current hot topic with the ESFA issuing letters to trusts in May 2019, asking them to justify executive salaries above £150,000, or multiple salaries between £100,000 and £150,000.
• Related party transactions, including contracts and agreements, must be reported by the Trust to the ESFA in advance of the contract or agreement commencing.
• The trust must also obtain prior approval for any contracts exceeding £20,000 or if the total of contracts for the financial year will exceed £20,000.
• It will be important to keep the register of interest forms up to date and the senior management team need to be aware of any new related party transactions.
• The trust must have a whistleblowing procedure and must ensure all staff are aware.
• The trust needs to publish information on its gender pay gap if the trust has 250 or more employees.
• The trust’s audited accounts must be provided to the members. Typically the accounts are provided to the Board of Trustees as they approve the accounts but it is the members who confirm the Trustee’s decision on the approval.

If you have any questions regarding any of the new changes in the Academies Financial Handbook please get in touch with a member of our specialist education team.