Internal audit and academy schools

Why quality assurance gets top marks

Academies have a unique role in education. They are publicly funded but do not have follow the National Curriculum and they can set their own term times. They are still subject to Ofsted. And although they receive their funding directly from the government, rather than local authorities, they are still accountable for their spending through the Education and Skills Funding Agency (ESFA) to Parliament.

For an academy trust to be successful, and deliver the results it wants for its pupils, it must have strong and sustainable finances. This is important whether there is one school, or several schools that make up a multi academy trust (MAT). Effective financial control systems should be in place to ensure proper governance, and the responsibility to deliver on this will usually fall on a dedicated audit committee, which is a requirement for academy trusts with annual income over £50 million.

Other trusts which fall below the threshold can either establish an audit committee or include the functions of an audit committee within another committee. There are a number of options open to MATs to obtain the required independent assurance, including over data quality, which include:

  • The use of internal audit – this can either be their in-house team or outside specialists that are brought in. The challenge for internal auditors will be to ensure that compliance is tailored and proportionate to the size of, and risks facing, the MAT.
  • Extending the scope of an external audit – the risk is that the scope between the external audit work and the extra assurance will become blurred. Separate teams at the audit firm should be used to safeguard the independence of both streams of work.
  • From an independent trustee – the person involved will need to have professional experience of internal audit.
  • Peer review – where the chief financial officers of two different MATs review each other’s work. A memorandum of understanding on the scope of work to be carried out should be agreed (to include confidentiality undertakings). However, time constraints over completing the assurance often mean that this is not a practical solution.

From my experience, the work needs to be creative, proportionate and ensure value for money is achieved due to the public funding, and this is where internal auditors can add value. Additionally, there are eight key risk areas for academies that internal audit will need to be alive to when independent assurance is carried out:

  1. Educational quality – this is often a key driver for pupils’ recruitment with Ofsted ratings in the public domain. Falling pupil numbers can result in the ESFA clawing back some of its funding.
  2. Funding – the balance that will need to be struck between academic flexibilities (e.g. faith activities) and the funding challenge that the individual MAT is facing, and drawing this together in multi-year budget processes.
  3. Worker status – the need to avoid ‘status drift’, eg, whether some staff are employed or self-employed/ contractors or volunteers. The majority of the costs incurred by MATs will be around payroll and pensions. Many MATS have outsourced their payroll processing to a bureau, so a review over controls over this area will be crucial.
  4. Policies for safeguarding, whistleblowing and bribery – All MATS should have these in place. Specialist skills may be required in the knowledge of legislation required to provide assurance over these areas.
  5. Premises strategy – specialist input is required for managing and monitoring capital projects which include procurement and dealing with legacy asbestos.
  6. Related party transactions – the ESFA is particularly concerned about related party transactions and conflicts of interest with trustees/governors as they shouldn’t profit from their role/office.
  7. MAT financial management structures – There is an expectation of economies of scale by amalgamating the back office functions in MATs. This will need careful planning as school head teachers may be resistant to relinquishing financial control. Any top slicing of funding into central services will need to be justified to constituent academies in the MAT.
  8. Consolidation in the marketplace – there are ongoing debates about the optimal size of a MAT in terms of pupils and school mergers. Whatever size is chosen will require proper governance structures as well as drivers and processes. There may be a reluctance to seek professional advice and carry out the necessary due diligence on issues such as asbestos, PFI, treatment of surpluses/ deficits for leavers and joiners in a MAT, and VAT on buildings.

Failure to ensure proper oversight by the audit committee over these eight areas may lead to a regulatory issue and a qualification on the regulatory opinion provide by the external auditor. By getting their financial governance right and ensuring that they have a strong system of internal controls which are regularly reviewed by internal audit, academies will enable teachers to focus on what they do best.

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