The ESFA have now published the Academies Accounts Direction (AAD) that will apply to accounting periods ending 31 August 2020. There are a modest number of…
A letter this week from Eileen Milner, the recently appointed new Chief Executive of The Education & Skills Funding Agency confirmed that Academy Trusts would be required to give budget forecasts for three years. Academy trusts currently only have to let the DfE know about their financial forecast one year ahead.
The idea was originally mooted last summer by Ms. Milner’s predecessor Peter Lauener. In January, the announcement took a step closer with DfE permanent secretary Jonathan Slater telling the Commons Public Accounts Committee that he expected more Academy Trusts to go into deficit.
This was followed by a nationwide survey of academy financial accounts which warned that the sector could be “on the verge of insolvency” within two or three years unless the government gave it extra support.
So came the announcement this week. Academy Trusts will be asked to provide details of income and expenditure, as well as of some capital spending and “non-cash elements”. The change will be brought in this year, and the budget forecast return must be submitted by 30 July.
The letter adds
“Whilst this inevitably creates additional work for Trusts, it is essential that Trusts are planning ahead. We anticipate that in most cases the data required will be readily available from Trusts’ own internal plans.”
The letter also highlights plans to crack down on Academy Trusts that do not submit their financial information in time, with the warning that in September the ESFA will publish a list of Trusts that “do not submit by the deadlines for two or more of the annual financial returns in any year”.
What will this mean in reality? The announcement was to be expected, and it wasn’t all bad news. The new filing deadlines are broadly in line with last year – there was some speculation that the AAR deadline might be brought forward. Also, many Academy Trusts will indeed already prepare longer term forecasts, since this is very much best practice.
Our view is that a forecast extending to three years is in any case sensible, especially so for any Trust that is not blessed with a high level of reserves and cash. However many of our clients are genuinely concerned about additional workload in completing the extended return, even if they do have the three-year data to hand. The challenge with a longer term forecast is ensuring that the data and assumptions provided are as accurate as possible. Academy income is of course largely driven by pupil numbers, which has its vagaries and cannot be guaranteed from one year to the next.
Preparing an accurate budget takes some time. We are often asked to assist our academy accounting clients with the preparation of their budgets; sometimes this is just a desktop review to ensure reasonableness, and in other cases this is a more in depth review to help them compile the detail. If you have any questions or concerns regarding the preparation of budgets for your Trust please contact us. We are here to take the worry out of the process.