Rise in Academy Trusts with deficits

Featuring Martin Lock | 30th July, 2018

The Academy revenue reserves 2016 to 2017 report show that 185 trusts that were in deficit were responsible for 300 academies (4.3 per cent of the total), and that smaller trusts were more likely to find themselves in financial difficulties.

As budgets are squeezed, smaller academy trusts will struggle to achieve the economies of scale which can help avoid a deficit situation arising, which in turn puts them in the difficult position of having to consider cutting elements of their provision. The challenge, in a nutshell, is that many academies are finding that funding is failing to keep pace with cost increases – most significantly in relation to payroll costs. As a result, academy trusts are increasingly finding themselves at risk of the Education and Skills Funding Agency taking a keen interest in how they are being run.

In an acknowledgement of the situation, the government have requested that academy schools will now need to submit budget forecast returns covering the next three years, instead of the customary one year which has previously been the case, so that they can assess and monitor the financial viability of the sector.

Although the report showed that there was an increase in academy trusts in overall deficit, it also stated that the overall cumulative revenue reserves held by trusts were shown to have increased by £0.2 billion in 2016/17. In total, the net position for the academy sector at the end of 2016/17 showed a cumulative surplus of approximately £2.4 billion, comprising trusts with positive reserves holding £2.5 billion and trusts with net deficits totalling £65 million. This compares to a net position of £2.2 billion for 2015/16, when the total cumulative surplus was £2.3 billion, against a total deficit of £50 million. The average revenue reserves in a trust were around £791,000.

One thing is certain. As the sector continues to endure a challenging time, forward planning to identify and address issues is vital. This includes ongoing consideration of a trust’s financial viability – in particular preparation of regular and accurate management accounts, and adopting robust and reliable budgeting and forecasting procedures.

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