Lord Agnew Recommends Improving Management Letters
You may recall a previous blog post made the point that Lord Agnew’s letters to academy accounting officers made proposals that tended to end up in the next update to the Academies Financial Handbook (AFH).
Lord Agnew has written another letter, but this time directed to the sector’s auditors, (with accounting officers copied in) and it’s about the audit process and board governance.
The main point of Lord Agnew’s latest letter is to recommend improving Management letters because his department are increasingly using the letters to assess the quality of governance and control frameworks in academy trusts. He is concerned about letters which raise issues in one year that remain unresolved in subsequent years, and suggests “mid-year audit reviews” as a way of resolving this.
So, what are the implications of this proposal for mid-year audit reviews and how could they be introduced in the sector?
One option involves the Budget Forecast Return Outturn (BFRO), the return that has seven months of actual financial data plus five months of forecast and must be submitted in May each year. The Department for Education (DfE) could insist that the BFRO is signed off by trust boards and submitted online with a requirement for auditors to sign off in much the same way they do with the Academies Accounts Return (AAR). The auditors would review the BFRO as they review the AAR. However, they could extend the review to include whether actions recommended in the last management letter have been addressed. This would be a short, focused review and would therefore not incur much in the way of additional fees. One issue with this is that a submission in May does not leave sufficient time for the DfE to review and for trusts to take any actions to resolve issues before the year-end audit process begins in September. If the aim, as Lord Agnew makes in his letter, is for trusts to resolve issues before the next management letter, then a May submission could be too late. Therefore, we have to wonder if it is possible they could change the BFRO to six months actual-six months-forecast data with a tighter submission deadline.
Another potential implication of Lord Agnew’s letter is the end of committee meetings for accounts sign off being led by auditor reports. Lord Agnew is keen for academy trust management teams to produce “appropriate briefing for their boards” when presenting the accounts and “not to outsource this to their auditors”. Could this lead to a new “must” in the AFH when it is next updated before 1st September 2019? Watch this space!