Meeting the financial and regulatory challenges for academies
The opportunity to seek academy status is an exciting prospect for many governors and school heads. However, the additional responsibilities, risks and financial implications will be daunting for many and seeking expert guidance and support is a must. This is available from all kinds of sources - and it is a good thing that all these sources are there for academies.
You only have to look at the scale of the challenges faced by academies to realise that it is only the supremely confident who don't think they need to use the outside help available.
Background to academies
The first academy in England and Wales was opened in 2000, ten years prior to Michael Gove announcing new legislation which led to the number of academies increasing rapidly.
In May 2010 the number of academies stood at 203 – compared to 3,879 as of 1 April this year.
Clearly the opportunity to convert to academy status has excited many governors and school heads.
The Department for Education (DfE) welcomes applications to convert from all schools which are performing well. Each application is considered on its own merits, with the decision being informed by various factors including recent exam results, the latest Ofsted inspection and any other evidence of performance that the school considers relevant.
When contemplating conversion to academy status, it is important the powers that be recognise there is no "one size fits all" column solution. Converting will create benefits but also has drawbacks, all of which must be carefully considered before a decision is reached.
Perhaps the most sought-after benefit is the freedom from local authority control, but this can also become a significant burden if the implications are not properly understood and managed.
Preparing for financial compliance
Converting to academy status gives rise to many financial and regulatory matters which must be addressed. You should plan to ensure these are dealt with effectively and at the appropriate time.
Financial experts should help schools identify the respective requirements and priorities that need to be acted on at the earliest stage.
Establishing the financial position on change of status - including the value of property and other assets and the transfer of surplus funds relating to the former school - is one of the first steps on the to do list.
Further key actions include: setting up accounting systems and charts of accounts, developing key board policies such as accounting policies, risk management, reserves and investment policies, conflicts of interest, governor recruitment, induction and training, fraud prevention and whistle blowing policies.
Establishing financial regulations and procedures, fulfilling company secretarial duties under company law, including completing statutory documents for board changes, the annual return and the annual general meeting, guidance for governors on their roles and responsibilities as charity trustees and company directors - these are also equally important.
Then throw in terms of reference for committees, interpreting and accounting for the Local Government Pension Scheme year end actuarial valuation, establishing a process for independent checking of financial controls, systems, transactions and risks, and VAT and tax to ensure the school is compliant with HMRC requirements, and there's a lot to act on.
Every school considering converting will have different needs, but all will require support to help with any of the issues raised above.
Preparation of statutory accounts
Academies have a legal responsibility to prepare annual statutory accounts that comply with legal and regulatory requirements.
These accounts must be filed at Companies House and the Education Funding Agency (EFA). Preparing these accounts is an onerous task, particularly the first set.
Support is available to prepare accounts from a school’s trial balance and management information, ensuring compliance with the Academies Accounts Direction, along with help in drafting a Trustees’ Annual Report, including the policies to be disclosed on reserves and risk management.
Pressure on financial skills
The conversion to academy status dramatically increases the responsibilities of finance teams, which become independent from local authority support. Many academies will need additional financial skills and assistance to adequately support management and governors, whilst meeting new regulatory requirements.
Advisers are able to help address these challenges in a number of ways, from preparation of budgets and regular management accounts, completion of Teachers’ Pension Scheme and local government annual returns, payroll bureau services and completing the required independent checks on financial controls, systems, transactions and risks.
Support can also extend to preparing and submitting of returns to the EFA such as Whole of Government Accounts information and the Academies Accounts Return, ongoing advice and guidance on any issues relating to finance and accounting, financial training for staff and governors, data governance health checks, fraud risk awareness training and reviews and company secretarial services.
Taxation and VAT issues
The VAT regulations for academies are complex and it is essential that each school accounts for VAT correctly from the outset, to ensure liabilities are minimised and penalties avoided. The academy will also need to ensure compliance with PAYE, NI and corporation tax rules. This will require professional advice at the time of conversion.
Core strategic functions
In all types of schools, governing bodies should have a strong focus on three core strategic functions:
1. Ensuring clarity of vision, ethos and strategic direction.
2. Holding the head teacher to account for the educational performance of the school and its pupils.
3. Overseeing the financial performance of the school and making sure its money is well spent.
A range of organisations will be able to provide help and advice at all stages of conversion. The DfE will provide a named contact for each school during the process.
Various professional bodies offer events and forums of relevance specially designed for governors of schools considering converting and schools which are recent converters, including the National Association of School Business Management, SSAT (The Schools Network), and Freedom and Autonomy for Schools - National Association.
In addition, experienced legal advisers, accountants and business advisers are essential for ensuring you receive the right guidance at every stage.
Talking to these support networks, and other existing academy schools, will also help schools determine whether conversion is the right step.
