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Academies: Internal scrutiny requirements from September 2019

The ESFA’s 2019 Academies Financial Handbook (published in June) introduced key changes around internal scrutiny, which trustees should be considering now – in the autumn term of 2019.

The latest version of the handbook, applicable from 1 September 2019, sets out in much greater detail the roles and responsibilities of the audit committee (or equivalent) in planning and monitoring how their trusts ensure adequate internal scrutiny of financial controls. 

Latest guidance from the handbook

The Academies Financial Handbook (AFH) encourages committees to meet at least three times a year. Committees must agree an annual programme of internal assurance work, which provides coverage across the year and is driven by its assessment of risk. For many trusts, this will mean reviewing the assurance plan for 2019/20 at the autumn 2019 committee meeting. 

The AFH makes it compulsory for trusts to maintain a risk register, which details the trustees’ assessment of the key risks facing the trust and how these are mitigated. Internal assurance should focus on areas where there is greater financial control risk (e.g. where there are indications of weaknesses of financial control or where new systems have been implemented). 

Committees should consider reports arising from the work at each meeting and track progress with addressing recommendations. The AFH also introduces a new requirement that trusts submit an annual summary report of the internal assurance performed to the ESFA by 31 December from 2020 (for 2019, academy trusts must submit their latest available internal assurance report). 

The spotlight over independence and objectivity

The requirements around independence and objectivity have been set out more explicitly, as the AFH requires direct reporting from the internal assurance provider to the committee. Academy trusts still have four main suggested options for securing sufficient internal scrutiny; 1) an in-house internal auditor, 2) a procured internal assurance service (this can be via the external auditor), 3) the appointment of a non-employed trustee or 4) a peer review. 

This means Multi-Academy Trusts (MATs) that meet their internal assurance obligations through central finance functions or peer reviews will now need to look at whether sufficient independence and objectivity can be achieved internally. They may also need to consider external independent input into their respective internal assurance programme. 

Actions for academy trusts

Overall, the AFH 2019 represents a significant step-up in the internal assurance requirements for academy trusts. For many academy trusts, existing programmes of work will be sufficient and the key actions for the committee will be:

  • Documenting consideration of the work-plan at the start of the year 
  • Scrutiny of reports and follow-up of recommendations during the year, and 
  • Documenting the consideration of the annual summary at the end of the year

For others, internal assurance programmes will need to be reviewed and evolved, in order to ensure sufficient risk-based scrutiny and coverage. Academy trusts should therefore consider their existing programme of work in order to ensure that it is sufficient, given the new AFH requirements. 

If you would like advice regarding your internal assurance delivery, or have any queries on how to ensure that your trust is complying with the new AFH requirements please complete the form below.

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If you have any questions about any of the points raised in this article, please complete the form below and one of our academy experts will be in touch.

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