The new Academies Financial Handbook (AFH) took effect from 1st September 2020. There are a few changes to be aware of; so, let’s focus on internal scrutiny.
Clarification: internal scrutiny covers both financial and non-financial controls.
Update: due to changes in the Ethical Standard for Auditors, you no longer have the option of using your external auditor to do this work
Confirmation: that Trusts can use additional individuals or organisations where specialist knowledge is required – so you can use a variety of advisors best suited to the areas under review
What hasn’t changed?
Approach: Trusts must take a risk-based approach focusing on the suitability of and compliance with controls
How: your Trust’s risk register is a good place to start – assuming it’s up to date and complete. Recommendations from your external auditors and any ESFA reviews should also be considered. Changes in systems and controls can be another source of risk.
Who decides what to do: this should be driven by the Audit and Risk Committee. It may be combined with another committee (often the Finance / Resources Committee) unless your Trust income is over £50m, in which case you must have a dedicated committee.
Timing: the work must agree a programme to deliver coverage over the year
Impact: the work should deliver insight as to the effectiveness of your controls and offer recommendations for how weaknesses could be addressed.
Why is it relevant to me?
Professional Standards: Taking an organisation wide, risk-based approach fits perfectly with the ISBL Professional Standards – especially leading support services – which is all about high standards of organisational governance, effectiveness and improvement.
Requirement of the AFH: if you don’t have appropriate arrangements in place you risk a regularity opinion in your statutory accounts and non-compliance with your funding agreement.
What do I need to do?
Review terms of reference and composition of the Audit and Risk Committee: verify that the Committee is suitably independent from the Board and leadership and has effective channels of communication. For example, the Chair of the Board cannot also Chair the Audit and Risk Committee, staff cannot be members and the Committee should report back to the Board on findings.
Talk to Trustees: make sure they understand the requirements and support them in developing a programme of work. Ideally address this in the Audit Committee meeting this term to be able to have a plan in place for the year.
Review your current provider arrangements: do they meet the requirements of the Handbook, and can they do the programme envisaged – do they have the relevant expertise? Remember that whichever route you choose, they must be independent and suitably qualified. That means they need to be a member of a relevant professional body, or have qualifications in finance, accounting or audit and have appropriate internal assurance experience. Peer reviewers must also have these same levels of experience and must be the CFO of another academy trust independent from your own, with good standards of financial management and governance. If you choose this route, the Trust must minute the basis for its decision.
Where can I get more information?
I’m happy to chat through your options but these are good starting points:
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