Academy Trusts - Management Accounts reporting requirements 2023

The revised edition of the Academies Trust Handbook (ATH) for the 2023/24 academic year was published by the ESFA on the 6th July, with a strong focus on simplification.  

One of the areas simplified in this edition of the ATH is in relation to the production and distribution of management accounts. The update states that the ESFA are ‘providing more discretion in the distribution of management accounts’.  

However, the ESFA reported in its 2021/22 academy accounts assurance review that the top reason for regularity report modifications was attributed to internal financial reporting. Therefore, the largest reason for the modification in this category was in relation to management accounts issues, including accounts not being produced at all, not being shared with the Board, not being produced in a timely manner or not including all required information. In this article, we explore what is expected of academy trusts in this area.   

Why should management accounts be prepared and who should receive them?   

Firstly, management accounts should be prepared as it allows for good financial control by the trust. By forming part of the month end process, management accounts provide financial oversight to finance staff and senior leaders for all areas, but perhaps most notably over budgetary performance and the trusts current and forecast cash position.  

Management accounts should also be prepared as they provide financial oversight to Trustees, and those charged with governance. Within the 2022 edition of the ATH, it was a ‘must’ for management accounts to be prepared monthly and shared with the Chair monthly, and for the Board to consider the management accounts every time it meets. All of these ‘musts’ remain in the 2023 edition, however, what has been removed is the requirement for management accounts to be shared with ‘other trustees six times a year, even if they do not meet in each of those months’. 

Although this requirement has been removed, it remains best practice for all Trustees to have oversight over the management accounts monthly. For many trusts, this change may have little impact, as management accounts may be shared monthly (such as via GovernorHub, MS Teams, or SharePoint) as an ongoing part of the monthly financial processes. If not the case, this means of sharing the management accounts should certainly be considered.  

What should the management accounts contain?  

More on the topic of the ATH simplification, the 2023 ATH appears to have removed the requirement for trusts to select ‘key financial performance indicators and measure its performance against them regularly, including analysis in its annual trustees’ report’. Although this requirement has been removed, it is still a requirement per the Academies Accounts Direction for key performance indicators (KPIs) to be reported within the trust’s strategic report. These should include both financial and non-financial indicators (including reporting on environmental, employee matters, attainment levels etc.). Therefore, it remains good practice for said KPIs to be established and monitored all year round within the management accounts.

Some examples of KPIs that could be included are listed below:  

• Ofsted inspection outcomes 
• Examination / key stage results 
• Pupil attendance data and student numbers 
• Pupil recruitment data 
• Average class size 
• Teacher to pupil ratio 
• Financial and investment performance including: 
  • Income KPIs  
    • Total Revenue Income Per Place
    • GAG Income as a % of Total Revenue Income 
    • Actual Income vs Budget Income
  • Expenditure KPIs  
    • Staff costs as % of Total Revenue Income
    • Teaching Staff Costs as % of Total Staff Costs 
    • Total Expenditure as a % of Total Income 
    • Actual Spend vs Budget Spend 
    • Agency staff % total expenditure 
  • Balance Sheet KPIs  
    • Cash Balances as a % of Total Income
    • Current Assets to Current Liabilities 

Finally, other key aspects of the management accounts have not changed, and are still a ‘must’ per the ATH. These include:  

1. An income and expenditure account; 
2. Variation to budget report; 
3. Cash flow forecasts (these should show the actual cash position, and the forecast cash position for the rest of the year); and, 
4. A balance sheet. 

Supporting the above should be appropriate commentary, particularly relating to where there are significant variances between actual and budget financial performance to provide an understanding to readers of the management accounts why the variances occurred.  

So, this concludes what each management accounts pack should contain. In essence, to ensure best practice is followed, management accounts should be prepared and shared with all trustees monthly, and must be considered by the Board at each meeting. They should contain KPIs that are monitored throughout the year, and must contain the financial statements listed above.  

If you would like to know more about the ATH 2023, Price Bailey are running an Insights session online on 20 September 2023 at 9.30am which you can sign up to here for free.