Academy trusts: A guide to deficit recovery

Audit and assurance
Corporate
Education and academies
Governance
Planning

Managing a financial deficit within an academy trust is a complex challenge that requires strong financial oversight, careful planning, and clear communication. Ensuring financial stability is not just about addressing immediate shortfalls – it involves taking a long-term view of budgeting, forecasting, and governance to prevent future issues.

A well-structured deficit recovery plan provides a clear roadmap for financial improvement and reassures key stakeholders, including trustees, regulators, and auditors, that the academy trust is taking its responsibilities seriously.

This guide explores the key themes in effective deficit management, from financial oversight and cash flow monitoring to governance, stakeholder engagement, and regulatory compliance.

Early engagement with the regulator

When should an academy trust inform the DfE about financial difficulties?

If an academy trust is facing financial difficulties through exhausting its reserves or cash balance, it should not delay in informing the Department for Education (DfE). Early awareness allows for timely support and intervention.

Academy trusts can contact the DfE via their Customer Help Portal and should also refer to the GOV.uk guidance on financial support for academy trusts here.

What support does the DfE provide?

The DfE can provide various support – whether through advice, loans, or advances. Academy trusts must present detailed deficit recovery plans to the DfE, demonstrating how they will return to financial stability before the regulator considers any form of financial support.

What happens if an academy trust doesn’t engage early?

By proactively engaging with the regulator, academy trusts can avoid more severe interventions, such as formal notice to improve. These notices are issued when a trust’s financial position is deemed unsustainable, resulting in heavy restrictions on delegated authority limits, regular reporting requirements, and oversight from an assigned DfE caseworker.

Can an academy trust impose its own financial notice to improve?

Sometimes it may be appropriate for an academy trust to self-impose a financial notice to improve, rather than be served one, demonstrating to the DfE that the trust is taking financial discipline seriously.

The role of governance

Effective governance ensures strong financial oversight, risk management, and accountability – key factors in restoring financial stability.

How can a trust improve its governance structure?

Skills audits: Identifying gaps in financial expertise and co-opting specialists where needed.
Scheme of delegation reviews: Adjusting financial decision-making authority to align with recovery objectives.
Operational efficiency checks: Reviewing structures to remove inefficiencies, potentially introducing technology to streamline processes.

Do changes to governance need to be published?

Any updates to the scheme of delegation for governance functions must be published on the trust’s website to maintain transparency and regulatory compliance.

By strengthening governance, academy trusts can demonstrate to the regulator that they have the capability to manage their way back to financial stability.

Academy trusts should consider the features of high quality governance as described in the trust quality descriptions.

Trust quality descriptions

The DfE have published five pillars of quality for multi academy trusts. Full guidance here.

High-Quality and Inclusive Education
School Improvement
Workforce
Finance and Operations
Governance and Leadership

During our deficit recovery webinar in March 2025 with CFOs/Finance Directors, we reviewed section 4 ‘Finance and Operations’ in further detail.

Theme	Description
Culture	Recognises the importance of effective and efficient use of resources for the benefit of all schools in the trust and the wider education system.
Financial strategy	Uses financial data and intelligence to set a stable, accurate and sustainable long-term financial strategy for the trust. Has a clear approach to delivering value for money through effective budgeting and risk management.
Resource allocation	Demonstrates efficient and effective use of resources, for example through school and trust resource management benchmarking tools and Integrated Curriculum and Financial Planning.
Capital strategy	Maintains and invests sustainably in the trust’s capital infrastructure, including buildings, digital infrastructure and technology.
Reserves	Operates a well-planned reserves policy that provides sufficient contingency for cashflow and any unplanned, urgent expenditure and aligns resources to expenditure priorities across all its schools.
Financial information management	Has strong financial and information management systems with effective oversight, for example ensuring data compliance and having policies and processes in place to minimise risk of fraud, data breaches and financial mismanagement.

Cash flow monitoring and management

A key distinction that academy trusts must understand, in order to support an effective deficit recovery plan, is the difference between cash and reserves. An academy trust may have exhausted its reserves while still holding cash in the bank, often because some funding is received in advance of expenditure. Without careful monitoring, this can create a misleading picture of financial health.

Academy trusts need to map out their cash flows to identify peaks and troughs in expenditure. This involves understanding when significant outgoings will occur – such as payroll, capital projects, or previously unplanned costs – and ensuring that funding is available at the right time. Creating a bridge between reserves and cash can be a useful exercise, particularly for trustees who are not financial specialists. Many academy trusts already include this in their statutory financial statements, helping to explain movements between year-end reserves and available cash.

Is scenario planning effective to support a deficit recovery plan?

Academy trusts should assess the impact of potential risks, such as delays in funding, cost overruns on building projects, or unexpected staff absences. Developing contingency plans for these scenarios ensures that financial stability is not threatened by unforeseen events.

Regulatory expectations and external scrutiny

When an academy trust is in deficit, external scrutiny increases significantly. The DfE monitors financial health closely, using trust quality indicators to assess risk. The regulator expects trusts to work proactively towards meeting these quality indicators.

External auditors also play a key role in assessing an academy trust’s financial position. One of their primary responsibilities is to determine whether an academy trust can continue to operate as a going concern – that is, whether it has sufficient funds to meet its financial obligations for the next 12 months. If the academy trust’s financial position is uncertain, auditors may issue a material uncertainty statement in their report. This highlights concerns about the academy trust’s ability to remain financially viable and is reported to the DfE and the National Audit Office.

To meet regulatory expectations and reassure auditors, academy trusts must provide comprehensive financial information, including:

cash flow forecasts,
budget projections & explanation of assumptions,
and evidence that key deficit recovery milestones are being met.

Delays in implementing planned actions can raise concerns, particularly if they impact cost savings or lead to unexpected financial pressures. Trustees must ensure that all decisions and interventions are well-documented to demonstrate that they are taking deficit recovery seriously.

Should academy trusts communicate with key people their deficit recovery plan?

Managing a financial deficit in an academy trust requires clear, transparent, and proactive communication with all key people involved in the organisation. This includes trustees, senior leaders, staff, parents, and regulators, all of whom need to be kept informed about the academy trust’s financial position and the steps being taken to recover.

Trustees and senior leaders

Regular financial updates help ensure informed decision making. These updates can be through:

board meetings,
detailed reports,
and key performance indicators.

Senior leaders should work closely with finance teams to ensure that all individuals and groups receive accurate and timely information, avoiding surprises that could damage confidence in the recovery plan.

Staff and unions

Financial recovery plans often include difficult decisions, such as staffing restructures or cost-saving measures. Engaging openly with staff and unions at an early stage is crucial to managing expectations and reducing uncertainty. While these conversations can be challenging, clear communication about the academy trust’s financial position and the necessity of certain actions can help build understanding and cooperation. Where possible, providing advance notice of changes and exploring options like voluntary redundancies or redeployment can help ease the impact.

Parents and the wider school community

Parents and carers may have concerns about how financial difficulties will affect their children’s education. Letters, newsletters, or information sessions can help reassure parents that the academy trust is addressing financial challenges responsibly, ensuring that schools remain well-resourced and focused on delivering high-quality learning experiences.

Regulators and external bodies

The DfE and external auditors expect clear and structured communication. Delays in providing financial information, inconsistencies in reporting, or failure to respond to concerns can impact trust and lead to greater regulatory scrutiny. Academy trusts should ensure they meet all reporting deadlines, provide accurate data, and engage proactively with regulators to demonstrate financial control and accountability.

Strengthening financial resilience

Understanding the root causes

The first step is to assess what led to the deficit in the first place. Was it due to falling pupil numbers, ineffective budget management, unexpected costs, or insufficient financial oversight? Conducting a thorough financial review helps ensure that corrective actions address underlying issues rather than just treating the symptoms.

Embedding stronger financial governance

This may involve strengthening the role of the finance committee, improving financial reporting to trustees, or providing additional training to leadership teams. Clearer financial policies, more robust forecasting, and closer monitoring of key financial metrics can help prevent a recurrence of deficit situations.

Building a sustainable financial strategy

Beyond immediate recovery, academy trusts should focus on long-term financial sustainability. This includes exploring strategies such as: diversifying income streams, maximising grant funding opportunities and ensuring efficient use of resources across multiple schools in a trust.

Scenario planning and risk management

Financial resilience is about being prepared for potential risks. Academy trusts should conduct scenario planning, stress-testing budgets against different financial pressures, and identifying contingency measures. Establishing financial reserves where possible can also provide a buffer against unexpected costs.

A culture of continuous improvement

Deficit recovery should not be seen as a one-off process but rather as a catalyst for long-term financial improvement. Academy trusts that actively learn from financial challenges and implement more rigorous financial management practices will be better positioned to handle future uncertainties while continuing to deliver high-quality education.

Closing thoughts

Successfully managing a financial deficit is about more than just cutting costs – it requires a strategic and proactive approach. Strong financial oversight, accurate cash flow forecasting, effective governance structures, and clear stakeholder communication all play a vital role in stabilising finances and building long-term sustainability.

Engaging with the regulator, meeting key financial quality indicators, and ensuring trustees have access to the right information will help to demonstrate a commitment to recovery. With a well-managed plan in place, academy trusts can navigate financial challenges while maintaining their focus on delivering high-quality education.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.