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As the new academic year begins, so does the Academy school audit season. Delegates have been brimming with excitement during recent Insight Training courses! Here are five things that you must remember to do over the next few months to ensure that your audit files are compliant:

  1. Challenge pension numbers

 Because Local Government Pension Scheme (LGPS) numbers are derived from actuarial reports, there can be a tendency to place blind reliance on them. Don’t! Carry out appropriate benchmark analysis on the asset and liability components of the LGPS figure in the accounts and challenge scheme managers if you feel you need to.

Also, remember that the landmark ‘McCloud ruling’ is likely to result in an increased net liability this year and thus an increased charge to the Statement of Financial Activities.

  1. Remember that alcohol’s off limits

 Like it or loathe it, the 2018-19 Accounts Direction (AAD) makes clear that any alcohol spend should be considered ‘irregular’. Accordingly, if your regularity testing reveals any such expenditure, there will be implications for your management letter and potentially even your regularity report. Many feel that modest expenditure in this area is justifiable, but the AAD is very clear that it is not – even though the AAD was published 7 months into the academic year!

  1. Remember that related party transaction rules have changed

With effect from April, all related party transactions (as defined by FRS 102) must be notified to the ESFA using the IDAMS information management service platform, with transactions with a value in excess of £20,000 requiring prior ESFA approval. Regularity testing must ensure that this process has been followed.

  1. Undertake robust expenditure testing

Recent media exposure of Academy school ‘scandals’ means that expenditure testing must be in depth. As well as validating expenditure by reference to approved invoices, consider whether the academy’s own procurement rules have been adhered to, whether these are sufficiently robust, whether expenditure meets the criteria of the trust’s ESFA funding agreement and whether it’s within budget. Also, where necessary (e.g. improvements) consider physically verifying that relevant work has been performed.

  1. Take financial handbook breaches seriously

Lord Agnew’s April 2019 letter to auditors makes clear that the ESFA will take a dim view if regularity issues revealed by the external audit are not flagged up. Mindful that management letters, as well as audited accounts, are submitted to the ESFA, auditors can sometimes be under pressure not to flag up breaches. Don’t be! Also remember that a material breach of a handbook ‘must’ requirement should give rise to a modification of your opinion on regularity even though the issue may have been raised in your management letter. Being an Academy auditor can be a lonely place to be at times – but reporting obligations must be embraced.

Peter Herbert, Insight Training, September 2019

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