Academy Management Reporting
The requirement for the production of management accounts for Academy Trusts was formalised in the Academies Financial Handbook 2018 and has been further defined in the Academies Financial Handbook 2019. The format of management accounts must include an income and expenditure account, variation to budget report, cash flows and balance sheet.
The ESFA have recently issued a factsheet to assist with the preparation of management accounts and provide more information on expectations.
The fact sheet provides a list of month end procedures which should be completed before management accounts are prepared, in order to ensure the underlying records are complete and accurate. This is a useful starting point in preparing a month end checklist but there are likely to be additional areas which need to be considered. Once completed, the checklist and reconciliations completed should be reviewed. It would also be useful for the trust to set a timescale at the end of each month so that staff know when tasks need to be completed in order to ensure the timely preparation of management accounts.
The factsheet also encourages automation of the process as far as possible. Many accounting software packages will prepare the reports required but they will need to be checked to ensure that they are reflecting the underlying data correctly. Once produced they should be carefully reviewed to ensure that they make sense in the context of what is expected. An accounting package is unlikely to be able to prepare a cash flow forecast but once set up this is relatively easy to update each month.
It is recommended that the management accounts are discussed with both the senior leadership team and the Trustees, although the format of the accounts may be different for the two groups. It is suggested that the Trustees may require a more summarised version, although this should not be assumed. The requirements and the format preferred should be discussed with the Trustees so that they are satisfied that they have sufficient detail to provide effective challenge. Commentary should be included to explain variances, note any common trends and highlight areas of risk.
The Academies Financial Handbook requires that monthly management accounts are sent to the Chair of the Trust every month and to other trustees not less than six times a year. As above, the management accounts should also be presented to the SLT. As best practice, individual budget holders should also be provided with monthly income and expenditure accounts relating to their departments, for reconciliation.
The factsheet includes some guidance on areas to look out for and highlight in the management accounts. These include:-
- Consideration of staff costs as a percentage of income as guidance suggests that this should be no more than 70% to 80% to ensure that the trust is sustainable.
- Review of supply costs and consideration whether any action is required in order to reduce costs.
- Review of aged debtors and consideration of whether appropriate action is being taken to chase debts.
- Ensuring that the bank account is not overdrawn or likely to become overdrawn based on the latest cash flow forecast.
The factsheet emphasises that management accounts are crucial for understanding the status of accounting reports, for strategic level decision making on resources, and are essential for good governance.
We would encourage all trusts to review the factsheet to ensure that they are complying with the requirements and providing timely, accurate, useful management accounts.
If you would like any further information on the preparation of management accounts or any other related topic, please contact a member of the academies team at MHA Moore and Smalley.