“The consolidation of academy accounts was always going to be a complex and challenging task. It has demonstrated, however, key and continuing risks to the Department’s ability to exercise strategic financial management of the academy sector and to the sustainability of the Department’s current approach.”
Amyas Morse, head of the National Audit Office, 16 January 2014
Amyas Morse, the Comptroller and Auditor General, has qualified his opinion on the accounts of the Department for Education and the Education Funding Agency (EFA) on a number of grounds.
Consolidation of academies
In 2012-13, the Department for Education was required, for the first time, to consolidate the accounts of academies into its group financial statements. The Department consolidated 2,823 academies using a series of data sources spanning different time frames. Academies produce accounts to 31 August each year whereas the Department’s year end is 31 March. The Department and EFA hypothesized that financial data for the year to the end of August 2012 was a fair approximation for the equivalent to 31 March 2013.
In Mr Morse’s audit of the EFA’s application of the consolidation methodology, he identified a number of errors and uncertainties. He has been unable to aggregate the individual errors because of overlapping causes of misstatement and uncertainty. Mr Morse has concluded that there was a material level of error and uncertainty in the financial statements.
Mr Morse cannot determine whether the use of financial data for the year to the end of August 2012 will be a fair assumption in future financial periods, given the trend for increasing cash reserves across the sector and less predictable capital expenditure profiles.
Academies have a different financial management regime to the Department and the freedom to determine their own spending profiles. Mr Morse considers that this results in an inherent set of risks as the Department is accountable for financial activity over which it has no direct control.
Recognition of land and buildings
Academies, as charitable companies, have to prepare their financial statements in accordance with charities’ accounting framework. A result of this was that the returns from academies did not include the information needed by the EFA to determine the appropriate accounting treatment for academies’ assets. The EFA has made an assumption that all land and buildings used by academies should be capitalized within the Department’s group balance sheet which recognizes their value as £25.1 billion. The EFA does not, however, have robust data to demonstrate that this assumption is appropriate. It may not comply with the Treasury’s reporting manual: for example, where academy buildings are occupied on a short-term basis.
Regularity of expenditure
The Department, through the EFA, provides funding to academies for their activities. Mr Morse has been unable to obtain assurance that the funds provided for the period to August 2012 were spent by academies in line with the Treasury’s requirements for managing public money and, as a result, has qualified his opinion on regularity. There is no evidence, however, of widespread or material levels of irregular spending.
The EFA implemented a new assurance framework for the 2013-14 academic year to address these issues, and the success of this should become evident during 2014.