The role of audit and finance committees in academies

26 April 2017

In our recent publication Green Lights Ahead: The Role of Audit and Finance Committees, we’ve considered the financial side of good governance across the charity sector. Based on our survey across a range of charities, we’ve benchmarked current practices and offer advice on how to run an effective committees. This article highlights some of the key findings.

When and how are committees set up?

Academy trusts with income in excess of £50m are required to have a dedicated audit committee, as set out in the Academies Financial Handbook section 2.4.2. For academy Trusts with income below this level, whilst there is no requirement to have a separate audit committee (though a trust may still choose to do so), there is a requirement to have a committee fulfilling the role of an audit committee, which is usually covered by the finance committee, or some form of combined committee.

Our findings suggest that committees are generally of a good size to be both effective, and to also be an appropriate representation of the governors as a whole.

One of the more concerning findings is the induction and ongoing training of committee members. This could be because the remit of the audit/finance committee is technical in nature and therefore members are already likely to have the required skill set. It is however important to remember that whilst members may be experts in their field they may not know the focus of the committee and the academy as a whole meaning decisions could be made from a potentially misinformed viewpoint.

Not all training needs to be the formal, and often expensive, half or a full day provided by a third party training provider. Short sessions of training are easier to come by than you might initially expect. Other options may include:

  • making the most of existing contacts, ask current or previous Governors to come in for an hour before a meeting to share their skills;
  • ask your auditor or lawyer to come to a meeting early to present on a current topic at the start of a meeting; and
  • make use of online training which is available from a range of providers and can be done in the governors own time, such as those available through National College for Teaching and Leadership and various charity options that cover all budgets.

Running an effective committee

The terms of reference is an important document for the committee as it sets out its remit, including its overall purpose and responsibilities. Pleasingly, 87 per cent of committees surveyed had terms of reference in place and 81 per cent of committees reported to the board on the work performed. 

Audit/finance committees are also required by the Academies Financial Handbook to provide assurances to the board that risks are being adequately identified and managed. For multi-academy trusts this includes ensuring that oversight extends to all academies within the trust. 

The handbook expects that this should extend to a risk register. Our findings for risk management were generally pleasing, particularly in respect of risk registers. 

Continuing success

Only half of the respondents to our survey had budgets which looked more than a year ahead. 

The production of long term financial plans and projections offers a point of focus for management and governors. It enables targets to be set which can be considered when key management and governance decisions are made.

It is important to remember that when signing the financial statements for the year you are confirming that the entity is a going concern. This in itself requires consideration of financial plans which look more than one year ahead of the latest balance sheet signing date. 

Further guidance has been issued within the Schools financial health and efficiency guidance issued by the EFA covering aspects of strategic financial planning and recommends trusts budget for a three to five year period.

Only 26 per cent of our survey regularly review direct and indirect tax compliance, an area which is constantly being updated. Whilst academy trust’s may consider this to be irrelevant based on their educational activities, as funding is reduced, trusts are looking more and more at other sources of income, for example the letting of school facilities, to sustain current levels of expenditure. It is therefore important to consider all regulatory and compliance matters. 

Watch our animated video and download the Green Lights Ahead report here.

This article was written by Kayleigh McEwan, please contact her for further information.