Internal Audit (Scrutiny) for academies – time for change?

The latest Academies Financial Handbook (AFH) has placed a real increasing emphasis for academy trusts to have a robust internal scrutiny framework going forward. For example, come 31 December 2020, all trusts will have to submit a summary of the areas reviewed, findings, recommendations and conclusions to the ESFA. Furthermore, the AFH stresses the need for the committee responsible (usually finance and audit) for oversight of internal controls to steer the internal scrutiny framework. Therefore, the role of this committee is changing.

The majority of academy trusts embed the oversight within the finance committee’s remit unless of course, any trusts have income of more than £50m, then a separate audit committee is formed. But with so much responsibility falling on finance committees is it now time for trusts to consider segregating the roles into two separate committees? The downside of this is more meetings and time, but then again you are to continue with a joint committee is there enough time in these meetings to truly deliver what is needed from a governance perspective? It is a fine balance.

As a reminder, the audit committee is there to address controls and safeguards, procedures, planning and oversight of these functions. It should be “standing back” and evaluating the effectiveness of the finance system.

The finance committee has a more complex role in overseeing budgeting, financial performance and monitoring of the trust. Is there enough time to deliver both and give enough “independent” scrutiny?

Furthermore, with the new changes now is a good time for trusts to update their committee’s current terms of reference and ensure these fit the new AFH’s demands.

If you do decide that now might be the time to split your committees into two, then you should also consider the following AFH rules:

• The audit committee must meet at least 3 times per annum
• The chair of trustees should not be the chair of the audit committee (best practice)
• No staff should participate as members – the CEO and CFO can attend and participate in discussions, but cannot vote.

Having persons with the right skills for the committee may also prove to be a challenge with volunteers being few and far between.

But as ever when there are key changes in legislation, now is the time to take a step back and consider if your governance structure is fit for purpose – just as any audit committee should be doing with the finance system…..

If you need any help with your governance arrangements or indeed in supplying you with internal scrutiny checks, then please do contact a member of the academies team.