Better financial reporting

This article originally appeared in Leader magazine
Issue 119 | Summer Term 2021

In May 2019, the DfE published the Academies Better Financial Reporting Programme paper. Here, ASCL Specialists Hayley Dunn and Julia Harnden outline the programme’s progress.

The paper set out a strategy to improve the end-to-end process for financial reporting by academy trusts, by working with trusts and software suppliers to develop systems improvements.

The programme vision was to develop a standard chart of accounts for the academies sector and automation of data collection, estimating that 50% to 75% of the data they required could be automated. It was their aim to create insights for decision-making, to re-assess financial data collected from trusts by only asking for it once and to reduce the requirement to fill out extensive forms.

Chart of accounts

The DfE started with the academies chart of accounts (CoA), which is its standard financial data framework. The CoA was launched in April 2019 for the 2019/20 academic year.

Essentially, by adopting the CoA, academies are using the DfE’s ledger account codes for income, expenditure, assets and liabilities, incorporating all the core trial balance records that drive financial returns and statements, for example, providing the foundation for the academies accounts return (AAR) and the budget forecast returns (BFR/BFRO).

It is inevitable, as with most system changes, that the initial set up and testing will take time and resources to implement. In the longer-term, there is potential for more efficient working and less time-burdensome processes enabling automation and quicker submission of returns through direct mapping to the accounting returns; more comparability across the sector through reducing subjectivity across the academy sector; potentially improving on the reliability of benchmarking data sets; and the probable simplification for addressing the finance element of movements within the sector, that is, academy transfers between multi-academy trusts (MATs).

Following feedback from the sector, the DfE made minor changes for 2020/21 by adding more detail, such as supply teacher National Insurance (NI) contribution costs. It is the DfE’s intention to update the CoA for changes in accounting standards and amendments to reporting requirements and to create additional codes where there are sufficient requests for a new code that would benefit the majority of academies.

The adoption of the CoA is not currently mandated; however, it is a prerequisite for academies that want to automate returns.

Automated data collection

Using a standard CoA as the foundation, the DfE has developed a technology solution to automate elements of returns, with the aim of reducing the burden. In essence, the technology allows academies to electronically submit their trial balance, where it will be used to pre-populate approximately 80% of the accounts return. As a minimum, it requires a trust level trial balance to pre-populate the front end of the accounts return, but it is possible to also send trust and school level trial balances.

According to the DfE, most of the major accounting software suppliers are supporting the move to its CoA and are implementing solutions to convert existing data. The DfE is encouraging academies to consider using the CoA to realise benefits from automation and benchmarking. It is also aiming for more granular data and information, and we think we can expect that one of the DfE’s longer term aims could be more frequent reporting of information, particularly where there are concerns about academy finances.

View my financial insights (VMFI) tool

The VMFI tool uses a combination of historic data and budget forecasting information to support trusts in evidence-based decision making. Data from a range of sources including financial returns, workforce and pupil census, estate condition data and the special educational needs (SEN) dataset are brought together so that trusts can see information about all their schools in one place. The VMFI homepage provides a trust-level summary, identifying priority areas for investigation across a range of cost categories. ‘Behind’ the homepage, the tool benchmarks each constituent academy individually against a set of 30 statistically similar schools. The user can access all of this by drilling down to school level.

Through access to a broad range of data and insights, the tool supports finance teams by:

  • increasing efficiency by reducing the need for desk-based research regarding financial insights and data

  • providing up-to-date and customisable data insights to help identify areas for further investigation

  • offering access to commercial resources including government contracts, frameworks and guidance

In addition to using data submitted to the DfE, the VMFI tool has the flexibility to create locally generated scenarios. This function allows trusts to edit data at local level to assess the likely impact of action proposed.

As with all financial planning tools, it is important to remember that VMFI cannot prescribe the action needed to address any identifiable risks. Choices like these should always be within the sphere of responsibility held by leaders and governing boards, with a clear line of sight on local context. Automated analysis should always come with a ‘user beware’ caveat, and, in this case, caution should be observed concerning the implications for inclusivity for example, if the findings reported by VMFI are interpreted too literally. However, what it can do well is underpin the strategic decisionmaking process in a constructive way and lift the burden of too much financial information being the responsibility of too few.

Recent updates include the availability of data for 2019/20 and functionality for local authorities to view information about their schools using consistent financial reporting (CFR) data.

Trusts can access the VMFI tool via the Identity and Access Management System (IDAMS) (tinyurl.com/3z9vzbrm) and user guidance (tinyurl.com/nh4mk9ay), including training videos (tinyurl.com/ta2axx2k).

Pudding proof

In a system landscape that can feel dogged by regulation and financial returns, this project signposts a more joined-up approach to using school and trust level data. Cutting down on the legwork required by finance teams to simply access, collate and present information should leave more time for meaningful strategic thinking and proactive risk management.

Is better financial reporting a helpful lever for streamlining reporting requirements and optimising the use of collected data? As the saying goes, ‘the proof of the pudding is in the eating’, so we will continue to listen out for your experiences of using the tools; however, the principles of improved financial assurance and transparency are aims we would support.

Hayley Dunn
ASCL Business Leadership Specialist
@ShropshireSBM

Julia Harnden
ASCL Funding Specialist
@julia_harnden

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