September 12, 2018
Funds are getting tighter across many Academy Trusts and it is therefore more important than ever that Trusts are able to effectively monitor their performance and reserves levels on an ongoing basis.
In the recent Academies Financial Handbook the requirements in relation to management reporting have been clarified. The requirements are that:-
– The trust must prepare management accounts every month setting out its financial performance and position, comprising budget variance reports and cash flow forecasts with sufficient information to manage cash, debtors and creditors.
– Management accounts must be shared with the chair of trustees every month irrespective of the size of the trust, and with the other trustees six times a year. The board must consider these when it meets.
– The format of management accounts should be adjusted to be suitable for different users including summaries and supporting narrative as appropriate.
Many Trusts still only review budget variances for income and expenditure and do not incorporate a balance sheet in to their management reporting. The new requirements under the latest Financial Handbook may be quite a leap for many Trusts but there are definite benefits in terms of financial management.
The management accounts of many Trusts do not include the results from the School Fund, the accounts of which are often maintained on a separate system. These funds are also the responsibility of the Trustees and they should be included in the management accounts so that they can be monitored. There may be unrestricted income held in the School Fund which could be allocated to fund the activities of the school. Monitoring of the School Fund would also identify any overspends on trips and allow Trustees to put procedures in place such that the Trust is not subsidising trips in the future.
The total for fixed assets will be included on the balance sheet and although this may not be a meaningful number for land and buildings it can be useful in planning future replacement of assets and ensuring that this is included in budgets and cash flow projections going forward. By posting depreciation each month and looking at the net book value the Trust will be able to consider how soon assets will need replacing.
Accruals and prepayments
Accruals and prepayments should be included in the accounts in order to reflect performance more accurately and identify what costs have been incurred in advance and also what the Trust is committed to in respect of goods and services provided which have not yet been invoiced.
Debtors and creditors
A review of debtors and creditors enables Trustees to identify any particular areas of concern. A high trade debtors figures may indicate that there are bad debts or debts are not being chased effectively, a high VAT debtor may be due to returns not being submitted on a timely basis. A payroll creditor lower than expected may indicate that payroll costs have not been posted correctly.
Cash vs Reserves
Readers of the accounts, particularly those without a financial background often look at the cash figure as an indication of the position of the Trust. There are many reasons why the cash figure does not reflect the reserves position of the Trust. Income is often received in advance, such as UIFSM grants and CIF funding. The cash will also be required to pay creditors in the subsequent months. Readers of the accounts need to look at the level of free reserves not the cash balance and presentation of a full balance sheet will allow them to do that.
If you are preparing a set of full management accounts incorporating all of the above, it may be useful on first presentation to explain what all the numbers are, what they mean and what readers of the accounts should be looking for as indicators of issues.
If you have any further queries please email Nicola Mason from our Academies Team at MHA Moore and Smalley or call us on 01772 821 021.
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