HEDINGHAM SCHOOL & SIXTH FORM MANAGEMENT LETTER TO DIRECTORS FOLLOWING THE AUDIT TO 31 AUGUST 2015

Transcription

1 HEDINGHAM SCHOOL & SIXTH FORM MANAGEMENT LETTER TO DIRECTORS FOLLOWING THE AUDIT TO 31 AUGUST 2015

2 Contents Main report Page Introduction 2 Audit Approach 3 Summary of Adjustments 6 Summary of Income and Expenditure 7 Our Findings 8 Benchmarking and Ratios 11 Emerging Issues 12 Essential Reading for Trustees 15 1

3 Introduction Introduction and Approach This report has been prepared for the Directors of Hedingham School & Sixth Form and summarises our key findings in connection with the audit and assurance work carried out for the year ended 31 August The scope of our work has already been communicated via our Audit Planning report to the Governors. The respective roles and responsibilities of both Price Bailey and the Directors are set out in our agreed terms of engagement. Our audit and assurance procedures have been designed to enable us to express an opinion on the financial statements in accordance with International Standards on Auditing (UK and Ireland) and the regular, proper and compliant use of public funds as set out in section 9.3 of the Academies Accounts Direction 2014 to Executive Summary At the time of issuing this report we anticipate issuing an unqualified opinion, without modification on the truth and fairness of information presented in the financial statements. We also report that there are no matters of material irregularity, by virtue of value or nature underlying the accounts, that would lead to a modified conclusion in our regularity assurance report. 2

4 Audit Approach We adopted a risk based approach to the audit and our planning identified the following key risks to be addressed. Our detailed findings are noted as follows: Risk Identified Planned Approach Findings Revenue recognition Significant accounting estimates To complete detailed analytical procedures and depth testing on a sample of transactions ensuring correct accounting treatment had been applied. Review the systems and procedures implemented to ensure revenue is recognised in the appropriate accounting period and testing a sample of entries where necessary. To consider all significant accounting estimates used in the preparation of the financial statements and fully document the relevant method of calculation. To review the estimates ensuring accuracy, consistency and appropriateness by reviewing supporting documentation and assessing the accuracy of the estimates used in previous years. During the course of our audit work we documented the income systems and carried out procedures to gain assurance over the effectiveness of internal controls in place to prevent loss of income and ensure income is correctly recorded. We carried out work to ensure that the income in the accounts is materially complete and performed cut-off procedures to satisfy that income has been accounted for in the correct period. We have checked the income is appropriately recognised in accordance with the terms of any funding restrictions. No issues were noted. We undertook a review on the FRS 17 actuarial valuation and considered it appropriate to rely on the work of an expert. We tested depreciation to ensure assets were being depreciated in line with the accounting policy and the relevant accounting standards. No issues were noted. 3

5 Audit Approach continued Risk Identified Planned Approach Findings Related parties Management override Staff and salary costs To review your procedures in relation to identifying these transactions. Make enquiries as to the existence of any related parties before reviewing accounting records and other governorships to ensure that all related party transactions have been detailed in the financial statements. To review systems and procedures operating within the Academy finance function to identify potential areas of management override risk. Any risks identified will be tested to confirm the accuracy of the financial statements. Staff costs are a key area, with specific focus on the testing of existence to ensure staff are bona fide employees. We reviewed the internal procedures in place for identifying related parties, including the requirement to keep a register of trustees business interests which is to be updated annually. Our audit work has provided assurance that the related party transactions disclosed in the financial statements are accurate and complete. We reviewed a sample of journals posted throughout the year and a sample from those posted at the year-end to assess appropriateness and validity. Explanations were sought for any large or unusual amounts. No issues were noted. We reviewed the reconciliations of the payroll records with the disclosures in the financial statements to ensure no indication of material misstatement of wages and salaries. We tested controls over the payroll system to ensure adequate and accurate recording and reporting of payroll information in the financial statements. Our testing included verification of a sample of employees to ensure they exist. No issues were noted. 4

6 Audit Approach continued Risk Identified Planned Approach Findings Fund Allocation Going Concern To ensure that allocation to funds has been correctly carried out. In particular that income and expenditure has been allocated correctly and any transfers between funds have appropriate supporting documentation and correct authority. To review the Governors assessment of the Academy s ability to continue as a going concern for a period of not less than 12 months following the anticipated date of sign off. To consider budget and cash flow forecasts in relation to the going concern assumptions made and conclude on whether the considerations support the assessment that the Academy is a going concern. During our testing we examined whether income had been correctly categorised between restricted and unrestricted funds, reviewing any terms and conditions where applicable. We checked that expenditure had been allocated to the corresponding income, for example, trip income was matched with trip expenditure. No issues were noted. We reviewed the cash flow forecasts and budget forecasts and consider that the assumptions made in relation to going concern appear reasonable and that the academy has sufficient resources to continue. Nothing has arisen to refute the Directors adoption of the going concern basis in the financial statements. 5

7 Summary of adjustments Nature of adjustment Adjusted items Unadjusted items (factual) Income & Expenditure effect Dr/(Cr) Balance Sheet Effect Income & Expenditure effect Dr/(Cr) Balance Sheet Effect Unadjusted items (judgemental) Income & Expenditure effect (Dr)/Cr Balance Sheet Effect FRS17 adjustment 58,000 (58,000) Audit Accrual adjustment 300 (300) Total 58,300 (58,300) 6

8 Summary of Income and Expenditure Restricted General Funds Pension Reserve Fixed Asset Fund Unrestricted Funds Incoming Resources 5,811, , ,657 6,152,997 Resources Expended (5,758,073) (206,801) (366,818) (6,331,692) Depreciation (292,747) (292,747) Assets Purchased from GAG Employer contributions (127,969) 127,969 Total 180, ,000 LGPS movements (168,000) (168,000) Actuarial Losses (70,000) (70,000) Surplus / (Deficit) for the year Balance at 1 September 2014 Transfer between funds Balance at 31 August 2015 (74,503) (58,000) (164,778) (232,161) (529,442) 160,568 (2,031,000) 12,955, ,451 11,614,587 86,065 (2,089,000) 12,790, ,290 11,085,145 We believe this simple schedule gives a useful overview of how the school has spent its money this year. Restricted General Funds In the most simple terms the school spent all of its income during the year. Funds carried forward are 86,065. Pension Reserve Despite paying 180,000 into the LGPS the year end actuarial valuation increased the deficit by a further 58,000. Fixed Asset Fund Capital grants of 206,801 were received in the year, all of which were spent. Depreciation of fixed assets amounted to 292,747. Fixed asset funds carried forward were 12,790,790 which represents the net book value of the assets. Unrestricted Funds Unrestricted income generated in the year amounted to 134,657 and there was expenditure from unrestricted funds of 366,818. 7

9 Our Findings Deficiencies to be brought to the attention of the Directors We are required to report to you in writing, significant deficiencies in the Academy s internal control environment that we have identified during the audit. These matters are limited to those which we have concluded are of sufficient importance to be reported to you. Our audit cannot necessarily be expected to disclose all matters that may be of interest to you and, as a result, the matters reported may not be the only ones which exist. As part of our work, we considered internal control relevant to the preparation of the financial statements such that we were able to design appropriate audit procedures. This work was not for the purpose of expressing an opinion on the effectiveness of internal control. As required by the Academies Accounts Direction 2014 to 2015, all findings have been given a priority rating based on their importance as follows: The Directors must ensure this recommendation is addressed as a matter of priority. Internal controls should be strengthened to enhance operational efficiency but action is not time critical. Internal controls could be strengthened but there is little risk of material loss. This may be a point for future consideration as risks faced by the Trust evolve over time. This point is either for information only or relates to a recommendation made last year where action has been taken and is no longer of concern 8

10 Points raised in the 2014 management letter 2014 Findings 2014 Priority No accrued income for Pupil Premium grants Currently the academy is not accruing for any income in relation to pupil premium. Two thirds of the Pupil Premium amount received in October 2014 ( 35,764) should be accrued for in the year end 31 August 2014 accounts. This is because Pupil Premium grant income is received in arrears. Retention fees on assets It was noted that the retention on the current building project has not been correctly accounted for in the year end accounts. Land registry information Currently the land registry details for Yeldham Road show a Cautioner Note relating to The Football Foundation of Whittington House. Recommendation Academy Comments 2015 Priority The accounts should be prepared on an accruals basis and as a result not accruing for this income is in conflict with The Companies Act 2006 regulations that are in place to ensure that income is recognised in the period that it relates rather than when it is received. Although not a material amount and the effect on net assets is nil, the academy is under-declaring the value of its fixed assets. Any retention fee that the academy holds as part of buildings work carried out should be capitalised. The corresponding liability should be recognised until paid to the contractor. In the future ensure any retention fees that the academy holds in relation to work carried out on the building are accounted for in this manner. This should be checked to ensure that the academy has full title correctly disclosed in the public domain. This was reviewed and ensured. The accounts have been correctly prepared on an accruals during the year. This issue has been noted and correctly accounted for in the year. This issue has been checked and ensured. 9

11 Matters arising from our work From the Audit of the Financial Statements Price Bailey Findings Priority Recommendation Academy Comments The financial regulations should be updated to show clearer guidelines with regards to the banking of cash. Currently the process is undertaken by the Assistant Bursar and the Bursar however if they are not present then there is no clear process outlined in the financial regulations. The Head Teacher s April credit card statement included a payment for foreign currency from the local post office for which was not authorised by the Chair of Governors. We recommend that financial regulations are clarified to state the exact process and the associated controls to minimise the risk of cash loss during the banking process. Ensure all purchases made by way of the credit card held by the Head Teacher are approved and authorised by the Chair of Governors. Any last minute purchases should be signed off retrospectively by the Chair of Governors. The financial regulations will be updated to show clearer guidelines with regards to the banking of cash. This was an isolated incident that will be addressed by retrospective approvals if similar instances occur in future. 10

12 Benchmarking and Ratios School Hedingham School & Sixth Form The charts have been extracted from the Academies Financial Benchmarking website at and are based on accounts return information submitted for 2013/4. We have selected 9 charts out of a possible 225 available. The comparator schools are all academies in the same school phase and the same local authority. 11

13 Emerging Issues The Academies Financial Handbook 2015 The year to August 2015 has been regulated by the 2014 Handbook. The 2015 edition came into force from 1 September 2015 and is now one of the key governing documents for all academy trusts to follow. Some of the main changes include: A trust must publish up-to-date details of it s governance arrangements on it s website, in a readily accessible format. This must include: the structure and remit of the members, board of trustees and any committees including local governing bodies. attendance records at board, committee and local governing body meetings over the last academic year. for each trustee and local governor who has served at any point over the past 12 months, their full names, date of appointment, term of office, date they stepped down (where applicable), who appointed them (in accordance with the trust s articles), and relevant business and pecuniary interests including governance roles in other educational institutions. An academy trust with annual income of less than 50m may incorporate the terms of reference for it s audit committee into another committee. An academy trust must not have de facto trustees. All those sitting at the highest level of governance (the board of Trustees) must be registered as directors at Companies House. Academies must notify the EFA via the information exchange of changes to the position of accounting officer, chair of trustees and chief financial officer and also the appointment of all members and trustees within 14 days. These are new examples of some of the 75 musts that the Academies Financial Handbook 2015 requires academy trusts to conform to. We are happy to attend governor meetings to provide separate training to trustees who feel they would benefit from a reminder. 12

14 Emerging Issues SORP 2015 All academy trusts will in 2016 need to prepare their accounts under the new Charity Statement Of Recommended Practice 2015 (SORP 2015). The main changes that will require action are: Key Management Personnel The trustees will need to disclose the arrangements for setting the remuneration of key management personnel. These are people to whom trustees have delegated significant authority or responsibility in the day to day running of the academy. The aggregate remuneration will also need disclosing in the notes to the accounts. Questions academy trusts need to ask themselves: Are delegated authorities clearly set out and approved by the board of trustees? Is there a clear policy for setting pay and remuneration for this group of people? Reserves There will be a requirement to compare in the trustees report the actual level of reserves with the level stated in reserves policy and also identify the free level of reserves. Risk management There will be a requirement to disclose in the trustees report a description of risks identified and a summary of the trusts plans and strategies to manage them. Questions academy trusts need to ask themselves: Is the risk register up to date? Are risks representative of the trusts risk appetite? Does the trust have a risk management plan? Holiday pay accrual There will be a requirement to recognise, if material, a liability in the balance sheet for any outstanding paid annual leave. If applicable, this will more often than not manifest in the form of a holiday pay accrual. Trusts will also need to assess the position at 31 August 2015 to determine whether the opening liability carried forward from this years accounts will need restating in the 2016 accounts. LGPS deficit Under the new SORP guidelines are likely to change regarding certain estimates to be used in calculating FRS17 liabilities. We believe that these changes are likely to increase the deficits disclosed in future years. 13

15 Emerging Issues Personal Pensions Recent changes in pension annual and lifetime allowances for individuals can have a significant effect on higher paid or very long serving members of final salary pension schemes. If not monitored, large personal tax liabilities could accrue. We recommend that long serving and higher paid employees request a personal statement from their scheme administrators and review their pension situation with their own financial advisor. Annual Accounts Return Despite EFA making every effort to simplify the AAR spreadsheet it is unlikely to be significantly modified in the near future. It has not been possible to produce a self validating submission form similar to the budget return due to the sheer complexity and amount of information required. Multi Academy Trusts With the continued rise in the number of MAT s, trustees should be reminded of the requirement to carry out proper due diligence on any proposed school joining the trust. Adverse reputational, financial and property matters can have significant implications for the new enlarged body. Financial Notices to Improve (FNI) Despite the majority of FNI s being issued over matters of poor financial or budgetary control we have been reminded that a Notice could be issued to cover poor or inadequate governance arrangements. Comparison Audits Plans are being formulated to change the way that EFA reports academy schools consolidated financial results up through the DfE into Whole of Government Accounts. We have been informed that the concept of selected schools being required to complete a full set of audited accounts at 31 March is likely to continue for at least one more year. In the meantime we recommend that a full trial balance and supporting schedules are kept as at 31 March each year. Financial Support from EFA Although EFA should not be regarded as a lender of last resort, we understand that they are introducing a series of support measures to help academy trusts transition to reduced funding levels. The more notice EFA are given about impending budget problems the more likely they are to look favourably on providing assistance to the Governors. In these circumstances Governors should be looking at least three years forwards within their budgetary processes. 14

16 Essential reading for Trustees (plus one additional one for the Accounting Officer) We recommend that all trustees have access to and a working knowledge of the contents of these documents. The Accounting Officer must also be aware of HM Treasury s Managing Public Money. Conflicts of Interest - A guide for charity trustees Essential financial controls for charities The essential trustee what you need to know Charities and risk management 15

17 Senior Statutory Auditor Gary Miller FCA Engagement Partner +44 (0) Price Bailey is a trading name of Price Bailey LLP, a limited liability partnership registered in England and Wales, number OC The registered office is Causeway House, 1 Dane Street, Bishop s Stortford Herts CM23 3BT. Registered by the Institute of Chartered Accountants in England and Wales to carry out company audit work. Financial services work is undertaken by Price Bailey Private Client LLP, an appointed representative of PB Financial Planning Ltd, which is authorised and regulated by the Financial Conduct Authority.