Sunday, May 06, 2012

The end is nigh: the internal audit requirement for Sixth Form Colleges

So we finally know what we kind of knew before: the government (via the Education Funding Agency) wants to relieve Sixth Form Colleges (SFCs) of the mandatory requirement to have an internal audit service. This is not a surprise as the SFC sector was on a promise from Lord Hill. A consultation period end in June and then in August it will be up to governors on SFC corporations whether they need internal auditors

As the typical SFC has an annual income of around £10m, the end of the internal audit requirement does make some sense.

Over four years ago, I blogged here:

The re-arrangement of [the LSC into] agencies might, on a brighter note, lead to a re-think of audit for colleges. (But I doubt it.) I would query whether the smallest colleges – particularly the smaller sixth form colleges – need their own internal audit service. These colleges often have a total income of a few million and limited non-core activities. They are quite different from Newcastle College with its £150 million income.

The smaller colleges are little different from the schools that they compete with for staff and students. They are arguably less exposed to risk than small housing associations who are not obliged to have their own internal audit.

While the internal audit requirement is going, the Education Funding Agency nudges SFCs as it:

recognises that in many areas of both the public and private sectors it is accepted good practice to have Internal Audit.

Audit committees at SFC will need some help in determining how to respond post-requirement. What does that nudge mean for them? I am sure that auditors and others will have their own views on what their potential and actual clients should do. More independent support and advice would be welcome too.

While I generally welcome “freedoms and flexibilities” I have some concerns over the end of the Financial Management and Control Evaluation (FMCE) self-assessment. For most SFCs the FMCE was completed in summary form annually and in full triennially. Something less “tick box” was definitely needed. The Education Funding Agency proposes:

Instead, the EFA will take formal assurance from the Corporate Governance Statement included within SFCs’ annual financial statements. Whether or not SFC’s continue to use the return as an aide memoire for their own management purposes is a matter for individual colleges to decide.

How often do SFCs or other organisations depart materially from boiler-plate wording in the Corporate Governance Statements? Not often enough. Maybe  audit committees will now spend more time drafting and considering these Statements.  But I am a little doubtful.

I hope that the Sixth Form Colleges Forum will provide support in this and other areas as SFC respond to this brave new world.

No comments: