The National Audit Office on risks in academies

Over the summer the National Audit Office published guidance to the external auditors of academies. The guidance, NAO Communication with academy auditors 2013, has been issued as the academies are consolidated into the “group accounts” of the Department for Education – so academy auditors are auditing parts of the DfE.

The guidance will be fascinating for audit anoraks. It will also be of interest to anyone many others including principals, senior managers, governors and ROs/internal auditors. The short guide highlights what the auditors at the NAO worry about.

We … consider, because of the number and variety of providers, there is an inherent risk that across the academies sector there could be material or systemic irregularity, which may be heightened in newly converted academies. Particular areas of concern include:

• Approval from the Secretary of State not being sought for certain transactions above delegated authorities, outlined in the academies financial handbook;
• Fraud or misappropriation of funds, especially at the Trust level in a multi academy trust; and
• The increasing risk that academies with long standing deficits may become insolvent.

Fraud and insolvency are of wider public interest too.

In terms of regularity (i.e. income and expenditure being applied, in all material respects, for the purposes intended by Parliament), the NAO advise:

• There are a number of themes which the auditor should consider when identifying the risk of irregularity. These themes include:
• Misuse of funds by head teachers (i.e. using academy funds for personal gain);
• Governance at multi academy trusts (i.e. oversight of activities of individual academies, or weak controls at the trust level)
• Weaknesses in procurement (i.e. non-compliance with EU procurement rules, or employment/contracting with related parties)

Clearly audit and assurance are vital to keeping academies on the right track – and spotting problems if they do start to go off the rails.