Schools budgeting requires sound procurement and governance practices to support maximum efficiencies, ensuring resources are allocated for pupil attainment. Local Authorities hold the responsibility to financially monitor schools, however academies must appoint auditors to provide assurance of financial regularity, ensure the accounts are not materially misstated and assess that Trusts are compliant with the Academies Financial Handbook and their own Funding Agreements. As well as an external auditor, an academy must also have an internal audit to check financial procedures, systems and risks.
At all times an auditor has the right to access the company’s books and records. Auditors are appointed by the board of trustees, with an external auditor’s term of office running from one Annual General Meeting (AGM) to the next. If a change in auditing is required, then a new auditor shall be appointed at the next AGM. If a change is warranted between AGM’s then the most common way is to ask for their resignation, additionally a removal can take place if a majority vote is passed and an eligible reason is given for their dismissal. The board of trustees must notify ESFA immediately after the resignation or removal of auditors.
The auditor will carry out a series of tests which are designed to enable them to form an opinion on whether the financial statements are free from material error. Auditors do not seek to certify that the financial statements are 100% correct, and therefore use the concept of "materiality". Materiality is the level at which auditors decide whether an error causes the financial statement to not give a fair view, for example setting materiality at 1%.
Finding an auditor is often achieved through four means:
Trusts should consider the following points to help identify the needs they have when choosing an audit firm: size and complexity of the academy trust, local or national firm, additional services required and conflicts of interest.
If an auditor has not been previously assigned prior to the academy’s incorporation, then one should be appointed as soon as possible. A good rule of thumb is to invite three audit firms to tender, two or all three are then shortlisted to a selection panel. The following should then be assessed: experience of the audit firm, market presence, financial standing, capacity, level of support and their audit plan.
Although there are no set guidelines for re-tendering audit services, the companies in the FTSE 350 are required to change auditor every 10 years. Whilst a ‘too close’ relationship can be undesirable, at the same time it can be a costly procedure to change auditors so should not be done too regularly to avoid unnecessary costs unless circumstances demand their removal.
SAAF Education have a team of expert finance consultants, who can support you to prepare for your next external audit.