Mastering financial accountability: Essential tips for managing your management accounts

The Academies Financial Handbook (AFH) requires academy trusts to have sound internal control, risk management and assurance processes. Ensure you're meeting your financial accountabilities by understanding your management accounts and why they are important.

The AFH outlines specific financial aspects the trust’s internal framework must encompass. Financial obligations include:

• coordinating the planning and budgeting processes
• applying discipline in financial management, including managing banking, debt and cash flow, with appropriate segregation of duties
• preparing monthly budget monitoring reports.

While these statutory obligations might seem burdensome, compliance carries numerous benefits. By applying the above requirements, the academy/trust will be producing monthly management information - the financial part of which is referred to as management accounts. These accounts and reports provide valuable insights by comparing actual results to budgets, highlighting areas of over- or under-spending during the period, facilitating an effective review of annual forecasts. Regular re-forecasts enable the trust to proactively identify areas of excessive cost that need reducing and leverage better-than-expected income opportunities. Other advantages include:

• understanding the causes of variances
• providing insights into cost levels, such as staff costs in relation to income, and whether these are reasonable and sustainable
• offering financial performance information to trustees for evaluating the trust's current financial status.

What is the purpose of monthly management accounts?

• Provides leaders and trustees with up-to-date information to enable them to discharge their statutory responsibilities
• Gives leaders and trustees a more realistic outlook so they can make confident strategic decisions about resources
• Actual results can be compared to budgets to establish where the trust may have over-/under spent during the period, allowing for an effective review of its forecast for the year
• Regular re-forecasts allow the trust to look ahead and determine where costs are too high and may need reducing, along with opportunities to capitalise on a better-than-expected income stream
• Gives readers an understanding of why variances have arisen
• Provides information about the level of costs, such as staff costs in relation to income and whether this is at a reasonable and sustainable level.
  

Format of the management accounts

The format of monthly management accounts must include an income and expenditure account, variation to budget report, cash flows and balance sheet. 
The income and expenditure report should set out: 

• budget for the month just ended against actual results for the month, and variance (value and percentage)
• budget for the academic year to date against actual results to date, and variance (value and percentage)
• budget for the entire academic year against the latest forecast outturn for the full year, and variance (value and percentage)
• Narrative explaining reasons for any significant variances.

There should be separate income and expenditure accounts for recurrent and capital funds.

Key performance indicators (KPIs)

As part of the monitoring of the budget, Key Performance Indicators (KPIs) should be selected by the trust and performance should be measured against these regularly (ATH 2.22). 

The most common ones are usually the ones from the Self Assessment Dashboard, for example:

• Average Teacher Cost
• Pupil: Teacher Ratio
• Pupil: Adult Ratio
• In-year balances
• Revenue Reserves.

What to do with the management accounts

The AFH requires that the monthly management accounts be sent to the chair of the trust every month and to all other trustees at least six times a year.

The latest management accounts should be presented to each finance committee meeting and appropriately summarised for each trust meeting.

As best practice, individual budget holders should also be provided with monthly income and expenditure accounts and/or transaction lists relating to their departments for reconciliation.  

If you’re looking for support or advice to ensure you remain compliant with the Handbook, or would like to learn more about our Finance service, along with relevant training, please talk to us.