Throughout December, with the industriousness of Santa’s little elves, finance teams across MAT-land are furiously finalising the end of year accounts (reporting up to the end of 31 August), ready to be sent off to the Department for Education by 31 December.

And as January creeps in, so too start popping up the published accounts on trust websites - as they must be live by the end of January.

While these statutory documents are a hugely important feature of public sector transparency it’s fair to say that, for the lay-reader, they can be challenging to navigate and understand. 

However, given how important multi-academy trusts (MATs) are now in education - and how many people are employed by one - this seems like something that should be addressed. 

So, in the spirit of encouraging greater understanding, here’s what you should know about these accounts and how to understand them.

What to look for

So you have the end of year account document that you want to understand open in front of you - what next?

The first thing you’ll come to is the Trustees’ Report, which sets out how the trust has performed during the year: there is usually some narrative here that takes the reader through the key highlights of the year and flags themes or trends.

Second is the Statement on Regularity, Propriety and Compliance.

The basic format of this is a formal declaration prescribed by the ESFA’s Academy Accounts Direction stating - usually - that no financial irregularities need reporting.

As such, if there are any issues that need flagging - for instance, spending DfE grants on items that the DfE did not intend or claiming funding for more pupils than actually attended a school - this is the place to find them, so it’s always worth checking.

Next up is the Statement of Trustees’ responsibilities. This is another prescribed report that is rarely altered by trustees (you can usually skim read this bit). 

This is followed by the Independent Auditor’s Reports and this section, despite the perhaps bland title, is key.

It requires the auditor to report on a whole range of areas, including whether everything has been done properly within the trust, and, critically, whether the organisation is a going concern and whether the trustees’ report is consistent with the figures.

The report informs the reader how the auditor has reached their conclusions and the work that they have undertaken. 

Normally an auditor will sign everything off as correct and flag no issues - but on other occasions, you can find examples of where they will raise concerns, from a lack of records to whether the trust can continue to operate, so it’s worth scanning it sensibly.

Here come the numbers…

Next, we move into the key statements that deal with money - specifically, the MATs income, costs, assets and financial concerns that have appeared, or may do in the future.

Given this, numbers come thick and fast and can look overwhelming and confusing. However, it’s not as daunting as it may look - the key is just to understand what each line means.

First, we have Operating Income and Expenditure. This summarises the income and expenditure that relates to the day to day running of the trust’s schools.

It shows the true operational result for the year without one-off income or costs, movements in pension funds or fixed assets. 

For example, a MAT may say it had an income of £50 million and expenditure of £48 million and then break down where this money came in - say from donations and capital grants from government - and what it spent it on, say salaries and charitable activities.

Following income and expenditure is the Statement of Financial Activities (SOFA), which is where we really start getting into the financial detail. 

The SOFA is split into different funds. There are two main types:

• Unrestricted. This is money the trust can choose to spend as it wishes - as long as it goes towards its core aims - and will include traded income, catering fees (for lunches parents pay for - not free school meals), donations and investment income.
   
• Restricted funds. This is where the bulk of the income and costs are allocated as they must be spent on specific requirements

Most of the restricted income is from the DfE and local authorities, with more detail provided later on in the accounts, always in Note 4 of the statutory accounts. Other donations received with restrictions on their use will also be included here.

If any schools have joined the trust in the financial year, there may be a figure for a donation (or cost) arising from that transfer. The details will be set out in a note towards the end of the document and will typically be under the heading of “Transfer of existing academies into the Trust”.

If costs were incurred, all of the expenditure related to the trust’s day-to-day operations along with costs relating to any academy transfers.

Pensions

There may also be an extra column for Restricted pension fund.

Some trusts have separated the annual Local Government Pension Scheme (LGPS) costs so it is easier to identify the trust’s actual operating costs in restricted funds.

Where there is a split, the totals at the bottom of each column of the SOFA will be directly traceable to the bottom of the balance sheet on the next page. 

You will also find in the SOFA a Restricted fixed asset fund column that records capital grants received from the DfE and the value of any new school building.

The balance sheet

This provides a snapshot of the trust’s assets and liabilities on 31 August in the reporting year. Again, this has to follow a prescribed format:  

Fixed Assets 

The majority of the assets are the land and buildings that the trust owns, ie, the schools, but also any outbuildings or land.

The accounts can make it look like a school has lots of assets and therefore cash, but in reality, a trust cannot do anything with these assets without the education secretary’s prior approval.

There are a number of different valuation methods and the one that the trust uses will be set out in the account policies note. 

Current Assets

These are the trust’s assets that are either easily accessible (ie, cash) or could be within a short period of time. An increase in debtors (without an increase in income) could signal a problem in collecting the amounts due to the trust. 

Current Liabilities

These are the liabilities that the trust must pay within the next twelve months - such as suppliers’ invoices, VAT and employment taxes. 

A large increase in liabilities combined with a drop in cash in the assets might suggest a concern about future financial viability

Net Current Assets 

The trust’s working capital - this is a measure of the trust’s liquidity. It should always be a positive number. A negative figure is a red flag that could suggest the trust is in financial difficulty, so it’s worth keeping an eye on. 

Long Term Liabilities

These are liabilities that the trust must pay over a longer period than the next 12 months, such as asset leases - things like leases for minibuses or photocopiers.

And coming towards the end of the accounts now is the Statement of cash flows. This essentially shows the net expenditure for the year and ends with cash balances.

Cash is the most important aspect of any organisation’s finances, so this part is really important to look at closely. What you are looking for is whether the cash balance is stable and if not then why it has changed.

Is it because some assets have been bought or, potentially, of more concern, because operational costs have increased?

The final section

Lastly, are the Notes to the financial statements. These set out the approach taken for each of the key elements of the accounts above - the SOFA, balance sheet and cash flow statement.

Although it’s at the end of the report this section is really important for schools that might be thinking about joining a trust as it sets out what the school will get, and what the cost is. Schools will want to compare what this looks like alongside the amount that local authorities deduct for the same services.

One point to highlight here is that you will usually find a note that sets out what services and support the trust provides for its schools and how these are paid for.

This is usually done in two ways.

1. The first, and most common, is that trusts levy a charge in the same way that local authorities used to do, and is often referred to as the “top slice”. This means different schools in the trust may pay different amounts to the Trust based on their needs. This might be shown as a percentage of income or on a per-pupil basis.

2. The alternative is a trust deciding to pool all of their DfE income together and share out evenly. This is called GAG (general annual grant) pooling.

These trusts then distribute the income to their schools to reflect what individual schools need.

Where a trust pools income and has centralised support services, the costs of those services will probably not be distributed to the schools and so the central services note may be shorter in these cases.

Why it’s worth cracking 

Much like the “I can’t do maths” brigade, statutory accounts can have a fear factor for some people, but once you know how to navigate them, they provide hugely useful information to understand how a trust has fared during the year.

And, if anything, the prescribed format does actually help: once you’ve cracked what you are looking at, you are all set to have a pretty decent understanding of what’s going on with every trust in the country.

James Nicholson is the chief financial officer at Academies Enterprise Trust