The F.E.Digest Spring 2021 - What's inside - MHA MacIntyre Hudson
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
The
F.E.Digest
Spring 2021
What’s inside...
Update on CJRS guidance
for Colleges
Update on the rollout of
T-Levels
IR35 and Further Education
Colleges
...plus more!
Meet our Further Education sector experts
Rakesh Shaunak Stuart McKay
Managing Partner & Group Chairman Partner
E: rakesh.shaunak@mhllp.co.uk E: stuart.mckay@mhllp.co.uk
Mark Eagle Sudhir Singh
Audit & Outsource Director Partner, Head of Not for Profit
E: mark.eagle@mhllp.co.uk E: sudhir.singh@mhllp.co.uk
Rajeev Shaunak Ellie Haines
Partner Audit Manager
E: rajeev.shaunak@mhllp.co.uk E: ellie.haines@mhllp.co.uk
Paul Winrow Chris Rising
Technical Partner Internal Audit Director
E: paul.winrow@mhllp.co.uk E: chris.rising@mhllp.co.uk
Update on CJRS guidance for Colleges 4
T-Levels rollout continues 8
What’s
inside... Utilising Internal Audit function & Impact of 10
Code of Ethics
USEFUL LINKS: macintyrehudson.co.uk/sectors/education
Welcome to the Spring 2021
edition of F.E. Digest
As we begin 2021, it is worth We would urge you to consider all of the
identified efficiencies or improvements
reflecting on what a particularly highlighted in your last audit and put into place
challenging year 2020 was and a plan to address the audit findings over the
also recognise the challenges coming year.
that lie ahead. To assist our clients, we have created a
Covid-19 micro site which contains the latest
Colleges are facing an unprecedented pressure
information regarding the various forms of
on budgets, not least because of a new second
government assistance. A link can be found
national lockdown, but also increased costs
HERE.
associated with Covid-19 and a reduction in
income generation opportunities from trading Our clients are at the heart of everything we
activities, letting income and fund-raising do and we would like to thank you for your
events. continued support and wish you all the best for
2021. If you need further advice and support
We also head into 2021 having exited the EU,
regarding any of the articles we have featured
which casts an additional layer of uncertainty
in this edition, please do not hesitate to get in
over the economic outlook for the country.
touch with your local office.
Strong governance and financial management
will be essential in dealing with these We hope you enjoy this edition of F.E. Digest.
challenging circumstances.
Best Wishes,
Further Education Sector Team.
Reserves Policy 12
Horizon scanning 14
Code of Governance refresh 15
IR35 & Further Education Colleges 16
macintyrehudson.co.uk/spotlight-on/covid-19-update https://mha-uk.co.uk/charity-trustee-hub
Update on CJRS guidance
for Colleges
Once again colleges will need to urgently start reviewing their financial
arrangements.
As already announced in November last year, the Government’s Coronavirus Job
Retention Scheme (CJRS) will now remain open until April 2021.
Similar to April 2020, FE Colleges need Do be aware however of the important rules
to assess the risk of double funding that must be followed and the deadlines and
eligibility criteria that have undergone some
when claiming CJRS on any costs changes.
incurred by furloughing staff. Colleges
must only furlough employees if they The current CJRS scheme now covers
meet the following conditions: employees on an RTI return at 23 October 2020.
This applies to employees covered by the initial
• the employee works in an area of business phases of the Furlough scheme prior to 30 June
where services are temporarily not required 2020 but also new employees taken on after 20
and whose salary is not covered by public March 2020 and before 23 October 2020, who
funding were included in an RTI return in that period.
So if you put in a new furlough application now
• the employee would otherwise be made you need to bear in mind that more employees
redundant or laid off are potentially eligible for the scheme as the
• the employee is not involved in delivering qualification criteria have changed.
provision that has already been funded
• the employee is not required to deliver There are new deadlines
provision for an attending student
• the grant from CJRS would not duplicate On 1 November the deadlines for the Furlough
other public grants received and would not scheme changed. Claims now need to be
lead to financial reserves being created made within 14 days of the end of the month
they relate to AND can only be amended up to
There are difficulties in distinguishing whether 28 days after the end of the month that they
staff are funded through continuing public relate to. Previously you could claim months
funding. The ESFA has provided guidance in arrears, so if the last time you submitted a
when this issue arises such that the maximum claim was in July and think you still have plenty
amount of furlough costs claimed (based on of time to put your claim in, think again.
gross payroll) should not exceed the proportion
of private income as a percentage of overall
income.
4
CJRS is fairly flexible Beware annual leave and furlough calculations
CJRS ‘full’ and or ‘flexi-furlough.’ Full furlough Furloughed employees can take annual leave
allows you to furlough an employee for (say) a while on furlough, but you must pay them 100%
week where they are not expected to undertake of their pay in line with working time regulations
any work at all. Flexi-allows you to furlough an that govern how much holiday pay they are
employee for a set amount of time, for example due. This can become complex because a
a week, but require them to work some days standard furlough claim is based on ‘reference
or hours in that set time (i.e. that week). For pay’ for the period prior to 20 March 2020 (or
example, instead of eight hours a day, they 23 October 2020). However, holiday pay is
could work four hours and then be furloughed calculated differently and based on a rolling
for four hours. average. This means an employee’s holiday pay
could be higher than the reference pay and if so
an employer may not be able to claim 80% of
CJRS does not cover NIC and statutory the full holiday pay back.
pension contributions
If you want employees to use up accrued and
“CJRS covers regular, contractual wages up unused leave you must give them notice of at
to the 80%/£2,500 per month cap, but this is least double the time you want them to take.
in reality a daily cap with the £2,500 divided So if you want them to take a week’s leave you
by the number of days in the calendar month. need to give them two weeks’ notice in advance
It does not cover the associated employers of this.
NIC and statutory pension contributions which
employers must pay for themselves. Overall CJRS is still very good news for
employees, who may otherwise be formally laid
off or made redundant and is still quite good
news for Colleges.
5
The other point worth noting from the first Covid mass testing
National Lockdown was the publication of
It was expected that the 4 January would herald
the Public Procurement Notices (PPN 02/20
a mass testing programme in all Colleges. It
and 04/20). The notices set out a number
is unclear what the future holds and when the
of considerations that each education
country will exit this lockdown. However, it is
establishment should consider when reviewing
clear that on the current forecast model the
the payment of suppliers.
vaccination programme, vaccinating all over
16’s, will not be complete by mid-February.
From lessons learnt last year, the main purpose
Therefore, the mass testing programme may
of the PPN’s was that the Government wanted
still go ahead. In order to ‘support’ this decision
colleges to continue to pay their suppliers
the government has pledged £78m of additional
and contractors, so it is important this is
funding.
appreciated. Careful examination of contractual
terms with contractors is essential.
A handbook is available that provides an
overview of how to begin rapid coronavirus
Furthermore, another risk arises where the
testing of staff and students in colleges in order
College agrees to reduce or suspend the service
to identify asymptomatic cases.
delivery whilst still paying the supplier in line
Click HERE to download.
with the PPN guidance.
The funding that is available will depend on
We would recommend Colleges set out a
the size of the College, a ‘ready reckoner’ gives
formal paper detailing how they have applied
the example that a further education college
the PPN’s and what measures (such as holding
outside London, with 3,000 students and staff
discussions with suppliers) they have taken to
will need 30 people working on mass testing
address.
and will each receive approximately £35,000.
The bigger challenges to overcome will
undoubtedly be resourcing the testing sites with
staff and volunteers and further guidance is
expected.
6
7
T-Levels roll-out
continues
There are now 195 registered providers who are offering T level courses up to
September 2022. This represents less around 70% of the Colleges in the UK and is up
from just over 100 providers who were approved in 2019.
Launched in September 2020 the • 37 providers offering Digital Route (digital
two year courses developed in production, design and development)
collaboration with employers and • 16 providers offering Construction
businesses are aimed to meet Route (sign, surveying and planning for
construction)
the needs of industry and prepare
• 32 providers offering Education and
students for work, further training or
Childcare Route
study.
As at September 2020, not many providers
Currently there are 32 approved providers had published information on their offering
offering the T Level Transition Programme in for 2021/22 but the data so far shows the
2020/21 which is set to raise to 75 providers in following:
2021/22.
• 89 providers of the Digital Route
There are only 44 registered providers offering
the 3 T Level courses available which is split as • 50 providers of the Construction Route
follows: • 77 providers of the Education and Childcare
Route
• 84 providers of the Health and Science Route
8
The roll out of subject areas continues and the following will be available
from September 2021:
Digital route:
• Digital business services
• Digital support and services
Construction route:
• Building services engineering for construction
• Onsite constructions
Health & Science route:
• Health
• Healthcare science
• Science
The remaining subjects will be available from • engineering, manufacturing, processing and
September 2022: control
• media, broadcast and production
• accounting
• agriculture, land management and The success of T Levels in bringing the UK
production closer its European counter parts has yet to
• animal care and management be seen. In March 2020 the Education Policy
• catering Institute think tank (EPI), whilst welcoming the
• craft and design new T Levels (due to the increased teaching
• design and development for engineering and hours) still said the UK was still far away from
manufacturing achieving its aim.
• finance
• hair, beauty and aesthetics This is due, in part, to the length of a T level
• human resources course being half of that in other countries. The
• legal think tank also expressed concern that in select-
• maintenance, installation and repair for ing T Levels students were not getting a broader
engineering and manufacturing educational curriculum.
• management and administration
9Utilising your Internal Audit
function effectively & the
Impact of the Code of Ethics
An impact of the revised Code of Ethics for auditors is that the same audit provider
can no longer deliver both internal and external audit services to the same
institution from the 1st August 2020. This means that educational institutions,
if they have not done already, must ensure that these services are delivered by
separate providers and put in place arrangements to ensure that an appropriate
provider is sourced to deliver this.
Regardless of the Code of Ethics materialisation of risks which could threaten the
requirements, it is always beneficial to achievement of the organisation’s objectives,
are operating effectively.
periodically consider your assurance
requirements and whether you are Such assurance can be internal or external
utilising your internal audit function to the organisation, and from a wide range of
effectively within your overall independent assurance providers, of which
internal audit is one. This assurance framework
assurance framework to maximise can therefore be very useful in helping to
the level of assurance that you are drive the work of the internal audit function,
providing to the board over the by focusing the programme of internal audit
effectiveness of your internal control, on those areas identified on the assurance
framework as where the organisation requires
risk management and governance assurance over the effectiveness of internal
environment. controls in place.
Whilst the mandatory internal audit requirement In setting the programme for the internal audit
was removed some years ago under the function it is important that this is focussed on
Audit Code of Practice, Internal Audit should those areas where internal audit is best placed
still fulfil an important role in providing Audit to provide assurance and has the requisite
Committee’s with independent assurance skills and resources to deliver the work. In
over the effectiveness of their internal control agreeing the plan each year, Audit Committee’s
arrangements and therefore should at least should therefore be seeking assurance from
form part of an organisation’s assurance their auditors that they have such skills and
function. Good practice in the area of assurance resources to undertake the work, and where this
is for all organisations to have in place some may not be the case should consider if there
form of assurance framework, which sets out may be other, more appropriate independent
how the organisation will receive assurance assurance providers that could be utilised in
that its key controls, which prevent the relation to specific areas of assurance.
10For example, whilst internal audit could provide Finally, any agreed plans should always be
assurance over safeguarding processes and dynamic and be able to respond in year to
arrangements, they may not be able to provide changes in either the internal or external
such an opinion over quality of safeguarding environment. A good example of this in the
investigations and should this be an area of last year has been the impact of COVID19, not
concern then it may be sensible to source such only on changing the way in which audits have
a review from another source. In stating the needed to be delivered but also in the areas of
above, where assurance over the effectiveness coverage, with a number of our clients seeking
of a process is required then internal audit assurance in year on their arrangements in
should be able to provide assurance over this place for delivering education through the
for the whole range of an organisations internal pandemic and how they can benefit from
control framework. lessons learned in how education and key
internal control processes can be delivered
Whilst risk should always be the key driver more effectively.
in setting an internal audit programme, it is
important that assurance over the operation At MHA we have significant and longstanding
of key financial and operational controls, risk experience of delivering internal audit across
management and governance arrangements is the education sector and are more than happy
not neglected and there should be at least some to discuss with you how you can best deliver
element of core assurance coverage within the your assurance needs.
plan each year. It is often the failure of such
key controls that can cause an organisation
to fail, or at least get into difficulty, and so the
importance of periodic assurance in such areas
cannot be overstated.
11Reserves Policy
The Charities Statement of
Recommended Practice (SORP) requires
a charity to explain any policy it has for
holding reserves and state the amounts
of those reserves and why they are held.
The FE Accounts Direction is less prescriptive and
merely asks corporation to review their reserves
policy and the level of reserves held, setting out,
where appropriate, how these align with strategic
plans and to Charity Commission guidance.
The Casterbridge model includes some boiler plate
wording beginning with ‘The college has no formal
Reserves Policy but recognises the importance
of reserves in the financial stability of any
organisation…’. As a result, a number of institutions
continue to state that they have not put in place a
formal reserves policy. If we look back on the last
year, we have seen how many organisations in the
charity sector have had to make tough decisions
but have also been safe in the knowledge that they
have a buffer which they can use to weather the
storm. No one can predict what the next crisis will
be and how widespread it may become, however
you can plan for the unforeseen and for those of
you who like to make New Years resolutions, one
could be to improve the financial resilience of your
corporation by creating a formal reserves policy.
In order to help you we have listed some of the key
points to consider, see the adjacent page.
There is no set formula as to what the appropriate
level of reserves should be for each College as
each will have different priorities and pressures on
their budgets. Having a policy where the level of
free reserves is set too high could limit the amount
available to spend on educational activities but set
too low could increase the risk of not being able to
meet all of its financial obligations in the event of
unexpected costs arising.
12In setting a level of reserves Colleges
should consider:
• Future capital projects or renovation work Staff costs - Corporations that have a more
senior teaching staff will inevitably have a
• Unforeseen emergencies, or disaster
higher ratio of staff costs to ESFA funding.
planning
Governors will need to identify where this may
• Reliance on temporary staffing eat into any surpluses and plan accordingly.
• Existing financial position and any expected
Fixed Assets - Fixed assets are included on
deficit
the balance sheet, so can be a useful starting
• Other planned projects, such as IT point to monitor depreciation and consider
investment to support remote lessons how soon assets may need replacing or where
future maintenance costs may increase. Even if
• Potential acquisitions for growing groups.
successful with a Capital bid funding, there may
be a requirement to make a contribution to the
project from Corporations reserves.
Other considerations include:
Cash v Reserves - It is important to note that Regardless of the regulatory requirement,
cash balances are not the same as reserve establishing reserves that protect the operation
balances. There are many reasons why the cash of the Corporation and contributes to its
figure does not reflect the reserves position of smooth running is good practice and forms part
the Corporation. Income is often received in of the overall financial control and governance
advance and required to pay creditors in the framework; and should be monitored and
subsequent months. Identifying the level of free revisited regularly.
reserves will give a more accurate indication of
the position of the Corporation.
Our MHA Trustees Hub has a wealth of free information
to support Trustees and Governors, with downloadable
templates and guides, including a Pro-forma Reserves
Policy which you may find useful.
https://mha-uk.co.uk/charity-trustee-hub
13Horizon
scanning
The accounting landscape is constantly shifting and evolving. The FE sector is no
different, however we are now seeing more influencing factors that are affecting
the way in which College accounts are being constructed. The rise of the Office
for Students is one such example, whereby, in recent years additional disclosures
have been required of Colleges in receipt of OfS funds. This article looks at recent
changes in financial reporting and seeks to offer some insight into the possible
changes on the horizon.
FRS102 It is however worth pointing out that the
Charities SORP has undergone a major
Is subject to a periodic review at least every 5 governance review which has resulted in some
years. The last periodic review was the Triennial significant changes its development process.
Review 2017. We currently expect the next
periodic review of FRS 102 to take place five Time will tell to see if there is an appetite for
years after the previous one, this would mean these changes to be adopted in the education
effective for accounting periods commencing sector.
from 1 January 2024. Whilst this seems some
way down the track we expect consultations
on the review to begin this year. The UK International standards
accounting standards have been converging There is a five-year project coordinated by
with International Accounting standard and this Humentum and the Chartered Institute of Public
pathway is expected to continue. Finance and Accountancy (CIPFA) to develop
We would expect changes to leases as the the first ever not for profit international financial
international standard (IFRS16) requires most reporting guidance, which can command
leases (formally classified as operating leases) support from the accounting community and
to come onto the balance sheet. We also might NPOs, as well as the funders and regulators of
expect changes in the way intangible assets NPOs. The outcome of this project could well
and goodwill are amortised and assessed for influence future SORPs.
impairment and potential changes to the values
of assets capitalised. It is also possible that the
way in which defined benefit pension schemes Office for Students
are accounted for may change, in particular for The vast majority of Colleges are now
multi-employer pensions schemes. registered with the Office for Students and
accordingly fall within the scope of the OfS
accounts direction and so will be obliged to
FE/HE SORP make some reports or disclosures that go
The 2019 SORP was issued following FRC beyond those required by the ESFA. In 2020
clarifications to FRS102. It is expected that the there was additional disclosures required of
SORP will remain largely unchanged until the Colleges.
next review of FRS102.
14The most problematic of which was the Streamlined energy and carbon
access and participation disclosures. Where reporting (SECR)
a provider has an access and participation
plan that has been approved by the OfS’ SECR reporting was introduced for all large
director of fair access and participation, the corporates in the UK in 2020. These reporting
provider was asked include a note in its 2020 requirements did not affect FE Corporations
audited financial statements that sets out its as they were exempt – however the Academy
expenditure for each of a number of categories. sector was required to comply due to their
The OfS have also been driving enhancements different corporate structure. Whilst not
to the disclosure requirements for the on the immediate horizon, given SECR is a
remuneration of Executives. governmental initiative it would not be entirely
unexpected for the ESFA to mandate the
adoption of this reporting regime in the future.
Given the year just gone and the challenges of
2021 it is hoped that, in the immediate future,
there will not be any significant changes to the
accounting framework.
Charity Governance
Code refresh
The College Accounts Direction The changes to the code have been made to
requires all Colleges to state their reflect the changing needs and expectations
of its stakeholders. The key charges are to
compliance with at least one of the Principles 3 and 5 which were Integrity and
following governance codes: Diversity.
• Code of Good Governance for English Principal 3 has been enhanced to make
Colleges (developed by Association of reference to ethical principles ensuring that the
Colleges) charity’s values are upheld. There is also a new
• Charity Governance Code (endorsed by the section on safeguarding.
Charity Commission)
Principal 5 has now been renamed, Equality,
• The UK Corporate Governance Code Diversity and inclusion (EDI). Enhancements
2018, which was reissued by the Financial to this Principal include making sure there
Reporting Council in July 2018 for are clearer outcomes and ensuring that EDI
accounting periods from 1 January 2019. principles are imbedded throughout the
organisation. It also guides board with a
In December 2020 the Charity Governance code possible journey or path that the board might
was refreshed by the Code’s steering group. take to make progress in this area.
15IR35 and Further
Education Colleges
You may be aware that the employment tax rules – known as ‘IR35’ - relating to
engaging contractors through their own personal service companies are due to
change in April 2021. The new rules should not affect state-funded Further Education
Colleges which have been impacted by the same changes since they were introduced
to the public sector back in April 2017. However, for any entities in the sector which
fall outside the public sector the changes are happening and preparation for the new
rules needs to be carried out now.
What is changing?
• Turnover in excess of £10.2m
Where services are supplied through an • Balance sheet in excess of £5.1m
individual’s personal service company (PSC) the • 50 or more employees.
current IR35 rules require the PSC to examine
the arrangement. If the arrangement would For any entity defined as ‘small’ using these
have been an employment, but for the fact that criteria the IR35 responsibilities will remain with
a PSC is placed between the individual and the PSC.
the engager (end client), the PSC is required to
operate PAYE on everything paid to it by the end
client. What needs to be done now?
However, from the start of the new tax year If your college falls within the private sector
2021/22 the responsibility for assessing (and you are not a small entity) you will need
whether there is an employment will transfer to review any arrangements you have with
from the PSC to the end client – who, if it individuals paid through personal service
also pays the PSC, will also be responsible for companies. You will need to consider
operating PAYE and accounting for tax and NI whether the arrangement would constitute
payments to HMRC where appropriate. an employment if the PSC was not part of the
chain.
The new rules will only apply to medium and
large-sized entities, defined as those satisfying
any two of the following:
16Crucially you will be required to share your Conclusion
review with the PSC in a written statement
known as a Status Determination Statement Prior to the arrival of Covid-19, the new IR35
(SDS). Each arrangement needs to be rules were the hottest topic in employment
considered individually on its own merits and tax. The pandemic, Brexit and HMRC’s
you will need to consider how to resolve any postponement of the introduction of the new
disputes should the PSC / contractor disagree rules until April 2021 have all meant that, for
with the SDS. many businesses, IR35 has been off the radar
for most of the year. However, there is now less
than 3 months left for businesses to get their
houses in order and action needs to be taken
Are there any alternatives? now to ensure that the new rules are complied
with from Day 1.
You may wish to consider altering working
arrangements so that IR35 does not apply. For
example you may wish to take on the contractor
individuals as employees or alter the working
arrangements so that roles would fall outside
the scope of employment. However, it should
be noted that you will need to demonstrate
that any changes are implemented in practice.
For example, simply amending the terms of a
contract without making any actual alterations
to working practices would not suffice.
17MHA MacIntyre Hudson MHA Baker Tilly International
800+ 86 180+ 742 122
staff partners Independent 8
accountancy firms
partners offices member firms
established in
12 2,200+ 50 146
1880
offices
offices
staff
nationwide
territories
36,400
partners & staff
Strategy and funding Internal and external Assistance with
reviews audit OJEU
Our sector Capital project review and Corporation tax & Interim management
VAT compliance and secondments
expertise appraisal
Audit Committee Mergers & acquisitions Governor
training advice training
Contact us
macintyrehudson.co.uk
E: webenquiries@mhllp.co.uk
@MHUpdates
MHA MacIntyre Hudson
MHA MacIntyre Hudson trading as MacIntyre Hudson LLP is a member of MHA, an independent member of
Baker Tilly International Ltd., the members of which are separate and independent legal entities.
Now, for tomorrowYou can also read
