In August 2015 the Skills Funding Agency (SFA) and the Education Funding Agency (EFA) issued the revised JACOP, effective for accounting periods that end on or after 31 July 2015 ie the current reporting period. The main changes were in respect of regularity reporting.
In this article we look at what the changes mean for colleges.
What has changed with regard to regularity reporting?
The wording of the conclusion given by the reporting accountant (your external auditor but acting in a different capacity) has changed to:
In the course of our work, [except for the matters listed below] nothing has come to our attention which suggests that in all material respects the expenditure disbursed and income received during the period [insert the start date of the period for which the annual accounts have been prepared] to 31 July [20XX] has not been applied to purposes intended by Parliament and the financial transactions do not conform to the authorities which govern them.
You will note the wording 'nothing has come to our attention…'– this type of conclusion is referred to as a limited assurance conclusion. The true and fair audit opinion that you are used to on your financial statements is a reasonable assurance opinion. Limited assurance gives a lower level of assurance than reasonable assurance as the procedures performed are less in extent and it is expressed in a negative form.
What do colleges need to do differently?
The answer should be nothing. The requirements in respect of regularity remain unchanged under the new JACOP in that the framework of authorities referred to in the conclusion, above, have not changed. These include:
- Legislation (eg Further and Higher Education Act 1992 (as amended), Charities Act 2011)
- Financial Memorandum/Funding Agreement
- Instrument and Articles of Government
- Specific terms and conditions of funding
All colleges are still required to comply with these frameworks and expected to act with propriety. Last year, the corporation’s Statement on Regularity, Propriety and Compliance (the ‘Statement’) to be included in the financial statements was introduced. The Statement has now been extended to include disclosure of any irregularities, improprieties or non-compliance.
The board will need to gather evidence and assurance to support the Statement. A key element of the board’s assurance is the self-assessment questionnaire included in the JACOP.
Governors may wish to consider the following to help them assess whether they have sufficient information:
- Do the governors understand the principles of regularity and propriety?
- What specific controls do governors have in place to monitor regularity/propriety?
- Do management accounts give governors sufficient information to understand the nature of the main income streams and, for example, key conditions that may be attached?
- If there was a change in accounting officer in the year, would sufficient evidence have been retained to enable the new incumbent to sign the Statement on compliance?
The JACOP also outlines six questions which aim to help the college corporation to test whether a transaction is both regular and proper. The questions, as contained in JACOP, are:
- Is the expenditure in the best interest of the college corporation?
- Does the expenditure comply with approved procurement rules and policies?
- Is there a valid benefit to the organisation from the expenditure and not just personal benefit to an employee?
- Is the expenditure necessary?
- Is the expenditure reasonable – does it meet the identified and agreed needs?
- Has the expenditure been properly authorised?
- How does this impact on the scope of the reporting accountants’ work?
We have reviewed the detail of the new JACOP and in our view the procedures to be conducted by the reporting accountant in order to give the conclusion required under the JACOP are not significantly different from those previously performed.
The requirement to give any form of opinion or conclusion on propriety had already been clarified in 2014 and the reporting accountant is not required to plan their work to specifically look for areas of impropriety. However, where matters of potential impropriety come to our attention we will consider whether they should be brought to the attention of the corporation.
What does the reporting accountant do?
As demonstrated by the wording of the conclusion above, the subject matter that we are considering is the transactions underlying the financial statements. Thus the starting point for the regularity reporting is the financial statements and the Statement made by the corporation, which reflects the board’s own conclusion.
The Statement is supported by the self-assessment questionnaire and this should be completed by the college, signed on its behalf by the Chair of Corporation and Accounting Officer and provided to the reporting accountant. The reporting accountant will consider the content of the Statement along with the responses to the self-assessment questionnaire and assess the risks of material irregularity and determine the procedures to be performed.
As noted above, the reporting accountant is not required to report on propriety, and is, therefore, not expected to undertake specific procedures in respect of propriety.
There are also areas where the funding bodies accept responsibility and hence are not covered by the scope of the regularity reporting. The main one is that the regularity reporting does not cover college's main funding grants which are generated through the ILR returns.
The funding bodies have similarly accepted responsibility for the regularity of income claimed through the ILR where partner organisations deliver provision on behalf of a college. The work of the regularity reporting accountant in respect of partner organisations is, therefore, outside the scope of regularity reporting, except for payments to partner organisations.
The JACOP does not introduce any major changes or actions for colleges but clarifies and modernises the regularity reporting requirements and level of assurance.
Definitions of regularity and propriety (as per HM Treasury’s ‘Managing Public Money’)
Regularity: the requirement that ‘resource consumption should accord with the relevant legislation, the relevant delegated authority and this document’.
Propriety: the requirement that ‘patterns of resource consumption should respect Parliament’s intentions, conventions and control procedures’