Review of Management Accounts Guidance

The purpose of this CFDG Management Accounts Guidance and Tools is to promote and share good and innovative practice with CFDG members on producing college management accounts.

This Spring 2012 update has been prepared following consultation with colleges and working with a project steering group made up of 18 colleges.

The resulting material is issued on a basis of ‘recommended’ practice and is not mandatory. It includes:

  • Management Accounts Good Practice Guide
  • Exemplars One and Two (Word-based documents)
  • A Management Accounts Tool (Excel-based document)
  • Guidance notes on using the Management Accounts Tool

Introduction

1.In 2008 the College Finance Directors Group (CFDG) published via the Association of Colleges (AoC) website a set of model management accounts for use by Further Education colleges. In 2012, after some four years the CFDG asked for this material to be refreshed and updated inrelation to changes in the FE landscape.

2.This report supports the re-launch of the guidance.

3.In April 2012 a questionnaire was circulated to all members of the Finance Directors ‘chat-line’ to:

  • Consider college awareness of the existing CFDG guidance on Management Accounts
  • Assess the usefulness of the guidance
  • Re-assess management accounting practices across the Sector – effectively, revisiting questions asked when the guidance was first considered – to identifyany significant changes.

4.Seventy-seven responses were received, representingjust over 20% of FE colleges. In terms of funding body consultations, this would be regarded as a good response rate and it compares to 80 in 2008, when there were more colleges in the sector.

5.The 2012 project was also supported by a project steering group made up of 18 colleges.

Key results from the survey

6.Although our key driver for undertaking the 2012 survey was primarily to assess members’ awareness, and the usefulness of the guidance and tools, we felt it would be a timely opportunity to repeat much of the original survey in order to identify areas of significant change and trends. For the purpose of this report we have drawn on the high-level information but we intend to undertake further analysis and share this with CFDG if it shows significant results.

7.In terms of the key results it showed:

Awareness

  • 88% of respondents to the questionnaire said they were aware of the CFDG guidance on management accounts.

Usefulness

  • 87% of respondents who were aware of the guidance said they found the current guidance useful. The small number of those who said they did not find it useful were followed up, and it was found they were not particularly negative about the guidance. They indicated that they did not choose to use the Word/Excel based tools or preferred to use their own content and format rather than the CFDG model.

Content

  • 100% of management accounts include an I&E and Balance Sheet
  • 92% of management accounts include a rolling twelve month cash flow forecast
  • 97% of management accounts include forecast outturns
  • 70% provide a comparison with the previous year
  • 80% of respondents update their income projections monthly and 82% their expenditure projections monthly – though some indicated that this only regularly occurred some months into the year
  • 61% of management accounts report the performance of component parts of their colleges’ business
  • 86% reported performance against financial objectives with around a quarter (23%) reporting performance against benchmark families
  • 53% use graphs and diagrams
  • 66% report compliance with terms and conditions of bank covenants

Having users in mind

  • On average (using the median) respondents reported that there are four governors with financial experience/background on corporations – though some reported none
  • On average (using the median) respondents reported there are two qualified accountants on corporations – though some reported none

Length

  • The average (simple mathematical average) length of management accounts is 12 pages and the range from 3 pages (min) to (max) 30 pages. The last time the questionnaire was raised in 2007, the average length of management accounts was 14 pages. The new Word-based exemplarsare 9 pages long.

Principles of Management Accounts

8.The 2012 review re-affirms the principles underpinning the original guidance, that it is advisory and not mandatory. The guidance recognises that colleges may legitimately (applying professional standards) use formats that suit them. Accordingly, the tools supporting the guidance are flexible and provide a range of reporting formats.

9.The 2012 Review reconfirms the principles that were promoted when the guidance was originally published, that management accounts should:

  • Be short and concise
  • Be aimed at a (non-accountant) reader’s understanding:
  • Use high-level summaries - being informative and fit for purpose
  • Make greater use of narrative reporting
  • Make appropriate use of diagrams and figures
  • Provide an I&E, balance sheet and narrative commentary
  • Focus appropriate attention on forecast outturns for the year (the annual plan)
  • Include:
  • Cash flow over the next 12 months
  • Reportson staff number variances and movements
  • A link to contributions from business and curriculum areas
  • Performance measured against KPIs and benchmarks
  • Although not yet frequently adopted within FE colleges, in promoting brevity and greater understanding, it may be appropriate for Management Accounts presented to SMT and Corporations to vary in the level of detail provided.

The updated Guidance and Tools

10.It is evident from the feedback from the Steering Group and others that while the Word and Excel-based models are regarded as useful exemplars, few (if any) adopt either model in its entirety. What they do is pick and choose elements to use in their own colleges.

11.As a result we have dispensed with the separate Word and Excel models. In their place we have produced two exemplars (Word-based) of good and innovative practices. These are supported by a management account tool (Excel-based).

12.The exemplars demonstrate the principles in theManagement AccountsGood Practice Guide and paragraph 9 above. We hope that over time they may be added to in order to demonstrate continuing innovation and improvements. It is evident from the excellent feedback received that there is a lot of good innovation and legitimate variation across colleges.

13.On the basis that a key theme of the guidance is promoting conciseness, we feel it is important not to lengthen the current exemplar. This is our golden rule! The Excel-based Management Accounts Tool provides the basis for colleges to adopt these approaches and drop them into their own management accounts.

14.The use of the exemplar and toolkit approach outlined above promotes the project principle that there should be flexibility and innovation in management accounts. The use of more than one exemplar will also allow the CFDG to expand this showcase in future.

The Content of the Guidance and Tools

15.The Guidance is made up of the following components:

  • Management Accounts Good Practice Guide
  • Exemplars(2)
  • The Management Accounts Tool
  • Guidance notes on using the Management Accounts Tool

Management Accounts Good Practice Guide

16.The Management Accounts Good PracticeGuide has substantially stood the test of time. The guide has been refreshed it to reflect changes in funding bodies and general best practice. In response to feedback from people who have used the AOC website to find and download this guidance we have however proposed a minor change in its title/name to clarify its purpose.

Exemplars One and Two

17.The exemplars are two sets of management accounts for the same college, but have been presented in two different ways. In both cases, the accounts have been formed by use of the Management Accounts Tool. It is up to individual colleges to decide what style of management accounts should be presented to SMT and its Governing Body. However, the exemplars provide a sample of what is considered good practice in the sector.

The Management Accounts Tool

18.The Excel spreadsheet “Management Accounts Tool” has been designed so that colleges can make use of this document to create tables for entering in their management accounts rather than having to input the data again in Word.

19.Alternatively if colleges wish to submit their accounts as an Excel spreadsheet, with Word inserts, then the Tool provides the template for doing this.

20.The college can tailor the spreadsheet to their own requirements. For example, if it does not wish to report any figures for expenditure in the ‘now to year end’ columns, then these columns can be hidden in the template.

21.For ease of reference, the format of the model broadly follows a simplified format of the Casterbridge College model financial statements.

22.The model has been updated to reflect all reporting format changes made by the Skills Funding Agency and Education Funding Agency (Funding Agencies).

23.A help facility has been created within the template to avoid the need to refer to either this guidance note or to documents issued by the Funding Agencies, such as the financial plan template.

Guidance notes on using the Management AccountsTool

24.The guidance notes provide an explanation of the workings of the accounts spreadsheet, including error messages.

Acknowledgements

25.The CFDG would like to thank Peter Darwen and Brian Godbold, who assisted with this project, Martin Smith for writing the management accounts guidelines, and finance directors who participated in the steering group; submitted management accounts; and responded to the survey.

David Pullein

Chair of the College Finance Directors Group

June 2012

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