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Governance news: Compliance with 2017-18 accounts direction

05 Nov 2019 | David Williams The Office for Students (OfS) has published a report on the extent to which registered providers complied with their 2017-18 accounts direction. The assessment highlights areas where the OfS suggests improvements need to be made in order for providers to meet Condition E3 of registration. The responsibility for meeting these conditions is placed on governing bodies.

As part of the initial and ongoing condition of registration, registered providers are required to comply with the accounts direction issued by the Office for Students (OfS). The OfS reminds providers that the requirements of Condition E3, Accountability, are legally binding, and a failure to comply is likely to constitute a breach of the condition of registration.

The OfS’ assessment of compliance with the Accounts Direction 2017-18 primarily draws from an examination of a sample of 34 providers required to comply with the direction. The sample represents approximately 25 per cent of all providers required to comply.

The OfS states that for 2017-18 it is dealing with areas of non-compliance by publishing themes and feedback, rather than considering the use of its enforcement powers in relation to an individual provider.

Areas discussed by the OfS

Five areas of compliance are discussed:

  1. Signing and publication of audited financial statements
  2. Remuneration disclosures
  3. External auditor’s opinion
  4. Statements of corporate governance and internal control
  5. Exempt charity disclosures

Summary of findings

Exempt charity disclosures and signing the statements

The OfS raises no concerns about exempt charity disclosures, or in relation to the signing of the sample of financial statements it examined.

External auditor’s opinion

With regard to the external auditor’s opinion, it finds that a number of the elements of the opinion were missing. For example, confirming that public funds had been properly applied. The OfS has subsequently amended the Accounts Direction for 2018-19 to make the requirement clear.

Statement of corporate governance

Having previously suggested that it might in future lift the requirement to provide a statement of corporate governance, the OfS has decided to retain the disclosure as “it provider importance transparency over a provider’s corporate governance arrangements.”

Internal control

On the matter of internal control, the OfS indicates what should be included with the financial statements. It notes, for example, that “none of the providers indicated any internal control weaknesses, or explicitly stated that were no significant control weaknesses that should be disclosed.” The OfS also reminds providers that the statement of internal control applies up to the date when the audited financial statements are approved.

Remuneration disclosure

A large part of the OfS’s assessment of compliance with the accounts direction is focussed on remuneration disclosures and, in particular, the justification of the total remuneration package of the head of institution contains in provider’s financial statements. The OfS finds most justification statements to be weak. Criticisms include focusing on the mechanics of the process, not explaining the provider’s context and a lack of information about what targets were set and assessed.

The OfS is concerned that if the justification statement is “treated simply as a compliance matter”, it will lead to a minimum level of disclosure. This is not what it expects.

Conclusion

Based on its assessment, the OfS believe there is room for improvement by providers to meet the accounts direction, and suggest they should review their disclosures in relation to the issues raised. The timing of this suggestion may prove to be a challenge for some providers, as it comes at a time when many will have, or be about to, sign-off on their financial statements for 2018-19.

Join the conversation

Governors and governance professionals can respond to this news alert in our Advance HE Connect governance groups. We would love to hear your thoughts on:

In light of the OfS’s comments, what approaches can institutions put in place to be better prepared for next year?

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