Most independent training providers (ITPs) will have to submit their annual accounts to the government within five months of their year-end, beginning in 2026, a new financial handbook has outlined.
The earlier submission deadline will be phased in over the next three financial years and has been rolled out to allow the Education and Skills Funding Agency (ESFA) to identify “financial risks” and make better funding allocations in the future.
The rule is part of a new financial “bible” handbook unveiled today. It is part of the ESFA’s pledge to provide “certainty about what good governance and financial management looks like” to the sector, which chief executive David Withey in 2022 shortly after assuming the post.
The change will bring ITPs into line with the five-month deadline for colleges and HE institutions to ESFA and the Office for Students respectively.
The handbook said current deadlines align with statutory filing deadlines required by Companies House or the Charity Commission, which “often mean it is too late for ESFA to identify financial risks or make effective decisions to help”.
Earlier submission will “also enable ESFA to make better informed decisions about future funding allocations”.
The rule will be phased in after the ESFA admitted that the change is likely to “impact existing business and audit cycles, particularly for ITPs with group structures”.
ITPs who fail to submit by the deadline will see their ESFA financial health rating suffer, which could have future contract bidding implications.
ITPs organised into four funding groups
The handbook provides a framework for the financial oversight of ITPs and assist the Department for Education (DfE) and ESFA to identify and manage risks.
It outlines how ITPs should arrange their counter fraud and error policies, cash flow forecasts and governance.
From this August, all ITPs will belong to one of four cohorts depending on the level of total annual funding from DfE / ESFA (see table below).
ITPs reaping more than £8 million in funding must have an independent audit and risk committee and at least one non-executive director or equivalent when the rules come into effect.
| Total annual funding the ITP receives directly from DfE | |
| Funding group 1 | More than £8 million |
| Funding group 2 | More than £1 million up to £8 million |
| Funding group 3 | More than £100,000 up to £1 million |
| Funding group 4 | Up to £100,000 |
The top three groups must maintain a rolling 12 month cash flow forecast but this is discretionary for ITPs receiving lower funds from the ESFA.
Meanwhile, the largest ITPs will be required to have a counter fraud and error policy and take “appropriate action” where identified.
Around 250 small ITPs belong in funding group 4, which experts say will ease the burden as most of the new rules are discretionary.
The financial handbook will come into effect from the August 1 this year. DfE said it was publishing the document now to allow ITPs sufficient time to prepare for “any requirements that are not already being met.”
Ben Rowland, chief executive of the Association of Employment and Learning Providers, said many ITPs already carry out the “appropriate controls, safeguards and oversight” as published in the guidance.
“For ITPs who have underdeveloped approaches to governance and appropriate financial control the requirements laid out in the handbook now give clear expectations on protecting public money and ensuring appropriate rigour and challenge about key decisions ITPs make,” he added.
“AELP has encouraged the ESFA to use this as an opportunity to tackle the unnecessary regulatory burden which distracts ITPs from focusing on delivering high quality training. We are pleased they have taken this challenge on board. As a result, this new handbook is not an arbitrary one-size fits all approach and ensures that the requirements are tapered based on ESFA income with the smallest providers being completely exempt.”
Withey said: “We know that many providers have robust processes already and we want to help ensure this is the case across the sector. Financial stability and good governance are the bedrock in creating a stable and effective training environment with high educational standards where learners can realise their potential.”
Robert Halfon, skills minister, added: “Diversity is a key strength of the sector, enabling very small to very large providers to deliver a wide range of learning and skills, customising their delivery to the needs of learners and employers. The handbook reflects the sector’s diversity by sharing best practice and tailoring our expectations of providers based on the size of providers’ business with the department.”
| Accounting year | Funding group 1 | Funding group 2 | Funding group 3 | Funding group 4 |
| 1 August 2024 to 31 July 2025 | Within 7 months* | Within 9 months | Within 9 months | Within 9 months |
| 1 August 2025 to 31 July 2026 | Within 5 months* | Within 7 months | Within 7 months | Within 9 months |
| On or after 1 August 2026 | Within 5 months | Within 5 months | Within 5 months | Within 9 months |
* can apply for up to two month extension
Summary of arrangements according to each ITP cohort
| Arrangement summary | Area of handbook | Funding group 1 | Funding group 2 | Funding group 3 | Funding group 4 |
| To have at least one non-executive director (or equivalent) in place (companies only) to provide independent oversight of financial & governance processes | Governance | Required | Discretionary | Discretionary | Discretionary |
| To have an audit and risk committee in place to direct and oversee independent assessment of financial & governance processes | Governance | Required | Recommended | Discretionary | Discretionary |
| To have a funding compliance scrutiny function in place to oversee the submission of data that triggers funding | Governance | Required | Required | Recommended | Discretionary |
| To comply with all contractual obligations and DfE / ESFA guidance in relation to sub-contracting arrangements and delivery | Governance | Required | Required | Required | Required |
| To comply with a relevant published governance code | Governance | Required | Recommended | Discretionary | Discretionary |
| To submit annual accounts to ESFA within timescales as set out in this handbook* | Financial Management and Oversight | Required | Required | Required | Required |
| To maintain a rolling cash forecast which sets out expected financial position for the next 12 months | Financial Management and Oversight | Required | Required | Required | Discretionary |
| To submit financial health records as per any request from DfE / ESFA | Financial Management and Oversight | Required | Required | Required | Required |
| To have a counter fraud & error policy and procedures in place, and fraud awareness training for staff | Financial Management and Oversight | Required | Required | Recommended | Discretionary |
| To have risk management processes in place to include a risk management policy, risk register, business continuity policy, and conflict of interest policy | Financial Management and Oversight | Required | Required | Recommended | Discretionary |
| To have a whistleblowing policy in place which references how to make disclosures directly to DfE / ESFA | Financial Management and Oversight | Required | Required | Required | Discretionary |
| To have and to follow a formalised internal review process in relation to the ITP’s financial management and governance procedures | Assurance | Required | Recommended | Discretionary | Discretionary |
| To appoint an external auditor to provide an opinion on whether the annual accounts are true and fair, even if not a statutory requirement | Assurance | Required | Required | Discretionary | Discretionary |
| For ITPs whose annual accounts are externally audited, to provide management letters to ESFA | Assurance | Required | Recommended | Discretionary | Discretionary |
Source: DfE
Harmonising the submission time for ITP’s with FE Colleges is all well and good.
Given that many colleges have missed the deadline of 5 months, are the ESFA going to harmonise the response to ITP’s that do submit late in future with the approach they do with colleges? I think we know the answer to this!
ITP’s who currently do not have an external audit of their accounts will particularly find it challenging, Preparing the accounts, undertaking the new governance arrangements around internal check and control of these and related processes and then engaging external auditors to undertake the audit, produce the management audit letter, review this internally inline with good governance and then sign off the accounts …… all within 5 months !
I cannot believe that any single ITP consulted by the ESFA would have said 5 months is a good idea. This is particularly the case when we all know that the ESFA will take any stated deadline time and multiply it by 3 times when it comes to them responding to anything! The focus of these handbook changes should have been confined to advocating changes in practice alone at this stage. Many of these are already undertaken by ITP’s and rightly should be followed by all. This would see a significant step forward without this “deadline hammer” being lifted over the sectors head!
The irony of course is that most of the cases of failed ITP’s often reported in this publication were not “outed “ as a result of any financial due diligence of the accounts undertaken by the ESFA. They were a consequence of the ESFA themselves terminating contracts. More of the same it appears if they miss the 5 month accounts submission deadline ?
It’s not uncommon for ITPs to have year-end coinciding with the academic year, partly to ensure their R14 submission reconciles to their annual income. But with an R14 close towards the end of October this leaves very little time, or a very well organised audit plan, to get the accounts signed off within the 5 month deadline. Furthermore a 31st July year end means submitting by 31st December. Good to see the ESFA ruining Christmas for those finance teams!!
“Diversity is a key strength of the sector…”
In which case, referring to this handbook as the new financial ‘bible’ is probably not the best choice of words.