2: PAC conclusion: The Department does not fully understand the causes of variability within the financial performance of academy schools, and consequently may not know how to best protect the education for pupils taught in financially struggling academies. 2: PAC recommendation: The Department should systematically investigate, and better disclose within the next Academy Sector Annual Reports and Accounts, the underlying reason for the variation in the financial health of academies. It should, within six months write to us to explain how it will improve its understanding of the variation in the financial health of academy schools and determine whether further interventions are required to support the financial sustainability of academy schools. 2.1 The government disagrees with the Committee’s recommendation. 2.2 The national funding formula, introduced in 2018-19, distributes funding to schools fairly, regardless of geographical location. The formula does not discriminate between maintained schools and academies. The formula is updated annually based on schools’ and pupils’ characteristics. 2.3 The primary responsibility for the financial management of academy schools rests with their academy trust, with a clear framework set out in academy trusts’ Funding Agreements, the Academy Trust Handbook and Academies Accounts Direction. Academy trusts’ accountability is rigorous, with trusts’ audited accounts providing information on the financial health of the trust and individual academy costs. 2.4 The department is not able to introduce significant new analysis into the 2021-22 Academies Sector Annual Report and Accounts (SARA), as its contents are already being finalised. The department has committed to undertake research into the impact of financial pressures on schools, in its response to recommendation 3 of the Committee’s Forty-Second report on the Financial Sustainability of Schools in England. The 2022-23 SARA will include the outcomes of this research. 2.5 The department already has an effective assurance programme for academy trusts: trusts must submit their audited accounts and auditor reports, three-year budget forecasts, information about related party transactions and new trusts financial management and governance self-assessments. 2.6 The department uses this information, along with other local intelligence to monitor academy trusts’ overall financial health. Given the complexity of these factors, this is undertaken on an individual basis. In each case, the department takes a risk-based approach, working with the individual academy trusts to support and intervene proportionately on the rare occasions when needed.