How to Prepare for an Early Years Funding Audit

An early years funding audit is a check by your local authority that the funded hours you claimed were delivered as claimed, to eligible children, free of charge. In practice that means the council compares your claim with your registers, your signed parent declarations, your eligibility code checks and the invoices you sent families. If those four sets of records agree, and you can find them quickly, most of the work is done.

Audit arrangements are set by each council, so the detail below describes what councils commonly do rather than a national rule. Your provider agreement (sometimes called the funding agreement) is the document that binds you: read its audit and record-keeping sections alongside this guide.

Why councils audit funded places

Local authorities have a duty to make sure funded providers meet the DfE's statutory guidance on early education and childcare, and that families get their entitlement free of charge. They also pay you in advance of knowing exactly who attended, so they need assurance that the money matched the provision. Councils typically select a sample of providers each term, sometimes at random and sometimes by sector, and may also audit a setting in response to a complaint or a concern about how funding is being administered.

What councils typically check

Attendance against claimed hours

The core of most audits. The auditor takes a sample of funded children and compares the hours you claimed for a term or funding period with your register for the same period. If children regularly attended fewer hours than claimed, expect questions and possibly an adjustment.

Signed parental declarations

The statutory guidance asks providers to complete a declaration with parents before a child first takes up a funded place, setting out the pattern of hours and any optional charges, and to keep it under review. Auditors commonly check that each sampled child has a declaration that is fully completed, signed and dated, covers the term in question and matches the hours claimed. Many councils also expect it to include the parent's consent to eligibility checks.

Eligibility codes and proof of age

For working-parent and 2-year-old places, auditors check that a valid eligibility code was held, and that you saw proof of the child's date of birth. Councils are expected to check working-parent codes at fixed points through the year, at the start of each term and half-term, and a code that lapses moves into a grace period before funding stops.

Charges, fees and invoices

Funded hours must be free at the point of delivery. You can charge for meals, consumables and optional activities, but those charges must be voluntary and cannot be a condition of the funded place, and you can't charge top-up fees. Auditors commonly ask for your fees information and a sample of invoices. The current guidance asks for invoices that show the funded hours, paid hours, food, consumables and activities as separate lines.

Policies and terms

Expect to be asked for your funded entitlement policy, your terms and conditions and a published complaints process, checked against what your provider agreement requires. Some councils include other conditions of funding in the same visit, such as insurance or staff qualifications.

How much notice you'll get

It varies by council and by the reason for the audit. Durham County Council, for example, gives at least four weeks' notice of a routine audit visit. Councils usually tell you which children, and which term or funding period, are in the sample, so you can gather the records in advance. An audit prompted by a complaint may come with less warning, which is the best argument for keeping evidence in order all year rather than assembling it when the letter arrives.

Evidence checklist

Gather these before the visit. If the council has named the children in its sample, start with them.

How to organise your evidence

File by child and by term. Auditors work through a sample of children for a given period. A folder (paper or digital) per child, with a section per term, means you can hand over everything for one child in one go.
Renew declarations when hours change, not just at the start of the year. A declaration showing September's pattern doesn't support a claim for a child whose hours changed in November.
Record code checks as you do them, with the date and the result, and note what you did about any that failed.
Reconcile before each headcount. Compare the hours on each declaration with the hours you're about to claim and the sessions the child is booked for. Fix differences then, not during an audit.
Keep the invoices you actually sent, not a version regenerated later.
Know where everything is. Make sure more than one person can find the records, in case the manager who usually handles funding is away.

Common problems auditors find

Declarations missing a signature or a date, or not covering the term audited.
Hours on the declaration, the claim and the register that don't agree.
Codes that had expired or were never validated before funding started.
Invoices that don't show funded hours, or that bundle extras into one charge.
Extras presented as compulsory, or a fee charged for the funded hours themselves.

What happens after the audit

Councils typically send a written report. Where something needs fixing, it sets out the actions and a timescale. Funding can be adjusted in either direction once the attendance checks are done, so an audit can also find hours you under-claimed. Not acting on the report within the timescale can put you in breach of your provider agreement, and in serious cases councils can withdraw funding.

Where Pigeonhole helps

Pigeonhole keeps the records an audit asks for in one place, attached to the child:

Registers with arrival and departure times and recorded absences, alongside the sessions each child is booked for.
Signed declarations generated on your council's form, signed by parents online, on paper or in person, and approved by you. Each signed PDF is kept against the child, and form submissions and approvals are recorded in your audit log.
Invoices worked out from the same sessions, with funded hours shown on each line, plus a line-by-line export of invoiced sessions.
A live register check, where your council uses the LiquidLogic portal, that compares your forms with the council's register and flags code problems, mismatched data and missing children before you claim.

It doesn't prepare an audit pack for you or guarantee an outcome; it keeps the evidence consistent and easy to find. See childcare funding software for how the funding workflow fits together, or funding forms for the detail. For the wider picture on funding, read our step-by-step guide to nursery funding.

How to prepare for an early years funding audit