Opening the handbook on academy trusts

The Financial Handbook for Academies is issued by the Education Funding Agency (EFA) and applies to all academy trusts and free schools. It sets out the responsibilities and requirements relating to academy trusts’ financial governance and management. The latest release by the EFA of the new Financial Handbook for Academies has left many school governors – both current and prospective – with a conundrum.
Already trusts must capture relevant business and pecuniary interests of members, trustees and local governors – including directorships, partnerships and employments with businesses that provide goods or services to the trust.

Now, contentiously the handbook includes a requirement for academies to publish details of relevant and pecuniary interests of members, trustees and local governors on the trust’s website irrespective of whether or not there has been a transaction. It is part of a growing focus on transparency for the way academies spend their budget.
However, the question is whether local governors, who of course are not paid for their role, will feel comfortable divulging such detailed information on such a public platform.

Certainly governors and trustees are already under considerable scrutiny when businesses they are linked to have any relationship with an academy. Services provided by businesses linked to trustees and the academy have to be provided at cost and the EFA has made transparency a priority with this latest directive.

Incorporating transparency
There are other key changes around the same theme in the handbook – effective from 1 September – which should also be taken into consideration. In the interests of transparency, an academy trust must publish on its website up-to-date details of its governance arrangements in a readily accessible form. This must include the structure and remit of the members, board of trustees, its committees and local governing bodies, and, where applicable, the full names of the chair of each.

Additionally, for each member who has served at any point over the past 12 months, the academy trust  must also include their full names, date of appointment, date they stepped down, and relevant business and pecuniary interests including governance roles in other educational institutions.

For each trustee and local governor who has served at any point over the past 12 months, their full names, date of appointment, term of office, date they stepped down (where applicable), who appointed them (in accordance with the trust’s articles), and relevant business and pecuniary interests including governance roles in other educational institutions must be recorded.
Attendance records at board and committee meetings over the last academic year, as well as governor’s attendance records at local governing body meetings over the last academic year must also be published.

Registering Interests
An academy trust’s register of interests must also identify close family relationships between members or trustees, and between members or trustee’s and the trust’s employees. The EFA defines a relative as a close member of the family, or member of the same household, who may be expected to influence, or be influenced by, the person. This includes, but is not limited to, a child, parent, spouse or civil partner.
Academy trusts must publish relevant business and pecuniary interests of member, trustees and local governors on their website. Trusts uphold and have discretion over the publication of interests of other individuals including child, parent, spouse and civil partner.
As part of the new regulations, academy trusts must notify EFA of the appointment of members or trustees and the vacating or filing of the positions of chair of trustee, accounting officer and chief financial officer within 14 days of the change. Notification must be made through the EFA’s information exchange.
It is interesting to see so many uses of the word ‘must’ in this year’s handbook. It follows a trend which has seen language used in the publication change from ‘may’ or ‘should’ in recent years to a more didactic tone.
Perhaps we shouldn’t be surprised. Academies are publicly funded and there is an increasing focus – and an increasing public interest too – on how their money is spent. Accountants are already, for instance, asked to file an assurance report for each trust, looking at whether money was spent wisely and appropriately – so these latest additions to the handbook mirror that agenda. Last year’s handbook focused on conflict of interest issues and the 2015 version simply continues the same theme.

Budget monitoring
Other entries in the 2015 edition include how academy trusts must not have de facto trustees or shadow directors, and how Academy Principals (Accounting Officers) must adhere to the ‘seven principles of public life’ – first set out by Lord Nolan and included in the Ministerial code. The seven principles are selflessness, integrity, objectivity, accountability, openness, honesty and leadership.
As part of the new handbook, medium sized and larger trusts, and any undergoing a period of change, should consider more frequent board meetings than are required under their articles. The delegated limits for academy trusts, to write-off debts or enter into liabilities, are subject to a ceiling of £250,000.
There are also some inclusions in the Handbook which are likely to be warmly welcomed by trusts, not least the relaxation of the requirements relating to budget monitoring.
The Academies Financial Handbook of 2014 required a trust’s internal control framework to include preparation of timely monthly management accounts (including income and expenditure reports on an accruals basis, cash flow forecasts and balance sheets as appropriate).
The 2015 Handbook requires only ‘preparation of monthly budget monitoring reports’. This lack of prescription gives academy trusts much more autonomy in what information they maintain and, particularly for smaller Trusts, is potentially more appropriate to their needs.

Helpful guidance
Other relaxations revealed in the handbook include how the requirement on accounting officers to complete a separate value-for-money statement has been removed. This is now incorporated as an additional element in governance statements within the accounts direction.
The delegated authorities to take up a leasehold or tenancy agreement on land and buildings have been extended. Trusts can now enter into a leasehold or tenancy agreement for a term of less than seven years without EFA approval. This was previously held at four. Additionally, only academy trusts with an annual income in excess of £50m must have a dedicated audit committee
Overall, there is a lot to take in at the start of a new academic year. Increasingly the Financial Handbook for Academies is becoming not just a source of helpful guidance but a rule book for the industry – and of course for accountants working with academy trusts. Complying with, and understanding, the new requirements is absolutely vital.

Further Information