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The Education and Skills Funding Agency (ESFA) has published its annual update of the Academies Financial Handbook (AFH), which became effective on 1 September 2018.
The AFH has become a weightier tome year on year as it has expanded to cover a wide range of issues much broader than the name of the document would suggest. It continues to be a key mechanism by which the Department for Education (DfE)/the ESFA introduces revised policies with which all Academy Trusts are required to comply. It is, therefore, a means of control for the DfE/the ESFA, alongside Master and Supplemental Funding Agreements, and the annual updates usually signal a tightening of control in particular areas.
The new edition of the AFH can be found here and the changes from the 2017 edition are set out on pages 6 and 7. In this briefing we will not, therefore, seek to list all of the changes but rather will highlight and comment upon those of which we consider are most important to draw awareness to.
Directions the Secretary of State may make in relation to members, trustees and other individuals [1.2.7 and 1.2.8]
These sections highlight the Secretary of State’s ability to remove a member or a trustee and, where there is good cause, to make an order prohibiting a person from being a member, trustee or part of the executive leadership team of an Academy Trust.
Greater emphasis on trustees applying high standards of governance [1.3.2 and 1.3.3]
The AFH specifies what the DfE/the ESFA consider to be the three core functions of trustees. These are:
- ensuring clarity of vision, ethos and strategic direction;
- holding executive leaders to account for the educational performance of the organisation and its pupils and the performance management of staff;
- overseeing and ensuring effective financial performance
(The third bullet point has been shortened to broaden its impact).
Section 1.3.3 emphasises trustees’ responsibilities to comply with the highest standards of governance, with the Academy Trust’s charitable objects, with company and charity law, with the funding agreement(s) and with the duties set out in the Companies Act 2006.
Explaining reporting requirements if the board meets less than six times a year [2.1.2]
There is a growing expectation that Academy Trust Boards will meet more frequently than the minimum three meetings per year required by the Articles of Association. If a board meets less than six times a year, the Academy Trust must describe in the governance statement accompanying its annual accounts how it maintained effective oversight of the Trust’s funds with fewer meetings.
Setting clearer requirements for cash management budgeting [2.3.2 and 2.3.3]
More robust requirements for monitoring budgets and cash flow during the course of a financial year in order to avoid overdrafts are introduced.
Risk management [2.6]
There is some clarification in relation to the Risk Protection Arrangement (RPA), including that it does not cover all risks which might be covered by commercial insurance policies. Academy Trusts need to be very clear about what is and is not covered by the RPA and trustees must be satisfied that the level of cover provided is sufficient for the Trust’s particular needs.
An emphasis is placed on the process for dealing with whistle-blowers; in particular, that all concerns raised by whistle-blowers must be responded to properly and fairly.
Confirming reporting requirements in relation to internal scrutiny [2.9.7 to 2.9.9]
An Academy Trust must confirm in its governance statement accompanying its annual accounts how it provides for an internal audit function. Internal audit results must be provided promptly to the trustees and should also inform the accounting officer’s statement in the annual accounts.
Internal audit requirements apply to all Academy Trusts regardless of size.
New requirements for related party transactions [3.10.4, 3.10.6 and 3.10.7] and arrangements with dioceses [3.10.20]
Connected party transactions are now referred to as ‘related party transactions’.
All transactions with related parties made on or after 1 April 2019 will need to be reported to the ESFA before the transaction takes place, using the online form.
In addition, from the same date a Trust must obtain the ESFA’s prior approval (using the online form) for contracts for the supply of goods or services to the Trust by a related party where any of the following apply:
- a contract exceeding £20,000
- a contract of any value that would take the total value of contracts with the
related party beyond £20,000 in the same financial year ending 31 August
- a contract of any value if there have been contracts exceeding £20,000
individually or cumulatively with the related party in the same financial year
ending 31 August
This is a significant change and, where Academy Trusts are considering contracts which would be caught by this new provision, they will need to allow sufficient time to obtain the necessary consent. We anticipate that this will give rise to timing issues on occasions.
ESFA action in relation to non-submission of financial information [4.8.4]
The AFH is now clear that if an Academy Trust fails to submit required information or the information is of inadequate quality, the ESFA can undertake investigations to obtain the required information and can deduct the cost of such investigations from the Academy Trust’s funding.
Annex C (now running to six full pages) lists all of the ‘musts’, i.e. all of the requirements which must be observed under the AFH.
For more information
If you require any advice in relation to the requirements of the AFH or would like training for your trustees in relation to their duties and responsibilities, please contact Phil Watts.
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