Introduction

The Academies Financial Handbook 2017 (AFH 2017) has recently been published and it is available here.  In his Forward, Lord Nash notes that good financial stewardship depends on everyone involved in the oversight, governance and management of trusts understanding their roles, promoting the right principles and acting when they recognise circumstances where things go wrong.  The purpose of these notes is to provide an introduction to the key changes in AFH 2017 which largely relate to these themes.  AFH 2017 applies with effect from 1 September 2017.

Governance

  • The ESFA have updated information regarding the roles of members and trustees including emphasis on having significant separation between the two roles. (The Department’s recommendation is for a majority of the members to be independent of the board of trustees.) Since the trustees have responsibility to conduct the business of the trust in accordance with company and charity law, the role of members is described as being ‘eyes on and hands off’. However, if the governance of the trust by the board of trustees becomes dysfunctional the members will have a strong interest in ensuring the board has sufficient plans to address the issues. (Pages 6 -8)
  • The ESFA ‘Dear Accounting Officer’ letters must be discussed by the Trustees with appropriate action taken where necessary (section 1.5.5).
  • Additional information is provided about the ESFA’s approach to academy financial health and efficiency. This includes it potentially prescribing that a trust works with an expert in school financial health and efficiency, both as a condition of Financial Notice to Improve (FNtI) and in situations where an FNtI has not been issued. It also highlights the resources produced by the Department to help trusts improve their financial health and efficiency (section 1.5.11).
  • There is emphasis placed on addressing any skills gaps on the Trustee board with the DfE’s competency framework for governance highlighted as a key tool to be used (section 1.5.16).
  • The Governance Statement in all Trust Financial Statements must include a review of its governance. In the case of established trusts, this should include an assessment of its governance, including a review of the composition of the board in terms of skills, effectiveness, leadership and impact. To help with this, trusts are advised to refer to the six key features of effective governance set out in the Governance Handbook. This is not a new requirement but it is particularly pertinent given that the academy reporting season is now imminent (section 1.5.17).
  • Emphasis placed on ensuring records of key individuals remain up to date on Edubase (section 4.7.4).
  • As part of Trust’s risk management approach, they should be referring to the ESFA guidance on reducing the risk of financial irregularities (sections 4.8.3 and 4.8.4).

Financial Control

  • Emphasis that the board of trustees must ensure that their decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities (section 2.2.3).
  • The requirement to seek prior ESFA authorisation to novel and contentious transactions is expanded to include repercussive transactions. These are described as those which are likely to cause pressure on other trusts to take a similar approach and hence have wider financial implications. It is not immediately apparent what types of transactions the ESFA has in mind here and so further clarification would be helpful (section 3.3.1).
  • Clarification that trusts’ delegated authority to make non-statutory/non-contractual staff severance payments under £50,000 is before income tax and other deductions (section 3.7.6).
  • The handbook has been updated to reflect the Department’s introduction of an academies’ sector annual report and accounts which will be audited by the National Audit Office. This underlies the requirement for certain returns by trusts and for some of the audit requirements (section 4.1.6).

Summary

We recommend that AFH 2017 is read by all involved in the governance and senior management of trusts, in particular Annex B: Schedule of Freedom and Delegations and Annex C: Schedule of Requirements (the ‘Musts’).  The latter runs to 8 pages and it provides a useful template for a review of compliance with the requirements of AFH 2017.  If you would like us to undertake this review on behalf of your trust, please let us know.