Holiday Guides – Navigating the Academies Financial Handbook and the Governance Handbook

In the last quarter the DFE has published updated versions of the Academies Financial Handbook (AFH) and the Governance Handbook, these handbooks will form essential reading over the summer holiday to help keep your trust in tip-top shape for the new school year (at least)!

The AFH has been helpful over the years, spelling out guidance and requirements of the ESFA in plain language. To be critical of the text, in the past, there have been instances where the guidance has been silent and/or ambiguous in part, which is not be helpful to trust decision-makers and functionaries. The updated text certainly addresses some of these aspects and provides greater clarity (often in the form of a mandated action) that will either establish or better maintain systems within a trust – in keeping with the themes raised by Lord Agnew in his foreword address.

If you have been following our eNews for many months and/or receive updates from the ESFA you will notice that the updated AFH seeks to address some of the pitfall areas encountered by academies and trusts.

While we certainly encourage you to read the AFH in its entirety, we wish to highlight the following areas you must pay attention to even if you are familiar with previous versions of the handbook.

Executive Pay

Many news headlines during the 2018/2019 school year focused on executive pay within the academies sector. Unfortunately, those stories did not expose senior leaders and other trust decision-makers in a positive light. What the news articles exposed was an unregulated area that could possibly cripple a trust as a going concern. To address this the AFH has placed a duty on directors/trustees to use a documented and evidence-based process in determining executive pay (which the board would be happy to defend if ever challenged by the ESFA) and further the AFH precludes an executive from being involved in decisions regarding their remuneration. As part of the process the AFH also highlights the following practices and principles that a board must follow to encourage a decision-making process that is transparent, proportionate and justifiable, accordingly board must pay attention to:

• the process itself;
• independence;
• robust decision-making;
• proportionality;
• commercial interests;
• documentation;
• the presumption that executive pay must not increase at a rate faster than that of teachers; and
• the warning that decisions of directors/trustees may be challenged by the ESFA.

Further information on the above concepts can be found under section 2.31 of the AFH.

Internal Scrutiny and Risk Management

One of the challenges that academies face, is the paradigm shift of running a school and essentially running a business. Some trusts have borrowed aspects from business to give their organisations a commercial-competitive edge. One such toolkit is risk management and many trusts have found the benefit of using a risk register to manage organisational risks.

To ensure contingency and business continuity, the AFH now mandates risk management and the maintenance of a risk register. We appreciate, that many trusts may have a person whose role within the organisation is to look at contingency and business continuity planning. However, it is best practice that all trust decision-makers (especially directors/trustees) have sight of the risk register regularly and challenge the relevant persons or senior leadership team when necessary.

Another strategy which the AFH has endorsed over the years is the appointment of a dedicated (allocated) audit committee to advise on the adequacy of financial and other controls and risk management arrangements, to direct a programme of internal scrutiny and to consider the results and quality of external audit. As a result of this committee’s work, there is now a new requirement to send an annual internal scrutiny report to ESFA. To fully understand internal scrutiny part three of the AFH is fairly comprehensive and detailed.

Remember members

While the DFE certainly endorses that members be eyes on and hands off, members of a trust should not be forgotten when updating governance records via the Get information about schools (GIAS) register. Further, it must not be forgotten that trusts also registered companies and thus audited accounts must be shared with every member, in accordance with company law. To evidence that this is done, an appropriate record should be kept. Practically this does not have to be in a specific format and emailing a copy to the relevant person(s) should suffice.

Financial Notice to Improve

No trust wishes to receive a Financial Notice to Improve (FNtI), and hopefully following the AFH will help your organisation avoid the pitfalls of this type of administration. However, if you find yourself in these circumstances trusts are now required to publish that they are subject to a FNtI on their relevant website(s). This must be done within 14 days of the notice being issued must be retained on the relevant website(s) until such time that the ESFA withdraws the FNtI.

Further, where a FNtI is issued, the AFH revokes delegated authorities that may be operational. The delegated authorities in question are found at sections 5.6 to 5.30 of the AFH. Importantly, all transactions of this nature must be approved by the ESFA in advance. The AFH specifically mentions the following that require preapproval:

• special staff severance payments;
• compensation payments;
• writing off debts and losses;
• entering into guarantees, indemnities or letters of comfort;
• disposals of fixed assets beyond any limit in the funding agreement;
• taking up a leasehold or tenancy agreement on land or buildings of a duration beyond any limit in the funding agreement;
• carry forward of unspent GAG from one year to the next beyond any limit in the funding agreement; and
• pooling of GAG.

Turning to the Governance Handbook, this was first released in 2017 to highlight the importance of governance in the school sector. The handbook and the competency framework aim to set out, expand on and clarify the government’s vision for effective governance of schools and academy trusts.

We’ve summarised the key features of the new guidance below for academies:

Accountability

If you are new to Academy governance, it is handy to be reminded that the board of the trust meet at least three times a year to carry out their functions and responsibilities. If these meetings number less than six, a trust must describe in its governance statement how it has maintained effective oversight of funds with fewer meetings.

All boards should operate in line with the Making Data Work report and Workload reduction toolkit which provides support for boards to streamline their policies and processes to cut unnecessary workload.

We recommend that it is never too late to review or revise the terms of reference and scheme of delegation for decision-making and action taking in your trust.

Compliance and Complaints

Academies should refer to their funding agreement concerning what information must be published online and consider the non-statutory guidance online.

Trusts must also ensure they have a procedure that deals with complaints and that it is effectively implemented.

Members and Trustees

No more than 19.9% of members of the academy trust can be LA associated people (LAAPs). These include employees, members or officers of an LA within the last 4 years where the LA has a responsibility for education. All academy trusts, as charitable companies, have both Trustees and Members.

Generally, school governors are only required to have an enhanced criminal record certificate from the DBS, which doesn’t include a barred list check. It’s recommended that schools check if a potential governor is disqualified from office because of a section 128 prohibition. Trusts may remove someone from the board for acting in a way that is contrary to the board’s ethos, in accordance with their articles of association.

Parental Engagement

All boards should ensure that parental engagement is used to inform their strategic decision-making and that there are mechanisms in place for parents to communicate easily and meaningfully. Academy trusts are free to choose whether to establish a parent council and to determine its membership. In addition to these formal practices and lines of communication, it is best practice to consider incorporating parental engagement within relevant policies and consider implementing a parental engagement policy.

(Free) Training

The DfE encourages professional development for academy governance, this webpage has more information. Many of the costs are heavily subsidised and it is worth considering what is available to you and your Trust.

For more information on this article, implementing strategies, or any other education legal issues you’re interested in, please contact a Partner in our Education Team or call 0191 211 7777.