Academies Financial Handbook 2018 Published
What you need to know about the changes
The new Academies Financial Handbook 2018 entered into force on 1 September 2018 and applies to transactions and operations after that date. The Funding Agreement with Department for Education requires academy trusts to comply with the terms of the Handbook. Failure to comply could trigger a Financial Management & Governance Review or a Financial Notice to Improve.
The key changes of emphasis in this edition are:
- More emphasis on the critical role of the Board and the Chair of trustees in ensuring high standards of governance
- More detailed requirements about regular and clear financial reporting to the Board
- Greater scrutiny of transactions with related parties (i.e. trustees, senior managers, their family members or businesses in which they have an interest) and any subsidiary companies of the Trust.
- Tightening the rules around setting of executive pay following recent media stories about excessive pay.
Turning to the specifics, the key changes are as follows:
- 2.1.2 – If a Board meets less than 6 times a year, it must describe in its governance statement accompanying annual report and accounts how it maintained effective oversight of funds with fewer meetings.
- 2.3.2 – The Trust must submit to ESFA a budget forecast return by 21 May and a 3 year budget forecast by 30 July. In setting the budget, the Trust board should have regard to latest DfE guidance including these key metrics to check:
- Staff pay as percentage of total expenditure
- Average teacher cost
- Pupil-to-teacher ratio (PTR)
- Class sizes
- Teacher contact ratio
- Proportion of budget spent on the leadership team
- 3 to 5 year budget projections
- Spend per pupil for non-pay expenditure lines compared to similar schools
- School improvement plan priorities and the relative cost of options
- List of contracts with costs and renewal dates
- 2.3.3 – Budget monitoring – the Trust must prepare management accounts every month setting out its financial performance and position, comprising budget variance reports and cashflow forecasts with sufficient information to manage cash, debtors and creditors.
- Management accounts must also be shared with the Chair of trustees every month.. and with other trustees six times a year. The Board must ensure that appropriate action is being taken to maintain financial viability.. including addressing variances between budget and actuals.
- The Trust must select key financial performance indicators and measure its performance against them, including an analysis in its annual report. The Accounts Direction for 2017/18 listed some examples:
“Key financial performance indicators and, where appropriate, an analysis using other key performance indicators including information relating to environmental and employee matters. For example. this could include, but may not be limited to, Ofsted inspection outcomes, examination / key stage results, pupil attendance data and pupil recruitment data, in addition to financial and investment performance. It could be presented as both achievements against objectives for the current accounting period, and as trends over time.”
- 2.3.6 – The Trust must have an investment policy to manage and track its financial exposure and ensure value for money – and it must be reviewed regularly. A Trust must exercise care and skill in investment decisions and take professional advice, ensure that exposure to investment products is tightly controlled: security of funds must take precedence over revenue maximisation.
- 2.4.4 Executive Pay – the Board must ensure there is a process for determining executive pay which is agreed in advance and documented. Levels of pay must be defensible relative to the public sector market and the documentation setting out the rationale must be retained. There is a presumption that non-teaching pay should not increase at faster rate than teacher’s pay.
- Transactions with related parties – no member, trustee, local governor, employee or related individual or organisation may use their connection to the Trust for personal gain. There are no payments to any trustee, unless permitted by the Articles or the Charity Commission and permitted by the Secretary of State. This will apply if payments are made to a business entity which employs the trustee, is owned by the trustee or in which trustee holds a controlling interest. The ‘at cost’ requirement must be complied with for payments over £2500- the payee must provide evidence that services have been provided ‘at cost’ i.e. without a profit element. This issue recently came to prominence in the media after an investigation by Panorama into the affairs of Bright Tribe academy trust.
- 3.10.4 – All transactions with related-parties after 1 April 2019 will need to be reported to ESFA using online form. ESFA prior approval will be required if the contract exceeds £20k (or cumulatively with other contracts it would breach that limit). (NB this excludes payments under a contract of employment through Trust payroll).
The Academies Financial Handbook 2018 is amplified by the Academies Accounts Direction. Whilst most of this is a technical document, there are four significant changes to flag:
- There is now clear guidance that purchases of alcohol or excessive gifts with academy funds are examples of irregular expenditure (para 9.1.22).
- There is a new requirement to include information on trade union facility time to comply with the Trade Union (Facility Time Publication Requirements) Regulations 2017. This requirement only applies where trusts have more than 49 full-time equivalent employees throughout any seven months during the reporting period.
- Financial statements will need to include information on:
• The number of employees who were relevant union officials during the period
• The number of employees and their percentage of time spent on facility time
• The percentage of pay bill spent on facility time
• Details of paid trade union activities
- Accounts must also now include a section dedicated to the Trust’s fundraising practices, to comply with the Charities (Protection and Social Investment) Act 2016. This requires details about:
• The Trust’s approach to fundraising
• Details of any work with, and oversight of, professional fundraisers and commercial partners
• Confirmation that fundraising conforms to recognised standards
• Details of the monitoring of fundraising carried out by agents
• Any complaints received
• How the public, including vulnerable people are protected, from unreasonably intrusive or persistent fundraising approaches.
- Apprenticeship levy costs should be included as part of social security costs note to accounts. Where apprenticeship levy-funded training is received in year, this should be recognised as notional income and notional expenditure. The 10-per-cent top-up funding provided by the government should also be recognised in this manner. (para 8.13)
If you have any questions about any aspect of academy governance please get in touch.