Academies Financial Handbook Archives

Academies Financial Handbook 2018 Published
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Academies Financial Handbook 2018 Published

Academies & Free Schools, Governance

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.

Mark Johnson is an independent legal and governance specialist working with academy trusts, schools and not for profits to help them flourish. He serves as the company secretary of 2 MATs in Cheshire and independent audit committee member of a large MAT in Manchester. elderflowerlegal.co.uk

Relentless Focus on Good Governance in Academies Continues
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Relentless Focus on Good Governance in Academies Continues

Academies & Free Schools, Governance

Relentless Focus on Good Governance in Academies Continues

Good Governance in Academies is Key Focus for DfE

Over the Summer the Department for Education quietly published some documents which show the focus on good governance in academies remains a key priority. The first document was the widely expected new edition of the Academies Financial Handbook which applies from 1 September. Secondly, the Education and Skills Funding Agency (the new name for the EFA) published three financial management and governance reviews into multi academy trusts. These highlight case studies of where things can go wrong. In case you missed them, here we summarise the key points to be aware of.

Academies Financial Handbook

It is a requirement of all Academy Trusts’ Funding Agreements that the Academies Financial Handbook (’AFH’) is complied with, in particular the list of ‘must haves’ in Annex C. The new AFH applies as from 1 September 2017. The main changes in this new edition concern governance and financial control.

Governance

There is an emphasis on greater clarity about the roles of members, trustees and salaried employees

There must be clear separation between the roles of member, trustees and executive (paid) managers. For example, employees of the Trust must not be appointed as members, unless permitted by the Articles of Association. The current model articles do not allow members to be employees, but some older versions do. Trusts with older articles may wish to consider revising their articles to reflect best practice.

In addition, the DfE’s preference is that no other employees, other than the Senior Executive Leader, should serve as a trustee. This helps to ensure there are clear lines of accountability through the Senior Executive Leader. Older Articles may talk about no more than one third of trustees being employees. Again, Trusts may wish to adopt this change in line with best practice.

Trusts are reminded that the overarching seven Nolan principles of public life apply to everyone holding office in an Academy trust (selflessness, integrity, objectivity, accountability, openness, honesty and leadership).

Annual letters to Trusts’ Accounting Officers/CEOs from the ESFA’s accounting officer must be discussed by the Board and appropriate action taken

The ESFA sends letters to Trusts’ Accounting Officers/CEOs from time to time which cover issues pertinent to their role and ESFA reviews. The letter must now be shared with members, trustees, Chief Financial Officer and other members of the senior leadership team. It must be discussed by the Board of trustees. This discussion should be clearly documented in the Trust board minutes. All “Dear Accounting Officer” letters can be found on the DfE website here.

Improving efficiency and value for money in academy trusts

Where the ESFA have concerns about a Trust’s financial management, but not enough to issue a Financial Notice to Improve (FNtI), they may require the Trust to work with an expert in school financial health and efficiency to support the Trust and identify where improvements can be made. They may also prescribe this as a condition of a FNtI.

There is an emphasis on the importance of addressing skills gaps on the Board at key transition points such as growth periods. Trusts are recommended to use the DfE’s competency framework for governance to determine skills gaps in the Board (see more here)

Trusts should consider the key features of effective governance in the DfE’s Governance Handbook when assessing their effectiveness

Boards should be looking to implement these as part of their annual assessment of their effectiveness and skill-set, as well as minuting these discussions.

Edubase must be kept up to date with details of changes to Trustees and members within 14 days

Recent ESFA reports have highlighted that some Trusts are not keeping their records up to date of who are members and trustees promptly following either appointments or resignations. This applies to both Edubase and Companies House records. Someone should be given specific responsibility to complete this task, usually the Company Secretary.

Appointment of auditors must be approved by the members, not just the trustees

The Board of trustees may believe they are responsible for the appointment of auditors. However, this is only the case where the Companies Act permits trustees to appoint them e.g. in the Trust’s first accounting period. Thereafter the members must approve the appointment, usually at an AGM.

Financial Control

a new section on executive pay states that Boards must ensure their decisions on levels of pay follow a robust evidence-based process and reflect the roles and responsibilities of individuals

The decisions should be backed up with supporting evidence and secure records kept–such as confidential appendices to minutes.

‘Repercussive transactions’ as well as ‘novel or contentious transactions’ now require ESFA approval

Repercussive transactions are those which are likely to cause pressure on other trusts to take a similar approach and hence have wider financial implications for the academies sector.

Clarification that the non-statutory/non-contractual element of a severance payment limit of £50,000 is based on the gross amount before any deductions for tax etc.

This is a welcome technical clarification. The full new Handbook can be viewed here.

Financial Management and Governance Reviews

The ESFA can initiate a Financial Management and Governance review at an academy trust following a complaint, or on its own initiative, either at random or as part of its new routine assurance activities. There have been 25 such reviews conducted since 2013. The typical remit of a review is:

to assess the financial controls and management in a Trust to see if they are compliant with the AFH and Funding Agreement
to assess the adequacy and effectiveness of governance, risk management and internal controls
to assess propriety, regularity and value for money

The ESFA’s policy is to publish their findings to inform public debate and scrutiny. The academy trust is usually given 5 working days to comment on the report before it is published. Three such reports were published over the Summer.

The first review concerns the DRB Ignite MAT. The review was instigated following a complaint about a leasing arrangement for whiteboards at one of their schools. However, the remit soon expanded to cover scrutiny of wider governance arrangements in the MAT. The key findings of the review were:

There was a lack of separation of the roles of members, trustees and executive managers. The Accounting officer was a member as well as being a director. The Accounting Officer was not on the Trust’s payroll and the role had rotated among the directors three times. There was no written agreement in place setting out the role and responsibilities of the Accounting officer – in breach of the Academies Financial Handbook. The AFH requires that the role be allocated to a Single Executive Leader, who is accountable for the use of public money. The CFO role was contracted out to another group company and the Trust board did not have any independent directors with accountancy experience or qualifications. This created a risk of inadequate oversight and challenge. The named member of the trust was a company which had since become dormant, thereby breaching the Articles of Association.
The trust was using related commercial companies and connected parties to provide 83% of its central functions and expenditure without following a proper procurement process. Remember that delivery of services by related parties can only be ‘at cost’ (see below) and a contract for services or goods may need to advertised and comply with EU procurement rules if over a threshold of £164,176 (unless it can be argued that by their nature the services fall under the Light Touch Regime in which case a higher threshold of £589,148 may apply). The ESFA was not satisfied that adequate procedures were in place to manage conflicts of interest between the Trust and connected companies. The same people sat on the Trust board and the boards of group companies providing the services. Directors were approving invoices from their own group companies for payment. This was potentially a breach of Companies Act duties and charity law, as well as the AFH.
The award of a contract for smartboards at one of the trust’s primary schools to a group company did not follow best practice and could not demonstrate value for money
The trust had failed to keep EduBase updated with details of members and trustees within 14 days.
There was no central of register of contracts, making it difficult to coordinate the re-tendering to drive value for money
There was a failure to publish details of business and pecuniary interests of trustees on the website and failure to keep adequate minutes of trustee meetings.

The Trust was ordered to undertake a review of its governance arrangements and carry out urgent corrective actions.

The second review was published on 28 June and concerned the Rodillian MAT. The investigation was triggered by complaints about the Accounting Officer staying at a luxury hotel several nights a week, despite living within travelling distance of the schools. The review quickly broadened in scope and found other issues which are documented in the ESFA report:

The Accounting Officer had been reimbursed for hotel accommodation – although there was no policy on approved subsistence and travel in place to measure the reasonableness of this and no evidence of Board approval for the expenditure
The trust had rented a flat for the Accounting Officer – although the benefit was not documented – this should have been regarded as a novel or contentious payment and ‘ex gratia’ benefit for which ESFA approval was required
The Trust had awarded a contract worth £1.45m for alternative education for students excluded from mainstream provision without following a competitive tendering procedure. Although the contract was for 5 years, the liability in the accounts was only shown as a 3 year commitment.
The Trust did not have an up to date financial procedures manual in place
There were no proper procedures for authorising payments to suppliers
The Trust had entered into supposed ‘operating leases’ of smart boards which were in fact ‘finance leases’ (which require prior approval from ESFA).
The Trust Chair was paid for consultancy services – as the Chair was also a member this is not allowed and would have required prior consent from the Charity Commission.

The third review concerned Enquire Learning Trust. According to the report, similar themes came to light:

Senior managers were employed ‘off payroll’ through limited companies
There was lack of skills and oversight of managers by the Trust Board
The role and responsibilities of the Accounting Officer were not documented in a contract
The financial reports presented to the board were inadequate and did not give trustees a picture of the overall consolidated financial position of the trust. There was no 3-5 year consolidated forecast.
Two significant related party transactions in 2015/16 were not disclosed
Financial controls over purchasing, including the use of corporate credit cards were inadequate. The lack of segregation of duties and independent oversight of purchasing and payment arrangements increased the risk of inappropriate expenditure.
Trust officers had claimed irregular payments for valuations of trust premises in connection with a scheme to transfer the Trust premises into their personal pension funds and lease it back to the Trust
There was no central asset register to keep track of valuable items such as laptops issued to staff
There was no audit committee or independent Responsible Officer to carry out assurance checks

Lessons to be learned

A complaint can be triggered by a disgruntled employee or governor – once the process starts it can be very resource intensive to manage and the scope of the inquiry can quickly widen.

Understanding the separation of roles between members, trustees and executive managers is absolutely critical. A clear Scheme of Delegation, Code of Conduct, policies and procedures are your first line of defence in demonstrating compliance. Be clear about who your members are and keep the register up to date so it is clear who actually holds the voting rights. Make sure they are involved in relevant key decisions and due process is followed.
Remember the ‘at cost’ requirement if awarding contracts to a ‘connected party’. An individual or company can supply good and/or services up to £2,500, cumulatively, in any financial year which can include profit; however, beyond £2,500, all transactions must be ‘at cost’ without profit. Where ‘at cost’ is triggered, a statement of assurance is required from the supplier to support the arrangement, which the Accounting Officer must review to ensure that there are no issues with the transaction. ‘Connected parties’ include members, trustees, sponsors (as well as their family members and business associates).
Develop a set of Standing Orders and Financial Regulations which set out the requirements for obtaining competitive quotes, authorisations for expenditure, delegated limits and the limited circumstances in which this can be waived. Remember that contracts with a value in excess of £164,176 may be subject to EU competitive tendering rules.
Be very careful about awarding contracts to ‘connected parties’. These will almost always be spotted during the external audit and will be flagged up in your annual accounts attracting further scrutiny. The Articles of Association will usually set out the process which must be followed to properly authorise such a transaction – any trustees with an interest in the contract must declare this and must withdraw from the meeting.
Develop a set of policies on subsistence and accommodation expenses, gifts and hospitality so that everyone knows where the boundaries are.
“Off payroll arrangements” – whilst there may be the odd time such arrangement is appropriate, for standard roles payments should be on-payroll, which also helps ensure that the individual is meeting their tax obligations.
Make sure that novel and contentious issues go to the Board for discussion and that decisions and the justification for them are properly minuted.
Understand the difference between finance leases and operating leases . Under an operating lease all risks and rewards related to asset ownership remain with the lessor for the leased asset. In this type of lease, the asset is returned by the lessee after using it for lease term agreed upon. The ownership of the asset remains with the lessor. However, under a finance lease the risks and rewards related to ownership of asset leased are transferred to the lessee. The lessee usually has an option to acquire ownership at the end of the lease by making a further payment. In accounting terms, this is usually treated like a loan.
If these Trusts had had an effective Audit Committee providing oversight and challenge, these situations could probably have been avoided. As one review commented: “Audit Committee functions should be established in such a way as to achieve internal scrutiny that delivers objective and independent assurance. Where the Responsible Officer function is provided by [a group company] it cannot be shown to be independent and hence is in breach of the Academies Financial Handbook”. See more on the role of an Audit Committee.
It is always good practice to take a step back before entering into any unusual transactions and consider the wider implications. Could this transaction attract adverse media coverage? Is it outside our normal business activity? If we enter into the transaction and another academy trust hears of this, will it impact upon the wider sector? Whilst this comes down to judgement and perception, it may be safest to consult with ESFA before performing the transaction rather than being criticised later for making the wrong decision.
Consider undertaking a governance review facilitated by an external provider to check your house is in order and that you are following best practice. We offer a fixed price service GovernanceCHECK360.

Mark Johnson is an independent solicitor and chartered company secretary helping academy trusts, schools, colleges and not for profits to stay compliant, manage risks and plan for success. Contact us today for a no-obligation chat or check out our website at elderflowerlegal.co.uk or call 01625 260577. Find out for more details of our service packages here.

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The Hallmarks of Good Governance in Academy Trusts – Part 3
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The Hallmarks of Good Governance in Academy Trusts – Part 3

Academies & Free Schools, Governance

The Hallmarks of Good Governance in Academy Trusts – Part 3

This series of posts examines what good governance in academy trusts looks like and how boards can create a framework to deliver their core purpose and properly discharge their duties. In Part 2, we examined the framework of governance in academy trusts. In this Part 3, we examine….

Stewardship of finance and resources

The academy trust board is responsible for the proper stewardship of trust funds, including regularity and propriety, and for ensuring economy, efficiency and effectiveness in their use. The Financial Handbook states “The board of trustees has wide discretion over its use of the trust’s funds, which it must discharge reasonably and in a way that commands broad public support”. This is hinting at the reputational risk of expenditure which could be perceived as inappropriate.

Further, the governing body has a responsibility, under the Academies Financial Handbook, to appoint an Accounting Officer, normally the headteacher or CEO, who has specific responsibilities for financial matters. This role includes a personal responsibility to Parliament, and to the Secretary of State, for the financial resources under the trust’s control.

The Accounting Officer must take personal responsibility (which must not be delegated) for assuring the board that there is compliance with the Financial Handbook and the Funding Agreement. The Accounting Officer must advise the board in writing if, at any time, in his or her opinion, any action or policy under consideration by them is incompatible with the terms of the Articles, Funding Agreement or the Financial Handbook.

Trustees have a number of legal duties that must be met in relation to accounting and financial reporting. These include:

keeping ‘sufficient’ accounting records to explain all transactions and show the trust’s financial position
preparing an annual report and statutory accounts meeting legal requirements, including the EFA’s Accounts Direction (updated annually) and the Statement of Recommended Practice (SoRP) for charity accounts.
considering the need for a reserves policy, managing the level of reserves held and the disclosure of any reserves policy in the Trustees’ Annual Report
formally approving the Trustees’ Annual Report and accounts at a minuted board meeting
ensuring that accounts are subjected to an external audit
ensuring that the Trustees’ Annual Report, accounts and annual return are filed on time with the EFA and Companies House.

Financial information should be provided at each trustee meeting which include details of the academy trust’s financial position and performance. The financial information should be sent to each trustee before each meeting and will typically include:

the latest management accounts
a comparison of budget to actual figures
an explanation for variances between forecasts and what actually happened
details of cash flow and closing bank balances

The meeting should set aside a specific time within the agenda for discuss of financial matters and allow the trustees to raise any issues of concern.

Systems of internal control

The Funding Agreement contains a range of obligations in relation to accounting and financial records. There is a general obligation to comply with the requirements of the Financial Handbook published from time to time.

The trust’s internal control framework must include arrangements for:

co-ordinating the planning and budgeting processes
applying discipline in financial management, including managing banking, debt and cash flow, with appropriate segregation of duties
preparation of monthly budget monitoring reports
ensuring that delegated financial authorities are respected
effective planning and oversight of any capital projects
the management and oversight of assets
the propriety and regularity of financial transactions
reducing the risk of fraud and theft
ensuring efficiency and value for money in the organisation’s activities
a process for independent checking of financial controls, systems, transactions and risks

Executive management and the trust’s staff are responsible for ensuring that the controls put in place by the trustees are implemented. There should be a culture of control embedded in the operations of the organisation; this culture is created by the trustees and senior management, who should lead by example in adhering to the trust’s internal financial controls and good practice.

All academy trusts are now required to include a statement about their governance arrangements in their annual report and accounts and to publish details on their website. New trusts are also required to complete an EFA online financial management and governance self-assessment within 4 months of opening. This includes questions such as:

Has a named individual been designated as the accounting officer and does this person fully understand the duties and responsibilities of the role?
Does the accounting officer, under the guidance of the board, ensure appropriate oversight of financial transactions by having all the trust’s property under the control of the trustees, measures in place to prevent losses or misuse; having bank accounts, financial systems and financial records operated by more than one person; keeping and maintaining full and accurate accounting records; and preparing accruals accounts, giving a true and fair view of the trust’s use of resources, in accordance with existing accounting standards?
Do the board and appropriate committees meet at least three times per year and conduct business only when meetings are quorate?
Does the board receive and consider information about the financial performance of the trust at least three times a year?
Has a chief financial officer, with appropriate qualifications and/or experience, been appointed by the board?
Has the board approved a written scheme of delegation of financial powers that maintains robust internal control arrangements?
Has the board approved a balanced budget for the financial year and has the approval been minuted?
Has the board been made aware of the requirement to obtain approval from EFA where it is considering borrowing funds or entering into liabilities such as leases or tenancies beyond delegated limits?
Has an appropriate internal control framework been established?
Has a contingency and business continuity plan been prepared?
Have the risks arising from your operations been assessed?
Has adequate insurance cover been obtained?
Has the board been informed of the requirement to obtain approval from EFA before making any novel or contentious payments?
Have all trustees completed the register of business and outside interests?
Has the academy trust published on its website the relevant business and pecuniary interests of trustees and members?
Are there measures in place to manage any conflicts of interest?
Has the board approved a competitive tendering policy?
Do senior officers’ payroll arrangements meet tax obligations fully?
Has the board been informed that goods or services provided by individuals or organisations connected to the trust must be provided at ‘no more than cost’, on the basis of an open book agreement and supported by statements of assurance, in accordance with the conditions set out in the Handbook?
Has a set of accounting policies been approved?
Has an external auditor been appointed?
Has an audit committee or a committee that fulfils the functions of an audit committee been established?
Has a process for independent checking of financial controls been implemented?
Has an appropriate committee agreed a programme to address the risks to financial control?
Has the board been informed of the requirement to report to EFA any instances of fraud or theft: above £5,000 against the trust whether by employees, trustees or third parties; or where fraud is unusual or systematic in nature? Full details must be provided in the commentary section where any such fraud or theft has occurred.

EFA Chief Executive Peter Lauener set out further key questions which accounting officers and trustees must be able to answer on an ongoing basis in a letter dated June 2013:

Are you confident you are procuring all goods and services in an open and transparent way?
Are you ensuring that your cashflow reflects the activity at the trust and that it is properly reconciled at least monthly?
Do you have robust controls for payroll arrangements – particularly important in a multi-academy trust – including checks that any amounts paid out are the right amounts and paid to bona fide employees?
Do you have appropriate segregation of responsibility in your finance section (i.e. cross-checks and approvals)? And are you providing proper management support to your finance staff to operate in a role where they are well-placed to provide you with a “first line of defence” in terms up upholding propriety, regularity and value for money in the use of public funds?
Are you making sure conflicts of interest are avoided and that you are keeping registers of interest up to date?
Are you confident senior staff and trustees are not gaining any private or personal commercial or financial benefit as a result of their position, other of course than under their contract of employment?
Are you sure that your academy trust is not being exploited for personal/private benefit and that any fees for consultancy work are where appropriate being properly accrued to the academy trust rather than to individuals?
Do you have robust procedures for the recording, documenting, evidencing and monitoring of information and especially the reasons for entering into major spending commitments?
Do you have properly constituted arrangements for internal audit to give you and trustees a further safeguard that everything is in order?

Combating Fraud

To reduce the risk of fraud, academy trusts are recommended to consider the following actions:

ensure anti-fraud and whistleblowing policies are in place and regularly update these and communicate them to staff
conduct regular anti-fraud awareness training events for finance staff
highlight to staff that they can also contact theEFA with any concerns of possible irregularity or fraud (the EFA publishes financial management and governance reviews on its website)
management communications to pursue identified incidents of fraud
ensure financial controls are regularly assessed and are well designed and implemented
ensure that there is appropriate segregation of duties in your controls
review your processes for references and background checks on new employees
scrutinise significant business transactions and personal relationships to avoid possible conflicts of interest
install a physical security system to protect the trust’s assets

The most common abuses identified by auditors were set out in a National Audit Office report of 2015:

misuse of funds by headteachers using academy funds for personal gain
inappropriate expense claims for both staff and trustees and unjustified salary increases
transactions in breach of the Academies Financial Handbook and not in line with Parliamentary intentions
poor oversight of activities of individual schools in a group, or weak controls at the trust level
weaknesses in procurement (that is, non-compliance with EU procurement rules, and employment or contracting with related parties, or both)
Related-party transactions (that is, whether they have been entered into on an arms-length basis and are in line with the new ‘at cost’ requirement.

The EFA publishes regular reports of investigations it has carried out into financial mismanagement and governance issues on its website.

Next time – How to get your governance right from the outset.

Mark Johnson is a highly experienced independent solicitor & chartered secretary supporting academy trusts, free schools & other education providers with their governance arrangements, legal and compliance matters. He is an independent member of a MAT audit committee. He offers a cost-effective governance review GovernanceCHECK360™ for academy trusts elderflowerlegal.co.uk.

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