Academies Financial Handbook 2018 Published

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:
  1. Staff pay as percentage of total expenditure
  2. Average teacher cost
  3. Pupil-to-teacher ratio (PTR)
  4. Class sizes
  5. Teacher contact ratio
  6. Proportion of budget spent on the leadership team
  7. 3 to 5 year budget projections
  8. Spend per pupil for non-pay expenditure lines compared to similar schools
  9. School improvement plan priorities and the relative cost of options
  10. 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 
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Essential Reading on Governance in Multi Academy Trusts

Essential New Year Reading on Governance in Multi Academy Trusts

2017 looks set to be a year of relentless focus on improving governance in Multi Academy Trusts. Over the past two months a number of excellent resources on governance in Multi Academy Trusts have been published. In case you missed them amid the seasonal commotion, here is a synopsis of the main points.

DfE Guidance

In January the Department for Education published a new version of the Governance Handbook which applies to all schools, alongside a new Competency Framework for Governance.

The Governance Handbook is an essential resource for all those involved in governance of education institutions. It outlines the roles and responsibilities of trustees and governors, their legal duties and provides useful links to further resources.

The new edition has been re-structured around a new clearer articulation of the six key features of effective practice and should be read alongside the new Competency Framework, which describes the knowledge, skills and behaviours needed for effective governance.

The DfE believes effective governance is based on six key features:

Strategic leadership that sets and champions vision, ethos and strategy.
Accountability that drives up educational standards and financial performance.
People with the right skills, experience, qualities and capacity.
Structures that reinforce clearly defined roles and responsibilities.
Compliance with statutory and contractual requirements.
Evaluation to monitor and improve the quality and impact of governance

The most significant changes to the content within other sections include:

Section 2: Strategic Leadership

There is a new section at 2.3 bringing together material about the board’s role as the key decision-maker.  Stresses that the Board is accountable and responsible for all the decisions made and that executive leaders must operate within the powers and authority delegated to them.

Section 3: Accountability

There is a much stronger emphasis on ensuring financial propriety at 3.4. It stresses that everyone on the Board must have a basic understanding of the financial cycle and the legal requirements on accountability and spending. There are suggested questions for trustees to ask and a greater emphasis on securing value for money, using tools such as financial benchmarking resources providing comparative data around consumables, resources and utility costs (useful links are provided).

Section 4: People Makes clear the new requirement that all those involved in governance schools and academy trusts, must have a Disclosure and Barring Service (DBS) check.

  • New advice at 4.1.4 on conducting ‘informed’ elections in which the expectations of, and credentials required of, prospective candidates are made clear.
  • New sections bringing together material on the important role of the chair at 4.3 and of the professional clerk at 4.4.
  • A new explanation at 4.8 of the risks associated with close family relationships between those involved in governance or between them and senior employees (The requirement to publish a register of business interests, to avoid conflicts of interest and related party transactions).
  • Details of the duty on boards to provide information about individuals involved in governance via the Edubase system at 4.8.

Section 5: Structures

Updated guidance on the role of and distinction between Trustees and Members at 5.2.1. An explicit statement that “the most robust governance structures will have a significant distinction between the individuals who are Members and those who are Trustees.”

  • 5.6 that all boards are required to publish a scheme of delegation on their website to explain their governance arrangements, together with new guidance on what makes an effective scheme of delegation.
  • Updated guidance on MATs at 5.2.2 emphasising that a MAT is a single legal entity and that the buck stops with the Board of Trustees in relation to the performance of all schools within the Trust. A section on umbrella trusts at 5.5.1. Now an explicit statement that the DfE will not approve existing trusts wishing to join an umbrella trust which has powers of intervention or governance over its member schools.

Section 6: Compliance

Confirmation at 6.7 that a designated individual on the board must take leadership responsibility for the organisation’s safeguarding arrangements, which include its Prevent duty. New advice at 6.7.1 on handling allegations of abuse made against other children, including ‘sexting’.

Section 7: Evaluation

Updated content on schools causing concern and on coasting schools at section 7.4, outlining OFSTED’s new approach.

The new Competency Framework for Governance

With a foreword by Sir David Carter, the National Schools Commissioner, the new Competency Framework is designed to help governing boards assess what knowledge, skills and behaviours are needed to govern their school or group of schools, most effectively. The Competency Framework is organised into blocks of ‘who needs to have this’. There are some skills or knowledge that the DfE thinks everyone on the board needs to have, and others that the Chair or ‘at least someone’ on the board will need to have.

The Competency Framework is made up of 16 competencies. The competencies are grouped under the headings of the ‘six features of effective governance’, which are described in the Governance Handbook:

1 Strategic leadership

a) Setting direction
b) Culture, values and ethos
c) Decision-making
d) Collaborative working with stakeholders and partners
e) Risk management

2 Accountability

a) Education improvement
b) Rigorous analysis of data
c) Financial frameworks and accountability
d) Financial management and monitoring
e) Staffing and performance management
f) External accountability

3 People

a) Building an effective team

4 Structures

a) Roles and responsibilities

5 Compliance

a) Statutory and Contractual requirements

6 Evaluation

a) Managing self-review and personal skills
b) Managing and developing the boards effectiveness

However, the guidance emphasises that principles and personal attributes that individuals bring to the board are just as important. All those involved in governance should exhibit the 7 C’s:

Committed – devoting the required time to the role
Confident – of an independent mind, able to lead and contribute to courageous conversations
Curious – an enquiring mind and analytical approach
Challenging  – providing appropriate challenge to the status quo, not taking information at face value
Collaborative – prepared to listen and work in partnership with others
Critical – critical friendship which enables bot challenge and support
Creative – able to challenge convention wisdom and be open-minded

The Framework will help with board performance reviews, identifying training needs, succession planning and induction. It may also help prepare interview questions for prospective trustees and governors.

The new Governance Handbook and Competency Framework can be accessed here.

Multi Academy Trusts – Good Practice Guidance and Expectations for Growth

The DfE published this guidance on establishing and developing a multi academy trust in December.

This guidance provides a framework which helps trusts at all stages of their development learn from other multi academy trusts. It sets out the characteristics of successful academy trusts, and the barriers that they will need to overcome in order to secure expansion and ongoing success. It gives advice on what Regional Schools Commissioners look for when they assess and approve:

  • the establishment of new multi-academy trusts (MATs)
  • plans for growth in existing MATs

It also gives guidance on developing a successful multi academy trust, including advice on:

  • school governance and leadership
  • helping schools improve
  • financial sustainability and risk management

In his foreword Sir David Carter states: “There are at least three core elements that the strongest trusts exhibit. First, a board that contains a wide range of professional experiences that can deliver the dual responsibility of building strategy to deliver great outcomes for children alongside the culture of accountability that is necessary across the organisation. Second, the appointment of an executive leader, typically an executive head or chief executive officer, who is held to account for standards across the schools. Third, the creation and execution of a school improvement strategy that develops and improves the workforce, builds succession and enables the strongest teachers and leaders to influence outcomes for more children.”

He signals clearly the move towards more consolidation of schools into Multi Academy Trusts, as well as more collaboration between and possible mergers of MATs.

“This guidance is intended to support and encourage those trustees and leaders seeking to start a new MAT, as well as those who have a strategic plan to grow the number of schools they are accountable for in the coming years. In simple terms, this is how we intend to build the culture and ethos for this to happen. We want to encourage, support and challenge the best leaders to take responsibility for more schools and to bring their expertise in school improvement to benefit more children… At the start of the 2016/17 academic year we saw more schools than ever enjoying the benefits of working in a MAT, with 97% of schools converting to become academies now joining MATs.”

In looking at system design, the guidance states “the academy system provides greater opportunities for teachers and leaders, which makes it easier to put in place those factors – better teaching, leadership, career development, curricula and accountability – that incontrovertibly drive up standards”. However, interestingly there is also an explicit statement that flies in the face of received wisdom: “The government has also made clear that schools will [still] be able to become or continue as single academy trusts, provided they are successful and sustainable.”

Capacity to Grow

When agreeing whether a MAT has the capacity to grow, or when approving a MAT arrangement, RSCs will want to explore with the trust:

  • the plans for medium and long-term development of the trust and how they build capacity within their trust and their schools;
  • how it intends to support school improvement and whether this is underpinned by a clear school improvement model;
  • what the needs and development challenges are for all the schools within the trust, irrespective of current performance levels;
  • whether the trust’s model of due diligence enables the depth of the operational and strategic challenge to be fully understood; and
  • how the trust will contribute to wider system improvement and develop and retain good links with other MATs, teaching schools and a wide range of stakeholders

Financial sustainability

Addressing concerns about MATs which have expanded too quickly, the guidance stresses the importance of Trusts having strong and sustainable finances. RSCs will want to see evidence that enables them to assess whether:

  • there is sufficient financial expertise to oversee the trust’s financial operations;
  • financial planning is integrated in to the trusts overall strategy for its school(s);
  • the trust’s vision remains deliverable and resilient to operational changes in income, such as changes in pupil numbers or characteristics or the implications of the introduction of a national funding formula. Scenario or sensitivity analysis should be used to evidence this;
  • there are robust contingency plans in place, with clear triggers for enacting these plans; and
  • the accounting officer has sufficient oversight and control of their finances, to enable them to achieve value for money and ensure propriety with public money.

In future, before agreeing that a MAT can expand the number of schools it runs, or a standalone academy can create or join a MAT, RSCs will assess whether:

  • the plans to grow the size of the trust are credible – and that the trust understands that while growth can bring about economies of scale, there are also costs associated with centralising functions. Where a trust’s plans are such that they want to remain small (e.g. below 1,200 pupils for primary trusts and 2,000 for mixed or secondary trusts), the RSC may recognise the financial limitations and be more cautious. They may ask to see more detailed plans, including how the trust’s senior leadership team will be funded from across the schools;
  • plans to secure efficiency savings through economies of scale are realistic and have been benchmarked against other trusts;
  • any central functions are properly costed and sustainable, and that there are clear plans that set out how these functions will be paid for, for example, through a charge or “top-slice” to individual schools within the trust;
  • these centrally delivered functions deliver value for money for constituent schools; and
  • the trust’s financial processes are sufficiently robust to withstand the increased responsibility of the trust, and in particularly the need to ensure propriety and value for money across a wider number of schools.

Risk Management

The guidance states that RSCs will take in to account what is known about the way successful academy trusts manage risk. In particular, they will test whether:

  • the trust has the capacity to fulfil the mandatory requirements set out in the Academies Financial Handbook especially if, having consulted with the Education Funding Agency (EFA), they know that it has not fulfilled those responsibilities in the past;
  • there are effective procedures in place to identify, monitor and mitigate at both school and trust level – risk management is not a box-ticking exercise;
  • its scheme of delegation makes clear what risks are managed at what level so no issues ‘fall between the gaps’;
  • the trust has a clear idea of how the way it manages risk may need to change as the trust grows, and has made a balanced assessment of the risks expansion and opportunities might pose to its existing schools;
  • the trust has access to appropriate due diligence expertise so that they can be confident the trust knows what it is taking on (both in terms of benefits and risks) when an additional school joins it; and
  • the trust has capacity to manage the estate for which they are responsible.

This guidance provides some welcome transparency and consistency around the ways RSC’s will take decisions on whether to allow Multi Academy Trusts to expand in future.

The NGA’s ‘Welcome to a Multi Academy Trust’

The National Governors Association’s long-awaited guide to governance in Multi Academy Trusts was published in November 2016. The 100 page booklet contains a useful overview of academies which will be a good resource for induction of new trustees. The guide is organised into a series of sections covering:

  • The legal role of trusteeship: introduction to governance in a Multi Academy Trust – the relationship between trustees and local governing bodies (or ‘academy committees”) and the importance of the Scheme of Delegation, the importance of recruiting for skills and carrying out regular performance evaluations.
  • The culture and ethos of the trustee board
  • What makes governance in a MAT different?
  • The business of the board- how trustee meetings should be organised, as well as meetings of members, the vital role of the Chair
  • How schools work: curriculum, assessment, safeguarding, complaints and exclusions
  • Knowing your schools: how to tell if your trust is doing well, chief executive reports, visiting school and performance data
  • Staffing: senior executive team, staffing structures and HR
  • Fiduciary functions: the importance of maintaining financial propriety, accounts and managing the budget and insurance
  • Relationships with external agencies: OFSTED, the Charity Commission, Department for Education, EFA and Regional Schools Commissioners
  • Growing the Trust: is there an optimum size for a MAT? Getting it right and routes to expansion
  • Glossary of education terminology

Priced at £12 for non-members and £6 for NGA members, the guide can be purchased here.

ASCL Guidance

The Association of School and College Leaders (ASCL) has also published three linked guidance notes, under the theme “Staying in Control of Your School’s Destiny”. The first instalment in October “Considering forming or joining a group of schools” examines the benefits of schools working in larger groups, with a particular emphasis on the implications of being part of Multi Academy Trust, the governance structures which are available and the factors which will be critical to success. A useful checklist is provided for schools considering their options for the future.

‘Joining a Multi Academy Trust’ published in November, outlines the process for seeking out a partner Multi Academy Trust to join. It stresses the importance of both partners carrying out due diligence on each other to ensure that their ethos, vision and values are aligned, and that both parties know what they will be taking on in terms of leadership, school performance, financial stability and liabilities. “Effective due diligence is essential in ensuring you find out as much as you possibly can about any MAT you are considering joining. MATs will also undertake due diligence into schools that are considering joining their trust”. Recognising the crucial importance due diligence when joining a Multi Academy Trust for busy education leaders, Elderflower Legal has launched a new fixed price product EduDiligence™ – find out more.

The third paper in the series ‘Forming a Multi Academy Trust’ sets out the process towards setting up a MAT, including reasons for forming your own Multi Academy Trust, how to choose the right partners, things to think about when scoping your new MAT, and how to undertake due diligence on your potential partners, as well as the importance of engaging and consulting with stakeholders before the decision is taken.

Some suggested key strategic questions for leaders of prospective MATs to ask themselves include:

  • What do you hope to achieve in the next three to five years?
  • What do you want for the children and young people in your schools?
  • How will you work together to achieve your aims?
  • Do you have a sense of how big you would like your MAT to grow? (Think in terms both of numbers of schools and numbers of pupils.)
  • Will this result in an organisation which is educationally and financially sustainable?
  • What is your attitude to the risks that new organisations have to take, such as creating leadership capacity to grow the organisation?
  • What capacity will you need to take on struggling schools? How will you make sure you don’t over-stretch yourselves?
  • What do you think will be your biggest challenges in your first few years, and how will your strategy mitigate these?
  • What central support do you plan to offer your schools? Where might this be located, and will all the schools in the proposed MAT be able to access it?

The ASCL guidance will be particularly helpful to schools beginning the journey of considering whether to form a new academy trust or join an existing Multi Academy Trust. The guidance can be accessed here.

 

Mark Johnson is an independent legal and governance specialist working with academy trusts, schools and not for profits to help them succeed. He serves as the company secretary of a MAT in Cheshire and independent audit committee member of a large MAT in Manchester. Get in touch today or find out more at elderflowerlegal.co.uk or call 01625 260577.

The information above is provided for general guidance only and is not a substitute for professional advice which may depend on your specific circumstances. If you would like to be kept up to date on more topics like this, then why not sign up to receive our regular newsletter.

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Public Law Pitfalls for Academies – Part II

Inadequate Consultation & Other Public Law Pitfalls for Academies

In Part 1 of this post I outlined the public law pitfalls for academies when they exercise their public functions. One of the ways in which academy trusts can ensure they comply is to conduct a fair consultation process before taking major decisions with a public character..

 The crucial importance of consultation

The duty to consult before taking major decisions may be expressly required by specific legislation, such as section 5 of the Academies Act 2010 (where a school is proposing to convert), or Section 10 (where a free school is being proposed), or it may be implied as a matter of good administrative practice. Either way, the decision-maker will expose itself to risk of a claim for a flawed consultation process if it doesn’t follow the correct procedures.  As well as being a legal duty in itself, in some circumstances, the running of a consultation exercise may be seen as a way to improve transparency and enhance the quality of decision-making. Although it may be an administrative burden with some expense involved, it may help to fend off other types of challenges later because it will elicit information and relevant facts that the decision-maker needs to be aware of before proceeding, and will help to show that the decision maker made proper enquiries (for example, around the equalities impact of any proposals, such as the effects on ethnic minorities or disabled persons).

The sort of contentious proposals on which a consultation might be required include choosing or changing a sponsor, joining or leaving a Multi Academy Trust, changing admissions arrangements, changes to SEN provision, or opening a Sixth Form.

Golden rules for a fair and bullet-proof consultation

To avoid the risk of challenge to the consultation exercise itself, or to the subsequent decision which is based on it, the consultation must always be carried out fairly. What is fair will depend on the particular circumstances and the nature of the proposals under consideration. It will always be sensible for decision-makers to take more care if the proposals are likely to be very controversial. If the statute or Government guidance lays down specific requirements for the consultation, then these must be adhered to, but otherwise there will be a broad discretion to design the process as they see fit. The Courts have laid down the following key principles known as the Gunning principles

[1] (named after the claimant in that case), which must always be followed:

  • Consultation must take place when the proposal is still at a formative stage – the decision-maker cannot consult on a decision that has already been made – otherwise the outcome will have been pre-determined. The wording of section 5 of the Academies Act (the duty to consult before creating an academy) gave rise to controversy when anti-academy campaigners sought to argue that a consultation conducted by a Governing Body once the they had already applied to the Secretary of State for an academy order had effectively been pre-determined. Fortunately, the section makes clear that consultation can take place “before or after an Academy order, or an application for an Academy order”. However, the application for an academy order (which is a pre-condition to obtaining the £25k grant funding for set up costs) requires the school to confirm that the Governing Body has passed a resolution in favour of conversion – passing such a resolution before consultation has taken place could be problematic! The resolution may have to be carefully worded to state simply that the Governing Body has resolved to ‘explore the possibility of moving to academy status’. Controversially, the new Education and Adoption Act has removed the requirement to consult when the Secretary of State decides to make an order in relation to an ‘inadequate’ or ‘coasting’ school[2]. Careful choice of words in public meetings and written communications can also be very important. If the trust board is minded to pursue a particular option, it should take care to say that and talk in terms of what might happen if the decision goes ahead, and not give the impression that the issue is a fait accompli. If there is really only one viable option, the trust can state this and provide reasons as to why this is the case.
  • Sufficient reasons must be put forward for the proposal to allow for intelligent consideration and response. Consultees need to be made aware of the basis on which a proposal for consultation has been put forward. They need to be aware of the criteria which will be used in considering the proposals, and what factors will be considered decisive. Equally, the information in the consultation document must not be inaccurate or misleading so as to mislead consultees. It is particularly important when dealing with complex issues to provide access to sufficient background information to educate and inform consultees. The document should set out what is proposed, what the options are and why these changes are needed. In the case of new academy proposals, it would be prudent to provide information about the background to academies, their supposed benefits and governance arrangements, the extra money and resources which might be available, the extra risks and responsibilities involved, the impact on teachers, pupils and other staff, impact on other schools. Be upfront about the reasons for a proposal – in the current climate the driver for change will often be mainly financial – if that is the case say so – don’t be tempted to hide behind other more superficially palatable reasons, because that may risk the exercise being struck down as unlawful.
  • Adequate time must be given for consideration and response. Sometimes the statute may prescribe the time period, otherwise it may be left to the decision maker. If the decision maker has already adopted a documented policy on time periods, it will be expected to adhere to it, unless there are good reasons to depart from it. In the context of schools, a minimum of six weeks would be a reasonable time period, however at least some of the period should be during term time when parents, pupils and staff are on site. DfE Guidance on making significant changes to an existing academy trust[3] recommends a period of four weeks and the Admissions Code requires a minimum of six weeks for changes to admission arrangements. If the decision needs to be taken urgently, the Courts may be tolerant of a shorter time period – though less so if the circumstances are of the academy’s own making.
  • The product of the consultation must be conscientiously taken into account. If the decision maker does not properly consider the responses, then it can be accused of having already made up its mind or having failed to take into account a relevant consideration. The decision maker does not have to personally take into account every response – it can rely on a summary produced by officers, as long as it is comprehensive and accurate. It is important make sure there is a paper-trail showing that this was the case.

Who should be consulted?

A key question is to identify the audience of persons who should be consulted. The safest option would be to cast the net wide and, depending on the nature of the proposal, consult with parents, pupils, staff, other affected schools, (e.g. feeder primary schools), nurseries or children’s centres on site, any diocesan or religious authority for the school, FE colleges, local community, local Admissions Forum, representatives of key stakeholders such as the local authority, the EFA, Regional Schools Commissioners, authorised representatives of trade unions and professional bodies. The consultation document should set out the background to the proposals and ask a series of questions and invite consultees to make any other observations they may wish to include. The information should be readily available – post it on websites and make hard copies available to pick up at the school. Consider issuing press releases to local papers. Meetings should be held for parents, pupils and staff and questions recorded and published as part of FAQs document on the website for those that could not attend. Useful guidance about the conduct of public consultations has been published by the Cabinet Office.

What if the proposal changes?

Is the decision-maker required to re-consult if it wants to adjust its original proposals or if circumstances have changed since the consultation began? The Courts have taken the view that fresh consultation is only required where there is a “fundamental difference between the proposals consulted on and those which the consulting party subsequently wishes to adopt”[4]. A particular example of this might be if the site for a new or expanded school has not yet been identified at the time consultation takes place. The consultation can proceed with new information about site information being provided as it becomes available – although obviously it may then be necessary to extend the time for responses on that aspect.

Whilst there are as yet no reported cases of judicial review of governing bodies in respect of academy proposals (as opposed to admissions or SEN issues), solicitors’ letters threatening litigation and the attendant costs seems to have been enough to delay conversions at Tyndale School in Islington, where the objectors alleged that the governing body failed to carry out an assessment of the impact changing to academy status would have on the wider community, especially in terms of equalities – how it would affect people of different religions, gender and disabilities. A similar threat of proceedings against the governing body based on flawed consultation and inaccurate information being presented to parents also delayed conversion at Tidemill School in Deptford.  It is also noteworthy that the governing body’s failure to consult properly can later be used as grounds to attack the Secretary of State’s decision to approve academy arrangements (even though it is not actually her obligation). This was accepted by the Court in proceedings to challenge the academisation of Downhills School in Haringey[5] (although the challenge ultimately failed on the basis that the local authority had consistently failed to raise standards and there was a pressing need to intervene, the judge accepted an argument that, if a credible alternative strategy had been put forward by parents to improve the school whilst remaining under local authority control, the decision maker would have been obliged to consider it).

Final thoughts

The complex patchwork of legal rules and duties applying to academy trusts is derived from many sources – including education law, company law and charity law. Given the hybrid nature of academy trusts and their special status as private corporations delivering publicly funded services, amid the multiple layers of regulation, it easy for trustees and governors to overlook the public law pitfalls for academies, the most important of which is arguably the duty to properly consult before taking major decisions which affect the school and wider community. As wholesale academisation gathers momentum, we may see more use being made of public law challenges to check and hold to account the decision-making of academy trusts.

[1] R v Brent London Borough Council, ex parte Gunning, (1985) 84 LGR 168

[2] Section 8 of the Education and Adoption Act 2016

[3] Making Significant Changes to an Open Academy,  DfE 1 March 2016

[4] Silber J in R (Smith) v East Kent Hospital  NHS Trust 2002 EWHC 2640 45ff

[5] R (Moyse) v Secretary of State for Education  [2012] EWHC 2758 (Admin)

Mark Johnson is a highly experienced independent solicitor & chartered company secretary helping schools and academies with conversions, creation of MATs, legal and governance issues. We can help your academy to flourish. Find out more at elderflowerlegal.co.uk.

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Public Law Pitfalls for Academies

Inadequate Consultation & Other Public Law Pitfalls for Academies

Despite the rhetoric about autonomy, independence from state control and privatisation, academy trusts are still treated as quasi-public bodies for some purposes in the eyes of the law. Consequently, they are subject to various public law duties in the way they carry out their public functions. Unlike their specific duties derived from legislation such as the Academies Act 2010, Charities Act 2011 or Companies Act 2006, many of these duties are not written down in black and white. Instead, they are derived from principles of administrative law developed by the Courts over many decades. This lack of clarity means it can be difficult for trustees and governors to understand precisely what the law requires in this area. This is a developing area of the law in the context of academy trusts, particularly as the prospect of more enforced academisation polarises views and seems likely to encourage more protest and challenge to the activities of academy trusts. It is important that trustees and governors understand what the public law pitfalls for academies are to avoid falling into the traps. In this series of posts I will be examining what these duties are and how to stay compliant.

What is public law?

Public law is a body of long-established rules and principles used to check and challenge the decisions and policies of public and quasi-public bodies (such as housing associations or NHS trusts). The Courts have found that academy trusts are subject to public law because (a) they are carrying out functions of public nature (b) they derive their legal existence from statutory powers vested in the Secretary of State and (c) they are funded mainly from state resources. Consequently, their decisions and actions may be susceptible to judicial review in the Administrative Court. The courts will not intervene lightly in decisions of public and quasi-public bodies. Claims for judicial review follow a specific procedure – there is a strict time limit of 3 months from the date of decision being challenged (and the claimant must act promptly). The claimant must comply with the pre-action protocol before issuing a claim. He must obtain permission from the court to bring the claim. A judge will determine if there is an arguable case at a preliminary hearing, usually based on written evidence alone at this stage. If the court grants permission to proceed, the second stage of the proceedings will then go on to consider the merits of the claim. If the claim is successful the court can make various orders – it can strike down the public body’s decision, it can issue a declaration that the decision is wrong and require the decision-maker to re-consider the issue. Although pursuing a case is likely to require a budget of several thousand pounds, which can be a significant deterrent, legal aid may be available for certain types of claims if the claimant is in receipt of means-tested benefits, a very low income or is a child, and it is becoming increasingly common for well-organised action groups to crowd-fund their case. Litigants may also protect themselves against the risk of having to pay the winning side’s costs if they lose by applying for a Protective Costs Order.

Public law duties

Public bodies must act within their powers and in a fair and reasonable way when dealing with service users and the public. In the context of academies, that means duties towards parents, pupils staff and the wider community. Public bodies must reach fair, rational and reasonable decisions about the rights and entitlements of their service users. If they don’t comply, their decisions can be subject to complaints, challenges before regulators (such as OFSTED or OFQUAL) adjudicators (e.g. the Schools Adjudicator for admission issues), the Education Funding Agency and ultimately court claims for judicial review. Judicial review proceedings are a way of challenging the decisions of public bodies on the basis that the decision-making process adopted by them is so seriously flawed as to be unlawful.

The principle that academy trusts are subject to public law duties and that their decisions can be challenged by a claim for judicial review was established in a case concerning a challenge to the admission arrangements of a City Technology College (the precursors to academy trusts) in South East London in 1995

[1]. Admission arrangements at the Harris Academy in Crystal Palace were found to be capable of challenge by way of judicial review in a case in 2011.[2] Whilst it is clear that the education functions of an academy trust are amenable to judicial review, it is less clear whether its other functions, such as delivery of non-statutory services or decisions to enter into commercial contracts could be subject to review in this way. In a challenge to the decision of Camden Council to establish a new academy in 2009, the claimant Mrs Chandler argued that the decision to select a new academy sponsor should have been subject to an open competition.  Although the challenge failed on the merits, the Court of Appeal acknowledged that an ordinary citizen might, in appropriate cases, have a public law claim for failure of a public body to comply with the public procurement rules (which requires contracts to be advertised and open to competition)[3].

Sound decision-making is vital

In the context of academies, the decisions which have a public law aspect are likely to be taken by the academy trust board, or occasionally the Chief Executive or Executive Headteacher of a MAT, acting under delegated powers. The usual line of attack against decisions or actions by a public body is to allege one or more of the following defects in the decision:

  • Irrationality or unreasonableness– the decision is so outrageous or absurd that no reasonable person would have made it, or alternatively the decision-maker has failed to ask itself the right question, failed to make proper enquiry into the facts, has not taken into account relevant factors, or has taken into account irrelevant considerations. Linked to this is a growing doctrine of proportionality: the action taken by a public body must be appropriate, necessary, and not go beyond what is necessary to achieve the objective[4]. Heavy-handed decisions which deprive someone of a fundamental right are particularly susceptible to review under this principle.
  • Illegality – the decision-maker must understand the law which regulates them. A public body may have acted outside of its powers (known as ‘ultra vires’) – those powers may be set out in legislation or in the governing document (Articles of Association); the body has failed to comply with a duty set out in a particular statute e.g. the requirement to make SEN provision under the Children and Families Act 2014; the body has unlawfully fettered its discretion – e.g. by adopting a blanket policy on an issue without considering the merits of each individual case; the body has failed to provide adequate reasons for its decision; the decision maker has unlawfully delegated its decision-making to another party when it should have taken the decision itself (for example, an unlawful scheme of delegation).
  • Procedural impropriety – this a defect in the process of decision-making, which breaches the rules of fairness and natural justice: this could include bias from the decision-maker because of an obvious conflict of interest, failure to give someone a ‘fair hearing’ to put forward their arguments, acting inconsistently in two or more similar situations, breach of a legitimate expectation (express or implicit promises made to people, which the decision maker then goes back on; or failure to consult before making an important decision (see more on this later).
  • Breach of Human Rights – failure to respect the European Convention Rights brought into UK law by the Human Rights Act 1998. It has become increasingly common for these grounds to be added into a claim, such as the right not to be discriminated against, right to freedom of expression, right to education, right to private and family life. In this context, the courts often apply a proportionality test – i.e. they have to weigh up the interests of the wider community and the legitimate aims of the state as against the protection of an individual’s rights and interests.

All this points to the need to think about the public law implications of decisions, policies and major changes implemented by an academy trust to avoid public law pitfalls. Examples of the kind of issues which could become contentious include, changing admission arrangements, a decision to merge or amalgamate schools, changes to SEN provision, uniform policies, school meals arrangements.

An interesting question which has yet to come before the courts is whether parents and pupils might use judicial review proceedings to force an academy trust to comply with certain provisions in their Funding Agreement which might be capable of conferring rights on third parties (for example, Clause 2.10 which requires the academy to be ‘all ability and inclusive’, to make available places for children with SEN (Annex para 9), to provide free milk (2.16) and to provide minimum pension benefits for staff (2.7). During debates on the Academies Bill in 2010 the Minister Lord Hill said “I am happy to confirm that parents have always had the power to seek judicial review against either the academy trust for failing to follow its contractual obligations [under the Funding Agreement] or the Secretary of State for failing to ensure that the academy complies with its obligations under the Funding Agreement[5]”. We may in future see claims based on the premise that pupils and parents have a ‘legitimate expectation’ that the terms of the Funding Agreement will be complied with.

Next time we will consider the crucial importance of conducting a fair consultation process when considering new or significant changes to academy arrangements.

[1] R v Governors of Haberdashers’ Askes Hatcham College Trust ex parte T [1995] ELR 351

[2] R (Omotosho) v Harris Academy Crystal Palace 2011 EWHC 3350, per Singh J at para 6

[3] R (Chandler) v London Borough of Camden 2009 EWCA Civ 1011 at para 77

[4] See for example, Pham v Home Secretary [2015] UKSC 19, per Lord Mance at para 96.

[5] Hansard 7 July 2010 Vol 720

Mark Johnson is a highly experienced independent solicitor & chartered company secretary helping schools and academies with conversions, creation of MATs, legal and governance issues. We can help your academy to flourish. Find out more at elderflowerlegal.co.uk.

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Due Diligence for Schools Joining a Multi Academy Trust – Part 3

In Part 1 and Part 2 of this post on due diligence for schools joining a Multi Academy Trust, I examined the strategic, leadership, workforce and financial issues of due diligence when schools join a multi academy trust. In this final Part 3, we look at commercial and asset-related issues.

Commercial

How are support services organised at present in the school which is joining the Multi Academy Trust?

Will any existing contracts be taken over by the MAT or need re-organising e.g. catering, cleaning, statutory testing, property maintenance, photocopiers, transport and vehicles, IT, telecoms? You should obtain copies of and review any agreements with suppliers or service users.

Is the school part of a PFI agreement? If so, what are the terms of this, and can some of the liability and responsibility remain with the local authority? This can be an area of high risk on which professional advice will be needed.

Are there existing building projects, grant conditions, partnerships or collaborations with other schools or outside bodies in place which could be inherited by the MAT?

Does the school own any intellectual property rights (e.g. logos, copyright, design rights or trademarks, internet domain names) which need to be transferred over?

Any pending law suits, claims or complaints which could give rise to liabilities in the future e.g. disputes with suppliers, safeguarding issues, health and safety, data protection, equality and human rights commission, breach of public procurement/ tendering requirements?

What insurances are in place at present and would they cover any issues identified post-transfer (e.g. an employment claim)?

Any permits or licences that need to be replaced or put in place post-transfer (e.g. copyright licensing agency, music performance, event licences)?

The MAT will enter into a Commercial Transfer Agreement (CTA) with the current owner of assets and contract holder (usually the Local Authority or Voluntary Aided School Governing Body). It has become increasingly common for local authorities to demand a contribution to their legal costs of negotiating and concluding this agreement and the Lease of the site. Have you included this in your project budget and perhaps stipulated deadlines and conditions of your own in return for this payment?

Asset Condition

What state are the school buildings in? What kind of backlog maintenance liabilities are there, and what is the likelihood of significant capital expenditure in coming months and years, e.g. will heating systems, roof repairs, water tanks, windows need repairing? Can the current owner be persuaded to fund/ carry out any works pre-transfer?

Who owns the school buildings and surrounding land and will this be transferred cleanly and effectively to the MAT? Are there any outstanding statutory transfers between public bodies not fully completed? Is the title to the land correctly registered at HM Land Registry – if not, consider asking the existing owner to tidy this up pre-transfer to avoid delays or problems if the title deeds cannot be located.

Watch out for thorny issues such as shared use of outdoor space, part of the premises leased to an external organisation (such as a private nursery provider or leisure operator), accommodation provided to school staff, which may be subject to protected tenancies making it difficult to remove the occupier and possibly leading to a costly dispute.

Have there been any significant building works recently- were all necessary consents and approvals obtained for these (e.g. building regulations and planning). Did the contractor provide a warranty? Have solar panels been installed on the roof- if so, who owns them and what contracts were put in place at the time?

IT systems- evaluate the age and utility of the current systems -are they fit for purpose? What do managers and staff think of the current systems and support service?

Who owns the equipment? Are there third party software licences which may need to be renewed after the transfer?

Have data security issues been considered? How will legacy equipment be disposed of securely (no data back-up tapes or machines found in a skip!) What will happen to the joining school’s website post-transfer?

Final thoughts

Due diligence is a vital part of any acquisition or merger of schools into a MAT. Handled sensitively and proactively it can lay the foundations for creating genuine ‘marriage value’ by allowing each party to get to know each other, explore the respective strengths and weaknesses of the other and find real opportunities to improve the life chances and attainment of pupils across all the schools involved. Contrary to popular belief, it is not a rigid process designed to unearth ‘dealbreakers’. Neither is the process  an exercise in box-ticking: it needs to be a dynamic and living one deploying a range of skills and a healthy dose of emotional intelligence. Addressing soft issues such as cultural compatibility and management succession can be just as important as hard issues, such as legal and financial aspects. Professional advice from advisers familiar with the sector can provide very valuable intelligence and support. Remember the maxim ‘due diligence is cheap, litigation is not’. Leaders need to be as sure as they can be before taking the plunge to merge their schools. As the old saying goes, ‘marry in haste, repent at leisure’.

Find out more about our Due Diligence Service here.

 

Mark Johnson is a highly experienced independent solicitor & chartered company secretary helping schools and academies with conversions, creation of MATs, legal and governance issues. We can help your academy to flourish. Find out more at elderflowerlegal.co.uk.

If you would like to be kept up to date on more topics like this, sign up to receive our regular newsletter.

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Due Diligence for Schools Joining a Multi Academy Trust – Part 2

In Part 1 we examined the purpose of due diligence when a school joins an academy trust. In this Part 2 we look at workforce aspects and financial due diligence.

Workforce

Payroll costs typically account for 75-80% of a schools’ expenditure (DfE, 2013) so this is obviously an area to pay careful attention to. When a school joins a MAT, normally the MAT is the legal entity which will become the employer of the staff. In a community school, the existing employer will usually be the local authority and so the HR department of the authority will have a key role to play in providing information about the workforce and smoothing the transition. However, in voluntary aided schools it is usually the governing body that is the employer. Even in some maintained schools, the governing body may be the legal employer of certain staff (e.g. premises assistants, community workers, nursery staff). This is a trap to watch out for since it is the existing employer that has legal duties to comply with.

The new joiner school will want to understand what will happen to its staff when they join the group. Under the new structure, who will have the power to suspend staff, appoint performance management reviewers, undertake threshold assessment or exclude pupils?

The MAT, on the other hand, will be interested in the profile of the staff it will be taking on, and the associated payroll costs and liabilities. The transfer of teaching and support staff will be covered by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) and the contractual terms of the Commercial Transfer Agreement (CTA). The practical effect of this is threefold:

  • The new employer inherits the contracts and payroll costs (including pension entitlements) of the staff who transfer; the ability to make changes to employment contracts or release staff is very limited and requires specialist advice.
  • The current employer and new employer need to inform staff and consult with them about the transfer arrangements – failure to do so can result in a financial penalty.
  • Any existing grievances or claims relating to the staff transfer to the new employer and become their problem to manage.

Remember that TUPE can also apply to staff employed by external contractors. So, if the joining school has a contract for maintenance or cleaning with an outside provider with staff who spend most of their time servicing that location, and the intention is that these functions will in future be performed in-house by the MAT, these staff may also end up transferring onto the MAT payroll as well.

Some key questions to probe:

  • Obtain an organisation chart and biographies of key staff. Check historical and projected headcount. Any recent changes of leadership or restructuring?
  • Details of all staff, including date of birth, age, date of starting employment, length of service, salary, benefits, notice period, pension details.
  • Are appropriate contracts in place for all staff? Arrange to review a sample. Any consultants or self-employed contractors who regularly provide services?
  • Have any verbal assurances or agreements been made with staff outside of their formal contract?
  • Are personnel records up to date and securely stored? Will they be handed over on the transfer date?
  • Are payroll records up to date and complete? Have all necessary deductions been made and accounted for to HMRC and others? Do the figures tally with the contractual entitlements?
  • What are the figures for staff turnover? Are there any pending disciplinary or grievance investigations? Have any staff been dismissed recently?
  • Details of sickness records, employees on maternity leave or secondment.
  • How will occupational health support be provided in future?
  • How will absence management be dealt with post-transfer?

Stakeholders

Both the new joiner and the MAT will have a range of stakeholders whose views and attitudes can shape the future success of the integrated organisation. These will include parents and carers, pupils, former pupils, the staff, the local authority, external sponsors or foundations (such as the local diocese in the case of religious schools), local residents, local media, the Regional Schools Commissioner. It is important to map out these stakeholders, solicit their views and decide how best to consult with them and keep them informed about future plans. What are their hopes, fears and dreams for the future? A stakeholder communication plan should be drawn up. Digital communications and social media could play an important role in doing this cost-effectively. Surveys, press reports and Google searches may produce useful insights.

Financial

Financial due diligence should determine the current financial position, as well as identifying any support or training needed for managers going forward. New joiners will need to understand how the ‘top slice’ deduction to their school budget to pay for central support services will be applied and whether it represents value for money. Typical rates can vary from 3% to 5%, in some cases even 7%. Are the service levels to be expected from central support services in return for this deduction clearly documented?

Typical areas requiring examination will include:

  • Income/ Expenditure Budget reports and cashflow projections
  • Summary of month end bank and cash book position for current year and last two years, explanation of variances and major inflows/ outflows
  • Five-year financial forecast for the school. Are assumptions realistic? Particularly with respect to pupil numbers, which is ultimately the key financial driver.
  • Any negative balances, deficits or outstanding loans (e.g. for capital projects funded by local authority, Priority Schools Building Programme or Targeted Basic Need)?
  • Any grant funding with restrictive conditions or claw-back provisions (e.g. for sports facilities)?
  • Details of revenue generating activities – e.g. room or outdoor space hire, paid-for services.
  • Any significant debtor balances?
  • Any significant off balance sheet liabilities (e.g photocopier leases or vehicle leases)?
  • Any VAT or corporation tax issues?
  • Any pension fund deficit?
  • How is payroll currently organised? Do all staff have up to date contracts?
  • How is banking currently organised? Who are the signatories on accounts?
  • What are the financial controls and checks?
  • What are the main risks facing the organisation? Are these documented in a risk register?
  • Discussions with the relevant section of the Local Government Pension Scheme should take place early in the process to find out their methodology regarding transfer values, which will have an effect on future employer contribution rates.
  • What accounting systems and current reporting arrangements are in place?
  • The new joiner will be keen to see the last 3 years’ audited accounts for the MAT and the auditors’ management letters

The most common areas of fraud in academies identified by the National Audit Office (2015) were:

  • Inappropriate expenses claims or undocumented salary increases
  • Inappropriate or unauthorised purchases (e.g. luxury goods, alcohol, cars)
  • Non-compliance with procurement and tendering rules for major purchases or building projects
  • Related party transactions (i.e. buying from business connected with management or governors)

Next time –  In Part 3 of this post, we will look at commercial and asset-related issues of due diligence for schools joining an academy trust.

Find out more about our Due Diligence Service here.

 

 

Mark Johnson is a highly experienced independent solicitor & chartered company secretary helping schools and academies with conversions, creation of MATs, legal and governance issues. We can help your academy to flourish. Find out more at elderflowerlegal.co.uk.

If you would like to be kept up to date on more topics like this, then why not sign up to receive our regular newsletter.

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Due Diligence for Schools Joining a Multi Academy Trust – Part 1

Due Diligence for Schools Joining a Multi Academy Trust

The Department for Education has signalled clearly that the future development of academies lies in the consolidation of more schools into multi-academy trusts (MATs). Primary schools, in particular, will be encouraged to join existing clusters and groups of schools. In future, we may see schools deciding to leave one MAT and join another, where the grass is greener – a bit like footballers at transfer season! The decision of a single school to join a MAT family of schools requires careful thought on both sides. For the new joiner school, (which could be a community school, a church school or a standalone converter academy), the headteacher and governors will need to be satisfied that the match is a good one, the cultures are aligned and that operating at scale will bring the expected benefits for pupils. Equally, the board of the MAT will need to be satisfied that the school they are ‘acquiring’ or partnering with will fit well with the aims and ethos of the group, will not create unmanageable risks or liabilities for the future, nor de-stabilise the group as a whole. Both partners in the relationship need to undertake some detective work and analysis before signing on the dotted line. The technical term for this exercise is ‘due diligence’.

In our work with academy converters and MATs, we often find due diligence is often not given the priority and resources it deserves. In the wider corporate sector, research has found that 70% of mergers and acquisitions fail to deliver the expected benefits (IoD, 2012). The reasons most often cited for failure are (1) misguided strategy in pursuing the merger (e.g. ‘empire building’ or hubris) (2) overly optimistic expectations and (3) failure to manage the integration process properly. It is important that leaders of both parties spend quality time on this aspect to discharge their duty to promote their organisation’s best interests and enhance the chances of success.

Purpose of due diligence

Due diligence is the process by which the parties gather information about each other to ensure the integration process proceeds smoothly. In particular, it is used to identify risks, liabilities, cultural differences and practical issues that may cause difficulties later. The key objectives are:

  • To test the strategic rationale for the tie-up: will it improve the life chances and attainment of pupils and is it really financially and operationally attractive for both sides? What are the prospects for the future? Do the partners have the capacity and capabilities to pull it off?
  • To inform negotiations, identify liabilities and make sure the legal documents pick up risks and allocate them appropriately by using warranties and indemnities (legal clauses which require one party to compensate the other if a risk materialises and costs are thereby incurred). The general rule is that liabilities whose origin is pre-transfer belong to the transferor (local authority and/or diocesan trustees), and those whose origin is post transfer belong to the transferee (the MAT).
  • To lay the foundations of the future integrated organisation and build its culture. The process should combine an ‘outside in’ approach with an ‘inside out’ approach to understand the schools’ relative position in the local education system, as well as understanding the internal capabilities, strengths and weaknesses.
  • To examine broader issues of culture, systems and processes, management structures, future opportunities and business plans.

Is there a framework for due diligence?

In our work with academies, we are often asked about the best way to approach due diligence when a new school is joining a MAT. Effective due diligence needs to look at a range of factors to form a complete picture. It is not just about examining the accounts of the organisation, reading the last OFSTED report or even reviewing the staff list. Ideally, it requires a project team of people with different perspectives to pick up both hard and soft issues, the nuances vital to successful integration. Much of the information will come from interviews with open ended questions. As a mentor of mine once said: “Ask the question. Shut up. Listen”. Using two interviewers, one to listen and the other to observe body language can be useful. This is our suggested roadmap for success.

Strategy

Start with ‘Why?’ For the new joiner, what is in it for you by joining a larger group? Have you clearly articulated the list of benefits you expect to get out of the ‘merger’ and communicated these explicitly to your prospective partners (for example, more funding and resources, enhanced resilience, better support services, staff training, enhanced career opportunities)? Are they documented somewhere so you can monitor progress and hold your partner to account later? For the acquiring MAT, is it part of your strategy to grow by acquiring new schools? Do you genuinely have the capacity, resources and support systems to absorb and nurture the staff team, pupils, buildings, contracts and liabilities you will be taking on?

What does this particular school bring to the party, as compared to others you could work with? Benefits for the MAT might include, securing your future enrolments, access to more funding, spreading overheads to achieve economies of scale, better preparation of pupils for secondary school life, enhanced opportunities for income generation. Have you clearly communicated to the new joiner the ethos, culture and behaviours expected of those joining your MAT? Have they explicitly accepted them?

Performance

Both parties need to understand where the other currently stands at the moment in performance terms.

Key questions to consider might be:

  • What is the scope of educational activities? How has the organisation developed and what is the rate of expansion?
  • Is there a documented vision, mission, values, strategy and objectives? How are they performing against these at present?
  • What are the achievement levels of pupils – gain an overview of attendance, attainment and the progress of pupils within the schools
  • How is the learning rated for pupils with SEN, disabled, BME groups and looked after children?
  • How is the quality of teaching rated?
  • How is attainment and progress measured and rated?
  • Quality assurance – how well does the MAT know the performance and the strengths and weakness of its academies?
  • What are the procedures for challenging individual schools and identifying the support they need;
  • How coherent and adequate is the model for providing school improvement support – whether through MAT specialist staff, external consultants, academies in the group, other schools or a mix of these approaches?
  • What do the latest OFSTED reports say and are the areas identified for improvement and action being addressed?
  • For the MAT, what are the critical success factors and KPIs that you will use to measure performance of schools joining the group? Are these explicitly clear, (e.g. ‘all our schools are expected to be rated good or outstanding by OFSTED within 2 years of joining the MAT’)

Leadership & Governance

Leadership and governance will be critical to future success. How would you rate the quality of the MAT Board? Is there a good mix of skills and experience? Do trustees actively challenge and question the management team or do they rubber stamp decisions? Can you see the minutes of the MAT Board meetings and committees? Have any performance evaluations been carried out for the Board and can you see them?

What do the last two OFSTED reports say about leadership, management and quality of governance? What governance issues is the Board struggling with at present?

How will governance be organised after the transfer? What roles will the governors of the new joiner play after the transfer? Will any of them be invited to join the MAT board or will they function as a Local Governing Body with some delegated powers?

Review the proposed Scheme of Delegation – what functions will actually be devolved to the local governing body and which will be retained by the MAT? In what circumstances could the delegation be suspended?

Are role descriptions of the SMT, governors and key staff clearly documented so it is clear who is responsible for what?

Does the MAT have a full suite of up to date policies and procedures in place and how do they work in practice?

Can you be confident that the organisation has applied the highest standards of propriety and internal control to avoid reputational damage? Do they manage board members’ and the management team’s conflicts of interest properly and avoid ‘related-party transactions’ (e.g. awarding contracts to a relative’s business)? Consider reviewing the register of business interests and board minutes to check this. Are you satisfied that the organisation is transparent in all its dealings?

Next time – In Part 2 of this post, we will examine the workforce issues and financial aspects of due diligence.

Find out more about our Due Diligence Service here.

Mark Johnson is a highly experienced independent solicitor & chartered company secretary helping schools and academies with conversions, creation of MATs, legal and governance issues. We can help your academy to flourish. Find out more at elderflowerlegal.co.uk.

If you would like to be kept up to date on more topics like this, then why not sign up to receive our regular newsletter.

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