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. 

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 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.

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