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

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The Hallmarks of Good Governance in Academy Trusts – Part 4

A series of posts examining what good governance in an academy trust looks like and how boards can create a framework to deliver their core purpose and properly discharge their duties. In part 3 we looked at Stewardship of Finance and Resources. In this final part 4 we examine..

How to get governance right from the outset

The Department of Education’s view is that effective governance requires the following key ingredients:

  • The right people with the necessary skills, time and commitment, and sufficient diversity of perspectives to ensure internal challenge, all actively contributing in line with clearly defined roles and responsibilities under an effective chair and an explicit code of conduct, and with active succession planning
  • Clear governance structures and documentation with tightly defined remits, particularly in relation to functions delegated to committees or other bodies
  • Clear separation between the strategic and operational in terms of the role of the board and the school management
  • A positive relationship between the board and its school management enabling robust constructive challenge on the basis of a good understanding of objective data, particularly on pupil progress, staff performance and finances
  • The support and advice of an independent and professional company secretary
  • Robust processes for financial and business planning and oversight and effective controls for compliance, propriety and value for money
  • Processes for regular self-evaluation, review and improvement including; skills audits, training and development plans, and independent external reviews as necessary.

“Governors and trustees are engaged and energetic non-executive leaders who are driven by their core strategic functions of setting the vision, holding the Headteacher to account or results and making sure money is well spent; they sit on boards no bigger than they have to be; are curious about what’s going on in the classroom and aren’t afraid to innovate; they focus ruthlessly on what really matters: raising standards”  – Schools Minister, Lord Nash, 2013

Ensuring continuous improvement

Achieving high standards of governance and accountability requires sustained effort and resources – it isn’t easy. With all aspects of good governance, the effectiveness ultimately depends on the skills, knowledge and behaviour of those responsible for operating the system. The board must set the desired values, ensure they are communicated, incentivise the desired behaviours, and sanction inappropriate behaviour. Academy Trust boards can benefit greatly from an external review of their governance structures and/or an independent review of their board’s effectiveness. In response to the growing need for improvements, Elderflower Legal has developed fixed price review packages which can be delivered quickly, confidentially and with the minimum of fuss to help trustees and school leaders get a picture of how they are performing and what areas of practice need to improve. You can find out more about our review packages here.

Final thoughts

One of the difficulties in embedding sound practice is a current lack of clarity about who is responsible in academy trusts for setting up the framework for sound governance and embedding good practice.  CEOs and Executive Principals may not be the best people to lead on this – they are tasked with driving the organisation forward and taking measured risks. Similarly Finance Directors and School Business Managers may be too immersed in the day to day operations and short of time to take an overview of governance. The best person to implement your system is trained governance professional, such as an ICSA-qualified chartered secretary. They have the necessary experience and rigorous qualifications beyond financial and legal aspects to make things happen and help you succeed. Chartered secretaries can work for your trust on an outsourced or employed basis, depending on your budget.

A sound system of governance isn’t a ‘nice to have’, an exercise in box-ticking compliance or even a brake on progress: it is an essential foundation stone on which the whole institution is built. Get it right and it can be enabling and empowering: get it wrong and the academy trust’s whole purpose and even its survival may be compromised.

If you have enjoyed these posts, we have compiled the series “The Hallmarks of Good Governance in Academy Trusts” into a FREE downloadable Special Report.  The report can be downloaded here.

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

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The Hallmarks of Good Governance in Academy Trusts – Part 3

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

Stewardship of finance and resources

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

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

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

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

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

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

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

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

Systems of internal control

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

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

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

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

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

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

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

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

Combating Fraud

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

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

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

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

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

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

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

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.