Relentless Focus on Good Governance in Academies Continues

Good Governance in Academies is Key Focus for DfE

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

Academies Financial Handbook

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

Governance

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

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

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

  • Trusts are reminded that the overarching seven Nolan principles of public life apply to everyone holding office in an Academy trust (selflessness, integrity, objectivity, accountability, openness, honesty and leadership).
  • Annual letters to Trusts’ Accounting Officers/CEOs from the ESFA’s accounting officer must be discussed by the Board and appropriate action taken

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

  • Improving efficiency and value for money in academy trusts

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

  • There is an emphasis on the importance of addressing skills gaps on the Board at key transition points such as growth periods. Trusts are recommended to use the DfE’s competency framework for governance to determine skills gaps in the Board (see more here)
  • Trusts should consider the key features of effective governance in the DfE’s Governance Handbook when assessing their effectiveness

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

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

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

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

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

Financial Control

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

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

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

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

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

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

Financial Management and Governance Reviews

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

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

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

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

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

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

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

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

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

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

Lessons to be learned

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

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

 

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

Retaining a professional company secretary or charity secretary can bring peace of mind

With an increased focus on effective governance arrangements in companies, not for profits, academy trusts, clubs and social enterprises, and an ever-expanding burden of red tape and compliance duties, Mark Johnson argues that a professional company secretary or charity secretary can add real value to your organisation and provide peace of mind for directors or committee members.

Does any of this sound familiar to you…?

“Sorry we couldn’t get the Board papers out in advance – there just wasn’t time, so can we just scan through the papers during the meeting and take them as approved..?

“The minutes weren’t circulated after the meeting because Jean didn’t have time this month what with her mother being so ill; so most of the action points were unfortunately overlooked. But don’t worry we’ll pick them up at next meeting in 3 months’ time…

“I’m sure this issue has come up in previous meetings, if only we could find the minutes and records to look back through. They used to be on John’s laptop before he stepped down..

“The Board has been grappling with this issue for a while now: like a bad smell, it keeps coming back to every meeting – but no one seems to get hold of it, find out what the answer is, nail it and allow us to move on! I would ask our lawyers, but I worry they would make an industry out of it and it could end up costing us a fortune…

“I sometimes worry about whether we are keeping up to date with our responsibilities – law and policy can change really fast in this area and none of us really has the time to research the latest position. I don’t really know what would happen if we got it wrong – I just hope we’re properly insured…if only we could find the policy documents.

“I know our policies and procedures probably need a thorough review and updating, but we’re all volunteers and we just don’t have the time and capacity to move it forward.

“I just assumed that the Treasurer would file the accounts and annual return by the deadline. It came as a very unpleasant surprise when we all got fined for missing the deadline.

“It came as a nasty shock when we realised were responsible for thousands of pounds in redundancy payments. We assumed the manager who signed the contract had read it properly, but it seems not, and the Board were really unaware of what we had taken on. This could mean we have to close down.”

Don’t leave it to chance

Running a company, charity, club or social enterprise involves a wide range of legal and compliance duties. Effective governance requires proper systems for planning meetings, analysing information, following up action points, and keeping on top of compliance and legal responsibilities. Sometimes you don’t know what you don’t know until it is too late! Unfortunately, ignorance of the law is no defence. It can often be very difficult for busy directors and volunteer board members to keep on top of everything. But the consequences of getting it wrong can be very serious. Some recent examples you may have heard about:

  • Charity was fined £200,000 for a breach of data protection laws – hackers broke into their website and stole data about service users. There was no data protection policy in place and staff had not been trained on the importance of data security.
  • The Trustees didn’t really understand how the organisation’s business model worked- they all had busy day jobs and they trusted the highly charismatic leader- after all, she brought in so much funding, and enjoyed a high public profile. What could possibly go wrong? They were devastated when the black hole in the finances came to light and the organisation went bust and they were all ‘named and shamed’ by the media.
  • The Trustees weren’t aware that the wife one of their fellow trustees was a shareholder in a business which had been awarded a contract worth £150,000 by the Trust; the Trustee hadn’t declared his interest, but the auditor picked this up at year end as a ‘related party transaction’ and once it was made public in the annual report and accounts, the media had a field day. The trust is now under investigation for governance failures and accounting irregularities.
  • A local charity was forced to abandon a fundraising event because the required licences from the local authority had not been applied for in time. Tickets had to be refunded. The organisers faced a backlash from the angry public.
  • A housing association signed a contract to deliver a high profile new project and later found that it did not have the necessary powers in its constitution to carry out the activity- the project had to be unwound and thousands of pounds and management time were wasted.
  • The marquee blew over during the event, causing  injury to a child. After consulting some rabid claims management consultants, the parents sued the committee members. They all thought they were insured, but the policy hadn’t been renewed. They ended up paying £10,000 each from their own pocket to settle the case.

All of these problems could probably have been avoided if a professional company secretary or charity secretary had been employed to keep on top of the paperwork, ensure compliance with regulations, analyse risks and sort out problems. Professional company secretaries holding Chartered Status with ICSA- the Governance Institute have undertaken rigorous academic and practical training across a wide range of areas, including corporate law, corporate governance, risk management, strategy and finance.

Start your New Year on the right footing. Consider retaining an ICSA qualified professional company secretary or charity secretary to help you:

  • manage the paperwork,
  • ensure effective meetings
  • keep on top of compliance duties
  • identify and manage risks
  • enhance board performance.

 

Elderflower Legal & Secretarial offers a cost-effective outsourced company secretarial service to small business, charities, social enterprises and academy trusts. For a fixed monthly fee we can provide peace of mind to directors and board members that compliance duties are being met, returns filed by the deadlines and risks properly identified.
Contact us today for a no-obligation chat or check out our website at elderflowerlegal.co.uk or call 01625 260577.
Find out for more details of our service packages here.
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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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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Do you understand your responsibility for safeguarding children?

Do you understand your responsibility for safeguarding children?

Recent disturbing revelations about the horrific abuse suffered by young players in football, as well as the continuing wide-ranging inquiry into historical sex abuse have thrown the spotlight firmly on the role and responsibility of trustees, directors and managers of sports clubs, charities, social enterprises and businesses, as well as their front-line staff and individually regulated professionals, in detecting and preventing abuse and understanding their responsibility for safeguarding children.

It is becoming evident that adults within some organisations were aware of abuse taking place, or at least of concerns about members of staff or those associated with the organisation, but failed to act. In some cases, leaders within the organisation failed to investigate concerns thoroughly enough and, at the extreme, they may even have sought to hide or cover up the abuse.

Whether you are a trustee, director, officer, manager, paid professional or volunteer, if your club, association, charity or business works with or provides services to children and young people, you will have statutory responsibility for safeguarding children and their welfare. You must understand what your organisation’s and your personal responsibilities are.  If you fail to fulfil your responsibility for safeguarding children, you may open up your organisation and yourself to significant liability. This could take the form of a civil claim for damages for assault or negligence, based on a breach of a duty of care owed to children under your supervision, your organisation’s vicarious liability for the acts of its staff and volunteers; or a criminal prosecution could be brought for statutory offences related to failure to carry out Disclosure and Barring Service (DBS) checks on staff, failure to notify DBS of known incidents involving a member of staff,  health and safety breaches (including failure to maintain a safe system of working), or in extreme cases where there is a cover up, failure to report an arrestable offence, or conspiracy to pervert the course of justice. Directors and officers may be personally liable for certain offences alongside the organisation, if the offence has been committed with their ‘consent or connivance’. Involvement in such proceedings could be very costly, attract adverse media coverage and have a devastating impact on your reputation. Insurance policies may not assist, since most policies will typically exclude liability for deliberate acts of abuse committed by staff or volunteers.

The Safeguarding System

Whilst local authorities, through their children’s social care teams, play the lead role in safeguarding children and protecting them from harm, everyone who comes into contact with children and families has a role to play in protecting them. Children includes everyone under the age of 18.

‘Safeguarding’ the welfare of children is defined as:

  • protecting children from maltreatment;
  • preventing impairment of children’s health or development;
  • ensuring that children grow up in circumstances consistent with the provision of safe and effective care; and
  • taking action to enable all children to have the best outcomes.

Sections 10 and 11 of the Children Act 2004 place duties on a range of organisations and individuals to ensure their functions, and any services that they contract out to others, are discharged having regard to the need to safeguard and promote the welfare of children. Various other specific statutory duties also apply to other organisations working with children and families.

More generally, Article 3 of the United Nations Convention of the Rights of the Child, which is part of UK law, provides that all children have the right to have their welfare considered paramount in all decisions taken about them. Article 12 provides for the right of the child to be heard and Article 19 provides for the child’s right to be protected from abuse and neglect.

Safeguarding is everyone’s responsibility

Everyone who works with children – including teachers, GPs, nurses, midwives, health visitors, early years professionals, youth workers, police, NHS staff, nursery staff, crèche volunteers, scout leaders, holiday camp staff, voluntary and community organisations, sports club staff, freelance coaches – has a responsibility for keeping them safe. No single staff member can have a full picture of a child’s needs and circumstances and, if children and families are to receive the right help at the right time, everyone who comes into contact with children has a role to play in identifying concerns, sharing information and taking prompt action.

Organisations working with children must provide training for their staff on how to identify and respond early to the needs of all vulnerable children, including: unborn children; babies; older children; young carers; disabled children; and those who are in secure settings.  There is a particular need to be alert to the potential need for early help for a child who:

  • is disabled and has specific additional needs;
  • has special educational needs;
  • is a young carer;
  • is showing signs of engaging in anti-social or criminal behaviour;
  • is in a family circumstance presenting challenges for the child, such as drug or alcohol abuse, mental health problems and domestic violence;
  • has returned home to their family from care; or
  • is showing early signs of abuse and/or neglect.

Safeguarding issues can also manifest themselves via peer on peer abuse. This is could include bullying (including cyberbullying), involvement with gangs, gender based violence/sexual assaults and sexting. Specific duties apply to children thought be at risk of exposure to extremism or radicalisation under the ‘prevent’ duty. (A duty to refer children and young people who show active opposition to fundamental British values, including democracy, the rule of law, individual liberty and mutual respect and tolerance of different faiths and beliefs to the Channel programme); and certain professionals working in health, social care or education settings have a duty to report suspected female genital mutilation (FGM).

Staff must be trained to identify the symptoms and triggers of abuse, harm and neglect, to share that information and work together to provide children and young people with the help they need.

Section 11(4) of the Children Act 2004 requires each person or body to which the duty applies to have regard to any guidance given to them by the Secretary of State. The latest statutory guidance is entitled Working Together to Safeguard Children 2015 and is intended to provide a national framework within which agencies and professionals at local level – individually and jointly –work together to safeguard and promote the welfare of children.

Minimum Requirements

Organisations who work with children must have in place certain minimum arrangements that reflect the importance of safeguarding and promoting the welfare of children, including:

  • a clear line of accountability for the commissioning and/or delivery of services designed to safeguard and promote the welfare of children;
  • a senior board level lead who takes leadership responsibility for the organisation’s safeguarding arrangements;
  • a culture of listening to children and taking account of their wishes and feelings, both in individual decisions and the development of services;
  • Disclosures – staff should know what to do if a child tells them they are being abused or neglected. Staff should know how to manage the requirement to maintain an appropriate level of confidentiality, whilst at the same time liaising with relevant professionals such as the designated safeguarding lead and children’s social care. Staff should never promise a child that they will not tell anyone about an allegation, as this may ultimately not be in the best interests of the child;
  • clear whistleblowing procedures to notify senior management if there are concerns about the behaviour of colleagues, which are set out in staff training and codes of conduct. If internal channels fail, the NSPCC whistleblowing helpline on 0800 028 0285is available for staff who do not feel able to raise concerns regarding child protection failures internally. There should be a culture that enables issues about safeguarding and promoting the welfare of children to be addressed;
  • a Child Protection Policy and procedures which set out clearly how to spot the signs of abuse or harm, the processes for sharing information with other professionals and agencies and the circumstances in which concerns should be reported to a designated internal lead or a referral made to local authority children’s services here, or in urgent cases immediately to the Police and/or the NSPCC hotline on 0808 800 5000;
  • a designated lead for safeguarding (or, for health provider organisations, named professionals). Their role is to support other staff in their organisation to recognise the needs of children, including rescuing them from possible abuse or neglect. These roles should always be explicitly defined in job descriptions. The post holder should be given sufficient time, funding, supervision and support to fulfil their child welfare and safeguarding responsibilities effectively;
  • safe recruitment practices for individuals whom the organisation will permit to work regularly with children, including policies on when and how to check the identity of an applicant and obtain a criminal record check from the Disclosure and Barring Service and keep it up to date. More information is available on the DBS website. Certain employers can be liable to prosecution and a fine of up to £5,000 if they allow staff to have unsupervised access to children without undertaking the necessary check.
  • appropriate supervision and support for staff, including undertaking regular safeguarding training to keep up with developments in the law and best practice in what is a fast-changing environment. Employers are responsible for ensuring that their staff are competent to carry out their responsibilities for safeguarding, promoting the welfare of children and creating an environment where staff feel able to raise concerns and feel supported in their safeguarding role;
  • staff should be given a mandatory induction, which includes familiarisation with child protection responsibilities and procedures to be followed if anyone has any concerns about a child’s safety or welfare;
  • all post holders should have regular reviews of their own practice to ensure they improve over time; and
  • clear policies must be in place for dealing with allegations against people who work with children. Such policies should make a clear distinction between an allegation, a concern about the quality of care or services or a complaint. An allegation may relate to a person who works with children who has:
    • behaved in a way that has harmed a child, or may have harmed a child;
    • possibly committed a criminal offence against or related to a child; or
    • behaved towards a child or children in a way that indicates they may pose a risk of harm to children.
  • a staff behaviour policy (or code of conduct) which should among other things include – acceptable use of technologies, staff/children relationships and communications including the in appropriate use of social media.
  • Appropriate record-keeping and document retention policies concerning any allegations or referrals made.
  • The Safeguarding Vulnerable Groups Act 2006 (SVGA) places a legal duty on certain employers and ‘personnel suppliers’ to make a referral to the Disclosure and Barring Service of any person who has:
    • harmed or poses a risk of harm to a child or vulnerable adult;
    • satisfied the harm test; or
    • received a caution or conviction for a relevant offence.

This enables the central DBS record to be updated so that subsequent employers are aware of previous incidents. A regulated activity provider is an organisation or individual that is responsible for the management or control of ‘regulated activity’, paid or unpaid, or a person who makes arrangements for people to work in that activity. This will usually be an employer or a voluntary organisation. Clear-cut examples of a ‘regulated activity provider’ include:

  • providers of health and social care services providing care, supervision and advice to children
  • schools, nurseries, crèches and Further Education colleges that provide education to children
  • a specialist educational establishment that provides education to vulnerable groups, such as alternative education.

However, it could also extend to any form of teaching, training, instruction, care or supervision of children (always including any such activities involving overnight stays), as well as driving vehicles used for conveying children, or even moderating an online forum to which children have access. It is fair to say that the law is not very clear on precisely where the boundary is on regulated activities. In seeking to exempt some volunteers who have less frequent contact with children (less than once a week or less than four times in any 30 day period), or those who work ‘under the regular and day to day supervision of others’, it seems an unfortunate gap has been created which could be exploited by serial abusers, who could move on to a new setting without incidents having been recorded. A regulated activity provider can also be a person who simply manages volunteers in a regulated activity position, such as a scout leader or manager in a charitable organisation.

A ‘personnel supplier’ is an employment agency or business that makes arrangements with a person to find them employment. Or they may place that person with other employers. A personnel supplier can also be an educational institution which arranges for its students to undertake work experience placements as part of their studies.

The importance of sharing information and not turning a blind eye

Early sharing of information is often the key to providing effective early help where there are emerging problems. Indeed, sharing information can be essential to put in place effective child protection services. High profile Serious Case Reviews (SCRs) have shown how poor information sharing in the past has contributed to the deaths or serious injuries of children. Fears about sharing information cannot be allowed to stand in the way of the need to promote the welfare and protect the safety of children.

The seven golden rules to sharing information

  1. Remember that the Data Protection Act 1998 and the Human Rights Act are not absolute barriers to justified information sharing, but provide a framework to ensure that personal information about living individuals is shared appropriately.
  2. Be open and honest with the individual (and/or their family where appropriate) from the outset about why, what, how and with whom information will, or could be shared, and seek their agreement, unless it is unsafe or inappropriate to do so.
  3. Seek professional advice if you are in any doubt about sharing the information concerned, without disclosing the identity of the individual where possible.
  4. Share with the informed consent of the alleged victim where appropriate and, where possible, respect the wishes of those who do not consent to share confidential information. You may still share information without consent if, in your judgement, there is good reason to do so, such as where their safety may be at risk. You will need to base your judgement on the facts of the case. When you are sharing or requesting personal information from someone, be certain of the basis upon which you are doing so. Where you have consent, be mindful that an individual might not expect information to be shared.
  5. Consider safety and well-being: Base your information sharing decisions on considerations of the safety and well-being of the individual and others who may be affected by their actions.
  6. Necessary, proportionate, relevant, adequate, accurate, timely and secure: Ensure that the information you share is necessary for the purpose for which you are sharing it, is shared only with those individuals who need to have it, is accurate and up-to-date, is shared in a timely fashion, and is shared securely.
  7. Keep a record of your decision and the reasons for it – whether it is to share information or not. If you decide to share, then record what you have shared, with whom and for what purpose.

What happens if a referral is made?

Within one working day of a referral being received, a local authority social worker should make a decision about the type of response that is required and acknowledge receipt to the referrer. The referrer should actively chase up if they have not received a response. For children who are in need of immediate protection, action must be taken by the social worker, or the police or NSPCC if removal is required, as soon as possible after the referral has been made to local authority children’s social care.

Final thoughts

Trustees, directors and officers must take leadership responsibility for putting in place the right systems and policies for tackling abuse and protecting the welfare of children. The courts have been very willing to expand the boundaries of corporate responsibility for harm caused to children and it is likely that new specific criminal offences allowing individuals and organisations to be prosecuted for ‘failure to report’ concerns or a ‘failure to act’ may emerge in the wake of current inquiries. A Government consultation on introducing new offences closed on 13 October 2016. It is essential that organisations act now rather than face catastrophic consequences by getting it wrong.

 

Mark Johnson is a specialist legal and corporate governance consultant working with charities, social enterprises, academy trusts and service businesses. If you need help managing risk, reviewing policies and procedures or in reviewing any aspect of your governance, please get in touch today. 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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Brexit – What Next?

What are the business implications of Brexit?

After the shock and confusion which greeted the result of the referendum on 24 June, some limited clarity is beginning to emerge about the implications and the possible shape of the UK’s relationship with the European Union and its other 27 member states after the vote. It seems that we are in for a very long haul to sort out the fine detail over many years, a task which will consume huge amounts civil service resources, public spending and Parliamentary time (both nationally and in the devolved administrations) probably for the next five years. The implications will be far and wide for business, public services and the not for profit sector.

Pushing the start button on Brexit

Article 50 (2) of the Lisbon Treaty states:

‘In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.’

Nothing changes formally until the UK gives a notice under Article 50 of the Lisbon Treaty that it wishes to leave the European Union. Once that notice is served, there is a two year period to negotiate the terms of the UK’s exit. The exit agreement has to be approved (a) by a majority in the European Parliament (which interestingly will include our own MEPs – 73 out of 751 in total) and (b) by at least 15 out of the other 27 member states, representing at least 65% of the EU’s population. If no agreement is reached by the end of the two year period, then we simply leave with no transitional arrangements in place and EU laws, rights and obligations would cease to apply to the UK from that date (unless our Parliament opted to keep them alive) and no trade agreement with EU countries for the future. If that happened, the UK and EU would begin to impose tariffs on each others’ imports, increasing the price of goods and services. 48% of our exports go to EU countries and 54% of our imports come from there. The rights of millions of individuals and businesses would remain unresolved. The two year period can only be extended if all 27 member states agree to extend it.

It is self-evident that obtaining the agreement of at least 15 out of 27 nations and the EU Parliament to the terms of the exit agreement in such a short space of time will be a tall order. There is likely to be ‘horse trading’ between nations over issues which concern them most: for example, Denmark and Spain may be particularly concerned to block a wider deal unless they get what they want on fisheries policy, Germany may be particularly concerned with car exports and so on. MEPs are also likely to be very concerned to protect the rights of EU citizens living and working in the UK. Time will not be on the UK’s side and our negotiating position may not be particularly strong. Any politically motivated precipitous action to limit immigration by the UK could provoke retaliation and delay by the other countries, descending quickly into market disruption.

One critical area to get right will be the issue of acquired rights. An estimated 2 million UK citizens live and work in other EU countries, while around 3 million EU citizens live and work in the UK. Detailed arrangements will be necessary to cover rights acquired prior to the UK’s withdrawal. The arrangements would need to cover residence rights, rights to take up employment or self-employment, and rights to health care and social security. There will need to be agreement on the dates from which acquired rights would be recognised (the date of the referendum?), and transitional arrangements for those not qualifying for acquired rights.

Large areas of social and economic policy are underpinned by EU legislation. It would cause great legal and commercial uncertainty if all these laws simply disappeared overnight (take for example public procurement, Working Time and TUPE regulations, health and safety, environmental regulations, consumer protection, cross border divorce settlements and child custody arrangements, and intellectual property laws). Therefore, it is likely that most of them would have to be preserved in UK domestic law by ministers making orders under sweeping delegated powers to keep them in force until such time as a massive sifting and review process can take place over the coming years. Ministers are likely to have very extensive powers during this period which may not be fully amenable to Parliamentary scrutiny.

It is worth noting also that the agreement to limit ‘in work’ benefits to a 4 year qualifying period and capping child benefits negotiated with the EU in February has now fallen away as result of the referendum result, so in the short term we may actually see an increase in immigration and benefit payments. Under a previous deal newly arrived EU migrants are banned from claiming jobseeker’s allowance for three months. If they have not found a job within six months they can be required to leave. EU migrant workers in the UK who lose their job, through no fault of their own, are entitled to the same benefits as UK citizens, including jobseekers’ allowance and housing benefit, for six months.

It has been suggested that the terms of a new trade agreement could be negotiated in parallel with the exit agreement. Article 50(2) uses the words ‘taking account of the framework for its future relationship with the Union’ which would appear to lend some weight to this. However, the EU’s trade commissioner Cecilia Malmstrom stated on 30 June that negotiations on a new trade agreement cannot begin until the exit agreement is complete

[1]. Common sense might suggest that the two processes run in parallel, but in these negotiations the power is likely to lie with the EU bloc. The Trade Policy Committee of the European Council is likely to be a key player in the negotiations, along with the EU Commissioner for Trade and her staff who will be charged with leading these negotiations for the EU side.

Who has the power to press the button on Brexit?

A subsidiary question which has yet to be answered is who actually has the constitutional authority in the UK to serve the Article 50 notice? Article 50 says that a ‘Member State may decide to withdraw from the Union in accordance with its own constitutional requirements’. Will it be Theresa May exercising so-called prerogative powers, or does it require a vote in Parliament? Would it be politically wise for an unelected Prime Minister to trigger it without having parliamentary consent and approval when the country is so divided? The Government legal service is adamant that the power can be exercised by the Prime Minister, but many leading constitutional lawyers disagree, including 1,000 lawyers who presented a petition to Downing Street. In their view, UK citizens have acquired significant rights from EU law (including freedom of movement, social benefits, non-discrimination) which cannot be taken away without an Act of the UK Parliament.  At least two test cases on this point are being brought. The first is case brought by a Mr Deir Dos Santos (set for a hearing at the High Court on 13 October), and the second an action funded by several businesses (including the CEO of Zoopla, according to reports) and coordinated by the law firm Mishcon de Reya.

Can the Brexit conveyor belt be stopped once it’s started?

Again opinions seem to differ on this question, but the better view put forward by Professor Derrick Wyatt QC in evidence given to The European Union Committee, is that the U.K. can change its mind freely after invoking Article 50:

“There is nothing in the wording to say that you cannot. It is in accord with the general aims of the Treaties that people stay in rather than rush out of the exit door.. Analysis of the text suggests that you are entitled to change your mind[2].”

Leaving aside the question of who can start the process of withdrawal, it seems inevitable that a Parliamentary vote will be required on at least 3 things: (i) the repeal of the European Communities Act 1972 (the legislation which brought EU law into our domestic legal system and makes it enforceable in UK courts) (ii) the approval of the terms of the exit agreement and any transitional arrangements for UK citizens’ and businesses’ rights and obligations pending a new trade agreement (iii) approval of the terms of a new trade agreement.

What could the new relationship with the EU look like?

This is a complex multi-layered question which has political, economic and legal dimensions. On the political level, Brexiteers based their campaign on four key principles: (i) regaining sovereignty for the UK Parliament (i.e. British MPs should have the power to decide on laws and regulations and not be forced to comply with EU laws) (ii) free movement of migrant workers into the UK should be limited and (iii) the UK should cease making large financial contributions into EU coffers, so those funds could be redeployed for domestic priorities like the NHS (iv) the UK should be free to strike new free trade deals on a bilateral basis with other nations. In considering the possible scenarios which follow, it will be important to keep a keen eye on whether these objectives have actually been met – if not, one might ask why have we put ourselves through all this upheaval?

A unit was set up in the Cabinet Office under the leadership of the outgoing minister Oliver Letwin MP to consider all the options; this now forms part of David Davis’s Minister for Brexit portfolio. The unit currently has 43 employees plus a small number from the FCO and DFID who deal with trade policy. Trade negotiators will need to be hired in, we are told.

What models are being considered?

Economics tells us that we can benefit when goods and services are traded. Simply put, the principle of “comparative advantage” says that countries prosper first by taking advantage of their assets in order to concentrate on what they can produce best, and then by trading these products for products that other countries produce best. In other words, liberal trade policies — policies that allow the unrestricted flow of goods and services — sharpen competition, motivate innovation and breed success. They multiply the rewards that result from producing the best products, with the best design, at the best price.

However, the temptation to ward off the challenge of competitive imports is always present. Richer governments are more likely to yield to the siren call of protectionism, for short term political gain, through subsidies, complicated red tape, and hiding behind policy objectives such as environmental or consumer protection as an excuse to protect domestic producers. This is what the single market within the European Union was designed to eliminate – and it has done so quite successfully. Key areas of our economy which will be affected by the terms of any future deal are pharmaceuticals and specialist manufacturing industries, financial services, farmers and universities. It is worth keeping in mind that services make up 78% of our GDP, and around 10% of that is financial services (which account for 25% of our service exports). Worth bearing in mind also that financial services businesses account for around 12% of tax receipts which can be used to pay for public services (leaving aside the personal tax revenue generated from high earners in the City).

The new models on the table so far:

The ‘Norwegian’ model – European Economic Area (EEA) membership

This would involve remaining a member of European Economic Area. While this model scores highly in terms of maintaining market access, it falls short in terms of guaranteeing the UK a say over the rules (Norway has no veto at the European Council, no votes in the Council of Ministers and no representation in the European Parliament). It also does little for independence and sovereignty, given that most EU policy areas would continue to apply post Brexit. Crucially, this includes the free movement of people. However, the UK would gain the ability to negotiate its own trade deals with individual non-EU states (access to individual EU member states markets which account for 48% of our exports would still depend on reaching an agreement with the EU bloc as whole, since individual countries can’t do their own deals). This would also remove the UK from the Common Agricultural Policy (CAP), Common Fisheries Policy (CFP), EU-wide regional policy, and reduce its budget contribution. However, while guaranteeing access to the single market in services and goods, outside the customs union, access for our goods would be subject to complex rules of origin and Britain would still be subject to EU regulations on employment and financial services but with no formal ability to shape or influence them.

The ‘Swiss’ model

This model provides a mixed level of market access – it is relatively comprehensive in terms of goods but falls short in terms of access for services we sell, particularly for financial services (our exports of services to EU countries account for 40% of the total, and around a quarter of that is financial services). This model would give little say over the rules: Switzerland essentially has to mirror EU legislation in key areas where it wants to secure single market access. It does score more highly than the Norway/ EEA option in terms of gains in independence and sovereignty: several policy areas including social and employment law would return to the remit of the UK government. However, it still involves keeping free movement of people. The Swiss-EU bilateral deal, without the Common Agricultural Policy, EU fishing rules, EU-wide regional policy, and reduced financial contribution, offers more sovereignty and less EU regulation.

The ‘Turkey+’ model

The UK would continue to benefit from full access to the EU’s single market in goods by remaining in the customs union with the EU but the UK would still be bound by any external deals that the EU strikes in trade in goods without any formal way of shaping them. Crucially, the deal completely excludes services, agriculture and public procurement. A separate deal on services would be essential to maintain UK access to the single market in these sectors. It would remove the UK from EU social and employment regulation, the CAP, CFP and EU-wide regional policy.

The Canadian Model

The EU’s trade agreement with Canada (CETA) is very ambitious and took over 5 years to conclude. This agreement gradually eliminates tariffs on all industrial and most agricultural tariffs. It smooths out regulatory barriers, but unfortunately financial services are excluded. Any agreement along these lines would have to go much deeper with the UK and the EU would probably demand grater oversight and regulation.

‘Full break’ – the WTO option

If the UK left the EU without securing a version of the options above, the UK could fall back on its membership of the World Trade Organisation.  The WTO, based in Geneva has several international treaties covering trade in goods (GATT) and services (GATS). Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. This would see some exports facing relatively high tariffs (e.g. 25% on car exports, 10% on car parts or 35% on dairy products) and market access for services would be very limited.

This model understandably scores low in terms of continued EU market access as it entails no preferential agreement covering the 50% of our trade which is with the EU. Some key goods exports would face high tariffs and accessing EU services markets would become much harder, particularly in financial services. Likewise it offers the UK no say over the rules, but may offers scope for gains in independence and would not involve complex negotiations with the EU.

The likelihood is that the UK would need to negotiate some form of bespoke arrangement. However, the fundamental trade-off is unavoidable: the fullest EU market access means accepting greater ‘obligations’ (be they on regulation, some form of contribution to the EU budget, or accepting the free movement of people)

Practical responses to current uncertainties

Businesses and organisations with exposure to European trade flows and EU regulations are the most likely to be affected by the changes. Consider the following areas for action in the short-term:

  • What do your supplier contracts say (if anything) about the risks associated with tariffs and non-tariff barriers and formalities- can you pass increased costs on to your supplier or customer or bail out completely if it becomes uneconomic?
  • What do your contracts say about the allocation of risks of changes in law or regulation- can you trigger any price adjustment mechanisms?
  • Consider the impact of any future restrictions on freedom of movement for any of your workforce from other EU countries – consider whether their position could be regularised e.g by applying for visas or permanent residence? What practical steps could you take to reassure them in the short term? Hospitality, healthcare, construction and recruitment sectors are likely to be particularly hit.
  • Do you rely on any EU grant funding programmes which could be affected by the changes?
  • Review supply chains to assess how they may be affected by the introudction of tariffs or loss of labour from EU countries.
  • Consider whether opening a presence in another EU member state may help preserve your access to the Single Market?
  • EU law continues to apply in full in the short term so be alert to any actions by competitors or suppliers which attempts to deviate from it, but equally ensure you respect the rules as well.
  • Now more than ever, keep an eye on your markets and be alert to changes, review your liquidity and cash flow and your cost base so you are nimble enough to cope with challenging economic conditions

Conclusions

Pre-referendum, most economists agreed that as a result of the decision to leave the EU we could expect to see in the short to medium term impacts on the economy:

  • Lower real wages
  • A lower value of the pound
  • Higher government borrowing, lower public spending or higher taxes
  • In the short term, higher unemployment

Without doubt leaving the EU means a degree of economic dislocation with the UK’s largest trade partner and therefore an economic cost, estimated to be a loss in the range of 0.5% to 1.5% of GDP over the medium-term, depending on the exact terms of the exit agreement with the EU. It may be possible for the UK to get back into positive growth over the long-term, but only if the UK takes a ultra-liberal approach to trade, immigration and deregulation. Free trade agreements inevitably involve opening up more domestic markets to greater competition from overseas (in particular the US and Asia) as a quid pro quo for access to their markets, and we may now see a new wave of immigration, this time increasing competition for skilled jobs. One thing that is clear is that Brexit cannot be all things to all people. As I said in an earlier post pre-referendum –it could be a case of ‘be careful what you wish for’. The costs and distraction of all this could detract significantly from other pressing national priorities- such as increasing investment in manufacturing capacity, improving infrastructure and finding solutions to the ticking time-bomb of health and social care costs. If the Brexit deal does not achieve the four key objectives set out above, it could be the greatest Pyrrhic victory ever. Without doubt, we are entering a very challenging period.

[1] http://www.bbc.co.uk/news/uk-politics-eu-referendum-36678222

[2] http://www.publications.parliament.uk/pa/ld201516/ldselect/ldeucom/138/138.pdf

 

Mark Johnson is a solicitor, chartered company secretary and trusted advisor to SME’s, not for profits and public bodies. If you would like to discuss implications of Brexit, please get in touch at elderflowerlegal.co.uk.

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Health & Safety Duties for Directors

What are the main duties of Directors under Health & Safety laws?

“Health and safety is integral to success. Board members who do not show leadership in this area are failing in their duty as directors and their moral duty, and are damaging their organisation.”  – Health & Safety Executive 

The main duties for directors are as follows:

  1. The organisation must appoint a competent person to help meet the health and safety duties: someone with the necessary skills, knowledge and experience to manage health and safety across all the organisation’s activities– i.e. not just on the premises but also when undertaking off-site trips and activities.
  2. Ensure you have an appropriate health and safety policy in place which details how you will manage health and safety. This should detail who does what, when and how.
  3. Undertake an appropriate risk assessment. Risk assessments will identify potential risks and then identify reasonable steps to control those risks. You should record the findings and then start to implement the control measures.
  4. Keep up to date with Health and Safety Executive guidance (e.g. on specific hazards and activities). There needs to be a very good reason for a failure to adhere to this guidance on best practice.
  5. Staff should be aware that any concerns should be reported to the Health and Safety lead.
  6. Ensure that appropriate policies are in place for managing any identified risks. Policies should be kept up to date and disseminated to staff and used in practice.
  7. Provide clear information and training to employees. Ensure they have the appropriate tools to do their job safely. Both long-standing employees and new joiners should receive appropriate training
  8. Keep good records and clear documentation.

The main obligations of an organisation to its employees and visitors are derived from various pieces of legislation, including the following main provisions:

Health and Safety at Work etc Act 1974 (HSAWA) : The Act places a duty on every employer to ensure, ‘so far as is reasonably practicable’, the health, safety and welfare at work of all their employees, and also ‘to conduct the undertaking in such a way as to ensure, so far as is reasonably practicable, that persons who are not in their employment who may be affected thereby are not thereby exposed to risks to their health or safety.’

The Management of Health and Safety at Work Regulations 1999 : This details the steps employers are required to take to manage their health and safety obligations under the HSAWA. These include: employers to carry out risk assessments, make arrangements to implement necessary measures, appoint competent people to oversee health and safety and arrange for appropriate information and training for staff and visitors.

Workplace (Health, Safety and Welfare) Regulations 1992 : These cover a wide range of basic health, safety and welfare issues such as ventilation, heating, lighting, workstations, seating, drinking water and welfare facilities.

Personal Protective Equipment at Work Regulations 1992 : Require employers to provide appropriate protective clothing and equipment for their employees.

Provision and Use of Work Equipment Regulations 1998 : Require that equipment provided for use at work, including machinery, is safe.

Health and Safety Information for Employees Regulations 1989 : Require employers to display a poster telling employees what they need to know about health and safety.

Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995 (RIDDOR) : Require employers to notify certain occupational injuries, diseases and dangerous events to the relevant authorities.

Control of Substances Hazardous to Health Regulations 2002 (COSHH) : Require employers to assess the risks and control substances which are hazardous to health, such as asbestos, cleaning products and chemicals.

Employer’s Liability Insurance

If you have employees or apprentices you must carry employer’s liability insurance. This insurance will enable you to meet the cost of compensation for your employees’ injuries or illness whether they are caused on or off site. You must be insured for at least £5 million. However, you should look carefully at your risks and liabilities and consider whether you need more than £5 million. In practice, most insurers offer cover of at least £10 million. You must display a copy of the certificate of insurance where your employees can easily read it.

You can be fined up to £2500 for any day which you are without suitable insurance. If you do not display the certificate of insurance or refuse to make it available to HSE inspectors when they ask, you can be fined up to £1000.

The buck stops with the Board

The directors are ultimately responsible for health and safety, and there must be a visible and active commitment from the board. Board members should consider what information they need to receive and review to enable them to monitor health and safety effectively. Ideally the issue should be a standing item at board meetings. Although prosecutions are frequently bought as a result of an accident in which someone has been hurt, a company can be liable even where no personal injury has occurred. All that the prosecution need prove is that a state of affairs existed that posed a real risk to the health and safety of employees or others.

If there is a prosecution it is likely that one or more directors will required to attend court to defend the organisation’s position.  If it can be shown that the offence has been committed with the ‘consent or connivance’ of a director, or the incident is his attributable to his neglect, he or she may face prosecution in a personal capacity as well. ‘Consent’ and ‘connivance’ requires that the defendant knew the material facts that constituted the offence by the company and agreed to conduct its business on the basis of those facts, ignorance of the law being no defence. ‘Neglect’ does not necessarily require knowledge on the defendant’s part of the material facts giving rise to the breaches, but can include the situation where he ought to have been aware of those circumstances.

Prosecutions for breach of health and safety laws are increasingly common and can result in hefty fines and adverse publicity. The Corporate Manslaughter and Corporate Homicide Act 2007 made it easier for organisations to be held corporately accountable for deaths caused by their failures. An organisation can be guilty of a criminal offence under the Act if ‘the way in which its activities were managed or organised’ caused a person’s death, and amounted to a ‘gross breach’ of a relevant duty of care owed by the organisation to the deceased. Convicted organisations can receive an unlimited fine, and can be required to publicise the fact that they have been convicted. The number of prosecutions has been gathering momentum with over 18 cases since April 2008. Directors and officers insurance may provide some cover for the costs of successfully defending court proceedings, but will not cover the fine itself.

Compliance with health and safety provisions is an essential part of the Board’s duty to monitor risks. For more on the duties of directors download our FREE Guide to Directors’ Duties.

Mark Johnson is an experienced solicitor & chartered company secretary supporting businesses, charities, social enterprises & academy trusts on governance, compliance & legal affairs. Please get in touch info@elderflowerlegal.co.uk or 01625 260577.

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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 elderflowerlegal.co.uk.

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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 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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The Hallmarks of Good Governance in Academy Trusts – Part 2

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 1, we examined the importance of governance and the role of the Board of an academy trust. In this Part 2 we examine..

The framework for good governance in academy trusts

There are now a wide variety of structures used for academy trusts. All Academies are established as independent companies limited by guarantee with exempt charitable status. The following are the usual key players in the structure (see Figure 1):

Members

Members are akin to the shareholders of the company. They have ultimate control over the academy trust, with the ability to appoint or dismiss some or all of the trustees and the right to amend the trust’s articles of association (subject to approval by the Secretary of State). Unfortunately, in many cases the members are often the same people who sit on the board as trustees. This weakens accountability since there is a danger of creating a self-serving oligarchy. Alive to this risk, the Department now recommends that there are at least 5 members, the majority of whom are not trustees. Employees of the trust cannot be members. In most current structures the role of the members is very muted. The members will meet perhaps once a year to approve the accounts and re-appoint auditors. A truly mature model would allow parents, and even pupils, to exercise the full rights of members. For example, the Cooperative Academy model articles provide for pupils, parents, staff, community and alumni to all become members. In theory, they could exercise their powers to dismiss individual directors, or the whole board. For more on the rights of members see here. The Trust must notify the EFA of the appointment of any new members within 14 days.

Trustees

Persons appointed to sit on the board of the academy trust are both company directors and charity trustees. They are responsible for the operation of the trust. They set the strategic direction and are accountable for finance and academic standards. The trustees have duties under charity law to ensure that the academy complies with its governing document and the law, to take reasonable care that the trust is managed efficiently and effectively, and to ensure that resources are used appropriately and protected for the benefit of the charity. They have duties under Company Law to act in the best interests of the company, to avoid conflicts of interest and to perform their duties diligently, as well as wider duties under the general law for the management and safety of premises, safeguarding, data protection, non-discrimination and under employment law. They also have specific contractual duties to the Secretary of State under the Funding Agreement, such as providing information to the Department, providing places to pupils with SEN, providing free school meals and compliance with the Admissions Code, as well as adhering to the Academies Financial Handbook. Trusts must notify the EFA of the appointment of any new trustee within 14 days. The board may establish sub-committees to manage particular strands of its work, such as finance and risk, audit and internal controls, premises and nominations (recruitment & succession planning), curriculum and pastoral care.

Sponsors

Sometimes there may be one or more external sponsor, which could be another high-performing school, a charity, university, commercial organisation or faith organisation. The sponsor may have a right to appoint members and sometimes trustees, which gives them a degree of influence or control. Usually some form of agreement will be in place with the sponsor setting out the scope of their involvement and the terms on which they may receive start-up grant funding. The Department may insist on a ‘tripartite agreement’ which regulates the sponsor’s ability to charge for services only ‘at cost’.

Secretary of State

Despite the rhetoric about academies enjoying a high degree of autonomy, the Secretary of State (through the Education Funding Agency) enjoys very significant controls over academy trust’s freedom of action: firstly, through the Funding Agreement, which provides a wide range of contractual rights for the Department; and secondly, in its capacity as ‘principal regulator’ of an academy’s trust’s compliance with charity law (functions having been asssigned to her under a Memorandum of Understanding with the Charity Commission).

Local Governing Bodies

The role and powers of a local governing body depend on the precise local arrangements. A multi academy trust which runs several schools may devolve powers and functions to a local governing body based on ‘earned autonomy’ (i.e. better performing schools are able to take more decisions locally, whereas others may be purely ‘advisory bodies’). The details about precisely which functions have been delegated by the trust board should be contained in a clear Scheme of Delegation. Local governing bodies may operate as sub-committees of the Board. Key decisions on big ticket issues such as setting vision, policies, governance procedures, contracts and procurement, health and safety, HR matters, the budget and staffing structures usually sit with trustees at the trust board level. There is discretion over whether the local governing body should have any role in:

  • determining the individual school’s vision ethos and direction
  • recruitment of the Headteacher
  • performance management of Headteacher
  • delegated responsibility for the budget

The Local Governing Body may have delegated authority in relation to:

  • recruitment and performance management of staff, other than the local headteacher
  • monitoring of teaching standards
  • admissions and exclusions
  • Appeals Panels
  • term and holiday dates
  • reporting to parents

The trust board will usually reserve the right to suspend delegation and intervene in the event of falling standards or a serious risk to welfare of children.

Academies Governance Framework

The Department is now considering allowing trusts to either scrap local governing bodies or give them powers to oversee more than one school, with a less prescriptive requirement that the governance of each school should be ‘informed by local intelligence’. This should help remove possible confusion between accountability of local heads and managers to the overall CEO and executive management vs. accountability to local governing bodies. It is important to remember that, even where trustees have given delegated authority for certain functions to local governors or sub-committees, the trustee board as whole remain accountable and responsible for these functions. The ‘buck always stops’ with the board of trustees. It is important that the trust board receives written reports and minutes from sub-committees and local governing body meetings so they have ‘eyes and ears’ on what is happening across the organisation. As the academy trust grows to take in more schools, so the complexity and risk grows: systems and roles may need to evolve. Leaders need to be aware of the organisation’s capabilities and capacity to grow. DfE research (2015) has shown that the key pinch points usually occur when the grouping reaches 5 schools, 11 schools and then 20 schools.

You can read more detail about the governance arrangements and legal duties of trustees of an academy trust in our concise guide.

Getting the documentation right

The main documentation needed to set up the governance framework for an academy trust will include:

  • Articles of Association (largely in the form prescribed by the Department with little flexibility to change)
  • Funding Agreement(s) with Secretary of State
  • Tripartite Agreement with Sponsor and SoS, Letter of Grant, where applicable
  • Standing Orders & Financial Regulations, including Tendering and Procurement Policy
  • Schedule of Reserved Matters for the Board
  • Scheme of Delegation
  • Company Registers (Members, Directors, Secretary, Persons with Significant Control)
  • Minute Books
  • Board Code of Conduct
  • Statutory Policies (e.g. Charging, Behaviour, Sex Education, SEN, Data Protection, Complaints, Health & Safety)
  • Terms of Reference for Board Committees, such as Audit, Finance, Premises and Nominations.
  • Register of Business, Outside Interests & Family connections – which covers members, trustees, local governors and senior leadership team and must be published on the trust’s website
  • Conflicts of Interest Policy
  • Board Induction, Training and Evaluation Procedures
  • Vision, Mission and Values statement
  • Strategy Document (see more)
  • School Development Plan, including defined KPIs to monitor and measure progress, for example on pupil attainment, quality of teaching, pupil wellbeing, staff morale, effectiveness of communication, future aspirations of pupils.
  • (Balanced) Budget
  • Risk Register (see more)
  • Business Continuity Plan
  • Appropriate Insurance Covers
  • External auditor appointment letter (setting out their responsibilities)

As the trust grows, there will inevitably be a need for more sophisticated and standardised processes for governance and oversight, including systems for reporting and analysing performance data, financial planning and control, management, HR, teaching and learning methods.

Next time: we look at stewardship of finances and resources.

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

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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The Hallmarks of Good Governance in Academy Trusts

This series of posts examines what effective governance in academy trusts looks like and how boards can create a framework to deliver their core purpose and properly discharge their duties.

With the demise in the role and capacity of local education authorities, England’s state education system is moving inexorably moves towards a school-led system with a diverse landscape of structures, partnerships and institutions entrusted with delivering statutory education with public funds. The need for robust governance and accountability has never been greater. At the same time, schools are subject to so many regulations and reporting requirements, it can be difficult to see the wood for the trees. The spotlight from Government and regulators on sound governance in the education sector has never been stronger. However, trustees face a daunting task in assembling a picture of all the requirements: so in this series of posts we aim to provide a route map, explain and demystify.

What is governance and why is it important?

A system of governance is all about the way organisations are directed, controlled and held accountable to deliver their core purpose over the long-term. The organisation’s structure, practices and procedures should all be organised so that the organisation achieves its core purpose, mission and goals, whilst complying with the law and sound ethical practice.

A sound governance framework will:

  • Set out the shared purpose, vision and values of the trust
  • Enable the trust to develop an agreed strategy to implement the purpose
  • Ensure oversight and monitoring of the organisation’s performance along the way
  • Ensure the organisation remains accountable for delivering its mission.

Positive benefits of good governance in academy trusts include:

  • People will trust and respect the organisation (including pupils, parents, funders, regulators, suppliers and the wider community)
  • The organisation will know where it is going
  • The board will be fully connected with management, the academy’s operations and wider stakeholders
  • Good and timely decisions will be made
  • The board will be better able to identify and manage risks
  • The organisation will avoid mistakes and have greater resilience to cope with problems
  • The organisation should enjoy improved financial stability

“Where governance is strong, standards of attainment are likely to be higher because pupils are known and supported to be their best, the quality of teaching is a constant focus of attention, and the leadership of the academy is held to account for the performance and wellbeing of the children.” – Collaborative Academies Trust, 2014.

The pivotal role of the Board

The academy trust’s board is at the epicentre of the system of governance. They must set out the academy’s vision (what the school will look like in 3-5 years time) its values, the shared moral purpose that should run through all the academy’s actions. In most cases, this will be about improving children’s lives through excellent teaching and learning and preparing young people for the challenges of later life.

The model Articles for an academy trust (the main governing document) usually contain an anodyne statement that its object is “to advance for the public benefit education in the United Kingdom…by establishing, maintaining, carrying on, managing and developing a school offering a broad and balanced curriculum.” It therefore falls to the Board to put the flesh on the bones of this and stamp their particular vision and ethos on the trust.

The Department of Education’s view (Governance Handbook, 2015) is that the Board has three core functions:

  1. To ensure clarity of vision, ethos, strategic direction and structure
  2. Hold the Headteacher to account for the educational performance of the school and its pupils and the performance management of its staff;
  3. Oversee the financial performance of the school(s) and make sure money is well spent.

Those are certainly three key strands to the Board’s work, but there is a lot more besides! One of the key challenges for members of an academy trust board is to think and act strategically. The Board should continually review and evaluate the strengths, weaknesses, opportunities and threats and consider how best to play to the organisation’s strengths, or bolster the required competencies. Board members are not there to provide operational oversight or ‘second guess’ the executive managers. Nor are they there to represent or advocate for a particular constituency or interest group. The primary consideration must always be what is best for the pupils. The changing landscape and increasing levels of accountability and responsibility will require high calibre trustees with specific skills and attributes, who are able to step out of their comfort zone to lead school improvement, provide a high level of professional challenge and work as team players on dynamic boards. Running an Academy trust is like running a business, albeit one with a social purpose. Board members must understand that they have corporate collective responsibility and can be personally liable in some circumstances in the event of regulatory action or a legal claim (e.g. breach of trust, accounting irregularities, or negligence leading to personal injury).

The trend now is towards smaller, more strategic and skills-focused board, with less prescriptive structures and a definition of purpose more aligned to the new educational landscape. The National College of Teaching and Learning (Governance of MATs, 2015) has set out the skills and attributes required of trustees. Trustees should:

  • constantly focus on what’s best for the school and pupils by challenging in a constructive manner, asking probing questions, and visualising the strategic picture, in terms of both the trust and the schools within it. See more on developing strategy.
  • understand and effectively carry out their roles, responsibilities and accountabilities, with the ability to take risks and consider dynamic and innovative options
  • be able to analyse data, measure and lead school improvement and drive the necessary changes – useful starting points for monitoring data include the OFSTED data dashboard, Fischer Family Trust Governor dashboard (which measures ‘value added’ by the school based on socioeconomic factors) and the Wellcome Trust Questions for Governors.
  • understand the financial and the business aspects of leading a trust, as well as the legal implications and how the trust and the business work
  • work as part of a team and accept shared responsibility and accountability, as well as undertaking frequent self-evaluation in order to remain effective
  • act with a strong moral purpose, integrity and honesty, and as an advocate for the trust’s values, ethos and philosophy
  • express disagreement in a rational and professional manner
  • adopt an entrepreneurial mind-set in order to see and make the most of opportunities that are outside the day-to-day practices of the trust or schools
  • be innovative, creative and open-minded by engaging in futures thinking and ‘horizon scanning’
  • ensure that they have the commitment and stamina to drive forward the trust, as well as the will to abandon the ‘good’ in order to find the ‘outstanding’.

Composition of the Board

The model Articles state that the number of trustees shall be at least 3, but not subject to any maximum. The Chief Executive / Executive Principal may choose to act as a trustee, but is not obliged to. No more than one third of trustees can be paid employees of the trust. Normally, there must be at least 2 parent trustees (who are parents or carers of a registered pupil at the school) and who are properly elected by parents/ carers. However, (somewhat controversially) in the case of a multi-academy trust, this requirement can be dispensed with, if there is parent representation on local governing bodies. Care must be taken if appointing persons who are employees or councillors of a local authority – their involvement must be kept below 20% of the membership to avoid accounting difficulties.

Beyond that, there is some flexibility to decide the composition of the Board. There will usually be a specified number of trustees appointed by the members and by the external sponsor (if there is one). The Board can co-opt further trustees as it wishes. In practice, trusts have usually adopted one of three models – the traditional model where trustees are drawn from the stakeholder groups such as parents, staff and the community; representation model where there is a group of schools, the board is made up of representatives from each constituent school- the problem is that this can become unwieldy as the group grows and there is potential for inherent conflicts of interest; the third model, usual in sponsored academies, is for the sponsor to appoint the majority of trustees.

The default term of office for a trustee is 4 years, however, trusts may instead opt for retirement by rotation on an annual or bi-annual basis, in which case an annual general meeting of the members may need to be held to deal with appointments. The National Governors Association recommends that Chairs should serve no more than six years and no trustee should serve more than two terms.

The Financial Handbook requires that Board meetings take place at least three times a year (and business can conducted only when quorate), although trusts may consider it appropriate to meet more frequently, particularly in medium-sized and larger trusts with more complex structures, and any undergoing a period of change.

There is no perfect model for the Board, although the trend recently has been toward smaller boards, with an emphasis on getting the right skills mix. The starting point is to get the right people round the table.

Recruitment and succession planning

‘There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board’ – UK Corporate Governance Code

There are various sources of potential new trustees, including the Chamber of Commerce, local charities or housing trusts, or through organisations such as Academy Ambassadors, SGOSS, Inspiring the Future. It is important to cast the net wide and consider what skills the candidate needs to bring.

Succession planning is a key factor which ensures expertise is shared across the system and prevent boards stagnating or individual trustees or governors gaining too much power and influence. Ideally there should be an annual re-election of Board and committee chairs.

The absence of a succession plan can undermine a company’s effectiveness and its sustainability. It can also be a sign that the trust is not sufficiently clear about its purpose, and the culture and behaviours it wishes to promote in order to deliver its strategy

The Chair’s role is pivotal

The Chair of the academy trust plays a key role in giving the board leadership and direction, ensuing that trustees work as a team and understand their accountability and role in the strategic leadership of the schools and in driving improvements.

The Chair must be able to:

  • Articulate the vision, shape the culture, build a team and attract trustees and local governors with the necessary skills, values and principles, ensuring that tasks are delegated, followed up and accomplished, and who can ensure board members feel that their skills, knowledge and experience are used
  • Develop a positive relationship with the CEO/ Executive Principal as a critical friend offering support, challenge, and encouragement, holding the CEO to account for outcomes across the trust and ensuring there is rigour in the management of their performance
  • Pursue a relentless focus on school improvement – this should be the focus of policy and strategy and scrutiny and challenge by the board and its committees should reflect this
  • Leadership – ensuring that systems are in place to meet statutory obligations, terms of Funding Agreement, value for money from resources that board business is conducted effectively, including effective minute-taking and agendas.

You can read more on the role of the Chair here.

Given the increasing demands on trustees and governors, it perhaps not surprising that HM Chief Inspector of Schools, Sir Michael Wilshaw last November called for Chairs and Vice Chairs to be paid for their work. “The role is so important that amateurish governance will no longer do. Goodwill and good intentions will only go so far,” Wilshaw said. He was also concerned about governors who “lack curiosity” and hold “an overly optimistic view” of how their school was performing.

In all their dealings Academy trustees local governors and the Accounting Officer are expected to adhere to the Nolan Principles of Public Life: selflessness, integrity, objectivity, accountability, openness, honesty, and leadership. See more.

Next time: we will examine the framework of governance in academy trusts.

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

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