Val Andrew explores what’s new in the 2014 Academies Financial Handbook.

Calling to account

September brings a new school year, an air of optimism and, in recent years, an updated version of the Academies Financial Handbook (AFH). There is a summary of the changes in the foreword to the document (pages 5-9). Here are some of the key ones for this year:

Governance

The Department for Education (DfE) now encourages academy trusts to have at least five members, which will ensure that decision-making requiring either special or ordinary resolutions can be achieved more efficiently (AFH page 8).

Trustees must now consider their governance arrangements and provide details in the annual accounts (AFH 1.5.14). They are also expected to consider the composition of the board, including skills, effectiveness and leadership capabilities. Trusts producing audited accounts for the first time must set out in the governance statement what they have done to review and improve their structure and composition of the board of trustees (AFH 1.5.15).

This will focus attention on the role of the company secretary/ clerk to the trust, seeking to establish that the appropriate level of support is offered and that clear terms of reference are in place, for example.

Conflicts of interest

The chair of trustees and the accounting officer must manage their relationships with connected parties to avoid both real and/or perceived conflicts of interest (AFH 3.1.13). The trust itself must recognise that certain relationships will attract greater public scrutiny (AFH 3.1.14).For example, payments to connected commercial organisations will attract more interest than those to voluntary organisations. External auditor relationships will also be scrutinised.

A register of business interests of the members and trustees must be maintained (AFH 3.1.17) and the trust should consider whether to include employees or close family members on the register as well (AFH 3.1.18). The register of interests must now be published on the trust’s website (AFH 3.1.19).

Financial control and audit

A consequence of the additional disclosure requirement in the 2014 accounts direction regarding redundancy/staff severance costs has been concern regarding confidentiality clauses. The AFH now emphasises that trusts must ensure that their use of such clauses does not prevent an individual’s right to make disclosures in the public interest (AFH 3.1.24).

Transactions with connected parties up to a cumulative annual total of £2,500 can be at more than ‘cost’. Any transactions above this limit must be ‘at cost’ (AFH 3.2.3).

Any instances of fraud in excess of £5,000 must be reported to the Education Funding Agency (EFA), providing a range of detail (AFH 4.8.2).

Transactions with connected parties that are deemed to be novel or contentious must have EFA approval (AFH 3.1.15).

The Value for Money statement must be published each year on the trust’s website by 31 January (AFH 1.5.22).

The board of trustees must approve a written scheme of delegation of financial powers (AFH 2.1.4).

The board of trustees and finance committee must receive and consider the financial performance of the trust at least three times a year (AFH 2.2.4).

Business leaders, directors of finance and so on will now be referred to as ‘chief financial officer’ (AFH 2.1.9).

Employees of an academy trust should not be members of an audit committee or a committee that fulfills that purpose (for example, finance committee). However, they are able to attend to provide information or participate in discussions (AFH 2.4.4).

Financial Notice to Improve (FNtI)

If an academy trust proposes to set a deficit revenue budget then the EFA must be notified within 14 days (AFH 2.2.5). A Financial Notice to Improve (FNtI) may be issued for any breaches concerning related party relationships, which will then result in the trust being prevented from entering into transactions with connected parties without EFA approval (AFH 1.5.8 and 1.5.9).

The powers of EFA intervention are clarified (AFH 1.5.6). It states: “Where the EFA has concerns about financial management and/ or governance in an academy trust (including a multi-academy trust or constituent academies within a multi-academy trust) it may issue, and publish, a Financial Notice to Improve (FNtI).”

Compliance with the terms of such a notice is a ‘must’. The AFH goes on to state: “In exceptional circumstances the funding agreement may be terminated due to non-compliance with the terms of the FNtI.”

It would be worth checking how the trust’s funding agreement defines the point of insolvency. Requiring support from the EFA to avoid insolvency would typically trigger an FNtI and remember that where an academy is subject to an FNtI, the local press can access this information from the gov.uk website.

In conclusion, academy trusts should note the key changes and look to act upon these accordingly.

Remember, the 2014 handbook did not come into effect until 1 September 2014 so the changes do not apply for the 2013/14 financial period!

There is the danger that, with ongoing updates, an imbalance is created between new regulation and autonomy. There is a real need now for a period of consolidation with no major changes to the handbook format, allowing those in academies to confirm their understanding of the regulations and guidance and to become more familiar with what’s required of them.

As a member of the EFA academies finance and assurance steering group, I will be involved in discussions that will feed into ongoing reviews of the guidance and I would welcome feedback from academy members to inform those discussions. Email me at val.andrew@ascl.org.uk

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View the handbook on the gov.uk website http://tinyurl.com/lcqmtj9

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Val Andrew is ASCL Business Leadership Specialist

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