UK: More Scrutiny Of Academies' Financial Management

Last Updated: 26 November 2018
Article by Chris Billington

The sector is under fire again. What is being done and what can you do?

Another ESFA review has raised issues about academies procurement and relationships with suppliers. Of course, the issues raised are not solely limited to academy schools, but that is the political and public focus at the moment.

From 1st April 2019 'related party transactions' will require prior authorisation from ESFA if they exceed £20,000 whether for a single or multiple transactions. Given ESFA capacity to deal with other consent matters we assume obtaining a consent could take months.

None of the publicity covers the value that related party transactions can bring to a Trust. The assumption is that any such transaction is wrong. Accordingly, think carefully about entering into any transactions. Trustees must bear in mind their legal duty to act in the best interests of the Trust, and that includes considering the reputational aspect of related party transactions.

If you do think about entering into such a transaction then manage the procurement process meticulously (see below). Ensure you can justify and evidence and perhaps even proactively publicise the benefits. After all if you can get something "at cost", or even less than cost, that might otherwise have cost you considerably more that can be a good thing.

Auditors have highlighted poor compliance with AFH procurement and tendering requirements. This includes both initial procurement and reviewing supplier performance. Rules governing auditors means that they are under a duty to whistleblow where they suspect financial wrongdoing. Every time you buy any goods or services the AFH and government guidance requires you to do a procurement exercise. Even for low value transactions (ESFA suggest low is under £10,000) you should:

  • set out a bidding process;
  • decide how you will assess the bids;
  • get quotes from at least 3 suppliers;
  • have at least 2 people assess all the quotes you get fairly;
  • choose the supplier that offers best value for money;
  • keep all the records of the process;
  • (remember GDPR too!).

For all significant contracts (particularly higher value, longer duration) you should be doing supplier reviews, i.e. checking supplier performance and against targets, assessing quality and value for money.

These contracts will require at least benchmarking against the market from time to time and retendering on expiry.

This can be an awful lot of work, but there is no de-minimis level. If you don't do it then you can be criticised by the Auditors and ESFA. Not to mention the journalists and politicians. You must do as they sayÖ not as they do (but that is a different story!).

Controlling executive pay is a continuing thorny issue. It appears the ESFA would like to cap executive pay, but haven't done so. Presumably they recognise that they cannot really do so without opening other cans of worms (but don't assume it will never happen).

Instead the ESFA will continue to challenge, demand justifications, and publicise senior executive pay levels. The clear message from Government is that earning a lot of money out of the public purse is "wrong". On this topic, notably less importance is given to value than the actual figure. You must be prepared to justify the numbers. Clearly the role of a headteacher of one school is not the same as the role of a CEO of a 10 or a 50 school MAT and the markets and comparators are not the same, but you need to do the benchmarking and evidence the market, the comparators and produce the justifications when challenged.

Please remember academy trust trustees' duties in relation to all these topics (and indeed every action of the academy trust!) if trustees are not acting in the best interests of the trust and particularly if they are not complying with the AFH and trust's policies and procedures they could in theory face claims for personal liability for breach of duty and causing loss to the trust.

There used to be an expectation that if a charity trustee genuinely acted in the best interest of their charity they could expect leniency from the Charity Commission and the Courts in the event that things did go wrong. However recent scandals involving international charities, safeguarding and a change of emphasis at the Charity Commission focusing more on its enforcement role does mean that there is a higher level of expectation on the performance of trustees and particularly so where there are public funds involved whether they are volunteers or not.

The academy sector continues to be hit by public scrutiny and condemnation. The government doesn't appear to put much effort into defending the sector. It is up to you to demonstrate not only compliance, but also the value to the sector and ultimately to pupils and society at large. Shout your accomplishments from the rooftops, prove your worth.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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