Following the release of the Academies Financial Handbook 2019 on 27 June which comes into effect from 1 September 2019 this is my summary of the major changes from last year. This includes a few new musts for Trusts, expands the ESFA’s emphasis on Trustees financial accountability and introduces a new requirement for Trusts to submit their internal audit findings to the ESFA by 31 December each year.
1. What should trustees focus on?
The trustees must apply the highest standards of conduct and ensure robust governance, as these are critical for effective financial management. They should follow the Governance Handbook, which describes the following features of effective governance and will aid compliance with the Academies Financial Handbook:
- 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 of governance to monitor and improve its quality and impact
2. The clerk to the board
The academy trust should appoint a clerk to support the board of trustees who is someone other than a trustee, principal or chief executive of the trust. A clerk can help the efficient functioning of the board by providing:
- administrative and organisational support
- guidance to ensure the board works in compliance with the appropriate legal and regulatory framework, and understands the potential consequences of non-compliance
- advice on procedural matters relating to operation of the board
3. Monitoring the budget
The trust must prepare management accounts every month setting out its financial performance and position. Managers must take appropriate action to ensure ongoing viability.
The format of management accounts must include an income and expenditure account, variation to budget report, cash flows and balance sheet.
Where the board has concerns about financial performance, it should act quickly ensuring the trust has adequate financial skills in place.
4. Setting executive pay
The board of trustees must ensure its decisions about levels of executive pay (including salary and any other benefits) follow a robust evidence-based process and are a reasonable and defensible reflection of the individual’s role and responsibilities. No individual can be involved in deciding their remuneration.
- robust decision-making – factors in determining pay and benefits are clear, including whether educational and financial performance considerations, and the degree of challenge in the role, have been taken into account
- commercial interests – ensuring the board is sighted on broader business interests held by senior executives, and is satisfied that any payments made by the trust to executives in relation to such interests do not undermine the transparency requirements for disclosing pay in accordance with the Academies Accounts Direction
5. Tax arrangements for senior employees
The academy trust must ensure its senior employees’ payroll arrangements fully meet their tax obligations and comply with HM Treasury’s guidance about the employment arrangements of individuals on the avoidance of tax. This is described in HM Treasury’s Review of the Tax Arrangements of Public Sector Appointees which explains that senior managers with significant financial responsibilities should be exclusively on payroll, and therefore subject to Pay As You Earn with income tax and NI contributions deducted at source. Failure to comply with these requirements can result in a fine by HM Treasury.
6. Risk register
The trust must manage risks to ensure its effective operation and must maintain a risk register.
Having a procedure
The academy trust must have procedures for whistleblowing, to protect staff who report individuals they believe are doing something wrong or illegal.
The trustees must agree the whistleblowing procedure.
The trust should appoint at least one trustee and one member of staff who other staff can contact to report concerns.
The trust must ensure all staff are aware of the whistleblowing process, and how concerns will be managed.
Staff should know what protection is available to them if they report someone, what areas of malpractice or wrongdoing are covered in the trust’s whistleblowing procedure, and who they can approach to report a concern.
The trust must ensure all concerns raised with them by whistleblowers are responded to properly and fairly.
8. Information about key individuals in the trust
The records required in GIAS for the trust are:
- chair of trustees
- all other trustees
- accounting officer
- chief financial officer
including direct contact details for all.
The records required in GIAS for constituent academies in a multi-academy trust are:
- headteacher, including direct contact details
- chairs of local governing bodies (where adopted), including direct contact details
- local governors (where adopted)
9. Internal scrutiny
Internal scrutiny must focus on:
- evaluating the suitability of, and level of compliance with, financial and other controls. This includes assessing whether procedures are designed effectively and efficiently, and checking transactions to confirm whether agreed procedures have been followed
- offering advice and insight to the board on how to address weaknesses in financial and other controls, acting as a catalyst for improvement, but without diluting management’s responsibility for day to day running of the trust
- ensuring all categories of risk are being adequately identified, reported and managed.
The trust must submit its annual summary report of the areas reviewed, key findings, recommendations and conclusions (as presented to the audit committee by the person or organisation carrying out the programme of work) to ESFA by 31 December each year when it submits its audited annual accounts. The trust must also provide ESFA with any other internal scrutiny reports if requested.
10. Audited accounts
The audited accounts must be provided to every member (under the Companies Act)
11. Requirement to obtain ESFA approval
We promised 10, here is one more for you!
Trusts must ensure they are familiar with the requirements to submit all related party transactions and ESFA may intervene where trusts do not seek the required ESFA approval in advance.
We help Schools and Academies with their financial management, see the results of good practices (and hear about less good practices). If you would like to discuss how to improve financial management in your school, please call. In the last few weeks we have been able to give good schools ideas simply by talking, visiting, or as part of a paid project.