Education policy can be confusing and complex, and keeping up to date with it can be challenging. With various different governmental bodies issuing policy simultaneously, it can be difficult to follow who is responsible, and for what, within academy trusts (ATs).
This is where the ‘Academies Financial Handbook’, also known as ‘the Trust Handbook’, comes into play. The Trust Handbook, published by the Education and Skills Funding Agency (ESFA), outlines the financial policy requirements for ATs.
What is the Academy Trust Handbook?
First published in 2006, and with annual amendments since 2012, the Handbook is a set of compliances ATs must meet as a ‘condition of their funding agreement’. As ATs are non-profit charitable trusts, there are stringent rules and regulations which must be followed in order to avoid abuse of public funding. Such as the case of the Perry Beeches Trust scandal, where the Chief Executive was receiving cash from third party payments in addition to his salary.
As when dealing with all things finance that are statutory requirements, there is always a lot to untangle. The Handbook for the academic year 2023/24 is lengthy document at 62 pages, containing six key parts:
- Roles and Responsibilities
- Main financial requirements
- Internal scrutiny
- Annual accounts and external audit
- Delegated authorities
- The regulator and intervention
In short, by keeping in line with the Trust Handbook ATs will ensure they are compliant with the frameworks designed for the management and running of trusts, including, but not limited to, their financial workings.
What is interesting is the language of ‘should’ and ‘must’ is used with regards to requirements. ‘Should’ denotes the minimum level of what is deemed good practice, whereas ‘must’ denotes what is required.
What is New for the 2023 Edition?
Roles and Responsibilities
With the recent publication of the Trust Quality Descriptions, the content regarding ‘governance matters’ within the ‘Roles and Responsibilities’ section has been updated.
What is more, greater emphasis has been placed on ‘good estates safety and management’. This is hardly surprising considering the recent report by the National Audit Office, which found that the 700,000 pupils are learning in schools which require major refurbishment or rebuilding.
This increased focus of responsibility for estate management from the Department for Education to the AT, enshrined by the Handbook, could prove to be both costly in terms of cash resources, but also human work hours to comply with auditing and accountability measures. The addition of Health and Safety matters could be seen as an evolution of the Handbook to cover a broader range of topics, which do not relate directly to finance.
There have also been new additions relating to the role of Accounting Officer and Chief Financial Officer, and that they ‘should not be occupied by the same individual’. The use of the word ‘should’ instead of ‘must’ seems to imply that this is not enforced or a statutory obligation. Meanwhile, the trustee board should now have sufficient financial knowledge to hold the executive to account regarding the finances of the trust.
Main Financial Requirements
Trusts now have an additional month to submit their Budget Forecast Return, taking it to the end of August. The Handbook has clarified issues regarding the preparation and circulation of management accounts – accounts must be prepared every month, shared with the chair of trustees monthly and the board must be able to review and the accounts to ensure that the appropriate action is taken to address the financial viability of the trust.
Delegated Authorities
The 2023 edition of the Handbook addresses the practice of GAG Pooling, which allows a trust to centralise funding into one fund and enables the distribution of resources in order to address priorities. The Handbook states that the practice ‘can be integral to a trust’s successful financial operating model.’ However, the trust must consider the funding needs of each academy within the trust and there must be an appeals mechanism so that an appeal can be raised with the ESFA.
In addition to the GAG Pooling, the approval threshold for related party transactions has been refined and simplified. Trusts must report all contracts with related parties over £40,000 to the ESFA via the ESFA’s related party on-line form. However, ESFA approval does not need to be granted for contracts between the trust and colleges, universities and schools which are sponsors of the academy trust or other state funded schools.
The regulator and intervention
With budgets being tight and rising costs impacting all elements of the sector, it is hardly surprising that there has been clarification on the circumstances in which a ‘Financial Notice to Improve’ (NtI) may be issued. A NtI is a letter from the ESFA that reflects the weak financial position of a trust, revokes various financial responsibilities, and outlines ways in which the trust must report their finances in order to address the balance sheets. NtI’s can be issued on financial grounds for:
- an actual or projected deficit
- cash flow problems
- insolvency risk
- irregular use of public funds
- poor internal scrutiny
- breaches of related party requirements
A future measure of the financial strength of the sector could be to monitor the number of NtIs issued in the forthcoming year.
A NtI can also be issued due to shortcomings in governance matters, such as failing to comply with safeguarding duties, the trust board not being correctly constituted and trustees lacking the appropriate skills and knowledge to perform the role.
Final Thoughts
Whilst this year’s Handbook is shorter than last year’s, the emphasis on estates management could be seen as an expanding remit of the Handbook. The document is a typical example of how central government allows trusts autonomy to conduct their affairs whist steering and delegating responsibility at a distance. It will be worth monitoring next year’s Handbook to review the changes and additions, in order to assess the priorities of the Department for Education and the ESFA.
