The Department for Education (DfE) has published the 2017 edition of the Academies Financial Handbook.
The latest edition contains a number of changes from its predecessor and comes into effect on 1 September 2017. It is positive to see that some of the lessons of the previous years’ ESFA investigation reports into trusts appears to be finding their way into the guidance.
We have summarised and considered the headline changes here.
Separation of powers and the constitution of the board
Greater emphasis has been placed on division of authority between members and trustees, something the DfE associates with ‘the most robust governance structures.’ Members should exercise scrutiny of the board without direct involvement in it – being, as the Handbook puts it, ‘eyes on and hands off’. Emphasis has been placed on the undesirability of trust employees serving as trustees, save for the executive leader.
In our own reviews of ESFA investigation reports into academy trusts, we noted that conflicts of interest or other allegations of impartiality featured in the vast majority of complaints made against governing bodies. Skills gaps and lack of skill diversity on trust boards was a similarly pervasive issue in the ESFA’s investigations, and the 2017 Handbook contains new information on addressing this with reference to the DfE’s governance competency framework and Governance Handbook. The Handbook specifically refers to the ESFA investigation reports as a key leaning resource.
‘Seven principles of public life’
Originally published by the Committee on Standards in Public Life in 1995 in response to the ‘cash for questions’ scandal during the John Major Government, the application of the seven principles to those involved in academy trust governance and management has been re-emphasised in the 2017 Handbook.
Seeming to reflect academy trustees’ hybrid responsibilities under company and charity law, the principles of selflessness, integrity, objectivity, accountability, openness, honesty and leadership should act as a useful ethical backdrop in monitoring of governance and conduct.
Executive leader pay
The issue of executive pay, ever popular in the media, has been considered, with new requirements that salary decisions be based on ‘a robust evidence-based process.’
Termination settlements
The Handbook confirms that trusts have authority to make non-statutory, non-contractual termination payments of under £50,000 exclusive of income tax and other deductions. This will be an important factor in calculating and negotiating termination agreements.
Relationship with the Education and Skills Funding Agency (ESFA)
The annual accountability framework letters sent to all trust accounting officers by the ESFA must be discussed at board meetings, with any necessary compliance requirements subsequently put in place. Emphasis has been placed on obtaining ESFA approval for any ‘repercussive’, novel or contentious transactions, another area featuring heavily in the ESFA investigation reports.
Financial health and efficiency
The 2017 Handbook contains new measures to encourage improvement of financial management in trusts before the stage at which the ESFA feels compelled to issue a Financial Notice to Improve (FNtI). Recently updated guidance includes protocols for information exchange with the ESFA, financial benchmarking in budgeting and capital funding.
Further changes
The Handbook also sets out further criteria for appointment of a trust’s statutory auditor, reinforces accounting and budget responsibilities and stresses that Edubase details must be kept up to date.