Academies Financial Handbook 2020 – What it means for your trust

The new Academies Financial Handbook has been published which will be effective from 1st September 2020. We look here at what it means for your trust.

The focus of the new handbook is on:

• expectations in using public funds as a contractual obligation in your funding agreement

• efficient financial management and accountability in helping trusts deal with the additional risks created by Covid-19

• internal scrutiny, ensuring procedures are fit-for-purpose and followed

• the school resource management and self-assessment tool

• members being informed and ensuring effective governance by the board

• board responsibility to maintain the trust as a going concern

• the requirement to have a clerk to the board to provide independent and expert advice and

• the key role of the Chief Financial Officer and the value of a relevant financial qualification.

The key changes included in the new handbook are as follows.

Going concern

Boards must take ownership of their trust’s financial sustainability and satisfy themselves their trust remains a going concern, ensuring financial plans are prepared and monitored and taking a longer term view consistent with their three-year budget forecasts. The finance committee can support them in this role.

Pupil number estimates

Pupil number estimates should be reviewed by the board each term, as minimum good practice. As now, the handbook already confirms that the board should challenge these estimates as they underpin the revenue projections of the trust.

Reserves policy

Boards must also explain their trust’s policy for holding reserves in its annual report.

Fixed asset register

Trusts are required to maintain a fixed asset register, which they should be doing as good practice. The handbook already requires trusts to manage and oversee assets.

Purchase of alcohol

Trust funds must not be used to purchase alcohol for consumption, except where it is to be used in religious services. This removes any element of discretion and has implications for Christmas parties and other events where the purchase of alcohol in moderation would otherwise seem appropriate to express particular thanks to trust staff.

School resource management self-assessment tool

All trusts must now complete the school resource management self-assessment tool and submit this to the ESFA each year. This is a major change from the more laissez-faire approach of recent years where trusts have been encouraged to make use of school resource managers and only required to do so where there have been serious concerns.

Publication of executive pay

Trusts must publish on their website the number of employees whose benefits (including salary, taxable benefits and termination payments but not the trust’s own pension costs) exceeded £100k, in £10k bandings. The information must be published in a separate readily accessible form as an extract from the financial statements for the previous year ended 31 August, which are already required to be published on the trust’s website.

The salary and other benefits of employees who are trustees will be disclosed in £5k bandings in the trust’s financial statements.

Accounting officers and CFOs

The accounting officer (being the chief executive or equivalent) and chief financial officer (CFO) should be employed by the trust. As now, the handbook defines ‘should’ as ‘minimum good practice which trusts should apply unless they can demonstrate that an alternative approach better suits their circumstances’. On the face of it, it is therefore not a strict requirement. However, trusts must obtain prior ESFA approval if they are proposing, in exceptional circumstances, to appoint someone who will not be an employee. So, in effect, it is a strict requirement unless the ESFA agrees otherwise. This is in response to some senior executive leaders who have performed their services through a separate company. Clearly, the ESFA is concerned that this practice inhibits transparency in the use of public funds.

The handbook also encourages larger trusts (for example with over 3000 pupils) to consider accountancy qualifications available from professional bodies and take this into account when filling CFO vacancies. As now, the handbook requires CFOs and finance staff to be ‘appropriately qualified and/or experienced’ and obliges trusts to assess if the CFO and others in key financial posts should have a business or accountancy qualification and hold membership of a relevant professional body. The focus on CFOs of larger trusts is intended to address the added scale and complexity of these trusts and the growing sophistication of the sector.

According to the handbook, CFOs should also maintain continuing professional development and undertake relevant ongoing training. This is recommended as minimum good practice and not a strict requirement though any trust worth its salt will already be investing in the training and continuing professional development of its CFO to ensure it remains financially viable and able to provide a quality education for its students.

Members, employees and volunteers

Members must not be employees or occupy unpaid staff roles, with effect from 1 March 2021. The current handbook prohibits employees from being members unless permitted by the trust’s articles. This is not allowed by the DfE model articles though recent editions of the articles allow trusts to change their articles without DfE consent, enabling trusts to take the opposite approach, though this is not best practice.

As above, the handbook confirms the importance of members being kept informed of trust business so they can be assured the board is exercising effective governance. Whilst not a strict requirement, it is nonetheless good governance particularly since the members appoint and remove the trustees under the DfE model articles.

Register of interests

Boards must keep their register of interests up-to-date. The current handbook says boards should keep the register up-to-date as minimum good practice.

Appointment of a clerk

Trusts must appoint a clerk to the board, being someone other than a trustee, principal or the chief executive, to ensure the board complies with legal and regulatory requirements, advise on procedural matters and provide administrative and organisational support. The current handbook says trusts should appoint a clerk as minimum good practice.

Whistleblowing policy

Board must publish their whistleblowing procedure on the trust’s website.

Risk register

As now, the handbook requires that trusts maintain a risk register. However, the new handbook confirms that overall responsibility for risk management, including ultimate oversight of the risk register, must be retained by the board, drawing on the advice of the audit and risk committee and other committees as required. The handbook also requires the board to review the risk register at least annually.

Audit and risk committee

Trusts must have an audit committee, as before, though this is called the audit and risk committee. The handbook extends the committee’s role, beyond directing the programme of internal scrutiny and reporting to the board on the adequacy of the internal control framework, to ensuring risks are addressed appropriately through internal scrutiny. The handbook also stipulates that the committee must:

• review the external auditor’s plan
• the annual report and accounts
• the auditor’s findings (and actions taken by the trust’s managers in response) and
• assess the effectiveness and resources of the external auditor and report to the board and the members on the reappointment, dismissal or retendering of the external auditor and their remuneration.

Internal scrutiny

Internal scrutiny must also extend to financial and non-financial controls, in recognition that a range of factors, collectively or in isolation, can lead to serious difficulties and ultimately the downfall and re-brokering of a trust. However, internal audit may not be conducted by a trust’s external auditor, something which many trusts and their external auditors already practice. Meanwhile, trusts may use other individuals or organisations to support internal scrutiny where specialist non-financial knowledge is required.

In summary

The Academies Financial Handbook 2020 includes a number of changes which trusts must comply with or follow depending on whether they are a strict requirement or recommended as minimum good practice. The majority of these changes should not come as a surprise as they continue the direction of travel taken by the ESFA and codify behaviours that many trusts are already observing as best practice. Trusts can also learn from the wider charities sector, for example by using the Charity Governance Code to assess and improve their governance through the lens of their exempt charity status.