Academies trading with connected parties, as a topic, has been in and out of the spotlight for a number of years leading to many news articles and even television programmes identifying amounts paid to related parties including family members and companies related to the Trustees.
This is, therefore, the first in a series of three articles looking at the issue. We will explore:
- What is a connected party;
- The key risk areas for transacting with connecting parties; and
- How to manage potential conflicts of interest.
These articles act as a reminder of the requirements of the Academies Financial Handbook (AFH), which are to ensure robust governance and effective financial management. The latest version of the Handbook, effective from 1 September 2017, states that ‘The board of trustees has wide discretion over its use of the trust's funds, which it must discharge reasonably and in a way that commands broad public support. It is responsible for the proper stewardship of those funds, including regularity and propriety, and for ensuring economy, efficiency, and effectiveness in their use – the three key elements of value for money.’
What is a connected party?
The latest version of the AFH provides the following definition to be connected parties:
- any member or trustee of the academy trust.
- any individual or organisation connected to a member or trustee of the academy trust. For these purposes the following persons are connected to a member, or trustee:
■ a relative of the member or trustee.
■ an individual or organisation carrying on business in partnership with the member, trustee or a relative of the member or trustee.
■ a company in which a member or the relative of a member (taken separately or together), and/or a trustee or the relative of a trustee (taken separately or together), holds more than 20% of the share capital or is entitled to exercise more than 20% of the voting power at any general meeting of that company .
■ an organisation which is controlled by a member or the relative of a member (acting separately or together), and/or a trustee or the relative of a trustee (acting separately or together).
■ any individual or organisation that is given the right under the trust’s articles of association to appoint a member or trustee of the academy trust; or anybody related to such individual or organisation.
■ any individual or organisation recognised by the Secretary of State as a sponsor of the academy.
As you can see this is an extensive list and it is important that when the declaration of interest forms are filled in that Trustees fully understand what they should be disclosing to the Trust.
Also do not forget that the Trust must publish on their website a schedule of the relevant business and pecuniary interests of members, trustees, local governors and accounting officers.
Kreston UK’s 2017 Academies Benchmark Report has been published. To request your complimentary copy of the Report, please click here.
The benchmarking report will assist anyone who wants to understand more about how their academy trust is performing.