Key Changes to the Academies Financial Handbook 2021

The ESFA have now renamed the Academies Financial Handbook. So its “Goodbye Academies Financial Handbook”….and “hello to the Academy Trust Handbook”!  A subtle change but a significant one to help reflect the content of the guide more accurately.

The guide will replace the 2020 version of the Academies Financial Handbook with effect from 1 September 2021. A full copy of the handbook can be found here.

The changes in this year’s version of the popular, must-read guide tend to have more of a governance theme to them and this is likely to be the main reason for the name change. As expected, the ESFA are picking up on a lot of the topical issues the sector is seeing at present.

So, what has changed from the 2020 edition? The changes range from reminders to existing areas that the ESFA are keen on improving to new ones which will help improve governance in trusts. Once again, the ESFA has helpfully summarised the changes (page 9) so that they can be easily identified. Below Kreston Reeves have looked at these changes and highlighted the key changes that will have more of an impact upon academy trusts.

A reminder that “should” identified minimum good practice that trusts should apply unless they can demonstrate that an alternative approach suits their circumstances.

Governance, roles and responsibilities

Members fall under the spotlight and trusts must ensure existing members are not currently subject to a direction made under section 128 of the Education and Skills Act 2008 and that any due to be appointed are not subject to a direction either (para 1.4).

The debate regarding parent trustees has been around for some time. There are some trusts (mainly multi-academy trusts) which tend to not have any parental representation on the trust board. There are pros and cons to this depending how you see it. In addition, the trust’s Articles of Association will clearly define what the rules are regarding this. The Handbook now recommends that places are reserved for parents by emphasising “should” in the guide.

So, for single-academy trusts, they should have at least two places for parents on the trust board. For multi-academy trusts they should follow the same rule or have two places on each local governing body (where established) (para 1.11).

The Handbook also reminds trusts of their obligations regarding safeguarding, health and safety and estates management (para 1.15, 1.17 and 1.20).

Key change! From 1 March 2022 any newly appointed accounting officer can only be a trustee if the members decide to appoint them as such and the accounting officer agrees and the trust’s Articles permit this. The Department has a strong preference that no employees serve as trustees – this is also widely shared by many governance organisations such as the NGA (para 1.23).

Therefore, if your trust appoints a new accounting officer post 1 March 2022, you ensure the Articles are reviewed and the Members are involved in any appointment process. This should be clearly minuted.

In addition, when an accounting officer departs a trust, the board should approach their Regional Schools Commissioner (RSC) in advance to discuss options and structures for the recruitment process. It is likely that this forms part of the ESFA’s wider remit to reduce the number of trusts which exist and therefore if your plans are not accepted you may see some pressure to join another trust (para 1.36).

Governance reviews are clearly an area the ESFA feel need to be improved. The ESFA now stress that an external review is more powerful than self-evaluation especially in times of change e.g. growth or concerns. The handbook indicates a strong preference to this (para 1.32).

At Kreston Reeves we have conducted such reviews in the past thanks to some of staff being governors in trusts. Therefore, if you would like to discuss an external review further please do get in touch.

Finally, the Handbook makes some reminders as follows:

• that Disclosure Barring Service certificates must be obtained for all staff and supply staff (para 1.51 and 1.52)
• certain governance documents (agenda, minutes and accompanying papers) must be available for public inspection (para 2.51).

The financial part – transparency and accounts

As many MATs know, they must have in place a Scheme of Delegation. The Handbook now specifics that this should be annually reviewed or immediately when there has been a change in trust management or organisational structure (para 2.4).

It is likely that the SoD does tend to be forgotten when these changes take place due to the focus being on implementing the changes, so this is a timely reminder.

Last year saw the key change that trusts must publish details of employees whose benefits (salary, employers’ pension contributions and taxable benefits) are more than £100k. The Handbook now clarifies this further by stating that a tabular format may be a more suitable way to publish the information e.g. a column for salary, pension etc (para 2.32)

Furthermore, where the academy trust has entered into an off-payroll arrangement with someone who is not an employee, the amount paid by the trust for that person’s work for the trust must also be included in the website disclosure where payment exceeds £100k as if they were an employee.

As everyone will know, trusts must appoint an auditor to give an opinion on the annual financial statements of the trust. The Handbook now also stresses that trusts should retender their external audit contract at least every five years (para 4.5) and must consider certain points (para 4.17) when evaluating.

Key change! Prior approval from the ESFA must be obtained before making a staff severance payment where (para 5.12):

• an exit package which includes a special severance payment is at, or above, £100,000; and/or
• the employee earns over £150,000.

Internal scrutiny

The focus on improving internal scrutiny continues in this Handbook.

Key change! The chair of trustees should not be the chair of the audit and risk committee – whether the committee is separate or not (para 3.10)

Any internal scrutiny must not be performed by the trust’s accounting officer, chief financial officer or senior members of the leadership and finance teams (para 3.15)

Key change! Cybercrime is a hot topic in the sector right now with schools experiencing many attacks since the pandemic started. This has even resulted in schools having to close! The handbook introduces some guidance on this topic and this is certainly an area which the audit and risk committee should be considering as part of their risk registers and internal scrutiny arrangements.

As a result, trusts must now be aware of the risk of cybercrime and put in place proportionate controls and take appropriate action where a cyber security incident has occurred (para 6.16)

In addition, trusts must obtain permission from ESFA to pay any cyber ransom demands (para 6.17).

Intervention

Key change! Finally, the Handbook states trusts must provide the ESFA with written authority giving permission for any third party to provide such information and documentation to ESFA or its agents on request of ESFA. This is linked to ESFA investigations where perhaps information or documentation is held by other parties which is not as forthcoming (para 6.5).

Financial Notices to Improve have also been renamed….they will now be known simply as Notices to Improve – again, reflecting that some of these are now having more of a governance focus than a financial one (para 6.18 to 6.22).

Summary

The ESFA continues to strive for the highest standards of financial management and governance and the latest updates are clearly looking to make improvements.

The push on improving the landscape of internal audit (scrutiny) for academy trusts is continuing and we now have the added risk of cybercrime for schools. Trust boards may therefore have to re-assess their skill set to ensure they have the necessary skills to enable them to receive the level of assurance the ATH2021 is clearly striving for.

We would recommend that the ATH 2021 is read by all those involved in making the decision on behalf of the trust, in particular, Part 8: The Musts – otherwise, are you demonstrating strong governance and financial management?

At Kreston Reeves we can perform a review of your own trust’s compliance with the “musts” as an alternative independent view. If this is something your trust would be interested in, then please do get in touch.