Academies Financial Handbook 2015
The Education Funding Agency (EFA) published on 23rd July 2015 the latest version of ‘The Academies Financial Handbook (AFH) 2015, effective from 1st September 2015.
This latest edition of the Academies Financial Handbook carries far fewer changes than previous years but nevertheless, to make sure Trustees and Accounting Officers and Business Managers ensure their Academy Trusts remain fully compliant the latest edition should still be seen as an essential read.
Lord Nash’s note begins the handbook with emphasises on the need for Academy Boards to keep all aspects of their operations under review to ensure that public funds are spent efficiently, and for them to continually strive to improve governance.
The AFH sets out the key changes, which are largely in relation to governance. The governance changes within the AFH appear to be aimed at increasing transparency, which are summarized below (includes AFH section reference) & a supporting note on what these may mean:
- Trusts MUST not have de facto trustees or shadow directors. De facto trustees or shadow directors are defined in Appendix 1 of the Charities SORP 2015 or as defined in section 251(1) of the Companies Act 2006.
As “a person who has no been validly appointed as a trustee but is acting as a trustee of the charity and is exercising the functions that could only be properly discharged by a trustee”. (Page 7)
Note : This appears relevant to academy trusts because of the confusion over the terms and roles of trustee, director and governor, which as AFH 2015 set out, are effectively one and the same. Hence, if individuals are attending governor meetings and carry out the same duties as their colleagues who are officially directors, they would be seen to be de facto trustees and / or shadow directors.
- A Financial Notice to Improve (FNtI) may be issued due to governance concerns as well as financial concerns. (1.5.7 and 1.5.8)
Note : Where the EFA believe governance and management is inadequate they will raise an FNtl. This can include weak oversight, control or direction by trustees, breaches of duties, principles and requirements of governing connected party relationships as well as, poor internal scrutiny and challenge. Due to this it is important that academy trusts are able to demonstrate strong governance in all areas, minutes must be accurate and detailed documenting all decisions.
- The Accounting Officers MUST adhere to the ‘seven principles of public life’. These are; accountability, selflessness, integrity, objectivity, openness, honesty and leadership.
- Medium and larger sized trusts undergoing a period of change should consider more frequent board meetings than are required under their articles (2.1.3)
- Trusts MUST publish on their websites up-to-date details of their governance arrangements in a clear and readily accessible form. These MUST include things like structure and remit of members, the trustees and the committees, dates of appointment, relevant business interests and trustees’ meeting attendance records. (To see the AFH full list refer to section 2.5.2)
Note : The information within the above three bullet points is available in the year end financial statements, once these have been published on the website. However, this latest revision of the AFH seems to suggest that changes such as appointment dates need to be disclosed more promptly than this. There is further clarification to state that the trusts register of interests must also identify close family relationships between members or trustees and between members or trustees and trust’s employees. The requirement to publish ‘relevant’ business & pecuniary interests of members, trustees and local governors on the website remains unchanged, and there continues to be discretion over the publication of interests of other individuals such as close family relationships of members and trustees. The definition of relevant also remains unchanged and therefore, continues to include the involvement of other education institutions, not just commercial business interests.
- A reminder that trusts MUST notify the EFA of the appointment of members or trustees. (4.7.4)
Note : This information is not new – it’s just a reminder that Trusts must notify the EFA, through the Information Exchange Portal, of all appointments of trustees and members within 14 days of the change. Additionally, whenever a key position such as a Chair, Accounting Officer or Chief Financial Officer has left or been appointed. In addition to this trusts also need to notify Companies House.
- The AFH remarks on the removal of the separate ‘Value for Money Statement’. (1.5.21)
Note : This is not new, the EFA explained this earlier in the Accounts Direction 2014-15 that now the Value for Money Statement is now incorporated into the Governance Statement within the Annual Report and Accounts. What this does mean though is that Trusts may need to prepare the Value for Money Statement earlier as it will need to be ready to be included in the accounts which are usually approved around November or early December. The trusts Auditors are obliged to read the Value for Money Statement and ensure that there are no material inconsistencies within it.
- Requirements relating to budget monitoring have been slightly simplified. (2.3.3)
Note : The EFA states the internal control framework must include ‘preparation of monthly budget monitoring reports’
This ‘simplification’ must be considered carefully by the trustees to ensure that they receive and review all the information that is relevant for their understanding of their academy trusts financial position and performance to enable them to fulfill their duties as a trustee.
- Delegated limits for trusts, to write-off debts or enter into liabilities, is subject to a ceiling of £250,000 (3.6.2)
Note : This ‘ceiling’ figure appears very high and it is unlikely that an academy would have to consider writing off a debt at this level.
- Extension of trusts delegated authorities to take up a leasehold or tenancy agreement on land and buildings (3.9.3)
Note : Academy trusts’ delegated authorities to take up leaseholds or tenancy agreements on land and buildings have been extended from 5 years to 7 years. This is again not likely to be applicable to a majority of academy trusts.
- Arrangements that only trusts with an annual income in excess of £50m MUST have a dedicated Audit Committee (2.4.2)
Note : Previously a separate audit committee was a requirement for a trust with an income of over £10 million or capitalized asset values of over £30 million, and to all multi-academy trusts regardless of the size. This therefore, is a substantial relaxation in the rules.