1 September 2019 saw the revised Academies Financial Handbook (AFH) come into effect with updated detailed guidance on academy school financial controls, reporting and accountability obligations and good governance principles. The revised version augments requirements pertaining to risk management, internal financial controls, accountability regarding executive pay, whistleblowing arrangements, responding to Financial Notices to Improve and the importance of a competent clerk.
Compliance with the AFH is a condition of each academy trust school's funding agreement with the Education and Skills Funding Agency (ESFA), and as such will be required reading for those involved in academy trust governance.
This section has the biggest changes for academy trusts and their trustees. In common with other sectors, the revised guidance places high importance on internal controls being in place, effective and reviewed regularly.
The updated AFH requires all trusts to put in place and maintain a risk register, which in turn will inform those areas of internal control to be checked and revised. The guidance makes it clear that it expects boards to be assured that internal control mechanisms are reviewed by someone with suitable experience and qualifications in line with an appropriate scheme of work. This work will need to be agreed in liaison with the audit committee (or finance committee for smaller trusts), which will support the board in its accountability requirements for statutory reports. The annual summary report of key findings and actions must be submitted to ESFA by 31 December and its contents should support the annual governance statement and the accounting officer’s report on financial regularity.
Alongside checks on internal controls, there is more information about monthly management accounts including details of income, expenditure, budget variations, cash flows and a balance sheet, all of which must be shared with the chair of trustees on a monthly basis (and with all other trustees at least six times a year). A focus on good estates management is included in the detail covering budget planning. The AFH also reminds trusts that members must receive audited accounts.
Financial Notices to Improve
As all well governed organisations should do, where the trust is experiencing financial difficulties the board should act quickly. Where the academy trust is given a Financial Notice to Improve, the AFH includes a new requirement for academies to publish the action on their website within 14 days and leave it there until the notice has been lifted. The notice will include all the delegated authorities that have been revoked, including staff severance payments and possibly powers to enter into related party transactions.
All trusts are required to have an effective whistleblowing policy in place, approved by the board of trustees. All staff should be made aware of the policy and who can be contacted to raise concerns. A trustee and a staff member should be appointed for this purpose.
As with other sectors, a few academies have attracted adverse publicity because of the level of remuneration packages, not just salaries, paid to senior leaders. The revised AFH reminds boards discussing pay frameworks to include pensions and other benefits in their deliberations, to report on gender pay gaps and that senior leaders should be on the payroll and subject to NI and PAYE. Good governance principles would ensure trustees make such decisions on remuneration packages in line with a robust, evidence based framework, with the person concerned not involved in the decision making process.
The AFH further strengthens DfE statements in the Governance Handbook and the Competency Framework for Governance that a knowledgeable clerk is essential to good governance in an academy trust. The AFH reinforces the understanding that clerks do more than minute meetings, but offer guidance and advice to ensure the board fulfils its legal duties effectively and ethically. As such the AFH makes it clear that the clerk should not be a trustee or the accounting officer.
Most of the new and clarified requirements will be recognised as good governance practice in other sectors, but some of the changes may prove more difficult to implement than others. Given the statutory nature of the guidance, failure to comply with the AFH could have serious adverse impacts on academy trusts, their pupils and the trustee board.
ICSA’s latest suite of guidance notes for academy trusts focusing on the context, legal and regulatory framework of charitable companies limited by guarantee, including the roles of members and officers, were published on 27 August 2019 and incorporate the latest related DfE guidance covered in the AFH and the Governance Handbook. The full titles include:
Download the guidance here.