In June 2021, the Education and Skills Funding Agency (ESFA) issued the new Academy Trust Handbook 2021.
When we say “new”, it’s not really new – it’s the Academies Financial Handbook as we previously knew it, renamed as the Academy Trust Handbook (‘ATH’) to more accurately highlight the existing responsibilities of academy trusts in a wider range of areas than just finance.
While it’s now called the Academy Trust Handbook, it still references the Academies Financial Handbook in its title, which is important as all trust’s Funding Agreements and various other policies and procedures reference the AFH. That means there’s no need to go out and revise all of those documents from 1 September 2021, although in time these will need to be updated.
The ATH 2021 is effective from 1 September 2021 onwards, and as always, compliance with it is a condition of all academy trust’s Funding Agreements. So, we thought it would be helpful to break down some of the key changes below.
MORE ‘MUSTS’ AGAIN FOR 2021
One of the key aspects of the ATH 2021 is the ‘musts’ which set out each of the requirements that are mandatory for academies to follow. As always, there is a useful section in the ATH (Part 8) which summarises all the ‘musts’.
For the real enthusiasts out there, in the ATH 2021 there are 111 ‘musts’, compared to 103 in the current version. We’ll leave you to decide if that’s progress, further scrutiny and restrictions, or just greater emphasis and expectations of organisations in their use of public funds.
As well as the ‘musts’, the ATH 2021 also includes a number of ‘shoulds’. These identify minimum good practice that the ESFA believes all academy trusts should apply, unless they can demonstrate that an alternative approach is acceptable and fits their particular circumstances.
What’s clear from it all is the ESFA’s continual drive for the highest standards of financial management and governance in academies, and with the change of name and focus this year, a lot of the changes are more governance focused than before.
So, what are the key changes? These are conveniently summarised on page 9 to 10 of the ATH, but we’ve expanded on these a little further for you:
One of the key changes is putting more focus on the members of an academy trust. All academy trusts must now ensure that their members, and any prospective members, are not currently subject to a direction under section 128 of the Education and Skills Act 2008.
Now, a section 128 direction effectively prohibits an individual from taking part in the management of an academy trust. So, it’s important for trusts to ensure they have appropriate processes in place for any new member appointments, and they need to have undertaken a process to obtain this information for all existing members.
Also, a reminder that employees must not be members, and this extends to being an employee on an unpaid voluntary basis. This was a key change in the 2020 AFH and was effective from 1 March 2021, so any academy trusts which still have a provision in their Articles of Association allowing employees to be members are going to have to revise their Articles to reflect this requirement if they haven’t already done so.
Reserving places for parent trustees
Firstly, the issue of whether to have parent trustees or not has been an ongoing debate for many years, with some academy trusts continuing to have parent trustees on their Boards while others have chosen not to. Whatever your view on the debate, the ESFA are now emphasising that academy trusts should reserve places for parent trustees in their governance structures, either at a trust level or at a local governing body level.
Appointing a senior executive leader
This is a key change this year and an important one to note. From 1 March 2022, any newly appointed senior executive leader (which, in effect, is the accounting officer) can only also be appointed as a trustee if the academy trust’s articles permit it, the senior executive leader agrees to the appointment, and the appointment is agreed by the academy trust’s members.
We’ve seen an increasing number of changes at a senior executive leader level in trusts in recent years. So, if you are appointing a new senior executive leader from 1 March 2022 onwards, it’s important to ensure these considerations are followed and any appointments are appropriately minuted. It would also be good practice to ensure the senior executive leader confirms their agreement to being appointed a trustee in writing, so as to ensure a proper audit trail.
With this, it’s worth also noting that the ESFA’s strong preference is that no employees should serve as trustees, and this is an area where we are seeing more trusts choosing not to appoint the senior executive leader as a trustee.
Finally in this area, the ATH 2021 now emphasises that trusts should consult with their RSC on possible options where an existing SEL is planning on leaving the trust. This is ultimately designed to facilitate discussions on the leadership structure for the trust going forward, but it will remain to be seen what the outcomes of this will be.
Reminders around trustees’ other obligations
The other key change for trustees is to note some new sections that have now been included to remind trustees of their obligations around safeguarding, health and safety, and estates management. It’s therefore important for trustees to ensure their meeting agendas (or those of their sub-committees) include reports on these key areas.
Whilst not a change in the ATH 2021 at all, given the ongoing funding pressures and uncertainty around some aspects of funding going forward, including funding for costs incurred in dealing with the COVID-19 pandemic, it’s worth reinforcing one of the key changes from last year, which was around going concern.
This stressed that in addition to the trustees’ responsibility for ensuring regularity and propriety in the use of public funds, they must also take ownership of the trust’s financial sustainability and its ability to continue as a going concern.
There is an increased emphasis on governance reviews as well, which probably reflects the ESFA’s view that these are not taking place as often as they should or are not as effective as they should be. The ATH 2021 now stresses that an external review of governance is a more powerful tool than a self-evaluation review and that the ESFA’s strong preference is for academy trusts to have an independent external review more routinely – especially if the trust is growing or there are governance concerns or issues. This is therefore something trustees should strongly consider going forward, especially if they have not had one for some time.
DBS certificates and checks
The ATH now reminds trusts of their responsibility to ensure that enhanced DBS certificates are obtained for all staff and supply staff as appropriate. This extends to all members, trustees, sub-committee members and local governing body members, except to the extent they are not engaged in any regulated activity, in which case the barred list check is not required.
The AFH 2020 increased the expectation around what controls trusts should have in place and the level of transparency going forward. Our summary of the 2020 AFH covered these in more detail and you can refresh your memory HERE.
For the ATH 2021, there has been relatively little change in the main financial requirements, but a couple of points that are important to note are:
1) Whilst trustees must approve a written scheme of delegation for their trust, the ATH 2021 now specifies that this should be reviewed annually and where there has been any change in a trust’s management team or organisational structure.
From our experience, this is something that is often not reviewed on a regular basis, so this is a very worthwhile reminder for trusts. The best time for trustees to review the scheme of delegation is in advance of the new academic year, around the end of the Spring term or in the first meeting of the Autumn term.
2) Reminding trusts of the key documents that must be made available for public inspection if requested, which include agendas for every meeting of the trustees, sub-committees and local governing bodies; the approved minutes of each of these meetings; and any report or document considered at these meetings. The ATH also clarifies the situations in which certain items may be excluded from this information, which are often matters detailed in confidential minutes. Many trusts utilise online portals for such documents, so it’s important to ensure this information is stored in a systematic and efficient way.
One of the key changes in the AFH 2020 was in relation to the publication of executive pay, which was essentially any employees whose benefits (which means gross salary, employer’s pension contributions, other taxable benefits and termination payments) are more than £100,000.
The ATH 2021 now clarifies the ESFA’s view that this information is best published in a tabular format which shows each element of remuneration in a separate column. The most efficient process is to ensure this information is produced and published on the website at the same time as the trust’s annual report and financial statements.
The final important change to note on executive pay is in relation to off-payroll arrangements. If a trust has entered into an off-payroll arrangement with someone who is not an employee and the total payments to that person are greater than £100,000, then this must also be included in the executive pay disclosure publication. Again, this is important for trusts to consider alongside the production of the annual report and financial statements, and you should ensure there is a process for capturing any off-payroll arrangements in place.
Internal scrutiny has continued to be a hot topic in the academy sector over the last couple of years and the AFH 2020 introduced some key changes and clarifications, especially around this needing to cover both financial and non-financial controls. The ATH 2021 has set out some further expectations of the ESFA in this important area.
The ATH 2021 now sets out that the chair of trustees should not also be the chair of the audit and risk committee – and that’s the same whether the audit and risk committee is a separate committee or part of another committee (i.e., like a finance committee). This change emphasises the ESFA’s continuing focus on the separation of key governance roles within trusts.
The ATH 2021 also sets out that where the audit and risk committee and finance committee are separate, the same person should not be chair of both committees. So, this is something for trusts to consider in terms of their governance structures going forward.
The other key change is around considering the different options for delivering internal scrutiny in a trust. While there are a number of potential options, the ATH 2021 now sets out that the internal scrutiny work must not be carried out by a member of the trust’s senior leadership team (which includes the accounting officer and CFO). So, if you haven’t already considered how your internal scrutiny work will be delivered this year or going forward, this is an important aspect to note.
ANNUAL ACCOUNTS & EXTERNAL AUDIT
The key change here is the ESFA’s expectation that academy trusts should re-tender their external audit service every 5 years.
This is generally what we have seen in the sector, with most trusts going through a re-tender exercise, or at least a market comparison review, every 3 to 5 years, or where there has been a significant change in the trust (such as a merger of two existing trusts). When considering re-tendering, there are a number of options trusts can consider, such as the Crescent Purchasing Consortium or other procurement groups, or they can run a tender exercise themselves using audit firms that other trusts they know use and can recommend.
The ESFA have also set out that all academy trusts must consider certain specific points when evaluating the external audit re-tender. These include the auditor’s sector expertise, their understanding of the trust and its activities, whether the audit process allowed issues to be raised on a timely basis, the quality of audit recommendations, the authority, knowledge and integrity of the audit team to interact with and challenge the trusts management team, and the auditor’s use of technology.
The ESFA have also produced a good practice guide on choosing an external auditor, which can be found HERE.
There is only one key change in this area, which is in relation to staff severance payments. Whilst there is still the requirement to obtain the ESFA’s approval for any staff severance payments, including a non-contractual / non-statutory element that is greater than £50,000, there is now a new requirement which is aimed more at higher executive pay levels.
Under this new requirement, an academy trust must obtain the ESFA’s approval where any employee exit package (which includes a severance payment) is for £100,000 or more in total and / or where the employee concerned earns over £150,000.
It’s therefore important for trusts to ensure their internal procedures are adapted to make sure these approvals are obtained where relevant. It’s also important for any such payments to have been appropriately approved at trustee (or sub-committee) level in line with the trust’s scheme of delegation, as this is an area where we sometimes see that this hasn’t happened.
THE ESFA’S INTERVENTION POWERS
This is an area where there are often not too many changes, but with the ATH 2021, there are a few changes that are really important to note, especially the point around cybercrime, which is increasingly an issue across the sector at the moment.
Where the ESFA has concerns about the financial management and / or governance in a trust and undertakes an investigation, the academy trust must now provide the ESFA with written authority giving permission for any third parties to provide relevant information and documents to the ESFA. This would appear to have been added in response to some more recent ESFA investigations where third party information may not have been forthcoming.
In keeping with the change of name to the Academy Trust Handbook this year and the broader focus on trusts governance, the previous Financial Notice to Improve (‘FNtI’) has now been renamed as a Notice to Improve (‘NtI’). As with the 2020 AFH, the NtI must still be published on the academy trust’s website until it is lifted by the ESFA, and all the previous requirements of a trust where a NtI is in place remain.
In another key change, the ESFA have set out that academy trusts must be aware of the risk of cybercrime and ensure they put in place proportionate controls and take appropriate action where a cyber security incident has occurred.
If a trust is also faced with any cyber ransom demands, then they must obtain the permission of the ESFA to pay any such ransom demands. This means that cybercrime is a key risk area that should be on the agenda for all audit and risk committees going forward, if not already. This would include having it as a key risk in the trust’s risk register, but also whether this area should be reviewed as part of the trust’s internal scrutiny over the coming year. We’ve certainly seen more trusts covering cybercrime risk in their internal scrutiny plans over the last year.
SO, THERE YOU HAVE IT
While there were no huge changes in the 2021 ATH, there is still plenty to digest. Hopefully, this provides a good guide of the areas that trustees, accounting officers and CFOs need to start thinking about in terms of their financial and governance responsibilities from 1 September 2021 onwards.
As ever, if you have any questions on any of the details included in this update, or just want more information, guidance or advice in relation to your academy trust, including undertaking an independent review of your trust’s compliance with the ATH 2021, then please contact any of the Cooper Parry Not for Profit team‘s academy sector specialists – Nick Simkins, Simon Atkins, Andy Jones, Glen Bott, or Sarah Chambers.