The 2018 Academies Financial Handbook (AFH) has now been published and will come into effect from September 2018. The new edition carries an executive summary from Lord Agnew noting a “particular tribute to the chairs and non-executives of academy trusts who do this vital work unpaid”. Lord Agnew also specifies two areas strengthened in this edition: executive pay and related party transactions. This follows the Secretary of State for Education, Damien Hinds’ speech at the National Governance Association conference last week emphasising plans to tackle “excessive” salaries and a “crack down” on academy trusts handling out contracts to family and friends.
Key updates include:
An overview of the Secretary of State’s role with regard to removing trustees and members – the Secretary of State may also prevent other individuals being involved in the management of academies on the basis of cautions, convictions and conduct.
The term “ex officio” is removed from the description of the senior executive leader, to show that he or she does not automatically become a trustee.
In 2.1.2, the AFH states the board must meet “regularly enough to discharge their responsibilities and ensure robust governance”. It specifically states that larger trusts should consider meeting more often than three times a year, and where a board meets less than six times a year, it must describe in its governance statement how effective oversight of funds is maintained.
In 2.3.3, the AFH now requires trusts to provide management accounts and share these with the chair of the trust board every month. The board then needs to consider these at each meeting. Trusts should already be producing these each month, but now, irrespective of the trusts size, there is a requirement to share these with the chair, with the board expected to use this reporting requirement to address concerns and variances between “budget and actual income and expenditure”.
The section on executive pay (2.4.3-2.4.5) receives significantly more emphasis following letters from both Lord Agnew and Education and Skills Funding Agency (ESFA) CEO Eileen Miller which detailed new requirements for ensuring boards are rigorous in setting appropriate and justified pay levels. Specifically, the AFH now requires trust boards to ensure their approach is transparent, proportionate and justifiable, detailing the process used for setting pay, how this is scrutinised and decided, how defensible the pay level is, the need to record the documentation and evidence used, and making it clear the ESFA can challenge pay levels it deems inappropriate. This also includes the need to publish the gender pay gap.
Trusts must now report all Related Party Transactions to the ESFA ahead of the actual transaction taking place from April 2019, and must await the ESFA’s approval for transactions over £20k.