The Education and Skills Funding Agency (ESFA) has published the 2017 Academies Financial Handbook (AFH). This replaces the 2016 version from 1 September 2017.
A summary of the key changes from the previous version can be found on page 5 of the document. The 2017 edition, published by the ESFA features a stronger DfE line on the separation of governance tiers within a trust while the skills agenda, rooted within the DfE’s newly identified six features of effective governance, is directly correlated to trust growth. The principles of public life once again make a prominent appearance, while executive pay and financial health take center stage in terms of financial control. Below we explain what some of the key changes may mean for your governing board.
What's new - governance
More clarity and more separation
NGA is pleased to see the AFH provide further clarity on the role of members on pages 6 and 7, taking a firmer line on the subject of separations of governance functions. The handbook now includes a DfE “recommendation...wherever possible" for trusts to have at least five members. This is a slightly stronger line than the DfE "encourages trusts to have at least five members" which featured in the 2016 edition, however NGA would have liked this to be stronger.
The DfE does however now take the line NGA has taken for some time that increased membership “provides for a more diverse range of perspectives to enable robust decision-making and reduces the risks of concentrating power”. The role of members has been the subject of much confusion in the past, with the DfE adding more guidance on members in the latest edition of the governance handbook, and the AFH now following suit.
It is pleasing to see the AFH pick up on the point that increased numbers of members on its own is not enough - this needs be matched with greater separation. The DfE’s view that significant separation creates the most robust structures is an observation NGA has expressed many times. NGA hope to see models of trust membership taken further in future editions, with it ultimately given a complete rethink.
Back to basics – Nolan principles
Governing boards have a hugely important stewardship role over our schools; this role is profoundly anchored within the principles of public life. The AFH goes ‘back to basics’ in promoting these principles in relation to good financial stewardship (1.1.2). The AFH thus strengthens the foundations of the financial framework by reminding governing boards and executive leaders alike that these principles apply to “everyone holding public office”. Accountability and transparency are the cornerstones of good governance and NGA has recently been focusing more on ethical governance to remind governing boards that governance should not just be about effectiveness – ethics play an essential role in ensuring the right decisions are made in the right way.
The principles of public life are clearly a renewed focus, being referred to both in the body of the content but also picked out directly in Lord Nash’s foreword – these principles should “continue guiding everyone in your trust so that money is spent wisely and honestly”. The Nolan principles are non-negotiable for governing boards; if you have a code of conduct they almost certainly feature somewhere in it. This perhaps then provides boards with a good opportunity to discuss them, refreshing minds and practice in the process.
Skills, skills, skills,
The AFH for the first time references the Competency Framework for Governance, developed to cover all possible bases in school governance. The most effective boards take time to regularly review their practice and develop knowledge to inform difficult decisions. The AFH makes the point that transitional points in a trust’s journey, which perhaps pose some of the most difficult decisions trusts will have to make in terms of whether it is right to become a MAT or to grow an existing MAT, provide crucial points at which to address the skills make-up of the board (1.5.16).
What's new - Financial control
In his forward Lord Nash reminds readers that it is “essential that every pound is used efficiently for maximum impact on young people’s education”. This revamped drive to promote financial health and efficiency gathers momentum in 1.5.10 which details the ESFA’s new approach to any financial health concerns it may have regarding a particular trust. The ESFA is implementing a new approach in terms of its own intervention tactics where it appears a trust may be getting into difficulties. Where the ESFA has “concerns about the financial management of a trust”, but doesn’t feel there are sufficient grounds for issuing a Financial Notice to Improve (FNTI), it may “prescribe working with an expert in school financial health”. The objective here is the expert will pinpoint where improvement is needed and will help the trust identify what it needs to do next.
The onus will then be on the academy trust to put into action the recommendations of this expert, with the DfE hoping this will put the trust on a path to recovery, thus avoiding the number of FNTIs increasing further. This new provision is also likely to form part of the improvement process when an FNTI has been issued. While not specified in the AFH, NGA’s current understanding is that, as with external reviews of governance, it will be down to the trust to pay for this provision.
The NGA has been raising the issue of rising executive pay for some time, not just in relation to the academy sector; this being flagged up in the new AFH is a step in the right direction. Governing boards have a direct responsibility for determining senior executive leader pay. The AFH now stipulates that decisions regarding executive pay must follow “a robust evidence-based process” (2.3.5). It is however disappointing that the DfE has still not provided benchmarking information on salaries so that trustees have reference points to base their decisions on.
Governing boards need to continually ask themselves if the level of executive pay in their organisation is justified. Consider what parents of the school will think, what staff will think given they won’t be receiving significant rises. What is the differential in pay between the senior leader and the staff?
Transactions and payments
The scrutiny of schools and their finances by those outside the education system has never been higher. Following a number of high profile cases shedding light on questionable MAT spending, the handbook seeks to lay down some new rules and repercussions. As well as the ESFA authorising “repercussive”, “novel” or “contentious” transactions, the ESFA may also be required to refer these to HM Treasury for final approval (3.3.1). The authority that trusts have to make “non-statutory/non-contractual staff severance payments” is capped at under £50k; it has now been clarified that this means £50k before income tax and other deductions are applied (3.7.6).