Understanding the Academies Accountability Framework Academies Financial Handbook 2014

Purpose of session  To acknowledge the underlying accountability framework applying to academy trusts  To provide an overview of academies’ key financial responsibilities under the Academies’ Financial Handbook  To provide an update on key changes in the 2014 edition of the Handbook

Accountability framework A reminder that academy trusts are:  companies limited by guarantee  so subject to company law – hence avoid conflicts of interest, prepare accounts, undergo audit – and responsible for themselves  charities  so subject to charity law – hence acting in the wider public interest and accountable to beneficiaries  central government public sector bodies  so subject to public standards of accountability – hence accountable to Parliament, and PAC / HMT / NAO interest shapes the rules.

Accountability framework cont’d As they receive public funds academy trusts are also subject to:  a funding agreement with the Secretary of State  which sets out broad conditions for the receipt of grant  an Academies Financial Handbook issued by EFA  which pulls together key financial requirements and freedoms  compliance with Handbook is a condition of funding agreement  it contains principles and requirements, not guidance

A collaborative process  Working with stakeholders  the Handbook is produced in consultation with academy working groups  consultation also with HM Treasury  Giving notice  2014 Handbook published in advance (effective from 1 Sept 2014)  2013 Handbook still applies for year ended 31 August 2014  Will be published on the gov.uk websitegov.uk website  May also be accessible via forthcoming EFA Information Exchange

1: Roles and responsibilities Handbook coverage  Academy trustees  take full responsibility for financial affairs  act within powers  promote the company, not themselves  avoid conflicts of interest (etc)  Academy accounting officer (principal/CEO)  ensure regularity (purposes intended), propriety (standards) and VFM  report concerns to EFA  DFE and EFA  ultimate responsibility for adequate framework to ensure proper financial management  intervention powers (issuing financial notice to improve and withdrawal of freedoms)

1: Roles and responsibilities What’s new?  Governance reviews – a “must” for new trusts in their first year  EFA interventions – breaches of rules around connected parties may prompt a financial notice to improve  Accounts – publish on website by 31 January

2: Main financial requirements Handbook coverage  Financial oversight and management challenge – trustees to meet regularly, should have a finance committee, have a chief financial officer  Financial planning, monitoring and reporting - balance the budget, manage cash flow and publish accounts  Operational controls - have controls over decision making, reporting, procurement, asset management, risk management  Internal scrutiny - have an audit committee, or equivalent, and a means of self-checking your internal controls

2: Main financial requirements Handbook coverage - Internal scrutiny cont’d  Scrutiny must be driven by a committee:  must have a dedicated audit committee if income over £10m or capital assets over £30m  should have a dedicated audit committee if a multi-academy trust and below these limits  others can include within remit of another committee  Options for performing checks of systems and transactions include:  appointment of an internal auditor  extra work by external auditor  appointment of an unpaid trustee (previously referred to as responsible officer, but title no longer used in Handbook)  agreeing peer review with another trust

2: Main financial requirements What’s new?  Scheme of delegation – trusts must have one, underpins controls  Financial management information – must give to trustees 3x per year  Budget deficits – must report deficits to EFA within 14 days  Investments – information given on key considerations  Audit committee – staff shouldn’t be members of the committee, but can attend to give information and advice  Risk protection arrangements – alternative to insurance from 1 Sept 2014

3: Delegated authorities & responsibilities Handbook coverage  Freedoms - academies have delegated authority over most transactions  Responsibilities - but must demonstrate proper and regular use of funds  Connected parties  trusts must be even-handed with transactions – eg tendering policy / fair and open procurement  purchases from some connected parties must be ‘not for profit’;  see separate session

3: Delegated authorities & responsibilities  Delegated limits – are unchanged for 2014  Limits are now summarised - in new annex B  Staff severance payments  EFA approval needed for non-statutory or non-contractual payments of £50k or more  more guidance on severance payments on gov.uk website at:  Anything novel (outside normal range) or contentious (potentially giving rise to criticism) – prior EFA must be sought via Academy QuestionsAcademy Questions  Delegations may not apply if  funded on estimated pupil numbers  under a Financial Notice to Improve

3: Delegated authorities & responsibilities What’s new?  Transactions with connected parties  Avoidance of personal gain – emphasis on trustees and staff  Awareness of public scrutiny and perceptions – manage real and perceived conflicts of interest (e.g. with chairs & AOs) so disclose fully  Novel and contentious transactions with connected parties – require prior EFA approval  Register of interests  members, local governors and senior staff to complete it, as well as trustees, but there may be others  the Handbook explains what the register must contain (eg other directorships and employments, and more)  Not for profit – applies only above £2,500 (section 3.2.3)

4: Audit requirements Handbook coverage  Public scrutiny - Parliament and public expect assurance that funds are being spent as intended, hence independent audit  Audit framework  statutory audit of annual accounts – appoint external auditors, plan early  regularity audit – same auditor to consider correct use of funds – see separate session  your own financial management and governance self assessment – may be validated by EFA  Fraud and irregularity  EFA may investigate  main message - control, report, investigate

4: Audit requirements What’s new?  Fraud reporting  cases over £5k (both individually or cumulatively) to be reported to EFA  information to be reported in each case is now set out

Summary - what you should do  Act within your powers  understand and apply the requirements in the new Handbook  have clearly laid out responsibilities so that everyone knows the parameters  Maintain oversight  have some means of monitoring whether the requirements are being met, and taking action if they are not  Consider standards of conduct  go with the spirit, not just the letter of the Handbook  aim beyond the requirements and apply best practice  be even-handed and transparent

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