The Department for Education are in the habit of issuing a new Academy Trust Handbook each September and this year is no exception. It is available as online guidance and a downloadable document. Compliance with the Handbook is obligatory and academy trusts are required to ensure academy trustees and senior executive officers are familiar with its contents. Non-compliance is a serious matter, which will trigger an investigation by the Education & Skills Funding Agency. Regional Directors are likely to take an interest too and affect a multi academy trust’s standing as a “strong trust”. Whilst the Handbook contains a list of “musts”, it also sets out a number of general consents which are designed to smooth day to day operations.
Over recent years, the Handbook has become longer, arguably more onerous and deals with governance matters as well as financial regulations. This trend seems to have been reversed this year and the September 2023 Handbook is shorter and designed to be more focussed on regulatory matters. There are three areas where new helpful guidance has been introduced:
- Related party transactions
- Staff severance payments and ex gratia payments
- Estates management policies
Related Party Transactions
It is a fundamental requirement of charity law and good governance that those involved in charitable and public undertakings do not profit from their involvement (employment relationships accepted). A related party is someone or an organisation which has control or significant influence over the academy trust, either in their own right or in consequence of their relationship with someone in that position in the trust, e.g. a family member of an executive officer, a parent company of an academy trust or an employer of an individual who is either a trustee or a member. Trustees must recognise and avoid real or perceived personal conflicts of interest and the trust board must ensure the trust properly manages any related party transactions. There are detailed obligations in the Handbook and all contracts and other agreements with related parties must be reported to the ESFA in advance. Whilst the focus has been on contracts where goods or services are being procured by the trust, in fact the rules have caught any relationship where there has been a financial element to it and some relationships have caused confusion in the past as to whether the rules apply. The Handbook has helpfully clarified that the following “transactions” need not be reported (but should still be approached with caution):
- Transactions involving sums less than £40,000 over the course of the year (up from £20,000 last year)
- Contracts with other state funded schools and academies (for example where there might be a MAT Partnership Agreement in place enabling school improvement support to be provided by one MAT to another where both have common members or trustees)
- Agreements between sponsors and the academy trust they are sponsors of (this clarification has been a long time coming, though some caution needs to be exercised given there has always been some uncertainty as to what identifies a sponsor (at least in the DfE’s eyes)
- Arrangements between religious authorities and academy trusts designated as having a religious character (to the extent any financial payment relates to “essential functions fundamental to the academy trust’s religious character”)
Noting that the exemption for sponsors and MAT partnerships excludes contracts where services are provided through a trading subsidiary.
Staff Severance Payments and Ex Gratia Payments
The Treasury’s guidance on Managing Public Money which applies to all schools and academies was updated in May 2023. It notes that severance payments and ex gratia payments are types of special payment that Government departments must seek Treasury advice before paying. The Handbook contains rules regarding these payments, for example:
- that approval must be sought if the non-contractual element of a staff severance payment is to exceed £50,000;
- if a total employee exit package which includes a severance payment is above £100,000; and/or
- the employee earns over £150,000;
- that prior approval must be sought for any ex gratia payment of any amount.
There is often confusion when making payments in the context of a settlement agreement whether any payment in excess of a notice payment is an ex gratia payment or a staff severance payment. This will depend on the circumstances and whether there are facts giving rise to the reason why a payment is being made. Typically, where advice has been needed or has been obtained to support the decision to make a payment and a settlement agreement has been entered into, the payment will be a staff severance payment. Any other payment is likely to be an ex gratia payment. Our recommendation is that advice is obtained before any payment is agreed.
Estates Strategy and Asset Management Plans
It has always been a requirement that academy trusts consider the approach to their school estate and have an estate management plan. Guidance has been available on how to manage priorities and this will be a vital task for any MAT that qualifies for an automatic “School Condition Allowance”, given this involves in effect the pooling of capital funding. The need for a strategy has become more acute in light of the growing concerns regarding RAAC and the impact on schools’ health and safety policies, both as an issue in its own right and where associated with asbestos. We believe the Heath & Safety Executive (HSE) are taking a keener interest in schools and will want to understand what risk assessments have been done and how survey information is recorded and acted upon. Whilst schools might reasonably expect to be led by the DfE, the legal responsibility remains with academy boards and governing bodies of foundation and voluntary schools. The new Handbook understandably has also brought these responsibilities to the fore and provided links to the Condition Data Collection tool, which makes a commitment to survey all schools between 2021 and 2026, and to other sources of guidance, as well as links to funding sources.