Part 2: Main financial requirements
The financial management requirements for academy trusts.
2.1 Trustees and management must maintain robust oversight of the academy trust.
2.2 The trust must take full responsibility for its financial affairs, and stewardship of assets, and use resources efficiently to maximise outcomes for pupils.
Board meetings
2.3 Board meetings must take place at least three times a year, although trusts should consider meeting more frequently to discharge their responsibilities.
Scheme of delegation
2.4 The board cannot delegate overall responsibility for the academy trust’s funds. However, it must approve a written scheme of delegation of financial powers that maintains robust internal controls. The scheme of delegation should be reviewed annually, and at the next available board meeting when there has been a change in trust management or organisational structure that would impact the effectiveness of any existing scheme of delegation.
2.5 The academy trust should have a finance committee to which the board delegates financial scrutiny and oversight, and which can support the board in maintaining the trust as a going concern.
2.6 The academy trust must have sound internal control, risk management and assurance processes. This should follow a tiered approach comprising:
- clearly communicated procedures, structures and training of staff
- appropriate day to day supervision and checks by management
- internal scrutiny overseen by an audit and risk committee
- external audit and assurance.
2.7 The control framework must:
- ensure delegated financial authorities are complied with
- maintain appropriate segregation of duties
- co-ordinate the planning and budgeting process
- apply discipline in financial management, including managing debtors, creditors, cash flow and monthly bank reconciliations
- plan and oversee capital projects including those relating to estates safety
- manage and oversee assets, and maintain a fixed assets register
- ensure regularity, propriety and value for money in the organisation's activities
- ensure a risk register is maintained and reviewed by the board drawing on advice provided to it by the audit and risk committee
- reduce the risk of fraud and theft
- deliver independent checking of controls, systems, transactions and risks.
Find out how the trustees must ensure internal control and risk management is scrutinised and operating effectively.
2.8 The board of trustees must:
- ensure that financial plans are prepared and monitored, satisfying itself that the trust remains a going concern and financially sustainable
- take a longer term view of the trust’s financial plans consistent with the requirement to submit three-year budget forecasts to ESFA
- set a policy for holding reserves and explain it in its annual report.
Find out more about:
Setting a budget
2.9 The board of trustees, and any separate committee responsible for finance, must ensure rigour and scrutiny in budget management.
2.10 The board of trustees must approve and minute their approval of a balanced budget, and any significant changes to it, for the financial year to 31 August, which can draw on unspent funds brought forward from previous years.
2.11 The board must ensure budget forecasts for the current year and beyond are compiled accurately, based on realistic assumptions, including any provision being made to sustain capital assets, and reflect lessons learned from previous years.
2.12 It should challenge pupil number estimates as these underpin revenue projections, and review these termly.
2.13 Boards are encouraged to take an integrated approach to curriculum and financial planning.
2.14 Boards should refer to DfE’s material on improving school resource management including the top 10 planning checks for boards. To help manage capital assets and budgets, including the safety of pupils and others on the school estate, they should refer to the Good estates management for schools guidance including the organisation self-assessment tool, top 10 estate checks for boards and material on strategic estate management.
Find out more to help with financial planning, financial performance and resource management, including tools for:
- financial benchmarking
- school resource management self-assessment checklist
- school financial efficiency metrics
- view my financial insights, which provides trusts with an assessment of their financial data based on similar schools
- financial support for academy trusts in financial difficulty.
Sending your budget to ESFA
2.15 The academy trust must submit to ESFA, in a form specified by ESFA, an academies budget forecast return (BFR) each August in accordance with deadlines published annually.
2.16 This must be approved by the trustees before submission.
2.17 The board of trustees must notify ESFA within 14 calendar days of its meeting, if proposing to set a deficit revenue budget for the current financial year, which it cannot address after taking into account unspent funds from previous years, as this would be non-compliant with the funding agreement and this handbook.
Find out more about:
- submitting your budget returns to ESFA
- deficit recovery.
Monitoring the budget
2.18 The trust must prepare management accounts, including an income and expenditure account, variation to budget report, cash flows and balance sheet every month setting out its financial performance and position.
2.19 Management accounts must be shared with the chair of trustees every month and the board must consider these when it meets and be assured that it has appropriate oversight of the trust’s financial position.
2.20 The board must ensure appropriate and timely action is being taken to maintain financial viability, including addressing variances between the budget and actual income and expenditure.
Find out more from ESFA about:
Cash management
2.21 The trust must manage its cash position robustly. It must avoid becoming overdrawn on any of its bank accounts so that it does not breach restrictions on borrowing.
Investments
2.22 The board of trustees may invest to further the trust’s charitable aims, but must ensure investment risk is properly managed. When considering an investment the board must:
- have an investment policy to manage and track its financial exposure, and ensure value for money
- exercise care and skill in investment decisions, taking advice as appropriate from a professional adviser
- ensure exposure to investment products is tightly controlled so security of funds takes precedence over revenue maximisation
- ensure investment decisions are in the trust’s best interests
- review the trust’s investments and investment policy regularly.
2.23 The board should follow the Charity Commission’s guidance: CC14 Charities and investment matters: A guide for trustees.
2.24 The academy trust must be able to show that public funds have been used as intended by Parliament.
Procurement basics
2.25 The academy trust must ensure:
- spending has been for the purpose intended and there is propriety in the use of public funds including in relation to any actual or perceived conflicts of interest
- spending decisions represent value for money
- internal delegation levels are applied
- a competitive procurement procedure is in place and incorporated into the trust’s financial framework, and the procurement rules and thresholds in the Public Contracts Regulations 2015 and Find a Tender service are observed
- professional advice is obtained where appropriate
2.26 Trusts should refer to the buying for schools tool to help obtain value for money and apply relevant procurement regulations.
Find out more about:
- buying procedures and procurement law for schools
- meeting digital and technology standards in schools and colleges
- how to compare your costs against other schools and access the school financial benchmarking tool
- additional guidance in annex 4.6 of Managing Public Money
- the duty for companies to report their payment practices and performance.
Setting executive pay
2.27 The board of trustees must ensure its decisions about levels of executive pay (including salary and any other benefits) follow a robust evidence-based process and are a reasonable and defensible reflection of the individual's role and responsibilities. No individual can be involved in deciding their remuneration.
2.28 The board must discharge its responsibilities effectively, ensuring its approach to pay and benefits is transparent, proportionate and justifiable, including:
- an agreed process for determining executive pay
- independent scrutiny by the board
- robust decision-making
- proportionality – that pay and benefits represent good value for money and are defensible relative to the public sector market
- documented decision-making with rationale
- a basic presumption that executive pay and benefits should not increase at a faster rate than that of teachers, in individual years and over the longer term
- understanding that inappropriate pay and benefits can be challenged by ESFA, particularly in instances of poor financial management of the trust.
Publication of executive pay
2.29 The trust must publish on its website in a separate readily accessible form the number of employees whose benefits exceeded £100k, in £10k bandings, for the previous year ended 31 August. Benefits for this purpose include salary, employers’ pension contributions, other taxable benefits and termination payments. Where the academy trust has entered into an off-payroll arrangement with someone who is not an employee the amount paid by the trust for that person’s work for the trust must also be included in the website disclosure where payment exceeds £100k as if they were an employee.
Tax arrangements for senior employees
2.30 The academy trust must ensure its senior employees’ payroll arrangements fully meet their tax obligations and comply with HM Treasury’s guidance about the employment arrangements of individuals on the avoidance of tax. This is described in HM Treasury’s Review of the Tax Arrangements of Public Sector Appointees, which explains that senior managers with significant financial responsibilities should be exclusively on payroll, and therefore subject to Pay As You Earn with income tax and NI contributions deducted at source. Failure to comply with these requirements can result in a HM Treasury fine.
Electric Vehicle (EV) Salary Sacrifice Schemes
2.31 Electric Vehicle (EV) salary sacrifice schemes do not need ESFA approval where no liability falls on the trust if an employee does not fulfil their contractual obligations with the scheme provider. For other types of EV salary sacrifice schemes, or where the trust is under an NtI, prior ESFA approval must be obtained.
Find out more about:
- Setting executive salaries: guidance for academy trusts
- Principles for setting executive pay from the Confederation of School Trusts
- Executive pay: considerations for trustees setting executive leader pay in an academy trust from the National Governance Association
- Staffing and employment advice for schools
- List a teaching job at your school on Teaching Vacancies.
Purchase of alcohol
2.32 The trust’s funds must not be used to purchase alcohol for consumption, except where it is to be used in religious services.
2.33 The academy trust should set fees for its chargeable services at full cost, but can apply an additional rate of return when in a commercial environment.
2.34 For the provision of mainstream boarding places, trusts must charge on a full cost recovery basis applying a rate of return of 8% on boarding charges. Fees and charges should be determined in accordance with ESFA’s guidance on Managing boarding provision and annex 6.1 of Managing Public Money.
Oversight of risk and the risk register
2.35 The trust must manage risks to ensure its effective operation and must maintain a risk register:
- Overall responsibility for risk management, including ultimate oversight of the risk register, must be retained by the board of trustees, drawing on advice provided to it by the audit and risk committee
- Other committees may also input into the management of risk at the discretion of the board
- Aside from any review by individual committees, the board should review the risk register frequently and must conduct a full review of it at least annually
- Risks management covers the full operations and activities of the trust, not only financial risks.
2.36 The trust’s management of risks must include contingency and business continuity planning.
Find out more about:
- management of risk: principles and concepts including HM Treasury’s suggested structure for a risk register
- risk management in ESFA’s good practice guide.
The risk protection arrangement
2.37 The academy trust must have adequate insurance cover in compliance with its legal obligations or be a member of the academies risk protection arrangement (RPA). Not all risks are covered in the RPA and therefore trusts with RPA cover may require additional commercial insurance.
2.38 The trust should consider the RPA unless commercial insurance provides better value for money. If the trust is not an RPA member, it should determine its own level of commercial insurance to include buildings and contents, business continuity, employers’ and public liability insurance and other cover required.
2.39 The trust must cooperate with risk management auditors and risk managers, and implement reasonable risk management audit recommendations made to them.
Find out more about the risk protection arrangement.
Having a procedure
2.40 The trustees must agree a procedure for whistleblowing, and publish it on the trust’s website, to protect staff who report individuals they believe are doing something wrong or illegal.
2.41 The trust should appoint at least one trustee and one member of staff, who other staff can contact to report concerns.
Informing staff
2.42 The trust must ensure all staff are aware of the whistleblowing process and how concerns will be managed.
2.43 Staff should know what protection is available to them if they report someone, what areas of malpractice or wrongdoing are covered in the trust’s whistleblowing procedure, and who they can approach to report a concern.
2.44 The trust must ensure all concerns raised with them by whistleblowers are responded to properly and fairly.
Find out more at:
- whistleblowing for employees, including a definition of whistleblowing
- school complaints and whistleblowing, including how ESFA handles complaints about academies
- the whistleblowing charity Protect (formerly Public Concern at Work), which provides confidential independent advice about wrongdoing in the workplace.
General information requests
2.45 The academy trust must provide ESFA, or its agents, with information ESFA requires to meet funding requirements.
Information about key individuals in the trust
2.46 The trust must notify DfE of changes to the governance information, described in this section within 14 calendar days of the change and update their website and Companies House accordingly.
2.47 Notification must be through the governance section of DfE’s Get information about schools (GIAS) register, accessed via DfE Sign-in.
2.48 All mandatory fields specified in GIAS for the individuals must be completed and the trust must ensure its record in GIAS for the individuals is kept up to date.
2.49 The records required in GIAS for the trust are: members, chair of trustees, all other trustees, accounting officer, chief financial officer including direct contact details for all.
2.50 The records required in GIAS for constituent academies in a trust with multiple academies are: headteacher, chairs of local committees/governing bodies (where adopted), local governors (where adopted), including direct contact details for all.