Academy Trust Handbook

Part 5: Delegated authorities

The financial freedoms and limits applying to academy trusts.

5.1 - 5.4  -  Requirement to obtain ESFA approval

5.1 The academy trust has autonomy over financial transactions arising in the normal course of business. However, some transactions have delegated authority limits beyond which trusts must obtain prior ESFA approval, regardless of the source of funds. A schedule of delegated authorities is at section 5.65. Trusts must ensure they are familiar with these requirements and ESFA may intervene where trusts do not seek the required ESFA approval in advance.

Use ESFA’s contact form to request ESFA approval for any transactions beyond the academy trusts delegation limits. Such approval must be sought before the transaction takes place.

Disclosure

5.2 Irrespective of whether ESFA approval is required, the academy trust must disclose aggregate figures for transactions of any amount, and separate disclosure for individual transactions above £5,000, in its audited accounts for the following transactions:

  • special payments – compensation 5.14
  • special payments – ex gratia 5.17
  • writing off debts and losses 5.19
  • guarantees, letters of comfort and indemnities 5.19
  • acquisition or disposal of freehold land and buildings 5.23
  • disposal of heritage assets 5.23
  • taking up or granting a leasehold on land and buildings 5.26
  • gifts by the trust 5.32

5.3 The following transactions must be disclosed in total, and individually:

  • special payments – staff severance, of any value 5.7

5.4 Other than what is required under financial reporting standards, the Charities SORP and the Accounts Direction, disclosure can be anonymised.

5.5  -  Novel, contentious and repercussive transactions

5.5 Novel, contentious and/or repercussive transactions must always be referred to ESFA for approval, and the request must be made to ESFA before the transaction occurs. ESFA may refer such transactions to HM Treasury for approval, so trusts should allow sufficient time for proposals to be considered.

  • Novel transactions are those of which the academy trust has no experience, or are outside its range of normal business.
  • Contentious transactions are those that might cause criticism of the trust by Parliament, the public or the media.
  • Repercussive transactions are those likely to cause pressure on other trusts to take a similar approach and hence have wider financial implications.

5.6 - 5.18  -  Special payments

5.6 Certain transactions by public bodies may fall outside their usual planned range of activity, and may exceed statutory and contractual obligations. HM Treasury calls these special payments, (see annex 4.13 of Managing Public Money), and are subject to greater control than other payments. They include:

  • staff severance payments
  • compensation payments
  • ex gratia payments

Special staff severance payments

5.7 Special staff severance payments are paid to employees outside statutory or contractual requirements when leaving public employment. They are different to ex gratia payments.

5.8 If an academy trust is considering a staff severance payment above statutory or contractual entitlements, it must consider the following issues before making a binding commitment:

  • that the proposed payment is in the trust's interests
  • whether the payment is justified, based on legal assessment of the trust's chances of successfully defending the case at employment tribunal. If there is a significant prospect of losing the case, a settlement may be justified, especially if the costs of a defence are likely to be high. Where a legal assessment suggests the trust is likely to be successful, a settlement should not be offered
  • if the settlement is justified, the trust would need to consider the level of settlement. This must be less than the legal assessment of what the relevant body (e.g. an employment tribunal) is likely to award

5.9 Staff severance payments should not be made where they could be seen as a reward for failure, such as gross misconduct or poor performance. The only acceptable rationale in the case of gross misconduct would be where legal advice is that the claimant is likely to succeed in an employment tribunal because of employment law procedural errors. In the case of poor performance, an acceptable comparison would be the time and cost of taking someone through performance management and capability procedures.

5.10 Where the academy trust is considering a staff severance payment including a non-statutory/non-contractual element of £50,000 or more, (gross, before income tax or other deductions), ESFA's prior approval must be obtained before making any binding offer to staff. ESFA will refer such transactions to HM Treasury, so trusts should allow sufficient time for proposals to be considered. Examples of approval requirements are as follows:

Statutory/contractual payment Non-statutory/non-contractual payment ESFA/HM Treasury approval required?
£30,000 + £30,000 No
£60,000 + £30,000 No
£30,000 + £50,000 Yes – for £50,000

5.11 Academy trusts should demonstrate value for money by applying the same scrutiny to a payment under £50,000 as those over £50,000, and have a justified business case. Settlements must not be accepted unless satisfying the conditions in this handbook and in ESFA's guidance and submission template.

5.12 Additionally, in accordance with HM Treasury’s Guidance on Public Sector Exit Payments, academy trusts must obtain prior ESFA approval before making a special staff severance payment where:

  • an exit package which includes a special severance payment is at, or above, £100,000; and/or
  • the employee earns over £150,000.

Find out more about severance payments.

Use of confidentiality clauses

5.13 Academy trusts must ensure confidentiality clauses associated with staff severance payments do not prevent an individual's right to make disclosures in the public interest (whistleblowing) under the Public Interest Disclosure Act 1998.

Compensation payments

5.14 Compensation payments provide redress for loss or injury, for example personal injuries, traffic accidents or damage to property. If an academy trust is considering a compensation payment, it must base its decision on a careful appraisal, including legal advice where relevant, and ensure value for money.

5.15 Academy trusts have delegated authority to approve individual compensation payments provided any non-statutory/non-contractual element is under £50,000. Where the trust is considering a non-statutory/non-contractual payment of £50,000 or more ESFA's prior approval must be obtained. ESFA will refer such transactions to HM Treasury.

5.16 Trusts should consider whether cases reveal concerns about the effectiveness of internal control systems, and take steps to correct failings.

Ex gratia payments

5.17 Ex gratia payments are another type of transaction going beyond statutory or contractual cover, or administrative rules. Annex 4.13 of Managing Public Money provides examples, including payments to meet hardship caused by official failure or delay, and to avoid legal action due to official inadequacy.

5.18 Ex gratia transactions must always be referred to ESFA for prior approval. HM Treasury approval may also be needed. If trusts are in doubt about a proposed transaction, they should seek ESFA advice.

5.19 - 5.22  -  Write-offs and entering into liabilities

5.19 The academy trust must obtain ESFA's prior approval for the following transactions beyond the delegated limits described below:

  • writing-off debts and losses;
  • entering into guarantees or letters of comfort; and
  • entering into indemnities which are not in the normal course of business.

Find out more about: - handling contractual indemnities (in the normal course of business.)
- additional guidance in annex 5.4 of Managing Public Money

5.20 The delegated limits, are:

  • 1% of total annual income or £45,000 (whichever is smaller) per single transaction
  • cumulatively, 2.5% of total annual income (subject to a maximum of £250,000) in any financial year per category of transaction for trusts that have not submitted timely, unqualified accounts for the previous two financial years. This category includes new trusts that have not had the opportunity to produce two years of audited accounts
  • cumulatively, 5% of total annual income (subject to a maximum of £250,000) in any financial year per category of transaction for trusts that have submitted timely, unqualified accounts for the previous two financial years

5.21 In relation to these limits:

  • the trust should always pursue recovery of amounts owed to it, including overpayments, or erroneous payments. In practice, however, there will be practical and legal limits to how cases should be handled
  • the trust should only consider writing-off losses after careful appraisal, including whether all reasonable recovery action has been taken with the debtor, the trust's insurers, or the risk protection arrangement, and should be satisfied there is no feasible alternative
  • the amounts for write-offs are before successful claims from an insurer or the risk protection arrangement
  • total annual income is defined as grant income as disclosed in the trust's last audited accounts. ESFA should be contacted if the trust has not yet published their first audited accounts

5.22 Before accepting liabilities by issuing guarantees, a letter of comfort or indemnity, the trust should secure value for money by appraising the proposal through assessment of the costs and benefits of relevant options.

5.23 - 5.24  -  Acquisition and disposal of fixed assets

5.23 Academy trusts must obtain prior approval from ESFA for the following transactions:

  • acquiring a freehold of land or buildings
  • disposing of a freehold of land or buildings
  • disposing of heritage assets, as defined in financial reporting standards, beyond any limits in the funding agreement for the disposal of assets generally

5.24 Other than land, buildings and heritage assets, trusts can dispose of other fixed assets without ESFA's approval subject to achieving the best price that can reasonably be obtained, and maintaining the principles of regularity, propriety and value for money.

5.25 - 5.28  -  Leasing

5.25 There are two types of lease:

  • finance leases: these are a form of borrowing
  • operating leases: these are not borrowing

5.26 Trusts must obtain ESFA's prior approval for the following leasing transactions:

  • taking up a finance lease on any asset for any duration from another party, which are subject to the borrowing restrictions described in paragraphs 5.33 and 5.34
  • taking up a leasehold or tenancy agreement on land or buildings from another party for a term of seven or more years
  • granting a leasehold interest, including a tenancy agreement, of any duration, on land and buildings to another party.

5.27 Other than the above, trusts do not require ESFA's approval for operating leases.

5.28 Trusts must ensure any lease maintains the principles of value for money, regularity and propriety. Trusts should seek advice from their professional adviser and/or external auditor if they are in doubt over whether a lease involves borrowing.

Find out more in ESFA’s leasing good practice guide, which includes information on distinguishing between the two types of lease.

5.29 - 5.31  -  Managing General Annual Grant (GAG)

Managing surplus GAG

5.29 ESFA previously set limits on GAG carried forward by trusts from year-to-year. These limits have now been removed for eligible trusts (see section 5.60). ESFA will report to DfE any trusts where it has serious concerns about a long-term substantial surplus with no clear plans for its use.

Pooling of GAG by trusts with multiple academies

5.30 A trust with multiple academies can amalgamate GAG for its academies to form one central fund. This can be used to meet the running costs at any constituent academy within the trust. In accordance with its funding agreement a trust must not pool PFI funding.

5.31 The trust must consider the funding needs and allocations of each constituent academy and must have an appeals mechanism. If a constituent academy’s principal feels the academy has been unfairly treated, they should appeal to the trust. If the grievance is not resolved, they can appeal to the Secretary of State, via ESFA. Where ESFA receives an appeal, it will review the process that the trust has followed, including whether the trust has considered the funding needs of the constituent academy, and whether the trust’s internal appeals process has been applied. ESFA will provide the constituent academy and the trust with the opportunity to provide any evidence they feel is relevant to the case. ESFA’s decision will be final and can result in the pooling provisions being dis-applied

5.32  -  Gifts

5.32 Academy trusts should have a policy and register on the acceptance of gifts, hospitality, awards, prizes or other benefits that might compromise their judgment or integrity, and should ensure all staff are aware of it. When making gifts, the trust must ensure the value is reasonable, is within its scheme of delegation, the decision is documented, and achieves propriety and regularity in the use of public funds.

5.33 - 5.34  -  Borrowing

5.33 Academy trusts must obtain ESFA's prior approval for borrowing (including finance leases and overdraft facilities) from any source, where such borrowing is to be repaid from grant monies or secured on assets funded by grant monies, regardless of the interest rate chargeable. Credit cards must only be used for business expenditure, and balances cleared before interest accrues.

5.34 However, academy trusts will only be granted permission for borrowing in exceptional circumstances, such as schemes introduced by the Secretary of State to meet broader policy objectives - for example the Department’s Condition Improvement Fund for capital projects.

Find out more about the Condition Improvement Fund.

5.35 This part of the handbook deals with goods or services provided by or to individuals or organisations related to the academy trust.

Related parties include persons and entities with control or significant influence over the academy trust, and members of the same group (e.g. parent and subsidiary companies, key management personnel and close family members). The above description is not comprehensive. Find the full definition in:

The related parties section of ESFA's Accounts Direction provides further information.

Principles applying to related party relationships

5.36 Academy trusts must be even-handed in their relationships with related parties by ensuring that:

  • trustees comply with their statutory duties as company directors to avoid conflicts of interest, not accept benefits from third parties, and declare interest in proposed transactions or arrangements
  • all members, trustees, local governors of academies and senior employees complete the register of interests, in accordance with sections 5.45 to 5.48 of this handbook
  • no member, trustee, local governor, employee or related individual or organisation uses their connection to the trust for personal gain, including payment under terms that are preferential to those that would be offered to an individual or organisation with no connection to the trust
  • there are no payments to trustees by the trust unless permitted by the articles, or by authority from the Charity Commission, and comply with any relevant agreement with the Secretary of State. Trusts will need to consider these obligations where payments are made to other business entities who employ the trustee, are owned by the trustee, or in which the trustee holds a controlling interest
  • the Charity Commission’s approval is obtained where the trust believes a significant advantage exists in paying a trustee for acting as a trustee
  • payments provided to the persons referred to in section 5.49 satisfy the ‘at cost’ requirements in this handbook.

5.37 The trust should be aware of the Charity Commission's guidance for trustees CC11: Trustee expenses and payments.

5.38 The board of trustees must ensure requirements for managing related party transactions are applied across the trust. The board chair and the accounting officer must ensure their capacity to control and influence does not conflict with these requirements. They must manage personal relationships with related parties to avoid both real and perceived conflicts of interest, promoting integrity and openness in accordance with The 7 principles of public life.

5.39 Trusts must recognise that some relationships with related parties may attract greater public scrutiny, such as:

  • transactions with individuals in a position of control and influence, including the board chair and accounting officer
  • payments to organisations with a profit motive, as opposed to those in the public or voluntary sectors
  • relationships with external auditors beyond their duty to deliver a statutory audit

5.40 The trust must keep sufficient records, and make sufficient disclosures in their annual accounts, to show that transactions with these parties, and all other related parties, have been conducted in accordance with the high standards of accountability and transparency required within the public sector.

Reporting and approval of related party transactions

5.41 Trusts must report all contracts and other agreements with related parties to ESFA in advance of the contract or agreement commencing, using ESFA's related party on-line form. This requirement applies to all such contracts and agreements made on or after 1 April 2019.

5.42 Trusts must obtain ESFA's prior approval, using ESFA's related party on-line form, for contracts and other agreements for the supply of goods or services to the trust by a related party agreed on or after 1 April 2019 where any of the following limits arise:

  • a contract or other agreement exceeding £20,000
  • a contract or other agreement of any value that would mean the cumulative value of contracts and other agreements with the related party exceeds, or continues to exceed, £20,000 in the same financial year ending 31 August

5.43 For the purposes of reporting to, and approval by, ESFA contracts and agreements with related parties do not include salaries and other payments made by the trust to a person under a contract of employment through the trust's payroll.

Approval of novel, contentious and/or repercussive related party transactions

5.44 Novel, contentious and/or repercussive related party transactions are subject to separate arrangements. Trusts must obtain ESFA's prior approval for any contracts and other agreements with related parties that are novel, contentious and/or repercussive, regardless of value. Approval must be sought using ESFA's enquiry form, not through the related party on-line form. Trusts should carefully consider the impact of this requirement and its relevance to transactions involving the board chair and/or the accounting officer.

Register of interests

5.45 The academy trust's register of interests must capture relevant business and pecuniary interests of members, trustees, local governors and senior employees, including:

  • directorships, partnerships and employments with businesses
  • trusteeships and governorships at other educational institutions and charities
  • for each interest: the name and nature of the business, the nature of the interest and the date the interest began

5.46 The register must identify relevant material interests from close family relationships between the academy trust's members, trustees or local governors. It must also identify relevant material interests arising from close family relationships between those individuals and employees. 'Close family relationships' is defined in section 5.49 (third bullet).

5.47 Trusts should consider whether other interests should be registered, and if in doubt should do so. Boards of trustees must keep their register of interests up-to-date at all times.

5.48 Trusts must publish on their websites relevant business and pecuniary interests of members, trustees, local governors and accounting officers. Trusts have discretion over the publication of interests of other individuals named on the register. The Charity Commission offers guidance in Manage a conflict of interest in your charity and CC29: Conflicts of interest: a guide for charity trustees.

At cost requirements

5.49 Subject to sections 5.54 to 5.57 a trust must pay no more than 'cost' for goods or services (‘services’ do not include contracts of employment) provided to it by the following persons (‘persons’ meaning both individuals and organisations):

  • members or trustees of the academy trust
  • individuals or organisations related to a member or trustee of the academy trust. For these purposes the following persons are related to a member, or trustee:
    • a relative of the member or trustee. A relative is defined as a close member of the family, or member of the same household, who may be expected to influence, or be influenced by, the person. This includes, but is not limited to, a child, parent, spouse or civil partner
    • an individual or organisation carrying on business in partnership with the member, trustee or a relative of the member or trustee
    • a company in which a member or the relative of a member (taken separately or together), and/or a trustee or the relative of a trustee (taken separately or together), holds more than 20% of the share capital or is entitled to exercise more than 20% of the voting power at any general meeting of that company
    • an organisation controlled by a member or the relative of a member (acting separately or together), and/or a trustee or the relative of a trustee (acting separately or together). For these purposes an organisation is controlled by an individual or organisation if that individual or organisation can secure that the affairs of the body are conducted in accordance with the individual's or organisation's wishes
  • any individual or organisation given the right under the trust's articles of association to appoint a member or trustee of the academy trust; or any body connected to such individual or organisation
  • any individual or organisation recognised by the Secretary of State as a sponsor of the academy trust; or any body connected to such individual or organisation

5.50 A body is connected to another individual or organisation if it is controlled by the individual or organisation, or controls the organisation, or is under common control with the individual or organisation. For these purposes, control means:

  • holding more than 20% of the share capital (or equivalent interest), or
  • having the equivalent right to control management decisions of the body, or
  • having the right to appoint or remove a majority of the board or governing body

5.51 The 'at cost' requirement does not apply to the trust's employees unless they are also one of the parties described in section 5.49.

5.52 While these provisions do not apply to contracts of employment, the principles of value for money and using public money properly, including managing conflicts of interest, still apply. Salaries should be appropriate to the individual's skills and experience and to wider market rates.

5.53 If staff of an individual or organisation in section 5.49 are based in, or work from the premises of, the academy trust, that individual/ organisation and the trust must agree an appropriate sum to be paid to the trust for use/occupation of the premises, save to the extent that they are carrying out work for the trust.

5.54 The 'at cost' requirement applies to contracts with a related party agreed on or after 7 November 2013.

5.55 The 'at cost' requirement applies to contracts with a related party exceeding £2,500, cumulatively, in any one financial year. Where a contract takes the trust's cumulative annual total with the related party beyond £2,500, the element above £2,500 must be at no more than cost.

5.56 In relation to organisations supplying legal advice or audit services to the academy trust, the 'at cost' requirement applies where the organisation's partner managing the service is a member or trustee of the trust but not in other cases for those organisations. The published ethical standards for auditors prevent partners or employees of the audit firm from acting as a trustee of their client trust, but not of other trusts.

5.57 For academies with a religious designation, the provision of services to protect and develop their religious character and ethos, which can only be provided by their religious authority, are regarded as meeting the “at cost” requirement.

5.58 Academy trusts must ensure any agreement with an individual or organisation referred to in section 5.49 to supply goods or services to the trust is properly procured through an open and fair process and is:

  • supported by a statement of assurance from that individual or organisation to the trust confirming their charges do not exceed the cost of the goods or services, and
  • on the basis of an open book agreement including a requirement for the supplier to demonstrate clearly, if requested, that their charges do not exceed the cost of supply

5.59 For these purposes the cost will be the ' full cost' of all the resources used in supplying the goods or services, and must not include any profit. Full cost includes:

  • all direct costs (costs of materials and labour used directly in producing the goods or services)
  • indirect costs (a proportionate share of fixed and variable overheads)

Find out more about the 'at cost' statement of assurance.

5.60 - 5.64  -  Applicability of delegations and freedoms

5.60 Some delegations and freedoms in part 5 of this handbook that go beyond the trust's funding agreement do not apply to those trusts. They do not apply to trusts that are party to one or more funding agreements that:

  • allow one or more of its academies to receive GAG based on estimated pupil numbers regardless of whether they are being funded on that basis, and
  • allow the Secretary of State to recover GAG from those academies if estimated pupil numbers exceed census-based pupil numbers beyond a specified percentage, and
  • do not require a move to pupil census-based funding permanently

5.61 A move permanently means:

  • the academy is subject to a funding agreement moving it to pupil census-based funding within a specified number of years, after which the agreement provides for it to be funded only in that way, or
  • in the case of a free school it is subject to a funding agreement moving it to pupil census-based funding when all cohorts relevant to the age range have some pupils present; and allows the Secretary of State to recover all additional GAG from the free school if estimated pupil numbers exceed census-based pupil numbers

5.62 The delegations and freedoms in the handbook that do not apply to trusts on estimates-based GAG funding are those relating to:

  • acquisition and disposal of fixed assets (5.23)
  • leaseholds and tenancy agreements of land and buildings (5.26)
  • carry forward of unspent GAG from one year to the next (5.29)
  • pooling of GAG (5.30)

5.63 The freedoms do not apply until the trust's funding agreements are updated to move all academies within the trust to pupil census-based funding permanently, as defined above.

5.64 In the case of a trust with multiple academies, if one or more of its constituent academies does not meet the criteria above for access to the delegations and freedoms, all academies within the trust will be unable to access the delegations and freedoms.

5.65  -  Summary of freedoms and delegations

5.65 This summary is not a substitute for the full handbook. Trusts' delegated authorities are subject to the conditions in section 5.60. Trusts under a notice to improve will have their delegated authorities revoked under section 6.21.

Novel, contentious and repercussive Novel, contentious and repercussive transactions ESFA agreement required 5.5
Special payments Staff severance and compensation ESFA agreement required if £50,000 or more before tax 5.10 and 5.15.
  Ex gratia payments ESFA agreement required 5.18
Write-offs and liabilities (subject to £250,000 ceiling) Writing-off debts and losses ESFA consent required if exceeds 1% of annual income or £45,000 individually; or 2.5% or 5% of annual income cumulatively 5.19 and 5.20
  Entering into indemnities (beyond the normal course of business), guarantees or letters of comfort ESFA consent required if exceeds 1% of annual income or £45,000 individually; or 2.5% or 5% of annual income cumulatively 5.19 and 5.20
Acquisition and disposal of fixed assets Acquiring freehold land/buildings ESFA agreement required 5.23
  Disposing of a freehold on land/buildings ESFA agreement required 5.23
  Disposing of heritage assets ESFA agreement required 5.23
  Other disposals Trust has full discretion 5.24
Leasing Taking up a finance lease ESFA agreement required 5.26
  Taking up a leasehold on land and buildings ESFA agreement if lease term seven years or more 5.26.
  Taking up any other lease Trust has full discretion 5.27
  Granting a lease on land and buildings ESFA agreement required 5.26.
GAG GAG carry forward No limits if trust eligible 5.29.
  Pooling by trusts with multiple academies No limits (except PFI) if trust eligible 5.30.
Borrowing Loan, overdraft ESFA agreement required 5.33
  Credit cards (for business use) Trust has full discretion provided charges not incurred 5.33
Related party transactions Supplies to the trust from related parties ESFA agreement required over £20,000 and over associated limits in 5.42.