Part 1: Introduction
An overview of the handbook.
1.1. The handbook is applicable to all independent training providers (ITPs) in receipt of funds provided directly by DfE/ESFA. Annex A provides more information on providers within the scope of the handbook.
1.2. Readers of the handbook are expected to include chief executives, chief operating officers, chief financial officers, finance directors, managing directors, heads of management information, chairs of the board and other board members, owners with a controlling interest and major shareholders, accountancy firms who audit the annual accounts of ITPs and any professional advisors.
1.3. The handbook is applicable for the duration that an ITP has a contract of service with DfE/ESFA.
1.4. In Autumn 2021, all ITPs were invited to express an interest in attending workshops to discuss the development of governance and financial management arrangements across the sector.
1.5. Around 40 ITPs attended the workshops, facilitated by ESFA. The workshops discussed ITPs’ existing arrangements and introduced the concept of a financial handbook for the sector. The ITPs were a cross section of organisations, whose annual funding from DfE/ESFA ranged from £25,000 to £33 million. We invited ITPs to comment on the principles of a financial handbook and its proposed content. Their valuable feedback has been used to help develop this handbook.
1.6. In addition, in March 2022, ESFA invited all ITPs in receipt of DfE/ESFA funding to take part in an online survey relating to their existing governance and financial management arrangements, with particular focus on arrangements being considered for inclusion in the handbook. Over 220 ITPs responded to the survey, including a full cross section of providers in terms of size, type of organisation, levels of DfE/ESFA funding and reliance on it. The scale and diversity of the response to the survey provided confidence that the results were representative of the sector. The results of the survey have informed the content of this handbook, as it has enabled understanding of what most ITPs in different funding groups already have, and indicated areas where gaps exist.
1.7. ESFA has also liaised closely with the Association of Employment and Learning Providers (AELP), which supports using the handbook and the work being done to develop governance and financial management in the sector. We will continue to work with them to ensure the handbook is suitable for all parties. ESFA will also continue to welcome feedback from the sector to inform future updates to the handbook.
1.8. In Autumn 2023, we shared a draft copy of the handbook with a sample of ITPs, representative of the sector as a whole. Their feedback and suggestions have been invaluable in developing this published version.
1.9. Parts 3 to 5 of this document are split into three key areas:
- governance
- financial management and oversight
- assurance
1.10. In each section, the expectation levels are set out, i.e. whether an arrangement is required, recommended, or discretionary, depending upon the ITP’s funding group (using a ‘handbook matrix’).
1.11. Where appropriate, the handbook provides guidance on ITPs’ compliance with the obligations applicable to them under the handbook.
1.12. The ITP sector is diverse in many ways, including organisation size, legal status, types of training provided/funding streams delivered, the amount of funding received from DfE/ESFA and level of reliance on it. Given this diversity, the governance and financial management arrangements in the handbook apply to ITPs depending upon the level of risk, which is driven by the amount of training ITPs deliver for DfE and ESFA. Consequently, a handbook matrix has been designed (summarised at Annex B), which identifies requirements and recommendations applicable to ITPs depending upon the level of funding they receive from DfE and ESFA. There are 3 aspects to the matrix:
Aspect 1: funding groups
1.13. Funding groups categorise all ITPs into cohorts, depending upon their level of annual DfE/ESFA funding. A number of factors were considered when defining the groups, including existing thresholds used for categorising ITPs, volumes of ITPs which would fit into each group, and ensuring proportionate requirements and recommendations could be applied to each group.
1.14. For clarity, ITPs should calculate their funding group by adding together all funds received directly from DfE and ESFA, in the previous full funding year (August to July). All funding envelopes within the period should be included. Devolved funding received through agreements with mayoral combined authorities (MCAs) and the Greater London Authority (GLA) is not in scope (see section 2.4 for further information). For the majority of ITPs, it should be clear which funding group they fall within. Where an ITP is unsure which group they are in, ESFA will work with them to agree which group they fall into. Where ITPs move groups between years, they must comply with arrangements set out in their new group and flexibility may, subject to the agreement of DfE/ESFA, be provided to allow ITPs to adapt to the change. Where an ITP is in its first consecutive year of receiving direct funding from DfE and ESFA (i.e. it did not receive any direct funding in the previous funding year), it should calculate its funding group by reference to its expected funding in that first year.
1.15. The 4 funding groups are:
| Total annual funding the ITP receives directly from DfE and ESFA | Funding Group 1 | Funding Group 2 | Funding Group 3 | Funding Group 4 |
|---|---|---|---|---|
| More than £8 million | More than £1 million up to £8 million | More than £100,000 up to £1 million | Up to £100,000 |
1.16. Some ITPs will also receive funding under sub-contracting arrangements. ESFA’s Sub-contracting standard guidance explains how lead ITPs are expected to have a performance management framework and service level agreements in place with sub-contractors. These mechanisms could be used by ‘lead’ ITPs to encourage sub-contractors to align themselves with elements of the financial handbook, based on total combined funding the sub-contractor receives from the lead and from DfE/ESFA directly.
Aspect 2: applicability
1.17. The categories below set out the extent to which each governance and financial management arrangement applies to ITPs:
- Required – must be in place
- Recommended – best practice for ITP to have
- Discretionary – ITPs have discretion to do
Aspect 3: arrangements
1.18. The governance and financial management arrangements are broken down into three key areas:
- governance
- financial management and oversight
- assurance
1.19. The matrix at Annex B summarises each arrangement and how it applies to ITPs within each funding group. Expectations for different funding groups are based on a range of factors, including contractual requirements, the risk level associated with the arrangement and proportionality. Expectations are higher of ITPs who receive greater funding from DfE/EFSA. Some arrangements reflect existing contractual requirements or agreements that ITPs may already be required to comply with.
1.20. As explained in the foreword, the aims of the handbook are to:
- support the sector’s governance and financial management arrangements
- provide a framework for ITPs’ governance, financial management and oversight, and assurance, and
- assist DfE/ESFA to identify and manage risks
1.21. It is critical, therefore, that ITPs comply with those arrangements which are classified as ‘required’, as well as giving full consideration to introducing ‘recommended’ arrangements. The long-term benefits for ITPs of doing so are outlined throughout this handbook. Complying with the handbook should help place ITPs in a better position to manage their finances and resources and reduce the level of risk to their organisation.
1.22. The handbook applies from 1 August 2024[1]. The preceding transition period post-publication enables ITPs to:
- understand the contents
- review their current governance and financial management arrangements
- baseline their existing processes against the requirements and recommendations in this handbook
- prepare and adapt their organisation to comply with any requirements applicable to them from 1 August 2024
1.23. ITPs may find it beneficial to adopt areas of the handbook relevant to them in advance of the date the handbook becomes effective.
1.24. The handbook will be periodically reviewed. ESFA welcomes feedback from the sector to inform future editions.
[1] ESFA may extend the transition period for certain requirements beyond 1 August 2024 in response to sector feedback received following publication of this handbook.