CHANGES introduced over the summer by the regulator for academies, the Education and Funding Skills Agency (ESFA), to stop bad practice could well end up putting people off doing good things for the school system, and will have a disproportionate effect on church academies, because they are part of a “family”.
From 1 April next year, church academies, together with multi-academy trusts (MATS) that contain church schools will be especially burdened by yet more complicated administrative red tape, at a time when school funding is the tightest it has been for a generation.
The impact could be such that it deters more church schools from becoming academies, and, significantly, church multi-academy trusts’ working co-operatively with each other, in what ministers and educationists style a “self-supporting regime”. It could well contribute to a significant increase in central costs in audit and administration — and, perhaps, even in legal fees. The changes will certainly have the potential to divert resources away from school improvement.
These new requirements were released over the summer in the 2018 version of the Academies Financial Handbook, and have to be adhered to. They relate to what the handbook terms “related-party transactions”. It is also clear that the administrative burden of the changes is unknown by the regulator, as they say “they do not currently have enough data about the usage of related party transactions to make a fully informed decision.” CEOs of MATs, however, should be concerned.
The handbook seeks to reflect the announcement made by the Education Secretary, Damian Hinds, at a recent conference of the National Governors Association, that he will “clamp down on related party transactions”, as recommended by the Public Accounts Committee, owing to some high-profile cases involving weak governance and scandal in the academies system.
The handbook contains two new obligations connected with related-party transactions: first, the requirement to report all transactions with what is termed “related parties” to the regulator, the ESFA; and, second, to seek authority from that regulator (ESFA) for related-party transactions exceeding £20,000 in any financial year.
Complying with these two new obligations is likely to give Diocesan Multi-Academy Trusts — and, indeed, school-led multi-academy trusts that contain church schools — a significant administrative burden.
Diocesan boards of education, in particular, that are part owners of many academy trusts (and, therefore, related parties to all of them) often sell services and transact with their schools; and MATs generally contract with each other, and are caught by these new regulations. This is particularly the case with the prior-notification requirement, which has no de minimis below which they do not have to notify; so every one of the multiplicity of diocesan transactions, however tiny, will need to be notified separately in advance.
Prior notification appears to cover something as simple as one academy trust’s buying a plate of sandwiches at lunchtime, so that staff in a neighbouring church academy can discuss working together. Should one church academy using another church academy trust’s sports hall for a £20 fee really be caught?
One addition to the handbook, in what is termed the “at-cost” provisions, gives some limited good news to diocesan MATs: dioceses providing services relating to religious character and ethos, which only they can provide, are deemed to be doing so “at cost”.
Unhelpfully, there is no definition in the handbook of exactly what is meant by a “related party”, and, hence, a “related-party transaction”, in relation to which all these restrictions apply.
In a different context, Mr Hinds told the Association of School and College Leavers: “We need a transparent, supportive system, where schools know the rules.” It is a shame that this clarity appears not to be present in the handbook.
It is hoped that, between now and 1 April, the ESFA will clarify its definition of “related party” to exclude a link to church ownership of an academy or MAT. This would still capture the individuals who seek to make a profit out of academies, but without bringing the whole system to its knees.
The system needs to stop bad practice, but the new provision in the handbook will stop good people from doing good things.
Howard Dellar is a partner in, and head of, the Education, Ecclesiastical and Charities Department at Lee Bolton Monier-Williams. He writes in a personal capacity.