Auditors flag increase in financially ‘unviable’ academy trusts

Auditors flag increase in financially 'unviable' academy trusts

Auditors are increasingly raising the alarm about academy trusts at risk of running out of money, with chains raiding reserves and eyeing expansion to pay off deficits.

A Schools Week analysis of annual accounts has revealed a prevailing picture of “unviable trusts”.

The Rodillian Trust, which sponsors three schools in West Yorkshire, used more than £350,000 of its reserves to pay off a budget deficit last year.

Recently released accounts for 2015-16 show auditors flagged a “material uncertainty” about its future viability.

A similar judgment was issued to the Dominic Barberi Multi-Academy Company, which runs seven schools in Oxfordshire.

Accounts show it already had received a £600,000 funding advance from the government, and said “continued support” was “fundamental to the company’s viability”.

These figures are disturbing

The government’s academies report for 2014-15, published last year, also revealed that the number of “emphasis of matter” opinions by auditors, highlighting financial concerns, rose nearly three-fold to 92 cases.

A major benchmarking report by Kreston Reeves Group auditors, published last week, also found four in ten trusts posted a budget deficit last year.

Robert Hill, an education consultant and former government policy adviser (pictured right), said: “These figures are disturbing, but it points to what we already know.

“The future for standalone trusts is very uncertain, and they would be wise to think about teaming up with other trusts – not just where it suits for budget, but where there is a good fit in terms of mission and values.”

But it’s not just standalones struggling.

More than half of multi-academy trusts spent more than their income in 2014-15 – double the percentage of overspenders in 2012-13.

Sir David Carter, the national schools commissioner (pictured above), has spoken publicly about how he envisages a move to “merger MATs”, particularly of smaller trusts.

Rodillian hopes to become financially sustainable by expanding to ten secondaries and a sixth form within three years.

Neville Lawson, finance director since June, told Schools Week the trust would be selective about which schools it took on, but was committed to transforming pupils’ lives.

“We have to give assurances to trustees that it won’t adversely impact the long-term viability of the trust – that’s key.”

Rodillian ran into financial trouble after taking on two failing schools with falling pupil numbers. One, the Featherstone academy, joined from E-ACT in 2014 with a £700,000 deficit.

The trust itself posted a £370,000 budget deficit last year, and is forecasting another loss for 2016-17. Reserves have fallen from £628,000 to £260,000.

The financial situation is precarious

The Barberi group has appointed new finance chiefs, increased the number of finance board meetings and restructured teaching staff after a projected “substantial overspend” for 2014-15.

As well as the funding advance from the Education Funding Agency (EFA), trust accounts say that it is making “considerable progress” in building a sound financial footing, but that it is still reliant on government support.

Barberi has already been issued a financial notice to improve, as has the Bright Futures Educational Trust (BFET), which runs nine schools in the north west. Auditors have also raised “material uncertainties” over its future.

BFET accounts show it has asked the EFA if it can defer paying back pupil funding that it owes and capital payments, and has proposed further restructuring.

New chief executive Dr John Stephens said BFET was now developing a financial strategy alongside the EFA.

But the Kreston Reeves report found some trusts were reluctant to ask the government for financial help in fear of a notice to improve, which would temporary halt any expansion that could boost income.

The report found a whole senior leadership team at one trust, which was not named, was considering deferring their salaries to avoid the need for a cash advance.

Joe Scaife, chair of the Kreston Academies Group (pictured right), which audits more than 320 trusts – half of which are single-academy trusts – said the financial situation was “precarious”.

He said significant savings had already been used, leaving “limited options to deal with the imminent danger”, such as dipping into reserves, or joining another trust.

A Department for Education spokesperson said: “Where the board of an academy is proposing to set a deficit budget for the current financial year, it must notify the EFA.

“Wherever appropriate, the EFA will provide support to academy trusts experiencing financial difficulty but where we find financial mismanagement or irregularities we will not hesitate to take swift action.