Academies will need government approval for related-party transactions

Academies that want to buy services in from companies run by their leaders will soon need to get permission from the government under new rules proposed by the Department for Education.

The DfE agrees with a recommendation made by the parliamentary public accounts committee earlier this year that academy trusts should be forced to clear so-called “related-party transactions” with the Education and Skills Funding Agency.

In its response, the government said it would implement the change “during the 2018-19 academic year”, which begins this September. The new rule will be fully in place by August 2019.

Related-party transactions are deals between academy trusts and linked private companies. For example, a trust buying services from a company run by one of its members or trustees, or one of their family members, counts as a related-party transaction.

In a damning report on the state of academy spending released in March, the PAC warned that the DfE’s current rules, which allow such transactions as long as no-one profits from the deals, are “too weak”.

Working out what constitutes the cost of providing a service “can be complex and open to manipulation”, the committee warned, and it is therefore difficult to prove that services are being provided “at cost”, as the rules require.

In 2016, 40 per cent of academy trusts engaged in related-party transactions, to the tune of £120 million.

The deals have proved controversial. In January, Janet Marshall, the founder and chief executive of the EMLC Academies Trust defended a deal which saw her family business make almost £1.5 million in consultancy fees in two years.

And in April, the under-fire Bright Tribe Trust told Schools Week that it will no longer contract companies run by its founder Michael Dwan, having paid out £681,000 to his firms in the 2016-17 financial year alone.

Bright Tribe was one of 23 trusts found to have breached funding rules in respect of related-party transactions in 2015-16.

More actions the DfE will take:

The DfE has agreed to work on a more detailed analysis of trust performance. It will publish comparisons of academy trust performance by taking into consideration their size and location in the next academies annual report.

The DfE will write to the public accounts committee in the summer to explain exactly how it intervenes when academy trusts are struggling financially. It will then set out how assets are protected when schools move from a failed trust to a new one.

When a new trust takes over schools, the government will work with it to agree a “fair way of redistributing the resources” held by a former sponsor.

The committee warned that the DfE does not have enough information on how many schools have asbestos, and therefore cannot know whether its risks are being managed properly. The government will publish a report on the findings of its asbestos management assurance process, which it set up in March, “once it has fully analysed the results”.

It will decide whether further action may be necessary to “ensure that asbestos is being effectively managed in the school estate”.

Surveyors will enter every school to request to see their asbestos management plan and their asbestos location register.

Finally, a list of the schools which have assured the government they comply with asbestos regulations will also be published.