Four finance mistakes academy trusts should avoid

18 Sep 2018, 14:45

Phillip Reynolds explains the big four finance rules academy trusts should be aware of

The BBC’s screening of Panorama’s investigation into Bright Tribe Trust has again caused many to question the academies regime and the lack of scrutiny. But what lessons should all academy trusts be drawing from their mistakes?

Condition Improvement Fund (CIF) monitoring

One of the biggest issues raised during the programme was the use of CIF funds. Claims were made that grants received by Bright Tribe Trust had not been spent in full or indeed at all. 

It is important that Trusts remind themselves of some of the requirements when receiving a CIF grant.

Project monitoring is key and the ESFA guidelines state that project monitoring returns are required to be submitted on a regular basis. Failure to do so can result in payments being delayed. In addition, both the accounting officer and trust board should be kept up to date with progress.

Once the project is complete, another form must also be provided to the ESFA stating the final total cost of the project. This completion form must be signed off by the accounting officer and in the case where projects are more than £500,000 in value, must be accompanied by an architect or contractor’s certificate of completion.

If the project’s actual cost is below the grant received, then the ESFA must be informed and a decision will be made with regards to the unspent monies. More often that not, the ESFA will allow the Trust to retain the money. 

Capital funding cannot be used as revenue funding

Throughout the programme there were references to the fact that the unspent CIF monies should have been spent on the education of pupils in the trust.

Whilst improving the buildings and facilities will help improve the quality of education and safety of the pupils, the unspent CIF money cannot, for example, be used to fund additional teaching assistants.

Trusts should be clear that monies received for capital projects are only to be spent in line with the purposes intended. If unspent, then CIF monies could be clawed back by the ESFA and should not therefore be used as revenue funding. Alternatively, they could remain with the trust but as capital funds only.

Related parties

Many of the issues highlighted by Panorama have arisen due to presence of a related party, and it is easy for many to assume that related-party transactions are “bad” and do not represent value for money.

There are many transactions taking place in the sector that are indeed for the benefit of pupils and it is a shame to tarnish all related-party transactions with the same brush.

The programme does, however, highlight the need for trusts to be clear on what business interests exist across the Trust and that these are open and transparent. 

Trusts should also be aware that from 1 September 2018 more robust rules were introduced in the academies financial handbook  in respect of related parties. These stated that ESFA approval is required for any contracts worth more than £20,000 per annum.

Authorisation of invoices

Finally, the programme revealed numerous invoices for works that had been authorised for payment by the trust. If the works were, as alleged, incomplete, this would represent a breakdown in internal controls.

Trusts should be clearly following their financial procedures manual and ensure there is a segregation of duties when it comes to the authorisation of invoices for payment, particularly when the sums are significant.

In respect of capital works, trusts may wish to consider implementing additional procedures to ensure that works have been performed and completed to a satisfactory standard before invoices are settled.

No-one in our sector likes to hear of allegations such as those made in the Panorama programme,  but it does perhaps represent an ideal time for trusts to reflect on their policies and procedures and undertake a “spring clean” to avoid such issues arising again in the future.

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