An academy trust founded by a Conservative peer has been warned for a second time over its finances after posting a deficit of over £1.2 million and receiving a bailout from the government.
The Lubavitch Multi-Academy Trust, which runs three Jewish schools in Hackney, London, has been issued with a second financial notice to improve by the Education and Skills Funding Agency. It received its first notice around a year ago.
Accounts reveal the trust has struggled during the Covid-19 pandemic after parental donations from the community it serves dried up, and has had to rely on extra funding from the government.
Though the ESFA praised the trust’s progress in its latest notice, concerns remain over “weak financial management and control”.
It was revealed last year that Lubavitch finished the 2018-19 year with a deficit in its unrestricted funding of over £1.1 million.
The trust’s latest accounts show the deficit increased to over £1.2 million as of August last year.
Lubavitch was co-founded by Conservative party peer Lord Polak. He resigned from the trust in November 2019.
Trust relied on parental donations
Accounts warn that the trust was in an “exceptionally vulnerable position”, even before the Covid-19 outbreak.
The trust’s financial model “relied on a significant amount of monthly donation” from parents to meet the cost of Jewish Kodesh studies.
But Lubavitch did not receive the “expected level” of parental donations and “when this income completely ceased” the trust suffered a “significant loss of income”.
The accounts also state the trustees felt it would be “inappropriate” to ask for any further financial support during the pandemic.
“Finances had been impacted before Covid but this compounded the issues faced by the trust as the community began to suffer.
“Finally Covid has hindered restructure plans delaying the planned timeline, creating additional cost to the trust which has been met by the ESFA [Education Skills and Fund Agency].”
The trust has also made some savings through a reduction in utility and printing costs, and that costs were being “recovered by the Covid grant”.
But the accounts warn that the organisation is reliant on cash advances from the ESFA to “support its cash flow and liquidity until the revised recovery plan is implemented”.
According to the documents, the trust has received an advance of £1.22 million from the ESFA. The loan is interest-free, and is due to be repaid by 2025-26.
Government acknowledge trust’s progress
In its latest notice to the trust this month, the ESFA said the trust had taken “significant steps” towards satisfying the conditions set out last year.
The trust has developed a plan that “should ensure it reaches financial stability and secures the future of its schools”, the agency added.
However, several “important actions” are outstanding and “concerns remain in relation to the continued weak financial management and control” at the trust.
Warwick Sharp, director of academic and maintained schools at the ESFA, said: “Unless these matters are addressed in a timely manner, this may prevent the trust from returning to sustained financial health, and may even result in its insolvency.
“Consequently, I feel this is an appropriate point to review and revise the conditions attaching to the notice.”
Accounts show the trust trust is establishing a “recovery plan” with the ESFA which includes a review of staffing requirements and is working to improve its financial position. An action plan has also been put into place “to ensure that the academy trust can build its reserves going forward”.
The documents also show that during 2019-20 there were a range of changes to the trust’s board, leadership and finance team, and that they expected financial controls and oversight of financial information across the trust improve over this academic year.
A spokesperson for the trust said: “The trust is disappointed that a further financial notice to improve has been issued but we are pleased that the ESFA have acknowledged the significant progress we have made over the past year.
“The trust’s financial position is much stronger, we have a clear recovery plan in place and we have started to pay back the loans to the ESFA. We are confident that we will build on that progress and look forward to the notice to improve being lifted soon.”