Trusts paid out £3m in rule-breaching related-party deals

Deals for agency staff, pricey building projects and payments to employees’ firms are among dozens of payments which broke related-party transaction (RPT) rules, a Schools Week investigation has found.

Millions of pounds were handed over by academy trusts through the regulation-breaching agreements last year. They mostly concern trusts not notifying the government in advance before making such payments, which are to companies linked to trustees or senior staff.

School business expert Micon Metcalfe said: “This highlights the increased clarity from the Department for Education around what the rules are and potentially the need for governance to mature within trusts. 

“It is a challenge. We want to have a range of businesspeople on trust boards, but leaders need to be very careful they understand what the rules are.”

£3m changed hands

RPT breaches were flagged in 52 academy trust accounts last year. Our analysis suggests more than £3.1 million changed hands in the deals. 

Most failed to notify the Education and Skills Funding Agency (ESFA) of the transactions in advance or seek its prior approval for deals worth over £20,000, as required by the 2022 academy trust handbook. 

The requirements were introduced six years ago after the Public Accounts Committee warned that previous arrangements, which allowed the transactions so long as no one profited from them, were “too weak to prevent abuse”. 

In Kent, the Chancery Education Trust “purchased agency staff services from Future Education of £97,000 during the year”, without securing the government green light. A trustee was one of the firm’s directors at the time. 

Future Education, which has since been bought by the Humly Group, said it takes “regulatory compliance very seriously and will review the situation internally to ensure all necessary measures are taken”. 

Trust launches ‘thorough review’

White Woods Primary Academy Trust paid the Learners First School Partnership – a charity it controls 50 per cent of the voting rights for – £820,000 to manage the delivery of its English hub. 

One of its schools in Rotherham was selected for the DfE programme to provide “excellent teaching in early language and reading in reception and key stage 1”. But the deal with Learners First was not reported to the ESFA “in line with the requirements” in the trust handbook. 

White Woods said the arrangement was “governed by a legally binding service-level agreement, and all grant funds are subject to annual audits to ensure compliance and transparency”. 

“Unforeseen circumstances”, including the sudden departure of a senior staff member, caused a “temporary oversight in updating information on the ESFA portal for that year”. 

The trust has “undertaken a thorough review… to ensure that such omissions do not occur in the future”.

Meanwhile, accounts for the Tower Hamlets Enterprise Academy show that one of its members had been employed by the trust since December 2022. Prior to this they had “provided services to the trust through a limited liability company”. 

The ESFA was not notified of this, nor was its permission sought. Documents state that, when leaders “became aware of this, the member resigned, and the trust declared the transactions”. 

The company was paid £16,400 in 2022-23. 

Its board “discussed this as a matter of priority and is in the process of producing a full action plan to ensure compliance” with government rules. 

Trusts allowed to go ahead with deals

In some cases, documents showed that the ESFA told trusts they would not be prevented from entering or continuing with transactions, despite breaching ATH rules. 

The Liverpool College Independent School Trust failed to secure pre-approval from the ESFA for an £88,000 contract with architects. 

Documents show that a “subsequent request was not approved by the ESFA” on the grounds that evidence provided did not show “a competitive tendering process was followed” and the “transaction was conducted with accountability and transparency”. 

However, officials stated that “although the transaction is not approved, it does not prevent the academy trust continuing with the agreement in this instance”. 

A trust spokesperson said it “sought and obtained permission from Liverpool City Council”, which was funding the project, prior to engaging the company. It was later appointed using a “transparent, robust [and] competitive tendering” process.

“It was not understood having taken those steps that any communication with the ESFA was also necessary. When made aware of that requirement steps were immediately taken to ensure the ESFA were aware of and had confidence in the matter and this complete transparency enabled the agreement to continue.”

Case numbers set to tumble?

Many of the 52 RPT deals which breached academy rules in 2022-23, the most recent financial year accounts were published for, were between Church schools and their dioceses. 

The overall figure is slightly fewer than the previous year, too. However, the threshold for obtaining the ESFA’s permission for related-party contracts has now risen from £20,000 to £40,000.

This approval also no longer applies to “essential functions fundamental” to a trust’s “religious character and ethos which can only be provided by their religious authority”.

“I think we will see fewer flagged as regularity issues and fewer RPTs as well as trusts will think it’s just not worth it,” Metcalfe added. “These technical breaches [in 2022-23] were a point in time where trusts were better understanding what the rules were.”