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<p>Academy trusts have primary responsibility for their own financial affairs and
the department’s relationship with them is based on the principle of self-governance,
founded on a clear framework communicated and regulated by the Education and Skills
Funding Agency (ESFA), through trusts’ funding agreement and the Academies Financial
Handbook. If academy trusts are governed well and in accordance with the framework
then the Secretary of State’s interaction with them will be limited. If not, then
intervention may be required.</p><p> </p><p>Academy trusts must implement the right
financial procedures including internal checks of compliance. They must have an audit
committee, or equivalent, to manage their risks and oversee checks of systems of control.
They must take ownership of balancing their budget and send a copy to the ESFA in
advance of each year.</p><p> </p><p>These requirements are strengthened by external
scrutiny – academy trusts’ annual accounts must be reviewed by an independent auditor.
This makes oversight more independent and more transparent than for local authority
schools who are not required to prepare individual statutory accounts – their financial
performance is instead summarised within the authorities’ accounts.</p><p> </p><p>We
are not, however, complacent and are continually looking to develop and strengthen
our approach. The Academies Financial Handbook is strengthened annually to enhance
the accountability and governance framework. The department published a new edition
in June 2018 and the main changes were:</p><ul><li>Executive pay – even more focus
on the board’s responsibility for ensuring decisions about senior leaders’ pay are
proportionate, justifiable and clearly documented.</li><li>Related party transactions
(RPTs) – embedding a new requirement for trusts to report all RPTs to the ESFA in
advance and to seek approval for those over £20,000.</li><li>Management accounts –
emphasising a rigorous approach to setting and monitoring financial plans, including
board engagement.</li><li>Audit findings – being clear that trusts must respond in
an appropriate and timely manner to advice from auditors, taking opportunities to
strengthen their systems.</li></ul>
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