Academy trusts and governance requirements

This is the time of year when academy status can bite, coping with the legal requirements arising as a result of being independent charitable…

This is the time of year when academy status can bite, coping with the legal requirements arising as a result of being independent charitable companies. This means that while academies are responsible for their own financial management, they are subject to public standards of accountability. The Department for Education, rather than the Charity Commission, is their principal regulator and is responsible for overseeing their compliance with the financial accountability framework and with charity law. 

The Academies Accounts Direction is a reference pack provided by the Department of Education for academy trusts and their auditors to use when preparing and auditing financial statements for the accounting period ending on 31 August annually. It supplements the Academies Financial Handbook. The Accounts Direction outlines the requirements set out in academy trusts’ funding agreements with the Secretary of State where each academy trust must:

  • Prepare an annual report and financial statements to 31 August
  • Have these accounts audited annually by independent registered auditors 
  • Produce a statement of regularity, propriety and compliance and obtain a regularity assurance report on this statement from the auditor 
  • Submit the audited accounts and auditor’s regularity assurance report to the EFA by 31 December
  • File the accounts with the Companies Registrar as required under the Companies Act 2006
  • Publish the audited accounts on the trust’s website by 31 January.

The Accounts Direction explains the elements that must be included in an academy trust’s annual report and financial statements and the accounting treatments required. It also provides a model format for the report and the financial statements and ensures consistency of treatment between academy trusts.

From a technical perspective this is all very well, but what it fails to explain is the amount of time and energy which is required by the academy’s governors/directors to ensure they discharge their duties effectively. As an academy is a charitable company limited by guarantee, the governors have both duties as directors under company law and as trustees under charity law. Responsibilities as charitable trustees covers, duty of compliance, duty of Prudence and duty of care. Responsibility as directors covers the duties to act within powers, to promote the success of the company, to exercise independent judgement, to exercise reasonable care, skill and diligence, to avoid conflicts of interest, not to accept benefits from third parties and to declare an interest in a proposed transaction or arrangement. 

It is also important to consider that the board of directors of a Multi-Academy Trust (“MAT”) must still comply with duties under both charity and company law, despite the fact they are likely to delegate the day to day running of the schools to the local governing body of each academy. Mechanisms should be put in place to ensure that such delegated duties are properly discharged. 

In practice, directors/governors should ensure that they understand the protection they have and the practical ways in which they can take relatively simple steps to help them meet their duties. The Articles of Association of academy trusts state that they will indemnify a governor against any claim brought against them in their capacity as a director in certain conditions as set out in the Articles and this should be backed by directors’ and officers indemnity insurance. In addition, the courts are able to give relief if a director has breached their duties but acted honestly and ought fairly to be excused. Whilst it would be extremely rare for a director of a not for profit company (an academy trust) to be personally liable it is important that all directors are offered appropriate support and training, both on taking up their role and on a continuing basis. 

The following practical steps if taken by directors of academy trusts will ensure they are in compliance with their duties:

  • Ensure that they regularly attend and prepare for meetings, (e.g. read the agenda and papers in advance and seek briefing where necessary), contribute to and raise concerns at meetings. Also check minutes to ensure they accurately reflect any issues or concerns raised at meetings.
  • Ensure that the Governing Body regularly monitors and reviews its compliance with and performance of its policies and that the academy trust has proper procedures for reporting on activities performance and the academy trust’s financial information to governors at each meeting (for example, receiving regular management accounts).
  • Make sure that the governing body seek and act upon legal, financial and other professional advice whenever necessary and clarify the insurance arrangements in place for governors.
  • Read and be familiar with the Articles of Association of the academy trust and be aware of its powers, duties and objectives. Read and being familiar with the Code of Conduct for governors/directors and any standing orders of the academy.
  • In the event of any concerns about the running of the academy trust seek advice from the appropriate members of the school leadership team.
  • Be scrupulous in the attention given to the academy trust’s present and future liquidity, and in ensuring any concerns and actions are minute and ensuring that any interests are registered with the academy trust.
  • Finally given the importance of good day to day management of the academy trust, take an interest in the appointment of the management of the academy trust to ensure that suitably qualified and experienced managers are in place.

Multi Academy Trusts (MAT) is one legal entity which set up to run a number of schools. The MAT will have a board of directors which commonly comprises of representatives from each of the member academies. In a MAT, the board of directors has the same governor/ trustee/director duties as the governing body of a single academy trust. As a consequence, the board of directors will deal with the strategic running of the MAT and will delegate the operational day-to-day running of the member schools to each academy’s Local Governing Body (LGB), which will usually be set up for each school. The level of delegation to LGBs can be varied to suit specific circumstances. For example, if a school is not performing well, the directors may reduce the level of delegation to the relevant LGB until the school improves. Alternatively, the directors could appoint new people to the relevant LGB to strengthen it and help improve performance.

The board of directors of the MAT must take into account their duties (as outlined above) when making strategic decisions. They must also ensure that they act in accordance with their duties when delegating authority to a LGB, and ensure that the individuals or entity discharging these duties are doing so correctly. Specific governance arrangements are usually tailored to the individual circumstances of each MAT. More often than not, the chair of each LGB and possibly each head teacher will be directors of the MAT, although this approach may depend on the overall size of the MAT. 

It is up to the directors to decide on the constitution and membership of each LGB, but it is usual to have parent, staff and community representation. If a sponsor is involved, it may want to have the right to appoint the majority of the governors. Where an academy is in special measures, the MAT may not wish to delegate any powers and will instead set up an advisory body for an academy with no delegated powers. Each LGB should be required to report to the directors about how its duties are being discharged. Most of the LGB will not be directors or trustees of the MAT and will mainly be representatives from the school. They will however have duties delegated to them by the board of the MAT and it will be the responsibility of the board to ensure that they are exercising those duties in accordance with the relevant delegation. The LGB will still have responsibilities as school governors.

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