Question to the Department for Education:

To ask the Secretary of State for Education, with reference to the BBC Panorama investigation entitled Profits before Pupils? broadcast on 13th September 2018, whether his Department plans to review financial governance in academies.

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.

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.

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.

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:

• Executive pay – even more focus on the board’s responsibility for ensuring decisions about senior leaders’ pay are proportionate, justifiable and clearly documented.
• 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.
• Management accounts – emphasising a rigorous approach to setting and monitoring financial plans, including board engagement.
• Audit findings – being clear that trusts must respond in an appropriate and timely manner to advice from auditors, taking opportunities to strengthen their systems.