Part 6: The regulator and intervention
How DfE and ESFA oversees academy trusts and may intervene where concerns arise.
6.1 ESFA’s accounting officer is accountable to Parliament for how ESFA uses its funds and is personally responsible for the regularity, propriety and value for money of its expenditure.
6.2 ESFA’s accounting officer will send a ‘Dear Accounting Officer’ letter on occasion to academy trust accounting officers. Accounting officers must share it with their members, trustees, chief financial officer and senior leadership team, arrange for the board to discuss it and take action, if necessary, to strengthen financial controls.
6.3 DfE, ESFA or its agents may carry out audits and investigations at an academy trust. The trust must provide DfE and/or ESFA with access to all books, records, information, explanations, assets, premises and staff, and DfE or ESFA may take copies of relevant documents.
Investigations: Third party documentation
6.4 Where DfE or ESFA has concerns about financial management or governance at an academy trust, it may wish to obtain from third parties information or documentation about the trust which DfE or ESFA considers relevant for the purposes of its investigation. Academy trusts must provide DfE or ESFA with written authority, giving permission for any third party to provide such information and documentation to DfE or ESFA or its agents on request of DfE or ESFA.
Retention of records
6.5 The trust must retain records to verify provision delivered by it, or its sub-contractors, in relation to this handbook and its funding agreement, at least 6 years after the period to which funding relates.
Find out more about Record keeping and retention information for academies and academy trusts.
6.6 All trusts must complete the School resource management self-assessment checklist and submit their completed checklist to ESFA by the specified annual deadline. New operational academy trusts must complete a financial management and governance self-assessment (FMGS) and submit it to ESFA within 3 months of opening their first academy.
6.7 To gain assurance over financial arrangements at academy trusts, ESFA will conduct financial management reviews, examining whether systems and control comply with the handbook.
Find out more about the financial management and governance self-assessment.
6.8 Funding audits allow ESFA to gain assurance on the pupil census and free school meals entitlement data, provided by an academy trust to calculate its recurrent funding and establish whether this data is accurate and supported by evidence. The scope and timing of funding audits are determined annually.
6.9 Academy trusts must be aware of the risk of fraud, theft and irregularity and address it by putting in place proportionate controls. Trusts must take appropriate action where fraud, theft or irregularity is suspected or identified.
6.10 The board of trustees must notify ESFA, as soon as possible, of any instances of fraud, theft or irregularity exceeding £5,000 individually, or £5,000 cumulatively in any financial year. Unusual or systematic fraud, regardless of value, must also be reported. The following information is required:
- full details of the events with dates
- the financial value of the loss
- measures taken to prevent recurrence
- whether it was referred to the police (and if not why)
- whether insurance or the risk protection arrangement (RPA) have offset any loss
6.11 ESFA may conduct or commission investigations into actual or potential fraud, theft or irregularity in any academy trust, either because of a notification from the trust itself or from other information received. ESFA may involve other authorities, including the police.
6.12 ESFA publishes reports about its investigations and about financial management and governance reviews at academy trusts.
6.13 ESFA also publishes guidance on reducing fraud. Trusts should refer to this and to the findings from ESFA’s investigation reports, as part of its risk management approach.
Cybercrime
6.14 Academy trusts must also be aware of the risk of cybercrime, put in place proportionate controls and take appropriate action where a cyber security incident has occurred. Trusts should take appropriate action to meet DfE’s cyber security standards, which were developed to help them improve their resilience against cyber-attacks.
6.15 Trusts must obtain permission from ESFA to pay any cyber ransom demands. ESFA supports the National Crime Agency’s recommendation not to encourage, endorse, or condone the payment of ransom demands. Payment of ransoms has no guarantee of restoring access or services and is likely to result in repeat incidents.
Find out more about:
6.16 Where DfE or ESFA has concerns about financial management and/or governance in an academy trust, the department may issue, and publish, a Notice to Improve (NtI).
Examples of when a NtI may be issued on financial management grounds include:
- an actual or projected deficit
- cash flow problems
- insolvency risk
- irregular use of public funds
- poor internal scrutiny
- breaches of related party requirements.
Examples of when a NtI may be issued on governance grounds include:
- the trust board not being properly constituted
- trustees failing to comply with their safeguarding duties
- trustees and the executive failing to manage their school estate and maintain it in a safe working condition strategically and effectively
- trustees lacking the skills, knowledge and experience to exercise effective oversight of the trust’s operations and performance, including educational performance
The department will engage with the sector in developing its approach to intervention, including the process to be followed by the department’s Regions Group and the evidence that they will rely on to determine the strength of trustees’ oversight of educational performance.
6.17 A NtI describes what a trust must do to address concerns about financial management or governance. The trust must comply with the NtI. Failure to comply will be deemed a funding agreement breach. The funding agreement may be terminated due to non-compliance with a NtI.
6.18 If a NtI is issued, the delegated authorities in sections 5.7 to 5.31 of this handbook may be revoked, and all transactions of this nature must be approved in advance by ESFA, specifically:
- special staff severance payments
- compensation payments
- writing off debts and losses
- entering into guarantees, indemnities or letters of comfort
- disposals of fixed assets beyond any limit in the funding agreement
- taking up a leasehold or tenancy agreement on land or buildings of a duration beyond any limit in the funding agreement
- carry forward of unspent GAG from one year to the next beyond any limit in the funding agreement
- pooling of GAG
The trust may also be prevented from entering into transactions with related parties without approval. These delegated authorities shall be returned once the NtI has been complied with, and improvement is sustainable.
6.19 The department will notify the trust of the date on which the department has published the NtI. The trust must then publish the NtI on its own website within 14 days and retain it on the website until the NtI is lifted by the department.
Find out more about Notice to Improve (NtI).
6.20 Where the Secretary of State for Education has concerns about an individual managing an academy trust, they may take action to address those concerns.
6.21 Subject to the relevant provisions being present in the trust’s funding agreement, the Secretary of State for Education can require the trust to remove a member or trustee. This can include where the individual has been convicted, cautioned or engaged in relevant conduct and, as a result, the Secretary of State for Education considers them unsuitable to take part in management of the academy trust.
6.22 The Secretary of State for Education can also make directions under section 128 of the Education and Skills Act 2008 prohibiting individuals from taking part in academy trust management. This could prevent an individual from acting as a trustee or executive leader of a trust. The circumstances are prescribed in regulations, but can include where the individual is subject to a caution or conviction or has engaged in relevant conduct, and the Secretary of State for Education considers that because of that caution, conviction or conduct that individual is unsuitable to take part in management of a school.
6.23 Where there is a concern, DfE or ESFA may refer trusts to the Charity Commission, reflecting the Commission’s interest in addressing non-compliance with legal or regulatory requirements or misconduct or mismanagement in the administration of any charity, and in ensuring individuals running the charity (in particular, but not limited to, the trustees) do so in compliance with their legal duties. The Commission may use its regulatory powers as described in its Memorandum of Understanding with DfE.
Find out more about the Memorandum of Understanding between DfE and the Charity Commission.
Find out about the automatic disqualification rules for individuals acting as senior managers or trustees in charities.
6.24 ESFA may refer academy trustees, as directors, to the Insolvency Service who may consider whether the conduct of a director is such that they are unfit to be involved in management of a company and whether or not it would be in the public interest for a disqualification order to be sought.
6.25 Where ESFA has concerns about financial management of a trust, it may prescribe working with an expert in school resource management, such as a School Resource Management Advisor (SRMA). Trusts should make reasonable endeavours to implement improvements identified by an SRMA. Failure to do so may result in an NtI being issued. Working with an SRMA may also be prescribed as a condition of an NtI.
Find out more about:
- financial planning and resource management
- School resource management: case studies
6.26 The National Audit Office (NAO) has the right to access the accounts and relevant records of an academy trust for inspection, or for value for money studies. The trust must cooperate with NAO and their contractors and provide help, information and explanation as is reasonable and necessary.
6.27 The NAO’s findings are considered by the Public Accounts Committee (PAC). The PAC has power to call anyone, including past and current accounting officers of a trust, to account for proper use of public funds.