Part 3: Governance
Independent training provider governance arrangements.
3.1. Part 3 of the handbook outlines expected governance arrangements and how they apply to independent training providers (ITPs) depending upon the funding group they fall within.
| More than £8 million | More than £1 million up to £8 million | More than £100,000 up to £1 million | Up to £100,000 |
|---|---|---|---|
| Required | Discretionary | Discretionary | Discretionary |
3.2. To have at least one non-executive director (NED) or equivalent (registered companies only). This could include non-executive investor directors or governors, if they provide independent challenge. The NED (or equivalent) might report at group level but their remit should extend to DfE/ESFA-funded delivery. NEDs bring expertise, experience, and additional credibility to the board. As they are removed from day-to-day management responsibilities, they offer a fresh perspective and independent challenge to processes, policies, performance and the business’s strategic direction. Other types of organisations such as charities should, where possible, make similar use of independent expertise, for example through trustees.
3.3. For registered companies, directors’ duties are outlined in the Companies Act 2006. Directors will have skills and experience consistent with the responsibilities of a training organisation, including knowledge of sector funding. Other types of organisations should follow good practice for their sector. For example, for charities, the ‘Charities and Meetings’ guidance.
| More than £8 million | More than £1 million up to £8 million | More than £100,000 up to £1 million | Up to £100,000 |
|---|---|---|---|
| Required | Recommended | Discretionary | Discretionary |
3.4. To have an independent audit and risk committee. This could be at group level or specific to DfE/ESFA-funded delivery. Audit and risk committees play an important role in ensuring organisations have the best possible framework to protect public funds and other income/funding. They provide independent advice to boards on the adequacy and effectiveness of their governance, risk management (including business continuity), controls and assurance frameworks. They also assist boards to ensure they fulfil their statutory and regularity responsibilities for their annual accounts.
Responsibilities of the audit and risk committee
3.5. For those ITPs where an audit and risk committee is required under this handbook, or where the ITP otherwise decides to have one, the responsibilities of the committee may include:
- following terms of reference for the committee set by the board. As a minimum these must include (a) assuring and challenging the design and operation of the organisation’s systems of control, (b) the committee’s right to investigate any activity and (c) the committee’s right to access all the information and explanations it considers necessary, from whatever source, to fulfil its remit
- advising the board on the adequacy and effectiveness of the ITP’s governance, risk management, control and assurance arrangements and processes for the effective and efficient use of resources, safeguarding of assets and maintaining the ITP’s solvency
- advising and supporting the board in explaining in its annual accounts the measures taken to ensure it has fulfilled its statutory and regulatory responsibilities
- if the ITP’s accounts are audited, the committee should advise on the appointment, reappointment, dismissal, and remuneration of the external auditor, review the reports of the external auditor, and monitor the implementation of recommendations arising from those reports, within agreed timescales
- if the ITP has an internal audit service, the committee should review the reports of the internal auditor and monitor the implementation of recommendations arising from those reports, within agreed timescales. If the internal audit service is outsourced, the committee should advise on the appointment, reappointment, dismissal and remuneration of the internal auditor
- overseeing the ITP’s policies on fraud, irregularity, impropriety, and whistleblowing, to ensure:
- the proper, proportionate and independent investigation of all allegations and instances of fraud and irregularity, and outcomes are reported to the committee
- internal and external auditors (if applicable) are informed of investigation outcomes, and appropriate follow-up has been planned/actioned
- fraud or suspected fraud, theft and/or irregularity, are reported to ESFA as soon as possible
- producing an annual report for the board, summarising the committee’s activities relating to the financial year under review, including:
- a summary of the work undertaken by the committee
- any significant issues arising up to the date of preparation of the report
- the committee’s opinion on the adequacy and effectiveness of the corporation’s assurance arrangements, framework of governance, risk management and control processes
- any significant financial governance and / or internal control matters identified by the committee or external assurance functions
- an assessment of the effectiveness of the committee
Membership of the audit and risk committee
3.6. Where an ITP has an audit and risk committee, it is recommended the committee includes:
- a minimum of 3 people
- non-executive directors, where appointed
- people with the relevant skills to carry out the responsibilities listed above
- if possible, people with experience relevant to the organisation
3.7. The Financial Reporting Council produces guidance relating to the operation of audit committees including membership suggestions.
| More than £8 million | More than £1 million up to £8 million | More than £100,000 up to £1 million | Up to £100,000 |
|---|---|---|---|
| Required | Required | Recommended | Discretionary |
3.8. To have a funding compliance scrutiny function, which provides guidance and checks in relation to any funding data/claim submissions to DfE/ESFA. This acts as an additional layer of assurance to protect ITPs against incorrect funding data/claim submissions that could result in a significant DfE/ESFA funding clawback. The accuracy and reliability of individualised learner records (ILR) data and funding claims submitted by ITPs is critical, as it forms the basis for the issue, allocation, and payment of public funds to each ITP. As a minimum, the function must be sufficient to satisfy the management of the ITP that data submissions which trigger funding are complete and accurate before they are sent. Data cleansing should take place on an ongoing basis throughout the funding year and not just prior to data submissions or audits. Those responsible for scrutiny should have a strong understanding of any funding streams/rules the ITP is claiming funding under. (ITPs also have access to the free PDSAT tool to help them validate and cleanse ILR data prior to submission and to the Post-16 Monitoring Reports Dashboard).
3.9. The role of a funding compliance scrutiny function is to:
- provide oversight of funding claims and ILR data submissions
- ensure that funding claims/ILR data submissions follow funding rules and submission requirements and guidance
- ensure that funding claims/ILR data submissions are complete, accurate and consistent with actual learning activity, including through use of the PDSAT tool, exception reports, and validation checks
- recommend any improvements/amendments to the processes, used for submitting funding claims/ILR data, to the senior management of the ITP
3.10. The funding compliance scrutiny function should be separate from, although report to, either an audit and risk committee or another layer of oversight within the organisation, which is primarily responsible for protecting DfE/ESFA funding. The function should be focused solely on the underlying data that generates funding, whilst any audit committee should focus primarily on the organisation’s controls. The ITP should ensure that the size of the scrutiny function is proportionate to funding received.
3.11. ESFA requirements for sub-contracting DfE/ESFA-funded delivery ensure that there is appropriate accountability and transparency over the use of public funds and the protection of the quality of education provision.
| More than £8 million | More than £1 million up to £8 million | More than £100,000 up to £1 million | Up to £100,000 |
|---|---|---|---|
| Required | Required | Required | Required |
3.12. To comply with sub-contracting requirements, as set out in any contract for services, and to adhere to DfE/ESFA requirements for sub-contracting, including the sub-contracting standard (where applicable) and related assurance framework.
| More than £8 million | More than £1 million up to £8 million | More than £100,000 up to £1 million | Up to £100,000 | |
|---|---|---|---|---|
| Required | Recommended | Discretionary | Discretionary |
3.13. To comply with a code of governance appropriate to the organisation. The codes listed below are examples that could be used:
- Code of Good Governance for Independent Training Providers (Association of Employment and Learning Providers)
- UK Corporate Governance Code (Financial Reporting Council)
- Charity Governance Code (endorsed by the Charities Commission)
- Community Interest Companies - Information and guidance notes Chapter 9 – Corporate Governance (Office of the Regulator of Community Interest Companies)
3.13. These codes help organisations to achieve strong governance, regularity, propriety and effective business operations. Compliance with relevant governance codes gives confidence that ITPs are committed to good governance and appropriate use of public funds.