Academy schools’ finances - what the committee of public accounts actually said

On 30 March 2018, the Committee of Public Accounts published a report and recommendations in relation to Academy Trust (AT) finances.  They reviewed the financial position of academies; related party transactions; salaries; and the transfer of surpluses of individual schools. Many of the general points have received considerable publicity, but the devil hides in the details.

In 2015-16, while the academy sector as a whole reported an operating surplus of £534 million for the year ended 31 August 2016, 165 ATs have a cumulative deficit of £50 million, with 39 operating under a Financial Notice to Improve. 

The Committee was unhappy about arrangements for Related Party Transactions (RPTs). In 2015-16, ATs undertook over 3000 RPTs worth a total of £120 million, 40% of which related to governors or head teachers.  All RPTs are expected to be subject to proper tendering and procurement processes.  In addition, the price paid for any RPT should only cover the cost of providing a service, rather than yielding a profit.

However, the Committee was concerned that calculating what constitutes the cost of providing a service is dependent upon the information provided by the service provider and thus open to manipulation. Currently, ATs are only required to seek approval from ESFA for ‘novel, contentious and/or repercussive transactions’, but the Committee recommended that these rules should be tightened and prior approval from ESFA should be sought for all RPTs.  This change is expected to be incorporated into the next version of the Academies Financial Handbook, to be published in July 2018.  One can expect such RTPs to be subject to close scrutiny and hence delay so ATs will need to be aware of this potential impact on their operations.

When it came to salaries the Committee found that in 2015-16, there were 102 instances of trust staff being paid salaries in excess of £150,000.  In November 2017, ESFA wrote to 29 of those SATs requesting justification for such salaries.  ESFA deemed only a third of the responses satisfactory and will undertake meetings with the other ATs. In February 2018, the DfE wrote to the chairs of all ATs indicating that the pay of a CEO or other non-academic staff should not increase faster than for teachers.  Moreover, there should be a reduction in senior pay where the educational performance of schools in the trust declines over several years.The Committee has recommended that the DfE further extend its work in this area in order to ensure that public money continues to be best spent on children’s education.

The transfer of surpluses from individual schools to the MAT is part of the academy system.  However, any failure of a MAT would affect a large number of schools and children, and the Committee were particularly concerned that in such circumstances, the assets of schools should be protected. Following a number of high profile MAT failures, the DfE, along with the National Schools Commissioner and Regional Schools Commissioners, are monitoring the performance of MATs much more closely and rigorously.