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FAQs - academies Financial Handbook

11 January 2013

The education team at Browne Jacobson regularly deal with queries regarding the Academies Financial Handbook (AFH) and how it applies to our clients. We set out below some of the questions that we are routinely asked. 

1. Does the AFH apply to sponsored academies? 

Yes, the AFH applies to all types of academies, including, sponsored, mainstream and those in group structures, amongst others.

The DfE’s model funding agreement requires the academy trust (AT) to “abide by the requirements of and have regard to the guidance in the Academies Financial Handbook published by the DfE and amended from time to time, which sets out in detail provisions for the financial management of the Academy”.

2. What about studio schools and free schools?

Studio schools, free schools and university technology colleges (UTCs) are bound by the AFH, again in line with the terms of their funding agreement. 

3. Why has the Education Funding Agency (EFA) prepared the AFH?

The AFH was originally published in 2006. However, a new edition was published in September 2012. This new version provides a much-needed update and more accurately reflects the meaning of academy status today.

The AFH sets out the financial requirements for ATs. The AFH forms part of the funding agreement, setting out the relationship between the EFA and the AT. 

Its contents include addressing the financial accountability of ATs and will be of interest to principals, finance officers and chairs of the various associated committees. Auditors will also find this useful when considering the AT financial statements.

4. Can an academy carry forward a surplus?  

The new edition of the AFH includes a headline change that academies can carry forward surplus balances without restriction. The funds carried forward are also no longer restricted in terms of what they can be spent on in the following year. 

The message in the AFH is that academies "can keep money aside for when it is needed most and build up reserves".

5. Can our funding agreement be amended to reflect the new position on carry forward?

If you have an older version of the funding agreement which limits the amount which can be rolled over, then those terms of the funding agreement will bind the AT. This is made clear in the AFH. However, a variation can be made to the funding agreement with Secretary of State consent. If the academy wishes to make this amendment, the first step is to contact the EFA to request consent to amend the funding agreement accordingly. We understand that the EFA will then provide a Deed of Variation for the AT to review and sign. You may wish to ask your lawyers to look over the proposed Deed of Variation before signing it and sending it back to the EFA.

You should be aware that the amendment to the funding agreement made through the deed of variation is not likely to explicitly state that there is no restriction on the amount of GAG you can carry forward. Rather, we understand that the new clause will state that the AT can hold unspent GAG amounting to such percentage specified in the AFH. While for the time being this may be an unlimited amount (in accordance with the policy position stated in the current version of the AFH), it is important to recognise that in the future, the AFH could change and provide for a restriction, which the academy would then have to comply with.

6. Who can be an accounting officer? 

Each AT must designate a named individual to act as its accounting officer (AO). For standalone academies this will usually be the principal, who, the AFH states, will act as the chief executive.

As the chief executive of an AT they have responsibility (with the Board) for overall organisation, including financial procedures.

7. We are a multi academy trust (MAT) without an Executive Principal, who can be our AO? 

In a MAT, it is usually the chief executive or the executive principal who acts as the AO. In cases where neither of these positions are present, such as in some faith group structures, we suggest that where possible one of the principals of an academy within the group is appointed as the AO. If this is not appropriate for your MAT, discussion should be had with the EFA as the AFH does not contain any guidance on this point.

8. What is the requirement for payments under a compromise agreement? 

The AFH introduces a new obligation on ATs to obtain permission from the EFA where they are making a payment under a compromise agreement.  This clause has been controversial as it is not clearly drafted and the process for seeking permission is unclear. 

An AT which considers making payment under a compromise agreement must consider a number of issues. Firstly, they need to consider whether the payment is above the contractual entitlement. If it is, then the AT must consider whether payment is justified based on a legal assessment of the outcome at tribunal. Where a settlement is justified the AT needs to consider the level of any settlement. 

In short, 

    • for settlement payments over £50,000, they should seek permission from EFA.
    • if under £50,000, it is unclear whether the AFH requires the AT to seek permission.  We have been advised by the EFA that Academies do not need permission under this amount. 
However, the position remains unclear. 

This issue is being reviewed and a consultation is likely to take place shortly on this matter.  

9. What is a novel transaction?  

Any payment made by the AT in an area which is outside their usual course of activities or where they have had no previous dealings would be considered a novel transaction. When considering whether a payment is novel ATs must use their judgement. A novel payment should always been referred to the EFA for authorisation, remembering the requirement placed on ATs to spend public money prudently. Therefore, if an AT is unsure about a payment it is prudent to take advice. 

10. Can an AT have a credit card? 

An AT can have a credit card, however, it will be for the AT to consider whether it permits staff to make payments by this method. It will need to consider the purposes of any payments and the associated risk profile. It is usual for ATs to have a policy on these matters. In order to safeguard public money it is expected that ATs take decisions in relation to use of electronic payment methods carefully. Academies should consider using a direct debit system to pay off balances monthly to avoid interest accruing or late payment penalties. 

11. Are there restrictions on an AT’s power to borrow?  

Your funding agreement will set out the restrictions on the AT’s ability to borrow. Secretary of State approval must be sought for both short and longer term borrowings. This is required where borrowing will be repaid from grant monies or secured assets. 

When applying for permission ATs should consider whether the interest rates are higher than those normally available for central government borrowing. If the rate is higher it is unlikely that permission will be granted. 

12. What is a finance lease?  

A finance lease transfers substantially all the risks and rewards of ownership to the school. It is a form of borrowing and according to guidance provided for schools and academies they must not be entered into. 

Although strictly the leased asset remains the property of the leasing company, in substance the school may be considered to have acquired the asset and financed the acquisition by obtaining a loan from the company.

The general position is that the AT must obtain approval from the Secretary of State (through the EFA) before any borrowing. The general position is that it is a form of borrowing and therefore consent will be required. 

13. What are the Academies: Accounts Directions?  

The Academies Accounts Directions are a reference pack for ATs and their auditors when preparing and auditing annual reports and financial statements. They explain elements which must be included and the accounting requirement for these elements. It also provides a model report to ensure AT returns are consistent.

14. Is it mandatory to comply with the Accounts Directions?  

Yes, the Academies Accounts Directions are an adjunct to the AFH in that they flow from the funding agreement and therefore must be complied with.

Talk to us… 

If you have any questions on any of the issues raised above regarding the AFH please do get in touch with us and we can discuss your needs. 

Katie Michelon

Heather Mitchell

Laura Richards

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