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What happens when the finances go wrong in an academy?

28th September 2018

Case Review

There have been a number of instances recently where a Financial Management and Governance Review (FMGR) has had to be carried out at an academy due to reports and allegations of poor financial management and inadequate governance policies.

One of particular note is the recent case of investigations into the David Ross Education Trust (DRET), a 33 school multi-academy trust (MAT) with a general annual grant (GAG) of £66 million. The full report can be found here.

In the early months of 2017 a number of reports were made to the ESFA regarding the concerns about the number of resignations of senior personnel within DRET and the reappointment of these positions. In addition to this, there were further allegations of non-compliance with the Academies Financial Handbook (AFH), with suggestion of potential fraud.  All the reports of non-compliance came from within the trust, both from individual schools and the central trust team.

Investigation
The evidence provided from the reports and allegations was no indication of any fraud or governance issues, but as a follow up the ESFA triggered an FMGR at DRET.  The FMGR focused on the financial integrity of the trust, the governance policies in place and procurement.

Findings
The FMGR concluded a number of things:

  • The reappointment of senior personnel was sound, and followed the appropriate guidelines and policies set out by the trust,
  • The process of reappointment was well noted in the governance meeting minutes.
  • The ESFA did however state that despite the compliance for reappointment, they have particular concern over the communication within the trust between the central staff and individual academies.
  • The ESFA have also raised concerns over the financial integrity of the trust after uncovering an in year deficit of £0.9 million and a cumulative deficit of £4.99million.
  • Other financial issues also arose, with irregular expenditure, budget amendments, inappropriate fund allocation and lack of comprehensive financial reporting being the most significant.

Actions Taken
Acting on these issue DRET have put a number of action plans and policies in place, one of which being the ‘Shared Services Project’ which aims to distribute funds to individual academies, back office functions and the central team effectively. This is forecasting a £4.6million recovery over the next 3 years.

Important Messages

  • Communication between central staff and the individual academies is essential, this helps prevent any confusion about changes to senior personnel and keeps academies informed about any changes, especially those that concern them.
  • Taking comprehensive minutes of meetings is very important, if your trust is subject to any reports or allegations these minutes can be used as evidence to prove you have been compliant with regulations and helps with continuity should there be big changes in the board of trustees or other governing bodies.
  • Reappointment of governors and senior trust staff is a highly regulated process, each trust has its own policies for reappointment and these should be followed and reported throughout the process to avoid any misconceptions or concerns arising.
  • If your trust is subject to investigation by the ESFA, it is key to remember that FMGR’s are there to help you improve the trust and ensure the running of the trust is efficient. They will also be able to provide you with suggestions and procedures to help get the trust back on track.

Financial Management and Governance Reviews (FMGR)

FMGR’s are carried out by the Education Skills and Funding Agency (ESFA) in response to concerns raised about an academy or academy trust. An FMGR can also be recommended by OFSTED in order to improve the rating of the academy. The aim of the review is to aid the academy’s governing body in becoming more skilled, learning to prioritise effectively and understand the policies and regulations that come with running an academy.

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