Academies and Related Party Transactions

Related party transactions and academies have always been a contentious area for a number of reasons. It is sometimes perceived, particularly in news reports, that the Trustees are benefiting in some way from their position and not acting in the best interests of the Trust. In all likelihood, related party transactions are taking place because they represent best value for money for the services provided. Also, given the links that schools develop through their Trustees within the community, it is highly likely that there will be some connection between Trustees and local businesses.

‘At Cost’

In this year’s handbook, the requirements for the reporting and treatment of related parties have been further expanded, having developed over the past few years. The requirement for services exceeding £2,500 to be obtained ‘at cost’ has been in place since November 2013. As a reminder, Trusts should ensure that they have received a statement of assurance from the related party individual or organisation that their charges do not exceed the cost of the goods or services, and that the goods or services are provided on the basis of an open book agreement, including a requirement for the supplier to demonstrate clearly, if requested, that their charges do not exceed the cost of supply. Trusts should also consider whether they think it is necessary to request the demonstration of ‘at cost’ basis. Whatever the decision, all discussions and evidence should be minuted and filed. Ultimately, the Trustees are responsible for obtaining value for money and any decisions made need to be justified on this basis.

Reporting Related Party Transactions

In the 2018 handbook the ESFA has gone even further in the requirements for related party transactions.

From 1 April 2019, Trusts must report all transactions with related parties to ESFA in advance of the transaction taking place.  The transactions will need to be reported using an online form and Trusts will have to put procedures in place to ensure that all staff are aware of the requirements and who has access to report transactions.

Trusts must also obtain the ESFA’s approval for:

  • Transactions with related parties that are novel, contentious and/or repercussive.
  • A contract with a related party exceeding £20,000 or which takes the total value over £20,000 for the year.

Novel transactions are those of which the academy has no experience, or are outside the range of normal business. Contentious transactions are those that might cause criticism of the trust by Parliament, the public or the media. Repercussive transactions are those likely to cause pressure on other trusts to take a similar approach and hence have wider financial implications. It may not always be clear whether a transactions falls within one of these categories, but if in doubt the Trust should seek approval from the ESFA.

Related Party Staff

In the 2018 Accounts Direction, further guidance has been included for the situation where a member of a Trustee’s family is employed by the Trust. This is quite a common occurrence within the sector and something we often come across. The ESFA have taken quite a pragmatic approach. This disclosure doesn’t require details of the salary paid, but requires confirmation that they are paid within the normal pay scale for the role. Example wording is provided in the Coketown proforma accounts.

Given the contention in this area we can expect further guidance to continue to be released.

If you have any questions or if you would like to discuss your Multi Academy Trust with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Academies team.

This article originally appeared on the blog of our member firm, MHA Moore & Smalley.