Governance Pitfalls 21st June 2017

Housekeeping

Agenda Introduction - Laura Ambrose, Haslers Legal – Graham Burns, Stone King Financial – Michael Watts, Haslers Q & A

Setting the Scene – Recent Publications January 2017 - DfE Updated Governance Handbook Core Role & functions of the Governing Board 6 key features of effective governance January 2017 - A Competency Framework for Governance Strategic Leadership Compliance Evaluation Accountability Structures People Knowledge Skills & effective behaviours

Why is Governance Important? Financial Notices to Improve 55 FNTI issues since 2014, 15 now closed Main issues: Going Concern Governance

The Pitfalls of Governance Graham Burns Partner Stone King LLP

Introduction to Stone King Specialist law firm with a focus on serving schools and charities National market leaders in advising schools in Chambers Guide to the Legal Profession and Legal 500 Over 30 years’ experience in advising state schools on a daily basis National network of over 40 legal specialists advising on all aspects of law including education, charity, commercial property, construction and employment Advised on the establishment of over 1000 academy formations

Overview Understanding the different roles of members and trustees in an Academy Trust. Compliance with an Academy Trust’s legal obligations (e.g. Articles, Funding Agreements, Academies Financial Handbook and Statute). Correct procedures for decision-making. Declarations of Interest and managing conflicts.

UNDERSTANDING THE DIFFERENT ROLES OF MEMBERS AND TRUSTEES IN AN ACADEMY TRUST

Legal Framework

Role of Members Academy Trust = a company limited by guarantee (CLG) – a CLG does not have shareholders, instead has members Members each provide a £10 guarantee if the company is wound up. Key role in an Academy Trust – appointing and removing Trustees (appointment rights will depend on the Academy Trust structure). Other powers of members: Appointing/removing additional Members (depending on the Academy Trust structure); Power to change the company name and/or company Articles of Association (Company law) Appointing Academy Trust’s auditors (Company law). Governance Handbook – members to have “eyes on and hands off” approach – avoid overstepping powers

Role of Trustees Trustees have the responsibility of conducting the business of the Academy Trust. Charity law “Trustees” – Company law “Directors” Trustees are responsible for: setting the strategic vision of the Academy Trust; holding the leadership to account for educational performance and performance management of staff; and overseeing the financial performance of the Academy Trust – ensuring money is well spent. DfE preference that a majority of Members are not also Trustees Collectively referred to as “The Board of Trustees” or “The Board”

COMPLIANCE WITH AN ACADEMY TRUST’S LEGAL OBLIGATIONS

Articles of Association The Articles of Association or “Articles” are the constitution of the Academy Trust Regulate how the Academy Trust manages its formal business, e.g. setting out: the charitable objects of the Academy Trust – i.e. what the Academy Trust can do; the Membership and Board structure and requirements e.g. under the current DfE model Members cannot be employees; the procedures to appoint/remove Members and Trustees; the procedures required to authorise a Trustee/Member benefit; the rights of the Trustees to appoint committees (including Local Governing Bodies); Important to understand the Articles and act within the procedures set out.

Funding Agreements An Academy Trust is responsible for establishing, maintaining and running the Academy/Academies in accordance with the terms of its Funding Agreements. The Funding Agreements are contracts between the Academy Trust and the Secretary of State (“SoS”) – for a MAT: a Master Funding Agreement (“MFA”) – setting out general governance and funding obligations in relation to academies within the MAT; and separate Supplemental Funding Agreements (“SFAs”) for each academy within the MAT – setting out the characteristics and funding obligations of the individual academy. Failure to comply with the terms of the MFA and/or SFAs may result in their termination (although in practice academies will often be transferred to another MAT rather than the SoS terminating an SFA).

Academies Financial Handbook Sets out the principles of financial management, control and reporting requirements that apply to Academy Trusts Compliance with the Handbook is a condition of an Academy Trust’s Funding Agreement. If an Academy Trust is in breach of the Handbook it is in breach of the Funding Agreement Strengthens the requirements on Academy Trust governance Consents Whistle-blowers and ESFA investigations

Statute, Regulations and Guidance Academy Trust is… a company – company law requirements an exempt charity – charity law requirements running educational establishments – education law requirements an employer – employment law requirements a public body – public law, freedom of information, procurement requirements etc also subject to other legal obligations e.g. health and safety, data protection, compliance with contracts, property obligations (e.g. under leases), insurance obligations etc. Keep up to date with relevant Guidance

Key Compliance Issues for MATs Articles/Funding Agreement compliance Academies Financial Handbook/Accounts Direction compliance Governance Managing conflicts of interest Transactions with “Related Parties” Procurement compliance Risk Management Safeguarding

CORRECT PROCEDURES FOR DECISION-MAKING

Member & Trustee Meetings Role of the Members and Trustees is distinct - different procedures required for Member and Trustee meetings – do not mix up! The type of decisions being made will determine the type of meeting necessary Members’ meetings = Annual General Meetings/General Meetings Trustees’ meetings = Board Meetings Member and Trustee meetings should be separate, but may run consecutively Check Articles for relevant procedures and requirements for different type of meetings e.g. relating to notice, agenda, quorum, voting, proxies (members’ meetings only), chairing etc. .

Written Resolutions Role of the Members and Trustees is distinct - different procedures required for Member and Trustee meetings – do not mix up! The type of decisions being made will determine the type of meeting necessary Members’ meetings = Annual General Meetings/General Meetings Trustees’ meetings = Board Meetings Member and Trustee meetings should be separate, but may run consecutively Check Articles for relevant procedures and requirements for different type of meetings e.g. relating to notice, agenda, quorum, voting, proxies (members’ meetings only), chairing etc. .

Administration & Consents Minutes of meetings – Ensure accurate minutes are kept to record decision making Companies House – be aware of filing requirements ESFA - be aware when notification and consents are required Charity Commission – be aware that certain limited decisions require consent e.g. certain changes to the Articles and substantial property transactions Importance of Clerk/Company Secretary – training available

DECLARATIONS OF INTEREST AND MANAGING CONFLICTS

Managing Conflicts of Interests A Conflict of Interest is any situation where your personal interests could, or could appear to, prevent you from making a decision in the best interest of the Academy Trust. …. What does this mean? …. Does it reflect negatively on the integrity of the Director/Trustee? How to manage and adequately address Conflicts of Interest and who should comply? Articles of Association Academies Financial Handbook - maintain a register of interests Charity law - IDENTIFY- DECLARE- PREVENT -RECORD Declaration of Interest Conflicts of Interest Policy

Register of Interests Academies Financial Handbook (clause 3.1.16) provides that Academy Trust’s are required to hold a register of interests. The register must capture relevant business and pecuniary interests of members, trustees, local governors of academies within a MAT; The register must identify any relevant material interests arising from close family relationships; Board of trustees should keep their register of interests up-to-date through regular review; and Trusts must publish on their websites relevant business and pecuniary interests of members, trustees, local governors and accounting officers.

Articles of Association An Academy Trust’s Articles of Association provides further protection and mechanisms to deal with conflicts of interests. Article 97 of the Department for Education model provides: “Any Trustee who has or can have any direct or indirect duty or personal interest (including but not limited to any Personal Financial Interest) which conflicts or may conflict with his duties as a Trustee shall disclose that fact to the Trustees as soon as he becomes aware of it. A Trustee must absent himself from any discussions of the Trustees in which it is possible that a conflict will arise between his duty to act solely in the interests of the Academy Trust and any duty or personal interest (including but not limited to any Personal Financial Interest).”

Stone King – Contact Details If you have any questions, please do get in touch…. Graham Burns Partner 020 7324 1760 07786 268581 gb@stoneking.co.uk

Financial Notices to Improve (FNTI’S) No. of Academies 25 issued in 2016 c. 6,300 7 issued in 2015 c. 5,300 10 issued in 2014 c. 4,500 What is the driver for the increase?

FNTI – Why the Increase? Governance Issues Increasing budgeting constraints – funding cuts etc, Increased number of academies

FNTI’S – Some of the Issues Audited accounts not submitted on time Cash flow issues / weak financial positions Poor financial management Ineffective budget setting and monitoring/variance analysis Lack of internal controls Related party transactions

FNTI’S - Consequences Delegated authority revoked Funding agreement termination Re-brokerage Implement a change in governing body Additional oversight/review Full review of all previous transactions

What does additional oversight look like? FNTI’S What does additional oversight look like? Regular provision of management accounts plus commentary in a timely manner External review might need to be commissioned Submission of Minutes Detailed plans about future financial viability/recovery plans

Finance Committee - Tasks Challenge the school business managers/finance team Review all of the financial information Consider benchmarking Ensure deadlines are met Tackle issues early

Challenging the academies finances Finance Committee Challenging the academies finances Once converted a different role EFA always reminding Governors of the role What does the Finance Committee need to do?

Finance Committee - Tasks Strategic decisions on MAT – Should you merge; take on new schools? Consider other income streams/utilisation of assets/sharing of resources Need to review risks Instruct internal scrutiny audits Consider overall strength of governing body/finance team

Finance Committee Do you need a qualification? Need to be strong and challenge all figures Need a finance background Balance educational needs and financial needs!

Haslers Corporate Finance Contact details Michael Watts Partner DDI 020 8418 3350 Email Michael.Watts@Haslers.com