There have been many reports about related party transactions, expenses and high pay in academy chains in recent days. There are lots of reasons this is happening but the best way to help stop it is to get the regulatory framework right.
The academies financial framework was lashed together from the companies act, the charities regulations and common law (in the form of the Funding Agreements), supplemented by the Academies Financial Handbook (the theoretical bible). The problem with the AFH is that it is too fond of the “should” and not liberal enough with the “must”. It expends too many words on “best practice” and not on enough on “this is how you will do it”.
The overall approach also errs towards the Companies Act too much – the Companies Act is the legal framework primarily for private capital. Academy Trusts are custodians of public funds. The rules they operate under need to be different. And they can easily be. All that needs to happen is to beef up the language in the AFH. This is tied to the funding agreement. On page 1 the AFH states – “Compliance with the handbook is a requirement in trusts’ funding agreements with the Secretary of State.” You don’t follow the AFH, you don’t get the money. End of.
Last night I tweeted a few suggestions about changes around related party transactions and expenses. They are first thoughts.
These are a quick starter for ten. I have written more about some of the regulation changes I would like to see previously, here. The point here is not that these are the only (or necessarily the best) changes. The point is that changes are easy to implement.
It is not beyond the collective wit of all involved to arrive at a sensible set of regulations that provides both financial freedom for Trusts to operate and to guarantee financial probity. But this can only happen if those writing the regulations actually want it to happen and frankly I am starting to lose confidence that this is really the case. Or it may simply be that they lack either the capacity or the capability to do this. Again, my confidence level on this is low. The recently inculcated anti-expert bias in the department and the bunker mentality that appears to have developed is not helpful in this context.
They need to move fast on this. They will no doubt be hammered again soon with another round of academy accounts to be made public soon. They need to find a way to get out in front of that with a new set of regulations for the coming year.
If they need any help, who they gonna call?