Academies should take action in in order to comply with the new regulations set by the Education and Skills Funding Agency as part of the AFH (Academies Financial Handbook) which was brought in on the 1st April 2019.

The Academies Financial Handbook (“AFH”) provides that from 1 April 2019 Academy Trusts are required to report all transactions with related parties to the Education and Skills Funding Agency (“ESFA”) in advance of the transaction taking place, using an online form.

What are related party transactions?

Paragraph 3.10.12 of the AFH provides detailed information on what might constitute a related party transaction. Typically it will involve a transaction made between an Academy Trust and an individual or company connected to a Member or Trustee of the Academy Trust. Services do not include contracts of employment with the Trust as permitted by the Trusts articles of association or the Charity Commission.

What do Academy Trusts need to do?

Academy Trusts will now need to think even more carefully before entering into a related party transaction.For transactions on or after 1 April 2019, Trusts are required to obtain the ESFA’s prior approval for transactions which:

  • Are deemed novel, contentious and/or repercussive;
  • Involve a contract exceeding £20,000; or
  • Involve a contract of any value that would mean the total value of contracts with the related party exceed £20,000 in the same financial year; or
  • Involve a contract of any value if there have been contracts exceeding £20,000 individually or cumulatively with the related party in the same financial year.
    Such transactions are reported to the ESFA through an online from.

“At cost” requirements

In addition to the reporting of related party transactions, subject to limited exceptions, a Trust must pay no more than cost for goods and supply of services provided by related parties which exceeds £2,500 cumulatively in any one financial year. Note that contributions made by an academy to its diocese for services provided in association with securing the Trust’s religious character and ethos is regarded as meeting the “at cost” requirement.

What else do Academy Trusts need to consider?

Trustees are under a duty to avoid conflicts of interest and must have regard to the requirements of the Trust’s articles of association and the AFH to effectively deal with potential conflicts of interest. Trusts are required to keep registers of interest capturing the relevant business and pecuniary interests of Members, Trustees, members of Local Governing Bodies and certain senior employees. The AFH require Trusts to publish on their websites the relevant business and pecuniary interests of Members, Trustees, Local Governors and the Accounting Office. Trustees are also encouraged to read the Charity Commission’s guidance on managing conflicts of interest and CC29 “Conflicts of interest: a guide for charity trustees”.

If you require any advice on what constitutes a related party transaction, on how to manage potential conflicts, or if you wish to arrange an in-house training session for Trustees in relation to the legal duties of Trustees, then please contact Mark Honeywell.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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