Budget 2016 - A wake up call for school governors?
21st March 2016 by Fiona Hotston Moore
Whilst we knew what was coming for schools in this Budget there can be no doubt now about the Government's commitment to forcing all schools into academy status. All schools must be an academy by 2020 or failing that there must be a process started to convert by 2022.
Due to this, the role of local authorities in funding will cease in 2019-20 following the introduction of the national funding formula in 2017-18 which is designed to distribute higher levels of funding to the areas with the highest need. It is proposed that the formula will have a base amount of funding for each pupil which will then be uplifted as applicable based on three factors:
- Additional needs – for example pupils with low prior attainment or those requiring English lessons;
- School costs – the fixed costs which the school has to meet and also the proximity of the school to the pupils (i.e. rural)
- Area costs – to ensure areas with the highest costs receive an appropriate weighting
Governors of schools yet to convert must now consider how they would like to proceed whilst the choice sits with them. They can convert themselves into a single academy or they can join an existing Multi Academy Trust (MAT) such as a faith sponsored MAT or one of the larger MATs. Existing academies and MATs must also decide if they wish to expand by taking on more schools or merging with other MATs. The government has made it clear that they do expect most academies to be in a MAT rather than functioning as independent academies.
The Government feel that the growth of MATs will improve the quality of governance going forwards, which is illustrated by the drive towards using professionals on the boards of MATs. The Government envisage parents no longer being a requisite of governing bodies albeit there must still be a route for the school to engage with parents. In theory this should provide a wider pool of talent for selecting governors.
Inevitably schools taking the decision whether to convert or join a MAT early will be rewarded with a greater choice. There is also a risk that the current funding incentives attached to conversion may be reduced in the future.
The decision regarding the future route rests with the governors, providing the school is not under performing. Governors must ensure appropriate legal advice is received and also undertake appropriate financial due diligence (FDD). Often schools and MATs do not have adequate in-house resource to perform FDD to the required level of detail. The Government supports the use of external advisers to ensure complete objectivity and thoroughness is achieved.
While in no way a complete list, a few of the financial due diligence procedures would include:
- Review of financial performance for the previous three years in terms of income and expenditure as well as capital projects.
- Review of existing financial processes, the internal finance team and financial controls.
- Consideration of revenue surpluses and deficits. Surpluses need to be agreed with DfE and will normally be paid to the trust post conversion. Deficits would normally be repayable however the DfE is open to discussion about a waiver of the deficit and also may consider funding restructuring costs particularly where this might be an obstacle to conversion.
Ensors experienced corporate finance and forensics team can assist you with financial due diligence giving you peace of mind that there will be no nasty financial surprises down the road. Several of our Ensors partners are themselves members of MAT and academy governing bodies and bring a wealth of sector expertise as well as financial acumen.
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