28 March 2019
The ESFA have released summary guidance for academy trusts to declare or seek approvals for related party transactions. This follows the change of rules that were announced in last year’s Academies Financial Handbook (2018) in an effect to reduce the occurrence of inappropriate transactions with connected parties and ultimately to reduce the risk of the misuse of public funds in the academy sector. The new online reporting aims to give ESFA, Parliament, taxpayers and other interested parties, assurance about the use of public funds.
Academy trusts must declare or seek approval using an ESFA ‘related party transactions online form’, which will go live on 1 April 2019. Academies will need an IDAMS account to use the new form.
Transactions up to £20,000 per year
From Monday 1 April 2019, for related party transactions up to £20,000 per year, academy trusts must declare to the ESFA their intention to enter into a new agreement with a related party before confirming the transaction with the related party supplier.
Transactions over £20,000 per year
Academy trusts must seek prior approval from the ESFA, where:
- a single contract or agreement with a related party exceeds £20,000; or
- a contract or agreement of any value means the total value of contracts or agreements with the same related party exceeds £20,000 in a financial year.
The fine print
These requirements relate to new agreements made with related parties on or after 1 April 2019. Academy trusts must declare or seek approval before confirming the service with the supplier. Existing contracts with suppliers will only need to be declared when the renewal date is reached and will be considered to be ‘new’ from then onwards.
We understand that transactions with subsidiaries of academy trusts will be included in these new requirements and if employees are seconded to trusts approval will only be needed if the employees are not on the trust’s payroll.
Academy trusts do not need to declare income transactions with related parties, including donations to the academy trust, between April and September 2019. The ESFA is expected to review this approach for reporting these income transactions before September 2019.
The ESFA’s summary guidance sets out more details on requirements for Church schools, certain information about the supplier and the details that will be needed for the online form and the process to be followed.
What you need to do
Trusts will need to provide:
- the name of the supplier
- the supplier’s address
- the supplier’s company registration number
- a short description of the goods or service
- details of the proposed cost
- the start and end date of any contract or agreement
Trusts will need to confirm on the declaration:
- the statement which best describes the relationship between the supplier and the academy trust
- that the supplier is listed in your academy trust’s register of interests
- that you have a ‘statement of assurance’ from the supplier
- that you have an ‘open-book agreement’ with the supplier
When trusts are seeking approval for related party transactions over £20,000 they will need to provide evidence of:
- how you agreed to the related party transaction. This may include minutes from meetings where the related party transaction was discussed and agreed, and records of any relevant discussions
- that your academy trust followed its procurement policy
- that your academy trust tested the market before making a decision
- show how you have managed any conflict of interest
Trusts will also need to upload to the ESFA a copy of the agreement or proposed contract.
What the ESFA has said
The ESFA is aiming to decide on approval requests within 10 working days.
On releasing the ESFA’s guidance Eileen Milner, ESFA Chief Executive said:
“Related party transactions offer a legitimate way for academy trusts to work when used following the principles set out in the Academies Financial Handbook. On occasion, they may even help save time and money. But we cannot allow a mis-use of public funds where academy trusts agree to inappropriate related party transactions. It is this behaviour that we need to stamp out through increased transparency and accountability.”
“This is the beginning of a process, not the end. I am grateful to everyone for all the help we’ve had in making sure our funds are spent where they should be – on ensuring our children get the best education they deserve.”
The ESFA’s summary guidance can be found here and the online form is expected to be live on 1 April.
Further information on the principles relevant to related party transactions can be found in section 3.10 of the Academies Financial Handbook. The relevant UK accounting standard Financial Reporting Council’s FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland defines what is meant by a related party and what needs to be disclosed in academy trusts’ financial statements.
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