Trust & Integrity - Northern Education Trust and Related Party Transactions
15th Aug 2014
Trust & Integrity - Northern Education Trust and Related Party Transactions
By Les Walton CBE, Chairman, Northern Education Trust
From the very beginning the Northern Education Trust was set up for the benefit of children and young people and their families often in areas of some deprivation and the Trust has set itself high standards for integrity and transparency in its operations.
In recent months the relationship between academy trusts and their sponsors have been under scrutiny and questions have been asked about the probity of financial transactions between them.
The Government has made it clear that such transactions (called Related Party Transactions or RPTs) are allowed within strict guidelines, but the Northern Education Trust (NET) has acted rapidly and has decided to go above and beyond the guidance and to stop all RPTs between its sponsors Northern Education Associates (NEA) from September 1st 2014 to make sure that there can be no doubt that it operates to the highest standards of accountability.
Here Les Walton, the Chair of the Northern Education Trust, explains the background to this decision, outlines the reasons the Trust was set up and comments on the relationship between trusts and sponsors.
Principles and Governance
At the Northern Education Trust we uphold our principles very dearly and our chairs and board members are to be congratulated for their combined performance. We have grown from a single academy at Kearsley in Bolton to a multi academy trust with 18 primaries and secondaries in two short years.
All our academies sign up to clear values when they join and our success, together with our aim to provide excellent opportunies for our students and to operate with good governance and to clear standards is reflected in the comments of Peter Lauener, the Chief Executive of the Education Funding Agency:
?I have complete confidence in the integrity of Northern Education Trust as a successful academy trust with a clear focus on providing the best education for the children and young people in NET academies, for supporting the communities within which the academies sit and for managing their trust as efficiently and effectively as possible. NET have always set the highest standards for governance and I would always look to Les Walton and his fellow trustees to set the benchmark for the way they manage and lead the academies in their care. They comply with the standards we set for all academy trusts but they often go further in pursuit of better governance and they lead the way for others to learn from the approach they take.?
Northern Education Associates was set up to provide high-quality education support to Local Authorities and to schools and academies across Northern England and it was as a direct result of the compelling evidence that NEA were doing such an impressive job of improving the education prospects for young people in Bolton, that Bolton Council asked it to sponsor the then George Tomlinson Comprehensive School back in 2009.
When Bolton Council suggested Northern Education might sponsor a second academy, this time a failing primary school in 2010, it was clear we would have to form a multi-academy trust ? which resulted in the formation of NET in 2012 and its subsequent growth in other areas in Newcastle, Gateshead, Northumberland, Stockton on Tees, Hartlepool , Halifax and Bradford.
When establishing NET it was absolutely essential to utilise the expertise of NEA as the sponsor organisation. In fact NEA expertise was the fundamental reason why local authorities and the DfE encouraged us to become an academy sponsor and in the initial stages of the development of the Trust we relied heavily on the skills and experience of NEA?s staff and leadership team with the inevitable result that there were financial transactions between the Trust and NEA. When doing this we were keen to be open and transparent and to comply with government guidelines.
RPTs and Integrity
Related party transactions continue to be a regular and arguably unavoidable aspect of day-to-day operations for most multi academy trusts ? but they undoubtedly have the potential to cast long shadows on the perceived integrity of the academy model and nationally, the RPT subject could well attract ongoing discussion, quite rightly in my opinion, within central government circles.
However RPTs are still allowed between sponsors and the trusts they manage and this was was reinforced by the recently published government response in the Treasury Minutes, September 11, 2014, which reports:
?The agency?s (EFA) current policy is to permit related party transactions (RPT), which pass rigorous tests set out in the Academies Financial Handbook. There are no comparable sectors of public life of which the agency is aware where these types of transactions are completely banned. A ban from academies would have unwelcome consequences, such as placing restrictions on school improvement activity which takes place between trusts; and preventing Church diocesan education authorities from providing support to their academy trusts. The propriety of supplier relationships in these cases is protected by the scrutiny of independent auditors.?
With the negativity surrounding various public sector expenses scandals that have hit the headlines recently and the need to ensure best value for the public purse, the whole subject of RPTs and how some Trusts sub-contract various aspects of their operations, has the potential to run and run.
The NET Response
As a forward thinking Trust, we had been concerned about this aspect of the academy model for some time when we advised the DfE on May 1, 2013 that we were applying our own external auditors? guidance to ensure that any RPTs were ?at cost?.
From this time onwards we also provided a great deal of support to the DfE in relation to discussions about ?at cost transactions? and protocols for procurement. Additionally, when we actually introduced our own protocols for dealing with RPTs in May 2013 this was some five months before the DfE Guidance was issued in October 2013.
Our objective in taking this step was to ensure that the support our sponsors NEA had given to the Trust was on public record and had been recorded as an RPT in our accounts (the impact of this support had in reality been significant because all of our best people were being utilised without any benefit to the company).
One might argue that the rules surrounding the award of work by academies to connected parties are relatively clear. These rules, outlined in the articles of association of the academy and the Academies Financial Handbook are set to prevent the award of work to a connected party with anything other than an academy?s best interests at heart.
Additionally, the new rules applicable from November 2013 extended requirements for transactions with connected parties to ensure that they are on a non-profit basis, but as a former community head teacher, director of education and principal of a further education college, in my opinion, we needed to go further and to actively demonstrate our standards by removing all RPTs between our sponsors and the Trust.
We believe we are the first multi-academy sponsor to have removed all such related party transactions and we achieved this with effect from September 2014 ? only two years since we became a multi-academy trust.
We have implemented this new way of operating in the short space of just 12 months because we want the Trust to be a self-managing autonomous organisation not dependent on a sponsor for the provision of any services - the public perception of trust chains has been a factor in our decision to take this final step.
We are well aware of the conflicting views surrounding the RPT issue and how it could have an unintended adverse effect on the well-meaning majority of academies and their governing boards. We believe that academies do need more guidance as to what to do in these circumstances and we as a Trust have provided support to governing boards in other trusts. But in the meantime we believe by taking this step we have demonstrated the commitment of the Northern Education Trust to clear and transparent operations.