Related Party Transactions
5th Nov 2014
Related Party Transactions
Northern Education Trust?s response by Les Walton CBE, Chairman, Northern Education Trust.
Related party transactions (RPTs) 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.
In the case of the Northern Education Trust (NET), it was as a direct result of the compelling evidence that our sponsors, Northern Education Associates (NEA) were doing such an impressive job of improving the education prospects for young people in Bolton, that Bolton Council asked us 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.
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.
However, the feelings engendered about the ongoing relationship that can exist between a trust and its sponsor is somewhat less clear-cut.
The need for RPTs between sponsors and the trusts they manage is 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.
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 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 no-profit basis, but as a former community head teacher, director of education and principal of a further education college, in my opinion, we are under a much more arduous regime than is seen in the maintained schools sector.
So with the aim that all our academies should become self-sufficient, we believe we are the first multi-academy sponsor to have removed all such related party transactions between ourselves and our sponsor and we achieved this with effect from September 2014 ? only two years since our launch.
We have implemented this new way of operating in the 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.
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 but nationally, the RPT subject could well attract ongoing discussion, quite rightly in my opinion, within central government circles.
Peter Lauener, chief executive of the Education Funding Agency, has the final word:
?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.?