Roles and responsibilities of academy trustees

Throughout 2023, Price Bailey’s Academies team will be hosting a series of Regulatory Insight webinars aimed at supporting academy trusts.

In a recent webinar, Tom Meeks, Head of our Academies team, explored the roles and responsibilities of academy trustees further, and as part of our second article in this series we explore their insights relating to roles of members, governors, directors and trustees in greater detail.

You can read our first article regarding the key legislation which governs the roles of trustees here.

What are the responsibilities of academy trustees according to the Companies Act 2006?

Academy trustees are both the charity trustees and company directors of the academy trust, and are therefore responsible for following certain guidance from the Companies Act 2006.

Under this Company Law, directors have a duty to:

• act within the powers of the articles
• promote the success of the Company
• exercise independent judgment
• exercise reasonable care, skill and diligence (the ordinary prudent person of business)
• avoid conflicts of interest
• not to accept benefits from third parties
• declare potential conflicts of interest (including close family members)

Charity law responsibilities

The Charity Commission have produced a helpful guide named ‘the essential trustee: what you need to know, what you need to do’. This document outlines the key responsibilities of trustees and be accessed here.

Charity law responsibilities are generally covered by 3 main duties, and these represent a specific legal responsibility a trustee has to follow as they are enshrined in the Charities Act 2022.

These include:

• a duty of compliance
• a duty of prudence, and
• a duty of care.

Duty of compliance

One of your legal responsibilities as an academy trustee will include complying with the charity law and requirements set forth by the Charity Commission. This includes, ensuring the Trust prepares reports, annual returns, and accounts as required by law.

Additionally, it is important to ensure that the Trust does not breach any of the requirements or rules outlined in its governing document and remains true to its charitable purpose and objectives.

Compliance with other legislation and regulations that govern the Trust’s activities, such as the Education Act and Master Funding Agreement, is also necessary.

It is crucial to act with integrity, avoiding any personal conflicts of interest or misuse of charity funds or assets. By adhering to these guidelines, charitable organisations can operate ethically and responsibly, ultimately benefitting the communities they serve.

Duty of prudence

A crucial responsibility for charity trustees, they must ensure that the charity remains solvent and uses its assets reasonably, in line with the charity’s objectives. Trustees must avoid activities that might put the charity’s endowment, funds, assets, or reputation at undue risk.

Additionally, trustees must exercise extra caution when investing the charity’s funds or borrowing funds for it to use. By fulfilling their duty of prudence, trustees can help secure the charity’s long-term viability and success.

Duty of care

Trustees are expected to exercise reasonable care and skill in their work, utilising personal skills and experience to ensure the charity runs efficiently. To avoid any breach of their duties or potential risks to the charity, trustees should consider seeking external professional advice when necessary.

This advice should be sought on any matters that may pose a material risk to the charity. By fulfilling their duty of care, trustees can ensure that the charity is well-run and that its operations are conducted with the highest level of competence and prudence.

Internal financial controls for charities

Internal financial controls play a crucial role in overseeing the financial performance of a charity and ensuring that funds are used effectively. The main aims of these controls are to safeguard the charity’s assets and manage potential risks such as conflicts of interest, loss, waste, bribery, theft, or fraud.

Additionally, these controls are designed to ensure that financial reporting is reliable and meets the necessary standards, while also ensuring that the charity’s trustees comply with relevant laws and regulations pertaining to finance. By implementing strong internal financial controls, charities can maximise their impact and maintain the trust and confidence of their stakeholders.

According to the Academy Trust Handbook, all academy trusts must have a programme of internal scrutiny to provide independent assurance to the board that its financial and non-financial controls and risk management procedures are operating effectively.

The audit and risk committee must:

• oversee and approve the trust’s programme of internal scrutiny
• ensure that risks are being addressed appropriately through internal scrutiny
• report to the board on the adequacy of the trust’s internal control framework, including financial and non-financial controls and management of risks.

Connected party relationships

Academy trusts and their trustees must be even-handed in their relationships with connected parties. For a comprehensive guide on clearly disclosing related parties and what comprises the disclosure requirements, you can read our guide here.

At cost requirements

Academy Trusts are required to ensure that they do not pay more than the cost of goods or services provided by certain parties, unless it is provided under a contract of employment. These parties include any member or trustee of the academy trust, and any individual or organisation connected to them. The ‘at cost’ requirement applies to contracts exceeding £2,500 in any one financial year, and any element above this must also be at no more than cost.

It is the responsibility of the academy trust to ensure that any agreement with such parties is properly procured through an open, fair process and is supported by a statement of assurance to the trust that their charges do not exceed the cost. Additionally, it is required to be based on an open book agreement, including the requirement to demonstrate that supplier charges do not exceed the cost of supply. Any agreement up to £20k must be reported to ESFA in advance, while those exceeding £20k in any given year must be approved by ESFA in advance.

Reserves policies

All of the safeguards put in place are also designed to help your academy trust protect their reserves. Every academy trust will have a reserves policy and broadly speaking it will be focused on one of the four following principles:

• “our current reserves are too low and this is how we intend to build them up to the required level”…
• “our reserves are at the right level and this is how we will maintain the status quo”…
• “we have significant levels or reserves earmarked for specific projects after which they will be held at more normal levels”…
• “we have more than we need and this is how we intend to go about using them to the best advantage of the Trust and its pupils”…

In recent years the ESFA appear to be applying more scrutiny to the last two reserves policies, and will mandate a plan to be submitted in future financial returns as to how your academy trust will use surplus reserves going forward.

As you may have gathered, there are many responsibilities and guidance that academy trustees will have to understand and abide to throughout their term. Our next Regulatory Insight article regarding the principles of good governance can be accessed here.