Source · Select Committees · Public Accounts Committee
Recommendation 13
13
The ESFA explained that, in looking at an academy trust’s reserves position, an important question...
Conclusion
The ESFA explained that, in looking at an academy trust’s reserves position, an important question was how much the trust had designated for capital works, school improvement and projects to take on a new school with challenges. If the amount left after that was more than 20% of income, it would consider the reserves to be excessive for the level of risk in the academy sector, which is low. The ESFA told us that its staff, combined with the regional schools commissioners, challenged excessive reserves, particularly if there were educational outcome issues, and that action tended to result in reserves being worked down.29
Government Response
Not Addressed
HM Government
Not Addressed
2: PAC conclusion: The large reserves that some academy trusts are building up mean that a significant amount of funding is not being spent on educating pupils currently in school. 2: PAC recommendation: The Department should: • write to us, within one month of this report being published, with details of the specific actions it has taken where it has concerns about academy trusts holding significant reserves; and • investigate those academy trusts with reserves equivalent to more than 20% of their income to establish whether the reserves are justified (including the extent to which they are designated for specific purposes), and write to us within six months with an update on the results of this work and any action it plans to take. 2.1 The government agrees with the Committee’s recommendation. Target implementation date: July 2022 2.2 The department wrote to the Committee on 23 March about academy trusts holding large reserves. 2.3 The government agrees that academy trusts should be using their resources for the benefit of their pupils through prudent financial planning. The Academy Trust Handbook requires trusts to have a reserves policy, and a clear plan for managing long term substantial reserves, in their annual accounts. In response to the Committee’s recommendation, the department will take forward two activities: • it is further strengthening the data it requires from academy trusts and its ability to test and challenge the robustness of their financial reserves plans. The department is planning to use the next Budget Forecast Return (BFR) in July 2022 to seek information from trusts with reserves over 20% of income about their plans for these funds. Using this existing return should reduce any burden on trust staff in submitting this additional information and enable the department to link it directly into existing ways of working, and • it is exploring further guidance to help academy trusts strike the right balance between holding sufficient reserves to ensure their schools’ financial health and the ability to fund significant future investment, without holding back too much that could otherwise be used to benefit current pupils. Through this process, the department will build on the existing Charity Commission guidance and set out potential parameters, alongside good practice, with clear expectations of academy trusts. The department will engage with stakeholder groups in developing this guidance to ensure it takes account of a wide range of trust views.