Due diligence

From Leader Summer Term 2019 issue

An important element of forming, joining or merging an academy trust is to ensure that a comprehensive due diligence process has been undertaken. This way, says Hayley Dunn, schools can reduce, manage or avoid any pitfalls.

The number of new single academy trusts is stagnating as Regional Schools Commissioners (RSCs) are keen to see schools wanting to be academies doing so in groups rather than individually. As a result, the number of schools in medium and large multi-academy trusts (MATs) is growing. An important part of forming, joining or merging an academy trust is undertaking thorough due diligence. In February 2019, the DfE released new guidance, Due Diligence in Academies and Maintained Schools, aimed at governing bodies, local authorities and academy trusts.

The guidance suggests a useful two-stage approach to due diligence, first utilising a triage type method to see if it is worth investing time and resources in a more detailed exploration:

Stage 1: Includes looking at educational performance, Ofsted reports, financial data, admissions, capacity, pupil numbers, schools’ demographics and Pupil Premium.

Stage 2: Includes a detailed analysis of the issues and the improvement plans to address these issues. It should also include a detailed look at leadership and governance, staffing, curriculum design and delivery, software, specialist provisions, audit reports, financial information, safeguarding, fraud, complaints, contracts, land and buildings. These suggestions aren’t an exhaustive list but do give an indication of the key areas to review.

For maintained schools, it is important to remember that where there is a choice about conversion, that is, the freedom to choose to form a new MAT or join an existing MAT, a comprehensive due diligence process can often be helpful to ensure that the best decision is made. This isn’t a process purely for growing MATs. 

The due diligence process enables schools to identify potential strengths, weaknesses, opportunities and threats. Knowing this information can help schools to decide whether, on balance of all factors, forming or joining a MAT will be a success. By understanding and taking a detailed look at the risks, it allows for the opportunity to analyse which can be reduced, managed, shared or avoided. Key areas of business risk in schools can be sub-categorised as follows:

  • Governance
  • Operational 
  • Financial
  • External factors
  • Fraud
  • Compliance with law and regulation
  • Horizon-scanning: what could impact in three to five years’ time

Before undertaking due diligence, schools need to make available sufficient time, capacity and resources. And when they begin the process, they need to be thorough in their investigations because any decisions made will have a long-term and lasting impact. 

Setting up a working group to undertake the due diligence process can spread the workload and make use of a variety of skills and experience from within the school, such as that of the headteacher, governors/ trustees and the business leader. It is also helpful to appoint a project manager to coordinate and manage the process and coordinate the working group. However, it is important to take into account existing demands on staff time and whether staff have the capacity to complete the additional work. 

Depending on the issues identified, schools may also need to engage external expertise such as legal, audit and HR. Beware of complex issues that may take more time to deal with and that may require specialist input, such as private finance initiatives (PFIs), land and buildings and HR issues. The time and cost of undertaking thorough due diligence should not be underestimated, particularly if there are challenging issues like these to deal with. It is also important to ensure that the process is undertaken in a clear and transparent manner.

Once the conversion process has been completed, there is no going back. The options are very limited, with possibly the only option available being to be re-brokered to another trust. Therefore, it is well worth taking a timely, methodical approach to ensure the best decision can be made.

Hayley Dunn

ASCL Business Leadership Specialist

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