From 1 April 2019, academy trusts are required to declare a related party to the ESFA in advance of accepting goods or services with that supplier. Academy trusts are also required to seek authority from the ESFA for any related party expenditure that exceeds £20,000 during the academic financial year. It is important to understand what constitutes a related party transaction and the additional reporting requirements expected. This information assists in providing the key points for consideration to those it may affect.
What is a related party transaction?
A related party transaction is any transaction between an academy trust (or ‘transacting entity’) and a member, trustee, member of the senior leadership team, any close family members or any organisation connected to the above individuals where the individual can exert control or significant influence over the transacting entity.
Any related party engaged by the academy trust should provide their goods and services ‘at cost’. The ‘at cost’ requirements limit related party suppliers to be reimbursed for any resources used in the supply of the goods or services to the academy trust but not to make a profit on the supply.
How is related party information captured?
Members, trustees, and the senior leadership team should all complete a document called a ‘register of interest’. This document is a self-evaluation document that details any other business interests (including employment) that an individual or their close family may have outside of the academy trust.
This should be corroborated by the academy trust by completing relevant searches on Companies House to ensure that the register of interests is complete. Trustee meetings should always include an agenda item to provide those in attendance with the opportunity to update their register on a timely basis. Those in the senior leadership team should be encouraged to make changes as and when they arise.
Declaring a related party transaction
An academy trust must access the ESFA portal (IDAMS account) to declare or seek approval for a related party transaction. This is the same portal used to complete the Annual Accounts Return, Budget Forecast Return, and Land and Buildings Return.
Each individual related party should be input as a separate record on the IDAMS portal. Once the standing data has been completed it should then be permanently saved to avoid the need to repeat on an annual basis.
The information required for the supplier record includes the supplier’s name, address and company number. The academy trust must provide a statement that best describes its relationship with the supplier and provide documentary evidence that there is an agreement with the supplier for them to provide goods or services at cost.
Details of the transactions undertaken with the supplier will also need to be disclosed on the portal. This will include a short description of the goods or services provided, the proposed cost and the start and end date of any contract or agreement.
Seeking approval for a related party transaction
Prior to an academy trust accepting any contract or agreement with a supplier in excess of £20,000 during the academic financial year, it will require approval from the ESFA.
In addition to providing the information above, the academy trust will need to demonstrate it has followed its procurement policy and obtained value for money by using the related party. This will be through providing evidence of a fair tender process and board minutes to evidence why the related party is the preferred supplier.
The academy trust will also need to demonstrate how it plans to manage any conflict of interest with the related party. Lastly, a copy of the proposed contract must be uploaded to the portal.
Once the information has been submitted, the ESFA aims to make any decision on the approval within ten working days.
Academy trusts associated to a Diocese which provides essential functions to the trust are deemed to meet ‘atcost’ requirements. The ESFA does not require any prior approval of these functions. However, it will still need to be declared as a related party and evidence of the agreement will be needed for the services provided.
Trustee or key management personnel remuneration
The above reporting requirements do not apply to contracts of employment for those who work within the academy trust, however, salaries should be appropriate to the individual’s skills and experience.
Income from related parties
Academy trusts do not currently need to declare donations or income transactions with related parties on the online portal. The ESFA will review the approach for reporting these transactions in September 2019.
Third party related transactions
Guidance produced by:
James Taylor, Senior Audit Manager, Cooper Parry
Hayley Dunn, ASCL Business leadership Specialist