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MAT Development: hints, tips and resources for achieving financial sustainability

As the education sector experiences an ever challenging financial climate, many see multi-academy trusts as providing some form of solution through the economies of scale and efficiencies that they can potentially bring to their schools. Indeed, recent analysis from the Education Policy Institute showed that MATs generally spend less on running expenses and more on teaching staff than local authority schools. That is not to say that converting to become or joining a multi-academy trust presents a solution in itself. Academisation is – as we’ve said many times – no panacea and MATs’ success (as with all organisations) depends on a combination of strategy, expertise, carefully developed systems and processes, and a good dose of innovation.

There is a general consensus (through a range of research published so far) that multi-academy trusts that reach a ‘critical mass’ of six schools or more are well placed to go on to achieve financial efficiencies and benefit from economies of scale. However, not all are realising these efficiencies and benefits. The EPI report found significant variation in the amount spent per pupil on back offices costs by both medium (6-10 schools) and small (5 or less schools) sized MATs.

What this leads us to believe is that there is still a lack of learning and sharing of best practice across academy trusts. There is a real need for this. MATs are not immune during these financially challenging times and we certainly know from investigations conducted and published by the EFA that some MATs have struggled financially. At a time when all schools in England face real term cuts in funding per pupil (even after the introduction of the National Funding Formula), multi-academy trusts must be strategic in their planning, their use of systems and their resourcing in order to realise the potential they have to ‘weather the storm’ and protect the educational provision for children and young people.

So where do MATs begin in planning strategically to achieve efficiencies and economies of scale? Well, first of all, they need the right people on the bus – at both trustee level and in terms of their executive leadership – and to get the right systems in place. Government guidance states that the academy trust must have a chief financial officer (CFO), appointed by the trust’s board, who is the trust’s finance director, business manager or equivalent, to lead on financial matters. The recent competency framework for governing boards has also placed significant emphasis on the skills, experience and responsibilities of trustees and other governors in relation to finance – not least because financial oversight forms one of their three core roles (see our case study on recruiting trustees here).

Plan ahead and put robust, consistent, systems in place

MATs must plan strategically for their medium- to long-term efficiency and sustainability. On a very fundamental level this includes financial planning and budget forecasting for periods of up to 3 (or even 5) years. This planning should be carefully aligned with your vision for the MAT and also – as far as possible – look to anticipate changes in areas such as funding, curriculum reform, capital programme expenditure and significant changes in pupil numbers. Planning ahead ensures that MATs are less reactive, more resilient to change and well placed to mitigate the risks of incurring unforeseen costs and liabilities.

In a growing organisation, getting the right systems and processes in place from the outset is crucially important both for compliance and efficiency. As well as providing robust systems of financial control and administration(which can embed an emphasis on value-for money), we know that putting in place common systems across all ‘back office’ functions – including employment contracts, HR policies, health and safety and IT, for example – ensures less duplication of effort and more efficient resourcing. It is tempting (and sometimes legally unavoidable) for some MATs to work with the legacy of different systems across schools – however, it will sooner or later begin to drain your time, resources, and potentially hinder trust-wide oversight.

Sustainable geography

Geographical distance between schools has been shown to have an impact on resources. The closer the MAT’s schools are to the trust’s central office (and each other) the more efficient the use of resources tends to be (geographical distance between schools and clusters of schools is also a factor in ensuring educational standards through shared support, resources and CPD between schools). Some established MATs cannot do anything about the geographical distances between their schools – but technology can help to address some of the financial costs of travel, if not the impediment that long distances causes to ongoing school to school support and training.

Recruitment and resourcing 

Another key area for greater efficiency is recruitment. Many schools spend significant amounts of money on supply agencies, recruitment agencies and recruitment advertising. What the multi-academy trust model provides is an opportunity to pool resources in all these areas – potentially through negotiating better rates with suppliers, but (more creatively and strategically perhaps) setting up their own supply banks of teachers and their own recruitment portals. Multi-academy trust status certainly provides opportunities for becoming what we at Forum often describe as an ’employer of choice’, with MATs using their scale and reach to become an organisation that provides a rich mix of training, career development, professional networking, and additional employee benefits. If these elements are fostered and trusts develop a strong reputation as an employer of choice, trusts are able to lessen their dependency on external contractors to support recruitment.

Procurement

MATs must seek to create a culture and processes whereby they are routinely auditing contracts that are due for renewal across the trust’s schools to identify opportunities for tendering at scale where possible. In 2014, the DfE published a report (in PowerPoint format) on ‘What does a high performing academy sponsor look like?’[9], which found that a range of efficiencies are achieved by high performing sponsors across their chains, especially once they reach around 10 schools. These included achieving back office efficiencies in areas such as:

  • single recruitment processes
  • catering
  • printers and photocopying
  • purchasing of paper and books and supplies
  • software licence costs/cloud networks
  • utilities
  • centralised HR services and contracts

In determining value for money, MATs can test and benchmark themselves against schools operating in a similar context. Many trusts tend to do this by either using the Department’s benchmarking tool, or by direct comparison to other trusts.

Identifying and sharing in house expertise, and income generation

Identifying and sharing resources and expertise within MATs is also crucially important. MATs must seek to regularly audit the skills, expertise and experience of staff in order to know where specialist expertise sits across their schools. This expertise could, for instance, be in supporting pupils with EAL or managing curriculum reform, or it could be in back office areas such as marketing and communications or bid writing. Whatever the case, knowing your staff well could save thousands in training and specialist advice.

Income generation is an area that many MATs are still yet to fully explore. Whether it be providing specialist school improvement or training to other schools and MATs, or charging for the use of your sports facilities or catering services, the most financially savvy MATs will be looking at how they can generate income. in order to sustain their services and potentially reinvest elsewhere for children’s benefit. Some MATs may look to hire an individual – perhaps on a commission basis – who can work with leaders and specialists across the trust to identify and secure opportunities to provide services externally.

Drawing on these sources of guidance and information and our discussions with MAT leaders, we suggest that MATs consider some of the following actions in order to achieve financial sustainability and realise economies of scale:

  • Maintain sensible geographical distances between schools within your trust (or within its regional clusters)
  • Provide common ‘back office’ systems, policies and processes, where appropriate, to ensure less duplication of effort and more efficient resourcing
  • Routinely audit all contracts due for renewal across the trust’s schools to identify opportunities for tendering at scale wherever possible
  • Draw on expertise or resources within individual schools to serve the wider trust (e.g. excellent catering facilities, sports facilities or training rooms)
  • Identify opportunities for income generation – from providing specific support/expertise to other trusts to letting out space. Employ someone to generate income who is then able to ‘self-fund’ their role and more
  • Create a trust-wide teacher supply bank if possible. Consider how employing additional staff to provide back-fill (and additional capacity) would compare to current supply costs

MATs must make financial sustainability and efficiency a strategic priority. The National Audit Office (NAO) published its report on the financial sustainability of schools in December 2016 (https://www.nao.org.uk/report/financial-sustainability-in-schools/ ), where it recommended that, in respect of academies, the Education Funding Agency (EFA) should further develop its approach to oversight and intervention with a renewed focus on preventing financial failure. This oversight reflects the level of challenge that is potentially facing some academy trusts. Other MATs, however, are showing what is possible, and the system has a responsibility to share that learning and best practice to the benefit of all.

 

What resources are out there to help?

Schools financial health and efficiency

The DfE and EFA have, since January 2016, been adding information, tools and guidance to their collection on schools financial health and efficiency. Whilst these resources are not aimed specifically at academies, they include some ‘top tips’ from the EFA (https://www.gov.uk/guidance/schools-financial-efficiency-top-tips-for-financial-planning ) for strategic planning and efficiency in schools, including achieving value for money from teaching costs and support staff, sharing a skilled financial practitioner with other schools, and considering how schools can maximise their income, selling key skills to other schools and achieving income from other areas such as letting space.

More recently (24 January) the EFA has published guidance providing information for schools on making the most of financial review and self-assessment tools (https://www.gov.uk/guidance/making-the-most-of-financial-review-and-self-assessment-tools ). They have also produced a video where colleagues from the DfE and WISE Academies discuss some of the themes surrounding schools financial health and efficiency, covering benchmarking, sharing good practice, and the role of school business management within an academy trust (https://www.gov.uk/guidance/answering-questions-on-schools-financial-health-and-efficiency).

This section of the DfE website also provides a range of resources on financial management and efficient resourcing, which looks at school workforce planning, strategic financial planning, budgeting with a 3 to 5 year plan, the role of the school business manager, and maintaining good financial health (https://www.gov.uk/government/collections/schools-financial-health-and-efficiency).

There are a range of case studies, providing examples of how schools and academies have developed effective financial management, resulting in better educational outcomes for children and young people, including around strategic financial planning, staffing and timetabling, procurement and back office efficiency savings, skills and tools for managing school finance effectively, and curriculum based planning (https://www.gov.uk/government/collections/schools-financial-efficiency-case-studies)

Guidance for governors and trustees

The DfE and EFA have produced guidance for school governors and academy trustees, to support them in their key role of ensuring schools manage their finances efficiently. This guidance includes ‘top 10 planning checks for governors’ (https://www.gov.uk/guidance/schools-financial-efficiency-top-10-planning-checks-for-governors ), which senior staff in schools and multi-academy trusts will also find useful. The planning checks are:

  • Staff pay as percentage of total expenditure
  • Average teacher costs
  • Pupil to teacher ratio
  • Class sizes
  • Teacher contact ratio
  • Proportion of budget spent on the leadership team
  • 3 to 5 year budget projections
  • Spend per pupil for non-pay expenditure lines compared to similar schools
  • School improvement plan priorities and the relative cost of options
  • List of contracts with costs and renewal dates

Academies and academy trusts responsibilities 

The Academies Financial Handbook 2016 (https://www.gov.uk/government/publications/academies-financial-handbook ) is the latest version of the handbook produced by the EFA that describes financial requirements for academy trusts. It covers: roles and responsibilities; main financial and governance requirements; delegated authorities; and audit requirements. The section on main financial and governance requirements looks at financial oversight and the need for trustees and managers to have the skills, knowledge and experience to run the academy trust. The guidance states that the academy trust must have a chief financial officer (CFO), appointed by the trust’s board, who is the trust’s finance director, business manager or equivalent, to lead on financial matters. Academy trusts must prepare and monitor financial plans to ensure ongoing financial health, which includes budgeting, cash management, investments, income generation and financial reporting.

The DfE has collected together a wide range of resources on academy and academy trust finance and reporting, including budget forecasting, financial health checks, financial efficiency, and additional funding sources such as the regional academy growth fund, which can be found in the section on ‘academy and academy trust finance and reporting’[https://www.gov.uk/education/school-and-academy-financial-management-and-assurance#/education/academy-and-academy-trust-finance-and-reporting )

Financial sustainability and economies of scale

The Reform report ‘Academy chains unlocked’ (September 2016) suggests that efficiencies can be achieved through better staff deployment in larger chains and that these chains may be able to better attract and retain more highly skilled, productive employees because of the progression opportunities they offer. Also, as academy chains grow, so too should their ability to benefit from economies of scale and lower overall operating costs. However, the report also suggests that it is difficult to accurately assess the extent to which chains are currently achieving economies of scale. Respondents to the survey which informed the report suggested that in order to start benefitting from economies of scale, an academy chain must have between eight and 20 academies and between 2,500 and 7,500 pupils, with a mean response of 12 academies and around 5,000 pupils.

The DfE has published (December 2016) ‘Multi-academy trusts: good practice guidance and expectation for growth’[12], which includes a section on financial sustainability. It suggests that MATs are better able to plan and put in place efficient workforce structures, as well as drive savings in back-office costs and procurement. It also suggests that trusts that are sufficiently large (at least 1,200 pupils for primary trusts and 2,000 pupils for mixed or secondary trusts) will be better able to absorb cost pressures relating to the central overheads, drive value for money and be financially sustainable in the long term. It sets out 10 ways MATs ensure financial effectiveness:

  • Clear strategic planning is vital. Unless you know what your vision and objectives are, you cannot ensure that you are making the best possible use of your resources to deliver your vision.
  • Financial planning and forecasting look ahead on an at least a three-year (and often five-year) basis and reflects potential changes in circumstances, such as increases and decreases in pupil numbers or a New Funding Formula.
  • The MAT’s workforce is designed to support the effective and efficient delivery of the curriculum across all the schools in the MAT. Legacy structures or hierarchies are not automatically retained.
  • The MAT structure can increase the scope for trust to consider having centralised functions and collective procurement, particularly as scale increases. This reduces duplication, reduces costs and improves value for money.
  • The scope to generate additional income from commercial activities across the MAT is utilised, and used to support the aims and objectives of the trust.
  • Value for money of spending is tested and benchmarked against schools operating in a similar context. Many trusts do this by either using the Department’s benchmarking tool, or by direct comparison to other trusts.
  • Centralised robust financial systems enable the trust board to have effective oversight and control of finances and promote a value for money culture. This becomes more important as trusts grow.
  • Careful consideration is given to the level of local control over spending. In some trusts the General Annual Grant is paid to individual academies who hold any surpluses in their individual accounts whereas in others funds are held and controlled centrally by the MAT which then distributes funding in line with agreed budgets. Some trusts vary the proportion of funding they retain, to reflect the different circumstances of individual schools.
  • When trusts retain a proportion of an individual schools funding, they are transparent about what proportion they are retaining, how this proportion is determined, and what services and functions it enabled the trust to provide.
  • Key financial and other decisions from the trust board are clearly communicated to academies and LGBs and vice versa.

Before agreeing that a MAT can expand the number of schools it runs, or a standalone academy can create or join a MAT, RSCs will assess whether:

  • the plans to grow the size of the trust are credible – and that the trust understands that while growth can bring about economies of scale, there are also costs associated with centralising functions.
  • Where a trust’s plans are such that they want to remain small (e.g. below 1,200 pupils for primary trusts and 2,000 for mixed or secondary trusts), the RSC may recognise the financial limitations and be more cautious.
  • They may ask to see more detailed plans, including how the trust’s senior leadership team will be funded from across the schools plans to secure efficiency savings through economies of scale are realistic and have been benchmarked against other trusts any central functions are properly costed and sustainable, and that there are clear plans that set out how these functions will be paid for, for example, through a charge or “top-slice” to individual schools within the trust these centrally delivered functions deliver value for money for constituent schools the trust’s financial processes are sufficiently robust to withstand the increased responsibility of the trust, and in particularly the need to ensure propriety and value for money across a wider number of schools

In addition, the Education Policy Institute (EPI) report (27 January) on ‘the economic benefits of joining, establishing or growing a multi-academy trust ( https://epi.org.uk/report/economic-benefits-joining-establishing-growing-multi-academy-trust/ ) concluded that joining or establishing a multi-academy trust can result in economies of scale and efficiency savings. The report found that, overall, MATs spend less per pupil on running expenses and more on teaching staff than local authority schools. However, for larger MATs, the report emphasised the importance of geography in determining the extent to which economies of scale exist, with MATs more closely clustered spending less per pupil on back office costs. The size of the MAT also matters, with medium sized MATs (6-10 academies) spending less than smaller MATs (five or fewer).

The House of Commons Education Committee has recently published (28 February 2017) its report on multi-academy trusts[14], which concluded that the most successful MATs share a number of common characteristics, including robust financial controls – trusts should foster cultures and systems which promote effective use of public money in the delivery of education. It also suggests that schools which operate within close proximity to one another are best able to share resources and expertise and subsequently can most successfully take advantage of being part of a MAT. In addition, the MAT ‘growth readiness checks’ currently being piloted by the DfE are looking at five main themes, including one on financial sustainability.

March 22, 2017