Multi-academy trusts (MATs) are being tasked with on-boarding more and more new schools through either organic growth or merger. This presents a challenge for trusts and, from reviewing, standardising and implementing over 100 MAT budgets ourselves, we have found a string of common issues come up time and again.
Budgeting in schools is extremely difficult: there are many unknowns, along with so many assumptions and complex calculations that go into setting a budget, many of which are changing all of the time. Guidance is also a challenge for the sector as it can be inconsistent and open the door for different ways to interpret the guidance, which might also depend on other assumptions used. With all the moving parts inherent within school/academy finance, forecasts and budgets can significantly change through the on-boarding process.
So, what’s the solution?
We see eight main risk areas where MATs can focus their planning and processes to minimise the risk these issues can pose to the trust.
1. People and culture first
This is always the biggest challenge. If a MAT has a manual on how finance is done in their organisation, there might be 15 pages of processes but typically nothing around onboarding people: how do we integrate, why do we do it, what are the benefits etc. It is always focused on mechanical pieces and people can be forgotten. However, being able to onboard people and bring them along with the process is fundamental. That starts way before we get into the nuts and bolts around staff modelling. Getting people to come with you – engaging with them at the start – will make life so much easier and ultimately help to get the most out of your new team.
2. ‘Off payroll/budget’ costs
If there is a culture of agency supply, lots of casual staff or lots of overtime claims, it might be that these costs are not as well accounted for in the budget and can mount up quickly, particularly during COVID times. Most schools and trusts will have a good understanding of salaried costs (pay scales, hours, etc.), but non-core staff costs are a significant blind spot. That can be the difference between meeting a budget and not. And this is where we see the biggest seepage in the ultimate budget versus actual review.
3. Incompatible assumptions
Given there are hundreds of calculations within budgets, having assumptions that are incompatible is a big risk. On teachers’ pay, a school may have made a completely different assumption to you, and with one per cent of teaching costs being a big number, understanding the assumptions is significant. It is the same with pensions, pupil premium, free school meals, risk protection arrangement, top slice, and national funding formula; there are some big assumptions that MATs are making and there is a probability that assumptions will vary. Differences are fine, but when you join together you have got to dig down on assumptions. If possible, align their assumptions with yours so that onboarding and due diligence can be completed from a consistent starting point.
4. Inaccurate data or calculations
This is primarily a calculation risk. Whilst we have made some assumptions, for example around teachers’ pay, has that assumption been implemented? There is a whole other risk that regardless of what that assumption is, does the written assumption translate in the numbers? We see this happen a lot. You need to check the in-theory assumption, and ratify that they are also embedded in the numbers.
5. Mergers and aggregation issues
When a trust joins another trust, the aggregation at trust level is a potential problem area. Some MATs top slice, for example, so they reallocate money between schools and the centre. Others recharge areas such as central finance, estates or school improvement to schools. Hopefully these all balance out to have no effect overall. However, it can be challenging if you are having to manage this change with a system designed for schools, with no MAT oversight or control. In this scenario, the only way to put these in is to go in and out of school and trust data. As you are not actually tying them together, there is a big risk that things which exist within MATs do not net off and are one sided or double counted. If you are merging with another trust, think what MAT reallocations you have in your numbers, review them for accuracy/completeness and repeat this process for the other Trust.
6. Re-brokerage and allocation issues
Re-brokering a school, or even bringing in a new school, you have to consider what costs were absorbed by their previous MAT or local authority. What did that entail? Also vice-versa: what costs are going to be in their numbers that were related to central costs that are now not going to be the case? Whilst the Nolan principles are generally well understood and adhered to within the sector, there can be an incentive for the previous trust or local authority to tip the balance in their favour. If you can prudently get some costs into the school that is leaving, or minimise the reserves being transferred to the new trust, this is not untoward, it’s just reality; so is something to ensure that you are looking out for in your review.
7. Capital spend programmes
This is where we see big swings or big cash problems crop up in on-boarding. Often it comes down to capital programmes. Whether that’s around the phasing of spend, the phasing of income, or retention payments catching people out. If there have been capital programmes, or there are going to be capital programmes in the future, that is a huge area that you have got to put a lot of work into. With capital, the chances of problems are relatively low but the impact can be significant, and warrant sufficient attention.
8. Statutory compliance and trust closures
If you are merging, you are probably going to be responsible for the closure of the other trust. Therefore you need to think about VAT, PAYE, and corporation tax. Any of those legacy issues could fall at your door. With a merger, you’ll probably need to perform a year-end audit of the closing trust. Ensure that there are sufficient resources available to achieve this. This might be challenging, particularly if you perform this secondary audit at the same time as your main trust audit.
The fact is that you cannot get rid of risk, only minimise it. Ultimately, risk increases when you lack understanding for a long period of time. So, the goal is to minimise that risk and get to a position of comfort and confidence.
