Academy trusts are still breaking rules about related-party transactions, a review by the Education and Skills Funding Agency (ESFA) has found.

There have been long-standing concerns about cases where academies have signed contracts with organisations that have links to senior figures within the academy trust.

Last year, a government document revealed that academy trusts paid out more than £120 million for 3,033 related-party transactions in 2015-16, including 70 that were worth more than £250,000.

This prompted concerns among MPs on the powerful Commons Public Accounts Committee, who warned that people were making money out of the academy system.

Now, in a letter sent to all academy trust CEOs and principals of single academy trusts today, ESFA chief executive Eileen Milner revealed the findings of its examination of financial accounts submitted by academies and academy trusts for the past financial year.

Rule change on related-party transactions

She says: “In our reviews of trusts’ accounts for the period ended 31 August 2017, we have found that the main areas of non-compliance raised by auditors continue to be related-party transactions, procurement and tendering, financial reporting to managers and trustees and weak independent checks within the trust.”

In her letter, Ms Milner reminds CEOs of new DfE rules about related-party transactions.

She warns them that “where these transactions are handled badly it can cause financial and reputation damage to the trust, and have a negative impact on public perceptions of the whole sector”.

From 1 April 2019, they will have to declare all related-party transactions to the ESFA in advance, and seek approval for those that exceed £20,000 either individually or cumulatively.

She also reminds academy leaders that there has to be “a competitive purchasing procedure that complies with our ‘at cost’ policy, a clear record of the reason for selecting a particular supplier and no involvement by anyone at the trust with a personal interest in the transaction”.