The Model Funding Agreement

The Model Funding Agreement for Academies hoping to convert from September 2010 was published on the DfE website on 14 July 2010. In order to receive direct grant payments, Academies are required to enter into a Funding Agreement with the Secretary of State for Education. Funding will be received via the Young Persons Learning Agency.

The main provisions in the Agreement relating to grant payments and financial matters are set out below, together with some general comments about other aspects of the Agreement.

General Annual Grant

The General Annual Grant (GAG) is the running costs of the Academy, including salaries and related costs, the purchase of equipment, repairs, exam fees, insurance and the servicing and maintenance of buildings.

The GAG has three elements:

Formula Funding which equates to the amount that would normally be paid by the local authority
the Local Authority Central Spend Equivalent which represents a proportion of the funding that would otherwise be retained by the local authority; and
the Specialist Schools Allowance (if applicable).

Whilst an Academy will receive extra funding via the Local Authority Central Spend Equivalent element, it will have to buy certain services such as payroll and insurance from either the local authority or an alternative provider.

An Academy is likely to continue to receive funding from the local authority for pupils with statements of special educational need.

GAG is determined on the basis of pupil numbers. Pupil numbers in the Academy's first year will be based on the number calculated by the local authority for that year and the School Census. Thereafter, the basis of the pupil number will be determined by the Secretary of State. The Academy will be able to apply for an adjustment to its funding in certain circumstances, for example, if an extra class is opened.

The Academy will be notified of its GAG for the forthcoming year by 1 April in an annual letter of funding and it will be paid in monthly installments.

Capital Grant

All Capital Grants must be applied for and are intended to cover expenditure such as:

the acquisition of land and buildings
installing furniture and equipment or computers, networks and other technology equipment other than updates and replacements
major repairs or replacements; and
associated professional fees.

Where an Academy opens in new premises or where existing premises are to be substantially refurbished, the Secretary of State will be responsible for meeting capital expenditure. Once open, an Academy will be required to apply to the Secretary of State for funding for all capital projects.

Surpluses

A school wishing to convert to Academy status is entitled to carry over any surplus funds that it has built up in previous years. However it is not yet clear what these surpluses can be spent on.

Once open, an Academy may carry forward unspent GAG of up to a maximum of 12% of the total GAG paid. Where GAG is carried forward, only the equivalent of 2% of the total GAG paid in the financial year just ended can be spent on items for which the GAG is normally paid (i.e. recurring expenditure) whereas all of the carry forward may be used for the upkeep, improvement and repair of premises or for capital expenditure.

Disposal of certain assets

An Academy may only dispose of assets which are transferred to it from the local authority with the approval of the Secretary of State. Consent is also required for disposal of an asset for which the Secretary of State has contributed in excess of £20,000. In some cases, when such assets are disposed of, the Secretary of State will require that some of the original contribution be repaid. The Academy may be directed to repay part of the proceeds to the local authority.

Borrowing powers

An Academy is not permitted to borrow without the specific approval of the Secretary of State. Permission will only be granted in very limited circumstances. An overdraft facility may be used to cover short term funding requirements but prior approval for such a facility must still be sought.

Financial and accounting requirements

An Academy must appoint an accounting officer and comply with the Academies' Financial Handbook published by the DfE. A budget for the forthcoming financial year (September to August) must be approved by the Governing Body and submitted to the Secretary of State by 15 February each year. This must include income from all sources i.e. donations, grants other than from the DfE, gifts in kind as well as funding from the DfE, and distinguish recurring from capital expenditure. Accounts and an annual report must be prepared in compliance with the Charities' Statement of Recommended Practice, Accounting and Reporting by Charities, known as the Charities' SORP and with any directions from the Secretary of State. The accounts must be prepared to 31 August each year.

The accounts must be audited annually by independent auditors and filed with the Secretary of State and the Principal Regulator by 31 December each year and with Companies House by 31 May in the year following. Surpluses arising from income sources other than from the DfE may be retained but must be shown separately on the Academy's balance sheet.

Governance

Whilst detailed arrangements for the governance of an Academy are contained in the Academy's Articles of Association rather than the Funding Agreement, there is a requirement within the Funding Agreement that staff and Governors undergo Criminal Record Bureau checks.

Curriculum

There is a requirement that an Academy provides a broad and balanced curriculum which must includes English, Maths and Science. The Academy must also make provision for the teaching of religious education and for a daily act of collective worship. An Academy can be designated with a religious character.

Assessment

An Academy must comply with any guidance issued by the Secretary of State regarding the assessment of pupils so that Academy performance can be measured alongside maintained schools in league tables.

Exclusions

An Academy is obliged, if invited to do so by its local authority, to enter into an agreement regarding permanently excluded pupils and, in particular, funding arrangements for such pupils.

School meals

An Academy is obliged to provide free school meals for those pupils who are eligible.

Publication of information

An Academy is required to publish its Funding Agreement, Memorandum, Articles of Association and the names of the members of its Governing Body on its website.

Termination

Either the Secretary of State or the Academy may give seven years' notice to terminate the Agreement. The Secretary of State is also entitled to terminate the Agreement on shorter notice in extreme circumstances. Furthermore the Secretary of State has the power to appoint additional or further governors in limited circumstances in the event that he wishes to take control of the Academy.

For further information please contact Sarah Morrison on 020 7516 2266, or by email

The Academies section on the DfE website can be accessed at www.education.gov.uk/academies