Academies, Independence and Charitable Status

Concerns have recently been raised in the sector about academies and charitable status, in particular whether they are sufficiently independent from the Government. Academies are exempt charities pursuant to the Academies Act 2010 (i.e. like Further Education Corporations they are exempt from having to register with the Charity Commission, but have legal charitable status and still have to comply with charity law).

The Secretary of State for Education is the Principal Regulator for academies and is responsible for supervising their adherence to charity and education law. The Education Funding Agency (as an Executive Agency of the DfE) is responsible for funding distribution and day-to-day oversight and carries out the supervisory role on the Secretary of State's behalf.

The Charity Commission's publication RR7 "The Independence of Charities from the State" states that whilst the law allows government authorities to set up charities, and it is no bar to charitable status that an organisation has been created to carry out a government function, for a body to be a charity it must be independent. A charity must therefore exist to fulfil its charitable aims and not to implement the policies of a government authority or to carry out its directions. Academies as exempt charities exist to advance their educational aims as opposed to executing the directions and policies of the DfE.

Academies are funded by the DfE pursuant to the terms and conditions of their funding agreements. The DfE is usually in a strong bargaining position when it comes to negotiating funding agreements and substantial deviations from the DfE's model documents are the exception as opposed to the norm. The DfE states on its website that it does not expect schools to deviate from its model documents unless there are exceptional circumstances. Any proposed changes must be listed in a schedule of changes, outlining the changes made and the rationale for doing so. However, the Charity Commission is clear that independent charities negotiating with a governmental authority for funding should ensure that:

• its trustees have a choice about whether or not to accept funding on the terms proposed by the governmental authority;
• take their own legal and financial advice;
• draw up their own policies and business plan;
• conduct arm's length negotiations with the governmental authority;
• do not commit themselves simply to giving effect to the policies and wishes of the governmental authority;
• do not agree to conditions that undermine the confidentiality of their discussions (such as a presence at their meetings of an observer from the governmental authority); and
• are free to make their own decisions on matters outside the scope of the funding agreement.

Therefore the DfE's position would therefore appear slightly at odds with the Charity Commission's. All charities including Academies are required to be independent and their trustees have a legal duty to act solely in the charity's best interests. Whilst the Charity Commission is clear that charities can enter into funding agreements with governmental authorities it states that they can do so only if:

• the agreement does not require the charity simply to implement the policies, or carry out a statutory duty, of the governmental authority;
• the agreement does not involve a surrender of the trustees' discretions to the government authority; and
• the terms of the agreement coincide with the way that the charity's trustees want to exercise their powers and discretions.

The extent to which the Secretary of State for Education acting through the DfE may retain and exercise control over an Academy's governance, in particular through provisions in the funding agreements, has led some to question the charitable status of Academies where it appears their independence is being compromised.

Clearly, as per the Charity Commission's guidance, the DfE has a responsibility to protect the interests of taxpayers and ensure quality of education for pupils at Academies. Therefore because Academies are state funded it is inevitable that certain controls and powers in favour of the Secretary of State for Education will be put in place through the funding agreement. For example, old-style model funding agreements and Articles of Association for Academies give the Secretary of State powers in certain circumstances to remove Governors and contain provisions requiring Academies to obtain the prior consent of the Secretary of State before amending their Articles.

Nonetheless concerns have been raised about how these powers are compatible with the principle of independence and Academies' charitable status. The DfE published updated model funding agreements for academies in December 2012 and January 2013 which do not include the powers. This should give Governors of new Academies greater control in relation to their Academies' governance. However, existing Academies which have not signed up to the latest versions of the model funding agreement and Articles of Association will not have these freedoms unless they agree with the Secretary of State that they amend their funding agreements and Articles of Association to bring them in line with the updated model documents.

Concerns have also been raised about Academies having paid members of staff on their Boards (e.g. the Principal) in terms the Academy's Board's ability to hold key members of staff to account because charities generally do not have paid employees on their Boards. See our Spring Term 2013 edition of Educational Focus for an analysis on a recent Charity Commission investigation on this point. However, it is well established practice (and in some cases, a requirement) for other types of exempt charities (including Further Education Corporations) to have paid members of staff on their Boards.

Where paid members of staff sit on charities' Boards robust conflict of interest policies should always be observed. The Charity Commission and the DfE entered into a memorandum of understanding last year about how Academies will be regulated. The Charity Commission has statutory powers which it may also exercise in relation to academies which fail to comply with charity law and effectively manage conflicts of interest.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.