Conflicts of interest and connected persons: the dangers for schools
Failing to properly follow the rules in relation to conflicts of interest and connected persons can have extremely serious consequences for individuals and organisations.
It was recently reported that a former Head had been banned for teaching in connection with him admitting that he had awarded a contract worth £1m to a close personal friend. Further, the Education Funding Agency (EFA) has produced several reports where Academies have acted in breach of their funding agreement because of issues in connection with procurement. It is absolutely vital that Directors/Governors and Senior Leaders properly understand and follow these rules and have full audit trails to demonstrate that they have complied.
Maintained Schools and Academies are both bound by obligations in relation to the discharge of their financial responsibilities. For Maintained Schools, their obligations are largely provided for in statute and associated guidance. Academies have specific statutory obligations under the Companies Act 2006 but separate obligations under their own individual funding agreements with the Secretary of State (SoS). Not properly following the law and/or guidance can leave a Maintained School/Academy open to a legal challenge and/or intervention by the Local Authority (LA) and/or SoS. There are also obligations under charity law. Guidance for both Maintained Schools and Academies can be found in the Governance Handbook and Academies must also follow the Academies Financial Handbook.
Conflicts of interest can arise in Maintained Schools and Academies. Connected persons also have a precise legal definition for the purposes of company law. Effectively, conflicts of interest arise when an individual is making a decision from which they (or people connected with them) may personally benefit. For Governors, the usual position is that the service is voluntary and Governors should not personally benefit from their position. This means that Governors should not usually receive any remuneration in connection with their service and if contracts are being awarded then Governors must make sure that they declare any conflicts of interest and should exclude themselves from discussions or decision making in these situations. It is vital that the Governor makes sure that it is recorded in the minutes the fact that a declaration is made and that a Governor left a meeting. Governors should also satisfy themselves that there is proper financial oversight to ensure that they satisfied that staff are properly following the same rules.
While the concept of connected persons will apply to both Maintained Schools and Academies, it has a specific definition in section 252 of the Companies Act 2006. Essentially, great care must be taken where a decision maker has a connection to people to whom contracts may be awarded and steps properly followed where there is a conflict of interest.
Practical guidance is available in the Governance Handbook and Academies Financial Handbook however for Governors and Senior Leaders it is not enough to simply be aware of these duties, proactive steps must be taken to ensure that adequate oversight and audit procedures are in place.