Multi-Academy Trusts (MATs) have come a long way in the past few years and there are a growing number of Trusts that have started the financial centralisation journey.
The Kreston Academies Benchmark report, published in January, highlighted that larger more centralised MATs are operating more efficiently and with lower average surplus/ deficit, which suggests that economics of scale are being realised.
There are several ways that centralisation can happen, and, in many cases, the local context combined with the recent growth of the MAT will impact on both the ambition and resource availability to make such a big and decisive change.
For those MATs which have embarked on this journey, the first step is usually to move to a centralised bank account.
This can provide some major benefits, many of which can be achieved in a short space of time: reduced access to bank accounts leading to reduced risk of fraud/ error; pooling of cash to help manage cashflow peaks and troughs; and efficiency – with fewer bank accounts leading to reduction in management time (bank reconciliations, payment runs, internal transfers and so on).
Of course, centralising bank accounts does not happen without its challenges and can often be interpreted as ‘GAG pooling’.
This is where the Trust receives its funding centrally and then allocates budgets to the individual schools, rather than schools receiving their income and then just paying a top slice to cover central costs.
The same Kreston report highlights that, while the level of interest from MATs in GAG pooling is growing, it is proving harder to establish and very few Trusts have adopted this approach.
GAG pooling is a separate issue entirely to that of centralising bank accounts, as there is no link between cash management strategies and reserve policies, but is one that invariably generates some strong views.
One area of centralisation that has seen much lower levels of adoption is the centralised approach to budget setting/ strategic planning.
Most MATs will insist on the eventual sign-off of budgets, once they have been prepared and approved locally, but the extent that they are being prepared centrally is still not something that we come across too often. So, to centralise or not to centralise? That is the question.
What is the difference?
With a varied landscape and MATs adopting many different schemes of delegation, we have seen some MATs where the budget process is very much completed within their schools, with a handful of budget assumptions set by the Trust, to try to ensure there is an element of consistency across the schools.
In the cases where we have seen a strong degree of centralisation, the budgeting process has taken a similar path to the one taken on bank accounts where the budget systems are maintained centrally.
Here the ‘big-ticket’ items and more complex assumptions – funding, payscale data, pay rises and teacher pay/pension grants – and top slice are all managed by the Trust and the schools will use their local knowledge to maintain staff contract data and discretionary non-staff budget data, such as resources and premises.
Why is it still relatively uncommon?
There are two main blockages that we see holding back the centralisation of the budget process. The first reason is cultural and surrounds the perceived reduction of autonomy that was also encountered when centralising finances and bank accounts.
However, where we have seen this implemented – the MAT in question already had ultimate sign-off on budgets in a non-centralised approach – the reality is that schools will still have a big say in where their budgets are allocated, even if the Trust is leading the process.
The second reason is that the budgeting systems landscape has not kept pace with the emergence of MATs.
Given their long history with standalone schools it is difficult to re-design systems from the ground up, and therefore insist on a school-led approach, with the MAT requirements largely being fulfilled with a few aggregated MAT reports.
The ability to automatically populate budgets based upon MAT defined assumptions is only available from MAT specific systems, such as our own IMP Planner.
What are the benefits?
A top-down approach to budget setting will transform planning processes.
With an underlying confidence in the core of the budget, along with MAT defined assumptions being consistent and correct, time can be spent on the more discretionary areas where real value can be added. This can link available budget to school improvement plans or other areas of development.
Improved efficiency is also a major outcome of a centralised model, as MAT budget items can be automatically calculated, reducing the need to check each budget line.
While both of these areas bring some hefty benefits, the key reason that we see driving this change is the potential negative impact of getting the budgets wrong and the unsustainable process that is required to check the school’s budgets and underlying assumptions in granular detail.
Having confidence in the MAT budget has never been more important. The funding environment is still extremely challenging and despite promises of increases, the details on these are still light and uncertainty remains.
In addition to the headline funding there are a host of temporary grants (pay/pensions etc) that all must be factored into each budget, within each school and each year. With so many moving parts the opportunities for inconsistencies, errors and mistreatments to creep in is high.
With the MATs that we are working with, in a number of cases we have seen six-figure budget swings (within primary schools) when we have started to apply consistent budget treatments to budgets that have never been looked at or prepared on a consistent basis previously.
What about ‘what if’ scenarios?
In addition to the creation of the core budget plans, once these have been defined, within a centralised budget structure MATs can then ‘stress test’ these models with a host of ‘what if’ scenarios, across all their schools and years, instantly.
Uncertainty is one of the few certainties in the current climate, so being able to model various outcomes is crucial. This process needs to be simple to ensure that multiple scenarios and combinations of scenarios can be considered.
Without a unified MAT database – with automated budget building – planning will be a real challenge as these scenarios are driven by changes to individual school data-sets, it takes too long, and is open to inconsistency and error.
Here’s what you need to know
- The Kreston Academies Benchmark report has highlighted that larger more centralised MATs are operating more efficiently.
- MATs’ first step on this road is to move to a centralised bank account – however, a centralised approach to budget setting and strategic planning is an ever-growing trend.
- Here the ‘big-ticket’ items and more complex assumptions are managed by the Trust – and schools use their local knowledge to maintain staff contract data and discretionary non-staff budget data.
- Barriers to overcome in centralising the budget process are cultural (and the perceived lack of autonomy within schools) and that school budgeting systems have not kept pace with the emergence of MATs.
- MATs should consider whether their current budgeting software can automatically populate budgets based upon MAT defined assumptions – this is needed for effective centralised budget setting.
- Primary MATs are reporting improved six-figure budget swings given their enhanced ability for budgets to be automatically calculated.
Will Jordan is co-founder of IMP Software, specialists in MAT budgeting systems.