£8 million warning sign missed in academy trust failure

‘How did you go bankrupt?’ Bill asked. ‘Two ways,’ Mike said. ‘Gradually and then suddenly.’ 

This brief exchange from Ernest Hemingway's 1926 novel, The Sun Also Rises, reflects the journey of many academy trust failures: a single poor decision, which grows into a pattern of poor decisions followed swiftly by negative press headlines. It may look as though the trust has suffered a sudden demise, but this is rarely the case. 

Chris Whiting of Academy Advisory opened Mercia's Academies Update Conference with a live case study in how a trust unravels. 

A trust that grew too fast

Whiting's example was the Arthur Terry Learning Partnership, a trust now being broken up after running up an £8 million deficit. Press coverage fixed on the striking detail that 11,000 devices and iPads were bought during the same period the trust's finances collapsed. 

However, Whiting said there was more to the tale of the collapse than that. 

He said: ‘The more fundamental story is likely that the trust grew too fast, expanding from eight schools to 20 in a short period and moving from an £8 million surplus to an £8 million deficit. The trust is now being broken up, and that £8 million will become an unwelcome addition to the Department for Education's budget. I expect this will increase the level of regulatory focus on our clients generally.’ 

This is not an isolated case. Whiting noted that a further nine academy trusts have experienced financial governance failure over the last 12 months. All were reputationally damaging, whether or not they ended in closure, with familiar patterns repeated across each case. 

Whiting said: ‘It's useful to start by looking at what a poor multi-academy trust looks like. We consistently see three common denominators in trusts that have failed, or in the anti-fraud cases we've been involved with: a dominant leader who believes they have all the answers; ineffective governance that doesn't challenge that person, often because they've been closely involved in recruiting the trustees or governors around them; and poor communication and engagement.’ 

Warning signs hidden in the audit file

Later, Mercia's Gemma Archer took academy advisers back to basics on fund accounting. She described the kind of file that should raise the alarm months before problems surface in the annual accounts. 

She said: ‘One thing that concerns me when reviewing academy files is finding a funds section that's essentially just a schedule replicating the notes to the financial statements, with no annotation showing how items have been tested or linked to income and expenditure work, and no narrative on what the different funds are or how income and expenditure have been correctly classified. 

‘That suggests the funds haven't been properly understood. I'd expect audit teams to spend meaningful time not just checking the arithmetic of the funds note, but asking whether it actually makes sense. When I review a set of accounts, the funds note is often the first thing I look at, because odd-looking transfers or suspiciously neat balances usually flag something worth investigating on the file.’ 

Archer noted that such transfers often turn out to be correcting errors ‘below the line’ rather than through proper income or expenditure adjustments, precisely the kind of quiet drift that, left unchallenged for long enough, becomes an £8 million story. 

What this means in practice

The conference heard that the traits of a failing trust do not only show up in board minutes; they show up in the audit file. This has practical implications for advisers, who must treat a purely arithmetical funds note as a risk indicator in its own right, not a formality to tick off. They must also keep asking the governance question alongside the accounting one: is this trust's growth, and its central oversight of that growth, keeping pace with each other? 

Wider changes across the sector

The conference also included sessions exploring changes to the Academies Accounts Direction 2025/26 from Mercia’s Roger Allum and the funding landscape in light of the National Funding Formula 3.0 from Simon Oxenham of the Woodward Academies Trust. 

In addition, Jamie Baxter of Hymans Robertson updated delegates on the latest hot topics impacting the Local Government Pension Scheme while Vin Gogna and Esther Lau of Crowe UK led a session on Corporation Tax issues for academies and multi-academy trusts.