Letter from Mr David Bell, Permanent Secretary,
Department for Children, Schools and Families to the Secretary
of State, DCSF
EDUTRUST ACADEMIES CHARITABLE TRUST (EACT)
As you know, we have been carrying out a review
into financial management and governance at Edutrust Academies
Charitable Trust (EACT). I am writing now to set out my conclusions
and to make recommendations to you on the way forward.
EACT is a trust established by one of our Academy
sponsors, the British Edutrust Foundation (Edutrust), to establish
and operate Academies. Lord Amir Bhatia is the chair and a member
of both. One EACT Academy, Trent Valley Academy in Lincolnshire,
has been open since last September; another eight Academy projects
are in the feasibility stage of their development, seven of which
would open in September this year; and other projects are potentially
Concerns about financial management and governance
at EACT were first drawn to our attention in the autumn of last
year. I asked the Department's Internal Audit Unit (IAU) to carry
out a full review of the financial management and governance arrangements
at EACT. That work has now been completed. I should note that
EACT co-operated throughout with officials.
IAU has concluded that, on the whole, grant
funding awarded to EACT has been spent on the purposes for which
it was intended. However, a number of ineligible items had been
paid and claims made, which were not supported in accordance with
the terms and conditions of their grant. The review also highlighted
significant concerns over the governance of EACT. Some of the
concerns could not be conclusively resolved because of a lack
of documentary evidence.
In summary, the thrust of IAU advice is that
had not complied in full with the
financial management requirements set out in the Department's
had not put in place appropriate
governance arrangements, in relation to delegated authorities
and the regularity, attendance, format and recording of Board
had failed properly to address conflicts
had shown poor record keeping; and
had paid for items not properly chargeable
to it or which had been excessively charged to it.
Overall, the sums of money which have been spent
on items not chargeable to EACT total less than £10,000,
and £60,000 in relation to excess rent charges paid by EACT
to the Ethnic Minority Foundation. These sums have now been repaid.
The report was shared in draft with EACT. They
submitted comments, but my conclusion was that none of these challenged
the IAU report's factual accuracy.
I reflected carefully on the report and on EACT's
response, including material submitted by Lord Bhatia and an independent
assessment of the market rent on EACT's offices. My conclusion
was that detailed changes in EACT's approach to financial management
and governance would be needed before we could, with confidence,
allow them to continue to develop Academy projects. Therefore,
I wrote to Lord Bhatia on 3 March, setting out in detail where
action needed to be taken. I sought a detailed response by 6 March.
I also made clear that, in the interim, I was suspending all work
on EACT feasibility projects. I met Lord Bhatia on 4 March together
with Sir Bruce Liddington, EACT's Director General, to emphasise
EACT's response was received on 6 March. It
was sent by Sir Bruce Liddington, but Lord Bhatia had separately
indicated he was content with it.
The letter from Sir Bruce set out in substantial
detail, supported by a number of annexes dealing with specific
aspects of IAU's findings, the steps already taken. He also laid
out what further action would be taken to deal in full with the
concerns I had set out. Additionally, the letter described how
EACT's governance would be reformed so as to give us confidence
that these or similar concerns could not occur again. Those changes
included Lord Bhatia's resignation as chair and a member of EACT,
the resignation of Edutrust as a member of EACT, and practical
steps to sever all governance links between Edutrust and EACT.
Lord Bhatia has also indicated that he will, in due course, step
down as chair of Edutrust.
Actions to give effect to these changes have
already taken place at special meetings of EACT and Edutrust's
boards on Monday, including Lord Bhatia's resignation as chair
and member of EACT. There are some final details in this process
to be completed, but that will be done in the next week.
I believe that EACT has responded fully to our
concerns. I am confident that these detailed changes have now
put EACT on a sound footing in terms of financial management and
On that basis, I recommend that:
we should continue to work with EACT
to develop the eight projects in feasibility, proceed to sign
funding agreements when ready and in due course, consider on their
merits any future proposals for EACT Academy projects;
we should write to the LAs concerned
to make clear our confidence in EACT; it will of course, be for
the LAs to decide themselves whether and how to complete the process
for closing the predecessor schools to make way for the Academies;
you should write to Barry Sheerman
to set out the position with EACT and the steps that have been
taken to put it on a sound footing, and our confidence that we
can continue to work with it on Academy projects.
Finally, on the wider questions raised by the
EACT review, I believe that we have safeguards in place to ensure
the proper use of public funds by Academies. These include the
safeguards in charity and company law; those in our Funding Agreements;
the monitoring work done by the Department; and the role of the
external auditor, which all Academies are subject to. However,
I have asked officials to review whether these need to be strengthened
further to meet the challenges of the Academies' programme as
it increases in size.