The Work of the Department for Children, Schools and Families - Children, Schools and Families Committee Contents

Letter from Mr David Bell, Permanent Secretary, Department for Children, Schools and Families to the Secretary of State, DCSF


  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 being brokered.

  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 EACT:

    —  had not complied in full with the financial management requirements set out in the Department's grant letters;

    —  had not put in place appropriate governance arrangements, in relation to delegated authorities and the regularity, attendance, format and recording of Board meetings;

    —  had failed properly to address conflicts of interest;

    —  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 these points.

  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 governance.

  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; and

    —  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.

March 2009

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