Education Funding Agency and Department for Education 2012-13 financial statements - Public Accounts Committee Contents

1   Improving the collection and use of information

1. On the basis of Reports by the Comptroller and Auditor General, we took evidence from the Department for Education (the Department) and the Education Funding Agency (the Agency) on the performance and capability of the Agency and on the Department's 2012-13 financial statements.[1]

2. The Agency provides funding for educating over 10 million learners aged between 3 and 19, or from birth to 25 for those with learning difficulties and disabilities. In 2012-13, the Agency distributed £51 billion of capital and revenue funding to local authorities, academies, further education institutions, sixth-form colleges and other types of education providers. It also managed capital building and maintenance programmes for local authority maintained schools, academies and sixth-form colleges. The Agency is responsible for ensuring that funds are used properly, through financial assurance undertaken by itself, or by others.[2]

3. The Department set up the Agency on 1 April 2012 and, since it was established, the scale and scope of the Agency's activities have both grown. During its first year, the number of academies almost doubled to nearly 3,000 and it took on new responsibilities including managing the Youth Contract for 16- to 17-year-olds. Between 2012-13 and 2015-16, the Agency expects that the number of all education providers it funds will increase by a further 50% to almost 12,000, of which nearly 7,000 will be academies. At the same time, the Agency plans to reduce its administration costs by 15%.[3]

4. In 2012-13, the Department and Agency consolidated academies into their group financial statements for the first time, and laid their accounts just prior to the statutory deadline of 31 January 2014. The C&AG qualified his opinion of these accounts on a number of grounds, which related to the methodology used for consolidating the accounts and issues around the quality and timeliness of data.[4]

5. We recognised that the Agency has successfully distributed funding on time and accurately.[5] The Agency has also reported that changes to specifications and more standardisation of school designs has meant that the cost of new school buildings has fallen, on average, by 40% and that the procurement process for building schools is now quicker than it used to be.[6] Given the Agency's responsibility for distributing £51 billion of public money, however, we were concerned as to whether this money was being spent properly, especially as the number of academies continues to increase.[7] The Department set up the Agency to provide better accountability and transparency, and improve efficiency, in the education sector. We repeatedly asked the Agency whether it had achieved this in practice.[8] Although the Agency explained to us how it had improved its own administrative efficiency and how it had reformed the funding system to make it clearer, it was not able to provide us with a clear picture of how it had improved accountability and transparency over the £51 billion distributed.[9] We challenged the Agency and Department on whether this was due to a lack of good quality information and systems.[10]

6. The Agency's data, such as on learners, the size and condition of schools and in some cases on providers' finances and governance comes from many different sources including academies and other education providers, local authorities and other government bodies. The Agency holds the data across various systems and spreadsheets, so it has found it challenging to establish a 'single version of the truth'. We were also concerned that the Agency did not have the capacity to collect and analyse data, especially as it has faced challenges in recruiting people with the right skills in the past.[11]

7. We recognised that the Department and Agency were "on a journey" to improve the quality and timeliness of their data. But the Department agreed with us that their information was not as it should be, and said that it was aiming to improve it.[12] So far, the Agency had produced a draft data plan, but this had not been published. The Department also told us that it was publishing more financial information about academies than in the past.[13]

8. Every academy has a funding agreement, which is a contract between the academy trust and the Secretary of State for Education. This agreement sets out funding arrangements, the obligations of both parties, including the requirement for academies to submit various financial returns and other information on time and the conditions under which the agreement could be terminated. In 2012-13 there were 411 breaches of funding agreements, of which 339 (82%) related to a failure to submit financial returns on time, including annual accounts.[14] Academies are required to submit audited annual accounts to the Agency by 31 December each year, yet 13% of academy trusts did not submit their accounts on time for 2011-12, and this figure improved but still stood at a worrying 9% in 2012-13. The Agency told us that it was not happy with this performance, but that it was improving.[15]

9. We were concerned about how the Agency dealt with academies that did not have a good track record of complying with data requests. The Agency told us that its main penalty for non-compliance was to issue a financial notice to improve, when some financial freedoms and flexibilities were taken away from an academy. The Agency also told us that it was planning to write to 22 academies that had been late in submitting their accounts to the Agency, to warn them that they may receive such a notice.[16] By the end of March 2014 the Agency had issued eight financial notices to improve to academies.[17] When we asked the Agency what other sanctions it has, it told us that it seeks to recover funds from academies when they have been spent for purposes other than that for which they were intended. Ultimately, the Agency can appoint additional governors, or terminate a funding agreement as it had done with the Discovery New School, a free school in West Sussex.[18]

10. The Agency also told us about its role in enforcing charity law in respect of academies, although it cannot itself take regulatory action against individuals. The Agency told us that if it considered that an academy trustee should be disqualified, it would need to liaise with the Charity Commission, but it has not yet done so.[19] The Agency can also make a referral to the conduct council at the National College of Teaching and Leadership, which it told us it has done on at least one occasion. In five serious cases in the last two years, it has referred a matter to the Police.[20]

11. We were concerned that the Agency relied on desk-based reviews to identify risks in local education providers in a timely fashion and whether, without additional local intelligence, that this was sufficient to identify all issues.[21] The Agency told us that it collected information on pupil numbers and academies' budget forecasts, which meant that it was aware of academies that were in, or at risk of being in, financial deficit.[22] The information it collects on academies also helps the Agency to identify other issues of concern, and it compiles a list of academies of national concern each month which it shares with the Department and Ministers. The Department told us that there were currently 37 academies or academy trusts on the list, as concerns can be at a school or trust level, and wrote to us after the hearing to say that 98 institutions had appeared on the list at some point since October 2012.[23]

12. Although the Agency had started to develop its data analytics, it had made slow progress updating its information and systems. We therefore questioned the value and effectiveness of the Agency's current analysis if the data it is interrogating is of poor quality.[24] Due to a lack of 'horizon scanning', the Agency had been vulnerable to missing risks during the first 18 months of its operations and not just those related to its oversight of academies. For example, it had missed the risk of receiving inconsistent data from local authorities as part of the Property Data Survey Programme, through which it planned to collect data on the condition of around 23,000 schools by October 2013, to support future capital spending decisions. The Department accepted that its ability to horizon scan was something that it was looking to improve in future years.[25]

13. The Agency has relied on whistleblowers to raise concerns and we asked the Agency about its systems for protecting and encouraging them. The Agency told us that it provided staff training, and publicises whistleblowing arrangements on its website.[26] The Agency said that it also insists that all academies have whistleblowing arrangements in place; however, the Academies Financial Handbook suggests that this is recommended best practice rather than a mandatory requirement.[27] The Agency assured us that it takes whistleblowing seriously and that information from whistleblowers has led to investigations, although these may also have been triggered by information reported in academies' financial statements. The Agency has published the results of six investigations to date.[28]

14. The Agency also placed considerable assurance on the work of over 200 external auditors of academy trusts. It told us that it does not have a role in choosing these auditors, but assured us that these auditors must be licensed practitioners and were responsible to the Agency for providing an opinion on the regularity of expenditure.[29] The Agency told us that auditors should not be connected to academy trusts through personal or professional relationships. It later confirmed to us in a note that auditors were bound by the ethical standards produced by the Financial Reporting Council, covering any financial, business, employment and personal relationships with academy trusts. [30] Relying heavily on audited accounts makes it more difficult to intervene early on issues of concern developing in a particular school or a particular trust. Even when the Agency receives information, such as from whistleblowers, that should trigger action it does not always investigate or publish the results of investigations quickly enough, such as in the case of Kings Science Academy. The Agency told us that it was aiming to speed up its investigation processes, and highlighted that it had concluded its recent investigation of Barnfield College more quickly than in the past. However, it also stressed that publishing reports on investigations can be delayed at the request of the police. After the hearing the Agency told us that it had published five investigation reports, of which the police had requested a delay in publication in two instances. [31]

1   C&AG's Report, Performance and capability of the Education Funding Agency, Session 2013-14, HC 966, 29 January 2014. Department for Education, Consolidated Annual Report and Accounts 2012-13, HC 49, 16 January 2014 (which contains the C&AG's Report on the accounts). Back

2   C&AG's Report paragraphs 1, 2 and 6 Back

3   C&AG's Report paragraphs 2, 1.5, 2.4 and 2.8 Back

4   C&AG's Report paragraphs 1.26 and 1.28; Department for Education, Consolidated Annual Report and Accounts Back

5   Qq 7, 9; C&AG's Report Figure 5 Back

6   Qq 6, 7; C&AG's Report paragraph 1.17 Back

7   Qq 7, 125, 177 Back

8   Qq 1, 3, 5-11, 15-16; C&AG's Report paragraph 1.2 Back

9   Qq 3, 5-6, 8-11, 34, 134, 139 Back

10   Qq 17, 28, 120 Back

11   Qq 28, 38, 44, 74, 156; C&AG's Report paragraph 2.39 Back

12   Qq 17, 20, 34, 134, 136-139 Back

13   Qq 16, 20; C&AG's Report paragraph 2.40 Back

14   Q 99 Back

15   Qq 82-83; C&AG's Report Figure 5 Back

16   Qq 27, 42 88, 92-93, 158; C&AG's Report paragraph 1.25 Back

17   Note from Department to Committee dated 8 April 2014 Back

18   Qq 27, 87, 90, 177-178 Back

19   Qq 13, 15, 94-96, 100-104, 107 Back

20   Qq 52-54, 97-99, 177 Back

21   Qq 16, 65, 81-82 Back

22   Qq 16, 27, 73 Back

23   Qq 38; C&AG's Report paragraph 1.25; Note from Department to Committee dated 8 April 2014 Back

24   Q 84; C&AG's Report paragraph 2.31 Back

25   Q 37; C&AG's Report paragraph 1.18, 2.17 Back

26   Qq 65, 69; C&AG's Report paragraph 1.25 Back

27   Available at: Back

28   Q 27, 69 Back

29   Qq 28, 81-82, 124-126; C&AG's Report paragraph 1.24 Back

30   Qq 127-129; Note from Department to Committee dated 8 April 2014 Back

31   Qq 51, 52, 107, 180; Note from Department to Committee dated 8 April 2014 Back

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Prepared 10 June 2014