2 Improving financial management and
15. We were very concerned about trustees and others
connected to academies potentially benefiting personally from
contracts with schools to supply goods and services.
The Agency told us that it had improved its guidance on this over
the last two or three years, which is in the Academies Financial
Handbook. The Agency requires academies to declare related-party
transactions, and to ensure that goods or services are provided
by individuals or organisations connected to the trust at cost
but it does not prohibit related-party transactions.
The Agency told us that it introduced the no-profit requirement
on such transactions in November 2013. We will be seeking reassurance
that this will not merely lead to suppliers increasing costs artificially
to compensate for any loss of profit.
16. The Agency considered that there can be good
reasons for connected parties wanting to get involved with providing
goods and services to local schools. To guard against conflicts
the Agency requires that a school uses a competitive process for
procuring goods and services, and excludes individuals with potential
conflicts of interest from decisions relating to procurement.
17. We asked the Department how it collects information
on any related party-transactions, which could lead to a conflict
of interest, and what it does with this information. In line with
accounting standards, academy trusts are required to disclose
related-party transactions in audited accounts and the Agency
told us that it reviews the accounts for such transactions.
It had identified 12 academy trusts with significant related-party
transactions that it wanted to explore further. The Agency told
us that it does not keep a log of related-party transactions,
and it could not tell us the number of such transactions disclosed
in the 1,400 sets of accounts that it received in 2011-12.
18. We questioned the Agency's capacity to spot related-party
transactions given that it is dealing with so many education institutions.
We were concerned that the Agency might not know the true extent
of related-party transactions in all education providerseven
if it implements sophisticated monitoring arrangementsin
the same way that the accountability system in local authority
settings might identify these transactions.
The Department told us that much of the responsibility for spotting
related-party transactions falls on academies' auditors. It also
told us that it was working with academy auditors to ensure that
they meet the standards required by the Department.
In response to our concerns, the Department agreed that it needs
to reflect on the issue of related party transactions and consider
19. The highly devolved academy system invests a
lot of trust and public funding in academy trusts and their trustees
and chief executives and we asked the Agency whether it carries
out fit and proper persons tests.
The Agency told us that it had a process to vet individuals in
groups seeking to establish free schools, but that it did not
have an equivalent test for individuals appointed as academy trustees,
or as academy chief executives. At Kings Science Academy, for
example, the Agency was not aware who the chair of the trustees
was, despite the Academies Financial Handbook requiring
academy trusts to notify the Agency of key staff and changes to
staff, including the chair of trustees, principal finance officer,
and chief executive or principal.
We asked that the Department report back to us on whether it planned
to carry out fit-and-proper persons tests.
20. In 2012-13 the Department and the Agency consolidated
academies into their financial statements for the first time,
and the C&AG qualified his opinion on the Department's financial
statement on a number of grounds.
The consolidation had been a complex exercise that had presented
the Agency with a number of problems. Academy trusts have different
year-ends and different accounting frameworks to the Agency, which
meant the Agency had to make adjustments on consolidation. The
Agency had also received poor quality data from academies, which
had resulted in a significant level of corrections and missing
or late returns.
We pressed the Department on how soon it could remove the C&AG's
qualifications on his opinion. Of the four qualifications,
the Department told us that it expects to have rectified two
of these by next year. However, it considers that the qualifications
relating to different year-ends and ownership of academies' land
and buildings will be more difficult to remove.
21. On the C&AG's qualification relating to different
year-ends, the Department told us that it made perfect sense for
a school to produce its own accounts on an academic-year basis
to 31 August, as a school sets it budgets, recruits its staff
and receives funding based on the academic year. The Department
explained that this had caused it problems when consolidating
academies' accounts into its own financial year account ending
on 31 March. However, the Department considered that, for academy
accounts to be of most use at local level, they should continue
to be produced on an academic year basis.
The Department told us that it was in discussion with both HM
Treasury and the National Audit Office about what it could do
to resolve the problems of making adjustments that carry a risk
of qualification. The Department questioned whether the current
approach was the most helpful way of presenting information to
Parliament and others.
22. The Department acknowledged that the qualification
on land and building recognition would also be very difficult
to address. It had a clear idea of the land and buildings used
by academies, but it did not have a clear picture of who owned
the land and buildings, particularly for ex-voluntary aided schools,
many of which were historical buildings.
As a result, the Department could not demonstrate which land and
buildings used by academies should be included on its balance
sheet. The Department estimated that it would cost £30 million
to collate data on land and buildings and a further £8 million
a year to keep the data up to date and it was not convinced that
this would represent value for money.
32 Qq 33, 39, 44, 58-59, 63, 65, 133 Back
Qq 16, 33; C&AG's Report paragraph 1.23 Back
Qq 61, 63, 113 Back
Qq 63, 115; Note from Department to Committee dated 8 April 2014 Back
Qq 33, 63, 107, 114, 118 Back
Qq 33-34, 107, 109-112, 120, 167, 169, 172, 174, 177 Back
Q 44 Back
Q 55 Back
Qq 67-68, 174 Back
Qq 121-123 Back
Qq 167-168, 172 Back
Qq 123-124, 134 Back
Department for Education, Consolidated Annual Report and Accounts Back
Q 17; C&AG's Report paragraph 1.26 Back
Qq 140-141 Back
Qq 84-86, 141 Back
Q 140 Back
Qq 141, 146-148 Back
Qq 141-145 Back