Academy schools’ finances Contents

1Transparency and accountability

1.On the basis of the Academy Schools Sector in England Consolidated Accounts published by the Department for Education (the Department),1 and the related report by the Comptroller and Auditor General (C&AG), we took evidence from the Department and the Education and Skills Funding Agency (ESFA).

2.The academy sector in England is responsible for the education of over two million pupils across nearly 6,000 academies.2 Academy trusts receive substantial grants of taxpayers’ money from the Department. The total income of academy trusts was £20 billion in 2015–16, with 90% of this coming from grants.3

3.Academy trusts are required to provide annual accounts to the Department to prove they have managed taxpayers’ money in the way that Parliament intended. When done in a timely manner and with supporting analysis, the consolidated account could provide greater centralised oversight over the Academy Sector than is available for the maintained schools sector.4 Previously, the Department included academies in its own accounts, which created a number of difficulties, as academies have a different year-end (31 August) from central government (31 March). Parliament and HM Treasury agreed that the Department could remove academies from its accounts and produce a separate set of accounts covering the academy sector with an August year-end. This enabled the Department to publish its accounts in July 2017 with an unqualified audit opinion.5

4.In October 2017 the Department published the Academy Sector Annual Report and Accounts for the first time. We welcome the publication of these accounts, which increase visibility of the academy sector’s performance for Parliament and the public. We nonetheless have some concerns about the quality and usefulness of the accounts. The C&AG qualified his audit opinion on the 2015–16 Academy Sector Annual Report and Accounts due to ongoing issues relating to how the Department accounted for the land and buildings used by academies.6 The Department plans to address these issues for the next set of accounts in order to achieve an unqualified opinion and, in future years, will also look to publish the accounts earlier.7

Ensuring the accounts support transparency and accountability

5.The Department published the 2015–16 Academy Sector Annual Report and Accounts 14 months after the end of academies’ financial year. It expects to publish the 2016–17 accounts in October 2018, again over a year after the end of academies’ financial year. The transparency and accountability of the information included within the account, and its usefulness to stakeholders, is lessened by this significant delay between the reporting period and its publication as the published information is by then out of date. The Department told us that the delay in publishing the accounts is necessary to give it time to resolve the issues with accounting for land and buildings which led the C&AG to qualify his audit opinion. The Department committed to reducing the delay between the end academies’ financial year and the publication of the accounts. It told us that it planned to publish the 2017–18 accounts before Parliament’s summer recess in 2019. This will provide audited information on the academy sector on a more timely basis.8

6.The accounts contain some high-level analysis of the performance of the academy sector. However, they do not include sufficiently granular analysis to enable a reader to understand the performance of the sector in detail or to draw comparisons between trusts, in particular across geographical areas or by academy size. Nor do they contain benchmarks to allow parents and local communities to understand whether or not the performance of an academy trust is improving.9 The Department confirmed that it does not currently have such analysis, but could provide it in future accounts.10

Related party transactions

7.Academy trusts can obtain goods and services for their schools in a number of ways, including related party transactions. A related party transaction is a business arrangement between an academy trust and an organisation or a person with whom those responsible for the governance of an academy trust have a personal connection. This can include family members.11 In 2015–16, academy trusts undertook over 3,000 of these transactions worth a total of £120 million.12 The Department asserted that related party transactions can be beneficial to schools, as they may receive goods or services for free, or at reduced cost. It recognised, however, that it is important that related party transactions are transparent and properly procured.13 The Department told us that 40% of academy trusts have related party transactions that involve either the academy’s Headteacher or governors.14

8.The Department confirmed that it expects related party transactions to be subject to proper procurement processes, and that the value, and nature of related party transactions, along with details of the relationships involved, are disclosed in the accounts of academy trusts.15 The Department and the Education Skills Funding Agency (ESFA) told us that all related party transactions are subject to a tendering process and academy trusts are required to provide evidence that the service is being delivered at cost rather than making a profit.16 However, under the current rules academy trusts are only required to seek approval from ESFA for ‘novel, contentious and/or repercussive transactions’.17 In practice this means that the majority of day to day related party transactions require no prior approval. ESFA may only become aware of most transactions when it reviews the annual accounts.18

9.ESFA told us that it reviews the accounts of some 500 academy trusts each academic year. Where it identifies transactions that do not comply with the rules, or where these are brought to the Department’s attention by other means, the Department will investigate these transactions.19 The Department told us that only in 1–2% of cases did it identify related party transactions which were in breach of the rules. It also confirmed that criminal proceedings are instigated where this was merited.20

10.We heard of related party transactions where the rules were not properly followed, or where there were doubts about the propriety of the transactions. For example, Wakefield City Academies Trust purchased IT services worth £316,000 from a company owned by the Chief Executive of the Trust, and paid a further £123,000 for clerking services provided by a company owned by the Chief Executive’s daughter.21 We similarly heard that the founder of Bradford Academy, who was a former teacher, was ordered to repay £35,000 after being sentenced to prison for defrauding the school. The founder and other former members of staff at Kings Science Academy paid £69,000 of Government grants into their own bank accounts.22 There have also been problems with related party transactions at the Bright Tribe Academy Trust, which resulted in schools being removed from the Trust.23

11.Academy trusts are required to demonstrate to the satisfaction of their own auditors that related parties have not made a profit from the relationship (i.e. that transactions are at cost or below).24 We were concerned that determining whether a service has been delivered at cost is dependent on information from the supplier, who may have a vested interest in manipulating or inflating this information and is in a position to do so.25 We questioned whether there were incentives for trustees to take advantage of the system, due to the weaknesses in the system of oversight.26 The Department, noting our dissatisfaction with the current processes, committed to reflect on the adequacy of the current arrangements.27 Following our evidence session, the Parliamentary Under Secretary of State for the School System wrote to all Chairs of academy trusts to remind them of the need to scrutinise any related party transactions, and to ensure that a full and proper procurement process is following and the trust is able to demonstrate that the services have been provided at cost.28

Salaries paid to senior members of staff

12.The average annual salary of a Headteacher in a local authority maintained school is £88,000. The equivalent for a Headteacher at an academy school is £92,000. Academy schools are responsible for setting the salaries of their own staff, but must ensure that decisions about levels of pay follow robust, evidence-based processes and reflect the individual’s roles and responsibilities. Academies are required to disclose in their accounts the numbers of staff who are paid over £60,000, in bands of £10,000, as well as the names of each trustee and the amount that they get paid.29

13.The overwhelming majority of trusts (96%) do not pay anyone over £150,000.30 There were nonetheless 102 instances of trustees being paid salaries which were in excess of £150,000 in 2015–16.31 The Department has no easy way of correlating performance and salaries, and therefore could not tell us whether or not those who were being paid in excess of £150,000 were also those responsible for the best performing schools.32 In November 2017, ESFA wrote to 29 single academy trusts (i.e. academy trusts with only one school in the trust) where it could identify from the accounts that the trust was paying at least one person over £150,000 to ask why such large sums of money had been paid.33 This was the first time that such an exercise has taken place. ESFA received responses from all 29 trusts, but only one third were able to provide a response that it judged to be reasonable. It told us that it would be inviting the Chairs of governors of the remaining two-thirds of trusts to meet with ESFA to explain why they feel these salaries are appropriate. It also confirmed that this is the beginning of asking academies to be more transparent and publicly accountable for the public funds that ESFA gives them.34 Following our evidence session, a letter to all Chairs of academy trusts in February 2018 from the Parliamentary Under-Secretary of State for the School System stated that ESFA would shortly be writing to multi-academy trusts who pay at least one trustee in excess of £150,000 to ask them to provide further information on the rationale for this level of pay.35

14.Unjustifiably high salaries use public money that could be better spent on improving children’s education, and do not represent value for money. While such salaries remain unchallenged, it is more likely that they will become accepted as indicative of the market rate. As well as distorting the employment market in the sector for senior staff, these may build in unnecessary year-on-year increases, both in salaries, and related costs such as pensions. Large increases in salaries, when overall funding is not increasing at the same rate, add to the financial pressures faced by schools.36 ESFA told us that where it identifies that an academy trust is in financial difficulties and that this is partly due to staff salaries, it will encourage the trust to reduce pay accordingly.

15.Staff pay represents a substantial proportion of a school’s costs already (over 70%).37 Following our evidence session, the Parliamentary Under Secretary of State for the School System accepted that not all academy boards were being rigorous enough on the issue of senior salaries and that senior pay should reflect the pay they make to schools’ performance and how efficiently they run their trusts. In a letter to the chairs of all academy trusts he reminded trusts that the pay of a Chief Executive Officer or other non-academic staff should not be expected to increase faster than the pay award for teachers, and that there should be a reduction in senior pay where the educational performance of schools in the trust declines over several years.38

Information about the extent of asbestos in schools

16.In April 2017, we found that the Department did not have a complete picture of the extent of asbestos in school buildings. The Department’s first property data survey, carried out between 2011–2014, did not assess the extent of asbestos in school buildings. The Department carried out a further survey in 2016, which specifically looked at the management of asbestos in schools. However, only a quarter of schools responded to the second survey. We recommended that the Department should set out a plan by December 2017 for how it would fill the gaps in its knowledge about the school estate in areas not covered by the property data survey. We specifically stated that this should include how it would understand the prevalence, condition and management of asbestos, and also know more about the suitability and safety of school buildings.39 The Department told us that it was conducting a new survey to assess the condition of school buildings, the prevalence of asbestos and evidence of the ways in which it is being managed.40 The Department confirmed that this survey would collect data on asbestos.41

17.Schools and local authorities (whichever is the employing body), overseen by the Health and Safety Executive, are legally required to maintain an inventory of the asbestos in school buildings, and a plan for the management of that asbestos. These documents should be available to people who have an interest in the subject.42 We heard an example of where this had not been the case and local accountability had been hindered by a lack of accessible information.43 Parents and campaigners wanting information on the extent and management of asbestos in a school in Whitehaven, Cumbria, were required to submit a Freedom of Information request in order to access the plan which was held in Stockport, Greater Manchester.44 ESFA confirmed that this important information should be readily accessible and that a Freedom of Information request should not be necessary to gain access to it.45

1 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017

2 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017

3 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017, Note 2 – Income, p. 98

4 Qq 12, 34

5 Department for Education, Consolidated annual report and accounts for the year ended 31 March 2017, Session 2017–19, HC 116, 19 July 2017

6 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017, The Certificate of the Comptroller and Auditor General to the House of Commons, p 74

7 Qq 1, 11

8 Qq 1, 11–12, 14–15, 107

9 Qq 78–79

10 Q 78

11 Q 52

12 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017, Note 15 – Related Party Transactions, pp 114–115

13 Q 38

14 Q 37

15 Q 28

16 Qq 51–52

17 Education and Skills Funding Agency, Academies financial handbook 2017, 1 July 2017

18 Q 32

19 Qq 29, 32

20 Qq 22, 28

21 Q 27

22 Q 32

23 Qq 41–45, 47

24 Q 56

25 Qq 50, 53

26 Qq 50, 60

27 Q 106

29 Qq 61–62, 66

30 Q 66

31 Department for Education, Academy Schools Sector in England Consolidated annual report and accounts for the year ended 31 August 2016, Session 2017–19, HC 425, 26 October 2017, paragraph 7.3, p 64

32 Qq 66–67

33 Education and Skills Funding Agency, Letter to Academy Trusts about levels of executive pay, 4 December 2017

34 Qq 61–64

36 Q 66

37 Q 66

39 Q 114, Committee of Public Accounts, Capital funding for schools, Fifty-seventh report of Session 2016–17, HC 961, 26 April 2017

40 Qq 43, 107, 114

41 Q 108

42 Q 112

43 Q 76

44 Q 112

45 Qq 113–114

30 March 2018