Rules governing conflicts of interest in academy trusts are too lax, says report to Select Committee

Janet Downs's picture
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‘Conflicts of interest are common in academy trusts’

Report to Education Select Committee by Institute of Education (IoE), University of London

That’s not really surprising, the IoE said, given that academies were designed to be ‘independent organisations spending public money’. However, there have been a small number of cases where these conflicts have been mismanaged.

Conflicts of interest can occur when:

1Academy trustees or their companies benefit personally from ‘connected-party (or related-party’ transactions;

2Sponsors provide paid services to their academies.

3Trustees attempt to exert inappropriate control on their academies such as the excessive influence of trustees discovered in some Birmingham schools or when sponsors from further education (FE) colleges attempted to close sixth forms in their academies which were in competition with the FE colleges.

4When a Department for Education (DfE) academy ‘broker’ also works for an academy trust.

The IoE recognised most trusts were run by honourable people but, while deliberate fraud was rare, problems occurred when pressure was put on trustees to work quickly (perhaps by growing too fast) within a system governed by lax controls.

Checks and balances governing academies relating to conflicts of interest were ‘still too weak’, the report said. Weaknesses were:

1Academy auditors were not expected to be ‘preventative’. In any case, they may lack sufficient expertise to ‘get under the skin’ of what was happening.

2Some trustees are not following national guidance and/or being lax in mitigating risks. This appears to be more likely in newer, fast-growing trusts.

3Rules governing conflicts of interest and ‘at cost’ requirements are ‘insufficiently robust’.

4Checks to spot when trustees are exerting inappropriate control are ‘almost non-existent’.

Researchers found a ‘significant minority’ of the sampled trusts had not published their accounts as required. These trusts included the Harris Federation which did not respond to researchers’ request to provide accounts. Researchers also found that evidence showing competitive tendering had taken place was hard to find – it did not appear this requirement was being monitored either by auditors or the Education Funding Agency (EFA). Academy trusts are supposed to report on whether they provide Value for Money but the researchers’ survey of annual reports suggested the Value for Money statements were ‘largely meaningless’ (PR spin, in other words).

Although academy sponsors and chains are allowed to provide services to their academies as long as they are provided on an ‘at cost’ basis, no external organisation was assessing whether such purchases were really ‘at cost’. A large amount of taxpayers’ money was being paid to academy trustees, their companies and their trading arms via the ‘at cost’ route.

Several interviewees told the IoE they had no confidence in either the EFA or Ofsted to guard against conflicts of interest. Interviewees lacked hope that the new Regional Commissioners could address these issues. There was a broad sense that the academy system lacked transparency and was ‘overly politicised, from the top down’. Researchers received a ‘strong message’ from interviewees that some Heads are more favoured by ministers than others – ministers and senior DfE figures were still associated with or on academy trust boards. This might result in civil servants giving favoured schools ‘preferential treatment’.

Michael Gove must bear responsibility for the lax oversight of academy trusts and the speed with which trusts have been allowed to grow. It was he who encouraged schools to 'opt out' of local authority stewardship and become 'independent'. He was responsible for encouraging chains to grow as quickly as possible. He was responsible for the bias on the DfE website towards academies and free schools. He may have gone but his policies are leaving a dark shadow.

Note: words in brackets and the final paragraph are the author’s comments.

ADDENDUM Academy trusts where ‘desk research’ by IoE revealed ‘real or potential conflicts of interest’:

Aurora Academies Trust
Academy Enterprise Trust
Collaborative Academies Trust
Grace Academy Trust
The Elliot Foundation
Education Fellowship Trust
The Priory Federation of Academies Trust
Northern Education Trust
Durand Academy Trust
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Comments

David Barry's picture
Wed, 17/09/2014 - 16:05

Allowing sponsors of Academies and Free Schools to provide services "at cost" is a very significant loophole.

At its simplist providing services at "cost" begs the question as to how the costs of providing the service are being incurred.

More subtly if an organisation providing services is for profit, it may be able to sell a service to, say, the Free Schools it is running, at cost, and thereby create an economy of scale which allows it to sell the same service on to other customers at a profit made possible because the core fixed cost is covered by the Free School business, with a seperate profit being made at the margin.

A non financial example of this is where a religious group sets up a Free School, with all the capital costs of the site and the school building being met by the taxpayer, and then uses the school building for religious purposes out of school hours, paying for this "at cost" but a cost which reflects only the cost of lighting, heating, security for the period it is in use, and does not take account of the original capital cost (for which the sponsor does not have to pay) or for depreciation and wear and tear on the building.

jennyquestions's picture
Thu, 18/09/2014 - 18:29

Once again, thanks for keeping us all up to speed on this stuff. How many people in the country, outside academic circles, really understand what is motivating the shift to academies and 'free' schools? thirty? forty?


Janet Downs's picture
Fri, 19/09/2014 - 10:23

Jenny - the story was covered in much of the media but I expect it will be forgotten now the results of Scotland's independence referendum are known.

Over a year ago I asked how many academy trusts were a 'vehicle' for trustees to siphon money from taxpayers to shareholders of companies attached to the trust or trustees. The same process is happening in the NHS with contracts being offered to 'any willing provider'.


David Barry's picture
Tue, 07/04/2015 - 09:54

An "addedum to the addendum"

Another example of a Trust with conflicts of interest, not picked up by the IOE study but established by an EFA formal investigation, no less is to be found here:

http://www.localschoolsnetwork.org.uk/2015/02/efa-takes-action-at-high-p...

This posting is also by Janet Downs.

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