EXCLUSIVE: £16m lent to academies to ‘achieve financial stability’ in 2016/17, FoI reveals

Janet Downs's picture
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The Department for Education (DfE) provided £16,274,804 in ‘advances’ to academy trusts in the financial year 2016/17, Freedom of Information (FoI) shows.  The money was given to ‘enable trusts to achieve financial stability’.  The ‘additional funding’ is repayable when the trusts ‘have reached a stable financial position’.  

In other words, academy trusts in deficit or at risk of falling into the red are lent money by the DfE for an indefinite period, ie whenever the trust eventually goes into the black. 

On 21 March 2018, I asked the DfE to let me know the total amount lent to academies up to the end of the financial year 31 March 2017.  I also requested repayment terms such as interest per annum and duration of loan.

On 19 April, the DfE responded:

Academies are not allowed to take out loans. However, the department may provide advances of funding, as part of a package of support, to enable a trust to achieve the financial stability that maintains educational standards.’

I was not told the amount of any ‘advances of funding’.  And I had to remind the DfE that academies can take out loans under the Condition Improvement Fund (CIF).

I asked the DfE how much had been provided in loans under CIF and the total value of advances in the financial year ending 31 March 2017.

Eventually, two months after my initial request, I received an answerOver £16m had been lent to academy trusts in financial difficulties during the 2016/17 financial year.  No CIF loans had been awarded during this period.

Whether there’s a time limit for repayment or whether advances attract interest is unclear because the DfE didn’t say.  The repayment terms are included in ‘a recovery plan agreed with the ESFA [Education and Skills Funding Agency]’.

ADDENDUM

I have submitted another FoI request asking for names of trusts receiving advances in financial years 2016/17 and 2017/18 to help them achieve financial stability.  I’ve also asked for names of trusts receiving CIF loans together with each amount in the financial year ending 31 March 2018.   

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John Mountford's picture
Sun, 27/05/2018 - 19:14

Janet, you are like a dog with a bone on important matters like this. Thank you, but where the hell are the teaching unions, the media, MPs and the general public in recognising this for what it is, fraud on a grand scale? There is no functioning system of public accountability when it comes to education funding these days.

I am utterly disgusted and find it totally unacceptable to read that the DfE didn't say "Whether there’s a time limit for repayment or whether advances attract interest " I intend to write, yet again to my MP (Jacob Rees-Mogg), to raise this with the department which I believe has a primary responsibility to work in the public interest, not in accord with the interests of the government of the day.


Janet Downs's picture
Mon, 28/05/2018 - 11:47

John - I suspect the DfE didn't let me know time limites or interest because these may differ from academy to academy.  The only mention of time was that the amount became repayable when the academy trust was on a firm financial footing.  But this raises the question about how long the DfE will wait before an academy trust goes into the black.  Again, I suppose this depends on how well the trust is addressing any deficit and whether it's adhering to the Academies Handbook.  If the trust isn't taking sufficient action and especially if it's not sticking to academy rules then I presume a Financial Notice to Improve would be issued.

I wouldn't go so far as to say it was fraud.  All that can safely be said is that these payments appear to be happening under the radar.  They may appear in trust accounts but it would be an impossible task to check each one.  


John Mountford's picture
Mon, 28/05/2018 - 13:08

Well, Janet, it must be the next best thing to fraud if  "All that can safely be said is that these payments appear to be happening under the radar.  They may appear in trust accounts but it would be an impossible task to check each one. "

Accountability seems to be confined to state schools in this topsy turvy world.  My guess is that any state school whose accounting procedures were as lacking transparence to the same degree would be for the chop. Whatever happened to even the idea of a level playing field?? 


Janet Downs's picture
Mon, 28/05/2018 - 13:44

John - academies are state schools.  They  are run by charitable trusts but their income comes from taxpayers.  

Fraud implies criminal activity ie something that is not legal.   Only a tiny number of academy trusts have had trustees convicted of fraud - Sajid Raza, 43, who set up Kings Science Academy in Bradford, and his sister Shabana Hussain; and James Stewart, 72, former executive principal at Sawtry Village Academy.  In the case of the latter, the fraud began before Sawtry Village Academy became an academy.   

The majority of academy trusts issued with Financial Notices to Improve are usually because the trusts didn't comply with the Academies Handbook.  The reasons include such things as undeclared related party transactions, not going through proper procurement and not keeping proper accounts.  These fall short of illegality.  I suppose it's like the difference between tax evasion (illegal) and tax avoidance (legal but dubious).


Janet Downs's picture
Tue, 29/05/2018 - 09:03

John - just to make it clear, I'm not against schools of any type getting temporary advances to cover a deficit or risk of deficit as long as these are above board.  It's likely that more state schools will struggle to balance their books as the funding crisis bites.

LA schools cannot have loans to cover deficits but LAs can arrange for a school to make 'provision for an arrangement whereby schools are allowed to plan for a deficit budget' via a 'licensed deficit'.  The rules are complicated  (see 4.9 here) - schools don't actually receive an actual payment but are supported from 'collective surpluses' held by the LA.  This is repaid (I don't know exactly how, perhaps from the grant a school receives) until the school breaks even (within a maximum of three years).  

LAs can give loans to schools to pay for one-off items.  However, the Govt suspected LAs were using loans to cover deficits.  It consulted (see here for its response) and reiterated its rule that loans must not cover deficits.  Some LAs argued it was difficult to entangle loans and licensed deficits so the Gov't have made it clear that any money considered to be a deficit loan would remain with the LA if the school converted.   LAs argued that this could be an excuse for some schools in the process of conversion to deliberately run up a deficit which would then remain with the LA.  The Govt responded by saying LAs should use its powers (?) to prevent this happening.

My concern was not so much with the advances given to academies in deficit (as long as they're fair, reasonable and not given to cover up incompetence).  My concern was about encouraging academies to take out loans under CIF to pay for essential repairs.  It is unacceptable for any state school to have to take out loans for such purposes.  These should be covered by grants.  As my article makes clear, I had to remind the DfE about loans under CIF.  It told me categorically that academies couldn't take out loans.  This was obfuscation - what is an 'advance' if not a loan?

 

 


Janet Downs's picture
Tue, 29/05/2018 - 16:55

I have expanded this comment with more detail and posted it as an article.  


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