Complex structures adopted by academy trusts led to arrangements which are ‘not always transparent’ and could ‘increase the perception of any wrongdoing’, warned the National Audit Office
The Chief Auditor investigated the Education Funding Agency’s oversight of related party transactions at Durand Academy Trust and found the way the Trust was set up resulted in a complex web linking the Trust with connected organisations. Some contracts to these linked organisations had been awarded without competition, the NAO found.
Durand Academy was a ‘well-established and successful primary school’ the auditor acknowledged. It had opened a secondary school in 2012 and its controversial secondary boarding school had just opened. The Auditor said he would review the business case for the boarding school in due course following concerns about value for money.
Sir Greg Martin, the executive head of Durand Academy, received a 56.5% pay rise from Durand Academy Trust in 2012/13 (see here
). The Department for Education told the NAO it believed head’s pay was a matter for academy trusts but has nevertheless asked EFA to undertake a review of academy heads’ salaries.
The NAO didn’t just report on Durand but on the EFA’s process for reviewing disclosed related party transaction. This was ‘systematic and consistent’, the NAO noted, but ‘initially desk-based and light-touch’. Decisions about whether such transactions were a risky use of public funds were often triggered by whistleblowers or because an academy was already on the EFA register of academies causing concern. There was no ‘routine follow-up’ of academies to make sure all related party transactions were disclosed and the EFA lacked capacity to carry out such checks, the Auditor said.
The EFA had responded to concerns and changed its guidance on related party deals but this had been done on an ad-hoc basis. The Agency had introduced an ‘at cost’ policy for these transactions. But the Public Accounts Committee has already recommended the EFA to reconsider this policy: such deals are ‘always open to accusations of conflicts of interest, even when on a ‘no-profit basis’.
The EFA disagreed with PAC – such contracts are ‘acceptable under some circumstances’ if value for money can be shown and the deals comply with ‘relevant accounting standards’.
However, the NAO said it will be difficult to find evidence about whether such transactions are ‘at cost’ or ‘no profit’. The decision may be subjective and difficult to audit especially when the contract is for services rather than for goods. Academy auditors are concerned the EFA ‘at cost’ or ‘no profit’ requirements will be difficult to apply, the NAO said, and it will be a challenge for the EFA to make sure academy auditors can provide an ‘unmodified opinion’ on academies’ financial statements.
In May, I asked if the EFA could cope
with monitoring the finances of an ever-growing number of academies. Since then I have found the EFA is expected to cut its operating costs. And now the NAO says the EFA lacks capacity to check on related party transactions which will in any case be difficult to police effectively especially when academy trusts are linked in a complex web of connections.
Although the investigation was about Durand, the NAO said the EFA found 976 academy trusts in 2012/13 had disclosed related party transactions valued at £71m. 54 cases involving £8.6m of public money were assessed as posing a risk to value for money. The EFA found 17 of these cases were ‘irregular’ or ‘improper’. The Guardian has a summary here.