And there are related-party transactions - academy trustees awarding contracts to associated companies. Former chair of the Public Accounts Committee, Margaret Hodge, wanted them stopped – they were just ‘wrong’.
The Education Funding Agency (EFA), the Department for Education office dealing with academy finance, doesn’t agree with Hodge. Related-party transaction are acceptable, the EFA says, as long as they’re ‘at cost’ and declared in accounts.
But a recent Court case reported by Schools Week reveals how academy trustees can get round the ‘at cost’ rule.
The case was brought by Wey Education PLC against one of its former directors, Zenna Atkins, Ofsted chair from 2006-10. The Court found Atkins had ‘breached her duty of loyalty’ and ‘acted to further her own interests at the Company’s expense’.
Wey Education PLC has several subsidiaries including Wey Consultancy Ltd, formerly Zail Enterprises, and Wey Education School Trust (WEST), formerly Third Millennium Education Trust (TMET). WEST was to be ‘the operator of record’ of any academies set up by Zail. The Court’s judgement revealed that ‘Wey’s commercial model relied on the trust being able to contract as many services from Zail as possible’.
Such a commercial model would rely on the parent organisation being able to profit from selling services to a subsidiary academy trust. Such a transaction is banned under EFA rules. But the judgement reveals how parent companies can dodge EFA restrictions. Atkins had suggested that consultants employed by Wey could sell services to Zail at a profit. Zail would then sell the same services to TMET ‘at cost’.
Presumably it works like this: consultants employed by the parent company sell services to a subsidiary at a profit. The subsidiary sells the services to its academy trust for the price it paid for them. The academy trust would declare this transaction in its accounts and could say the services were ‘at cost’.
This must have been in Atkins’ mind when she joined for-profit education provider GEMS (this turned out to be very short-lived). She told the Guardian the rules barring for-profit education providers from running England’s schools were ‘not an issue because we can set up a charitable trust with Gems as the operating company beneath.’
Three years ago to the day, we reported on how Zail Enterprises had set up WEST to be a ‘vehicle’ by which Zail’s shareholders could make a return. We asked how many academy trusts were similar vehicles for investors wishing to profit out of running England’s schools. This question is as relevant today as it was then. EFA rules may only allow related-party transactions if they’re ‘at cost’, but Wey Education’s court case reveals how associated companies can still profit from selling their services to their captive customer base – their academies. And the EFA will be none the wiser.