30 January 2019
Last week, the House of Commons Committee of Public Accounts (the Committee) issued their report on the academy sector’s performance and recent high profile academy collapses.
The academy sector now includes around 7,500 academy schools in England, educating about 3.8 million children, which equates to more than half of all children in state-funded schools in England; a significant milestone.
Many of these academy schools are in multi-academy trusts (MATs) that manage several schools. In the period 2017/18, the Department for Education (DfE) provided funding to academies of £20 billion.
The Committee’s Report was commissioned as a result of several high-profile academy failures that have been costly to the taxpayer and damaging to children’s education in those schools. Other areas of investigation by the Committee were:
- The continued, and increasing, use of related-party transactions by academies,
- Trusts paying excessive salaries to their CEOs and leadership teams,
- Claims that academies are not sufficiently transparent or accountable to parents and local communities with regard to their individual schools, and
- Despite the funding pressures the sector is facing, neither Ofsted nor the ESFA is assessing the impact of budget cuts on the quality of education and the outcomes schools achieve.
The two recent high profile cases that the Committee investigated were the well-publicised Durand Academy Trust and Bright Tribe Trust, both of which resulted from serious failures of governance and oversight.
The main conclusions and recommendations from the Report are detailed below.
Academy trusts do not make enough information available to help parents and local communities understand what is happening in individual academy schools
This aspect of the investigation focused on one of the Bright Tribe Trust schools (Whitehaven) and the poor state of buildings at the school. There was limited financial information available to parents about the school. The Report noted that financial information available through Companies House is high-level, covering academy trusts as a whole, and is of little use to parents and local communities in understanding the position of individual academy schools.
The Committee’s recommendation is that the Education and Skills Funding Agency (ESFA) should include in the next Academies Financial Handbook (AFH) requirements for academy trusts to make available financial information at school level and to be transparent about governance and decision-making at all levels of the trust.
UHY notes that the ESFA’s annual Academies Accounts Direction (AAD) does set out certain financial information that must be disclosed in the trust’s annual audited accounts relating to its individual schools, but this is fairly limited and is mainly concerned with individual schools’ closing fund balances, reasons for, and actions being taken, for any deficit funds at individual schools and an analysis of various costs for each school (such as teaching staff, support staff, educational supplies and other costs).
Some commentators have suggested that each school in a multi-academy trust (MAT) should have its own set of accounts, as opposed to just a combined MAT set of accounts. We believe that this will be a huge increase in accounting and audit work and costs for trusts and may not be hugely beneficial.
The Report was silent on how maintained schools provide the level of financial information that the Committee is seeking trusts to provide for each school. It is worth pointing out that maintained schools do not produce publicly available financial information and accounts at anywhere near the level required of academies.
It is not clear to whom parents can turn when they need to escalate concerns about the running of academy schools and academy trusts
The Committee found that while MATs already should have complaints procedures it was found that frequent changes of staff at trusts and schools make it difficult for parents to know who to speak to. Parents whose children are in stand-alone schools and single academy trusts are more likely to feel that their views are heard than those in multi-academy trusts.
The Committee recommended that the DfE should ensure all academy trusts have a published complaints procedure, including a named individual for parents to escalate concerns to, and the DfE should, by March 2019, make clear and easily accessible the name and contact details of whom in the DfE parents should turn to if their concerns are not adequately addressed by an academy trust.
The ESFA is not sufficiently transparent about the results of inquiries into concerns about the financial management and governance of academy trusts
The ESFA regularly conducts investigations and reviews into academy trusts’ financial management and governance. However, the results of these inquiries are not always made public and where they are published there can be lengthy delays.
The Committee recommended that the ESFA should publish, within two months of completing the work, the results of its inquiries into concerns about the financial management and governance of academy trusts.
UHY’s view is that these ESFA investigations and reviews into academy trusts’ financial management and governance are very useful for trusts and their trustees to read and to appreciate the issues that can occur and how the ESFA deals with breaches. This helps trusts manage their own risks and to share information with trustees about the potential for areas to go wrong, and so timely publication of these reports will be very useful to the sector.
Neither Ofsted nor the ESFA assesses the impact of funding pressures on the quality of education and the outcomes schools achieve
The DfE told the Committee that it would gain assurance, in part from Ofsted inspections, that schools were achieving ‘desirable’ efficiency savings, and that educational outcomes were not being adversely affected by the need to make savings by the large budget cuts recently imposed on schools.
However, Ofsted is not providing this assurance to the DfE. As funding has slowed, school leaders have had to make difficult choices and work harder to balance their budgets. A large number of schools are now running into deficits, and may soon no longer be ‘going concerns’.
The HM Chief Inspector told the Committee that the current inspection framework is not designed to capture the effects of curriculum narrowing. Ofsted and the ESFA have now started to seek to join up their work, but the DfE still does not understand the impact of funding pressures on schools and the education of our children.
The Committee has therefore recommended that, as part of its school inspections, Ofsted should examine and report on whether the quality of education and the outcomes schools achieve are being adversely affected by the need to make savings to make budgets ‘balance’. It is not clear who will be held responsible for any reduced education outcomes as a result of reduced funding; the schools or the DfE.
Related party transactions and highly paid CEOs at multi-academy trusts
There are escalating concerns in the sector, the media and commentators about how academy trusts, and in particular multi-academy trusts, are run and governed. Two main areas of concern are related party transactions and highly paid CEOs and school leaders.
Both of these areas are being addressed by the ESFA.
High salaries: Following correspondence from the ESFA to those MATs with high CEO salaries, a quarter of those trusts have reduced their salaries and the remaining trusts had been asked for evidence about how salaries had been set. The ESFA has also had conversations with some trusts about their salary setting practices and justification for such levels of pay, especially bearing in mind budget pressures that the sector is facing and the resulting expectation of a fall in educational attainment and progress.
Related party transactions: The ESFA has tweaked its rules for related party transaction in recent years and in the Academies Financial Handbook (AFH), issued in September 2018, significantly strengthened the arrangements for related party transactions to a more rigorous system. From April 2019, trusts will have to declare all related party transactions under £20,000 and will have to seek approval from the ESFA for transactions over £20,000. It is not yet clear how this will work in practice, in particular how long the approval process will take. We understand that the ESFA is putting together a specialist team to work on the monitoring and approval of related party transactions from April 2019.
Our recent blog on related parties, explaining the new rules can be found here.
UHY believes that if the ESFA can make this new process work effectively, with efficient approvals, then inappropriate related party transactions in the sector, in particular related parties making profits from the trusts they are related to, should be a thing of the past. The only further step that the ESFA could realistically take is to ban any related party transactions, which we believe to be a step too far, as some related parties do provide high-quality services to trusts, with services charged at the required cost price therefore also being of better value than can be obtained by third parties.
On the same day that the Committee’s Report was issued, the ESFA also issued its own ‘bullish’ research report with the Education Secretary calling for more maintained schools to become academies and claiming that educational standards are rising faster in many sponsored academies than in similar council-run schools. Details of this report can be found here.
It has certainly been a busy week for reports in the education sector. Ministers have also published plans to offer cash incentives to young secondary teachers to help stem the decline in teacher numbers. They are also proposing protected time for extra teacher training.
Many of the nation’s educational problems can be helped by increasing the opportunities for our teachers. Budget cuts have resulted in some schools axing subjects, many teacher vacancies going unfilled, students being taught subjects by teachers who are not specialised in those areas, and teachers not being able to secure housing in the areas where they teach.
With many employers in other sectors increasing flexible working and the work-life balance for its employees, it is hard to see how many of our schools will attract new teachers and keep the existing ones from considering changing career.
We believe that plans need to be implemented to improve teacher recruitment, improve their work-life balance and stop teachers leaving the profession by reversing budget cuts in our schools so that both maintained and academies schools can recruit the teachers they need and provide high-quality teacher training.
Let’s hope that academies, who have more freedoms than maintained schools, can find more ways to manage and motivate their teachers and staff and improve their culture, while also increasing the quality of education.
While the reasons for the Committee’s Report being commissioned are fully justified and improvements are needed, it is all too easy for the academy sector to be targeted, while governance and efficiency weaknesses in some maintained schools go unreported and out of the public domain. Academy trusts and their schools do have a number of levels of governance checks and internal controls reviews required as part of the Academies Financial Handbook, as well as statutory external audits and the resulting recommendations for improvements, that maintained schools do not have.
The Committee’s full Report can be found here.
If you have any questions, please contact me or your nearest UHY academy specialist.
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