Education damaged by academy failures and misuse of funds

PAC takes new evidence from Ofsted Chief Inspector Amanda Spielman today (23 Jan).

• Governance of academy trusts must be strengthened and the DfE’s oversight more rigorous
• Trusts are not sufficiently transparent or accountable to parents and communities
• Concerns persist about the impact of funding pressures and the extent of asbestos in schools

There has been a succession of high-profile academy failures that have been costly to the taxpayer and damaging to children’s education.

Some academy trusts have misused public money through related-party transactions and paying excessive salaries.

At Durand Academy Trust and Bright Tribe Trust, there were serious failures of governance and oversight. This cannot be allowed to happen again – governance at academy trusts needs to be stronger and the Department for Education’s (the Department’s) oversight and intervention needs to be more rigorous.

The Education and Skills Funding Agency (the ESFA) is taking steps to control executive pay and related party transactions, but these actions are as yet unproven and in isolation will not prevent abuse. We expect to return to these issues in future.

Academy trusts are now responsible for educating nearly half of all children in state-funded schools in England, but they are not sufficiently transparent or accountable to parents and local communities.

Parents and local people have to fight to obtain even basic information about their children’s schools and academy trusts do not do enough to communicate and explain decisions that affect the schools they are responsible for and how they are spending public money.

The accounts of individual academy trusts, and for the sector as a whole, are not yet as useful and accessible to users as they should be.

Our inquiry also reiterates concerns about the school sector as a whole which we raised nearly two years ago and which have not been addressed.

• First, despite the funding pressures the sector is facing, neither Ofsted nor the ESFA is assessing the impact of these pressures on the quality of education and the outcomes schools achieve.
• Second, almost a quarter of schools have still not provided the information that the Department needs to understand fully the extent of asbestos in school buildings.

COMMENT FROM PAC CHAIR MEG HILLIER MP:  

“When things go wrong in schools, pupils can be badly affected. We have seen the troubling consequences of poor governance and oversight of academy trusts. Government must raise its game to ensure the failures of the past are not repeated.

“Parents and the wider community are entitled to proper access to transparent information about their local academy schools. They must have confidence that when issues arise, robust measures are in place to deal with them.

“The Government must act to make this happen and, as detailed in our Report, we expect the Department for Education and Education and Skills Funding Agency to demonstrate they are doing so.”

Cllr Anntoinette Bramble, Chair of the Local Government Association’s Children and Young People Board, said:

“This damning report raises serious questions around academy financial governance and will be hugely concerning to parents and teachers across the country.

“The findings reinforce our call for councils to be allowed to step in and oversee failing academy finances, as they do with council-maintained schools that face financial challenges.

“It is now clear that the Department for Education does not have effective oversight of spending in more than 7,000 academies.

“Councils, which have vast experience running large budgets, are best placed to do this. Not only would this ensure democratic accountability, it would give parents the certainty and confidence in knowing that their child’s school is able to deliver the best possible education and support, without risk of financial failure.”

Liberal Democrat Education spokesperson Layla Moran, who sits on the committee, said:  

“This report shows the risks which come from the increasing fragmentation of the schools system, and erosion of scrutiny and oversight, which has resulted from the Conservative’s ideological drive to create more and more academy schools. 

“Parents will no doubt be concerned that a lack of accountability will be jeopardising the quality of education their children receive. 

“I’m in no doubt we need far greater oversight and scrutiny of academies and am pleased that this report recommends a number of steps towards this. 

“The Liberal Democrats believe multi-academy trusts should be subject to the same inspections as local authorities, and that we need to return more power to local councils to oversee schools in their local areas.” 

Education Secretary Damian Hinds has called on more schools to become an academy, saying:

“In the past, schools that failed were allowed to stay under local authority control for far too long. Academies have changed all that – failing schools can now be taken away from local bureaucracies who have not been able to improve them and given to school leaders who can.

“We have seen many of these sponsored academies dramatically improve their Ofsted results following conversion, and this new research shows the improvements many schools have made since they became an academy.

“As part of our effort to improve school standards across the country, it is important that we are clear that no school will be left to fail their pupils.” 

A Department for Education spokesperson said:

“We do not accept the PAC’s negative characterisation of academies, in which standards of education have risen for thousands of pupils. Only last week we saw the real life impact of academies with the Oxbridge offers to children at Harris Westminster , London Academy of Excellence and Brampton Manor Academy.

“The majority of academies are delivering a great education and – as recognised by the PAC – we are taking robust action in the small minority of cases where they are not meeting the high standards expected.

“Academies are subject to higher levels of accountability and transparency than local authority schools. Academies must publish their annual accounts and this year we added new requirements on related party transactions. We have also taken steps to increase accountability by publishing lists of trusts who do not return accounts on time; and by challenging trusts who pay high executive salaries.”

Further information from Department for Education:

• Accountability is founded on a clear framework communicated and regulated by the ESFA, through trusts’ funding agreement and the Academies Financial Handbook, with effective oversight and compliance based on proportionate risk assessment, and robust intervention when concerns arise.
• Academy trusts status as companies, charities and public sector bodies, means they have a more rigorous tri-partite framework, and are held up to greater scrutiny.
• Academy trusts must publish their accounts.
• As part of their annual report and accounts, academy trusts must publish details of their objectives, achievements and future plans, and also set out what they have done to promote value for money in support of those objectives.
• Academies must have a written complaints procedure available to all parents.
• We are not complacent, and are continually looking to develop and strengthen our approach.
• Fewer than 2% of academy trusts are subject to an active Financial Notice to Improve (FNtI).
• In both 2015/16 and 16/17, 98% of academy trust accounts received unqualified opinions.
• In both 2015/16 and 16/17, auditors concluded that there were no regularity exceptions in trust accounts for over 95% of trusts.
• 94% of academy trusts are reporting a cumulative surplus or breaking even, with total surpluses of £2.4 billion.

The ESFA continues to develop the AFH year on year to strengthen the accountability framework. DfE published a new edition in June 2018 –  the main changes were:

• Executive pay – more focus on the board’s responsibility for ensuring decisions about senior leaders’ pay are proportionate, justifiable and clearly documented.  
• Related party transactions – embedding a new requirement for trusts to report all RPTs to ESFA in advance and to seek approval for those over £20k.
• Management accounts – emphasising a rigorous approach to setting and monitoring financial plans, including board engagement.
• Audit findings – being clear that trusts must respond in an appropriate and timely manner to advice from auditors, taking opportunities to strengthen their systems. 

CONCLUSIONS AND RECOMMENDATIONS

Academy trusts do not make enough information available to help parents and local communities understand what is happening in individual academy schools.        We heard from witnesses from Whitehaven about the poor state of buildings at their school, that improvement work they believed to be funded had not been done, and that parents had to use freedom of information requests to find out from Bright Tribe Trust what was happening at the school. They also described how little financial information Bright Tribe made available about the school. The accounts information available through Companies House is high-level, covering each academy trust as a whole, and is of little use to parents and local communities in understanding the position of individual academy schools. The Department says that academy trusts must have a scheme of delegation, setting out which decisions are made at school level and which at trust level, and are required to have parent representatives on their governing bodies. However, we heard that Bright Tribe had removed local governance and created a regional governing body for all its schools in the north of England.

Recommendation: The ESFA should include in the Academies Financial Handbook 2019 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.

The Department is not adequately meeting the needs of users in presenting financial information about academy trusts.

We recommended in March 2018 that the Department should publish more analysis in the academy sector annual report and accounts, including a comparison of the financial performance of academy trusts of different sizes and geographical areas. The Department did include some additional analysis in the latest annual report, but not the breakdowns that we requested. It would also be more transparent and helpful for the user if the Department were to present separate information on certain types of academies, such as university technical colleges.        The Department presented analysis in the annual report and accounts on academy trusts’ cumulative deficits which draws attention to how many trusts are in significant financial distress. It should do more to explain the financial sustainability of the academies sector as a whole, for example by presenting analysis of trends in in-year deficits to explain whether and why a growing number of trusts are spending more than their annual income. The Department says that it has thought in a “user-centred way” about how to give parents, councillors and schools performance and financial information for their school to enable them to compare it with others. However, the accounts themselves would better support transparency and accountability if they included more detailed analysis.

Recommendations: The Department should write to us by March 2019 setting out the work it has done to understand better who the users of the academy sector annual report and accounts are and what information they need.

The Department should include in the annual report for the academy schools sector for 2017/18 an analysis of the financial performance of academy trusts of different sizes and geographical locations, and an analysis of trends in trusts’ in-year deficits as well as cumulative deficits.

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 Department requires academy trusts to have complaints procedures to deal with concerns that have not been addressed, and there is a right of appeal to the Department. However, the Department cannot confirm that appropriate arrangements for complaints are in place in all academy trusts and acknowledges that, in the case of Bright Tribe, they were clearly not applied. Bright Tribe had a complaints policy for Whitehaven school, but no process for complaining about problems with the multi-academy trust, and frequent changes of staff at the trust and school made it difficult for parents to know who to speak to. Parents whose children are in stand-alone schools are more likely to feel that their views are heard than those in multi-academy trusts.

Recommendation: The Department should:

• by the start of the 2018/19 school year, ensure that all academy trusts have published complaints procedures, including a named individual for parents to escalate concerns to; and
• by March 2019, make clear and easily accessible the name and contact details of whom in the Department parents should turn to if their concerns are not addressed adequately by the academy trust.

Where there have been serious failings at academy trusts the Department has not had an effective regime to sanction the academy trustees and leaders who were responsible.

Despite a catastrophic failure of governance, the previous executive headteacher at Durand Academy Trust is apparently entitled to a lump sum payment which, even after a statutory inquiry by the Charity Commission, totals £850,000. This is a shocking reward for failure. The Department has few sanctions at its disposal to penalise those involved in malpractice. It can ban individuals from teaching, as it did in the case of the former headteacher at Perry Beeches Academy Trust. It can also stop individuals from being school governors but admitted that this is very unusual. The ESFA admits that there is nothing to stop people involved in malpractice from acting as trustees or governors elsewhere, for example at a further education college, or from setting up businesses that could trade with the education and training providers that it oversees and regulates. The ESFA and the Charity Commission are investigating whether individuals involved in malpractice could be disqualified from becoming company directors.

Recommendation: The Department should write to us by March 2019 to set out what sanctions it has imposed to date, and explain how it plans to strengthen the sanctions regime to deter, punish and prevent malpractice. In strengthening the sanctions regime, the Department should work with the Charity Commission, Companies House and the Insolvency Service.

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. For example, the Department took two years to publish the results of its inquiries into concerns about Wakefield City Academies Trust. The interim Chief Executive of Bright Tribe told us that the ongoing investigations into the trust will be concluded by Christmas 2018 and that the trust or the ESFA will then take any necessary action. However, we were given no assurances that the reports and the actions will be made public in a timely way.

Recommendations: 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.

On Bright Tribe specifically, the ESFA should write to us by March 2019 with the results of the investigations that the ESFA and the trust were undertaking when we took evidence.

Neither Ofsted nor the Education and Skills Funding Agency assesses the impact of funding pressures on the quality of education and the outcomes schools achieve.

The Department told the Committee in early 2017 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. However, Ofsted is not providing this assurance. In June 2018, HM Chief Inspector told us that responsibility for school funding sits with other parts of government and did not provide us with clear and direct answers about the impact of funding pressures. In her subsequent letter in October 2018, HM Chief Inspector said that, as funding growth has slowed, school leaders have had to make difficult choices and work harder to balance their budgets; however, she reported that inspectors are not seeing an impact on education standards. She noted, however, that the current inspection framework is not designed to capture the effects of curriculum narrowing. We understand that Ofsted and the ESFA have started to seek to join up their work, but the Department still does not understand the impact of funding pressures.

Recommendation: 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.

Nearly a quarter of schools have still not provided the information that the Department needs to understand fully the extent of asbestos in school buildings and how the risks are being managed.

We remain seriously concerned about the Department’s lack of information and assurance about asbestos in school buildings – as we first reported in April 2017. The Department launched its ‘asbestos management assurance’ process on 1 March 2018 to collect data on how asbestos in schools is being managed, and to provide assurance that academy trusts and local authorities are complying with their legal duties. The Department asked schools to respond by 31 May 2018. Due to the poor response rate, it extended the deadline to 25 June 2018 and then extended it again to 27 July 2018. Despite this, only 77% of schools have responded and the Department has extended the deadline yet again, to 15 February 2019, to allow the remaining 23% of schools to respond. The Department says that those schools that do not respond will be picked up in its school condition survey. However, we are not convinced that extending the survey deadline again will result in a much higher response rate, or that the condition survey will provide the level of specific assurance needed about how asbestos is being managed.

Recommendation: In March 2019, the Department should name and shame those schools which did not meet the February 2019 deadline and which have therefore repeatedly failed to respond to its asbestos management survey.

https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/1597/159702.htm

https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/1597/1597.pdf

Evidence relating to this Report can be found here.

Committee membership: Meg Hillier – Chair (Labour (Co-op), Hackney South and Shoreditch), Douglas Chapman (Scottish National Party, Dunfermline and West Fife), Sir Geoffrey Clifton-Brown (Conservative, The Cotswolds), Chris Davies (Conservative, Brecon and Radnorshire), Chris Evans (Labour (Co-op), Islwyn), Caroline Flint (Labour, Don Valley), Robert Jenrick (Conservative, Newark), Shabana Mahmood (Labour, Birmingham Ladywood), Nigel Mills (Conservative, Amber Valley), Layla Moran (Liberal Democrat, Oxford West and Abingdon), Stephen Morgan (Labour, Portsmouth South), Anne Marie Morris (Conservative, Newton Abbot), Bridget Phillipson (Labour, Houghton and Sunderland South), Lee Rowley (Conservative, North East Derbyshire), Gareth Snell (Labour (Co-op), Stoke-on-Trent Central), Anne-Marie Trevelyan (Conservative, Berwick-upon-Tweed)

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