Rules on related-party transactions are “too weak to prevent abuse,” a powerful Commons committee has concluded.
The public accounts committee today published its assessment of academy trust finances and the regulations in place to prevent malpractice.
But the committee has blasted the Department for Education for a range of issues, including the fact its own academies annual report was 14 months late, its lack of real data on asbestos, and because it doesn’t actually know how many trusts are currently in debt.
Soaring executive pay was also condemned, as Schools Week exclusively revealed the names of the 87 trusts asked to justify senior leadership pay higher than £150,000 this week.
Here are the main recommendations:
1. Schools should need ESFA approval for related-party transactions
The DfE’s current rules around related-party transactions are “too weak” because it’s tricky to tell if someone is making a profit, the committee found.
Related-party transactions must not currently be carried out for profit, but the committee is “not convinced” by the DfE’s argument that they can benefit academy trusts by providing services at lower costs.
This is because working out what constitutes the cost of providing a service “can be complex and open to manipulation”, and it is therefore difficult to prove that a related-party transaction for services isn’t “at cost”.
In 2016, 40 per cent of academy trusts engaged in related-party transactions, worth a total of £120 million.
The Education and Skills Funding Agency should have to approve these transactions, because at the moment they only spot dodgy related-party transactions in end-of-year accounts or through whistleblowers.
2. Trust performance should be analysed by geographic area
The DfE’s consolidated academy accounts for 2015-16 did not compare trusts of different sizes or geographical locations. Such analysis would make it “easier to assess performance across the academies sector”, the committee believes.
At the moment, parents and communities can’t tell how well trusts are spending taxpayer money because the way trusts are compared is too vague.
Overall, the accounts need to include more detailed analysis of how trusts compare.
The DfE was also rapped for delaying its consolidated accounts report; the committee said its appearance was a “welcome step” towards better transparency, but it should not have taken nearly 14 months to be published.
3. The DfE should take action when CEO salaries are huge
Some academy trusts “appear to be using public money to pay excessive salaries”.
The Education and Skills Funding Agency asked 29 single academy trusts to explain salaries higher than £150,000, but in two thirds of cases was not satisfied with the trust’s response, the committee noted.
Now 87 multi-academy trusts have been asked to do the same, with Schools Week exclusively revealing their names this week.
The committee said “unjustifiably high salaries use public money that could be better spent supporting front-line teaching staff”.
If high salaries remain unchallenged, it is more likely that they are accepted as the market rate, which will distort pay even further.
Rising salaries are also untenable in the face of funding cuts, and the government should “extend its work to challenge all academy trusts that are paying excessive salaries”, take action on these trusts, and report back to committee.
4. The DfE must improve how it will intervene before trusts fail
Education ministers are not doing enough to identify academy trusts at risk of getting into financial difficulty.
The committee isespecially concerned the DfE could not tell them how many trusts were currently in deficit, and that it did not expect to have this information until October 2018. The most up-to-date information is from its own academies report which only covered up to August 2016.
“This uncertainty, and the lack of up-to-date information, does not instil confidence in the effectiveness of the ESFA’s financial monitoring,” said the report.
The DfE should write to the committee with details on how it is improving how it identifies and intervenes with trusts at risk of running out of money.
5. The DfE needs to be better at protecting school funds and assets if a trust fails
The committee said the DfE could not clearly explain how it protects schools’ funds and assets when a multi-academy trust fails.
This has been an issue with the Wakefield City Academy Trust, some of whose former schools say they were stripped of their savings by the trust before it folded, and are now unable to get that money back.
Committee members said “we asked whether schools which had transferred a surplus to multi-academy trust upon becoming an academy would get their money back if the trust were to fail”. The DfE was unable to explain on what basis funds and assets were allocated between schools when a trust failed.
So the committee recommends the DfE writes to them by June with specific details on how to protect funds and assets, and how they will be redistributed, when schools move after a trust fails.
6. The DfE needs to collect more data on asbestos
Despite various announcements last year that it was surveying the state of asbestos in schools, the DfE does not have enough information about the life-threatening material to ensure the risks are being managed.
The DfE did not have a complete picture of the extent of asbestos in school buildings last April; its first property survey didn’t look at asbestos, and during the second, only a quarter of schools responded.
The DfE’s latest property survey is currently underway and will provide more information on asbestos, and the committee urged that the results be published as soon as possible.
Local authorities and academy trusts should also be reminded that they must make information on asbestos in their own schools publicly available for parents to see.