Series - Education Leaders' Guide to...

Education Leaders' Guide to...the Public Accounts Committee report on accountability and oversight of education and children's services

A powerful committee of MPs has expressed concerns about the way in which the Department for Education monitors the way its budget is spent in schools, local authorities and other public bodies.

The Committee of Public Accounts says the department needs to do more work to "clearly define how funding streams will be monitored, audit arrangements, and processes to support whistle blowers."

The Committee's report adds that the DfE's draft Accountability System Statement "places insufficient emphasis on how value for money will be achieved. Securing value for money is particularly important at a time when financial constraints are biting harder."

The Rt Hon Margaret Hodge MP, chair of the Committee, said: "“As the Government devolves the delivery of education and children’s services in England, it becomes ever more important for the Department to tell us exactly how accountability to Parliament is going to work so that we can properly follow the taxpayers’ pound.

“The Department has described arrangements for providing assurance on regularity and propriety. But although this is the third draft of the accountability arrangements we have seen, we remain very concerned at the weakness of the proposed arrangements to ensure accountability for value for money.

“This is particularly important as money becomes tighter. One in four Local authorities have cut their resources devoted to monitoring school spending. Many governing bodies remain too weak with one in four local authorities stating that only a few of their primary schools enjoyed governing bodies with sufficient, appropriate financial expertise."

While the report was researched before the Education Funding Agency replaced many of the functions of the Young People's Learning Agency, Mrs Hodge expressed reservations over how this would work. "There is a question mark over whether the Education Funding Agency will have the capacity and skilled staff to oversee the growing number of academies.

“We are already seeing instances where the Agency’s systems have proved insufficiently robust to ensure proper value for money of schools’ expenditure.

“Among our concerns is whether the Department has the ability to pick up early warning signs of improper spending or poor value for money, such as academies paying very high salaries to senior staff or incurring questionable expenditure. We expect local mechanisms to be in place to detect promptly any concerns around spending within schools.”

*Department for Education: accountability and oversight of education and children's services

The key points

Why does the DfE need an Accountability System Statement?

Where local bodies are responsible for delivering services, the initiating government department is responsible for establishing an accountability framework, setting out how it intends to "provide Parliament with assurance about the regularity, propriety and value for money of this spending."

How does the DfE plan to get this information?

The PAC says the Department's plan -- now in its third draft -- is the "weakest" of the four it has seen. The DfE plans to rely on a mix of local accountability mechanisms, information systems, inspection and oversight bodies "to gain the necessary assurances."

Why is the Committee unhappy with the DfE's plans?

It says: "The Department needs to do more work to clearly define how funding streams will be monitored, audit arrangements, and processes to support whistle blowers," and adds that the Statement "places insufficient emphasis on how value for money will be achieved."

It adds: "Responsibility for value for money is shared by the Department with the Department for Communities and Local Government, individual schools, academy trusts, local authorities and the YPLA. However, the specific responsibilities of each for achieving value for money, and how they interact to drive value for money, are not clear. Furthermore, the Department has yet to demonstrate sufficient focus on its responsibility to deliver value for money across the entire education system."

What does the Committee want to happen?

It makes six potentially far-reaching recommendations. In short, these are:

Revising the Statement so that it outlines the responsibility and accountabilities of each body for value for money, and how they work together to get this over the entire education system. It should also assess whether value for money is being achieved across the whole education system, which would mean comparing spending with results.

Ensuring that the Statement identifies the financial oversight regime for all schools so that local authorities and the YPLA can "appropriately resource" these activities and fulfil their obligations at a time when their own finances are being squeezed and academy numbers are growing.

·The DfE should set "consistent requirements" for reporting financial and performance information by all schools, rigorously enforce these obligations, and assure the quality of the information supplied. "It should publish sufficient financial and performance information to allow comparisons between individual academies and local authority maintained schools of a similar nature to be made, and this information should include funding received per pupil."

The DfE should review the operation of the Schools Financial Value Standard and the Financial Management and Governance Evaluation by September 2012 to evaluate whether they are providing sufficient assurance over governance and financial management at school level and encourage all schools to recruit and train enough governors with financial expertise.

"Where reports emerge of individual failings, the Department must consider whether they indicate wider problems with financial management and governance, and deal with the underlying system-wide causes," it must set out how it will ensure that local monitoring mechanisms "promptly" pick up any concerns about spending within schools, and must ensure there are arrangements in place to address whistle blowers' concerns.

The DfE needs to do some research to understand better the causes of persistent deficits and excessive surpluses, and work with the Department for Communities and Local Government to get local authorities which have not resolved long standing financial problems in their schools to address these.

Did the Committee have any particular worries about how different parts of the education system worked together to drive value for money?

Yes, it says that "in particular the respective accountabilities of the Department and academy trusts appear blurred". The DfE would also need to liaise with the DCLG if it wanted to challenge local authorities over poor oversight of their schools.

Does the Committee think the DfE is focusing on value for money?

"The focus of the Department, and of the inspection and intervention regimes described in the Statement, is primarily on the quality of delivery of education and children’s services, with limited assessment of financial management or value for money.The Statement makes no mention of potential measures of system-wide value for money, such as expenditure over time against the results achieved or value added, the ratios of teachers or support staff to pupils, or the number and cost of schools requiring special measures.

"We were encouraged to see some progress in the most recent iteration of the Department’s Statement, including additional details on how the Department supports schools in these areas - through access to efficiency tools and support, access to a financial benchmarking website, promoting a range of procurement deals and training through the National College on effective financial management."

What about the DfE's financial benchmarking website for schools?

The committee notes that it promotes this as "a principle method for gaining assurance over the achievement of value for money from education funding. The website allows maintained schools only to compare themselves with similar schools and identify those which are delivering services more cheaply.However, between April 2010 and June 2011 just half of local authority maintained schools logged on to the website at least once." It had not been possible for academies to compare themselves with maintained schools because of "fundamental differences" in the way financial information was collected, collated and reported.

Why aren't the MPs happy with the current financial oversight of schools and spending?

There are several reasons. The report observes that more schools employ or have access to business managers with financial expertise -- but this is rarer in primary schools, and it is "unclear" whether pupil referral units, taking responsibility for their own budgets under the 2011 Education Act, have the necessary expertise.

The committee is also concerned about whether the oversight bodies on which the DfE is relying have sufficient expertise and capacity. Local authorities, which have the key role in maintained schools, are reducing the resources they give to this duty. More than 28 per cent of those surveyed by the National Audit Office in 2011-12 had reduced their internal audit coverage, and almost half said they did not have sufficient resources to monitor schools' finances effectively.

The YPLA, which had to cover increasing numbers of academies, was "seeking to" increase its accountants from 40 to 60, but this did not match the increasing number of academies.

"The Department looks to governing bodies to ensure local authority maintained schools and academies have sound financial management and achieve value for money, but governance is not always strong.A key issue is how the Department, the YPLA and local authorities identify poor financial governance in schools."

Why is the committee worried about governors?

The report notes that 27 per cent of LAs thought "only a few" of their primary schools had governing bodies with the necessary financial expertise.

"We are concerned that in some cases close relationships between governors and school management could lead to inadequate scrutiny of, and challenge to, a school’s leadership over its use of funds. The Department expects that weak governance would be identified through the Ofsted inspection regime. The YPLA told us that there are three checks that would mitigate this risk in academies: the requirement to appoint a responsible officer, who should be independent of line management and the equivalent of a head of internal audit; the annual audit of accounts by external auditors; and the expectation that academies will put in place whistle blowing arrangements. However, we have concerns that external auditors may focus on the risk of impropriety, but not poor value for money, and the YPLA itself accepted that only the very brave will blow the whistle in small organisations such as academies."

The report adds that the DFE and the YPLA "consider the main incentive for schools and academies to improve governors’ skills to be through their aspiration to score well in the Schools Financial Value Standard and Financial Management and Governance Evaluation assessments." The DFE, it says, believes that changes under the 2011 Education Act will help schools to more easily select governors with the required skills.

Why isn't the committee happy about the way the system works?

Reporting mechanisms that yield accurate, timely and consistent information that is transparent and accessible—and that allows for comparisons to be made between the performances of different providers—are key elements of accountability, according to the Government.We are therefore concerned that not all information submitted by local authorities, maintained schools and academies has been fully accurate, provided on time, or adequately validated."

It adds: "We are concerned as to whether the Department’s existing monitoring mechanisms are capable of alerting it to system-wide problems," going on to discuss staff at some academy trusts being paid "very high salaries". The report describes how one academy trust paid four of its trustees more than £31,000 in expenses on year, including travel costs to and from a property in France on which it had spent £2m.

"Such payments are not only of questionable value for money, but may also indicate wider problems with the whole system of accountability.We are concerned in particular by the lack of clarity about where the accountability of individual academies for their use of the additional freedoms the Department has granted them ends, and where the Department’s responsibility for ensuring value for money across the whole system begins." The committee is also concerned about maintained schools being in deficit, sometimes for longer than permitted under the regulations, and that a quarter of primaries and almost 30 per cent of secondaries had "excessive" surpluses at the end of 2009-10.

"Nevertheless, the Department accepted that not all schools have good plans in place, and that it is right for it and the YPLA to keep a close eye on schools’ balances and be alert to situations where weak financial management might be leading to poor educational performance. The Department has given local authorities greater flexibility over management of surpluses in their schools, and is relying on pressure from parents to discourage schools from carrying

forward excessive surpluses."

What the committee asked, and their witnesses said

There were some colourful exchanges during one evidence session in front of the committee. Here are two excerpts:

Sir David Bell, Permanent Secretary of the DfE, discussing the most recent version of the Statement and explaining how the system was changing: "Only a year and a half ago, we had 200-plus academies; we now have 1,300, and that has changed the landscape quite considerably. In this world of accountability, we want individual schools to have greater freedoms while at the same time maintaining a high level of accountability for public funds. At times, this Committee has asked us whether we have got that balance absolutely right, or whether we are leaving too much out there to individual schools and not holding them to account.

"To some extent, the statement as it is at the moment is trying to find a way through that tension. The world is very different to the one I first knew as a head teacher, when, in a sense, accountability was completely at local authority level. Then it was decentralised, and over time it has become more and more decentralised. I accept the point that there is more to do, and I am not even sure whether, by the time you bring back the next version, it will be the final statement. What is the situation going to look like when you have 5,000 academies and more chains? We might have to keep this under review as the system changes."

Sir David Bell, being cross-questioned about the Priory School's financial arrangements, including the purchase and renovation of a property in France:

Sir David Bell: "What you have is a local authority or, in this case, a group of schools..."

Margaret Hodge: "Four schools."

Sir David Bell: "...deciding that it is appropriate, as part of their efficient management, to have a facility that can be used by the students."

Margaret Hodge: "Do you really believe that?"

Sir David Bell: "I do believe that. The danger is that we sit in Whitehall and second-guess every decision made by every school in the country. Frankly, it is the road to madness if we do that."

Margaret Hodge: "It is the road to madness, but we have to ensure that there is value for money for every pound of taxpayers' money spent. When these stories reach us, you began thinking, “Crumbs, this is the beginning of things going badly wrong,” in terms of our getting value for money for the taxpayer—and this is only the start. So you justify it all; you are quite happy with that."

Sir David Bell: "I am happy for individual schools to justify the decisions that they are making. If those decisions are commensurate with improvements—in

some cases, dramatic improvements—in the school's performance, I am happy with that."

Margaret Hodge: "Are you happy, from the Treasury?"

Paula Diggle, Treasury Officer of Accounts, HM Treasury: "It causes me a certain amount of interest and alarm, I must say, but I do not claim to be close to it, and it is for DFE to make the judgment."

MP Meg Hillier, asking questions about accountability in schools of Peter Lauener Chief Executive of the YPLA:

Meg Hillier: "If there is a cosy relationship—we know that there can be

interesting relationships, cosy or otherwise, between heads and their governing bodies in any school—I am not quite confident that you are on top of that."

Peter Lauener: "You are describing the relationship between the chair of governors and the head, who in an academy would be the accounting officer. There are two other things that would act as a check on that, and possibly a third as well. First, there is a further concept of a responsible officer, who would be someone independent from the management line. In a large organisation, it is someone who would be head of internal audit. We ask the academies to appoint a responsible officer. Again, the expectations for that

role are set out in the financial management and governance framework.

The second potential check on what you describe is through the annual audit of the accounts by an external auditor."

Meg Hillier: "But that annual audit didn't query salaries of £280,000 or sudden jumps in salary."

Peter Lauener: "It's a fair point. I would not expect them to challenge that if it was within the properly agreed remit of the governing body and affordable in

the financial accounts of the academy trust.

The third thing that I was going to mention is that, again, we look to the financial management framework, which says that we expect academies to

appoint whistle blowing arrangements to accommodate whistle blowers and, indeed, to run their own complaints policies. Then we are a backstop if

someone feels their complaint has not been dealt with.

So there is a sort of further system, and very often, when something is not quite right—I'm not talking particularly about academies, but the whole public

system—someone else says, “I don't like the look of that.” Sometimes, they write to the National Audit Office; sometimes, they write to us; and sometimes,

they talk to the press. All of those things can happen and they are all things that can trigger a follow-up action."

Margaret Hodge: "But what you should do, when they write to the press and you get press reports, is look at the systems and see whether or not the systems themselves can cope with it is really the point, surely. I think we will make that point, even if you don't, but it is so glaringly obvious."

Meg Hillier: "It is very brave to be a whistle blower in a small environment like a school, where you think the chair of the governors and the chair have a close relationship."

Peter Lauener: "I absolutely accept that."

Fiona Mactaggart MP : "The personal experience that I have had of whistle blowers is that it has taken three before anything gets done."

Meg Hillier: "In one case, the advice was to go to the Department, which is a huge step for somebody if they can't get attention properly from the governing

body. One last point is that we seem to be hearing—perhaps this is a bit of a brutal summary—that there is a huge challenge, whatever system we have, in keeping on top of school expenditure, but we seem to only know there is a problem after the event; there are no early warning signs for budgetary financial management problems in schools. Is that a gross oversimplification?"

Sarah Healey Director, Education Funding Group, Department for Education: "In local authorities, there are lots of early warning systems in good local authorities that take their responsibilities on the financial management

of schools well. Indeed, the very fact that very few schools get into consistent financial difficulty suggests that those early warning systems work and that those interventions are happening. Most schools that end up in deficit do not stay there for very long and come out of it again. I think that suggests that there are very good early warning systems in place in most local authorities to manage the finances of individual schools. With regard to academies, Peter can say more than me."

Peter Lauener: "Some of the things I described earlier, looking at key ratios like the proportion of the expenditure plan to be on staff salaries and, obviously, the current ratio and things like that, are designed precisely to allow us to pick up problems before they happen and drill down and get more detailed information. We want a light-touch system with really good drill-down information and real rigour about the expectation of complying with the system, and much more detailed drill down when these warning flags go up."