To ask Her Majesty’s Government what assessment they have made of the financial arrangements and auditing of multi-academy trusts.
My Lords, the financial arrangements and auditing of academies is based on a clear framework and effective oversight, with robust intervention when needed. Trusts must comply with the Academies Financial Handbook, publish audited accounts and have independent internal scrutiny. In November 2018, the academies sector annual report and accounts showed that the vast majority of trusts are compliant with financial requirements; 98% of accounts were unqualified by their auditors and 95% had no regulatory issues.
I wonder how robust these procedures are. The Minister may recall that, a few months ago, the newspaper headlines were saying that an academy leader had established a love nest in his office and had spent £100,000, I think, on various gifts and pleasures. This went on for a number of years but was not picked up by any audit or inspection—it was a whistleblower who shone a light on what was happening. The Minister will also be aware of the large number of transactions by chief executives of academies to companies that they own or are owned by family members. For example, in 2016 £120 million was spent on contracts with companies owned by chief executives or their family members. Surely, we need systems that stop this happening, because this is money that should be spent on schools and their pupils.
My Lords, I am not familiar with the love-nest situation, but I assure the noble Lord that scrutiny of the sector is robust. From 1 April this year, we brought in a requirement that any related-party transaction in excess of £20,000 had to have pre-clearance with the ESFA, and all other RPTs needed to be disclosed. It is frustrating that I am often attacked about governance in the academies sector while there are also a lot of transgressions in the local authority sector. While researching this Question today, I discovered the 2009 case of a so-called super-head in a local authority school, who was knighted by the Labour Government, was then charged with false accounting and has recently lost his knighthood, been convicted and must repay some £1.5 million.
My Lords, I am sure that the Minister will agree that mistakes have been made in allocating knighthoods by Governments of all persuasions. But would he not acknowledge that the greater transparency and probity in academies and schools today builds confidence and trust in the system as a whole, and that when he and I gave evidence to a House of Commons Select Committee a year or two ago we both agreed that there was insufficient capacity in the system to oversee the present structure? Will he not go back to the Secretary of State—while he is there—to insist that another look is taken at how we hold to account our academies and schools?
The noble Lord is right in saying that we appeared together several years ago at an Education Select Committee. A great deal of work has been done since then. Under my tenure, we have rewritten the academies handbook twice—the latest version was released in the past few weeks and includes the change relating to related-party transactions that I mentioned. We updated the academies account direction —the directions for auditors—in March. We have asked for additional scrutiny of new academy trusts to ensure that they have the correct governance structure. We have ensured that there is a scheme of financial delegation that maintains robust controls, that management accounts are shared with the board of trustees and issued regularly and that there is board oversight of capital expenditure and funding to ensure that it is used appropriately for capital purposes. I have written to all auditors in the sector on three occasions during my tenure to stress the importance of many of these issues. The conversation that the noble Lord and I had with the Select Committee a couple of years ago was absolutely right, but a huge amount has been done since then.
My Lords, surely it is essentially the task of the governing body of the school to see that it is run properly and to exercise a role similar to that of a non-executive director.
My noble friend is entirely correct. Again, we have done a lot to strengthen the quality of academy trust boards. We have organised a programme called Academy Ambassadors, finding more than 1,000 commercial individuals who have volunteered to join trusts over the past four years, bringing extra rigour and scrutiny. The regional schools commissioners have carried out 1,000 trust reviews in the last academic year, which also requires that non-exec members of the board attend those meetings.
My Lords, the rather blithe dismissal of concerns by the Minister runs counter to the Public Accounts Committee, which reported six months ago that financial controls in schools needed to be strengthened and that,
“the Department for Education’s … oversight and intervention needs to be more rigorous”
The fact is that the Government have virtually no powers to rein in those academy trusts that are acting in a cavalier manner with public funds. I know that the Minister wrote to several academies earlier this year asking them to justify excessive salaries; can he say whether the Harris Federation was one of them? I acknowledge the good results that that trust’s schools produce, but it is the third largest trust in England and it has 11 staff earning more than £150,000 a year. Yet the largest trust, United Learning, has just one. Does that not make the Minister curious?
I am afraid it does not, my Lords, because the Harris trust is delivering the most extraordinary level of education improvement in the country. If you take the cost of that senior management team and divide it by the number of pupils in that trust, you will see that it is extraordinarily good value.
My Lords, I declare my previous interests as chair of two academies, but I am very concerned that we are not monitoring the length of stay of chairs in certain academies. It becomes very difficult for them to manage some of the resources in relation to very competent and articulate principals. Is the Minister reviewing how long some governors have been in post?
I am not sure if the noble Baroness is worried about them being in post for too long or too short a period of time. Given that the programme has existed at scale for only about six years, perhaps she is worried about the short length of tenure. The department is fully geared up: all Companies House filings of retirements or new appointments to boards go through to the ESFA and where we see what we would call unusual actions—for example, a number of trustees retiring simultaneously—we will escalate that as a matter for review.
My Lords, is it the case that every academy in a multi-academy trust is audited? If not, why not? If so, what would the repercussions on the trust be if one of the academies failed the audit?
My Lords, an academy trust is a single legal entity, so the individual schools are part of that. But the noble Baroness is quite correct that there is a full external audit carried out on academy trusts every year. That is unlike local authority schools, where the average frequency of audit is about every four years, so I can assure her that the scrutiny is far higher than for local authority schools.
My Lords, what arrangements have the Minister’s department made to ensure that assessment of the financial arrangements and auditing of the Inspiration Trust are fully independent?
My Lords, for those who do not know, I was the founding chairman of the Inspiration Trust, so I am fairly familiar with it. When I took on this post, I agreed with both the ethics committee in the Cabinet Office and with the Department for Education that I would have no say in any decisions made about that trust. I resigned both as a trustee and as a member and have had nothing to do with any governance decisions from the department. The noble Lord shakes his head; I am afraid he is absolutely wrong. I have had no oversight of that trust since I became a government Minister.
My Lords, will the Minister return for a moment to the question of governance? What are the expectations of how academy trusts recruit governors? How widely do they look and what emphasis do they place, for example, on diversity and gender balance in their searches?
My Lords, the first priority is competence. We want good, strong people on these trusts who will challenge the senior leadership teams and also provide support and encouragement. Beyond that, diversity is extremely important, and we are very aware that we need to get more minority groups involved, but my first priority has been to ensure that we have strong people on the board.
Although there have been some disappointments, should we not pay tribute to the great success that has been obtained by so many of these trusts?
My Lords, my noble friend is entirely correct. A few dozen trusts have not performed as well as they should have on governance, but we have that in any large organisation—we now have over 1 million adults in the academies sector, and things go wrong. However, we have seen tremendous progress. We now have over half a million children in schools that were previously failing local authority schools and are now rated good or outstanding by Ofsted. According to last year’s Progress 8 scores, converter academies have outperformed their comparable local authority schools on every category and type of child—white, mixed, Asian, black, Chinese, SEND pupils and those in receipt of SEND support.
My Lords, following on from the question of the noble Baroness, Lady Watkins, which I presume relates to the length that people continue in post, could the Minister say—I am sure he wants to continue to improve governance—whether he has looked at the Cadbury principles and seen whether they could be applied in certain areas of trusts?
To reassure the noble Lord, an academy trust is scrutinised not only by the Department for Education; we are co-regulators with the Charity Commission and, when a person becomes a trustee of a trust, he or she is also a director, as in company legislation. We expect the highest levels of probity, and we act when that does not happen.
My Lords, as my noble friend Lord Storey’s initial Question implied, wrongdoing, abuse and mistakes are nearly always exposed by whistleblowers rather than by any official monitoring mechanism. From my work with the APPG on Whistleblowing, it is very evident that whistleblowers in this area rarely know to whom they can safely complain or report. Retaliation is exceedingly common. Would the Minister make some effort to look across this field and see whether there can be real improvements, because it is the whistleblowers who are helping keep the system clean?
The noble Baroness is correct that whistleblowers play an important part in the regulation of the system, but I assure her that that is not the whole story at all. We rely on the external audit reports that we receive from auditors and we issue financial notices to improve wherever we come across wrongdoing. However, I am happy to look into whistleblowing procedures to ensure that we are protecting their interests when they are used.