Adverse opinion: the DfE's struggle with academies

The C&AG’s opinion resulted from the department's faltering effort to get to grips with the rapidly growing academies sector, for which the department is responsible. At this stage, it will be helpful to go through a bit of context and explanation of how this came about and what it means. The C&AG’s warnings do not come as a surprise, and they demonstrate that the risks pointed out previously by the NAO have been borne out. With the continued growth of academies, the C&AG warned last year, the department would struggle to stay on top of its finances. The resulting adverse opinion on the financial statements of the DfE departmental group is one step more severe than the qualification issued last year. The weak control provided by the existing reporting system resulted in the breach of a spending total, which earned the DfE a separate qualification on regularity. It is important to note that there is no evidence that anything untoward has been happening – indeed the problem is precisely that the department doesn't have a good enough grip on the spending of academies to be able to know how money is being spent. Nor are the problems due to incompetence or lack of trying. Indeed the C&AG has noted improvements. Rather, the challenges the department faces have to do with the speed and scale of implementation of the academies programme, and with the particular model of accountability and financial control the department has chosen to apply to the academies landscape. The department’s implementation model for the academy programme has meant that the department has moved from a world in which it held policy responsibility for education and handed over large grants to local authorities, to one in which it exercises direct control over funding for some 4,000 schools in roughly 2,600 academy trusts. This is akin to a department acquiring several thousand arm’s-length bodies, or indeed turning itself into the largest local authority in the country – and at very fast pace. More than 1,100 academies were added last year alone. Collecting the right financial data at this scale was never going to be easy, let alone developing a way of using it within a governance system fit to meaningfully manage and account for some £15bn. There was organisational chopping and changing in order to operate the financial machinery, too. The Education Funding Agency (EFA) – the body which manages the department's financial relations with individual academy trusts – has been created from several arm's-length bodies and has had to scale up its operation very rapidly. To make everything even trickier, the schools the department has to account for run on a different financial year from the rest of government. This is not a mere accounting quirk. It means that for forecasting in-year spending in some of its largest budget lines, the department has had to rely on imperfect guesses, as the C&AG's report documents. Altogether, this is not just a technical matter of accounting rules. As the C&AG noted at length last year, the inability to produce proper financial reports has adversely affected the department's ability to do proper strategic financial planning. This year, the C&AG has concluded that the department's approach to reporting on the academies’ finances "does not provide the accountability to Parliament intended by the inclusion of academy trusts into the departmental accounting boundary". In some sense, the Department for Education has suffered the consequences of the successful scale-up of a policy. Yet to make sure that Parliament and the public have confidence in the academies programme, it will have to find a way to provide a proper account of what is happening. As the story so far makes clear, just trying harder in an attempt to produce less bad accounts will not do. As the C&AG argues, these issues cannot be addressed without a significant change in approach. The hearing on the accounts in front of the Public Accounts Committee on Monday might provide some clues as to what that change might be.