No good with numbers

This blog has always contented that numeracy wasn’t Michael Gove’s strong point during his time as Secretary of State for Education. Today the National Audit Office seemed to affirm that view when it produced an adverse opinion on the financial handling of Mr Gove’s flagship academy schools policy. The NAO concluded that the DfE failed to meet Parliament’s accountability requirements on academy spending. The NAO said that ‘the inability of the Department for Education to prepare financial statements providing a true and fair view of financial activity by its group of bodies means that it is not meeting the accountability requirements of Parliament.’ Their analysis continued, ‘In particular, if the challenge posed by consolidating the accounts of so many bodies and the fact that so many have a different reporting period is to be surmounted, the department and Treasury need to work together to find a solution.’

Much of the problem stems around the fact that academies have the same financial year as their academic year but the department reports on a government financial year to end of March so don’t know the absolute state of finances at the end of the financial year in academy trusts, but must make some assumptions. This isn’t a new problem for government since universities have had academic years as their financial years for a long time and the department could no doubt have learnt from that experience. But, as universities are now in the business department and not the DfE, perhaps they didn’t think to ask for advice in the headlong rush to get the 2010 Academies Act on to the statute book.

A Secretary of State interested in the finances of the department might have seen this issue coming. His hedge fund managers and others on the department’s board must also answer as to why they either hadn’t noticed or weren’t bothered by the reporting arrangements for academy trusts’ use of public money. As the following extract from the department’s consolidated accounts shows, there was in fact an awareness of the issue.

Followings discussion with Ministers, the Group has chosen not to compel ATs to adopt its 31 March financial year end, both to avoid misalignment of ATs’ financial and academic years, and on the principle of giving ATs as much operational independence as reasonably possible. This allows synchronisation of both their business and financial decision making: alignment of an AT financial year to the academic year enables the accounts to be more useful at a local level, as factors such as budgeting, recruiting and funding are usually based on the academic year.

This decision makes operational sense for ATs but it means that the Group accounts now have to be constructed through the application of a number of significant and material adjustments. This is to cope with problems that arise from having different financial year ends within the Group, and from ATs and the rest of the Group preparing financial statements using different accounting standards. As the number of Academies increase, there is a growing risk that this will give rise to material error or uncertainty within the financial statements. This risk has been realised for both the Group’s 2012-13 and 2013-14 accounts, as set out in the C&AG’s audit certificates and reports, which issued a qualified audit opinion for 2012-13 and an adverse audit opinion for 2013-14.

One wonders what those schools that are not academies make of this justification since their budgeting and funding would also be more usefully based upon an academic year as is most of their recruitment. The operation of two different sets of reporting years is surely not a long-term solution for a government that claims to want to reduce costs. A process of harmonization should be high on the agenda of the department after the general election.

Finally, buried in the depth of the report, is the fact that spending on international air travel has increased from £30,000 in 2010-11 to £234,000 in 2013-14. Even more worrying is the associated comment that ‘reasons for this are being investigated.’ This seems to be another area where financial controls don’t allow for immediate explanations.

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