Department for Education accounts receive adverse opinion from NAO

21 Jan 15

The auditor general has given the Department for Education an adverse opinion after concluding it failed to meet Parliament’s accountability requirements on academy spending.

Publishing his report on the Department for Education 2013/14 financial statements, Amyas Morse said the opinion meant the level of error and uncertainty in the statements was both material and pervasive. He also qualified his opinion because the department has exceeded one of its expenditure limits authorised by Parliament.

Morse said the DfE faced financial management challenges in accounting for the spending of academies, alongside its executive agencies and public bodies. For 2013/14, there are 2,591 bodies consolidated into the group financial statements, including 2,585 academy trusts operating 3,905 individual academies.

Different reporting periods exist across these bodies. The department uses the financial year end of March 31, while academies are based on a year end of August 31, to match the school year.

This means that preparing financial statements to provide a true and fair view of the financial activity is significant challenge, Morse said.

‘I recognise the importance of not placing unnecessary additional burdens on the academy sector,’ he added.

‘But 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.

‘In particular, I believe that, 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.’

The report noted that the department had chosen not to change the reporting period for the trusts, or to request a second set of statements to cover the period to the end of March on the grounds that this would require extra resources. Instead, it has sought to prepare the group financial statements by using the academy trusts statements to the end of August and then making adjustments.

The department has hypothesised that financial data for the year to the end of August, with the adjustments, would not be materially different for the equivalent to the end of the following March.

However, Morse said this approach does not give a true and fair view of its financial performance or position, while the growing number of academies increased the potential for error.

In addition, the accounts were qualified as the department spent £166m more than the annually managed expenditure resource limit set by Parliament. This was primarily due to the department’s underestimating the increases to pension costs relating to the academy sector, the report stated.

Responding to the adverse opinion, a DfE spokesman said no material inaccuracies had been found in the financial statements. 

‘However, consolidating the accounts of thousands of academies is an enormous task – a complex procedure and the largest of its kind carried out in the UK – and we recognise the issues identified by the NAO with this process. We take the concerns very seriously.

‘We are working closely with the Treasury to find a more sustainable solution to this process.’

CIPFA chief executive Rob Whiteman said the report painted a worrying picture, and demonstrated the difficulty in providing consistent, timely, consolidated reporting for relatively new organisations such as academies.

‘As an emerging sector, academies are subject to new and fluid governance structures. This makes it harder to practise good financial management and consolidate their accounts.

‘However, at a time when growth in the number academies is likely only to accelerate, it is important that organisations like CIPFA and NAO work closely and constructively with the sector to ensure clear and transparent accounting and overcome the issues raised by the report.’


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