NAO issues adverse opinion on DfE accounts

20 Apr 16

Auditor general Amyas Morse has issued an adverse opinion on the truth and fairness of the Department for Education’s group financial statements for 2014-15, concluding they did not provide the required accountability to parliament.

Issuing his report today, Morse also qualified his regularity opinion because the DfE had exceeded three expenditure limits set by parliament.

He highlighted that the department faces a financial management challenge because its group financial statements have to consolidate accounts from academy trusts alongside those of the department itself and its agencies. In 2014-15, this included 2,824 academy trusts that operated 4,900 academies.

The DfE has a different reporting period (a year end of 31 March) from academy schools, whose accounts have a 31 August year end to align with the end of the school year.

This presents the ministry with a significant challenge in preparing financial statements that provide a true and fair view of the financial position at the end of that period, Morse noted.

However, the department has chosen not to change the reporting period for the trusts, nor to request a second set of statements to cover the period to the end of March.

Instead it has sought to prepare the group financial statements by using the academy trusts’ financial statements to the end of August and then making adjustments using centrally collated information where necessary.

Morse stated that this approach has not yielded a true and fair view of the group’s financial performance or position, although he did not identify specific material inaccuracies in the financial statements of the individual bodies making up the group.

“Providing parliament with a clear view of academy trusts’ spending is a vital part of the Department for Education’s work – yet it is failing to do this,” Morse said.

“As a result, I have today provided an adverse opinion on the truth and fairness of its financial statements. The department will have to work hard in the coming months, if it is to present parliament with a better picture of academy trusts’ spending through the planned new sector account in 2017.”

Both the department and the Treasury are now working to develop an alternative approach to accounting for academy trusts to improve the transparency to parliament.

The DfE’s preferred option, which has been agreed ‘in principle’, is to remove the academy trusts’ financial results from the group financial statements and to reflect only grants paid to academies. A separate sector report would then provide an aggregated account of academies as at 31 August.

This would provide a solution to a number of the issues faced by the department if implemented effectively, Morse added, but it will not address all of the causes of error and uncertainty and limitations, which also include recognition of land and buildings.

Responding to the report, a DfE spokesperson said: “Academies are subject to a rigorous system of accountability and oversight, tougher and more transparent than maintained schools. This is reflected in the NAO’s finding that there are no material inaccuracies in individual academies' statements. However, the consolidation of thousands of those accounts into the format required by parliament is one of the largest and most complex procedures of its kind.

"All of these accounts are published individually by trusts ensuring they can be held to account by the department and the public.

“We recognise the challenges with the current format and have developed a new methodology for the 2016/17 financial year, which the NAO has said will provide a solution to a number of these issues. With the Education Funding Agency’s rigorous oversight of the academy system and the expanding role of the Regional School Commissioner we are confident that the accountability system for the expanding academies programme is robust and fit for purpose.”

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