An academy trust raised concerns that plans to transfer three of its primary schools to a new sponsor could bankrupt it, a government report has revealed.

The Education Funding Agency (EFA) reviewed the finances of the Academy Transformation Trust (ATT) last December, following allegations of financial mismanagement and breaches of the Academies Financial Handbook.

The EFA report, published today, reveals concerns about the impact of the loss of the three primaries that are due to be transfered to the Abelle Academy Trust, following an agreement with ATT. 

It warns: “The loss of reserves at these three schools could put the trust into financial difficulties. An option of rebrokering two additional schools with deficits to offset this loss was declined by the trust, on the basis of the income they generated.”

The report highlights a series of concerns about finances and governance at the trust, which runs 22 schools in Norfolk, Suffolk, Essex and the Midlands.

These include the decision of chief executive Ian Cleland to remove the chair of the trust, Stephen Tilsley in November.

The previous month, Mr Tilsley had put Mr Cleland on temporary leave “due to significant concerns about his performance and behaviour”, which Mr Cleland disputed.

The report says Mr Cleland was “inherently conflicted during this time”, but the EFA could not find evidence that he had managed this conflict.

While on temporary leave Mr Cleland appointed four new directors, one of whom the board appointed as the new chair on November 21. The same meeting then reinstated Mr Cleland, and confirmed its support for the removal of the Mr Tilsley.

The EFA report says that the new directors were not appointed through an independent means, and, although this was permitted, “independently recruited directors would have allowed the trust to better demonstrate decisions surrounding the accounting officer [Mr Cleland] were impartial”.

The EFA blames “inadequate financial management” for a forecast fall in ATT’s revenue reserves from £5.01m in 2014 and to £26,000 in 2018.

Four of its schools, its head office and its further education provision had deficits ranging from £164,000 to £1.37m in 2015-16.

At the time Mr Cleland agreed to the three primary schools being rebrokered, he was also in talks with the EFA “regarding actions to help mitigate risks to the trust’s finances”. ATT’s audit committee had previously warned that such a rebrokering “could bankrupt the organisation”.

The EFA report calls for ATT to “urgently address” the “significant breaches” in governance frameworks it identified, “to ensure internal control arrangements within the trust are operating effectively and assure proper stewardship over public funds”.

In a statement, Mr Cleland said: “Due to some internal issues, ATT was subject to an EFA financial management and governance review.  This was carried out in December 2016.

“ATT welcomed both the review and the findings, in particular guidance on how to improve current strategic and operational structures.”

“It has become clear from the process that whilst, as with many other earlier trusts, ATT were compliant with the governance structure stipulated within their company documents, EFA guidance on best practice has significantly changed over time.

“ATT were already in the process of reviewing and updating their working practices and, in response to the EFA report, have provided a robust action plan to ensure they meet the requirements set out within the report.  This has been approved by the EFA.

“ATT have always been committed to providing the very best education for all pupils and the highest level of support for our staff to ensure every child leaves our academies with everything they need to reach their full potential and, in pursuit of this have deployed their financial reserves to invest in the improvement of educational provision at our academies.

“ATT’s perspective on the report is that it must be read in light of the transformational impact which ATT has had on the schools within The Trust.  90 per cent of their secondary academies are good and 75 per cent of their primary academies with none being rated inadequate.  This is compared to a significant number being in special measures when they joined ATT and only 10 per cent rated good.”