A troubled academy trust facing large deficits was advised by the government to pool surplus cash held in its schools into a central fund, an investigation has revealed.

The Education and Skills Funding Agency (ESFA) has published two investigative reports today into the doomed Wakefield City Academy Trust (WCAT), which has now given up all 21 of its schools.

The chain was hit by controversy last year after it was claimed that it had transferred money from its school accounts.

Now, an ESFA report from 2016 shows that WCAT had been operating under a funding agreement that did not allow for the pooling of funds.

The report warned that this meant surplus funding was held in individual academy bank accounts and investment could only be at a local rather than a central level.

The ESFA report said that a multi-academy trust has the freedom to amalgamate a proportion of its funding for all of its academies to form one central fund.

The report said WCAT “should consider how it wishes to control and maximise its funding”.

It added that any decisions to enter into an updated funding agreement and introduce greater pooling of funds and central investment should be agreed with local governing bodies and approved by the board.

After money was transferred out of WCAT schools and into the trust, it led to accusations that the chain had “asset stripped its schools”.

Both Wakefield and Bradford councils raised concerns about the impact it had on WCAT schools in their district, with Wakefield even referring the matter to West Yorkshire Police.

A subsequent investigation found that no crimes had been committed.

The ESFA has today published two reviews of financial management and governance at WCAT, carried out in 2015 and 2016.

It confirms DfE concerns about a “serious breakdown in the management, governance and oversight by the board of trustees at WCAT since the beginning of 2016”.

The DfE says that WCAT was asked to take action on a range of issues, including related-party transactions; consultancy costs; and improper use of public funds relating to gifts and hospitality policy.

WCAT is one of the most high-profile failures of the academies programme.

It had been chosen by the government in 2015 to receive extra funding to allow it to take on more schools in the North of England.

However, just over a year later, a leaked draft report revealed that there had been “extreme concern” in the government over the way the academy chain was run.

An investigation in the summer of 2016, concluded that WCAT - which ran 21 primaries and secondaries across Yorkshire - had been put in an “extremely vulnerable position as a result of inadequate governance, leadership and overall financial management”.

A draft report of this, which was seen by Tes in 2016, said that a “lack of openness and transparency” about the removal of trustees from the board raised questions about whether decisions had been taken in the best interest of the trust.

Tes has also revealed concerns about problems in the leadership, culture, education and finances cited in another confidential report, written by its interim chief executive.

WCAT blamed a lack of “capacity to facilitate the rapid improvement” in its schools last year when it told parents it had asked the DfE to find new sponsors for its 21 academies.

The academy chain first came under the public spotlight in November 2016 after it emerged that it had paid almost £440,000 to IT and clerking companies owned by the then interim chief executive, Mike Ramsay, and his daughter.

Commenting on today’s reports, academies minister Lord Agnew said: “As these reports show, we take the use of public money very seriously and will not tolerate those who try to exploit the system for personal gain. 

“In the case of Wakefield City Academies Trust, government intervention led to improvements in the trust’s financial and governance policies, stamped out conflicts of interest and made sure that it followed the strict rules in place that require academy schools to be transparent with parents and the wider public.

“The publication of these reports coincides with the winding up of the trust after all 21 schools were successfully transferred to a strong sponsor.

“We will always take action to make sure young people get the best possible education, and parents should be reassured that WCAT is not representative of all academies - more than half a million children are now in good or outstanding academies that were typically previously underperforming schools thanks to innovative trusts across the country.”

A WCAT spokesman said: “A new trust board, appointed in July 2016, acknowledged the issues highlighted by the ESFA reports, published today.

“The Department for Education recognises the new board ‘immediately took appropriate action’ to address those financial and governance issues.

“A robust action plan addressed and resolved the concerns.

“The new board’s approach has been effective. WCAT’s latest published accounts for 2016-17 received a clean audit and those for 2017-18 are expected to show a surplus position.

“The board also oversaw a review and evaluation of the trust’s educational outputs and accepted in September, 2017 it did not have the capacity to facilitate the rapid improvement of its academies.

“The trust worked with the Department for Education and new sponsors to ensure a successful, smooth transition of its 21 academies was achieved.

“The board is now focused on overseeing an orderly and solvent winding up procedure in the current financial year.”