Ministers are set to face questions over why an investigation failed to identify how more than half a million pounds of public money was spent in related-party transactions at two doomed free schools.
The Department for Education’s system of oversight has been criticised after a lack of evidence in free schools’ accounts meant it could not uncover whether spending rules had been breached over payments made to a company linked to two free schools.
A probe into Manchester Creative Studio (MCS) and Collective Spirit Free School in Oldham was launched after allegations were made surrounding payments made to Collective Spirit Community Trust (CSCT) - a company which was said to be linked to a number of trustees at both schools, including their former chair of directors and chief executive.
The Education and Skills Funding Agency identified that related-party transactions of more than half-a-million pounds were made to CSCT by the two schools for various services.
The investigation report highlights a series of financial failings at both free schools.
However, the ESFA said that a lack of evidence meant it could not reach a conclusion over allegations that the related-party transactions had not been delivered at cost - as required by DfE rules - or whether the deals had been “inappropriately inflated” or whether invoices were submitted for services that were then not delivered.
Free school finances
Now Lucy Powell, a Manchester Labour MP and Commons Education Select Committee member, is set to raise the matter with education ministers in Parliament.
Exclusive: ‘Ban related-party transactions’
Transparency: DfE refuses to release investigation report
Background: Free school closes at short notice
She said: “There are serious questions about how half a million pounds of public money has been spent and it seems that the ESFA have now washed their hands of this because the trust leaders left no paper trail. This saga brings our education system into disrepute.”
Collective Spirit Free School opened in 2013 and closed in 2017, while MCS opened in 2014 and closed last year following damning Ofsted reports.
Two years ago the DfE refused to release a report into Collective Spirit free school after it closed at short notice. Ofsted had placed it in special measures the previous year.
The ESFA investigation into the schools took place after the department received allegations over related-party transactions.
Ms Powell added: “It is a damning report which reveals the shortcomings not only of the governance of this school but of the school oversight system as a whole. If it wasn’t for MPs and whistle-blowers asking questions, this investigation may never have taken place.”
Mary Bousted, the joint general secretary of the NEU teaching union, also questioned the new report’s findings.
She said: “I think this an astounding conclusion for the EFSA to reach.
“It is surely sending a message out that if anyone wants to take part in related-party transactions outside the rules then all you have to do is make sure you leave no evidence of what you are doing. What kind of oversight is this?”
The DfE declined to comment on questions about the report’s findings.
The two schools were run separately but had the same over-arching board of directors and the same chair and chief executive .
The report says the schools’ former chair of directors, Alun Morgan, is a 50 per cent shareholder of the CSCT. It says there is also a connection with the schools’ former chief executive Raja Miah.
The ESFA says that Mr Morgan had breached the Companies Aect: “In particular the requirement: to exercise independent judgment, to exercise reasonable care, skill and diligence, to avoid conflict of interest and to declare interest in a proposed transaction or arrangement.”
The report says that the role of Mr Miah within CSCT was unclear but that he was responsible for emails to the schools chasing up payments to CSCT.
The ESFA says that the former CEO of the two free schools resigned as a director of both trusts, according to Companies House data on 11 September 2014.
Despite him stepping down, the 12 October 2016 minutes show the former CEO incorrectly listed as a director of the over-arching board.
Financial statements for 2015-16 confirm he remained as a trust member and CEO of the two schools during 2015-16.
The chair of directors resigned in May 2017.
The ESFA report also says that related-party transactions with CSCT were not adequately managed or sufficiently disclosed in the 2015-16 financial statements.
It says that the transactions with CSCT in the Collective Spirit Free School statements should have been in the region of £502,835 but were declared as £139,676.
The report does not state what services CSCT provided to the schools.
It adds: “The lack of any robust financial control system, adequate financial oversight and relevant documentation to support contractual management and financial transactions by the trusts has impacted upon ESFA reaching any conclusion on the validity of funds paid to CSCT.
“Specifically, owing to the lack of supporting financial information held by the trusts, ESFA was unable to confirm whether the ‘at cost’ policy for CSCT charging arrangements had been complied with, indicating a potential breach of the Academies Funding Handbook.”
