The Public Accounts Committee (PAC) committee heavily criticised the department’s handling of  ‘related party transactions’ whereby academies had paid for services which were provided by trustees, family members or their companies, saying it lacked accountability and transparency.

PAC’s comments were made during an evidence session last week looking at a National Audit Office (NAO) report on the DfE’s accounts which the watchdog qualified, partly because of concerns over financial reporting by the  Education Funding Agency (EFA) which manages the funding for academies and free schools.  

Examples highlighted by PAC chair Margaret Hodge included an instance where Ian Comfort, chief executive of the Academies Enterprise Trust (AET), one of the biggest trusts, was paid £232,960 on top of an undisclosed salary, for doing project management for the AET. In addition, Hodge said, Frank Butler Human Resources, owned by a trustee, got £21,000 while another trustee is alleged to have received payments for services of  £36,878 in 2010 and £12,504 in 2011.

Hodge also cited the case of about Glendene Arts Academy, in Durham, where it is alleged some £162,000 was misspent, when a private company was set up alongside a state-funded academy, for which four members of the school staff worked, including both the former chair of the governors and the principal.

In a further instance, the School Partnership Trust Academies was alleged to have paid £424,850 over two years to Wrigleys solicitors, where the trust’s director Christopher Billington is a partner.

Hodge said: ‘It is just wrong. I had years as a minister. When working with one body, such as a school governing body or a trust, I would never have used a position as a non-executive person responsible for managing a particular public sector organisation to hand money to an organisation where I had financial interest. It is wrong.’

Simon Parkes, CFO of the Education Funding Agency (EFA), said the department was investigating 12 cases of related party transactions which he described as the ‘largest and most significant ones’.

‘However, we don’t automatically look in detail at every single related party transaction that is notified to us and we don’t keep a log of exactly how many there are, so I couldn’t tell you the exact number of related party transactions that were disclosed in the 1,400 sets of accounts that were received last year.’ Parkes said.

Peter Lauener, EFA chief executive, said: ‘I absolutely accept that we need to get better at putting the information and data together, and we are doing a lot of work on that. I referred earlier to data analytics work, so that we can make those assessments more quickly. We have developed a predictive reporting tool, which is nearly ready to run. We think it will put up a lot more flags more quickly for us to follow up with inquiries.’

Amyas Morse, head of the NAO, told the hearing that the NAO is running an investigation looking at EFA controls over compliance, particularly in related-party transaction situations and the ability of auditors to pick up on those.

In response, Chris Wormald, DfE permanent secretary, said: ‘It is clear that the committee feels very strongly on that point [financial reporting], so we ought to go away and consider the points that you have made.’