The National Audit Office (NAO) has reported that the Department for Education (DoE) was unprepared for the financial implications arising from a ten-fold increase in the number of academies since May 2010.

The report reveals that in the two years between April 2010 and March 2012, the DoE had to meet an estimated £1bn of additional costs, while keeping within its overall spending limits.

By September 2012, 2,309 academies had opened, compared with just 203 in May 2010 - a massive 1,037% increase - most of which arose from schools wanting to convert to academy status.

The NAO notes that while academies have greater financial freedoms than maintained schools, the DoE's approach to approving applications - coupled with the fact that most converters to date have been outstanding and good schools - appears so far to have managed the risk of schools converting with underlying performance issues.

But as more schools with lower Ofsted ratings are now applying to the programme, future applicants could require more in-depth assessment and support to manage potential risks.

Amyas Morse, head of the NAO, said: 'Delivering a ten-fold increase in the number of academies since May 2010 is therefore a significant achievement. However, the DoE was not sufficiently prepared for the financial implications of such a rapid expansion, or for the challenge of overseeing and monitoring such a large number of new academies.

'It is too early to conclude on academies' overall performance, and this is something I intend to return to in the future. As the programme continues to expand, the DoE must build on its efforts to reduce costs and tackle accountability concerns if it is to reduce the risks to value for money.'

Between April 2010 and March 2012, the DoE spent £8.3bn on the Academies Programme. The NAO estimate that £1bn of this was additional cost, and some £350m of which was money the DoE could not recover from local authorities to offset against academy funding.

The additional cost of the programme has increased annually as it has expanded, although the department reduced its average additional cost per open academy - excluding transition costs - by 53% in the last two years.

The programme's rapid increase in costs caused ongoing pressures on the DoE's wider financial position, the report found. This meant it had to transfer funding from other budgets to stay within its overall spending limits while maintaining the pace of the expansion.The DoE largely relies on the quality of academies' financial management and governance to safeguard effective use of public money. To date, there have only been a small number of investigations into financial mismanagement and governance failure in academies.

Financial mismanagement in any school is a real cause for concern, and such failures in academy schools create the risk of wider reputational damage to the programme. The DoE needs to weigh this risk carefully in operating a light-touch oversight regime.