Flaws in the regulation of academy schools allow large scale fraud to go unnoticed

A recent report undertaken for the Education Select Committee into how public money is being spent in academy schools has revealed “questionable practices”, highlighting the need for tighter controls and regulation.

The research, conducted by the University of London’s Institute of Education, found a variety of instances of potential conflicts of interests, citing examples such as £50,000 being spent by an academy head teacher on a training day that was being run by a friend. Further, the report found worrying instances of senior members granting contracts to their own businesses and recruiting family and friends into senior positions.

Although the report emphasised that the majority of individuals involved in academy schools were “honourable people working hard to address educational under-performance”, the report does raise concerns regarding whether enough is being done to regulate this sector and ensure that the appropriate controls are in place. Although instances of intentional fraud were found to be “rare”, the report does concede that flaws in the system permit “large-scale fraud to go unnoticed”. It is therefore essential for these flaws to be addressed to prevent further damage and these issues will be raised with education secretary, Nicky Morgan.

Academy schools were first introduced in 2000 by a Labour run government, although the number of schools has increased substantially under the coalition government, with there now being over 3,800 academy schools in England. Although the schools are still state-funded, they generally have more autonomy, receiving funding directly from the government, rather than local councils. The schools are run by a board of directors that act as a non-profit making charitable trust and have an exempt charity status. The trustees will have the same duties of those of any charity, including, always acting in the best interests of the charity. Further, the trustees of charities that are companies will also be subject to director duties, which include promoting the success of the company and avoiding conflicts of interest which are likely to be considered breached in examples such as awarding a contract for a training day by the head teacher to his friend.

It is clear that tighter controls and an education piece being implemented around fraud prevention is necessary to ensure that academies are run in line with their primary purpose of the ‘advancement of education for public benefit’. The concerning activities highlighted in the report are not necessarily unlawful but are a result of the greater freedom academies are given, which unfortunately, but inevitably, lead to an opportunity to abuse trust. It is essential that safeguards are put in place to ensure funds are being used appropriately and to restore public confidence.

This may include a stricter recruitment process for directors/trustees of the academies and/or greater separation of power for those in senior positions to ensure that decisions on procurement are ratified by all members of the board. 

It is important for directors and trustees of academies to ensure that they understand the extent of their statutory duties.  Even if stricter regulation is not introduced by the Government, directors and trustees of academies must still comply with the Companies Act 2006 and the Bribery Act 2010.

These requirements can catch novice directors out leaving both the individuals and the academy exposed to claims.  Not only does this damage the reputation of the individuals involved, as well as the academy, poor regulation,  lack of training on issues such as probity and internal controls will ultimately take valuable resources away from the academies if claims arise, especially if academies find they have to pursue claims for recovery of losses caused by acts of dishonesty.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.