School financial mismanagement under scrutiny tomorrow

Following the controversy at Copland High School over allegedly illegal bonus payments, Brent Council has tightened up its audit arrangements. The 'Copland Six' are still to stand trial but meanwhile several other head teachers and other staff have been suspended while the possibility of financial management irregularities are investigated. Some have faced disciplinary action leading to dismissal.  There has been publicity about these events in local newspapers and the Evening Standard and the Times Educational Supplement.

Some commentary has suggested that this is a particular problem in Brent while others have suggested that the problem occurs elsewhere but because of Brent's experience it has been better at uncovering it. Generally there is a concern that as schools become more independent of local councils, being set up as 'free' schools or when they convert to academy status, that there may be more occurrences.The report from the Director of Finance and Corporate Services and the Director Children's Services which will be considered on Thursday by the Children and Young People Overview and Scrutiny Committee states that Copland, as a foundation school, had made its own audit arrangements, rather than be visited by the local authority team, until 2009: 'The significant additions (to pay) were not picked up during any of the external audits conducted annually at the school.'

Although there may be deliberate attempts as fraud it may also be the case that some of the occurrences are the result of inexperience or incompetence on the part of headteachers and governing bodies. Although the local authority offers financial training to headteachers they do not have a business management background and their main task remains the management of teaching and learning.

Two main issues have emerged which the report says the Council has addressed:

Senior Leadership Pay: a key issue that had been identified through the audit process relates to schools complying with the statutory requirements regarding the setting of pay levels for Headteachers and other Senior Leadership posts. The regulations are complex but nevertheless compliance with them is a statutory requirement and a comprehensive action plan was put in place by the Council to both support and challenge schools to ensure compliance. A great deal of progress has been successfully made as set out in Appendix C which shows the detailed action undertaken by the Council. Further on-going work is necessary to ensure continued
compliance with the regulations.

Leasing: In 2010, the Council identified that a number of schools had entered into very unfavourable leasing arrangements with large finance companies for the hire of equipment such as photocopiers. The Council is of the view that these leases should be treated as being void from the outset, as the schools in question did not have the legal power (‘vires’) to enter into them. If the leases were enforceable, they would have a negative impact on the schools’ financial positions. There are various grounds as to why the Council argues the leases should be considered void. The Council has taken the following action in order to protect the public funds exposed to these purported leases:

• Sent a number of letters and uploaded intranet postings clarifying the importance of complying with the leasing requirements set out in the Council’s Financial Regulations.
• Arranged for Council officers to meet with school officers where appropriate in order to discuss leasing issues.
• Hosted a number of presentations at Governor, Headteacher and Bursar meetings, clarifying the requirements of a lawful lease and offering support to schools that may have ostensibly entered into leases which are void in law, in order to encourage schools to obtain legal advice.
• Referred schools to the Council’s internal and external solicitors who are able to advise the schools (the content of the advice is confidential and subject to legal privilege).
• Obtained advice from a QC (the content of which is confidential and subject to legal privilege).
• Facilitated court action: A number of schools have stopped paying the sums purportedly due under these purported leases. As a result, one finance company has issued legal proceedings against two separate schools for amounts allegedly due. The Council’s solicitors have been instructed by the two schools to defend these claims. The schools are counter-claiming for restitution of the sums paid under the purported leases. The cases are on-going.
• Released guidance to all schools setting out the framework agreements
available, in order to help schools purchase or lease equipment at favourable rates.
• Hosted regular leasing / procurement training sessions with school bursars.

Using a traffic light system of Assurance about Audut Outcomes for audits in 2011-12 the report gives 7 primary schools a green light (substantial), 9 an amber (limited) and 4 a red (nil). The report gives a long list of issues that have been identified 'in the majority of schools' over the last two years. These cover Governance, Procurement, Unofficial Funds, Budgeting, Income and Banking.

The Head of Audit's opinion reported to the Audit Committee for 2010-11 sums up some of the issues:

I also remain concerned about the apparent lack of financial control within a significant minority of the council’s schools and the general approach to internal audit findings. Whilst schools are responsible for their own budgets, they are required to adhere to both legal requirements and to financial regulations issued by the council. These ensure public money is properly spent and accounted for. A number of schools are demonstrating a lack of compliance with basic procurement regulations. This is placing schools at risk of failing to achieve value for money and at risk of potential legal challenge where EU procurement regulations apply.

In addition, a number of schools are failing to adhere to the national rules concerning teacher’s pay, specifically in relation to head teacher pay being outside the prescribed bandings determined by the school size. Although, in certain circumstances schools are permitted to pay above the maximum group range, I consider that in a number of cases these circumstances may not apply and school governing bodies may be paying above the ranges set out within the national conditions document to facilitate incremental increases in pay once the natural pay cap, relative to the size of school, has been reached. This is further exacerbated by Governing Bodies not always being diligent in their recording of the reasons for granting permission to exceed to cap thus placing the school at risk of challenge.

In response to the issue of headteacher (and thus deputy headteacher) pay being outside the criteria published in the School Teachers Pay and Conditions Document (STPCD)  the Children and Families Department in October 2011 asked chairs of governors to return headteacher pay information. The report states that 'many schools failed to respond to this request in a reasonable timescale and it is only now that a full picture is emerging' and schools are being supported and challenged to ensure compliance with the STPCD.

Clearly this report raises important issues about probity, accountability and governance and deserves thorough discussion tomorrow.

The meeting takes place at 7pm in Committee Rooms 1 and 2 at Brent Town Hall on Thursday  July 19th Agenda: HERE

Declaration of interest: I am chair of governors at two primary schools and a former primary headteacher - all in Brent. I do not have a Swiss bank account!