Financial management of Brent schools in the spotlight again

Brent headteachers getting ready for the start of the new term were greeted with further press coverage of alleged school financial mismanagement at the weekend. The Times Education Supplement of September 1st  had extensive coverage of the situation in the borough LINK.  The situation had already been extensively covered here in July LINK and I returned to it later in the month LINK

The TES quotes Clive Heaphy as warning that academy conversions could make things worse:

Clive Heaphy, Brent Council’s finance director, argues that the current vast expansion of academies is going to make the problem much worse.

“Inevitably there is a recipe there for difficult times ahead and potentially for some mismanagement issues and possibly some fraud issues,” he told TES, adding that increased autonomy for local authority schools had already made it much harder for town halls to guard against them misusing public money.

“I still retain personal accountability for schools’ finances and yet I see less and less data and have fewer and fewer levers to be able to do anything about it,” Mr Heaphy said. “There is very little action in reality you can take.”

On academies he said: “The only watchdog over them is the Department for Education itself. We have no relationship with them, but who does?”

The TES reveals details about the amount of debt accumulated by two Brent primary schools through exploitative financing arrangements:

Furness Primary is being sued by a finance company for £301,083 plus interest calculated at £14,579 in April and still rising. But Brent Council said the equipment involved was worth just £9,150 when it was sold off by the finance company in February.

Kensal Rise Primary is being sued by the same company for £287,000. Both schools have made counterclaims for money they say they have already paid “in error” - £805,000 in the case of Kensal Rise. The same school has also received a more recent claim from a second finance company for £253,000.

Brent says schools have been tempted into such deals by offers of up to £15,000 “cash back” a quarter from equipment suppliers that make initial lease repayments appear more favourable than the real long-term cost. Clive Heaphy, the authority’s finance director, said that primary heads were not always “business savvy” and cannot always “see through” such offers.

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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!