Amyas Morse, the Comptroller and Auditor General (C&AG), has provided an adverse opinion on the truth and fairness of the Department for Education group financial statements. An adverse opinion indicates that he considers the level of error and uncertainty in the statements to be both material and pervasive. He has also qualified his regularity opinion because the Department has exceeded two of its expenditure limits authorized by Parliament.

Today’s report comments on the financial management challenges faced by the Department and the impact this has on the ability of the Department and the Treasury to discharge their accountabilities to Parliament. Since 2012-13, the Department’s group financial statements have consolidated the financial statements of academy trusts, alongside those of the Department itself, its executive agencies and NDPBs. For 2015-16, this included 2,910 academy trusts that operated 5,552 academies.

The Department has a different reporting period from that of the academy trusts. The former must produce its financial statements by a year end of 31 March whereas the trusts have a year end of 31 August (to align with the end of the school year). This presents the Department with the significant challenge of preparing financial statements which provide a true and fair view of the financial activity for the period in question and the financial position at the end of that period.

The Department has chosen not to change the reporting period for the trusts. Nor has it requested a second set of statements to cover the period to the end of March on the ground that the extra resource needed would be better spent on providing education. Instead it has sought to prepare the group financial statements by using the academy trusts’ financial statements to the end of August and then making adjustments using centrally collated information where necessary. The Department has made the assumption that financial data for the year to the end of August, with the adjustments, would not be materially different for the equivalent to the end of the following March.

The C&AG considers that the approach adopted by the Department does not give a true and fair view of its financial performance or position. Furthermore, the approach does not provide the required accountability to Parliament. The C&AG has not, however, identified material inaccuracies in the financial statements of the individual bodies making up the group.

Following the C&AG’s recommendation in 2013-14, the Department and HM Treasury has developed an alternative approach to accounting for academy trusts to improve the transparency to Parliament of academy trusts’ spending. The Department will prepare a separate aggregated account for academies as at 31 August (the Sector Annual Report and Accounts known as SARA). This approach removes the academy trusts’ financial results from the Department’s group financial statements, which will instead reflect only grants paid to academies.

The Department produced a dry-run of the SARA for the Education Select Committee in October 2016 and the first SARA, covering the year ending 31 August 2016, is currently due to be published in June 2017.    The Department has not yet fully developed its proposals to allow robust information on the results of academy trusts to be incorporated into the Whole of Government Accounts on a more timely basis.

The SARA, if implemented effectively, will provide a solution to a number of the issues faced by the Department. It will not, however, address all of the causes of error and uncertainty and limitations which the C&AG has identified such as the recognition of land and buildings.

The C&AG has also qualified his regularity opinion on the 2015-16 financial statements because the Department’s spend has exceeded two of the budgetary limits set by Parliament.

“The Department has many challenges to overcome if it is to implement successfully its plans to provide Parliament with a better picture of academy trusts’ spending next year.”

Amyas Morse, head of the National Audit Office

Read the full report

The Comptroller and Auditor General’s Report on the Department for Education’s financial statements 2015-16

Notes for editors

1. The Department for Education (the Department) produces Resource Accounts in accordance with the Government Resources and Accounts Act 2000 and includes the following:
• The Department for Education financial statements comprising the results of the Department, its three executive agencies (the Education Funding Agency (EFA), the National College for Teaching and Leadership, and the Standards and Testing Agency); and
• The Departmental group financial statements comprising the results of the bodies above, as well as the Office of the Children’s Commissioner, the Equalities and Human Rights Commission, the Aggregator Vehicle plc  and the 2,910 academy trusts that operated 5,552 academies as at 31 March 2016.
2. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
3. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

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