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National Audit Office report: Comptroller and Auditor General’s Report on the Department for Education’s financial statements 2014-15

Comptroller and Auditor General’s Report on the Department for Education’s financial statements 2014-15

Amyas Morse, the Comptroller and Auditor General (C&AG), has provided an adverse opinion on the truth and fairness of the Department for Education’s group financial statements.

“Providing Parliament with a clear view of academy trusts’ spending is a vital part of the Department for Education’s work – yet it is failing to do this. As a result, I have today provided an adverse opinion on the truth and fairness of its financial statements. The Department will have to work hard in the coming months, if it is to present Parliament with a better picture of academy trusts’ spending through the planned new Sector Account in 2017.”

Amyas Morse, head of the National Audit Office

 

Amyas Morse, the Comptroller and Auditor General (C&AG), has provided an adverse opinion on the truth and fairness of the Department for Education’s 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 three 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 2014-15, this included 2,824 academy trusts that operated 4,900 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.

The Department was unable to meet the original statutory reporting deadline which was to submit to the C&AG its signed 2014-15 financial statements by 30 November 2015. This was largely due to the complexity of consolidating 2,824 academy trusts with year-ends that do not match that of the group, combined with issues relating to the significant expansion of the capital programme within the Education Funding Agency. Based on the Department’s assurance of improvement, and following consultation with the NAO, HM Treasury agreed to an extension of the statutory deadline for the laying of the 2014-15 accounts from 31 January to no later than 29 April 2016. As a result of the extension, the Department was able to provide financial statements supported by sufficient, appropriate evidence to enable the C&AG to conclude his audit.

Following the C&AG’s recommendation in 2013-14, the Department and HM Treasury are working to develop an alternative approach to accounting for academy trusts to improve the transparency to Parliament of academy trusts’ spending. The Department’s preferred option, which has been agreed ‘in principle’, subject to conditions, by HM Treasury and Parliament, is to remove the academy trusts’ financial results from the Department’s group financial statements and to reflect only grants paid to academies. The Department would then prepare a separate aggregated account for academies as at 31 August (the Sector Report).

The Sector Report option, 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.

 

Publication details:

HC: 46, 2015-16

Published date: April 20, 2016