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Mr David Ward (Bradford East) (LD)
It is good to be here before you, Dr McCrea, and the Minister. I initiated this debate and I was lucky to secure it, so it is only fair that I should be able to say what its focus is. It is important to say that because it is not about free schools and academies in general. We have had such debates, so it is not for or against such schools, but about one particular school: Kings science academy. I am not interested in what has been done in the last year or so to improve things at the school or the achievement of pupils, the quality of teaching, the behaviour of pupils, or the leadership and management. I am passionately interested in all those things because I care about Bradford, but that is not what this debate is about.
I am interested in what seems to be the collusion between the so-called benefactor, Alan Lewis, the currently suspended principal, and the Department for Education. I am interested in the DFE’s role in allowing a rich Tory vice-chair to become even richer to the tune of millions of pounds of public money, and how it allowed an inexperienced young man to become principal of the school and to remain in control long after the DFE knew he had admitted that fraud had occurred in his school. How could that be?
I would like the Minister to prove me wrong in what I believe has occurred and the preferential, favourable treatment received by Mr Lewis by ending the speculation and making public the options, analysis and appraisals of nine alternative sites. If they were available, we could see whether there was a rigorous process in place.
I also want to see the evidence that the near £300,000 per year rent is not far in excess of what Mr Lewis could reasonably have expected to get from the partially tenanted and largely derelict site—I have given the Minister three photographs from before it was developed, and I can give more. What evidence is there that Mr Lewis has not made excessive profits from the school that now stands on that site? The Minister has the pictures before him. I believe that the school was only ever going to be built on that particular site—neither the principal nor, certainly, Alan Lewis would have been interested had it been anywhere else. Prove me wrong, please, but the DFE failed in its duty to ensure that a fair and robust options appraisal took place, and I have evidence to suggest that it did not take place.
As for the personal involvement of Mr Lewis in the running of the school, there is this big debate about “was he or wasn’t he” chair of the governors. How on earth can the DFE have mistakenly believed that a vice-chair of the Conservative party was chairman of governors at a free school for 12 months? How can the Department have been confused about that? I had a letter from Mr Lewis as recently as December 2013, signed by himself, in which he states:
“I was never chair of the governing body of the academy.”
Yet I have a copy of an e-mail to the Department, which has been amended by Mr Lewis to show him as chair of the governing body and not simply as someone involved in some way in the school.
I also have evidence that Mr Lewis was involved in the financial management of the school. In the same letter from him, however, he states that
“at no time have I ever had responsibility for the financial management of the academy.”
Yet I have a letter from the DFE in which the financial arrangements of the school have Mr Lewis not only as one of many involved, but as the person who should receive financial reports. He was the key individual who was receiving the reports, even though, to repeat his own words:
“at no time have I ever had responsibility for the financial management of the academy.”
The e-mail clearly shows, set out as an action point, that the monthly financial reports were to be given directly to him.
The truth is that Mr Lewis was personally and heavily involved in the school, right from the very beginning, but he now wants to distance himself from any involvement during a period in which he knows that fraud took place. Moreover, at the same time, negotiations were taking place about the rent for the property that he owned.
A second point, on the principal, involves the internal audit investigation team report endorsing the findings of the earlier Education Funding Agency report and of the report by the accountants, Crowe Clark Whitehill, in August 2012. Will the Minister please tell me whether the CCW report was seen by the DFE? I have to tell him that I think it was, but I want some evidence that it was and for when it was seen. The IAIT report states that the principal admitted that fabrication of invoices had taken place, so even if the DFE did not see the CCW report in August of 2012, at the very least it must have known about it from the audit team at the beginning of 2013. The DFE knew about the fraud, which had been admitted by the principal, but it took no action whatever to remove him from the school.
Kevin Brennan (Cardiff West) (Lab)
The Secretary of State said to me during a recent exchange in the main Chamber that
“Mr Lewis is receiving for the property an appropriately guaranteed market rent—less than he was receiving for it beforehand.”—[Official Report, 6 January 2014; Vol. 573, c. 16.]
One of the architects involved in preparing the free school bid has said to me that he finds that statement is a
“very difficult to believe” Statement.
Does the hon. Gentleman agree?
Mr Ward
We need clear evidence, because we are now receiving at best evasive responses to the questions that many of us have been asking. At worst, hiding behind the ongoing police inquiry, we have received no response whatever. To be honest, the evasiveness of some of the responses has been disrespectful to Members of this House. We need answers—all the speculation can then disappear.
We know how serious things were in the school, and that the audit reports identify not only the fraud, but all the nepotism and other financial irregularities that were taking place. I repeat that all of that was known by the DFE, but no action was taken at all. We are not talking about a young and inexperienced man, but about a dishonest and disreputable character, and yet, with all that information, the DFE was content to let the principal remain in place.
I hope that the Minister can prove me wrong, because I have a number of serious allegations about the DFE itself. If I am right, the independence of the civil service must be in doubt. Will the Minister please put to bed some of the suspicion about the DFE by helping us? The Department has failed in its public duty to expose what it knew to be malpractice and criminal activity—it held information back and covered up the situation. We cannot have the freedom extended to free schools including freedom from public accountability.
On the reporting of an admitted crime to the police, I am still not satisfied. We have asked oodles of questions, but I am still not satisfied that the DFE acted as it should have. There will always be suspicion of a cover-up until the Minister carries out a full investigation into what happened.
The first phase of the launch of the Kings school was praised by the Prime Minister and described in the press as closest to David Cameron’s vision of what a free school should be. We know the background, but when the whole scandal broke, the DFE said that it was for the school itself to decide whether the issue was a disciplinary one. How on earth can an organisation highlighted in an audit report as responsible be the organisation responsible for looking at itself and dealing with its own disciplinary issues? It beggars belief. A Government audit uncovers misconduct so serious that it needs to be passed to the police for criminal investigation, and yet the DFE feels that it is for the school itself to decide whether the issue is a disciplinary one.
When at last the Department decided that matters could not be contained within the school, it finally referred it to Action Fraud. We are asked to believe that Action Fraud botched up the recording of the fraud on 25 April. Even if we believed that to be true, we know that the DFE then did nothing about ensuring that a crime was investigated until 5 September, when it sent an exploratory e-mail to ask what was going on.
On 5 September, the DFE knew that its April report had been erroneously recorded as an information report. It was told by Action Fraud:
“If more information related to your report becomes available your report will be re-assessed to determine its viability for investigation.”
The Department knew that on 5 September, but did nothing. Why was the audit report not sent directly to the police at that time?
Mr Gerry Sutcliffe (Bradford South) (Lab)
I am grateful to the hon. Gentleman for the work he has been doing on this case, which has affected the credibility of some of the free schools in Bradford—notwithstanding the fact that there are some good ones. We had to get the information about when the police were informed from the police themselves, not from the DFE. We were asking questions, either written questions or questions on the Floor of the House, to try to get answers, yet answers we got none—except when we contacted the police.
Mr Ward
When we asked the police in e-mails what they had received, they said that they had received nothing. Despite what the DFE said, they did not receive the reports.
As for the questions we have been asking, there are simply too many discrepancies between the answers to parliamentary questions and the other evidence available to us. The Department made its original report on 25 April 2013: that is when the matter was reported—so we are told—to Action Fraud. Let us not forget that that is eight months after the CCW report. If the DFE had seen that report at that point, why was it not made public?
George Galloway (Bradford West) (Respect)
I congratulate the hon. Gentleman on securing this debate, but I congratulate him more on the excellent forensic speech that he is making. The more he speaks, the more I am bound to ask whether he agrees that it is already obvious that the nub of this question is that Alan Lewis is a very senior member of the Conservative party, and so for party political reasons the Secretary of State for Education simply could not come clean on this matter with the people of Bradford and with the Members of this House.
Mr Ward
That is an excellent point. We have to ask why. There must have been a justification for the cover-up. It can be one of only two things. It is either because free schools are such a flagship policy for the Conservative party that it could not afford the embarrassment or because of Alan Lewis’s involvement and his association with the Tory party. If there are any other reasons, I cannot think of them.
I will make the point again about deception—I cannot use any other word, really. As I said, the Department’s original report was made on 25 April 2013, a long time after it knew about the matter. We are told that Action Fraud inadvertently logged the report as an information-only report, and subsequently apologised for that error. But how did that occur? If, as the Department claimed, information on fabricated invoices was submitted to the National Fraud Investigation Bureau, how could that be? Unless there was just a passing reference in a short telephone call, it is hard to believe that the correct message could not have got through. How could it have been logged as an information-only report if the audit report had been made available? In that case, the reaction could have been nothing other than a decision that the matter required a criminal investigation and needed to be dealt with quickly.
The Minister must be interested to learn the answer to those questions himself. In answer to a parliamentary question, the Department said:
“Action Fraud notified the Department on 1 November”.—[Official Report, 6 January 2014; Vol. 573, c. 98W.]
Action Fraud notified the Department of its mistake in classifying the report on 1 November, but—as we know thanks to a freedom of information request by John Roberts—on 5 September the Department had received a communication from Action Fraud saying:
“Thank you for your email to Action Fraud concerning your Information Report.”
That was received seven weeks before the Department says it was notified that the report had been wrongly classified as an information-only report. In those seven weeks, it did nothing.
In a parliamentary answer, the Department said that it had contacted Action Fraud on 5 September and
“in response Action Fraud stated that the National Fraud Intelligence Bureau had assessed the case but determined that there was not enough information to progress the case further.”—[Official Report, 6 November 2013; Vol. 570, c. 229W.]
End of story, it seems—the police had looked at the matter and there was nothing to do. But the truth is that the e-mail from Action Fraud to the Department on 5 September told the DFE not only that the report had been wrongly classified as an information-only report, but that more information would lead to the report being
“re-assessed to determine its viability for investigation.”
Even if we believe that it was through some error back in April that the report was inadvertently misclassified, on 5 September the Department was told not only that it was a report that could lead to an investigation—something it claimed subsequently to have been told on 1 November—but that if it gave additional information the matter could be turned into a crime investigation.
Of the three parties to this situation I have mentioned, who do I blame most? Is it a businessman who wants to make a lot of money and sees a quick opportunity provided by a political party with which he is closely associated? Is it a young man who is, I think, idealistic but is also egotistical, and is led on by politicians and senior civil servants to believe that for him the normal rules of integrity, honesty and propriety simply do not have to apply? Or is it the Department for Education, which became a Government agent of change and forgot that the basic rules of public accountability and scrutiny in the spending of millions of pounds of public money must always take precedence over the desire to support its political masters?
The real surprise is not that, eventually and thankfully, we have been made aware of what has happened via the whistleblowers, but that there were not more whistleblowers earlier—people within the Department, who were looking at what was going on and saying, “This is just not right.” That is the real problem. I have been to the Department recently and seen the whole floor that has been taken over by the academies and free school organisation within the DFE. The massive shift that has taken place has also, I believe, brought about a cultural change in the Department. The policy has become such an important driver and part of the Government’s strategy that anything goes.
The big unanswered question is, if the Department could behave in this way once, with this particular school, how many other academies and free schools has it supported in a similar manner? Unfortunately, unless we get some answers we will have to wait until another whistleblower comes forward to find out.
The Minister for Schools (Mr David Laws)
It is a pleasure to serve under your chairmanship, Dr McCrea.
I thank my hon. Friend the Member for Bradford East (Mr Ward) for securing this debate and for his persistence in ensuring that this important issue is debated properly in the House and scrutinised properly. I say that not just out of the courtesy that is normal on these occasions; it is quite right that he should ask questions about a serious issue that deserves to be looked at seriously.
I will take my hon. Friend’s hint and will not, as sometimes happens on these occasions, fill the first 75% of my speech with general comments. I will come very quickly to a lot of the matters he raised and will try to address them as far as I can. But since he mentioned some issues about the accountability of free schools, I will briefly say a couple of things on that matter, before going through each of the points that he made.
Most free schools are popular with parents and are delivering strong discipline and teaching across the country. As they are brand-new schools there is, quite rightly, greater contact and oversight with open free schools than with other academies—until their first successful Ofsted inspection, at least. After that, they are subject to the same monitoring arrangements as other academies.
Mr Laws
I am trying to address that. I am going to speak briefly, and then I will come straight to my hon. Friend’s points. He mentioned free school accountability in his speech, and it is right to say something on that, briefly and without taking up precious time. I promise him that I will address the issues that he raised.
The approach I was outlining means that in term 1, visits are arranged by the education adviser and the Education Funding Agency. In year 2, the first Ofsted section 5 report becomes available. All free schools provide budget forecasts, financial management and governance self-assessments and externally audited financial statements.
I will now turn, in the time that we have, to the matters raised by my hon. Friend that are specific to the case of the Kings science academy. He said he feared that I would hide behind—I think those were his words—the fact that there is a criminal investigation. There are some things that I cannot touch on in this speech because they are subject to a criminal investigation, and we all understand the constraints that that imposes on us all. Subject to that, however, I will try to be as open as I can.
The Kings science academy opened in September 2011. The Education Funding Agency had already planned a full financial management and governance review at the academy which would look at aspects such as financial and other internal controls, when it received allegations about practices at the school in October 2012, some of which related to possible financial irregularity. Those allegations were included in the EFA’s financial management and governance review, as my hon. Friend is aware. The EFA carried out its financial management and governance review in December 2012. It looked in detail at all aspects of governance, including the chair’s position, financial controls and conflicts of interest. Following the usual procedures, the EFA sent the draft report, showing the inadequacy of the financial management and controls, to the academy in January 2013 so that the academy could correct any inaccuracies. Thereafter, the EFA sent the final report in February 2013, which confirmed the assessment of “inadequate” and requested the academy’s response to the findings and recommendations in the report.
The findings of the EFA’s review led to a further investigation, as my hon. Friend knows, by the Department’s internal audit investigations team. The Department’s investigators began their on-site work at Kings science academy on 24 January 2013. The investigation team sent its report to Kings science academy at the beginning of April to allow for the correction of any inadequacies. John Bowers became the new acting chair of the academy in March 2013, and he tightened control by, among other things, assuming the important role of accounting officer for the academy in April of that year. The EFA also received the academy’s improvement plans at the beginning of April in response to the findings of the financial management and evaluation report. Both the EFA and the Department’s investigation team continued contact with Mr Bowers to monitor progress in responding to both reports. We remain grateful to the new chair for the real efforts that he has made to address some of the issues that are now public.
In line with our zero tolerance of fraud in all schools—free schools, academies and maintained schools—we reported the evidence of possible fraud to Action Fraud at the earliest opportunity on 25 April 2013. I will return to cover that aspect of the case, which my hon. Friend has mentioned, in more detail in a second. Because both the financial management and governance review and the investigation found serious failings in financial management, the Secretary of State issued a warning notice in May 2013 requiring the full recovery of relevant funds and confirmation that Kings science academy would respond to the findings in both reports.
In June 2013, the EFA confirmed that Kings science academy’s new finance policy provided a firm basis for establishing proper internal controls at the school, and we wrote to the academy in July 2013 recognising the progress it had made and confirming that the report of the internal audit investigation team would be published. That is in line with our policy to publish investigation reports, which is clearly set out in the “Academies Financial Handbook”. We had planned to wait before publishing the investigation report until the disciplinary processes had been completed, but we decided that it was right to publish when the investigation report was leaked in the media.
Mr Ward
I understand all that. A report had been produced by the audit team in January, which was finally published a little after that, so a report was available in which the principal of the school admitted that fraud had taken place. Does the Minister think it was right that the principal was allowed to continue to go in to work each day?
Mr Laws
I will come directly to that point in a moment. The EFA’s financial management and governance report and the Secretary of State’s warning notice have also now been published. We insisted that Kings science academy address identified failings urgently. While its internal evidence gathering continued, we confirmed the repayment sum at £76,933. We also sought confirmation that the disciplinary process was being taken forward. It is right that the relevant funding is being recovered from the academy in full, as it always will be if an academy or free school is unable to demonstrate that funding has been used for its intended purpose.
We believe that the Kings science academy, under the leadership of Mr Bowers, is making steady progress to address the weaknesses found in financial management and governance. That increased confidence is not just a result of the monitoring visits carried out by the EFA. We have evidence from KSA’s externally audited accounts for 2012-13, which were received on time, unqualified, and report the auditor’s comments on improvements in financial control and governance.
Let me turn now to the reporting of evidence to the police. The administrative error made by Action Fraud, which wrongly categorised the Department’s evidence in April as an information report rather than a crime, is deeply regrettable, as my hon. Friend made clear. Significantly, Action Fraud has apologised for the error. We do not believe that there is any fault with the way in which the report was made by the Department.
Mr Laws
I will not give way, because I have so much to cover. I hope the hon. Gentleman will excuse me.
Before April 2013, any evidence of fraud found by the Department would have been reported to the relevant police authority. Action Fraud was established from April 2013 and since then has been the correct organisation with which to engage. The KSA situation was the first occasion on which the Department had needed to contact Action Fraud, so it made a further check with West Yorkshire police on the same day—25 April—to confirm that the report had been made in the right way. I put it to my hon. Friend the Member for Bradford East that if there had been an attempt at a cover-up, it is unlikely that that check would have taken place.
In September, we made a further check with Action Fraud, which told us that the National Fraud Intelligence Bureau had assessed the case and decided not to take it forward. At the time, it seemed clear to us that the information regarding an alleged fraud had been correctly provided; it had been assessed and the case was not going to be progressed further. We know now that the case should have been passed by Action Fraud to West Yorkshire police for investigation, but the decision to investigate lies with the police, not the Department for Education.
I am sure my hon. Friend shares my wish to ensure that such a problem does not happen again. The Department’s internal audit and investigation team has now met Action Fraud and the National Fraud Intelligence Bureau to review and refine the processes for reporting fraud in future. We have tightened the procedures through which any future reports will be made. We will use Action Fraud’s online system. We will retain our own copy of the report we make and follow up within five working days if we have had no response from Action Fraud or contact the police.
As my hon. Friend knows, the police made an arrest in connection with the case on 9 January this year. Kings science academy wrote to parents on 10 January to confirm that the arrested man was Mr Raza, the principal, and that he would not be returning to the school, at least until the investigation was completed and finalised. Beyond that, it is not appropriate to comment. The parameters of the investigation are, quite rightly, for West Yorkshire police to determine. Until such time as the investigations are concluded and a determination regarding the case is reached, it would not be appropriate to release further information on that matter.
I shall now turn to the matter of Alan Lewis’s role at Kings science academy. On 27 September 2011, the academy told the Department that Mr Lewis would be chair of governors from 1 October 2011. The Department was informed on 24 October 2012 that Mr Lewis was not the chair and that Dr Asim Suleman would be chair of governors from 25 October 2012. We learned in December 2012 that there had been no chair of governors in place between October 2011 and October 2012. That was clearly a completely unsatisfactory position and totally unacceptable. Not to have a properly constituted governing body is a demonstrable failure to comply with the funding agreement. It is one of the issues identified in the EFA’s review, and one that the academy quickly addressed.
Alan Lewis’s other connection is that his company, Hartley Investment Trust Ltd, leases the site to the school, as my hon. Friend indicated. The site was secured for Kings science academy at £295,960 per annum, after an independent valuation. Due to the related party involvement, Treasury approval was sought and provided before final decisions were taken. If any hon. Members have any points to make about the police investigation, they should make them as soon as possible to the police.