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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.