Exclusive: The £53 million bill for ‘related party transactions’

Unions call for ban as academy accounts reveal high-value payments to connected organisations

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An analysis of the 52 highest-value payments between academy trusts and organisations connected to them has sparked renewed calls for the transactions to be banned.

TES has scrutinised all “related party transactions” worth at least £250,000 in 2014-15, revealing that they had a total value of more than £53 million.

The payments have proved controversial, prompting concerns about potential conflicts of interest, although the majority of trust accounts state that the transactions were conducted at arm’s length, in accordance with financial regulations and normal procurement procedures.

‘Clear issue’

The Department for Education published the total number of such payments for the first time in November. There is no suggestion of any wrongdoing on the part of any of the trusts or councils involved.

Seven of the 52 related party transactions were to outside companies with links to senior figures at the academy trust, the TES analysis shows.

Some of these individual transactions have been previously reported, but the investigation uncovered fresh examples, such as an academy trust that paid nearly £600,000 over two years to a company whose directors include two of the trust’s trustees.

Kevin Courtney, general secretary of the NUT teaching union, said there was a “clear issue” with the government allowing academy trusts to enter into related party transactions.

The best solution is surely to outlaw them

“The best solution is surely to outlaw them, both to prevent actual cases of wrongdoing and to remove concerns about how such contracts are awarded,” he added.

Just over half the transactions were made to the sponsor or a sister organisation of the school or trust. These included payments for salaries of centrally-employed staff, IT support and marketing. A further 11 were to local authorities, or to local authority controlled organisations. These included the largest related party transaction, totalling more than £11 million, from the Beckfoot Trust to Bradford Council, which “largely relates to salary costs and PFI [private finance initiative] charges”. There is no suggestion of any wrongdoing on the trust or the council’s part.

The figures also include six nominal payments to dioceses or diocesan organisations, to account for rent-free use of school premises owned by church bodies.

EMLC Academy Trust, which sponsors seven academies around Northampton and Milton Keynes, paid £594,030 over two years to Third Wave Enterprises (TWE) as its preferred provider of school improvement services.

According to EMLC’s 2014-15 accounts, TWE’s directors include Jan Marshall, chief executive of EMLC, and Jane Thomas, another EMLC trustee. The accounts show that TWE was reappointed during the year, after a formal procurement exercise managed by an external consultant.

Ms Marshall said the trust had strong conflict of interest policies, which meant that all transactions with related parties were approved by the strategic board, and external auditors ensured they were performed at cost.

“Because of the relationship with Third Wave, we perhaps go a little bit over the top,” she added. “If there’s a question mark, we say ‘note it down’, as we would prefer to have it there than not there.”

‘Ensuring value for money'

Another related party transaction involved a construction company that was part of the bid to set up a new free school winning a £3.4 million construction contract to build it.

The accounts for XP School in Doncaster say that the contract “included a profit element” for Wates Construction, which was a member of the trust until October 2016.

XP School Trust chief executive, Gwyn ap Harri, said that, because of the conflict of interest, no one from the school was involved in the selection of the builder, and that, of the two companies that submitted bids, Wates was “the clear winner”.

“The Education Funding Agency was aware of the conflict and the profit element, and through independent procurement, and independent technical advisors, they ensured value for money,” he added. “In fact, I believe the school got a lot more out of the contract because of our good working relationship.”

I believe the school got a lot more out of the contract because of our good working relationship

When asked why Wates decided to be part of the bid to set up the free school, Mr Harri said it was because it had a relationship with executive principal Andy Sprakes from his previous school, and its involvement showed the DfE that the bidders had the capacity to deliver the project.

He added that Wates did not win a later contract to build another school, despite submitting a bid.

A Department for Education spokeswoman said: “All academies operate under a strict system of financial oversight and accountability – more robust than in council-run schools. Where issues are identified we can and do take direct action.”

Trusts must apply the DfE’s no-profit rules, publish interests of members and trustees and disclose all related-party transactions in their audited accounts. “The vast majority of academy transactions have shown no reason for concern,” she said.

TES has contacted Wates for comment.

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