Government oversight of how taxpayers’ money is being spent on free schools is “not up to scratch” and officials are too reliant on whistleblowers to expose problems, a cross-party group of MPs has warned.

In a scathing new report, the Commons Public Accounts Committee said both the Department for Education (DfE) and the Education Funding Agency (EFA) needed to improve arrangements to be sure public money was being “used appropriately”.

The committee also expressed concerns that there have been no bids to open primary free schools in areas that have a high or severe need for places.

The report analyses the success and value for money of the free schools programme and says that the government has made “clear progress” on the scheme - which is a key part of its education policy - by opening new schools quickly.

But it adds the measures put in place for checking how these schools are run and whether money is being spent properly are not good enough. The committee’s report said the department had estimated around GBP1.1 billion had been spent on the initiative by March this year.

Less than half of free schools submitted their financial accounts for 2011/12 to the EFA on time, despite being required to do so, it says.

The MPs highlighted recent governance and management issues at Al-Madinah School in Derby, the recently closed Discovery New School in Crawley, West Sussex and Kings Science Academy in Bradford.

They said that these cases suggest the DfE’s and EFA’s processes for overseeing free schools “are not yet working effectively to ensure that public money is used for the proper purpose”.

The report goes on to say that the DfE and the EFA “seem overly reliant on whistleblowers when problems should have been identified through their own audit and review processes”.

PAC chair Margaret Hodge said: “Recent high-profile failures at Al-Madinah School, Discovery New School and Kings Science Academy demonstrate that the DfE and the EFA’s oversight arrangements for free schools are not yet working effectively to ensure that public money is used properly.”

She added: “The department and agency have set up an approach to oversight which emphasises schools’ autonomy, but standards of financial management and governance in some free schools are clearly not up to scratch.

“The agency relies on high levels of compliance by schools, yet fewer than half of free schools submitted their required financial returns for 2011-12 to the Agency on time.

“Whistleblowers played a major role in uncovering recent scandals when problems should have been identified through the Agency’s monitoring processes.”

Ms Hodge said that the Government needs to improve its systems for scrutinising free schools “so that we can follow the taxpayer’s pound and satisfy ourselves that public money is being used appropriately”.

The report also warns that there have been no applications to open primary free schools in half of districts where there is forecast to be a high or severe need for places in the next few years.

Overall, 42 free schools have opened in areas that have no forecast need for places, with an estimated total building cost of at least £241 million for mainstream schools.

Teachers’ leaders said the report was “highly concerning”, with the NUT stating education secretary Michael Gove should “consider his position” in light of the findings.

“It is extraordinary that, as the report makes clear, the department has set no limit on how much it is willing to spend on free school premises,” Christine Blower, NUT general secretary, said. “It would appear that there is no sum too large to lavish on free schools, a fact that most head teachers in schools desperate for repairs and renovation will greet with incredulity.

“All in all this is a damning indictment of the free school programme and of its handling by the Secretary of State, Michael Gove, who in light of this report should really consider his position.”

Association of Teachers and Lecturers added that it was “deeply worrying” that over 2011/12 fewer than half of free schools submitted their financial returns on time.

“How is proper oversight of the spending of taxpayers’ money being achieved with this lack of proper accountability and scrutiny?” Mary Bousted, ATL general secretary, added.

But the criticisms were challenged by the New Schools Network, a charity that helps groups to set up free schools, which said the programme was addressing a “crisis in good school places”.

“It is simply untrue to say that free schools are not being set up in areas of where new places are needed,” NSN director Natalie Evans said.

“This September, 90 per cent of new free schools are opening in areas where there is a predicted shortage of places, and in London, this rises to 100 per cent. Once full, all currently open or planned Free Schools will provide an extra 150,000 badly needed places.”