Ministers have been left in no doubt about the degree of financial mismanagement within the education service of the borough of Hackney.

The Government team sent into the London borough makes clear that Hackney lacks systems to monitor spending or set accurate budgets.

It cites the borough’s failure to realise until six months into the financial year that it had overspent on its education services by Pounds 1.746 million. Recently, officers found that schools had not been charged for gas supplies for three years, running up a debt of Pounds 1m. But later, officers revised their calculation, and said that the charges related to only two years.

The improvement team found that the council had under-estimated the cost of staff salaries by almost Pounds 1m and had failed to budget for a Pounds 250,000 bill to pay for long-term supply cover in primary schools.

The report says senior officers are now forecasting that the budget shortfall will have disappeared by March, but the team “remains to be persuaded”.

The report says there is a history of incomplete, inaccurate and unsound financial information being provided to councillors. However, the council has acted on the team’s advice and appointed a finance officer on a consultancy basis.

While the financial management of the service is heavily criticised, the report acknowledges that progress is being made. Hackney agreed to let the team take part in the appointment of the new chief education officer, Liz Reid (see right). However, councillors refuse to accept the team’s advice that Mrs Reid be part of the senior management team.

The report reiterates the team’s view that the management structure being put in place by the chief executive, Tony Elliston, is not appropriate to the needs of the education service. In addition, it says senior posts are not advertised at adequate salaries to attract suitable applicants.

In terms of strategic management of the service, the report points out that councillors have yet to appoint a permanent chair of education (though a decision to do so has been taken). At present, says the report, the political complications of a council that has no overall control means councillors are not able to order priorities.

Overall, the report suggests Hackney’s education service has major failings - 38 teenage boys were found not to be on any school register and there is no system for monitoring whether the council is fulfilling its statutory duties. Heads do not get financial advice or support and work is required to develop a behaviour policy.

However, the council has received this summary of its failings with a better grace than it did the emergency report published in October.

The Government will have powers this summer to take over local education authorities deemed to be failing, but the threat that Hackney could be first in line appears to have receded.