There is an “inherent risk” of financial irregularities across the academies sector because of the number and variety of providers, the National Audit Office (NAO) has warned. 

In a letter to academy auditors, the NAO - which is responsible for scrutinising all public spending by the Department for Education and the Education Funding Agency (EFA) - warned that the conditions around the burgeoning number of academies are ripe for financial mismanagement. 

“On conversion, or opening, an academy is unlikely to have a fully developed control framework to address all of its new responsibilities. New academy accounting officers are potentially unfamiliar with central government oversight and their responsibilities as accounting officers.”

It adds that this could lead to “irregularities”, including:

• Approval from the secretary of state not being sought for certain transactions where it is required.
• Employment of relations not on an “arm’s-length” basis.
• Fraud or misappropriation of funds.
• An increasing risk that academies with long-standing deficits may become insolvent.

The NAO says auditors should be aware of investigations into irregularities that are being carried out by the EFA.

There are currently 15 ongoing investigations on the EFA website that have resulted in schools being given a warning notice to improve their financial management. There are also a further 11 closed investigations, where such a notice has been lifted.

The warning comes after The Observer revealed this weekend that there have been 58 allegations of “financial irregularity” at academies and free schools in the past three years. The information was obtained through freedom of information requests and confirmed by the Department for Education.

Brian Lightman, general secretary of the Association of School and College Leaders, said: “The vast majority of the 5,000 academies in the country operate, like other schools, to the highest standards of financial accountability. What the National Audit Office’s comments show is that it is very important for academies to have accounting staff who understand central government oversight and follow the correct procedures.”

Allan Foulds, head of Cheltenham Bournside School, an academy converter, said: “My experience as a headteacher is that accountability is much higher and better organised in terms of scrutiny and oversight now. It is better than four or five years ago. Independent reporting - the fact you need to have an independent auditor - is a real strength.”

A Department for Education spokesperson said: “Academies operate under a strict system of oversight and accountability - more robust than in council-run schools - ensuring any issues are identified quickly and we can take swift action.

“The Education Funding Agency keeps a close eye on academy finances and is well placed to intervene on the rare occasions it is needed. The vast majority of the 5,048 academies around the country are run to the high standards we expect and we have a team of regional schools commissioners that work with the best local headteachers to further oversee the performance of academy trusts.”

Last year, research from the University of London carried out for the Education Select Committee, highlighted the weaknesses in the checks on academy trusts. It said the systems for regulating conflicts of interest had improved significantly between 2010 and 2012, but there were still weaknesses at several levels.

“The widespread view is that the vast majority of academy trusts are staffed by honourable people working hard to address educational underperformance, often in challenging circumstances,” said the research. “Cases of deliberate fraud are rare and many of the instances where real or perceived conflicts have arisen are the result of people being asked to work too fast with too few controls. Nevertheless, the general sense from the literature and the evidence collected for this study is that the checks and balances on academy trusts in relation to conflicts of interest are still too weak.”