Plaid Cymru has called for an inquiry into the financial management of Estyn after the inspection agency’s latest accounts showed an underspend of nearly pound;4 million - almost half of its pound;9.8m operating budget.

The money is now in Assembly reserves and could be spent on other priorities besides education.

Estyn’s accounts for 20034 reveal that most of its underspend came from savings in staffing costs (pound;1.5m) and associated expenses such as travel and training (pound;700,000) because “a large number of staff posts remained vacant throughout the year”.

A report accompanying the accounts, published last week and signed off by Estyn chief executive Susan Lewis, says: “Some difficulties were experienced in recruiting to particular posts and these affected programme and project work in these areas, for example adult and community-based learning and information and communications technology.”

Estyn also blames uncertainty over future funding, “created mid-way through the year as a consequence of the Assembly spending review”, for disrupting its recruitment strategy.

But critics point to the fact that there was a similar underspend - pound;3m against operating costs of pound;8.5m - in 20023. This was also attributed to vacancies not being filled “at a time when Estyn was financed for a staffing expansion that was needed to enable us to take on additional work”.

The accounts also reveal that it had anticipated a 29 per cent year-on-year increase in contracted-out inspection costs. The actual rise was 16 per cent (pound;431,000) compared to 20023, taking the amount paid for school inspections in 20034 to pound;3m.

Janet Ryder, shadow minister for education, said the Assembly government should investigate the matter through a supervisory panel, one of the innovations of the Education Bill.

She said: “I am extremely concerned that there has been such a large underspend. Even allowing for projects coming in under costings and end-of-year slippage, this is a worryingly large amount of money unused.

“I appreciate that Estyn has experienced difficulty with staffing, but its explanation that those vacancies were left unfilled because of the uncertainty of future funding needs to be clarified. We need to know how this was taken up with Jane Davidson, the education and lifelong learning minister, and how she responded.

“It does seem strange that staffing vacancies can lead to a pound;4m underspend. This surely warrants consideration by a supervisory panel.”

Estyn is now recruiting staff, including inspectors and administrative personnel. An advert in The TES last month invited applications for specialist HMIs, with salaries of pound;46,000-pound;59,000 per year.

The agency is looking for experts in almost all areas of its inspection work, including adult community-based learning, initial teacher education and training, early-years and primary education, secondary, independent and special schools, and local education authorities and special needs.

However, an Estyn spokeswoman said this will not affect the agency’s use of independent teams from the private sector.

Rhys Williams, spokesman for the National Union of Teachers Cymru, said:

“We are deeply concerned that inspections in Wales are being conducted by privatised companies. We are unhappy with the system and the principles which underpin it.”

He added: “What increases our frustration is that pound;4m could be used to the benefit of schools.

“Estyn, as it stands, is an inspection system, not a support system. Think how much benefit this money could be to continuing professional development. One way of using it would be to divert it to the General Teaching Council for Wales for its continuing professional development programmes for teachers.”

An Assembly government spokeswoman said it had retained Estyn’s underspend, for reallocation to “key educational and other priorities”.

She added: “Where underspends arise there are ample opportunities to make a case for putting the resources to good use ‘in year’. Ministers look closely at previous spend when deciding future settlements but this is by no means the only factor.

“The inspectorate has a very full agenda. To reflect this and ensure it can discharge its responsibilities the Assembly government has agreed that planned provision for Estyn will increase to pound;15.6m by 2007-8.”