By Winnie.Agbonlahor

27 Jun 2014

The Education Funding Agency is responsible for handing out £54bn of taxpayers’ money every year, funding every state school place in the country. Winnie Agbonlahor meets its chief executive, Peter Lauener

Journalists are amongst the least trusted of professionals. We are viewed as people who ask you a question, listen to the answer, and then twist it into something that suits the story we always wanted to write. Sadly, those who operate by this model have given the rest of us a bad name.

In a CSW interview, to this general mistrust must be added civil servants’ determination to avoid embarrassing their ministers: warned by press officers not to stray from the official position, some can be hesitant and extremely careful with journalists – even CSW’s Whitehall-friendly hacks.

There was no trace of this kind of awkwardness when I was led through to meet Peter Lauener, chief executive of the Education Funding Agency (EFA) – an executive agency of the Department for Education (DfE) responsible for managing an annual total of about £54bn distributed to England’s state schools. We’re in an office in the DfE’s headquarters – but this, he tells me, isn’t actually his office. “We’re hot-desking,” he says. “And we also work in a number of different buildings; we used to have about 12 buildings, but we’re closing some of those to make savings.” Alongside his patter on estates management, he slips in a few jokes: having pointed out several times that his children are “real grown-ups”, he pauses to tell me: “This is where you should say: ‘You must have had your children very young’.”

It can’t always have been so jovial inside the EFA, which has been at the centre of a series of scandals involving the mishandling of public money at free schools. But first things first: why does the EFA exist? Its core role is to hand out money to academies, free schools and local authorities; it also receives and checks the annual accounts of free schools and academies, and has responsibility for building and maintenance programmes for schools and sixth-form colleges. Its workload has increased immensely since its birth in 2012: the number of academies almost doubled to 2,826 during its first year of operation, and the number of free schools has increased from 24 in 2011 to 173 now. Meanwhile, it has a target of reducing administrative spending by 14.6% over three years.

The EFA was created by bringing together the work of the Young People’s Learning Agency (YPLA) and the Partnership for Schools (PfS), as well as some responsibilities which previously lay within DfE. “We don’t have a separate legal entity; we’re part of DfE”, Lauener explains, meaning that “the ultimate responsibility still lies with the secretary of state”. The lack of a separate legal entity, he says, is useful for sharing confidential data with other core DfE units – something that was previously a problem for the YPLA, which was outside the civil service.

Why are you here?
So if the EFA doesn’t have its own legal status, is directly accountable to its parent department, and carries responsibility for programmes which, by the sounds of it, could be delivered by the DfE itself, why is it an agency? Lauener responds that having a separate identity brings “value to government and clarity to the people. We have a big external role and focus – so, for example, we run a big construction procurement programme, and need to get on with a lot of operational detail under agreement with ministers.” It is helpful, he adds, if the people the EFA deals with “can relate to the agency and say: ‘Yes, that’s EFA guidance on this’.”

Nonetheless, Lauener notes that the EFA is “fully integrated into the department”, adding that “we’re not sailing too freely [from DfE] and [getting] out of control”. The EFA isn’t in the same situation as bodies such as Ofsted, which need autonomy from the parent department in order to guarantee that their “judgements are independent of ministers”, he says: “You don’t have the same reason to have a separate legal entity for a funding body”. In fact, he notes, it “would be very odd” for the EFA not to be a part of government, for “it is not our job to criticise government policy”. For Lauener, the status of in-house agency provides an identity that’s recognisable outside the department, without creating the kind of autonomy that would raise questions over democratic accountability.

We move on to the challenges facing Lauener’s organisation. Some have been entirely practical: it’s been tricky, he says, to get all the staff of the EFA’s precursor organisations onto the same IT system. “We all had different email addresses – the YPLA, the PfS – but we all needed to be part of the department’s system.” He describes this challenge as “in some ways quite mundane and trivial, but really important”.

Less trivial has been the problem of embezzlement at some free schools. Among these has been the Kings Science Academy, a free school in Bradford which failed to account for nearly £80,000 of its funds. “We’ve had that re-paid,” he says. “The full amount.” In a report published in May, the Public Accounts Committee (PAC) described this school as an example of ineffective oversight arrangements. However, Lauener is confident of his system.“Financial irregularities” can never be eliminated completely, he says: “The important thing is that you’ve got a system which responds quickly to problems when they emerge; that’s the really critical thing with the system we’re trying to build”.

As it stands, free schools and academies have to appoint independent auditors to go through their accounts before they send them to the EFA. Doesn’t he think it would be easier, I ask, if the EFA had its own auditors checking school accounts? “No, I don’t,” he says. “The auditors have a duty to the EFA to report on regularity. I think this is a system that works well with the fact that these are independent autonomous organisations, and I think it’s important that the arrangements that we put in place work with the grain of that, ensuring that we, and I as the accounting officer, can report to parliament that the funds have been properly spent and that where there are concerns we follow that through quickly, rigorously and effectively.”

Responding to PAC’s criticisms
His view clashes with PAC’s assessment: the committee called for tougher regulation of schools by the EFA, and accused the agency of an over-reliance on whistle-blowers to flag up problems. “I take a lot of pride in the fact that I think we have got very good procedures in place for dealing with whistle-blowers,” he says, “but we certainly don’t just rely on whistle-blowers.” Furthermore, he says: “It’s also the case, by the way, that every part of the private and public sector gets information about problem cases from whistle-blowers, so there’s nothing unusual in our operation.”
Another tool Lauener plans to use in the future to identify irregularities is a computer analytics programme, similar to that used by banks to detect atypical activity in customers’ bank accounts. “We’ve modelled it on the kind of approach that would be taken in the commercial sector, where financial services organisations use a lot of data,” he says, and he’s “really quite pleased with the way it’s working”.

The tool identifies risk by analysing key data sets such as pupil numbers, academic performace, Ofsted inspection results and financial management. By combining the data sets with EFA civil servants’ judgement about the importance of different factors, the agency hopes to identify academies at financial risk that we might need to monitor more closely. So if an academy’s pupil numbers are falling, that might ring alarm bells about the risk of it running a deficit – and the EFA can step up its monitoring of that academy.

The EFA already runs a system for monitoring academies where there are financial concerns. However, the agency admits that it is more “reactive” than it would like, designed to respond to problems that have emerged rather than to spot risks before they’ve caused serious harm. The EFA’s stated determination to use data more effectively chimes with a new report by PAC, published earlier this month, which accuses the EFA of being “too reactive” and of not spotting risks quickly enough (see news).

In a report published in early June, the committee also raises the issue of academy bosses handing out contracts to their friends and families, or to companies in which they have a financial interest. These so-called ‘related-party transactions’ are permitted if the service is provided at no more than cost price. PAC chair Margaret Hodge has previously called this rule “a nonsense argument” at a March PAC hearing, and the report now calls on the agency to “reconsider its policy which permits related-party transactions”. DfE permanent secretary Chris Wormald, who appeared at the hearing with Lauener, told the committee at the time that “we ought to go away and consider the points that you have made”. However, when asked if anything has changed, Lauener’s office points me to the Academies Financial Handbook: apparently unchanged, this sets out the “arrangements under which any related (or connected) party transaction should be made”.

Missing money
Some of the concern over the EFA’s reactive approach to scrutinising schools may be rooted in the lack of clarity over some schools funding figures, and the substantial size of some of the losses that have been identified. For example, Lauener says he can’t provide a figure for the total amount of spending that has not been accounted for by schools, “because there are still some cases where the work is going on”. But his office later points me to the agency’s annual accounts for 2012-13, which state that Haberdasher’s Aske Academy Trust, which runs three schools in greater London, “discovered an irregularity that had resulted in financial loss over a number of years”. The trust had “not quantified the precise sum”, but it was “recognised as £1,962,104 in the trust’s academic years 2011-12 and 2010-11 accounts.” The report also lists a second academy trust – which it does not name – which “suffered an estimated loss of £1,100,000 as a result of the misdirection of a payment to the wrong bank account”. This case, the report notes, is currently subject to a legal investigation, and “the final loss will be reported in the financial year 2013-14 accounts, assuming the investigation and legal proceedings are completed by then”.

There have been some high-profile cases of school management staff – given great freedoms to spend under the academies and free schools models – enriching themselves at public expense; might there be lots more undiscovered cases out there? No, says Lauener: the reason these cases are in the public domain is because the EFA puts them there. “If there is cause for concern,” he says, “we might undertake an investigation or a review of financial management and governance, and we publish these reports.” The EFA has published around a dozen of these, he says: out of 4,000 academies and free schools, this is “a very low proportion”.

As a comparison, he points to a report by the Audit Commission for the academic year 2012-13, which found fraud in 191 local authority-maintained schools. He concludes that “there is no system that you can possibly devise – whether in the private sector or the public sector – which can be absolutely immune to fraud. What we’re trying to do is build a system which is rigorous and allows academies [and free schools] the freedom to take the decisions they need to take to provide the best education they can”. 

Getting homework in on time
In its March report, PAC raised concerns over the rate at which the EFA collected free schools’ audited financial accounts in 2011-12: less than half of free schools handed them in on time. And in yesterday’s report, the committee called for the EFA and DfE to “implement an effective joined-up strategy for enforcing compliance with funding agreements and consider appropriate incentives and sanctions”.

However, Lauener responds that the 2011-12 accounts – covering the first year of free schools, when they’d just been set up – all eventually came in; and in the following year, the proportion of on-time submissions rose to 84%. “I’m very confident that the standard of accountability is very high,” he says. “It’s a rigorous, transparent and accountable system, I am very confident that we’re getting a good level of compliance, and it’s improving year by year.” It is unavoidable, he adds, that new processes take time to “embed” – and that’s “the only reason why the return rate was lower in year one”.

At the current rate of improvement, he expects the proportion of free school accounts handed in on deadline – which is the December at the end of the same academic year – to be somewhere near 91%: the level academies have reached now. And 100% eventually? “You can never get quite to 100,” he says. “We’ll get them all in at some point, but sometimes there can be very precise reasons why something can’t be done within that very tight four months.”

As the interview draws to a close, we discuss the EFA’s work on school building. The coalition’s Priority School Building programme (PSB), which is spending £2.5bn over three years to “rebuild the 261 schools found to be in the worst condition in the country”, is the successor to Labour’s 10-15 year £55bn Building Schools for the Future programme (BSF). The BSF, a grand plan to rebuild every secondary school in England, was famously closed by education secretary Michael Gove.

The EFA has now made progress on the PSB, and Lauener is keen to point out the agency’s achievements: “We’re achieving savings of 40% compared to previous school building programmes, and we just opened the first one of these in Coventry,” he says. “And that’s a great success for the approach this government has asked us to take of a centralised procurement, compressing the whole contracting period using standardised baseline designs”.

As the PSB results in buildings being refurbished and built, the EFA will have some very visible success stories to tout. Overseeing the spending of a growing number of financially-autonomous schools, however, is a trickier business. The proportion of free schools and academies is only going to go up; and the combination of greater freedoms for school managers, and tightening budgets at the EFA, presents obvious dangers. For there is close media interest in the performance of academies and free schools, and when things go awry the consequences can cause great political damage – as the education secretary’s recent clash with the home secretary shows. The EFA’s new focus on identifying risks before they turn into problems is sensible; but Lauener, ever keen to refute criticisms of his agency, doesn’t seem like a man who dedicates his life to looking for problems. Hopefully, he’s more ready to acknowledge the difficulties of his job when he’s having internal meetings than when giving a CSW interview. Because if he really thinks his agency is as perfect as he’s telling CSW, then an over-confident EFA will be very vulnerable to fraudsters – and at that point, the wrong kind of journalists will start taking a very, very keen interest.

See also: News

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