Accounting Officer System Statement for the Department for Education August 2017

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Contents

Preface 3

Introduction 4

1. Scope of the system 5

2. Responsibilities within the core department 8

3. Relationships with arm’s length bodies 13

4. Local funding arrangements 17

5. Delivery partnerships with sectors outside of government 85

6. Grants to private and voluntary sector bodies 89

7. Major contracts and outsourced services 90

8. Teachers’ pension scheme 92

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Preface The Accounting Officer of a government department is accountable to Parliament for the effective stewardship of the resources allocated to the department. Details of an Accounting Officer’s requirements (including with regard to regularity, propriety, value for money and feasibility) are set out in HM Treasury’s Managing Public Money.

In 2016, the Public Accounts Committee recommended that all departments should prepare enhanced accountability system statements, covering all of the accountability relationships and processes within that department, making clear who is accountable for what at all levels of the system from the Accounting Officer down.

In response, the Government agreed that the Principal Accounting Officer of each of the main central government departments should provide a statement of its accountability systems, including relationships with its executive agencies, public bodies and third party delivery partners.

This is the first statement following the changes to the Department for Education’s responsibilities in July 2016 and the creation of the Education and Skills Funding Agency on 1 April 2017.

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Introduction 1. As Permanent Secretary for the Department for Education (‘the Department’), I am

responsible for delivering the Government’s policy intent for children’s services and education, including higher and further education, apprenticeships and wider skills in England. The scope of the Department and therefore the resources for which I have ultimate accountability to Parliament are set out in more detail in the next section.

2. As Accounting Officer, I am accountable to Parliament for the proper stewardship of the resources allocated to the Department. The key requirements, as set out by HM Treasury in Managing Public Money, are to ensure regularity, propriety, value for money and feasibility.

3. Funding from Parliament flows to the Department in the first instance, and then onwards to a range of organisations. This is used to support delivery of public services. I require assurance that resources are managed effectively by both the Department and those organisations that receive funding from it. This Accounting Officer System Statement describes the system of accountability in place to deliver that assurance.

Jonathan Slater Permanent Secretary

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1. Scope of the System Scope of responsibility

The Department for Education (‘the Department’) is a ministerial department. My responsibilities as Principal Accounting Officer are set out at section 1.5. This includes some functions which fell under the remit of the former Department for Business, Innovation and Skills until July 2016, when they transferred to the Department.

The Department works with 19 agencies and public bodies within Government to achieve its aims and objectives, as explained in paragraph 3.1. The Chief Executives of these bodies are responsible for the stewardship of resources allocated to them, which is explained in their appointment letters and letters of delegated accountability. In all cases where these bodies produce statutory annual reports and accounts, the Chief Executive signs a governance statement outlining their internal control systems.

Both the Office of Standards in Education, Children’s Services and Skills (Ofsted) and the Office of Qualifications and Examinations Regulation (Ofqual) have an Accounting Officer, and are subject to separate funding authority from Parliament, which explains why their systems are not set out in this statement.

The Teachers’ Pension Scheme for England and Wales (TPS) is overseen by the Department although funding is provided through a separate Estimate by Parliament. I am the Accounting Officer for the TPS, and so the systems that support its operations are included within this statement.

Statement of Accounting Officer responsibilities 1.5 My Department has policy responsibility for children’s services and education,

including higher and further education, apprenticeships and wider skills in England. The Department is also home to the Government Equalities Office, which is responsible for equality strategy and legislation across government. The Department works to ensure that the policy and quality of children’s services and education provide an opportunity equal for all, regardless of background or family circumstances.

The Department is responsible for:

• teaching and learning for children in the early years and in primary schools;

• teaching and learning for young people under the age of 19 years, in secondary schools and in further education;

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• teaching and learning for adults in further and higher education;

• work-based learning and apprenticeships;

• supporting professionals who work with children and young people;

• helping disadvantaged children and young people to achieve more;

• ensuring that the policy and quality of children’s services, which local authorities are responsible for delivering, protect and support children; and

• addressing the barriers that prevent women, and lesbian, gay, bisexual and transgender people fulfilling their potential; and fulfilling domestic and international obligations to protect and promote equality.

1.6 The Secretary of State for Education and other Departmental ministers have a duty to Parliament to account, and are held to account, for the policies, decisions and actions of this Department and its agencies. They look to me as the Department’s Accounting Officer to manage and delegate within the Department and its partner organisations to deliver their decisions and to support them in making policy decisions and handling public funds.

1.7 As Accounting Officer, I am personally responsible for safeguarding the public funds for which I have been given charge under the Department for Education Estimate and the Teachers’ Pension Scheme Estimate. Where I have appointed additional Accounting Officers, their responsibilities are referenced in this statement.

1.8 This document covers my core department, its arm’s length bodies and other arm’s length relationships (Figure 1 illustrates the overall system). It describes accountability for expenditure of public money through my Department’s Estimate, public money raised as income, and the management of other publicly owned assets for which I am responsible.

Figure 1: A diagram showing all parts of the system

Organisations outside of

Government

Higher Education Institutions

Alternative Providers of Higher Education

Further Education Colleges including Sixth

Form Colleges

Independent Providers of post-16 and Further

Education

Organisations receiving grants

Local GovernmentMaintained Schools Other Children’s Services

Core Department – Department for Education including Government Equalities Office

Executive Non-Departmental Public BodiesHigher Education Funding Council for England

The Student Loans Company LtdOffice for Fair AccessLocatEd Property Ltd

Institute for ApprenticeshipsOffice of the Children’s Commissioner

Equality and Human Rights CommissionConstruction Industry Training Board

Engineering Construction Industry Training Board

Film Industry Training Board

Executive AgenciesEducation & Skills Funding

AgencyNational College of Teaching and

LeadershipStandards and Testing Agency

•

Advisory Non-Departmental Public Bodies

Social Mobility CommissionSchool Teachers Review Body

Teacher’s Pension Scheme

UK ParliamentCentral Government

Consolidated Department

Non Ministerial Departments

Office of Qualifications & Examinations

Regulation (Ofqual)

Office for Standards in Education, Children’s

Services & Skills (Ofsted)

Key TPS subject to independent Parliamentary estimate, pension administration contract managed by the Department

Sector Annual Report and Accounts

Academy Trusts

Consolidated Accounts produced by the Department

Other BodiesAggregator Vehicle Plc

Office of the Schools Adjudicator

2. Responsibilities within the core Department

As the lead official and Accounting Officer for the Department, I am accountable for the effective stewardship of its funds. I delegate responsibility for this stewardship and, in order to support the effectiveness of this delegation, it is important to have effective governance arrangements, systems and internal controls in place to support decision making and budget management. This includes:

• budgets and responsibilities articulated and delegated clearly;

• a robust approach to identifying and managing risks to effective stewardship; and

• paying particular attention to mitigating the risk of fraud, error and debt.

Budget allocation and responsibility Taxpayers’ money (Parliamentary Supply) is allocated to the Department by

Parliament through the Estimates process. I am responsible for making sure it does not overspend against its allocated budgets (‘control totals’). The Department is given separate control totals for programme (both resource and capital) and administrative expenditure, and further controls or ring fences can be put in place by Parliament if required.1

Ministers decide how the Department’s funding is allocated between priorities, supported by the Departmental Board and Management Committee. I then delegate budgets to my Directors General, who have responsibility for managing their allocations annually for the delivery of Ministerial priorities. This formal process is called delegation of authority. I also delegate budgets for our arm’s length bodies to the Chief Executives of those organisations (see Chapter 3 for more information).

Directors General have the authority to decide whether and how to delegate authority further to senior colleagues within their directorates. Directors General are supported by a team of finance business partners, which supports overall financial management for the Department.

1 Examples include controls for income, for a category of spending called annually managed expenditure or where there is a ring fence to protect spending on a particular area.

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I rely on the Departmental Board and its three supporting committees, to bring key risks and issues to my attention. The structure of the Board and its committees is described below at Figure 2.

Figure 2: The Department’s governance structure

Managing risks The Department’s risk management approach seeks to delegate accountability to

those best placed to manage risks, with overall strategic direction on risk management set centrally. The Department’s risk management framework sets the standards by which risks can be identified and assessed consistently, including the severity of impact. This approach helps the Department manage risks proportionately across the organisation. Risks are assessed by the nature of the risk (financial, operational, legal and commercial, information and security,

The Departmental Board provides strategic and operational oversight for the Department and is supported by three Committees. It is chaired by the Secretary of State and its membership comprised of the Department’s Ministers, the Permanent Secretary, the Directors General, the Chief Executive of the Education & Skills Funding Agency and five non-executive board members.

The Audit and Risk Committee supports the Board by providing independent scrutiny and challenge of the Department’s arrangements for governance, risk management and internal control, and provides objective review of the Departmental and Academies Sector Annual Report and Accounts.

The Performance Committee supports the Board by advising on the operational implications of policy objectives. It monitors the Department’s performance against its plans for the delivery of the Secretary of State’s priorities.

The Management Committee provides day to day executive leadership and management on behalf of the Board. This includes financial performance, business planning, workforce planning, risk management and Departmental transformation. There are three sub-committees of the Management Committee that play a key role in considering some of these management issues: the Data, Digital & Technology, Finance & Investment and People Committees.

Audit & Risk

Committee

Management Committee

Performance Committee

Departmental Board

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reputational) and whether the risk would impact on the operations of the education system, the delivery of the Government’s objectives or the Department itself.

The central risk team coordinates the Department’s Top Tier Risk Register, which is the route by which the most significant risks, identified through the framework above, are escalated to the Department’s boards and committees.

For all risks, whether they report to the top tier of Departmental governance or not, the Department adopts the ‘three lines of defence’ approach to managing these effectively:

• The first line of defence for each type of risk is an effective system of senior responsible owners (SROs), programme boards and budget managers that monitor and manage risks relating to their specific area of responsibility. The central risk team works with individual SROs and project teams to help build capability and consistency in the management of their risks. Senior civil servants participate in a formal process to complete their Assurance Framework Record to demonstrate what they are doing to fulfil their responsibility for:

o appropriately managing the resources they oversee; and

o effectively identifying and managing risks and conflicts of interest in their area.

• The second line of defence is fulfilled by a cross-department monitoring and reporting framework. The Management Committee receives a quarterly update of risks that need ongoing top-tier oversight. This pack includes a greater emphasis on action required by the Committee to either reduce risk likelihood or impact. If required, more detailed interrogation of the risks can be undertaken by either Management or Performance Committee. Alongside Management Committee, summary priority delivery plans are considered by the Performance Committee.

• The third line of defence constitutes the oversight of the Departmental Board, the Government’s Internal Audit function which operates a comprehensive audit and assurance programme, and the Department’s Audit and Risk Committee (ARC) which oversees it:

o non-executive board members sit on the Department’s Management and Performance Committees and sit on and chair the ARC. Independent members of the ARC provide challenge and scrutiny. The ARC remains the forum that provides assurance on the effectiveness of the arrangements in place, with a key part of this role to review the

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management of the key financial propriety risks and receive reports on the management of fraud risks; and

o the internal audit plan is set at the beginning of the financial year, informed by a number of considerations including the Department’s business plan, organisational changes and key identified areas of risk. It is reviewed by ARC and revisited as appropriate during the year to reflect changing circumstances. ARC reviews at each meeting all amber and red rated internal audit reports for that period. ARC also receives quarterly progress reports, including updates on completed and outstanding actions arising from recommendations. Finally, ARC and I review the Internal Audit annual report each year, and the Department also takes assurance from the internal audit functions of those NDPBs not covered by the Government Internal Audit Agency (GIAA).

The Department benefits from other independent assurance processes such as major project reviews and NAO studies targeting areas of high risk or interest.

The Department is currently assessing this risk framework against the January 2017 framework on Management of Risk in Government to identify areas for further improvement.

Counter Fraud, Error & Debt Activity I am also accountable to Parliament for identifying and reporting if any of the

funding allocated to the Department has not been used in a way that contributes to Departmental aims and objectives, due to fraud, error or debt. The Department is reviewing its approach in this area in the light of the 2016 machinery of government changes, to ensure that it is fit for purpose given the scope and nature of the Department’s new responsibilities.

A central team provides strategic guidance and co-ordination of counter-fraud, error and debt activity, overseen by a nominated Board member. This includes adherence to cross-government requirements. For example, the Department, Education and Skills Funding Agency (ESFA), National College for Teaching and Leadership (NCTL), Higher Education Funding Council for England (HEFCE) and Student Loans Company (SLC) are required to meet the Cabinet Office functional Standards for counter-fraud activity and to complete an annual capacity assessment.

2.12 Where an allegation of fraud is made, both the central team and the business area team are alerted. Where fraud, bribery or corruption is suspected, the case is pursued by trained investigators appointed by the central team, involving the courts if necessary and seeking to recover lost funds. A written report is provided

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detailing both the case and any recommendations for improvement. Centralised reporting of identified instances of fraud is via both the Consolidated Data Return process to Cabinet Office and regular updates to ARC.

2.13 Each of the Department’s arm’s length bodies has its own counter-fraud team to co-ordinate local efforts. The Department and its bodies take a risk-based approach in this area to ensure that available resources and time are focused on the highest-risk areas.

2.14 Work is also co-ordinated across bodies where this is beneficial. For example, the Department’s Higher Education Fraud and Error Resilience Board co-ordinates activity across partners to strengthen counter-fraud and error systems and capability. Board members include Departmental, SLC, HEFCE and GIAA representatives. Regularity of spend in student support is tested each year by an audit of the error rate conducted by SLC Internal Audit for the Department and the National Audit Office.

2.15 I receive details of these activities primarily through ARC and through escalation of significant issues.

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3. Relationships with Arm’s Length Bodies The Department works with 19 arm’s length bodies (ALBs) to deliver services,

regulation and advice. These include executive agencies, non-departmental public bodies (NDPBs) and non-ministerial departments. This section sets out the different types of bodies and the features of the Department’s relationships with them. Section 4 discusses in more detail the accountability system for the Department’s significant funding streams, where funding is often provided through its ALBs.

The Department applies the principles and standards set out in the Cabinet Office code of good practice on Partnerships between departments and arm’s length bodies to its relationships with ALBs.

In common with other departments, the Department’s ALBs take a number of different forms:

• Executive agency: a public body that acts as an arm of its home department, this is typically “a well-defined business unit which carries out executive functions within government. It has a clear focus on delivering specific outputs within a framework of accountability to ministers”.2 While executive agencies are managerially separate, they are independently accountable within their home department, which also reports to Parliament on their agency-specific targets. Due to this close working relationship, executive agencies are part of their department, and do not have the same level of legal separation from their home departments that other categories of public bodies often possess. The Department currently has three executive agencies: the Education and Skills Funding Agency (ESFA), the National College for Teaching and Leadership (NCTL) and the Standards and Testing Agency (STA).

• Non-departmental public body (NDPB): a “body which has a role in the processes of national government, but is not a government department or part of one, and which accordingly operates to a greater, or lesser extent, at arm’s length from ministers”.3 NDPBs have different roles, including those that advise ministers and others which carry out executive or regulatory functions. They work within a strategic policy framework set by ministers. NDPBs are classified as such by Cabinet Office and come in several forms:

2 See https://www.gov.uk/guidance/public-bodies-reform. 3 See https://www.gov.uk/guidance/public-bodies-reform.

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o Executive NDPBs, of which the Department has ten: the Higher Education Funding Council for England (HEFCE), the Student Loans Company Limited (SLC), the Office for Fair Access (OFFA),4 LocatED Property Ltd, the Office of the Children's Commissioner (OCC), the Equality and Human Rights Commission (EHRC), the Construction Industry Training Board (CITB), the Engineering Construction Industry Training Board (ECITB), the Film Industry Training Board (FITB) and the Institute for Apprenticeships (IFA);

o Advisory NDPBs, of which the Department has two: the Social Mobility Commission and the School Teachers’ Review Body; and

o Other public bodies: the Aggregator Vehicle Plc and the Office of the Schools Adjudicator.

• In addition to relying on the work of the above bodies for the successful delivery of its objectives, the Department relies extensively on the work of two non-ministerial Departments: the Office of Qualifications and Examinations Regulation (Ofqual) and the Office of Standards in Education, Children’s Services and Skills (Ofsted). These are bodies that are established as departments in their own right with separate legal identities. They operate similarly to normal government departments in the functions they perform, although they are usually more specialised and not as wide ranging in the policy areas they cover. They generally cover matters for which direct political oversight is judged unnecessary or inappropriate, such as undertaking regulatory or inspection functions. They are funded directly by HM Treasury in their own Estimate and have greater operational and policy control. Their Accounting Officers are appointed by HM Treasury and are directly accountable to Parliament, rather than to Ministers.

As Principal Accounting Officer, I am responsible for appointing the Accounting Officer of the ALBs that the Department sponsors. Each Accounting Officer takes personal responsibility for ensuring that the resources under their remit are managed in accordance with the standards and policies set out by HM Treasury for Managing Public Money. I expect them to support me in fulfilling my responsibilities across the whole Departmental group. Alongside the Secretary of State, I am responsible for appointing the permanent head or Chief Executive of the Department’s executive agencies and other ALBs, with the exception of executive NDPBs, where typically the Chair of the Board appoints the Chief

4 The Office for Students is a new public body being established in law by the Higher Education and Research Bill. From 2018, it will combine the existing regulatory functions of HEFCE and OFFA.

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Executive. As Principal Accounting Officer, I am subsequently responsible for appointing the permanent head or Chief Executive as Accounting Officer.

3.5 All appointments to the Department’s ALBs are made in line with Cabinet Office standards for public appointments. A list of individual Accounting Officers appointed by me can be found in the latest Main Estimate published by HM Treasury. With the exception of Ofqual and Ofsted who received their Accounting Officer appointment letter from HM Treasury, all new Accounting Officers receive a letter from me setting out their responsibilities, including using resources to carry out the ALB’s agreed functions as set out in their Framework Agreement (see Chapter 3 of Managing Public Money).

3.6 There are a number of features of the relationship between the Department and its ALBs, which give me the necessary oversight and assurance of funds, while giving the ALB appropriate autonomy to deliver its agreed priorities:

• each ALB has its own governance structures, in some cases including separate audit and risk committees, which have a connection to the Department’s Audit and Risk Committee either through direct or linked membership. Generally, the ALB’s chairman and board appointments are made by Ministers;

• funding for each ALB is set by Ministers each year through the Department’s business planning process;

• each ALB has a Departmental sponsor who has responsibility for the

relationship and for monitoring the delivery of the ALB’s priorities. The overall aim is that the relationship between the Department and the ALB should be open and transparent, based on a mutual understanding of risk. As Principal Accounting Officer for the Department, I have ultimate responsibility and accountability to Parliament for the resources under my control. In the majority of cases, I delegate responsibility to a senior sponsor, who usually has responsibility for the relevant policy area, to oversee the sponsorship of the ALB. I am the sponsor for the ESFA, whose Chief Executive reports directly to me. The sponsors are required to ensure that suitable arrangements are in place to manage the ALB. The Department monitors the performance and outcomes of each ALB, as specified in its Framework Agreement. This includes the frequency of reporting on financial performance and expenditure and ensuring that it is meeting its delivery objectives;

• the different categories of ALBs follow different practices for publishing annual

reports and accounts as summarised below:

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o executive agencies and executive NDPBs produce their own annual reports and accounts and their financial results and performance are consolidated in the Department’s group accounts; and

o the income and expenditure for the advisory NDPBs are included as part of the core Department’s activities within the Department’s group accounts (as illustrated in Figure 1).

3.7 The relationship between the Aggregator Vehicle plc and the Department differs to that described above and is broadly summarised below:

• the Aggregator was established by the Department to support the efficient delivery of the second stage of privately financed school improvements (PF2). Its role is to act as a single source of market funding to support the construction of a mix of new schools, including local authority maintained schools, academies and foundation schools;

• the Aggregator’s activities are governed by contract, and its activities were scoped and agreed by interested parties; and

• the Aggregator does not receive public funds and it has almost no discretion as how it spends funds received. Its operational spending has been modelled and broadly set for 25 years.

3.8 The three industrial training boards (CITB, ECITB and FITB) are financed predominantly by industry-based levies. There is currently no statutory levy on the film production sector; instead FITB is financed by a voluntary training levy.

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4. Local funding arrangements This section sets out the Department’s significant funding streams, summarised in

Figure 3 below, and explains the accountability mechanisms associated with each one through a series of tables. Each table follows a consistent format, explaining:

• the framework under which the funding is provided;

• a summary of the accountability system; and

• explanations of how the accountability system meets the four features of HM Treasury’s ‘ROCC’ model (as set out in its AOSS guidance):

o Resources: there is a well-defined understanding of what resources were provided for;

o Outputs and outcomes: there is a mechanism in place for assessing the outcomes expected from the resources;

o Check: there is a robust check of spending and performance; and

o Challenge: there is an efficient process to challenge those responsible for delivering the outcomes and spending the resources.

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Figure 3: Summary of main Departmental funding streams

Funding stream

Cash payments in

2016-17 (billions)

Maintained schools 30.8 Of which early years 2.7

Academies 17.0 Schools condition capital funding 2.5 Basic need allocation 1.6 Free schools capital funding 1 Student loans and grants 15.3 Less student loan repayments -2.4 16-19 education and training (not already covered by funding to maintained schools and academies) 3.8 Adult education funding 1.4 Apprenticeships 1.6 HEFCE 1.9 Children’s social care 0.2 Other expenditure 0.3 Other income -0.7 Departmental group operating expenditure 1.2 TOTAL CASH OUTLAY (net cash requirement) 75.5

Maintained schools funding The Department provided around £30.8bn in grants for maintained schools in 2016-17. The ESFA provides funds to local authorities (LAs), which then distribute these to individual schools. Framework under which the funding is provided

The Dedicated Schools Grant (DSG) governs how funds are distributed to LAs and onward to individual maintained schools. There are other grants, including Universal Infant Free School Meals, Post 16 Free School Meals, Pupil Premium and PE and Sport Premium, which are also paid to LAs for pupils in their maintained schools and in respect of their statutory duties in relation to all pupils, including those in academies. The DSG indicative allocations are published each December, with final allocations confirmed to LAs in March, before the start of the next financial year in April. On 17 July 2017, the Department announced the introduction of a national funding formula from April 2018. The details of the formula will be set out in September when the Department responds in full to the consultation. The Department will publish indicative allocations for every school and confirm gains for LAs based on the formula. The September allocations will provide each LA with the per pupil amount they will receive in 2018-19 and, in December, the Department will use the latest pupil number count to calculate the cash amounts they will receive. Other funding allocations such as the Pupil Premium are published in July each year for the current financial year.

Accountability System

The Department is responsible for the overall system through which funding for schools is provided to LAs, including ensuring that there are sufficient routes to provide assurance on the appropriate use of the funding (see Principle 3 below). To note, given the nature of the funding through LAs, the Department for Communities and Local Government’s (DCLG’s) accounting officer is responsible for ensuring that a

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framework is in place to make sure that LAs act with regularity, propriety and value for money in the use of all of their resources.5 Each LA’s Chief Financial Officer (CFO) provides the Department with an annual assurance statement that DSG funding has been spent appropriately and audited. The status of the audit and the Notes to Accounts are also reviewed by the Department. Maintained school responsibilities Individual maintained schools have autonomy over the use of their budgets and their governing boards are responsible and accountable in law and in practice for all of their schools’ major decisions. Schools are responsible for managing their delegated budget effectively and optimising their use of resources to raise standards and attainment for all of their pupils whilst ensuring good value for money. Governing boards’ three core functions are:

• ensuring clarity of vision, ethos and strategic direction; • holding executive leaders to account for the educational performance of the organisation and its

pupils, and the performance management of staff; and • overseeing the financial performance of the organisation and making sure its money is well spent.

Governing boards should ensure that they have access to an appropriate level of financial expertise so that they can fulfil their responsibilities to:

• approve the school budget and review progress against the budget, plans and targets;

5 DCLG has set out at Annex A of its AOSS the accountability system for local government. DCLG’s AOSS can be found at https://www.gov.uk/government/publications/dclg-accounting-officer-system-statement.

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• maintain effective financial management arrangements in the school, seeking to secure good value for money at all times and ensuring that the school has adequate arrangements to guard against fraud and theft; and

• complete the Schools Financial Value Standard (SFVS) annual self-assessment, which helps schools to manage their finances and to provide assurance to the LA that they have secure financial management in place.6

Local authority responsibilities LAs’ key responsibilities include:

• maintaining a financial scheme for schools (which sets out rules for how school finances should be governed) under section 48 of the School Standards and Framework Act 1998;7

• reviewing schools’ budget plans as submitted; • carrying out high-level monitoring of school budgets; • agreeing a recovery programme with schools that fall into deficit; • challenging excess surplus balances held without good reason; • planning and carrying out an audit programme for their schools, taking into account schools’ SFVS

returns; and • intervening in schools causing financial concern.

6 The Directed Revisions 2012 to the Schemes for Financing Schools make it a mandatory requirement for all LA maintained schools to complete an SFVS and submit a copy (signed by the chair of governors or management committee) to their LA. In the SFVS, governors or management committees should summarise remedial actions to address identified weaknesses, each with action owners and deadlines. Governors or management committees must monitor the progress of these actions to ensure that all are completed within specified deadlines. 7 Under this legislation, the LA determines the size of the schools budget. The categories of expenditure which fall within the schools budget are prescribed under regulations made by the Secretary of State, included is all expenditure, direct and indirect, on the authority’s maintained schools. Guidance for LAs is published at https://www.gov.uk/government/publications/schemes-for-financing-schools.

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LAs are responsible for holding maintained schools to account for their financial management and performance. This includes ensuring that they have adequate oversight of their schools’ financial management. They are responsible for setting and monitoring a local financial framework for schools (i.e. rules and procedures schools must follow in managing their finances) and supporting schools to provide an effective service. Maintained schools must work within this financial framework, including maintaining effective financial management arrangements and providing financial information as required by their LA. LAs have to spend the whole of DSG, pupil premium and other specific grants on education. LAs will use schools’ SFVS returns to inform their programme of financial assessment and audit. In each LA, an officer appointed under Section 151 of the Local Government Act 1972 is statutorily responsible for ensuring that the LA acts in accordance with its financial framework, and that the LA has adequate oversight of distributed funds to its maintained schools. This is usually the Chief Financial Officer and must be a qualified accountant. The Department relies on the professionalism and integrity of LAs’ Section 151 officers in seeking assurance for funds given to local government. The LA assurance role is further subject to oversight by the council and local population. The LA is further required to appoint an auditor to ensure external audit of its accounts. The Governance Handbook sets out the priorities for effective governance and the Schools Causing Concern guidance reflects the importance of LAs understanding and having confidence in the quality of governance in the schools they maintain. They are therefore expected to intervene early to strengthen weak governance before this leads to poor performance. The Schools Causing Concern guidance sets out the circumstances which could indicate a serious breakdown of governance and where it may be appropriate for LAs to issue a warning notice.

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There are some responsibilities that LAs hold for all pupils – in both maintained schools and academies. These services include prosecution of parents for non-attendance; tracking children missing from education; capital programme planning and functions relating to academy leases; and strategic planning of children’s services. LAs now receive funding to cover these duties as part of the DSG.

Principle 1 – There is a well-defined understanding of what resources were provided for

The DSG pays for:

• the schools block: education for 5 to 16 year olds including the revenue budgets for primary and secondary schools;

• the early years block: early education for under 5s, which may be within maintained schools; and • the high needs block: young people with high-cost special educational needs and pupils in

alternative provision. This education provision may be within maintained schools. From 2018-19, a fourth block, the central schools’ services block, will be added to the DSG, covering services provided by LAs to all state-funded schools in their local area. This new block will include funding previously provided through the schools’ block. The DSG as a whole is ring-fenced and must be spent in line with the terms of the grant. LAs are allowed to move money between the three blocks, although there is a required level of the early years block allocation that must be used to directly fund early years’ providers. LAs are permitted to retain a small proportion of their DSG for centrally administered and support services. From 2018-19, a partial ring fence will be introduced to the schools block. The Department will ring-fence the vast majority of funding provided for primary and secondary schools although LAs, in agreement with their local schools’ forum, will be able to move some limited amounts of funding to other areas, such as special schools, where this better matches local need.

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LAs redistribute the bulk of their DSG to their maintained schools using local formulae which give weightings for factors such as relative deprivation, pupils with special education needs, or those who speak English as an additional language. LAs have to pass the Department’s determined amounts for specific grants such as the Pupil Premium on to schools. The Pupil Premium is given to schools to pay for additional support to raise “the attainment of disadvantaged pupils of all abilities to reach their potential”.8 A large amount of discretion is provided to enable schools to innovate and address individual needs. Universal Infant Free School Meals revenue funding is given to schools to enable them to offer free school meals to every pupil in reception, year 1 and year 2.9 In regards to Post 16 Free School Meals, institutions will receive funding based on a lagged student number basis from the previous academic year. The PE and Sport Premium provides funding to schools to make additional and sustainable improvements to the quality of PE and sport they offer.

8 The conditions of grant are set out at https://www.gov.uk/government/publications/pupil-premium-conditions-of-grant-2016-to-2017/pupil-premium-2016-to-2017-conditions-of-grant. 9 See https://www.gov.uk/government/publications/universal-infant-free-school-meals-uifsm-funding-allocations-2017-to-2018.

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Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

Each LA’s CFO provides the Department with an annual assurance statement that DSG funding has been spent appropriately and audited. The status of the audit and the Notes to Accounts are also reviewed by the Department. The Department publishes performance outcomes for schools based on standard indicators to support benchmarking and public accountability. The School Performance Tables enable schools, parents and the wider public to make comparisons of education performance between schools. The Schools Benchmarking Websites10 allow users to make in-depth spending comparisons between similar schools. These tools help schools to consider their efficiency and to identify areas where they could achieve greater value for money. The benchmarking site is one of a variety of tools available on GOV.UK to support schools to achieve improved financial health and efficiency. Inspection by Ofsted provides independent assessment of the performance of schools. This information is used by the Department as part of monitoring educational standards and to trigger intervention where it is needed, and by schools themselves for benchmarking purposes. LAs monitor maintained schools on a range of performance indicators including education performance, Ofsted reports, information from their governing body and head teacher, and comments or concerns raised by parents or other members of the local community. For assessing the pupil premium, headline measures of attainment and progress by disadvantaged pupils are published separately in annual school performance tables. A wider range of measures is published in underlying data to support school self-improvement and challenge. The overall impact of the funding is monitored through data published at national and local levels. This includes a ‘Gap Index measure’

10 A new combined Schools Financial Benchmarking Website is due to go live in the summer of 2017, replacing existing academies and maintained schools sites.

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developed by the Department to track progress. Finally, the progress and attainment of disadvantaged pupils is one of Ofsted’s five inspection lines of enquiry; the impact of the funding and the effectiveness of the school’s pupil premium strategy are key factors in inspection outcomes. The Department has invested in the Education Endowment Foundation (EEF) to research effective approaches to raising disadvantaged pupil attainment and share these with schools. The Department’s communication with the sector regularly includes signposting to useful resources including those hosted by EEF, Ofsted and the Teaching Schools Council. Independent surveys of school leaders and teachers demonstrate a high level of awareness of the grant’s policy aims, and widespread familiarity with the EEF effective practice resources. In guiding and supporting schools to make best use of pupil premium funding, the Department regularly and routinely points to the work of the EEF as the main repository of evidence on what works in raising the attainment of disadvantaged pupils. For the PE and Sport Premium, Ofsted assesses how primary schools spend the PE and Sport Premium and schools must publish details of how they spend their funding.

Principle 3 – There is a robust check of spending and performance

Each LA’s Chief Financial Officer (CFO) has a responsibility (through a condition of grant) to provide the principal accounting officer with an annual statement of financial assurance that includes:

• assurances that the authority has used DSG and Pupil Premium funding in line with the conditions of grant set out by the Department;

• confirmation that the authority has in place a system of school audits which gives the CFO adequate assurance over schools’ standards of financial management and the propriety and regularity of their spending; and

• how many School Financial Value Statement (SFVS) returns they have received and an assurance that they are taking the contents of these into account in planning their future programme of school audit.

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The LA’s use of the DSG and other funding allocations is subjected to external audit as part of the authority’s accounts. The school’s budget (to include the pupil premium, other funding allocations and its share of the DSG) is subject to standard school financial audit and reconciliation processes, including the financial controls set out in the Department’s statutory guidance to LAs. Each LA-maintained school is required by the School Information Regulations (2011) to publish online a pupil premium strategy setting out the rationale for the use of the funding and the impact it had the previous year, enabling all interested parties to check the school’s strategy and use of the funding. Furthermore, each school’s governing board is required to monitor pupil premium spend and outcomes. LAs are responsible for intervening in cases of weak financial management in schools. Authorities have a range of early warning signs available to alert them to financial mismanagement including audit reports, school budget plans, the authority’s monitoring of school spending, and schools’ SFVS returns, as well as any alerts through whistle blowing. LAs are required under Section 251 of the Apprenticeships, Skills, Children and Learning Act 2009 to prepare and submit an annual education and children and young people’s services outturn statement to the Secretary of State for Education. Regulatory provisions directly affecting the content of section 251 outturn statements are also made in the School and Early Years Finance (England) Regulations 2015. LAs have a statutory duty to publish their outturn statements as and when prescribed in the Administrative Direction issued by the Secretary of State for Education and this can be found in the s251 documents section on the GOV.UK website. The section 251 outturn statement is intended to:

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• provide schools, parents and others with an interest in education and children’s services with details about schools and LA funding and expenditure;

• inform the Treasury for monitoring purposes; and

• inform Parliament in its role of monitoring the Department’s accountability for public funds. MPs ask about school and LA expenditure via the mechanisms of Parliamentary Questions or through the Education Select Committee.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

Departmental challenge The Department has a role in approaching an LA if it has evidence that it is not fulfilling its functions in relation to schools’ financial management as well as it should. The Department uses LAs’ section 251 outturn returns and CFO assurance statements to identify where there may be problems with the authorities’ or their schools’ financial management. On an annual basis, the Department analyses this information against a set of pre-agreed criteria based on:

• substantial over or under-spends of the DSG; • persistent, substantial school-level deficits or surpluses; and • schools’ completion of the SFVS.

Where this information indicates that there is reason for it to be concerned, the ESFA approaches individual authorities to understand the issues better and seek appropriate additional assurances. The National Audit Office (NAO) and Public Accounts Committee (PAC) reports published in December 2016 and March 2017 recommended that the Department should review and strengthen these arrangements. The Department will publish its response in October 2017.

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Local authority challenge LAs address poor performance (including financial) by working with the school on an improvement action plan. If performance is or remains unacceptably low, the authority may issue a warning notice. LAs and Regional Schools Commissioners will work closely and co-operatively to support improvement in maintained schools that are causing concern. However, where an LA fails to act, does not act swiftly or robustly enough, or has generally not acted swiftly or robustly enough in the past, the Regional Schools Commissioner will use the intervention powers of the Secretary of State to do so. Ofsted inspection reports also include a specific paragraph on the quality of the school’s governance. In schools requiring improvement where governance is weak, inspectors will recommend an external review of governance arrangements and expect to see action taken as a result. If an authority has a concern about the financial management of a school, it works with the school to agree a deficit reduction plan. However, where appropriate, LAs can also:

• claw back funds where the problem is an issue of excess surplus held by a school; • agree a plan to recover a deficit within three years; • issue a notice of financial concern under their local financial scheme; and • withdraw a school’s right to a delegated budget under Schedule 15 to the School Standards and

Framework Act 1998.

The Schools Causing Concern guidance makes clear that LAs are not accountable for the conduct or performance of academies and should raise any concerns about academy performance, including governance, with their Regional Schools Commissioner. The guidance also reminds LAs that their responsibilities for special educational needs and safeguarding of pupils continue to apply in all schools, maintained and academies.

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There are three groups of schools which are defined as causing concern and eligible for formal action:

• Schools that have been judged inadequate11 by Ofsted. In these cases, the Secretary of State will issue an academy order requiring them to become sponsored academies. There is a duty on LAs and governing bodies to take the necessary steps to enable this to happen;

• Schools that meet the coasting definition.12 This is about identifying and helping schools where pupils are not consistently fulfilling their potential. To fall within the coasting definition, a school must be below the set coasting threshold each year over a three-year period. When this happens, the Regional Schools Commissioner will engage the school to consider its wider context and decide whether additional support is needed; and

• Schools that have failed to comply with a warning notice. LAs and Regional Schools Commissioners may issue warning notices to maintained schools where they have concerns about unacceptable performance (not coasting or inadequate, but including results below floor standards), a breakdown in leadership and governance, or where there is a threat to the safety of pupils or staff.

Where a maintained school is eligible for intervention, there are a number of statutory powers the LA and the Secretary of State may use to support school improvement. The intervention powers are set out in sections 63-66 of the Education and Inspections Act (the ‘2006 Act’) in respect of LAs. The intervention powers are set out in sections 66A-69 and 70C of the 2006 Act and section 4 of the Academies Act 2010 in respect of the Secretary of State.

11 Schools that have been judged inadequate are any schools that Ofsted judges as requiring significant improvement (as addressed in section 61 of the Education and Inspections Act 2006); and any schools that Ofsted judges as requiring special measures (as addressed in section 62 of the 2006 Act). 12 The definition of a coasting school is specified in the Education and Adoption Act 2016.

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With regard to the Pupil Premium, current arrangements provide challenge from: Ofsted; the Department including Regional Schools Commissioners; and LAs. Where concerns about provision for disadvantaged pupils are identified, Ofsted and LAs can recommend an independent review of a school’s Pupil Premium use. In addition, the poor performance of disadvantaged pupils is one of the factors when Regional Schools Commissioners consider using the power to issue Performance Warning Notices to LA maintained schools, where the LA is deemed not to be discharging its school improvement responsibilities. Ministers have written to consistently poor performers recommending Pupil Premium reviews.

Academies funding The Department provided £17bn in grants to academies via the ESFA in 2016-17. Framework under which funding is provided

The ESFA funds academies (including free schools, university technical colleges, studio schools and special academies) on the same basis as maintained schools. Allocations and payments to academies are based on an academic year, compared with financial year for maintained schools. Academy trusts, which own and operate the academies, enter into a legal contract known as a Funding Agreement with the Secretary of State. Academy trusts are classified as central government public sector bodies by the Office of National Statistics, which means that they need to comply with HM Treasury’s rules about public money and the framework of accountability set out in Managing Public Money.

Accountability System

The Secretary of State, via the ESFA, holds academy trusts to account for compliance with the terms of their Funding Agreement to ensure regularity, propriety and value for money. Academy trusts are independent charitable companies limited by guarantee, which means that their directors (who are also their charitable trustees) have statutory duties to act within their powers, exercise care, skill and diligence and avoid conflicts of interest. The accountability system encompasses:

• a clear chain of accountability, where each academy trust is required to appoint an accounting officer who is personally accountable to the trustee board for ensuring regularity, propriety and value for money in the use of public funds. An academy trust’s accounting officer is accountable to the ESFA’s accounting officer, who in turn is accountable to the Department’s accounting officer;

• a clear framework set out by the ESFA in the Academies Financial Handbook, which gives requirements for financial management and governance;

• effective ESFA oversight based on a proportionate risk assessment; and

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• robust intervention by the ESFA where concerns are identified about financial management or governance, to return the academy trust to a stable position and ensure the effective education of its pupils. Where an academy trust requires additional support, the ESFA will work with the trust to help it reach a stronger position. Where there is a risk to public funds, the ESFA will intervene in a way that is proportionate to the risk and preserves the effective education of children, as summarised under Principle 3 below.

In addition, Regional Schools Commissioners (RSCs) have been appointed to the Department, increasing the Department’s capacity to take decisions about academies. RSCs operate within a defined decision making framework on behalf of the Secretary of State. Their role includes tackling academy under-performance, and approving which new free school proposals will move to funding agreement stage prior to opening.

RSCs are accountable to the National Schools Commissioner and each RSC is supported by a head teacher board (HTB). HTBs are made up of experienced academy head teachers and other sector leaders who advise and challenge RSCs on the decisions they make. The HTB members are non-executive; the members’ role is to provide advice, scrutiny and challenge to the RSCs’ decision-making. Decisions are ultimately for the RSCs to take, but they should be informed by the views of their HTB, the members of which should contribute their local and professional expertise.

RSCs chair their HTB; a record of all HTB meetings is published. Where an RSC intends to takes a decision which does not accord with the majority of HTB members’ advice on that decision, then the RSC must record this deviation from the HTB view and their office should report it to the National Schools Commissioner and the Minister. Ministers receive regular reports from the RSCs in order to maintain oversight of the programmes and stay informed about significant operational matters across the regions.

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Principle 1 – There is a well-defined understanding of what resources were provided for

The ESFA pays academy trusts grants towards recurrent expenditure and may pay grants towards capital expenditure. Trusts’ funding agreements with the Secretary of State set out the conditions that apply to the payment of grant. The responsibility for taking action to improve outcomes lies with the academy trust, but there is a clear chain of accountability between each academy trust and the Department. The Department will provide a new sector annual report and accounts for the 2015/16 academic year, aligning the reporting period for the sector with that of individual academy trusts. The report will separate academy spending from that of the Department, clearly showing how academies receive resources and how they use them, for the first time aligning the reporting of financial results with academic performance. Historically, this has presented significant reporting challenges for the Department, due to both the scale requirements to collect and consolidate financial information for over 6,000 academies, and the structural difference in reporting cycle – the Department reports to 31 March each year, while academy trusts report to 31 August. The sector report will address the structural difference by having the same reporting reference date (31 August) for all consolidating entities, and allow the Department to focus on the consolidation challenges arising from the scale and complexity of the sector.

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Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

The Department publishes performance outcomes for schools based on standard indicators to support benchmarking and public accountability. The School Performance Tables enable schools, parents and the wider public to make comparisons of education performance between schools. The Schools Benchmarking Websites13 allow users to make in-depth spending comparisons between similar schools. These tools help schools, including academies, to consider their efficiency and to identify areas where they could achieve greater value for money. The benchmarking site is one of a variety of tools available on GOV.UK to support schools to achieve improved financial health and efficiency. The Department publishes the performance of ‘established’ multi-academy trusts (MATs) based on progress measures featured in the School Performance Tables.14 Inspection by Ofsted provides independent assessment of the performance of schools. This information is used by the Department as part of monitoring educational standards and to trigger intervention where it is needed, and by schools themselves for benchmarking purposes. Ofsted also arranges focused inspections of academies as part of a concerted programme of action to establish the effectiveness of MATs in supporting and challenging academy schools within individual chains.15

13 A new combined Schools Financial Benchmarking Website is due to go live in the summer of 2017, replacing existing academies and maintained school sites.

14 ‘Established’ MATs in this context means three or more academies with results in the School Performance Tables that have been open for at least three full academic years (this applies separately for the key stage 2 and 4 measures). Performance data for the for the 2015/16 academic year can be found at https://www.gov.uk/government/statistics/multi-academy-trust-performance-measures-2015-to-2016.

15 Outcome letters from inspections of MATs are published at https://www.gov.uk/government/collections/outcome-letters-from-ofsted-inspections-of-multi-academy-trusts.

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For assessing the Pupil Premium, headline measures of attainment and progress by disadvantaged pupils are published separately in annual School Performance Tables. A wider range of measures is published in underlying data to support school self-improvement and challenge. The overall impact of the funding is monitored through data published at national and local levels. This includes a ‘Gap Index measure’ developed by the Department to track progress. Finally, the progress and attainment of disadvantaged pupils is one of Ofsted’s five inspection lines of enquiry; the impact of the funding and the effectiveness of the school’s pupil premium strategy are key factors in inspection outcomes. RSCs are responsible for holding academy trusts to account where academies, including free schools and university technical colleges, are underperforming.

Principle 3 – There is a robust check of spending and performance

It is primarily the responsibility of trustees to address concerns about financial management and/or governance. Academy trusts’ audited annual report and accounts provide a primary means by which the trustees must report on their stewardship of the trust and show accountability to the public. The Department requires each academy trust to submit their audited annual report and accounts by 31 December each year, covering the period ending 31 August.

The Companies Act 2006 places a requirement on academy trusts to appoint an auditor to certify whether the accounts present a true and fair view of the trust’s financial performance and position. The ESFA uses independent auditor opinions to provide assurance as to the level of validity and reliability of a company’s financial statements.

The Academies Financial Handbook also requires the auditor to give a conclusion, addressed jointly to the academy trust and the Secretary of State, on whether any matters of irregularity have come to their attention and include this conclusion within the audited accounts. Both of these requirements provide assurance of compliance with accounting practices and governance arrangements across the sector.

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The ESFA carries out an annual risk-based programme to deliver assurance on trusts’ spending. It reviews trusts’ accounts, auditors’ reports and regularity statements to evidence compliance with their funding agreements. The ESFA also investigates reported breaches of the provisions of the Handbook.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

There are clear parameters for intervention within the academies sector, which are underpinned by Ofsted’s risk based inspection regime and other accountability measures based on an assessment of financial management and governance matters.

ESFA intervention is always proportionate and risk-based, and linked to non-compliance with requirements set out in the funding agreement and Academies Financial Handbook. The approach to intervention ensures the most appropriate action is taken to support trusts in financial difficulties, which can include:

• a letter to the chair of trustees noting concerns and requiring a response; • a requirement that the trust produces an action plan to tackle specific issues. The ESFA monitors

trusts’ progress against their action plans and holds them to account for delivery; • a visit to review the financial management and governance controls within the academy trust; and • a full investigation.

Where sufficient improvement is not made by the trust, the ESFA may issue a Financial Notice to Improve, setting out actions the trust must take to address the underlying concerns. A failure to comply with the terms of this notice can lead to termination of the funding agreement. Where a trust is failing to improve a school that is underperforming, the RSCs intervene. Underperforming academies are defined as those that are below the national floor standard on progress and/or attainment measures or those judged as inadequate by Ofsted.

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Commissioners’ powers of intervention are set out in the Education and Adoption Act 2016, in the Schools Causing Concern guidance, and in individual academy funding agreements. Commissioners use a range of intervention strategies of escalating severity to address underperformance. Funding agreements generally allow them to issue warning notices where:

• the standards of performance of pupils at the academy are unacceptably low; • there has been a serious breakdown in the way the academy is managed or governed; • the safety of pupils or staff is threatened; and • the academy trust breaches the funding agreement in any other way.

Where an academy trust does not comply with a given warning notice, RSCs can take action as set out in its funding agreement. This could include terminating the funding agreement and, if appropriate, transferring the academy to a new trust.

Schools condition capital funding Condition funding has the overall objective to improve the condition of the school estate. This includes making sure all buildings are safe, weather-tight and warm so that they provide a good learning environment for children and young people. In 2016-17, the Department spent £1.4bn in condition funding to schools and the bodies responsible for maintaining their buildings. In addition, the Priority School Building Programme continued to deliver rebuild and refurbishment projects across the country, with spend of £1.1bn in 2016-17. Framework under which the funding is provided

LAs are responsible for the management and maintenance of school buildings at community, foundation, and voluntary-controlled schools. They are also responsible for the maintenance of playing fields (including buildings on playing fields) at voluntary-aided schools. Individual academy trusts, or multi-academy trusts, are responsible for estate management for their academies. LAs will have a coordinating role in facilitating local discussion about which capital projects should be taken forward in voluntary-aided schools in their area, but the governing bodies of voluntary-aided schools are responsible for all other estate management and maintenance at their schools, including meeting the requirement for a 10% contribution to the cost of capital works. Funding is delivered through three main channels: allocations to LAs and larger academy trusts; a bidding round for standalone academies and smaller trusts and the centrally delivered Priority School Building Programme (PSBP). Need, value for money and fairness are all considered when making funding decisions. The detailed funding streams are: Priority School Building Programme (PSBP) The PSBP is for rebuilding or refurbishing those school buildings in the very worst condition across the country. There are two phases of the programme covering a total of 537 schools, including 46 delivered through private finance, with a budgeted spend of £4.4 billion across both phases until 2021.

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Feasibility studies are undertaken to establish that the Department has a viable scheme. The study also provides detail relating to the various options that have been considered to identify the optimum solution. Condition Improvement Fund (CIF) The CIF provides capital funding to single academy trusts, smaller MATs and sixth form colleges to improve their buildings. Funding is allocated to CIF each year based on the number of pupils in single academy trusts, small MATs (fewer than 5 schools and/or fewer than 3,000 pupils), and sixth form colleges. The size of the CIF pot is calculated using the same methodology used for the core school condition allocations to LAs and MATs (see below), to ensure parity of funding across all types of school. School Condition Allocations to LAs (SCA) The Department provides a yearly allocation to LAs as the “responsible body” for community, foundation and voluntary-controlled schools (including special schools). The allocation consists of core condition funding for all responsible bodies based on their pupil numbers; high condition needs funding for those with disproportionately high needs; and floor protections. It is for the LA to decide on its individual priorities for funding across its estate and allocate funding to specific projects. School Condition Allocations to MATs (SCA) The Department provides a yearly allocation to MATs with at least 5 academies and 3,000 pupils, calculated on the same basis as the allocations to LAs. Academies that are included in the calculations of MAT SCA allocations are not eligible to make applications to the CIF, including where the academy wishes to expand. Local Authority Co-ordinated Voluntary Aided Programme (LCVAP) The Department provides a yearly allocation to cover voluntary-aided schools in each LA area. This allocation is calculated on the same basis as the SCA for all voluntary-aided schools in each area, creating an LCVAP “pot” for each authority. The LA co-ordinates a discussion of local voluntary-aided partners to determine the priorities for the use of the LCVAP allocation. The LA then submits a list of agreed projects

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to the Department, and the ESFA funds these directly in response to claims submitted for specific projects. Devolved Formula Capital (DFC) DFC is capital funding allocated formulaically to all schools and academies, based on the number of pupils in their latest January school census plus a lump sum for each school. Minor capital investments and low-cost repairs and renewal of school assets are paid for by schools using a combination of revenue funding and DFC.

Accountability System

The Department is accountable for the overall system through which capital funding for schools is provided including ensuring there are sufficient routes to provide assurance that the funding is being used with regularity, propriety, and in ways that secure value for money:

• for those funding streams which distribute funding to LAs, the Department relies on the framework

that the Department for Communities and Local Government’s (DCLG’s) accounting officer is responsible for putting in place to make sure that LAs act with regularity, propriety and value for money in the use of all of their resources; and

• where funding is provided to academies, the Secretary of State, via the ESFA, holds academy

trusts to account for compliance with the terms of their Funding Agreement to ensure regularity, propriety and value for money. Funding agreements require academy trusts to comply with the Academies Financial Handbook, published by the ESFA.

The Department is responsible for ensuring that, at a system level, the funding it provides to schools is allocated efficiently to drive value for money. Underpinning all the Department’s allocations is the Property Data Survey (PDS), a method by which the Department gathered information on the condition of local estate. Part of the funding formula for school

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condition allocations uses the PDS to determine which LAs and trusts should receive a top-up, due to their schools having a high condition need. As buildings have long lifecycles, it would not be sensible or practical to collect data frequently. It is common for condition surveys to have a shelf life of five years. So the Department is now rolling out the successor to PDS, called the Condition Data Collection, which will give an updated picture of the school estate’s condition.

Principle 1 – There is a well-defined understanding of what resources were provided for

PSBP A funding envelope was provided for each scheme to meet the condition need specified as part of the feasibility study. All approved funding is ring-fenced for the specified purposes of improving the school condition only. Funding agreements are signed with responsible bodies for local delivery schemes and these schemes are managed by them. Centrally delivered projects are contracted directly with contractors under one of the available frameworks and managed by the PSBP operational teams. CIF CIF funding granted will always be for the works applied for within the application and in accordance with the terms and conditions specified in a funding document. The ESFA publishes a post approval guidance document which sets out the circumstances under which the school can apply for consent to change the scope of the project. DFC and LCVAP These grants are to be used for capital purposes. Terms and conditions of grant as well as the publication are published. LA SCA Responsible body level allocations are published. The amounts published must be spent on capital but the grant is not ring-fenced in order to allow local discretion as to how it is utilised. Under commonly accepted

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principles (agreed with DCLG and recognised by successive administrations), assurance is restricted to confirmation by the S151 officer that grant funding was spent on capital activities. MAT SCA Responsible body level allocations are published. The terms and conditions of grant stipulate that the funding purpose is to keep academy buildings safe and in good working order by tackling poor building condition, building compliance, energy efficiency and health and safety issues. The grant must be used exclusively for capital expenditure in support of the above purposes.

Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

The impact of spend will be tested through the Condition Data Collection, which is gathering information about the condition of school buildings across the education estate. This will then be compared with information from the predecessor collection (the Property Data Survey) to ascertain how effectively schools and responsible bodies have improved the condition of or are maintaining their assets.

Principle 3 – There is a robust check of spending and performance

Funding Paid to LAs The Department gains assurance on the funding streams paid to LAs through the annual LA Capital Outturn exercise. The S151 officer confirms that the funding has been spent in accordance with the terms and conditions, and signs off the return. Funding paid to academies The Department gains assurance for grants that do not have in-programme monitoring through the annual Academies Capital Outturn exercise. The accounting officer confirms that the funding has been spent in accordance with the terms and conditions, and signs off the return.

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CIF The ESFA requires schools receiving CIF funding to submit project monitoring forms on a quarterly basis. This is so the Department receives regular assurance that projects are progressing according to plan and so that it has an update on project expenditure. The Department will stop CIF payments if project monitoring forms are not submitted. The Department requires schools to submit completion forms when the project is complete and to provide evidence of final expenditure and evidence that the works are complete, prior to signing off the projects and paying the final CIF funding. The Department will claw back any underspend that it has already paid above a threshold of £5,000 or 5% of the funding value, whichever is the lower amount. PSBP All contracts are fixed priced and can only be adjusted through approved variations. Expenditure cannot exceed these contractually agreed values. Payments are made only at the completion of set milestones against a specific purchase order which is aligned to the schedule of payments in the design and build contract. Other means of assurance The ESFA conducts the following checks on an annual basis:

• reviewing LA audited financial statements to confirm there are no issues of concern relating to capital funds;

• undertaking work confirming arrangements for LA capital grant and confirmation by LA section 151 officers that funds have been used for capital;

• reviewing CIF and LCVAP and tested transactions to confirm use of funds; and • as part of other assurance work, reviewing audited academy financial statements and sixth form

college financial statements.

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Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

For the allocated capital funding, the results of the Condition Data Collection, available in 2019, will demonstrate changes in condition over time. In respect of the PSBP, which forms the larger element of capital funding, the progress of all projects is monitored by ESFA project managers and technical advisors. Payments are only made for completed milestones. A retention is kept until all works are complete and all defects resolved. Regular meetings are held with both the schools and contractors to ensure that progress, quality and timeliness are maintained and delivered.

Basic need allocations The Department provided around £1.6bn of funding, in 2016-17, to LAs to support the capital requirement for providing new pupil places by expanding existing schools and establishing new schools. Framework under which the funding is provided

LAs have a statutory duty to ensure that there are sufficient local schools to provide a primary and secondary education for all children needing one, under section 14(1) of the 1996 Education Act. The Department provides capital funding to LAs to support them in carrying out this legal duty.

Accountability System

The Department is accountable for the overall system through which capital funding for schools is provided. The Department relies on the framework the Department for Communities and Local Government’s (DCLG’s) accounting officer is responsible for putting in place to make sure that LAs act with regularity, propriety and value for money in the use of all of their resources. Concerns about the overall financial management of an LA would normally be handled by DCLG rather than directly by other government departments. The key delivery performance measure is that LAs fulfil their legal duty to provide sufficient school places. The Department and ESFA monitor data and engage closely with individual LAs based on the level of assessed risk of not having sufficient school places, to clarify understanding and inform next steps. If there appears to be a risk that an LA will fail to fulfil its statutory duty, or that other performance measures are not satisfactory, the Department has a defined process for challenging and intervening appropriately, as set out in more detail below.

Principle 1 – There is a well-defined understanding of what resources were provided for

The LA funding allocations for this statutory duty are published on GOV.UK with an explanation of the funding methodology. Each LA receives from the Department a breakdown of its funding allocation, explaining the calculations that have resulted in its specific allocation.

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Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

The key delivery performance measure is that LAs fulfil their legal duty to provide sufficient school places. This is visible to the Department and ESFA through regular data collections from all LAs. This includes the annual statutory School Capacity survey providing data on school capacity, forecasts and capital spend. In addition, LAs complete surveys following the ‘National Offer Days’ for school places at primary and secondary, and at the start of the school year. A further outcome measure is the educational quality of the places created. The ESFA collects and publishes data as part of the annual LA Scorecards on the quality of new school places.

Principle 3 – There is a robust check of spending and performance

The ESFA collects and publishes data on the cost and quality of new school places in all LAs, allowing authorities to understand their relative performance and efficiency. The Department also monitors the accuracy of LA forecasts, which affect the system’s ability to accurately distribute funding to where it is needed. Publishing the data allows LAs to understand their relative performance and efficiency, and the Department engages with LAs that appear to be underperforming against some or all of these measures to understand the context, and challenge where appropriate.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

The ESFA follows a robust and escalating intervention process if there appears to be a risk that an LA will fail to fulfil their statutory duty. The ESFA will:

• offer challenge, support and advice; • require the LA to provide evidence of ability to meet their statutory duty; • invite LAs to meet ministers to discuss their plans and agree improvements; and • ultimately intervene using statutory powers if necessary.

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Intervention is a two-stage process. The first stage will see the Secretary of State issue a non-statutory improvement notice stating what improvement is required, how it will be assessed and subsequent steps should improvement not be achieved. As a last resort, statutory intervention powers are available. Under section 497a of the Education Act 2006, the Secretary of State has powers to intervene in local children’s services by issuing directions where there is evidence that a local community is failing to perform its functions adequately. The direction making powers can be used flexibly and an intervention package tailored to the nature of the failings.

Free Schools Capital Funding In 2016-17, the Department provided £1bn capital funding to secure sites for and to build new free schools, university technical colleges and studio schools. The programme aims to raise educational standards, improve parental choice and introduce innovation. Framework under which the funding is provided

The ESFA is responsible for the purchase of land and buildings, entering into and managing construction contracts for the delivery of new free schools. The ESFA will deliver free schools by asking LAs to contribute towards the land and construction, enter into agreements with LAs and Multi Academy Trusts for them to self-deliver free schools or directly purchase land and buildings and enter into construction contracts. In 2016-17, LocatED Property Ltd was established by the ESFA as a property company, specifically for the commercial acquisition of land and buildings and to improve the capacity and capability available to the Department to deliver school sites. In law, free schools operate as academies as defined in the Academies Act 2010. Once they are up and running, they are subject to the accountability system described in the table on academies funding.

Accountability System

The Department is accountable for the overall system through which capital funding for schools is provided. This includes ensuring there are sufficient routes to provide assurance that the funding is being used with regularity, propriety and in ways that secure value for money. The system for approving new free schools is underpinned by a rigorous application and evaluation process. Each application is considered against published criteria, focusing on the capacity and track record of proposers, with extensive due diligence and financial viability checks carried out on the applicant and affordability and value for money checks on the application and business case.

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Principle 1 – There is a well-defined understanding of what resources were provided for

All approved funding is ring fenced for the specified purposes of acquiring a site and constructing and equipping a free school.

Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

All construction works to deliver free schools are based on ESFA requirements to comply with its facilities output specification. Any deviations from the core specification – to account for unusual sites or buildings – are carefully considered and then specified in the contract. Before formal handover, the ESFA inspects the site to satisfy itself that the contractor has completed all works specified. The ESFA works closely with construction contractors, LAs and trusts to ensure the quality of the school building and facilities. Educational standards are monitored through Ofsted inspections. Data on academic performance in free schools is currently limited, as very few free schools have been open long enough for entry cohorts to have completed standard exams. The Department will continue to monitor this data and analyse it further when more is available.

Principle 3 – There is a robust check of spending and performance

There is an established governance process within the ESFA and the Department to review performance and spending for the delivery of free schools, including the performance of LocatED. A detailed assessment of the capital budget required for each project is carried out both before site purchases and again before construction contracts are signed. All variations to the capital budget are reviewed and approved through an established and audited Capital Approval process and significant variations are escalated to Ministers, the ESFA Accounting Officer and, if required, HM Treasury. The Department’s performance on the cost and type of sites and value for money is reported to HM Treasury on a quarterly basis.

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As part of the value for money evaluation for a site acquisition, the estimated total capital cost of a site is set against comparable school projects by looking at the average total capital cost and cost per pupil in a new school in that particular region of the country. The ESFA also commissions an independent red book valuation (RBV) prior to exchange of a freehold or long leasehold (over five years). For agreed prices above RBV, a business case is required. Purchases in excess of 20% over RBV also require an options appraisal and are reported retrospectively to HM Treasury each quarter, which may ask to review the business case and options appraisal. Prior HM Treasury approval is needed if the agreed price is 60% above RBV. The costs of opening free schools are continuously monitored throughout the pre-opening process, including intervention and challenge with building contractors and/or academy trusts where necessary. All construction contracts are fixed price and can only be adjusted through approved variations. Expenditure cannot exceed these contractually agreed values. Payments are approved by project managers and are made only at the completion of set milestones against a specific purchase order, which is aligned to the schedule of payments in the design & build contract. The ESFA conducts the following checks on an annual basis:

• reviewing LA audited financial statements to confirm there are no issues of concern relating to

capital funds; • undertaking work confirming arrangements for LA capital grant and confirmation by LA section 151

officers that funds have been used for capital; and • as part of other assurance work, reviewing audited academy financial statements.

The Department also publishes the total capital funding provided for open free schools to facilitate external scrutiny.

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Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

Each free school project has a dedicated project manager who works with the LA, academy trust, LocatED and the contractors for delivering the free school. It is the role of the project manager to challenge those responsible for delivering projected and contracted outcomes and ensuring that the resources are spent efficiently. The ESFA employs professional quantity surveyors to actively manage the construction contracts and to ensure cost control and value for money during the building project. Project managers work closely with contractors to ensure that the contract is being delivered to free schools requirements. This includes monthly progress meetings, review of construction and sign off of contractor payments. Intervention is only necessary if the contract is not being delivered to requirements and, if this is necessary, project managers will liaise and resolve directly with the contractor. Only in exceptional circumstances, such as discovery of asbestos, will the ESFA pay additional sums to the contracted amount.

Funding for the provision of free early years education and childcare The Department provided funding of £2.7 billion in 2016-17 in respect of early years and childcare Framework under which the funding is provided

The Department provides funding to LAs through the early years element of the Dedicated Schools Grant (DSG) which is payable under section 14 of the Education Act 2002. The formal terms of grant are given by the Secretary of State under section 16 of the Education Act 2002.

Accountability System

The Department pays the DSG as a ring-fenced grant and it must be used in support of the schools’ budget (which includes spending on early years), as defined in the School and Early Years Finance (England) Regulations 2017, and for no other purpose. If there is evidence that a LA has used it for any purpose other than to support this budget, or has failed to comply with any other condition of grant, then the Secretary of State reserves the right to recover the grant. At the end of the 2017-18 financial year, the Chief Finance Officer (CFO) of the LA is required to append an additional note to the statement of accounts confirming the deployment of the DSG in support of the schools’ budget as required by the Accounts and Audit (England) Regulations 2015. The CFO is also required to confirm the final deployment of the DSG in support of the schools’ budget.

Principle 1 – There is a well-defined understanding of what resources were provided for

The early years DSG allocations for each LA are published every year. As these are ‘demand led’ budgets, the Department estimates up-front how much funding each LA needs for the financial year, and then adjusts these allocations, first in-year and then again after the end of the financial year. Both the initial allocations and the subsequent adjustments are based on annual census data. All allocations – initial, provisional and final – are published. Further details on the allocation methodology are set out in the DSG Technical Note. The DSG conditions of grant set out the purpose of the funding, and the level of discretion that LAs have are set out in the School and Early Years Finance (England) Regulations. LAs use this funding to meet their

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statutory duties to secure sufficient early years provision free of charge for eligible children.16 LAs are responsible for setting the local funding rates for providers in their area through their own local funding formulae in order to manage local childcare markets. Authorities must comply with Departmental regulations which are principally for three and four year-olds. The regulations provide that, in 2017-18, at least 93% of the funding must be passed on to providers (the remainder can be used to meet their statutory requirements and fund central services). Of the total amount passed through to providers, up to 10% can be channelled by the LA through funding supplements such as deprivation, with the rest to be paid via a per-hour base rate.

Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

LAs are responsible for ensuring that value for money is secured in the outputs and outcomes achieved by early years’ providers. LAs are expected to:

• evaluate local delivery against a number of inputs and outputs, including levels of spend, outcomes at age five, levels of participation in free early education, and quality of free early education provided locally;

• target resources on improving outcomes for children by focusing quality improvement activity on providers judged less than ‘good’ by Ofsted;

• maximise the take up of early education in high-quality providers by only funding early learning for two year olds in Ofsted rated ‘satisfactory/requires improvement’ provision where there is not sufficient ‘good’ or ‘outstanding’ provision;

• secure alternative provision for two, three and four year olds in Ofsted rated ‘inadequate’ provision then withdrawing funding as soon as is practicable; and

• encourage take up of free early education and conduct outreach activities to identify children who are not taking their entitlement and who would benefit from doing so.

16 These duties are set out in statutory guidance which can be found at https://www.gov.uk/government/publications/early-education-and-childcare--2.

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The Department publishes and regularly updates benchmarking data enabling LAs and the public to benchmark LA performance against other authorities (including outcomes at age five, levels of take up of free early education, quality of provision as inspected by Ofsted and funding rates).

Principle 3 – There is a robust check of spending and performance

The Chief Finance Officer of the LA has to submit a certificate of assurance of the spending to the Department each year. The Department requires LAs to complete section 251 returns setting out the totality of their expenditure on schools, children, young people and families, which is published annually, and this includes expenditure on early years education. The Department’s review of s251 returns is summarised separately under principles 3 and 4 of the section on maintained schools funding. Ofsted has statutory duties to assess the quality of providers, including their delivery against the Early Years Foundation Stage. Providers will be inspected at least once in a four-year inspection cycle. Ofsted re-inspects all providers rated ‘inadequate’ within six months of issuing the judgement and re-inspects group providers rated “requires improvement” within a year. Ofsted also has powers to inspect a provider at any time where credible concerns have been raised about the provider’s performance. The LA uses Ofsted’s published provider inspection rating to determine whether a provider is eligible to deliver government-funded early education. For two, three and four year olds receiving government-funded early education in ‘inadequate’ provision, LAs should secure alternative provision and determine an appropriate timeframe for withdrawing funding. Childminders (and other providers who operate from domestic premises) are able to register with either Ofsted or a childminder agency which is itself registered with Ofsted. The basis for granting funding to a childminder registered with a Childminder Agency (CMA) will be the CMA’s Ofsted inspection grading. The authority must fund places with childminders registered with an agency judged effective. Agencies are inspected within 12 months of recruiting their first childminder and then move into the four-year cycle.

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Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

The Department monitors LA delivery closely including through:

• collection and publication of data on children’s participation; • collection and publication of data on LA funding of providers; and • the Ofsted inspection regime.

If LAs do not appear to be satisfactorily fulfilling their statutory duties, then the Department will approach them, and support and challenge them to improve. When the two year old entitlement was rolled out, the Department worked closely with all LAs to do this, including through the use of a support contractor ‘Achieving for Two Year Olds’. In similar vein, the Department has recently appointed ‘Childcare Works’ as its delivery contractor to support the roll out of 30 hours of free childcare.

If a LA has (or is about to) act unreasonably with respect to the exercise of any power or duty conferred upon them under the Education Acts, the Secretary of State has intervention powers under section 496 of the Education Act 1996. The Secretary of State also reserves the right to recover the DSG if there is evidence that a LA has used it for any purpose other than to support this budget, or has failed to comply with any other condition of grant.

Student Loan Funding The Department provides around £15.3 billion of funding (£13.6bn maintenance and tuition fee loans and £1.7bn maintenance grant) for English students in higher education: £250m tuition fee loans for English students in further education, plus an annual £50m bursary fund for further education students. Framework under which the funding is provided

The Department has overall responsibility and accountability for student support policy: it delegates to the Student Loans Company (SLC) the role of administering payments, repayments and account maintenance within the terms of the relevant Acts and regulations. Maintenance (also known as living costs) funding in the form of grants or loans is paid to students through SLC. Loans for tuition fees are also paid to higher and further education institutions through SLC. The ESFA distributes the further education Bursary Fund to public institutions. Repayments are recovered by HM Revenue and Customs (HMRC) for borrowers in PAYE or Self-Assessment above the relevant income thresholds. SLC assesses eligibility and entitlement under the regulations, such as those made under the Teaching and Higher Education Act 1998. SLC has powers to make assessment decisions under formal powers from the Secretary of State, delegated through the regulations.

Accountability System

SLC is a company limited by shares17 under the Companies Act and an executive NDPB. It is given responsibility for carrying out statutory functions relating to student loans and grants through its Framework Document. The HE Funding Board is the senior governance body within the Department that provides oversight of its funding for teaching and student support in higher education and for loans for tuition fee funding for students in further education. The Board forecasts and monitors expenditure, assesses the value of the loan books, and manages risks in these areas. The Board ensures that robust controls exist in relevant areas of spend and repayments, ensures the regularity of spend and monitors error rates and overpayments.

17 SLC has 20 ordinary shares, the ownership holdings being as follows: 17 shares are held by the Secretary of State for Education, 1 share by the Welsh Ministers, 1 share by the Minister for the Economy, Northern Ireland Executive and 1 share by the Scottish Minister.

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The Department also oversees a number of other governance and scrutiny boards that meet frequently, including the Student Finance Portfolio Board. This is the primary formal means by which the Department interacts with the SLC Executive Leadership Team and supports performance monitoring and risk management, and is the primary route of escalating risk for action and advice.

Principle 1 – There is a well-defined understanding of what resources were provided for

SLC has authority to provide a set of functions on behalf of the Department:

• delivery of grants to eligible higher education students. This includes maintenance grants to students with a low household income and grants for students who are disabled or have dependants; and

• delivery of loans for eligible students in higher education (tuition fee and living costs), further education (24+ Advanced Learning Loans) and postgraduate study (tuition fees or living costs).

SLC’s Framework Document lists the statutory functions – and the relevant authorities for undertaking them – which have been delegated by the Secretary of State and Ministers in the devolved authorities to SLC. SLC is required to make payments to students where eligible and administer loan accounts in line with DfE and devolved authorities’ regulations. In terms of the SLC’s own operational costs to deliver these functions, the SLC CEO has delegated authority to determine the optimum funding allocation to best achieve the agreed objectives within the available funding envelope (both of which are set out by DfE Ministers in the APRA letter to the SLC Chair, see Principle 2 below). This is subject to compliance with DfE ALB policies, Cabinet Office expenditure controls, and government-wide corporate guidance and instructions. There is also a mid-year review, a process where SLC and the Department re-evaluate agreed funding streams in the light of activity undertaken and forecast.

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Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

SLC is tasked by the Department with delivering outcomes within an agreed funding envelope, specified within the Annual Performance and Resourcing Agreement letter (the APRA). Key performance indicators specifically applicable to SLC and HMRC are confirmed within this letter and the Balanced Scorecard issued by the Department, and a Memorandum of Understanding (‘MoU’) held between the Department, HMRC and SLC. Student finance performance indicators include an assessment that the student support system remains funded and sustainable, providing support accurately and on time. SLC submits a Corporate Plan for the responsible Departmental Minister’s approval, confirming principal delivery priorities, and setting out how it will achieve its main aims and objectives. Performance is tracked regularly at the SLC Board via a suite of financial, performance and risk related reports.

Principle 3 – There is a robust check of spending and performance

Robust controls are in place to ensure that higher education student loans and grants are reported accurately in the financial statements:

• payments of grant and loans are based on reporting by SLC, which assesses student eligibility and entitlement, and issues payments on behalf of the Secretary of State;

• repayments of loans are based on reporting by HMRC and SLC, both of which collect loans on behalf of the Secretary of State;

• Resource, Accounting and Budgeting (‘RAB’) and stock charge changes, which are used to value the loan book, are based on a student loan repayment model. The RAB and stock charges are the estimated cost to Government of borrowing to support the student finance system. The RAB charge is the estimated cost to Government of loans being issued in the current year and the stock charge is the cost of Government of loans issued in previous years. The RAB and stock charges are calculated by forecasting the net present value future repayments for the lifetime of the loan; and

• all material changes to the student loans repayment model used to value student loans are reviewed to ensure that they are appropriate, applied and approved accordingly.

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The Department’s other accountability relationships with HMRC and SLC over repayments, for example, as referenced in principle 2, the Department agrees a MoU on the collection of student loans with HMRC and SLC annually. This includes key performance indicators for both HMRC and SLC that are reported to the Repayment Board. The Repayment Board is chaired by the Deputy Director for Student Funding Policy and meets approximately every six weeks. Membership includes representatives from the Department, HMRC, SLC, the Devolved Administrations, and HM Treasury. As set out in the MoU, the role of the Department is to ensure that there is an effective and efficient collection system in place which has the capacity to deliver agreed performance levels. The role of HMRC and SLC is to operate the collection system to deliver these agreed performance levels. For borrowers based in the UK, SLC primarily manages borrowers’ accounts, ensuring that the information held is accurate and reported to HMRC and that a high quality of service is provided to borrowers. HMRC primarily ensures that the repayments due are collected accurately through the tax system and reported to SLC. There are interdependencies between HMRC and SLC in the collection system that require both to work together to reach the agreed performance levels.

There are several mechanisms for checking spending and performance data:

• SLC’s Main Board and Audit Committee have specific responsibilities for ensuring the accurate and

efficient stewardship of loans and grant funding. Departmental representatives attend these meetings in the role of Assessor;

• a monthly balanced scorecard is presented to the SLC board, which tracks achievement of targets with supporting commentary on variances. This is audited annually by Internal Audit, while performance data is reviewed as part of the annual external audit on SLC’s Annual Report and Accounts by KPMG;

• all members of senior management within SLC are required to complete an annual assurance statement describing how they have implemented the resources under their control throughout the year to meet their business objectives. Statements also capture details of any key targets missed, fundamental audit recommendations not yet closed, or red rated risks and issues alongside mitigating actions to address

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shortcomings. These statements are scrutinised by the SLC Accounting Officer and, if appropriate, disclosed via the Governance Statement as part of year end reporting;

• in order to review SLC’s performance, the Department is required to hold a meeting with the Chair and Chief Executive at least twice a year. The responsible Minister him or herself will conduct at least one of these reviews on behalf of the Department; and

• the student support budgets are subject to annual audit by the NAO.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

Within SLC, poor performance may be highlighted to the SLC Board via regular reporting, while fraud and whistle blowing reports, as well as audit reviews exhibiting limited levels of assurance, are highlighted to the SLC Audit and Risk Committee (ARC) quarterly. In addition, the ARC Chair provides updates of key items in her quarterly summary update to the Board. The Department’s sponsor representatives attend both the Board and the ARC, where they are able to challenge and remediate poor performance. As described above, the HE Funding Board has primary responsibility for challenging those responsible for the disbursement of student and learner loans and grants. Regularity of spend is tested each year by an audit of the error rate in student support payments made by SLC conducted by SLC Internal Audit for the Department and the National Audit Office. The results of this sample audit are statistically extrapolated up to apply to gross student support expenditure for the Department. This produces an upper and lower confidence limit for the error value and central estimate. Results are reported to the Department’s Audit and Risk Committee. SLC identifies a management response for errors identified in the annual audit: errors can also be followed up at the HE Fraud and Error Board (see below). The Student Finance Portfolio Board monitors the performance, financial management and risk management across the Government’s student funding policies.

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In addition, the Department’s HE Fraud and Error Board has a role to oversee action to improve the resilience of student finance and the wider HE system to fraud and error: it is responsible for strategic planning across partners in the HE system. The Board includes representation from the Department, SLC Counter-fraud Services, SLC Internal Audit, SLC Partner Services, HEFCE and the Government Internal Audit Agency. It manages a work programme of counter-fraud and error activities, identified through audits and other means. It also provides a forum for information sharing, good practice and lessons learned between members.

16- 19 Education and training The Department provided £5.8 billion in funding to providers of 16-19 education and training in 2016-17 via the ESFA. Providers include academies and maintained schools with sixth forms (£2bn), general further education colleges, sixth form colleges, commercial and charitable organisations. Framework under which the funding is provided

The Secretary of State for Education funds the provision of 16-19 education using her powers under section 14 Education Act 2002, through the ESFA.

Accountability Framework

The Department has overall accountability and delegates to the ESFA the role of administering the funds within specified limits. Budgets are reported and scrutinised by the Department monthly with more thorough forecasting exercises at key points in the year.

Institutions that the Department funds, such as colleges, typically have their own accounting officers, with personal responsibility to their governing bodies for the proper and efficient use of funds.

Principle 1 – There is a well-defined understanding of what resources were provided for

The 16-19 national funding formula aims to support increased participation and progression. The Department calculates the basic funding for institutions using national funding rates, which depend on the size of their students’ study programmes. The funding formula uses each institution’s data at student level to determine funding based on a published approach, for example, disadvantage and programme cost weighting factors are applied. This approach is uniform regardless of which type of institution they study at or what they study. This budget pays for 16-19 education and training provision of various kinds. Part of the budget also provides financial support for students, as well as provision for those under 25 with an education, health and care (EHC) plan.18

18 See https://www.gov.uk/children-with-special-educational-needs/extra-SEN-help.

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Conditions for use of the funds are set out in funding agreements, contracts (with commercial and charitable providers) and published guidance (2017 to 2018 Young People Funding Guidance).19

Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

The 16-19 accountability measures are set out in the 16-19 Accountability Measures: Technical Guide. A set of five headline measures was published for the first time in 2016 16-18 performance tables. The headline measures are progress, attainment, progress in English and maths (for students without a GCSE pass at A*-C in these subjects or 9-4 for new reformed GCSEs), retention, and destinations. From 2017, these headline measures are being extended to include level 2 vocational qualifications and disadvantaged measures will be published for all headline measures. New additional attainment and retention measures will also be published. The ESFA’s Intervention and Young People’s Funding Group Programme Board monitors and controls the Programme’s overall progress against delivery of its objectives. Assurance is also provided via a Funding Formula Annual Report to the ESFA Chief Executive, which reviews the operation of the funding formula through the delivery of study programmes.

19 The 2016-17 guidance can be found at https://www.gov.uk/guidance/16-to-19-education-funding-guidance#information-for-institutions-2016-to-2017.

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Principle 3 – There is a robust check of spending and performance

Institutions providing 16-19 education and training are monitored in various ways:

• in school performance tables so they can be held to account publicly; • through Ofsted inspection; • through a wide range of delivery and spend data monitoring by the ESFA, which can then lead to risk-

based audit; and • through the work of the the Regional Schools Commissioners who work with school leaders to take

action in underperforming schools.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

The ESFA monitors institutions using a wide range of data and information and assesses the risk of them failing on the basis of financial health or quality. The ESFA has an early intervention strategy to engage with sixth form colleges (SFCs) and general further education colleges (GFECs) where their financial plans, ongoing indicators or other data sources suggest that there is a risk of failure. If a college20 triggers the indicators for early intervention, the ESFA will engage with the college at an early stage to implement remedial action, which can include a deficit reduction plan. The ESFA has a formal intervention regime where a provider is under-performing. Other data may also be taken into account such as complaints or whistle blowing. The ESFA can refer to the FE commissioner for review any college that:

• is graded as ‘inadequate’ by Ofsted; • fails to meet the national minimum standards of performance set by the Department; or • receives an inadequate assessment for financial health and management.

20 Unless specified, the term ‘college’ denotes both SFCs and GFECs.

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This is to ensure that wherever a college is failing students, swift, co-ordinated and decisive intervention action will be taken. As part of the formal intervention programme, the FE Commissioner can assess leadership and management capacity in colleges and seek to change that where appropriate. The Department also terminates contracts where necessary. The ESFA has also taken steps to address capacity issues and financial stability of the post-16 further education sector through the Area Review programme. The purpose of the Area Reviews was to:

• achieve an offer that meets local learner and employer need and provides access to high quality and

relevant education and training for all; • achieve the right balance of provision, including greater specialisation and higher level technical

skills; • support economic development; and • create sustainable institutions.

Each review considered the local area's current and future education, skills and economic needs, and the current education and training provision and performance. The reviews included an analysis of the supply and demand for provision, and travel to learn information, involved visits to colleges and a review of the potential for savings.

There were 37 Area Reviews in the programme which were delivered through five waves; the first commenced in September 2015 and the last finished in March 2017.

The reviews were led by local steering groups chaired by the FE Commissioner, Sixth Form College Commissioner or Combined Authority. Membership included chairs and principals of colleges, chief executives of local authorities and local enterprise partnerships, Regional Schools Commissioner and the Department.

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The local steering group was supported by FE advisers expert in curriculum and finance; coordination of the overall programme, local reviews and stakeholder engagement were managed by the Joint Area Review Delivery Unit.

Ultimately, the Area Reviews will contribute to securing financially sustainable, responsive high quality institutions, delivering academic, vocational and skills provision to help young people, adults and employers succeed, whilst promoting social mobility.

Adult Education funding The Department provided £1.4bn of funding to the ESFA for adult education for 2016-17. The ESFA allocates the funding to 19+ adult education and training providers, including further education colleges, independent training organisations, local authorities, employers, charitable and third sector providers. Adult education budget (AEB) funding includes funding to deliver statutory legal entitlements, traineeships, community learning and support funding. The Government has committed to transfer control of the AEB to Combined Authority Areas21 as set out in each area’s devolution agreement. The transition is planned to commence from the 2018-19 financial year. Transferring the AEB will enable these Combined Authorities and colleges and other training organisations to reshape their local adult education provision. The accountability system set out here relates to current arrangements. Framework under which the funding is provided

The Department funds the provision of 19+ education using powers within the Apprenticeships, Skills, Children and Learning Act (ASCAL) 2009, through the ESFA. There are also reasonable adjustment requirements under the 2010 Equality Act.

Accountability System

The Department has overall accountability. The Minister of State responsible for further education and skills sets out the policy priorities of the Government and allocates an annual budget for adult education and skills and delegates spending authority to the Chief Executive of the ESFA. Further education colleges and training providers must be on the ESFA’s Register of Training Organisations in order to be eligible to receive Government funding for training. This ensures due diligence checks are made and procurement is in line with European legislation on procurement. Further education providers have freedom and flexibility to spend their adult education and skills funding allocation to best meet local

21 A guide to explain how budgets and responsibilities will be passed down from central government to combined authority mayors can be found at https://www.gov.uk/government/publications/devolution-and-mayors-what-does-it-mean

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skills needs. Information as to what will and will not be funded through the adult education budget is outlined in the 2017 to 2018 Adult Education Budget Funding Rules. The Department monitors the use of this funding via senior and working level governance arrangements, as agreed with the ESFA. These are currently under review.

Principle 1 – There is a well-defined understanding of what resources were provided for

The Department confirms Government priorities in writing, announces any changes to current policies or entitlements, and provides an indication of the longer-term direction of travel for Government-funded provision. The ESFA then publishes funding performance management rules for the following funding year, setting out detailed rules which form part of the provider’s contractual requirements alongside their contract or financial memorandum.

Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

Principal expected outcomes as recorded on the Individualised Learner Record are:

• increasing the proportion of highly skilled adults in the working age population; • increasing participation by engaging and supporting those further away from the workplace with

flexible community based provision; • increasing the number of adults attaining Level 2 English and mathematics; and Level 2 and Level 3

legal entitlements; and • expanding the traineeships programme.

The entitlements allow learners aged 19 to 23 to be fully funded if they study for a first qualification at level 2 and/or level 3. Learners aged 19 or above, who have not previously attained a GCSE C or grade 4, or higher, are also eligible for full funding if they study for a qualification in English or mathematics up to and including level 2. Details on learner eligibility for the entitlements are available in the Adult Education Budget: Funding Rules 2017 to 2018.

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Information relating to associated outcomes is collected by the ESFA through the Individualised Learner Record which all providers complete. Learning participation and achievement figures are published on GOV.UK via the Statistical First Release.

Principle 3 – There is a robust check of spending and performance

Institutions providing 19+ education and skills training are monitored in various ways:

• in performance tables so they can be held to account publicly; • through Ofsted inspection; • by the ESFA, through data monitoring, annual assessments of a provider’s capacity and capability to

deliver, and risk-based audit; and • through the role and intervention of the FE Commissioner.

The EFSA monitors provider performance throughout the year, and re-distributes funding in-year to ensure that demand for high quality traineeships is funded. Providers submit simple growth templates providing evidence of demand which are then checked and assessed before contract values are increased.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

The ESFA monitors institutions using a wide range of data and information and assesses the risk of them failing on the basis of financial health or quality. The ESFA has an early intervention strategy to engage with sixth form colleges (SFCs) and general further education colleges (GFECs) where their financial plans, ongoing indicators or other data sources suggest that there is a risk of failure. If a college22 triggers the indicators for early intervention, the ESFA will engage with the college at an early stage to implement remedial action, which can include a deficit reduction plan.

22 Unless specified, the term ‘college’ denotes both SFCs and GFECs.

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The ESFA has a formal intervention regime where a provider is under-performing. Other data may also be taken into account such as complaints or whistle blowing. The ESFA can refer to the FE commissioner for review any college that:

• is graded as ‘inadequate’ by Ofsted; • fails to meet the national minimum standards of performance set by the Department; or • receives an inadequate assessment for financial health and management.

This is to ensure that wherever a college is failing students, swift, co-ordinated and decisive intervention action will be taken. As part of the formal intervention programme, the FE Commissioner can assess leadership and management capacity in colleges and seek to change that where appropriate. The Department also terminates contracts where necessary.

Apprenticeships The apprenticeships budget consists of both participation funding and non-participation funding.23 Participation funding is passed to the provider market, via the ESFA, for the delivery of apprenticeship training. Participation funding includes direct payments from the ESFA to training providers to deliver apprenticeship training for non-levy paying employers, as well as payments to training providers via levy paying employer digital accounts. Non-participation funding is used to support delivery of the apprenticeships system including funding for the apprenticeships reform programme. The Department spent £1.6 billion from its programme budget in 2016-17. Framework under which the funding is provided

The Government currently relies on the funding power in section 100(1A) of the Apprenticeships, Skills, Children and Learning Act 2009 to provide financial resources for apprenticeships. The Department has set funding rules to guide the use of these resources. The Finance Act 2016 introduced a new apprenticeship levy for all employers in the UK. The levy will be charged at a rate of 0.5% of pay and applies to all employers but will only be paid on annual pay bills in excess of £3 million. HM Treasury uses the funding raised by the levy to provide the Department with the budget for apprenticeships (alongside also passing a share of the funding to the Devolved Administrations).

Accountability System

The Department is accountable for the overall apprenticeship system, and there are a number of different accountability mechanisms:

• apprenticeship policy is overseen by the ministerial Earn or Learn Taskforce, chaired by the Secretary of State for Education. This taskforce is responsible for helping businesses to create two million new jobs to achieve full employment, support three million new apprenticeships, and make sure that all young people are either earning or learning. The Department is awaiting confirmation about the future taskforce structure following the June 2017 general election;

23 https://www.gov.uk/government/publications/skills-funding-letter-april-2017-to-march-2018.

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• the apprenticeships programme is part of the Government’s major projects portfolio; • the Institute for Apprenticeships (IfA) is an independent non-departmental public body responsible

for the approval of apprenticeship standards and assessment plans. The IfA is also developing its approach to providing advice to Government on the pricing of apprenticeships, within the context of value for money;

• the ESFA actively manages financial, operational and fraud-related risks and uses a number of mechanisms to ensure quality; and

• the Department’s Apprenticeship Programme Board makes key decisions and offers scrutiny, supported by an operations board which examines ESFA financial, risk and performance reports.

A published Accountability Statement for apprenticeships defines the responsibilities of respective public bodies.

Principle 1 – There is a well-defined understanding of what resources were provided for

Funding for apprenticeships is ring-fenced as part of Departmental allocations. The Department is free to spend additional funding on apprenticeships (e.g. from the wider 16-19 education and training budget) but cannot spend apprenticeship funding on anything else without prior agreement from HM Treasury. When colleges and training organisations are successful in their application to the Register of Apprentice Training Providers, the ESFA issues them with:

• a funding agreement (when instructed by a levy-paying employer that they have a contract for services in place with that organisation to deliver apprenticeships); or

• in some cases a contract for services to deliver Apprenticeships training to non-levy paying employers.

Both of these arrangements bind the training provider into a set of terms and conditions, including the funding rules that ensure that the intended policy is delivered.

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Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

The Department’s Apprenticeship Reform Programme Benefits Realisation Strategy, published on 30 March 2017, contains a range of success indicators which will capture positive outcomes, including participant progression on to employment and learning at a higher level, widening participation in apprenticeships, and meeting employer skills’ needs. Success measures are linked to policy objectives and include: • an increase in the proportion of employers benefitting from skills that are relevant to their business; • improved earnings outcomes for individuals undertaking apprenticeships; • a higher proportion of apprentices progressing to sustained destinations in employment or learning; • ensuring more people from a diverse range of backgrounds have access to apprenticeships; and • increasing the quality and number of apprenticeships.

The Department has committed to report against all success measures on an annual basis, and to report on a quarterly basis against those measures relating to increased growth of apprenticeships.

Principle 3 – There is a robust check of spending and performance

The funding agreements and contracts give the ESFA access to the training providers’ premises, documents and systems at any time. The ESFA has taken a risk-based approach to ensure that training providers, employers and end-point assessment organisations are using funding correctly. End-point assessment is separate to any qualifications or other assessment that the apprentice may undertake during training. Assessments will either be delivered by an independent third party or in such a way that no party who has been involved in delivery of the apprenticeship can make the sole decision on competence and passing the end-point assessment. This includes using system design to ensure funding rules are followed, with further reliance then placed on monitoring and audit visits to those organisations assessed as highest risk to check compliance.

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External assurance and scrutiny are provided by a number of different bodies, including the Infrastructure Projects Authority as the apprenticeships programme is part of the Government Major Programmes Portfolio. This includes quarterly programme updates and regular scrutiny visits. Ofsted and HEFCE are responsible for monitoring the quality of apprenticeship training and Ofqual is responsible for assurance of qualifications, where those exist within apprenticeships.

A representative from the Department attends IFA Board meetings and the IFA Audit and Risk Committee, and the Department holds regular sponsorship review meetings with IFA representatives.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

The ESFA is accountable for monitoring performance of providers, and taking intervention action where minimum performance standards are not met. The ESFA has set out Apprenticeship Funding and Performance Management rules for employers, employer providers and training providers delivering the new apprenticeship programme from 1 May 2017. They provide a clear and transparent approach, articulating the principles the Department will use to monitor performance of providers against funding contracts. The funding rules form part of the terms and conditions for funding apprenticeships. There are a number of formal triggers which will lead to intervention, including failure to meet the ESFA’s criteria for financial health or control, an inadequate grade at inspection from Ofsted or failure to meet minimum standards for post-19 provision. The ESFA’s policy clearly sets out how it uses a Notice of Concern (for organisations funded under a financial memorandum or grant in aid). This requires a clear schedule of activities, and failure to comply could lead to further intervention or indeed withdrawal of funding. The organisation could also be referred to the FE Commissioner.

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For independent training providers (ITPs) funded under a contract for services, the Department will issue a Notice of Breach and apply similar conditions. Should an ITP be assessed by Ofsted as inadequate (Grade 4), the Department’s contract states that it will terminate the contract. Contracting documentation clearly sets out the intervention which will be applied and the consequences of that intervention.

Funding to the Higher Education Funding Council for England (HEFCE) The Department provided £1.9 billion in funding to HEFCE in 2016-17, to cover programme and capital grants to higher education institutions, as well as HEFCE’s admin costs. Framework under which the funding is provided

The Further and Higher Education Act 1992 makes HEFCE statutorily responsible for the allocation of the grant funding Government provides to it. A framework agreement is in place between the Department and HEFCE. The Higher Education and Research Act 2017 will, under current plans, abolish HEFCE when the Office for Students (OFS) is fully launched in April 2018. The function of the OFS is intended to combine and update the regulatory functions of HEFCE and the Office for Fair Access. The OFS will have oversight of the sustainability and health of the higher education sector, will monitor the sustainability of individual institutions and will also have responsibility for the allocation of the grant funding Government provides to it. A new framework agreement will be established between the Department and the OFS in advance of the launch.

Accountability System

Under the Further and Higher Education Act 1992, HEFCE has statutory independence from Government. The Secretary of State issues a grant letter to HEFCE (usually annually) detailing the funding Government will make available for higher education and setting out the Government’s funding priorities. The Secretary of State has the statutory right to send an observer to the HEFCE Board and HEFCE’s CEO/Chair meet regularly with Ministers. HEFCE’s Accounting Officer (the CEO) has overall responsibility for HEFCE’s budgets and actions, and is responsible to the Department’s Accounting Officer. The HEFCE Board is responsible for the organisation’s operations and monitors performance against its business plan regularly. The Department’s observer on the HEFCE Board is able to feed into this monitoring. HEFCE’s Framework Agreement requires it to report to the Department any material risks to its finances or operations. Any such risks would be escalated as appropriate through the Department’s corporate governance structure and, if necessary, via the Department’s Audit and Risk Committee.

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Principle 1 – There is a well-defined understanding of what resources were provided for

HEFCE is statutorily responsible for allocating the funding it receives. It has detailed funding agreements in place with each of the institutions it funds (the Memorandum of Assurance and Accountability) to ensure propriety and value of spend. The funding agreements include deliverables for project delivery. The majority of HEFCE’s funding, however, is set using a formula, based on explicit assumptions about student numbers on funded courses. As student numbers can change for reasons beyond the control of HEFCE and the funded institutions, HEFCE monitors student numbers and, where these fall short of the assumptions in the allocations, it reduces the institution’s grant to claw back any over-funding.

Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

HEFCE has a statutory duty to assure itself of the quality of the provision it funds. In order to do this, it contracts with the Quality Assessment Agency (QAA), which assesses the quality of all provision. If an institution does not meet quality standards, HEFCE has an “unsatisfactory policy” procedure which it deploys. Alongside this, HEFCE monitors student numbers. These determine teaching grant allocations for those roughly one third of subjects which attract teaching grant (such as the high cost science, technology, engineering and mathematics (STEM) subjects). HEFCE also monitors the social characteristics of students. This determines the student premium/widening participation allocations. Widening participation funding aims to broaden the range of students who attend university by targeting funding towards students from disadvantaged and black and minority ethnic (BME) backgrounds. HEFCE reports to Parliament through an annual report.

Principle 3 – There is a robust check of spending and performance

HEFCE carries out detailed oversight of higher education institutions’ spend. Its Memorandum of Assurance and Accountability with funded institutions requires them, as conditions of grant, to provide HEFCE with detailed evidence and assurance of propriety and value of spend. It collects detailed financial performance data, forecasts twice annually and regularly monitors risk and financial sustainability at every institution. The Framework Agreement between the Department and HEFCE requires HEFCE to report material risks to the Department (including those relating to institutions). The Department collects monthly financial data from HEFCE, sees all HEFCE’s Board papers as well as those from its Audit Committee.

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There is an internal audit programme run throughout the year which looks at controls. This reports to the HEFCE’s Audit Committee to provide it with assurance and, in turn, the Audit Committee provides a statement of assurance for the annual report and accounts. HEFCE accounts are audited independently by the NAO.

Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

The Further and Higher Education Act 1992 prohibits Ministers from being involved in decisions relating to the funding of a particular institution with the exception of Section 81, which gives the Secretary of State the power to issue a direction to HEFCE relating to the funding of an institution where there is evidence of financial mismanagement or governance impropriety. HEFCE can challenge an institution over its financial management or quality of performance and can withhold funding for these reasons. For the bulk of the formulaic teaching grant, HEFCE monitors student numbers on funded courses and the characteristics of students who attract widening participation funding. HEFCE will adjust grants if these measures are different from expected e.g.to reflect changes in student numbers. On the teaching grant allocated for specific projects, measures will depend on the project in question, but might include key milestones by which particular stages of a building programme should be completed. HEFCE could then withhold any funding, for example if a project ran more slowly than anticipated or failed to deliver. All provision has to meet a given baseline quality standard. The actual level of funding is determined by student numbers and social characteristics. HEFCE monitors student numbers, which determine teaching grant allocations for those roughly one-third of subjects which attract teaching grant (such as the high cost STEM subjects). HEFCE also monitors the social characteristics of students, which determines the student premium/widening participation allocations. HEFCE also has a whistle blowing procedure by which individuals can raise concerns.

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Funding for the provision of children’s social care The Department provided around £210m of funding for children’s social care in 2016-17. This is used to influence the much broader local government spend funded through the Department for Communities and Local Government (DCLG), including improving the quality of the workforce, helping to demonstrate best practice, intervening where there is poor practice, and supporting the system to implement new policies. DCLG provides the bulk of the funding in this area to LAs through the Local Government Finance Settlement. The Department plays a key role in supporting the accountability system, as set out below. Framework under which the funding is provided

LAs are responsible for the delivery of children’s social care, as set out in legislation (primarily the Children Acts in 1989 and 2004) and supported by statutory guidance from the Department. As part of this, LAs have overarching duties for safeguarding and promoting the welfare of individual children and young people in their area established through the Children Act 1989. Statutory guidance Working Together to Safeguard Children is clear about the role of LAs and other agencies in working together to safeguard children and promote their welfare. The funding provided for children’s social care directly by the Department is under the following framework:

• grant funding is paid out under Section 31 of the Local Government Act 2003 for non ring-fenced grants to LAs and, typically (but not exclusively), under Section 14 of the Education Act 2002 for ring-fenced grants to LAs and other bodies (such as voluntary and community sector organisations); and

• contract funding is paid out through overarching frameworks using Section 10 of the 1996 Education Act.

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An arm’s length body is sponsored from this area, though has a broader brief: the Office of the Children’s Commissioner has a statutory duty (Children’s Act 2004 and Children and Families Act 2014) to promote the rights, views and interests of children in policies or decisions affecting their lives. It particularly represents children who are vulnerable or who find it hard to make their views known.

Accountability System

Within children’s social care, responsibility for delivery lies with LAs. LAs are responsible for ensuring that funding for children’s social care is spent with regularity and propriety, and for ensuring value for money is achieved. The Accounting Officer for DCLG is accountable both for services delivered directly by local government officers and for those services commissioned from external providers. An authority’s section 151 officer is statutorily responsible for this as part of their wider assurance role. Through an annual, publicly available report to the Department (the section 251 return), LAs set out the totality of their expenditure on children and families, regardless of the funding source for that expenditure. This data transparency is in addition to the established local audit arrangements. DCLG is responsible for dealing with concerns about the overall financial management of an authority and would handle such concerns under its own arrangements (further information on these arrangements can be found in DCLG’s Accounting Officer System Statement). The Department carries out specific roles in relation to children’s social care (excluding school-related duties):

• a requirement for LAs to appoint a ‘Director of Children’s Services’ and a ‘Lead Member for Children’s Services’ with accountability for local delivery of children’s social care; and

• intervention by the Department where an LA is failing to deliver its services to an acceptable standard, as demonstrated by an Ofsted inspection.

The accountability arrangements with arm’s length bodies are summarised at chapter 3. The overall arrangements in respect of grants and contracts are set out at chapters 6 and 7 respectively.

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Principle 1 – There is a well-defined understanding of what resources were provided for

For overall children’s social care, in addition to the legislation and guidance referred to above, the Department has set out the Government’s five-year reform programme in England in Putting Children First, published in July 2016. The Department’s children’s social care funding (£210m) acts as a catalyst for improving overall children’s social care. This includes:

• the Department’s social work reform aimed at improving the quality of children and families’ social workers; and

• the Department’s Innovation and Partners in Practice Programme (about which information can be found at http://springconsortium.com/) which aims to help demonstrate effective practice and seeks to support the development, testing and sharing of effective ways of supporting children who need help from children’s social care.

The Department also provides children’s social care funding to drive improvement in services for groups of vulnerable children. This includes:

• support for children in care (including enabling children to remain with their foster carers, and providing advocacy support and help and advice services for foster carers); and

• support for adopted children and their families (including through the adoption support fund, the adoption practice and improvement fund and Regional Adoption Agencies).

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Principle 2 – There is a mechanism in place for assessing the outcomes expected from the resources

Data on workforce and activities is published annually through Statistical First Release (SfR) tables, and brought together in the Local Authority Interactive Tool (LAIT) – a tool containing data enabling comparisons to be made over time; facilitating benchmarking by illustrating LAs’ absolute performance and relative position against the national average, statistical neighbours and geographical groups. Independent inspection plays an important regulatory role and underpins the Department’s accountability systems for children’s social care. Ofsted is independent and impartial and reports directly to Parliament. Ofsted aims to promote improvement in the services it inspects (which includes LAs in their provision of children’s social care) and regulates (which includes residential care setting and independent fostering and adoption agencies). Ofsted publishes the results of these individual inspections on its website along with its annual report on the state of children’s social care in England. For grants and contracts awarded by the Department, recipients are required to meet key performance objectives.

Principle 3 – There is a robust check of spending and performance

Through an annual, publicly available report to the Department (the section 251 return), LAs set out their total expenditure on children and families, regardless of the funding source for that expenditure. The Department’s review of s251 returns is summarised separately under principles 3 and 4 of the section on maintained schools funding. The Department reviews the Ofsted inspection reports to identify areas for improvement. The Department’s contract and grant managers regularly oversee spending and progress against key performance objectives.

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Principle 4 – There is an efficient process to challenge those responsible for delivering the outcomes and spending the resources

Where Ofsted finds that an LA is inadequate in its delivery of children’s social care, the Department uses either statutory directions or non-statutory improvement notices to set out steps needed for improvement. In the most serious or persistent cases, the Department requires that the functions around delivery of children’s social care are delivered by an independent trust or another LA, although ultimate accountability remains with the original LA. A list of improvement notices and directions detailing what LAs undergoing intervention should do to improve is published here. For contracts and grants, the Department maintains a challenge role and payment is dependent upon a satisfactory outcome (i.e. work completed on time, to standard expected and demonstrates value for money).

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5. Delivery partnerships with sectors outside of government

5.1 The diagram at Figure 1 (page 7) shows that the Department has a number of delivery relationships with sectors outside of government (as well as third party recipients, for example in receipt of organisational grants). Non-government partners include:

• higher education institutions;

• alternative higher education providers;

• further education colleges and independent training providers; and

• other third party not-for-profit organisations.

Higher Education Institutions 5.2 The Department provides a portion of higher education institutions’ funding

through the Higher Education Funding Council for England (HEFCE).

5.3 HEFCE has statutory duties in respect of the allocation of grant funding awarded by the Department as well as assuring the quality of the provision it funds. HEFCE ensures a rigorous test of a provider’s readiness to enter the sector and its operating framework sets out how higher education providers are held to account and regulated in England. HEFCE has also published guides24 to how it allocates its funding and its accountability framework for higher education institutions and related bodies.25

5.4 The accountability framework for the relationship between the Department and HEFCE is set out at pages 75 to 77.

24 The guide for 2016-17 can be found at http://www.hefce.ac.uk/pubs/year/2016/201607/ and for 2017-18, at http://www.hefce.ac.uk/funding/annallocns/1718/ 25 This can be found at http://www.hefce.ac.uk/about/reportsaccounts/accountability/ with further information at http://webarchive.nationalarchives.gov.uk/20100303160618/http://www.hefce.ac.uk/pubs/hefce/2007/07_11/.

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Alternative providers of higher education 5.5 The Department gives specific course designation to courses at alternative

providers so that eligible students can receive student support funding for tuition and maintenance on such higher education courses, via SLC.26

5.6 The Department publishes guidance annually27 setting out criteria and conditions for designation. Alternative providers make applications to HEFCE for initial designation of new courses and for annual re-designation.28 HEFCE carries out an assessment of the evidence and provides advice to the Department, which then takes the final decision.

5.7 This decision is communicated to the relevant alternative providers clearly via letters, and they are required to submit an Accountable Officer declaration to confirm their understanding and agreement.

5.8 Alternative providers are required to comply with written conditions to maintain designation (access to student support for their students). As part of these conditions, accountable officers at alternative providers must report to the Department on any change of circumstances, compliance risks or reputational risks as soon as those arise.

5.9 Data about the outcomes of alternative providers is gathered via the Higher Education Statistical Authority (HESA) and includes non-continuation rates (i.e. drop-out rates). Student number controls are also used to grow high quality provision, and to prevent poor quality provision from expanding, according to the outcomes achieved.

5.10 Throughout the year, the Alternative Provider Intelligence Unit (a joint unit between HEFCE and the Department) engages with providers and gathers intelligence, to identify risks and inform sanctions to be taken, in the interest of protecting value for money.

26 The arrangements for the distribution of student support funds are via SLC, and any fraud and error issues are handled through their usual processes as for student support in relation to other higher education providers. 27 The most recent guidance is published at https://www.gov.uk/government/publications/specific-course-designation-alternative-higher-education-providers. 28 Most designated alternative providers (excluding those that have degree awarding powers, which are subject to lighter touch arrangements due to lower risks) must re-apply for designation annually, providing information including about their current and projected financial performance and student numbers.

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5.11 The Unit raises concerns identified with the provider through regular engagement, and escalates as appropriate. Improvement notices and other sanctions may be used and, ultimately, providers can be de-designated if the concerns are severe.

Further education colleges and independent training providers

5.12 Organisations which receive funding for the delivery of further education are regulated by the Department. Regulation covers the quality of provision to learners and financial health.

5.13 The quality of delivery by further education providers is assessed by Ofsted, which inspects all providers funded by ESFA. The Department sets minimum standards of education performance for 16-18 education; post-19 education and apprenticeships. Thresholds in these areas form current intervention triggers. The ESFA is responsible for assessing and monitoring the financial health of all providers funded to deliver further education, using established criteria.

5.14 The ESFA has a local network of staff that monitors provider performance and takes action if providers are falling below the education or financial standards set by the Department. Where independent training providers fail intervention thresholds for education or financial performance, they will normally have their contract terminated. Where colleges or local authorities fail minimum thresholds, they will be subject to intervention action. This includes enhanced monitoring by the ESFA, and usually involves escalation to the FE Commissioner.

The Further Education Commissioner 5.14.1 The FE Commissioner provides independent advice to the Minister for

Apprenticeships and Skills and the Chief Executive of the ESFA. The Commissioner’s services are crucial to maintaining a sound accountability framework for further education, but statutory powers remain with the Secretary of State.

5.14.2 The 2013 guidance Rigour and Responsiveness in Skills and the 2014 guidance Strengthened Intervention Process describe the role of the FE Commissioner and the process by which he is commissioned by the Department to undertake intervention assessments at colleges which fail in terms of finance or quality. The approach applies to further education corporations, sixth form colleges, designated institutions, and local authority

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maintained further education institutions. Following an assessment, the Commissioner monitors the institution’s progress in implementing the recommendations, and in improving quality or financial health. Institutions are removed from the intervention process by the Minister for Skills and Apprenticeships once improvement has been secured and the criteria for intervention are no longer met.

5.14.3 The FE Commissioner has a role in monitoring the implementation of the Area Review Programme. Subject to eligibility criteria, colleges can apply for funding from the Restructuring Facility to support implementation of area review recommendations. The Department, the ESFA and FE Commissioner each play a role in considering colleges’ eligibility for access to the Restructuring Facility. Details of the Restructuring Facility and the FE Commissioner’s role are described in the FE area review guidance for providers.

5.14.4 The Department is accountable for spending on the FE Commissioner and for his performance.

Third party not-for-profit organisations receiving grants 5.15 The Department gives grants to some third party not-for-profit organisations to

further its aims and objectives. Its approach to doing this is described in the following chapter.

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6. Grants to private and voluntary sector bodies

6.1 The Department has a defined process for awarding general grants to other bodies such as voluntary and charitable organisations, public and private sector organisations.

6.2 The Department’s Commercial Policy (covering both grants and contracts) applies to its executive agencies but not to its non-departmental public bodies. Grant-funded activity supports the Department’s objectives and will provide financial support for the delivery of eligible outputs or broader outcomes. The principle of grant funding is that it benefits the wider community.

6.3 Grant managers are responsible for ensuring that grants are awarded in accordance of the principles of Managing Public Money and are subject to business case approval. They are also responsible for the day-to-day grant management and administration throughout the life of the grant. Some grants are also subject to Cabinet Office controls.

6.4 General grants are for the most part competed and managed in accordance with the Grant Standards laid down by the Cabinet Office.

6.5 In some cases, a direct award may be justified, for example for specific reasons of business continuity at a specific time. Such awards need to be justified and approved in accordance with the Department’s specified governance process.

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7. Major contracts and outsourced services

7.1 The appointment of contractors and suppliers is an important part of the Department’s overall delivery model.

7.2 The Department applies a business case approval process and Cabinet Office controls, depending on the category and level of spend prior to proceeding to procurement. Each business case sets out the strategic and economic case for procurement, and expected financial spend.

7.3 If a procurement contract with a supplier is selected as the best delivery route, it is expected that value for money is maximised throughout the life of the contract.

7.4 All procurement professionals working at the Department are tasked with achieving clear objectives aimed at driving value for money through procurement, and following the departmental process for all staff involved in procurement.

7.5 There are procurement thresholds to determine the appropriate procurement route and ensure compliance with Official Journal of the EU (OJEU) Public Sector Procurement Regulations 2015.

7.6 The Department applies a business case approval process and Cabinet Office controls, depending on the category and level of spend.

7.7 On a day-to-day basis, contracts are managed by a designated contract manager, with a senior civil servant being responsible for effective and compliant spend.

Shared Services 7.8 The Department and agencies receive some shared services provision from

other government departments. The Department’s primary shared service provision is delivered through Shared Services Connected Limited (SSCL), which provides payroll, internal finance and procurement transactional processes.

7.9 The contract with SSCL is managed by the Cabinet Office. The Department obtains regular metrics on key performance indicators and monitors these in line with a service level agreement.

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7.10 SSCL has not been able to satisfy all of the Department’s requirements with regards to assurances and controls, including SSCL’s ISA 3402 report being qualified by its auditors. The Department has therefore instigated additional client side controls to ensure that transactions are accurate, robust and processed in a timely and reliable way.

8. Teachers’ Pension Scheme 8.1 The Teachers’ Pension Scheme (England and Wales) (TPS) is a statutory,

unfunded, defined benefit occupational pension scheme. The TPS has a separate funding agreement with HM Treasury and accordingly is not funded as part of the Department’s control total for expenditure limits, but the Departmental accounting officer is also the accounting officer for the TPS.

8.2 The TPS has its own governance arrangements, as described in its Annual Report and Accounts.

8.3 Following a competitive tendering exercise, Capita was awarded the contract to administer the TPS until September 2021. The Department manages the contract with Capita, which liaises at a working level with Departmental officials in order to discharge its duties under the contract.

8.4 The TPS is governed at three levels: day to day service delivery, strategy, and oversight by the independently chaired Pension Board. Where appropriate, issues are escalated for further consideration through the governance structure. The strategy board, which meets quarterly, is chaired by a Departmental official. The service delivery board is chaired by the Department’s senior contract manager; it monitors core pension administration delivery and performance against SLAs, and discusses any points of escalation.

8.5 The Teachers’ Pension Scheme Pension Board29 meets quarterly. Its Accounting Officer recommended that two Departmental officials sit on the board. Issues can be escalated to appropriate Departmental committees by the individuals who manage the pension administration contract and also by the Departmental attendees at the TPS finance and strategy boards.

8.7 In addition, the Department’s Audit and Risk Committee provides assurance to the Accounting Officer via oversight of the TPS governance model, challenge to the TPS Annual Report and Accounts production project and the associated audit by the National Audit Office.

29 Its membership requirements are set out at https://www.teacherspensions.co.uk/public/governance/the-board.aspx.

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© Crown copyright 2017

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