This report underlines the importance of effective financial management in schools. It is essential that the financial management framework for schools is capable of alerting the Department for Education to any systemic issues that may require action or intervention. Weak financial management and weak academic performance often go hand in hand. The Department sets standards but responsibility for financial management and cost reductions lies with schools themselves, with local authorities responsible for exercising effective oversight. Schools' financial management capability has improved - for example, as more schools have employed or have access to a school business manager. In the current financial environment, however, more schools are having to manage with reduced funding, and strong financial management is more important than ever. Many schools consider that they need to reduce staff costs and that they need guidance on how to do so while maintaining high-quality education. Local authorities do not publish systematic data to demonstrate how they are monitoring schools' financial management and that they are intervening where necessary. Indeed, many local authorities are set to devote fewer resources to monitoring and supporting schools' financial management. Forty per cent of authorities responding to an NAO survey do not believe they have sufficient resources to provide effective support to schools and almost half of those authorities are planning to reduce the amount of staff time spent on support. The report recommends that the Department should make clear how it is going to review the working of the financial management arrangements.

The Department for Education is distributing £56.4 billion in 2011-12 to schools, local authorities and other public bodies for the delivery of education and children's services in England. The Department has set out how it intends to provide Parliament with assurance about the regularity, propriety and value for money in an Accountability System Statement (the Statement) of which the Committee has now seen three drafts. Responsibility for value for money is shared by the Department with schools, academy trusts, local authorities, the Young People's Learning Agency and the Department for Communities and Local Government. However, the Statement does not yet clearly describe the specific responsibilities of each body, how these will interact, or how the Department will assess value for money across the entire education system. The Department relies on local authorities and the YPLA to exercise financial oversight over local authority maintained schools and academies respectively. However, oversight by some local authorities is currently weak and could worsen as many authorities reduce the resources they devote to overseeing their schools. There are also concerns about whether the YPLA will have the right skills, systems and capacity to oversee the rapidly increasing numbers of academies expected in coming years. More consistent requirements for data and data returns must be applied to all schools so that academic and financial performance can be benchmarked, and all schools can be held accountable. The Department needs to enforce these requirements more stringently, particularly given previous problems with lack of compliance

This report is a follow-up to the Committee's report on Accountability for Public Money (HC 740, session 2010-11 (ISBN 9780215559029)) an issue at the core of the relationship between Parliament and government. Accounting Officers remain accountable to Parliament for funds voted to their departments but the policy intention is that local bodies will have significant discretion over the services they deliver. In the Government's response, 'Accountability: Adapting to Decentralisation', Sir Bob Kerslake drew a distinction between those services that government delivers directly and those that it may fund but are delivered in more decentralised arrangements. He proposed that Accounting Officers set out, in Accountability System Statements, the arrangements they have in place to provide assurance about the probity and value for money of funds spent through devolved systems. All departments are expected to produce Statements by summer 2012. Departments have made a genuine effort to develop arrangements which reconcile accountability and localism but the Statements so far are unwieldy and considerably more needs to be done to improve their clarity, consistency and completeness. There is concern that accountability frameworks must drive value for money and, critically, are sufficiently robust to address the operational or financial failure of service providers. Departments are placing increasing reliance on market mechanisms such as user choice to drive up performance and value for money, but there are limits to what these mechanisms can achieve. The Treasury needs to take ownership of the system and ensure that the Comptroller and Auditor General has the necessary powers and rights of access to examine the value for money of funds spent through devolved systems

The National Audit Office has reported that the Department for Education has delivered a fundamental change in the nature of the Academies Programme through a rapid, ten-fold increase in the number of academies since May 2010. This increase is a significant achievement. However, the Department was unprepared for the scale of the financial implications arising from such a rapid expansion. In the two years between April 2010 and March 2012, the Department had to meet an estimated £1 billion of additional costs, while remaining within its overall spending limits.By September 2012, 2,309 academies had opened, compared with 203 in May 2010. This represents significant growth of 1,037 per cent, most of which has been from schools choosing to convert to academy status. Academies have greater financial freedoms than maintained schools and the Department's approach to approving applications - coupled with the fact that most converters to date have been outstanding and good schools - appears so far to have managed the risk of schools converting with underlying performance issues. However, more schools with lower Ofsted ratings are now applying to the Programme. Future applicants may therefore require more in-depth assessment and support to manage potential risks.

This report finds that the Department for Education has made clear progress in implementing its Free Schools programme by opening 174 such schools since 2010. Many of these Free Schools - new all-ability state schools set up following proposals from different groups and, as academies, funded directly by the Department for Education - have been established quickly and at relatively low cost and the Department's assessment of proposals has improved. However, the primary factor in decision-making has been opening schools at pace, rather than maximizing value for money. The Department is now establishing a wider approach on how it could maximize its benefits in deciding on which schools to approve. At £6.6 million a school, the average unit cost of premises is now more than double the Department's original planning assumption, though the current assumption now reflects actual costs. Because the programme is demand-led, there is uncertainty about types of schools and where they will be located. Most primary Free Schools are in areas that need extra school places but there have been no applications in half of all districts with high or severe forecast need for school places. Overall, Free Schools opened with three-quarters of planned admissions in their first year, but there have been significant variations between schools. Oversight of the schools has evolved, but serious financial management and governance concerns highlighted in two recent investigations by the Education Funding Agency highlight the risks in some schools, and the need systematically to address lessons learned as the programme develops.

Almost a third of young people with a Statement of special educational needs at the age of 16 are not in any form of education, employment or training two years later. The Government spent £640 million on special education for 16- to 25-year-olds in 2009-10, yet too many of these young people are falling through the gaps after they leave compulsory education, damaging their life chances and leaving a legacy of costs to the taxpayer. The system is extremely complex and difficult to navigate, with an array of different providers. Too many parents and young people are not given the information they need to make decisions about what is right for them. But three quarters of local authorities do not give parents any information at all about the respective performance of schools, FE colleges and specialist providers. The Department doesn't know how much money is actually spent on support. The huge variation between local authorities in funding per student suggests that a postcode lottery is at work. Students with higher-level needs are placed on the basis of statutory assessments of need; however, witnesses emphasised just how patchy the quality of these assessments can be. The opportunity for reform presented by the Department's recent Special Educational Needs Green Paper should be used to address our concerns It is right for local authorities to decide how to meet the needs of young people in their area - but local people must have access to clear information so that they can hold local authorities to account for how well they deliver