In his statement on the department’s 2015-16 accounts, Morse said the adverse opinion meant he considered the level of error and uncertainty in the statements to be both material and pervasive. He also issued two qualifications after the DFE exceeded two of its authorized expenditure limits.

The error and uncertainty is due to the inclusion of spending by academy trusts in the report.

The DFE has a different reporting period from that of the academy trusts, which presents it with a financial management challenge to provide true and fair financial reports. The department must produce its financial statements by a year end of 31 March whereas the trusts have a year end of 31 August (to align with the end of the school year). For 2015-16, 2,910 academy trusts operating 5,552 academies were included in the report.

This is the second year in a row that the National Audit Office has issued an adverse opinion on this basis, and the report stated the department has chosen not to change the reporting period for the trusts nor to request a second set of statements to cover the period to the end of March. Instead it has sought to prepare the group financial statements by using the academy trusts’ financial statements to the end of August and then making adjustments where necessary. This is based on an assumption that financial data for the year to the end of August, with the adjustments, would not be materially different for the equivalent to the end of the following March.

However, Morse said he considers this approach does not give a true and fair view of the department’s financial performance or position. Furthermore, the approach does not provide the required accountability to Parliament. The report did not, however, identify material inaccuracies in the financial statements of the individual bodies making up the group.

An alternative approach to accounting for academy trusts is now being developed by the DFE to improve transparency through the production of a separate aggregated account for academies as at 31 August. This will remove academy trusts’ financial results from the DfE’s group financial statements, which will instead reflect only grants paid to academies.

Morse said this would, if implemented effectively, provide a solution to a number of the issues faced by the department, but would not address all of the causes of error and uncertainty, such as the recognition of land and buildings.

“The department has many challenges to overcome if it is to implement successfully its plans to provide Parliament with a better picture of academy trusts’ spending next year,” he stated.
Responding to the adverse opinion, a DfE spokesman said: “We recognise the challenges with the current format and have developed a new methodology for the 2016-17 financial year, which the NAO has said will provide a solution to a number of these issues.