OUTWOOD GRANGECOLLEGE
FINANCIAL REVIEW
PRODUCED BY: / Alan Till / May 2011
______Audit Plan 2011/12
PAGE PARA
SECTION 1
Introduction21 - 5
SECTION 2
Executive Summary3 - 86 – 9
SECTION 3
Detailed Audit Findings / 9 - 30- General
Appendices
Appendix 1 -Treatment of Charity Income / 10 -12
Appendix 2 - Payments Made To The Executive Principal – Michael Wilkins
LINKED TO NLE CONSULTANCY ACTIVITY / 13 - 18
Appendix 3 - Payments Made To Other Staff Within OGC
For Consultancy Work / Additional Duties / 19 - 21
Appendix 4 -Examination of other School Fund transactions / 22 - 25
Appendix 5 - Examination of Delegated budget transactions / 26 - 28
Appendix 6 - Other Relevant Matters / 29 - 30
Action Plan / 36
______Section 1
1Since 2009, Wakefield Council Internal Audit staff have been involved in examining various financial records of the former OutwoodGrangeCollege, (OGC), noting that the College transferred to an Academy in September 2009. Internal Audit work commencedfollowing receipt of information that funds collected in respect of specific charities might have been retained within the School Fund and not paid over to the charities for which they were originally collected. The source of this information stated that an officer from OGC, working with officers at another School as part of the National Leaders of Education (NLE) / National Support School (NSS) initiative, had advised staff that they could retain part of any funds raised for charities within the general School Fund.
2Initial Internal Audit work confirmed that there was substance to the concerns, in that some money which should have been handed over to a number of charities had been retained within the OGC General School Fund Account. Audit findings relating to this issue were brought to the attention of Governors / staff within OGC and also Wakefield Council’s Director of Finance in August 2009. As a result of the audit findings action was taken within OGC to pay all money over to the charities for which it was originally raised.
3Arising from the above findings a meeting was held at OutwoodGrangeCollege on 20th August 2009, attended by:
Director of Finance, Wakefield Council
Service Manager, Internal Audit, Wakefield Council
Chair of Governors, Outwood GrangeCollege
Executive Principal, Outwood Grange College
Principal, Outwood Grange College
In discussing the audit findings relating to examination of charity accounts within OGC, it was agreed by all parties that Internal Audit would carry out further workin order to provide assurance on the validity of other financial transactions within the OGC Delegated Budget and School Fund records.
4Since September 2009, Internal Audit staff, supported by officers from Wakefield Council Legal Services, have examinednumerous financial records and held discussions with staff, some Governors and various legal representatives of the former OGC and the newly formed Outwood Grange Academy Trust, (OGAT), eventually leading to a mediation process in April 2011 in respect of payments made to Mr Wilkins, Executive Principal.
5Mediation has now ended and this report sets out the key findings,conclusions and recommendations arising from all aspects of the Internal Audit work. The content needs to be considered by all appropriate parties and decisions made as to how the issues raised are to be progressed to a conclusion.
______Section 2
6Section 3 of this report, and the supporting Appendices, provide detailed audit findings, conclusions and recommendations relating to all aspects of this review. (It is important to note that the audit review has not included any assessment of the extent to which academic objectives of OGC, OGAT or each NLE / NSS contract have been achieved, instead focussing on financial activity).The key issues covered by this report relate to:
6.1Treatment of “charity income”;
6.2Payments made to the Executive Principal – Mr Wilkinslinked to NLE consultancy activity;
6.3Payments made to other staff within OGC for consultancy work / additional duties;
6.4Examination of other School Fund transactions;
6.5Examination of Delegated budget transactions;
6.6Other Relevant Matters
7There are a number of references within this report to Internal Audit work not being completed within some areas. It should be noted that this was on the basis that it was hoped letters sent by Wakefield Council Legal Services staff in July 2010, to parties associated with the former OGC, would lead to concerns being resolved without further detailed resource input. Unfortunately this has not been the case and upon Wakefield Council receiving legal advice that there is a legitimate cause for concern relating to payments made to Mr Wilkins, but that only OGAT have power to take further action, a decision was made to refer a number of key issues to OGAT for consideration and action rather than continue with the audit review.The mainconclusion is that there has been a significant breakdown in appropriate standards of governance and accountability at the school. The key areas of concern identified from work carried out by Internal Audit, supported by more detailed information recorded in Section 3 of this report, are summarised as:
Treatment of Charity Income – Appendix 1 refers
7.1Internal Audit work identified that significant elements ofmoney collected for nominated charities during the period 2004/05 to early 2009/10had beenretained within OGC, prior to Internal Audit reviewing financial transactions. These sums have now been paid over to the relevant charities, but this may not have been the case if Internal Audit had not carried out the review. No valid, acceptableexplanation has been provided as to why these funds were retained within OGC funds. The primary responsibility for properly accounting for this income rested with the former Business Manager of OGC. OGAT / Wakefield Council will need to ensure all aspects of this matter have been adequately dealt with (see Appendix 1 – recommendations 1-5)
Payments made to the Executive Principal – Michael Wilkins,linked to NLE consultancy activity – Appendix 2 refers
7.2Significantsums of money have been paid to Mr Wilkins in respect of bothhis substantive salary as Headteacher / Executive Principal of OGC andconsultancy related work as part of the NLE / NSS initiative, including mileage and accommodation expenses, made through a limited company set up by Mr Wilkins, (Challenge Leadership Ltd). During the 2 year period April 2007 to March 2009, Mr Wilkins received payments through the company in the region of £147,000 in respect of such consultancy related work, (including £7,000 towards accommodation / relocation costs), in addition to his substantive salary for the 2 year period of some £236,000, including a salary increase of £28,000 per annum effective from September 2008. The audit review concluded that:
(i)There was no clear, transparent, formal approval process, involving the relevant OGC Governors, to authorise consultancy payments. Whilst there has been some confusion within OGC regarding the operational and accounting aspects of the NLE / NSS activity, with transactions being processed through a mixture of OGC School Fund, OGC School Budget and OG Consultancy Company, the only tangible evidence of approval of the payments was in the form of a number of letters produced jointly between the OGC Chair of Governors, Jim Walkden and Mr Wilkins. Audit findings show that Mr Walkden did not have delegated authority to personally authorise such payments in any capacity and did not pay proper due regard to required governance processes in agreeing the payments to Mr Wilkins. Although we would have expected the Chair of Governors to be familiar with the rules and regulations and his delegated authority, there is no evidence that he acted in bad faith. It has been determined, and supported through legal advice, that the payments were not properly authorised and should not have been paid in the way they were. It is acknowledged that Mr Wilkins may have been entitled to some additional payments in respect of the NLE work he carried out.Legal advice is that this would now need to be retrospectively determined by OGAT on a “quantum meruit” basis or by taking account of the Payments for External Work Policy approved by OGC Governors in 2006.OGAT, Mr Walkden and Mr Wilkins refute that he has been overpaid, claiming that all payments he has received were valid and made with the knowledge and support of relevant governors, including the Governing Body, although there is insufficient evidence to confirm this to be the case. In July 2010, based on information available, Wakefield Council requested that Mr Wilkins repay a sum in the region of £91,000 in respect of consultancy fees paid to him through Challenge Leadership. Additional information subsequently received from OGAT, relating to initial incorrect coding of expenditure in the region of £21,000 against Challenge leadership Ltd, would have reduced this figure by some £11,000. To date Mr Wilkins and OGAT are claiming nothing is due to be repaid. Legal advice is that it is now the responsibility of OGAT and not Wakefield Council to consider the extent to which, if any, sums paid to Mr Wilkins should be recovered, taking account of the lack of a proper approval process (see Appendix 2 – recommendation 8).
(ii)A significant, unquantified, element of the £7,000 mileage expenses paid to Mr Wilkins in respect of consultancy work was made outside of any formally approved OGC policy / scheme. Mr Wilkins was in effect paid mileage expenses at 40 pence per mile for travelling from his home / residence to work on days that he was engaged on NLE activity, noting that on occasions he was actually located at OGC whilst undertaking such work. Whilst Mr Walkden has indicated that he approved this arrangement, there is no evidence to support authorisation. On this basis not all mileage payments were legitimate as they should have been paid in line with existing policy.As with consultancy fees, Mr Wilkins refutes that he has been overpaid, claiming that all payments he has received were valid and made with the approval of the Chair of Governors, Mr Walkden. On this basis,OGAT need to consider the extent to which, if at all, Mr Wilkins should repay elements of mileage expenses that he was paid, (see Appendix 2 – recommendation 8).
(iii)In respect of the method of payment of NLE fees / expenses to Mr Wilkins, i.e. through a Limited company rather than Wakefield Council payroll, there is conflicting guidance as to which method should be used. It is clear that Mr Wilkins (and Mr Walkden)deemed his NLE activity to be “private consultancy work”, with the separate payment arrangements being in line with aspects of limited formal guidance available at the time, e.g. ASCL Guidance – January 2006 – paragraph 7 makes reference to expressly reminding members that personal income received is subject to tax, either at source, or should be declared at the end of the tax year. In contrast, paragraph 3 of the same guidance states that work done as consultants to other schools in need of support is a major responsibility and should be rewarded with a salary supplement for the period of the work. Mr Wilkins put forward the explanation that his choice of payment through setting up a company was deemed most appropriate at the onset of NLE work because it was felt imprudent to put the payments on a salary footing given that there was much uncertainty about the number of contracts and how long they would continue. Wakefield Council’s view is that, as Mr Wilkins’ involvement in NLE activity was directly related to his position as Headteacher of OGC, on balance the formal guidance indicates payment should normally be paid through enhanced salary. As the work was accounted for through OGC and its associated company and much of his NLE work was undertaken during “normal working hours”, it would have been more appropriate to have made any payments for NLE activity through Governors approving a temporary salary enhancement or agreeing to make fee payments, based on submission of claims, through his salary. There may be tax implications of making payments to Mr Wilkins for this work through a Limited company. It will therefore be necessary for Wakefield Council’s statutory Finance Officer to inform HMRC of the level of payments made. It is noted that through responses to questions raised, Mr Wilkins has stated that he has paid the relevant amount of tax through his company, (see Appendix 2 - recommendation6)
7.3The above matters were subject to a formal mediation process in April 2011, which was ended without agreement being reached.
Payments made to other staff within OGC for consultancy work / additional duties – Appendix 3 refers
7.4Internal Audit work identified that, in addition to Mr Wilkins, a number of other members of former OGC staff received additional payments linked to extra duties, responsibilities and workloads associated with consultancy activity. Such payments included substantive salary increases, (e.g. one member of staff promoted from Assistant Headteacherto Vice Principal and then College Principal during this period with a £35,000 per annum salary increase to reflect additional duties / responsibilities); honoraria / additional duty payments and also payments to individuals or their associated companies. The extent to which these additional payments are valid and justified has not been fully determined, with audit resources focussed on the higher value payments made to Mr Wilkins.It will be necessary for OGAT to give further consideration to these matters, (see Appendix 3 – recommendations 11 12)
Examination of other School Fund transactions – Appendix 4 refers
7.5Some inappropriate expenditure, (noting further work is required in this area), may have been incurred through OGC School Fund accounts relating to such issues as expenditure on:
Food and drink;
Travel, including foreign trips;
Other consultancy type work;
Salary payments for staff outside of payroll.
7.6It will be necessary for OGAT to give further consideration to these matters, (see Appendix 4 – recommendation14)
Examination of Delegated budget transactions – Appendix 5 refers
7.7Some inappropriate expenditure, (noting further work is required in this area), may have been incurred through OGC Delegated Budget relating to such issues as expenditure on:
Trips / excursions;
Travel, including foreign trips;
NLE /NSS activity impacting upon OGC balances;
7.8It will be necessary for OGAT to give further consideration to these matters, (see Appendix 5 – recommendation 15).
Other Relevant Matters – Appendix 6 refers
7.9Confusion within the OGC environment relating to the full implications of operating NLE / NSS activity, including running School companies, and the impact upon contractual and accounting arrangements. It will be necessary for OGAT to give further consideration to these matters, (see Appendix 6 – recommendations 16 - 18).
7.10The extent to which Other Local Authorities acting as clients within the NLE / NSS contracts have assurances around their contractual arrangements with OGC. Wakefield Council officers will contribute to this process, (see Appendix 6 – recommendation 19).
8The above is based on the understanding that, whilst not all issues have been followed through to a conclusion by Internal Audit, no further audit work is intended to be carried out relating to this matter. Following legal advice it is considered that most of the key matters requiring further consideration are the responsibility of OGAT. Wakefield Council’s main responsibility, following issue of this report, relates to liaison with relevant external organisations that may have an interest in the issues, predominantly being the Audit Commission, (AC); HMRevenue & Customs, (HMRC); National College for School Leadership, (NCSL); Other Local Authorities, (OLAs); and the Charities Commission
9The main recommendations within the report are summarised as:
9.1OGAT should give further consideration to issues relating to incorrect treatment of charity income, (Appendix 1 – recommendations 1 to 5 refer);
9.2Wakefield Council’s statutory Finance Officer should liaise further on the issue of consultancy fee payments with relevant external bodies, being the Charity Commission, HMRC and Audit Commission, (Appendix 2 – recommendations 6 and 7, plus Appendix 3 – recommendation 11 refer);
9.3OGAT should further consider the issue of fees and salary payments made to Mr Wilkins, (Appendix 2 – recommendations 8& 10 refer);
9.4OGAT should consider the position of Mr Walkden, as Chair of the former OGC Governing Body and the current Trust,taking account of issues raised within this report, (Appendix 2 – recommendation 9 refers);
9.5OGAT should give further consideration to issues identified within the report relating to payments through School Fund and Delegated Budget, (Appendix 4 – recommendation 14and Appendix 5 – recommendation 15 refer)
9.6OGAT should review arrangements for operating different accounts within the College and basis of operating companies, (Appendix 6 – recommendations16-18 refer)
9.7Wakefield Council should liaise with representatives of OLAs as requested, in providing assistance in any ongoing reviews of their NLE / NSS contractual arrangements, (Appendix 6 – recommendation 19 refers).
______Section 3
GENERAL
10This section of the report provides more detailed information to supplement the summary within section 2. For ease of reference the information is recorded within a number of Appendices covering each main area of audit review, being:
10.1Treatment of Charity income – Appendix 1
10.2Payments made to the Executive Principal – Michael Wilkins linked to NLE consultancy activity – Appendix 2
10.3Payments made to other staff within OGC for consultancy work / additional duties – Appendix 3
10.4Examination of other School Fund transactions – Appendix 4
10.5Examination of Delegated budget transactions – Appendix 5
10.6Other Relevant Matters – Appendix 6
11Each Appendix provides details of the key issues arising from the audit review, including conclusions and recommendations where appropriate.
APPENDIX 1
TREATMENT OF CHARITY INCOME
AUDIT FINDINGS
- The main findings from examination of records relating to funds raised for charitiesby OGC are as follows:
1.1From 2004/05 to July 2009, audit ascertained that in the region of £21,500 of income was recorded within the OGC Charity account of which some £18,700 was due to be paid over to specific charities. Approximately 20% of this amount, £3,600, had beenpaid over to charity at various stages during this period.