Payments made by an educational charity to a company owned by the head teacher of a linked academy school were "too generous", the Charity Commission has concluded.
The regulator has today published its report into its statutory inquiry into the Durand Education Trust, a charity that owns land occupied by the Durand Academy, which is run by the exempt charity the Durand Academy Trust.
The report says a contract was awarded on behalf of the education trust that the regulator estimated would be worth at least £2.6m to a company owned by Sir Greg Martin, the school’s former head teacher, while he was a trustee of DET, which the commission was not satisfied was "reasonable in all circumstances".
The commission also concludes that the DET failed to identify or manage conflicts of interest in its dealings with the academy trust and Martin.
The academy replaced the former Durand Primary School, whose governors set up a trading company in 1997 called London Horizons to generate income for the school using the school’s buildings and leisure facilities.
In 2001, London Horizons awarded a contract to GMG, a company controlled and initially wholly owned by Martin, who was head teacher of the academy until 2015 and remains chair of the academy trust.
When the school converted to an academy chain in 2010, it created DET and transferred its land and property to it.
GMG’s deal to manage the facilities was renewed for five years in 2012 under a contract which entitled the company to annual management fees, including a retainer of £32,360 and 15 per cent of gross turnover, plus a special termination fee which the Charity Commission estimated would be worth at least £1.8m.
The Education Funding Agency, which regulates the Durand Academy Trust, raised concerns over the 2012 contract following a review of DAT’s financial statements for 2012/13 and in February 2015 the commission opened a statutory inquiry into DET to investigate the decision to award the 2012 contract, whether Martin’s remuneration was reasonable and whether adequate governance arrangements were in place to protect DET’s interests.
The commission’s report into its inquiry says today that both the 2001 and the 2012 contracts allowed Martin to be remunerated above what he was earning as the school’s head teacher.
It says trustees could not justify why they did not put the 2012 contract out to tender or explain why they set the level of remuneration they did.
There was also no evidence that they attempted to calculate how much money GMG was likely to be entitled to under the contract, the regulator found.
The commission calculated the figure was likely to be at least £2.6m, including the termination payment of least £1.8m.
"In the inquiry’s view it could not be satisfied that the original payment terms in the 2012 contract, in particular the special payment due on termination, were reasonable in all the circumstances," the report says.
While the report acknowledged Martin’s contribution to the school, it concluded the terms of the 2012 contract were "too generous" and said "some of the conflicts of interest were not properly identified and/or adequately managed".
DET’s professional advisers told the inquiry that neither Martin nor GMG were party to the discussions around renewing the contract, the report says.
Since the inquiry opened, the regulator said trustees have carried out benchmarking exercises to establish a reasonable level of payment for the contract and have agreed to reduce the termination payment to £850,000.
The commission has also issued the charity with an action plan and says it will continue to monitor the charity to ensure the actions are implemented.
A statement from DET said the past two years had been stressful for its trustees and Martin and said trustees' response to the commission had been "cooperative but robust".
It said the trust had been "fighting for its life" but the report would allow it to continue.
"DET will implement all the Charity Commission's requirements," it said.
Martin said in a personal response he was "disappointed and confused" that the Charity Commission had not mentioned an independent report commission by DET that concluded his remuneration represented value for money and was reasonable and fair.
He also said he had agreed to reduce his remuneration voluntarily before the inquiry began.
Alex Benady, a journalist who has investigated Durand, said the case was "not just about individual greed but about weak governance and the feckless creation of the academy system under which tens or hundreds of millions of pounds of public assets were handed over with little or no supervision".
He said: "The fact that the 2012 contract was negotiated down to ‘just’ £850,000 after the Charity Commission intervened smacks of a two-fingered salute to the authorities."