Warning on wasted cash in opt-out schools: Audit Commission report leads to call for accounts to be filed centrally. Patricia Wynn Davies reports

VAST potential for financial mismanagement in grant-maintained schools was spotlighted yesterday by the Audit Commission, the independent financial watchdog.

Labour called for the schools to be put on the same footing as companies, which have to file accounts centrally.

The commission, which scrutinises local government and National Health Service finances, said large sums of public money for schools and health were in danger of being wasted or mis-spent through inexperienced management and lax financial checks.

While supporting the freedom of schools and GP fund-holders to manage their own budgets under the education and NHS changes, Sir David Cooksey, the commission's chairman, said without independent external audits, money was at risk of misuse or even dishonesty.

There was 'enormous' potential for waste in schools opted out of local authority control, Sir David said in the commission's latest annual report.

Yet each grant-maintained school appointed its own auditors, there was no mandatory assessment of whether it achieved value for money and little public access to the audit process.

'The commission's view is that this runs counter to principles which normally apply to the expenditure of public sector funds,' Sir David said.

Eric Forth, Under-Secretary of State for Education, effectively accused the commission of sour grapes following the loss of its monopoly auditing role under the latest Education Act. Yesterday's report, however, comes in the wake of concerns in a highly critical report into schools' financial controls by the National Audit Office, the public spending watchdog, in April.

That investigation found that time pressures and financial inexperience led to some schools failing to implement fundamental accounting practices including separating the custody and recording of cash, while most had neglected to introduce standard requirements such as double-entry book-keeping or fully cost their business plans.

Ann Taylor, Labour's education spokeswoman, said: 'The audited accounts of all grant-maintained schools should be held centrally and made available for independent inspection by the public.

'What is required from commercial companies and charities should also apply to grant-maintained schools.'

Don Foster, education spokesman for the Liberal Democrats, said: 'Those who pay the piper seem no longer to be allowed to call the tune.'

Mr Forth said: 'There appears to be a certain amount of 'vested interest' here. The Audit Commission is, perhaps, understandably, disappointed that its bid for a monopoly role in grant-maintained schools was rejected by Parliament.'

He said each school had to have its accounts externally audited from categories specified by the Department for Education, including the Audit Commission, while the 1993 Act gave the Funding Agency for Schools power to call on the commission to conduct value-for-money studies.

He added that the National Audit Office would report to Parliament each session on the economy of schools, their efficiency and effectiveness.