A management crisis at the "fame school" set up by Sir Paul McCartney has raised questions about its fitness to receive public funds. Criticisms of the accountability, governance and financial arrangements at the Liverpool Institute of Performing Arts have been raised privately by auditors from the Higher Education Funding Council and by the institute's partner, Liverpool John Moores University.
LJMU vice-chancellor Michael Brown confirmed this week that a Hefce audit report, due to be ratified today, will make recommendations for improvements to safeguard public money. Staff want a full independent inquiry into LIPA management and governance.
LIPA was launched in 1996 with huge fanfare and personal donations, including more than £1 million from former Beatle Sir Paul, and with public funding from sources including the National Lottery. It was opened by the Queen. Sir Paul remains "lead patron" and still runs masterclasses there, but his company, MPL, withdrew from the council and the board of trustees in 1998 after the first students graduated. After setting up the school on the site of his old grammar school in Mount Street, Sir Paul never intended to be involved in its management, according to his spokesman. MPL first learned of the concerns this week.
LIPA, a registered charity and a company limited by guarantee, established a limited-liability property development company, LIPA Holdings Limited, to manage the refurbishment of Mount Street in 1992. The 1998 accounts for LIPA Holdings explain that "problems with the building work" led to "a considerable escalation in costs" and meant that work was completed late. Refurbishment cost £13.5 million, £6 million more than originally estimated.
Last year, LIPA Holdings failed to submit its 1999 accounts to Companies House by the May deadline, and they are still unavailable. Last November, LIPA Holdings was put into liquidation with an estimated deficiency of £7.8 million. The 1998 accounts showed a loss of £767,000 for the year. LIPA's catering subsidiary, LIPA Enterprises, also suffered losses, of £7,642 in 1999 and £14,8 in 1998.
LIPA first drew up a formal governance document and set up an internal audit committee in the second half of 1999. It then made arrangements for an internal audit service.
The chair designate of the governing council resigned after less than a year, in September 2000. Before his departure, Patrick McKenna, director of finance firm Ingenius Media, made clear his frustration with management and governance problems. In a memo just days after he quit, he said that LIPA's strategic plan was "complete rubbish" and "I would not have my name associated with it".
A formal resolution from staff this month calls on the council and senior managers to halt planned restructuring until the findings of the Hefce audit are known. An anonymous letter sent to Hefce, LIPA council members, the governors at LJMU and to The THES calls for a public inquiry into mismanagement.
An audit team from Hefce and LJMU visited LIPA in September to evaluate its internal controls. The first draft report was critical of aspects of LIPA's management, governance and accountability. Four months after the draft, and after negotiation between LIPA and Hefce, it is due to be ratified today.
LIPA's lawyer is London firm Crockers Oswald Hickson. Crockers senior partner Rupert Grey is a member of the LIPA Trust and an adviser to the LIPA governing council. He said that the draft The THES had seen was a first draft that had been substantially changed since it was written.
LIPA chief executive Mark Featherstone Witty said: "The confidential document you have in your possession is just the first draft. However attractive and satisfying, LIPA will not be making any comment outside recognised procedure."
Hefce declined to discuss its findings. "We take seriously the financial and strategic management of all institutions we fund and we work with them to take whatever action is necessary to secure improvements and to ensure that public funds are properly used," said a spokesman.
Dr Brown said: "LJMU, as the funding institution, is not in any doubt that the proper procedures have to be in place to safeguard public money. From our point of view, the academic side of the institution is extremely good."
Dr Brown was confident that LIPA's financial future was sound. It receives additional funding from Hefce because all performing arts courses are funded at a premium.