Whistleblowers: Hefce reports on Lipa

The extent of management and accountability shortcomings at the " Fame " school, set up by former Beatle Sir Paul McCartney, is revealed this week in a long-awaited audit report by funding chiefs.

Mark Featherstone-Witty, head of the Liverpool Institute of Performing Arts, has given The THES a summary of a report on the institute's financial controls by the Higher Education Funding Council for England. He said that there was no suggestion that Lipa had failed in its accountability to Companies House or the Charity Commission, or that there had been any lack of probity.

Mr Featherstone-Witty said he hoped to "put the record straight" after The THES obtained a first draft of the report and reported a series of management and accountability shortcomings.

The final report, agreed by Lipa, warns that fundamental improvements to governance and management are required before the institute can "satisfy the demands of public accountability". The Hefce auditors said that Lipa's accountability arrangements did not "currently meet the... demanding standards of the higher education sector". They made 47 recommendations for improvements.

The final report recommends:

• Lipa should "conduct a full review of the effectiveness of its governance arrangements" to ensure they accord with best practice guidance. Lipa said this was in hand
• "Arrangements for the procurement and receipt of legal and financial advice for the council should be periodically reviewed."

The THES reported in February that Lipa was employing law firm Crockers Oswald Hickson as its solicitors. Rupert Grey, a partner at Crockers, is a member of the Lipa trust and has been acting as the council's special legal adviser. Lipa employed Liverpool accountants Panel Kerr Forster as its external auditor. PKF senior partner James Dimmock was a special financial adviser to the council.

Lipa said it had re-tendered the contract for its external audit and would review its general arrangements for financial and legal advice n The governing council "must take responsibility for determining the overall strategic direction of the institution". Lipa said it was "now aware of this requirement"

• The council should immediately set up a remuneration committee that should receive the results of senior staff performance appraisals as a matter of "fundamental" importance. Lipa said this had been done
• Membership of Lipa's audit committee should increase to accord with the Hefce audit code of practice. Lipa said this was in hand
• The council's finance committee should "review its financial information requirements to ensure it is able to discharge its respons-ibilities". Lipa said it welcomed the recommendation
• A comprehensive business continuity plan should be prepared. Lipa said plans were being drafted
• "Consideration should be given to the development of a policy and procedure aimed at the prevention and detection of fraud". Lipa said it would draw up a policy
• As a matter of fundamental importance, the institute should "adopt a more sophisticated approach to financial planning" and prepare a clear financial strategy. Lipa said it accepted the criticism and it looked forward to receiving Hefce guidance
• The use of closed council sessions - "reserved business" - should be clarified. Lipa said it had abandoned reserved sessions.

Mr Featherstone-Witty said the institute regarded itself as a private institution, offering designated higher education courses. The Hefce report, he said, acknowledges that because of this status, "it is not unexpected that our standards do not currently meet additional HE sector standards". He said the audit report notes that Lipa's new strategic plan shows "a commendable sense of purpose and commitment in taking the institute forward".