Crackdown on suppliers after firm made £13m on not-for-profit UK visa services

England’s most senior education official has assured MPs that suppliers on not-for-profit contracts will not in the future be able to make money secretly after “serious failings” were exposed by the Guardian.

Susan Acland-Hood, the Department for Education’s permanent secretary, told the cross-party public accounts committee (PAC) that a “very hard” review had been undertaken in light of the conduct of a company running UK visa services.

Under a contract signed in 2014, Ecctis Ltd, which runs language tests and qualification recognition for people applying for UK visas, had undertaken to invest any profits it made back into the service it was running for the government.

Last week the Guardian revealed that a unpublished audit commissioned by officials at the DfE had found that this had not happened over a period of at least seven years, and that the government had lost more than £13m as a result.

The company’s estimated £13.64m gain on the not-for-profit contract was subsequently repaid by Ecctis. A number of senior executives were asked to resign, including the former chief executive Cloud Bai-Yun, who had previously represented the UK on an international ethics body.

Bai-Yun, who has not responded to requests for comment, was also a sole shareholder of Ecctis until she sold up for £17.587m in 2021. She was asked to resign in 2023 from her latest position at the firm as chief adviser.

Responding to Geoffrey Clifton-Brown, the Conservative chair of the PAC, Acland-Hood admitted that the failings had been discovered by chance during a contract renewal. She said: “We identified some serious historic issues at Ecctis in early 2023 and we identified them as part of preparations for the reprocurement of the service.

“I think the first thing to say is that it is of concern we identified them as part of preparations for reprocurement, rather than through our management of the contract before that and that is something we’ve looked at very hard inside the department.

“The contract said that any surplus that was made should be reinvested in the running of the service. And the substance of the issue that we uncovered was that not all of the surpluses being made had been reinvested in the service, so they were breaking their contractual terms.”

Acland-Hood said that the £13.64m had been repaid to the Treasury. “We also insisted on profound leadership and governance change at Ecctis,” she said. “So we’re confident there’s been no loss to the taxpayer as a result of this, but we have carried out a really thorough review of how it came about that this wasn’t identified sooner.”

As well as accusing Ecctis of failing to invest its profits into the service, the audit commissioned by the DfE criticised the company’s allocation of Bai-Yun’s management fees to the government contract. They were estimated to be as high as £85,000 a quarter at one point.

Bai-Yun, who had been a UK representative on a working group of a Council of Europe committee on ethics, transparency and integrity in education during Theresa May’s premiership, is understood to deny a breach of contract. It is understood that she told an internal Ecctis review that the DfE had been aware of all the relevant financial arrangements.

Ecctis did not immediately respond to a request for comment.