As reported by the BBC, an Ofsted investigation has found that six councils paid £1,200 a week per child to an illegal school in Lincolnshire
The three owners of Frieston Hall school were prosecuted last week for running the school illegally.
Ofsted found the school failed to carry out appropriate staff checks and supervise pupils properly.
The education watchdog said children lived on site at the registered children’s home while being educated at the school.
Despite a warning issued by Ofsted in 2017, the school continued to operate illegally.
Ofsted carried out two further inspections, which found the school for children with highly complex needs failed to carry out staff suitability checks, give first aid training, or supervise pupils properly.
At a final unannounced inspection, children were found wandering around unsupervised and staff were struggling to keep order, Ofsted said.
Amanda Spielman, Ofsted’s chief inspector, said: “The people running Freiston Hall were receiving large amounts of public money from local authorities, who were paying for exceptionally vulnerable children to be educated in an unregistered, unsafe school.
“Schools operating beneath the radar aren’t subject to regular inspection, so we cannot be assured that they are safe or providing good quality education.
“We want to send a clear message to those who continue to run unregistered schools, despite being warned not to.”
She added the case “should also serve as a warning to local authorities”.
Patricia Hodgkinson, Dr Albert Okoye and Clement Earle were each given a conditional discharge for 12 months and ordered to pay £1,000 costs at Lincoln Magistrates’ Court last week after admitting failing to register the school.
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