The Kings Science Academy scandal has exposed gaping failures in the oversight of free schools, a damning watchdog’s report warns today.

The Department for Education (DfE) is strongly criticised after more than half of the first wave of free schools failed to file audited accounts by the deadline required.

This lack of “compliance” is epitomised by the eventual exposure of “fabricated invoices” submitted by the Bradford free school, the National Audit Office (NAO) said.

The watchdog’s report warns the DfE that scrutiny must be stepped up to “identify and manage emerging risks”, as many more free schools are opened.

And Amyas Morse, the NAO’s head, said: “Lessons must be learned systematically from problems that have arisen in a few early wave schools, especially where these have revealed failures in governance and control.”

But the report states the Education Funding Agency (EFA) – the body overseeing free schools – believes Kings Science Academy is now making “good progress in responding to a formal financial notice to improve”.

It says the EFA “is also recovering almost £77,000 from the school” – although that sum is less than the £86,335 that the DfE’s auditors found had been mis-spent at the school in Lidget Green.

The conclusions are an embarrassment for Education Secretary Michael Gove, who has repeatedly claimed free schools face stronger scrutiny than local authority schools.

Nevertheless, it was revealed last month that he plans to appoint powerful regional ‘school regulators’ with the power to seize control of failing academies and free schools.

The alleged fraud at Kings Science Academy was only revealed in October, when the DfE audit was leaked, forcing ministers to publish it.

Payments also went towards teachers’ furniture, with more than £600 spent on parties or meals and £169 given to an employee to buy clothes.

West Yorkshire Police eventually launched a fraud inquiry, after the DfE wrongly claimed they had concluded that “no further action was necessary”.

David Ward MP (Lib Dem, Bradford East) said: “This report mirrors what I have been saying: the early free schools enjoyed an ‘anything goes’ attitude.

“It is impossible for Michael Gove and the Department for Education to correctly and independently oversee the free school programme whilst they are its biggest advocates.”

But schools minister Elizabeth Truss said she was “pleased the NAO has recognised the progress we have made in opening 174 schools”.

And she said: “Free schools are one of this Government’s success stories – an innovative response to what local communities want for their children.”

The NAO report will trigger a hearing by the Public Accounts Committee next month, at which senior civil servants will be grilled about the Kings Science Academy.