The Further Education Funding Council is investigating six colleges’ financial dealings with outside companies in the wake of last week’s highly-critical report from the National Audit Office on Halton College.

But as the key committee prepares to meet next Monday to study ways of tightening up on franchised courses, The TES can reveal that several colleges have already found new ways of getting round the FEFC regulations.

In its summary of the lessons to be learned post-Halton, the FEFC says its officials are focusing on a group of colleges which have become rich over the past few years by franchising courses.

In particular, they are examining six colleges which moved their franchised outside courses in-house during the past two years.

A spokesman for the funding council would not name the colleges while the investigation was continuing. But they are all known to be in the group of colleges, called FE21, which practises outside franchising on a large scale and which included Halton.

“If we find there has been a significant reduction in franchise provision in these colleges, we will claw money back,” the FEFC spokesman said.

“In the meantime, the council has reduced the funding units for long-distance provision outside their normal recruitment areas and increased the costs to be borne by employers.”

The FEFC was forced to act after MPs started to investigate the financing of franchised courses last year. They slashed the funding of outside courses by one-third. Now the council has set up a local priorities committee to tighten the rules still further.

Arthur Cotterell, principal of Kingston College and a member of the committee, told The TES this week: “We know who the franchisers are but we don’t know what they are doing or why. It is clear that the Treasury has tumbled to the fact that some colleges are getting a fat fee for passing on money to outside companies with very little control over student numbers or training quality. Until recently this was considered to be entrepreneurial and innovatory. Now people are beginning to ask questions.”

FEFC chief inspector Jim Donaldson said they would be cracking down on student progress returns and the council might take over the external auditing of colleges. But an investigation by The TES has shown some franchising principals are already trying to circumvent the rules by :

* establishing a collaborative scheme within the group to enable colleges to franchise outside their regions by swapping courses;

* employing the company’s training staff directly or through a third party such as an employment agency, thereby making the work fall into the FEFC category of direct provision (attracting a full 100 per cent of funding);

* leasing premises outside the local area and providing enough courses to enable them to be defined as “local” rather than “distant” franchising.

This was condemned by NATFHE general secretary Paul Mackney. “We are not in the business of undermining the reputation of colleges, but we are determined to avert problems for staff and students resulting from sloppy management, poor financial control and the abuse of franchising arrangements,” he said.

“It is up to the FEFC and the Government to act and not leave it up to the colleges to bend the rules. Long-distance franchising can often disadvantage local students.”

He pointed to the recent case of Cricklade College in Hampshire, which had still not published an independent auditors’ report on courses using European funds franchised through a firm in South Wales, which had connections with seven other colleges.