“So far, so good” is the time-honoured verdict by Audit Scotland on the Scottish Funding Council’s efforts in further education.

In his fifth report on the FE sector, issued yesterday, Robert Black, the Auditor General for Scotland, praised the growing financial health of individual colleges and of the sector as a whole.

The council has also had “some success” in its drive to improve college management, he said, although better strategic leadership was needed to achieve the benefits of merger and collaboration between colleges.

Mr Black concluded: “Overall, my report indicates that the funding council has built up steady momentum in areas previously highlighted for concern.

There is still more to be done, but I am satisfied that the body is moving in the right direction.”

The Parliament’s audit committee said in its report on the colleges last year that it was difficult to determine whether their financial health was improving because they were getting more money or because their managements had improved. Colleges’ income has risen by 25 per cent in cash terms and 13 per cent in real terms over the five years to 2005.

The Auditor General’s report declares firmly, however: “Financial stewardship in the incorporated colleges is sound.”

He points out that only seven of the 39 incorporated colleges had to eliminate accumulated deficits, compared with 13 in 2002.

Among the significant seven are Inverness and West Lothian colleges. Two institutions (Inverness and James Watt colleges) still required support to pull through financially.

The former FE funding council provided a total of pound;38 million to help colleges to improve their financial health, along with other priorities.

The Auditor General found that the funding council had enhanced the information base needed to assess the performance of the sector, particularly in the critical business areas of volume, quality, financial performance and clientstudent satisfaction.

The information shows:

* volume: all colleges achieved at least 98 per cent of what was required for student activity under their funding agreements with the council;

* quality: as assessed by HMIE, 88 per cent of grades awarded in college reviews were very good or good; in management performance, the figure was 86 per cent;

* finances: there are 20 annual financial performance indicators and 130 diagnostic benchmarks;

* satisfaction: 80 per cent of students are satisfied with their courses and institutions, while 82 per cent of employers are happy with the training provided by colleges.

Mr Black’s report added: “This presents a balanced scorecard of performance through which the funding council has begun to examine how the components of college activity inter-relate.”

The Auditor General is impressed, too, by the way the funding council has encouraged colleges to benchmark their costs and performance against each other in order to improve their efficiency. Colleges now receive reports each year showing the benchmark data for all colleges.

Generally, Audit Scotland found that the funding council had made most progress in areas where it could take direct action, such as the council’s pound;250m investment in college building and maintenance projects which have a capital value of more than pound;400m.

Where the council had to fall back on wielding influence, progress was slower, however.