The House of Commons public accounts committee has said that it is no use waiting until a college is in financial difficulties before decisive action is taken.
Weak local management is often the reason for a college running into difficulties, said the committee. One-fifth of colleges are in poor financial health and that number is likely to increase.
In a report on the management of growth in further education, the committee is also disturbed at the variability in the levels of student achievement. One in 10 colleges have student achievement rates of 50 per cent or lower. Average achievement rates varied between 24 and 99 per cent. "These were not "acceptable" levels and the issue must be addressed, said MPs.
Hackney Community College in east London, had the lowest achievement level.
The FEFC said the proportion of students coming out of Hackney schools who were ready for further, higher or intermediate levels of qualifications was extremely low. But the situation there was being carefully monitored and was improving. A spokesman said this week that its new quality improvement strategy set a number of targets and benchmarks for student retention and achievement.
"Where colleges are experiencing difficulties the Council will give more support and extend the re-inspection process. If there is evidence of unsatisfactory provision we will re-inspect."
A new development is a proposal to encourage good practice by specifically providing financial incentives for colleges which raise the levels of their students' achievements.
Colleges which meet a comprehensive range of quality checks will achieve accredited status and receive a one-off #163;50,000 payment to help them disseminate good practice.
The MPs noted the rapid expansion of off-site franchised provision. "We are concerned that franchising gives rise to serious risks as regards regularity and financial control. We urge the funding council to maintain tight oversight over franchised provision, and ensure that the highest standard of financial control and accountability are applied to expenditure incurred in this way."
They said their concerns about franchising were brought into focus when the FEFC informed them about the situation at Halton College, in Widnes.
There, auditors with forensic experience had been commissioned to carry out an investigation of complaints about irregularities in connection with the extensive franchised provision.
"We will wish to be fully informed about the outcome of the funding council's investigations into the funding claims of that college as they relate to franchised programmes; and we will wish to be assured that the lessons from this case have been promulgated throughout the sector."
The Commons public accounts committee praised the "considerable achievement" of colleges in achieving a 26 per cent growth in full-time equivalent student numbers between 1992-3 and 1996-7, two years ahead of the Government's projection.
It recognised that the funding system was designed to reward colleges for providing a better service to, students, "but we are concerned that colleges may have been seeking to maximise their income without necessarily providing more and better education."
There should be clear targets for growth, both locally and nationally.
The public accounts committee also said it was worrying that competition for students had led to a lack of co-ordination between colleges and the post-16 schools sector.
This might have led to colleges incurring unnecessary expenditure.
They welcomed the steps now being taken to promote greater collaboration between colleges and schools, and so improving local value for money.
They also say there is "significant untapped potential" for developing funding from outside the public sector and this should be exploited to the full.