FURTHER education colleges in Wales were close to financial melt-down before the National Assembly for Wales boosted their funding, a report from the Auditor General in Wales says.
When the colleges were questioned earlier this year, more than half of the 28 institutions in Wales were expecting to be in financial deficit by the academic year 2001-2, and the FE sector was facing an overall operating deficit of pound;6 million in the same year.
Assessments by the Further Education Funding Council for Wales showed that 28 per cent of the institutions were facing an immediate deficit - double the number in 1997.
The report has been published after years of efficiency savings imposed by the Welsh Office on colleges since incorporation in 1993. At the same time student numbers have risen to 190,000.
However, the assembly recently earmarked an extra pound;840m for education over the next three years, of which the FE sector will get a substantial share.
This has eased the crisis, although colleges expect student numbers to rise by a further 28,000 during that time.
The Auditor General's report was due to go before the assembly's audit committee members who were to question FE and funding council representatives.
The report follows up visits and questionnaires carried out two years ago in which many concerns were raised over financial management, strategic planning and governance issues.
The auditor's team revisited the eight colleges earlier this year, and their report notes many improvements, particularly in strategic planning and control of staff costs. However, in four colleges the follow-up visits identified only limited progress in financial reporting arrangements.
The funding council for Wales faces criticism for identifying institutions already in financial difficulties, but being less than successful at spotting colleges heading for problems.
The report says the council should review its financial monitoring and produce comprehensive reviews every academic term of each college's overall performance.
The council is already working towards these recommendations, clarifying for colleges what constitutes potential problems, and introducing monitoring arrangements for a formal performance review twice a year.
The colleges are urged to re-view their financial management, to produce monthly financial reports and to ensure internal auditing is working properly.
They should also review the extent to which their governance arrangements reflect best practice, such as in the selection of governors, their training and declaration of their interests, and in the way monitoring and appraisal of the performance of college principals is carried out, says the report.
Chief executive of the Welsh Funding Council, Professor John Andrews, said he was pleased with the progress made by colleges. He added that both the funding council and colleges had gone a long way towards realising the National Audit Office's recommendations.
"The colleges have worked very hard to maintain their financial health during a quite severe squeeze on funding. Now that we have an improved financial settlement, the sector looks set to record a surplus for 1998-99 and to maintain this position over the next few years," he said.
"This should give us room to take forward the very important agenda which the National Assembly for Wales is setting for FE institutions in Wales."
Coleg Menai in Bangor, Gwynedd, was one of those visited by the audit office. Its principal, Dr Haydn Edwards, said the report was generally positive and would be helpful to the sector.
"It has highlighted areas we needed to improve on but it has also shown examples of good practice in the sector and that is a useful feature of the report," he said.
Dr Edwards said the report was right to highlight the financial plight of the colleges.
"We welcome the additional support that is currently being provided by the national assembly because the sector had real problems due to the financial constraints restricting us. We are a lot more optimistic."