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College in 'crisis' after entrepreneurial failures

Failed money-making schemes and a high-risk financial strategy led to cashflow problems at Northumberland College

A college got into financial difficulties after its money-making schemes failed, says the FE commissioner

Failed money-making schemes and a high-risk financial strategy led to cashflow problems at Northumberland College

Northumberland College found itself in the grip of a “rapidly escalating cashflow crisis” after embarking on a series of risky “entrepreneurial activities”, a report by the FE commissioner concludes.

The intervention, triggered by concerns raised by the Education and Skills Funding Agency over the college's finances, declining achievement rates and dropping learner numbers, highlighted the consequences of the college’s “high-income growth strategy which has involved a significant degree of risk”.

The college, rated "good" by Ofsted in 2017, initiated a “wide and varied range of initiatives in order to sustain its position”. These included setting up a career college, a recruitment agency, a MOT and service centre, leisure learning courses, and developing its Kirkley Hall premises as a multi-use site. “A number of these initiatives have contributed to the college’s financial decline,” the report states, with several of them appearing to be “losing money” and “are in the process of being terminated”.

The college also set “wholly unrealistic” growth targets for income from the apprenticeship levy and European Social Fund.

College's 'cashflow crisis'

“At the same time,” the report continues, “the college has made significant and necessary investment in its estate, which has resulted in high levels of borrowing and declining cash reserves.

“The college’s risk-management processes have failed to alert the college to a rapidly escalating cashflow crisis and its lack of financial resilience.”

Matters came to a head earlier this year, the report from the office of FE commissioner Richard Atkins states. “The college failed to identify a looming cash shortfall until January 2018, which resulted in last-minute negotiations with the local authority to defer contractual repayments of loan principal and interest.”

'Major staff restructure'

The college recorded a “substantial shortfall in income” and an operating deficit in 2017-18, with another decline in turnover expected for 2018-19.

“In recognition of this, the interim principal has moved quickly and decisively to implement a major staff restructure, which is now largely concluded,” the report states. “This should deliver a net reduction in pay expenditure.”

The commissioner highlights the “insufficient strategic oversight” by the board, and adds: “Senior and middle managers were candid that quality has not been sustained and has, in fact, been deteriorating over the past few years, to the extent that approximately 50 per cent of apprenticeship provision falls below minimum standards.” There is “emerging predictive evidence” that the year-on-year decline in achievement is being “arrested”, the report adds.

Case for college merger

The report concludes that the “new, largely interim, senior team at the college has made significant progress to address a range of quality improvement concerns”. It adds: “It is too early to assess the impact of these measures. However, staff are feeling positive about the changes and the improved level of communication around the college. Staff feel that they are communicated ‘with’ rather than ‘at’.”

It also recommends that the college “consider the case for structural change such as merger”. In 2011, the college pulled out of a planned merger with NCG.

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