College ran into financial issues after 'poor planning'

Poor planning and over-optimism contributed to financial problems at one college, a report by the Scottish auditor general has found

Poor planning and over-optimism contributed to financial problems at one college

A failure to effectively plan for £400,000 of staff pay increases was one of the reasons a college ran into financial difficulties, the Scottish auditor general has said.

New College Lanarkshire received a £1.9 million advance from the Scottish Funding Council (SFC) last July after suffering cash-flow problems.

The college attributed its issues to lower than expected fee income and higher than anticipated costs around national pay bargaining, pensions and national insurance.

A report from the Scottish government’s auditor general, Caroline Gardner, said that the college's cash issues stemmed partly from not planning effectively for £400,000-worth of staff pay increases that resulted from the reintroduction of national bargaining in the college sector. 

Other factors included missing an “ambitious” tuition fee income target of £6.1 million by almost £1 million and its underlying deficit – which was £560,000 in 2016/17. A plan to reduce cost pressures - a condition of the SFC advance - has yet to be finalised.

'Colleges operate in narrow margins'

The report acknowledges that the college has taken steps to improve its financial reporting and reduce its estate and IT costs. The SFC has also agreed to provide the college with £1.1 million for a voluntary redundancy scheme.

Ms Gardner said: "Colleges operate in narrow margins and relatively small changes in income or expenditure can push a college from a surplus into a deficit position. New College's financial problems were caused partly by overly optimistic assumptions around tuition fee income, and partly by poor financial planning around cost pressures such as national pay bargaining.

"The college is continuing to work with the SFC to stabilise its financial position and I will be keeping its position under review."

A spokesperson for New College Lanarkshire said: “In 2015 the College was immersed in a challenging and complex merger as well as dealing with financial pressures. The College worked hard to improve its financial position and will continue to work closely with the Scottish Funding Council to deliver a sustainable business model for the future. 

“Since the merger, New College Lanarkshire has been named the ‘Best College in the UK’ at WorldSkills UK three times – showing our ongoing dedication to skills development and our students.”

'In a confident place now'

The Scottish auditor general also published an update report on Edinburgh College which has made "good progress" in reducing its deficit from £7 million to £2.5 million and exceeding its teaching and learning target for the first time since 2012's college merger.

Ms Gardner added: "It is imperative that the college now maintains momentum and continues to closely monitor its financial performance as it moves towards financial sustainability."

Edinburgh College principal Annette Bruton, who is due to retire in August, said: “We welcome Audit Scotland’s report, which recognises the vast improvements we have made over the last couple of years. We are in a confident place now, with a robust strategic plan that is continuing the progress already made and leading us to a sustainable future.

“Like the rest of the college sector, we must continue to carefully navigate ongoing financial pressures. However, our transformation programme means we are in strong shape to deal with future challenges. We’ve exceeded our recruitment target for the year and we’re working hard to continue the upward trend, with developments in our curriculum and student experience ongoing to keep improving our delivery of life-changing education.”

John Kemp, SFC interim chief executive, said the funding council has been providing support to both colleges to ensure the right outcomes for people they serve.

“It’s good to see the progress that has been made at Edinburgh College. New College Lanarkshire is working hard to address the issues described in the auditor general’s report,” he added.

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