Colleges' financial health is 'declining rapidly', says National Audit Office

Darren Evans

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Some 70 FE colleges could be rated financially inadequate by the end of the financial year, according to a new report published today.

The report, by the National Audit Office (NAO), highlights the rapidly declining financial health of FE colleges since 2010-11, when just 12 colleges were assessed as being financially inadequate.

In 2013-14 this had risen to 29. Depending on funding levels and colleges’ ability to reduce costs, this could rise to about 70 by 2015-16, the Skills Funding Agency (SFA) predicts.

The report says the situation reveals “fundamental structural problems” in the sector, which might require decisions at regional or sector-wide level.

It comes on the same day the government warned that “major reform” of post-16 institutions was needed to deal with the “significant” financial pressures they faced, necessitating a swtich to “fewer, larger, more resilient and efficient providers”.

The NAO report recommends that the Department for Business, Innovation & Skills (Bis) and the SFA take a strategic look at the implications of the rapid growth in the number of colleges in poor financial health, “bearing in mind that without advances of funds and additional grants some would be in an even worse position”.
It says the SFA has relied on financial forecasts produced by colleges, “some of which were not realistic”, and as a result has not detected some problems until a late stage.

Although it recognises that many colleges have made “tough decisions” to avoid financial difficulty while maintaining educational standards, it says this requires skills that are in “short supply”.

Offers of financial support to struggling colleges by the SFA have increased significantly since 2010, but most of the cash has not yet been repaid, the report reveals.

As of February, a total of £45 million in advance funding had been given to 13 colleges, but was intended to be repaid in the short term.

Amyas Morse, head of the NAO, said: “The FE college sector is experiencing rapidly declining financial health, and lacks a clear process to inform decisions about local provision.

“Bis and the SFA have taken steps to improve their analysis of risk in the sector, and to intervene more effectively in the colleges in most difficulty. But there needs to be more than a college-by-college approach. Until then, the oversight and intervention arrangements cannot be regarded as value for money.” 

A spokesperson for the Department for Business, Innovation and Skills said: “We are committed to developing a further education system which creates a productive, innovative and competitive workforce for the 21st century. The NAO report correctly highlights where we have already taken action to provide young people with the skills they need and to deliver greater value for money within the sector. Furthermore we are already implementing many of the report’s recommendations and will be going even further to strengthen the system by giving local areas a greater say over how and what young people are taught.”

An SFA spokesperson said “working to support colleges who find themselves in difficult financial circumstances” was a “proprity area”. “The SFA continuously reviews the necessary controls and management arrangements to protect the interests of learners and employers. We have recently reformed both our organisational structure and ways of working to increase the size of our intervention team to support the sector.

“We remain committed to protecting learner provision and investment of public money. This comes with the expectation that colleges, which are independent statutory corporations responsible for their own financial health, will work with us.

“Together with the FE commissioner and the Education Funding Agency, we will continue to mitigate risks by analysing the financial plans of colleges most at risk at an early stage, to establish whether they are sufficiently robust,” the spokesperson added.

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Darren Evans

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