SINCE further education colleges were freed from local authority control, they have been hitting the headlines for the wrong reasons. A litany of scandals - from Bournville, Derby Wilmorton and St Philips, through Stoke-on Trent to Halton, Bilston, and Cricklade - has been recited in The TES’s FE Focus. The indignation has been such that colleges even had their own column in Private Eye.

There have been tales of ghost students, dubious links with private providers and people receiving qualifications for what they would have been doing anyway.

Apparently easy money has been spent on inflated managerial salaries, overseas junkets and luxury developments. Mismanagement and weak governance have frequently been blamed. But has it really been the colleges’ fault?

On April 1 1993, the colleges, with little warning, were detached from their parent local authorities and loosed into a world of rampant competition. They were charged with becoming more entrepreneurial and imaginative. It was demanded that they should greatly expand while cutting costs. Under the rules laid down for them, income was to be earned by attracting and qualifying students.

Inheriting a variety of local authority payment methods, the Further Education Funding Council devised a radical new system. This involved the colleges accumulating very large numbers of small funding units, each worth only a few pounds.

This gave the funding council an amoeboid flexibility but it was supposed to be held in shape by the qualifications structure. Unfortunately, the FEFC had not reckoned with the reform of national vocational qualifications going on at the same time. Vocational qualifications were being dramatically recast. Their new format made no mention of training requirements or ground to be covered - only outcomes.

It does not take much imagination to spot the possibilities here. If, in this version of Monopoly, money is earned by qualifying people, then the key to success obviously lies in looking for large groups available to be qualified with little effort. If others would do the work for you, allowing you to retain the lion’s share of the proceeds, so much the better.

In this context, Halton’s registering of Tesco shelf-stackers, Bilston’s partnerships with operatic societies and brass bands, and South Devon’s venture into SCUBA diving make perfect sense. They were playing to the rules of the game. The rush to franchising should have been no surprise. The mission drift was a consequence of the perverse incetives.

Ironically, Halton was at first held up as the model of the modern college. It was said to be at the leading edge of innovation and enterprise. It was given favourable ratings by the FEFC’s inspectors. But it was eventually brought down by revelations of the excessive salaries of its principal and his deputy and their extravagant foreign travel.

Halton was not alone in exposing weaknesses in the checks and balances that had been put in place to ensure that the colleges ran healthily in the market place. But these accountability failings were a symptom rather than the cause of the malaise - which was in the framing of the rules.

The scope for the colleges going off the rails was exacerbated by the complexities of FEFC’s funding system. In itself it provided plenty of opportunity for creative thinking. Some of this was expressed in the “farming” of units to maximise income.

In spite of the opprobrium attached to a few colleges, the great majority have bedded down reasonably well as a new sector to match the schools and the universities. The experience of the FEFC does, however, contain important lessons for the Learning and Skills Council which is soon to supersede it.

The first is to keep the funding mechanism as simple as possible. In distributing public funds there has to be a trade-off between accommodating diversity and ease of application, but the FEFC erred on the side of complexity. Its mistake was to have a basic unit so small that many thousands had to be gobbled up to cover the running costs of a typical college. The LSC should work with a much larger unit, which would be easier to keep an eye on.

The second is the linkage to qualifications. This will, in any case, have to be re-thought since the old schedule 2 distinction between courses leading to formal qualifications and more informal education is to be abandoned. But it will require considerable subtlety on the part of the new council to ensure that the money goes to a course that is a stepping stone to a higher qualification. A more strategic view of what is to be supported may be the answer.

Since the remit of the LSC is wider than that of the FEFC, embracing as it does a re-branding of lifelong learning, the challenge facing it will be the greater. It is important that the council’s policymakers understand the underlying reasons why some colleges “failed”, and do not assume that putting things right is merely a matter of tightening up on governance and management.

Alan Smithers is the Sydney Jones professor of education at the University of Liverpool. His book, Further Education Re-Formed, edited with Pamela Robinson, is published by the Falmer Press this week.