The council has a target that all further and higher education institutions should be financially secure by the end of July next year, and Roger McClure, its chief executive, says “steady progress” is being made towards that goal.

The figures show that 33 of the 42 incorporated FE colleges reported underlying operating surpluses for 2003-04, up from 26 in 2002-03. Nine colleges reported a deficit, against 11 forecasting one in June 2004.

A circular to colleges stated: “We are continuing to work with the senior management and boards of management of colleges which still face some challenges in achieving financial security.”

But the position at individual colleges varied widely: 27 recorded better than expected net cash balances, ranging from pound;4,000 to pound;1.4 million, while 15 recorded worse than expected balances, from pound;29,000 to Pounds 1.3 million.

The FE sector is reported as being “generally liquid”, with cash reserves averaging 45 days before the money runs out.

But the funding council makes it clear that not all colleges are able to see the financial wood for the trees. “In a few instances, colleges experienced significant adverse variances in their out-turns, compared to the forecasts provided. This highlights the vulnerability of individual colleges to sudden swings in their financial position which only come to light after the period end,” it states.

“Given the generally modest levels of surpluses forecast by most colleges, this emphasises both the importance of robust financial information systems and forecasting, and the need for boards of management and finance committees to assure themselves about the quality of the periodic financial forecasts and other information that they receive.”

The council defines financial security as “a college or higher education institution that, taking one year with another, is able to generate a surplus on their normal operating activities and accumulate a modest level of reserve”.