The all-party audit committee of MSPs, in a unanimous report issued on Wednesday, recommended a “root and branch” review of the colleges in order to reverse their financial difficulties, to be completed by December 31. This will also involve improving college management and rationalising FE provision.

Andrew Welsh, the committee’s SNP convener and a former FE lecturer, said: “I am determined that we are not going to produce reports to sit in pigeon-holes. If we recommend action, we want to see the fruits of that action.”

But he stressed that the committee “is not just taking a negative approach, leaving people quaking in their shoes. We also want to stimulate best practice.”

Members had been alarmed to hear from the Scottish Further Education Funding Council last September that college deficits had shot up from pound;2.9 million in 1993-94 to more than pound;22 million in 1998-99. Thirteen colleges accounted for 69 per cent of the sector’s deficit.

The funding council would not name these colleges at the time but the audit committee insisted on identifying them in its report. They are: Aberdeen, Bell, Clackmannan, Clydebank, Inverness, James Watt, Langside, Lews Castle, Moray, North Glasgow, Perth, Reid Kerr and South Lanarkshire.

Tom Kelly, chief officer of the Association of Scottish Colleges, commented:

“If the committee took evidence from the colleges now, which they should also have done last year, they would get a much more reassuring picture. Some of the colleges identified will have turned the corner, although others will still be in intensive care.”

The committee expects the funding council to review the recovery plans of the weakest colleges and report back by the December 31 deadline. The SFEFC has also been instructed to complete its various reviews of the sector by the same date.

The funding council points out that it has a number of the issues identified by the committee well in hand. The report of its college management review is to be sent to ministers in May. In addition, all colleges will be visited by the end of July to assess their financial health and management controls, 30 colleges are to be visited to look at the adequacy of their estates management and a survey of college building stock is due t be completed by the end of March.

The SFEFC will begin consultations in March on a strategy for information and communications technology, another priority identified by the audit committee. The council has also commissioned a study of student supply and demand.

Despite this array of activities, MSPs want the council to act “quickly and decisively” to clear up the financial turmoil. Particular attention should be paid to “the scope for rationalisation and reduction of duplication between institutions”.

Mr Welsh said overlap between courses also had to be reduced. “Restructuring should be as sensitive as possible. It should be based on what our report calls ‘flexibility’ and ‘appropriateness’ and involve the widest consultation. The aim all along should be to bring about improvements in quality because we are dealing with an education service. This is also the purpose of ensuring improved financial management.”

Mr Kelly is sceptical about rationalisation moves. “No college runs courses for which there is absolutely no demand from students and which employers do not want.”

Mr Welsh acknowledged that the colleges’ legacy of debt had built up as a result of the twin pressures of increasing student numbers and a squeeze on funding, and he paid tribute to the efforts made to overcome these problems. But the deficits also reflected “variations in management practice and capability across the whole sector”.

The ASC suggests, however, that the audit committee completely ignored not just the effects of past underfunding but of a funding formula which has been extremely volatile, rewarding some colleges at the expense of others depending on average growth in the sector as a whole. “You cannot have financial stability if there is no predictability,” Mr Kelly said. The funding council is currently looking into this issue.

The MSPs recommend more extensive benchmarking so colleges can pinpoint where costs and performance are out of line with others. Performance indicators should also be developed but these should be a “balanced scorecard”. Mr Welsh said he was none the less “wary of setting up hoops for the sake of it just so people could jump through them”.

The financial drama in FE has continued despite an extra pound;214 million from the Government over the three years to 2002, one of the outcomes of the Treasury’s comprehensive spending review. But the colleges claim this is to pay for additional obligations, although pound;56 million is earmarked to correct “historic underfunding”.