Inverness College this week was warned by MSPs that while things may be going right, they are not yet right enough for the liking of the minders of the public purse.

The college has slashed its deficit but still faces a struggle to overcome long-term financial difficulties, which have led to compulsory redundancies. Brian Monteith, Tory MSP and audit committee convener, said the college projected a surplus of pound;94,000 in 2003-2004 but turned in a significant loss of pound;526,000, despite increased funding. Its deficit last July stood at pound;3.3 million, half of what it had been.

MSPs say they are concerned by the college’s failure to keep to its financial recovery plan. They are not convinced that the college’s development plan and financial forecasts provided “great reassurance”.

Management had previous plans to retrieve the situation but difficulties persisted.

Mr Monteith said: “We are looking for assurances that they can get themselves out of a hole.”

Professor John Little, the college’s chief executive, told the committee that the deficit was caused by unanticipated demand for construction and care courses and “low levels of efficiency in the deployment of staff”.

MSPs are now demanding assurances both these factors are being dealt with.

“The committee is concerned that it is not clear from the evidence how the college will reconcile its commitment to improve service and to control staff costs,” they say.

The committee also considers the plight of West Lothian and Lews Castle colleges.

It has been reassured by the newly formed Scottish Funding Council that it will bail West Lothian College out of its pound;11 million long-term funding gap, caused by a seriously flawed private finance initiative (PFI) contract that established the new building in Livingston. The short-term gap stood at Pounds 4.3 million.

West Lothian’s problems are compounded by the change in the Scottish Executive formula for funding students. When the PFI contract was sealed in 1999, projected student numbers were far lower than current demand.

MSPs note that increased support for West Lothian will be at the expense of others in the sector.

It is a similar tale at Lews Castle College in Stornoway, where an accumulated deficit of pound;1.4 million has been caused by remoteness factors. The funding council has told MSPs it will increase its allocation to take account of this.

Overall, MSPs remain uncertain whether improving financial health in colleges is due to extra funding or better management.