Today, the Department for Education published Dame Mary Ney’s independent review of college financial oversight.
In her review, Dame Mary characterises the relationship between government and the sector as one “largely focused on financial failure” and which “inhibits colleges being transparent with government”. The review sets out a range of recommendations, which you can read in full here.
We have collated eight key points from the review:
Weakness in leadership
Dame Mary says that failures of financial stewardship have at their core weaknesses in leadership and poor adherence to effective governance arrangements. She urges the government to shift its relationship with colleges to have a greater line of sight on the strength and weaknesses of governance arrangements in individual organisations. The government would then be able to support early corrective action, she says.
News: Ney review on college financial oversight published
Background: DfE to review how it monitors colleges’ finances
More: Hadlow College placed into education administration
Current measures alone are not enough
Dame Mary says that although the Education and Skills Funding Agency and the FE commissioner have a wide range of tools for oversight and intervention in the financial position of colleges, “tackling the high and persistent levels of financial instability is unlikely to be achieved through current measures alone which are essentially responsive to failure.”
The five factors of failure
She says that in any sector, there will be incidents of irregularity and fraud, but that the ESFA’s own analysis on the circumstances around failures in financial health point to the following financial factors:
- Complexity in estimating learner numbers in a competitive market and tendency for over-optimism of forecasts, which leads to cash flow difficulties, which in turn leads to the need for bank loans.
- Complexity of funding streams.
- Financial restraint over the past decade.
- Cost of estates and lack of access to capital funds.
- Potential insufficiency of skilled leadership at executive and board level to meet the challenge.
Lack of trust around intervention
Dame Mary says that there was a lack of confidence and trust around college intervention, due to the perceived inflexibility and tick-box approach of the intervention regime.
“While there are reports of a positive and helpful relationship from some who have experienced intervention, others commented on a lack of experience and skills to proactively contribute and a tendency for the department to act as observers and critics rather than participants in recovery,” she says.
Excessive periods of intervention
At the time of writing, 21 colleges had been in intervention for more than 20 months. Dame Mary says that excessive periods of intervention create great uncertainty and “have a significant impact on colleges with the potential to divert board and management capacity, destabilise recruitment and retention of quality staff, demoralise the workforce, impede recruitment of learners, and undermine value for money procurement”. She calls for flexibility to provide ongoing special funding solutions in very exceptional circumstances.
ESFA territorial teams
Each college currently has a named liaison worker from the ESFA territorial teams - but Dame Mary says that these workers tend to only have an active role in colleges who are already in intervention. She says that this means they do not have a “line of sight” to early signs of potential weaknesses.
She says: “Generally, there is no line of sight of the functioning of boards and audit committees; there is not an in-depth assessment of the quality of management accounts and financial planning; there is no scrutiny of governance or counter fraud policies; and there is no discussion around curriculum planning, trading/commercial activity, estate management, risk management, partnership working and whether the college is supporting the needs of local employers or the economy.”
Granular understanding of circumstances
Dame Mary says that colleges are identified to be placed in intervention categories “largely on the basis of remote data analysis and without the benefit of a more granular understanding of the circumstances of the college.”
She says that the lack of capacity for a preventative approach combined with a prescriptive “tick-box approach” to categorisation with little scope for flexibility may be pushing some colleges into early intervention unnecessarily and delaying timely exit. However, greater flexibility and a proactive approach could have provided an earlier and more granular understanding of college circumstances and prompted action to mitigate difficulties.
Forward financial planning
She says that there were concerns about the forward financial planning capability of colleges. Dame Mary says this is due to uncertainty on learner numbers arising from the range of local providers and complexity of funding streams leading to diversity of data requirements to capture and reconcile learner numbers as well as variable 21 arrangements for payment of income.
She says: “When introducing new funding arrangements it would be beneficial for implementation arrangements to be scrutinised from the college perspective to ensure alignment with their financial planning and management of cash flow and to avoid perverse impacts.”
