But, in a report on how well the Scottish Further Education Funding Council assesses the performance of colleges, Audit Scotland urges the council to do even more. In particular, more reliable information is needed on comparative student costs and student retention.

The overall message, according to Robert Black, the Auditor-General, is that “the funding council is steadily improving the performance information which will demonstrate to the Scottish Parliament whether further education colleges are delivering against key priorities”.

Evidence of improvements led by the council is the turning of a pound;16 million operating deficit in the sector in 1999-2000 into a pound;2 million surplus in 2001-02, although accumulated deficits reduced more modestly from pound;15 million to pound;12 million.

Colleges have also exceeded ministerial targets for additional FE places, set at 10 per cent for 2001-02 but which reached a 25 per cent increase.

The council uncannily anticipated the audit report only last week when it published the first ever set of quality indicators on how well colleges are doing by their students. The first financial “league table”, allowing comparisons to be made between colleges in similar circumstances, was issued in July.

The Audit Scotland report, published yesterday (Thursday), analyses the funding council’s own effectiveness against how reliably it is informed about the way colleges implement the Scottish Executive’s priorities for FE. These cover four areas - providing “skills for tomorrow’s jobs”, enhancing quality, widening access and improving financial health.

The one weak area identified by the auditors is information on whether colleges are matching skills with jobs, although they recognise this is a more complex priority. The funding council has been attempting to do so through researching the supply and demand for FE. It now plans to refine this exercise and repeat it every two years.

The audit report notes: “The plans . . . should result in a more rounded suite of indicators.”

The report suggests, however, that the funding council finds it easier to take action in some areas than in others. Grant conditions and penalties, for example, can be imposed where colleges fall below expectations in areas such as the volume of student activity or the quality of a college’s work.

But, the report adds, “for other areas such as college efficiency and colleges’ contribution to strategic objectives, the framework for influencing colleges and holding them to account is less clearly articulated and there is scope to improve this”.

Audit Scotland also found, surprisingly, that it is not possible to compare FE in Scotland with the rest of the UK because of differing ways of measuring performance: student activity in Scotland is measured on the basis of course hours, for instance, whereas in England it is based on full-time equivalent students.

The funding council has no plans to make such comparisons but the Audit Scotland report urges it to make a start.