Anti-fraud drive turns spotlight on auditors;FE Focus

14th May 1999 at 01:00
The question on everyone's lips: why were mismanagement problems not spotted sooner? Jon Slater reports

IN the war on college mismanagement, the spotlight has shifted from principals and governing bodies to college auditors.

The sheer scale of the problems at Bilston, near Wolverhampton, and Halton in Cheshire have left politicians and the Further Education Funding Council asking why problems were not spotted and stopped at an earlier stage.

Deloitte amp; Touche's auditing of Halton college was branded as weak and ineffective by Michael Bichard, the top civil servant at the Department for Education and Employment.

The department is encouraging the college to sue for compensation and is planning to tighten up auditing arrangements for all colleges. The situation is an embarrassment for the "big six" accountancy firms who carry out 80 per cent of college auditing.

The six include three of the biggest names in accountancy - PriceWaterhouseCoopers, KPMG and Deloitte amp; Touche. The other main players in the FE number-crunching line-up are Robson Rhodes, Bentley Jennison and BKL Weeks.

PriceWaterhouseCoopers is already under fire for failing to intervene earlier in the collapse of the Maxwell empire and the Bank of Credit and Commerce International. A report into the collapse of businesses owned by the Maxwells concluded that there were "shortcomings in both vigilance and diligence" by the auditors who "lost the plot."

Last month the Government announced a new regulatory framework designed to ensure proper auditing standards in the private sector.

However, auditors are traditionally unwilling to take on responsibility for detecting fraud. A survey by accountants Ernst and Young found that more than half of fraud cases are discovered purely by chance - fewer than one in 10 are brought to light by the auditors.

Fraud detection in colleges cannot have been helped by the fact that 170 colleges - more than a third of the total - employ the same internal and externalauditors.

The practice thrived because firms bidding for both contracts were able to offer their services to colleges at a lower cost. This was especially true in rural areas where travelling pushes up costs.

After Halton, however, the Government was forced to stop the practice - preventing firms from bidding to be both internal and external auditor. Existing contracts (usually for one year) will be allowed to run their course. However, under the new arrangements colleges could be audited up to five times in a single year.

They will have separate internal and external audits and an audit of student numbers by the FEFC, as well as audits for TEC funding and the European Social Fund.

Jim Donaldson, FEFC chief inspector said he welcomed the tightening of audit arrangements but pointed out that the logistics would be "tricky".

If the rules are tightened too far, the larger auditing firms could decide that college contracts are not worth their while. Deloitte amp; Touche, PWC and KPMG are multinational companies to whom further education is little more than a sideline.

PWC, for instance, employs around 150,000 people in 150 countries. As well as auditing the firm provides tax and legal advice, management consultancy and financial services.

By contrast further education is a significant part of Robson Rhodes' business. Auditing makes up about half its business, with around half being public sector work. College work is also important for Bentley Jennison and BKL Weeks. Mr Donaldson hopes that the auditors will not be put off by the new arrangements, but added: "The fees which audit companies receive are not massive."

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