The UK's fastest-growing training provider, which last week was defended by the National Apprenticeship Service (NAS) over criticism of the quality of its retail courses, paid a director nearly pound;3 million last year and has used company funds to buy family homes worth pound;6 million.
Elmfield Training receives the majority of its income from taxpayers' funds administered by the Skills Funding Agency (SFA) and it operates apprenticeships and other training courses for companies from Morrisons supermarkets to Vodafone. Last year, it generated more than pound;12 million profits on a turnover of about pound;33 million - a profit margin of around 36 per cent.
It used the profits to pay a dividend of pound;3 million to shareholders as a result. As the owner of 95 per cent of the shares, director Gerard Syddall was the main beneficiary. And at the end of 2010, the company also took out mortgages on three homes: a detached house in St Helens worth pound;800,000; a Cheshire farmhouse and land worth pound;4.3 million; and a house near Stoke-on-Trent worth pound;800,000, which is next to Mr Syddall's own home.
This is not the first time that the training company has used its income to buy residential property: Land Registry records also show that in 2009 it took out a mortgage on a pound;675,000 farm house, whose previous owner was Mr Syddall. None of the properties corresponds to the company's six offices and some of them include restrictive covenants, which prevent them from being used as anything other than a family home, except for offices allowed as an "ancillary" use for people living there.
To put Elmfield's profits in perspective, one of the largest private training providers, JHP Group, made a profit of about 14 per cent of its pound;62 million turnover last year. TES understands that the Department for Work and Pensions, for example, unofficially assumes a profit of about 10 per cent in its welfare-to-work programmes.
Elmfield defended its use of public funds, saying it had reinvested pound;2 million last year to create academies helping the hardest-to-reach young people back into work and that it is spending a further pound;2.5 million this year. It said its profit margin was expected to be 15 per cent in 2011.
But the company declined to explain why it had invested so much money in residential property. "As a private company the board is responsible for sound financial stewardship, ensuring that any investments or assets acquired contribute to a resilient balance sheet and are consistent with good corporate governance," a spokesman said.
The size of the private wealth amassed as a result of a publicly funded programme appears to have created some unease among FE officials. NAS chief operating officer David Way said that the level of profits had "attracted public attention, and attracted our attention" and that Elmfield may be expected to increase the number of apprenticeships it provides or receive less funding.
However, the SFA declined to confirm that it was addressing the issue of excessive profits, saying only that it "understands Elmfield's financial position", but that private providers were entitled to use profits as they saw fit.
"We are currently meeting with all providers, including Elmfield, to ensure that their provision responds to national strategies and challenges and meets national standards," an SFA spokeswoman said.
The NAS is also concerned that providers are marketing themselves to employers as a way to gain public funding for existing training, rather than creating new provision. Elmfield's frequently asked questions for employers include: "I already have an induction and training scheme in place. Can I get support for that?" The answer is: "We take a look at your current training provision and map it against national standards to determine how we can help and whether government funds are available for you. We advise you on what you need to do to adapt your current training."
The NAS said the company was expected to alter its message to employers to encourage them to add new training schemes. "They have undertaken to address these concerns and ensure that promotional messages on their website reflect that public investment in skills should generate additional high-quality training that meets national standards," a spokeswoman said.
Private training providers in general said they had no objection to the funding agencies reviewing terms with providers to address excessive profits.
"We don't have an issue with the NAS reviewing the terms of a contract with any provider if there is firm reason to believe that the previous terms may have been unduly generous in relation to the type of framework being followed," a spokesman for the Association of Employment and Learning Providers said. "At the same time, it should be recognised that some providers are more efficient and offer a higher quality of learning than others, so margins will inevitably vary between providers."
WHERE THE CASH GOES
The apprenticeship budget for this year:
Under-19s - pound;799m
Adult - pound;605m
20023 - 170,000
201011 - 442,700
The numbers of apprentices grew by 57% in the last year alone
The largest growth was in business, administration and law, information and communications technology, and retail and commercial enterprise
Over-25s account for 75% of the growth of apprenticeships. Some 70 per cent of this group are already in employment.