The Scottish Further Education Funding Council has intervened to save 13 colleges. Six to eight are in particularly serious financial straits, and Inverness and Lews Castle College in Stornoway are known to be among the latest victims.
The volatility in the sector was underlined when it was revealed that the pound;15 million deficit forecasted for last year by the National Audit Office in June had shot up to pound;22.6 million.
John Sizer, chief executive of the funding council, declined to reveal the names of the 13 rocky colleges when he appeared before the audit committee of MSPs on Tuesday. But he agreed to pass details in writing to the committee, the Parliament's spending watchdog.
The 13 colleges represented 69 per cent of the operating deficit in the FE sector, Professor Sizer said. But he warned: "I have no money to bail out these colleges." They would have to plan their way forward, with council support.
The SFEFC chief executive painted a gloomy picture of further education as "a sector which is effectively overtrading."
He added: "There has been some improvement in the financial health of the colleges in terms of income and expenditure. But their liquidity and balance sheets are not strong and they are not generating surpluses to keep their assets intact."
The MSPs were following up June's report from the National Audit Office which revealed that 40 of the 43 colleges were forecasting deficits totalling pound;15 million for 1998-99, compared with pound;4 million in 1993-94.
The report concluded that cost controls were not strong enough, operating deficits were increasing, and there were huge variations in unit costs.
The committee was cautioned, however, against taking headline deficit figures at face value. Eddie Frizzell, the senior civil servant in charge of the Scottish Executive's enterprise and lifelong learning department, said one-off costs from restructuring and payments to departing staff had exaggerated the scale of the problem. College accounts for each year are also required to show ongoing pension payments to former employees.
But Brian Adam, an SNP member of the committee, questioned the reliability of the forecasting. He wondered whether any faith could be placed in the latest estimate of an pound;11.8 million deficit by the end of the current 1999-2000 financial year, when last year's figure had to be revised so dramatically.
Mr Frizzell replied that pound;10 million of last year's pound;22.6 million deficit was unforeseen. Officials explained later that the NAO calculations were based on college forecasts posted before the Government stepped in with a pound;2 million sweetener to encourage "restructuring" - which led to redundancy and pension costs for the colleges.
Professor Sizer outlined the measures the SFEFC had already put in place to tackle slack accounting and management practices. He also assured MSPs that the council's review of the funding methodology would produce a change from the present formula which was "complex, retrospective, volatile and unpredictable." The new formula would allow colleges to plan ahead on the basis of existing, not historic, student activity.
Professor Sizer said colleges were now more conscious of the need to collaborate rather than compete, although he knew of none that were now engaged in merger talks.
He hinted, however, that Glasgow had too many colleges - 10, compared with three in Edinburgh and a single large one in both Dundee and Aberdeen.
But despite the problems afflicting the FE sector, Professor Sizer and Mr Frizzell said colleges had achieved a great deal since incorporation.
Professor Sizer added that many people found themselves in management positions doing a job, including "significant downsizing," which they had not been prepared or trained for.
He said the NAO recommendations would be taken on board in the funding council's management review, which they expect to pass on to ministers by May.