You neglect finance at your peril. If you don't appoint a trained accountant to your senior management team, you risk the wrath of the inspectors when things go wrong. Neil Merrick reports.
Colleges could not survive without money and yet, incredibly, some still try and manage without a properly qualified finance professional. The number of FE institutions without a director of finance or a similarly qualified person in their senior management team is thought to be fairly small. Some appoint finance managers or officers who report to a vice or deputy principal, who may also have accountancy qualifications.
Yet the plethora of cases where colleges have run into serious financial trouble in the past 18 months has highlighted the importance of a college making the most of its financial expertise.
At least some colleges that ran up huge debts were later criticised by Further Education Funding Council inspectors for excluding finance staff from senior management meetings. The status of finance directors and managers is also likely to be the subject of keen debate later this year when the National Audit Office publishes a new troubleshooters' guide for colleges hoping to avoid the same pitfalls.
By law, it is entirely up to colleges who makes up a senior management team. The only positions that must be identified and filled are principal or chief executive - officially the "accounting officer" - and that of clerk to the governors.
Neither the Further Education Funding Council nor any of the professional associations hold accurate data on exactly who sits on senior management teams. Pay Skills, the body that carries out the Association of College's annual pay survey, tried asking the question for the first time this year but was frustrated when many colleges failed to provide complete answers.
According to John Wood of Pay Skills, the absence of a finance director from a senior management team does not mean that a college is not taking financial prudence seriously. "It's not an either-or answerI" he says. "Just because a college has a vice or assistant principal (in charge of finance) does not mean that person is not qualified as a certified or chartered accountant. Some employ technicians rather than chartered staff at operational level."
Yet the link between colleges that run into financial problems and the absence of qualified accountants from senior management posts appears to be more than coincidental.
* Gwent Tertiary College, which made an operating loss of pound;6.8 million in 199697, had failed to appoint a director of finance to its senior management team until December 1996 - 10 months after embarking on a fundamental management restructuring scheme which led to the cash crisis. The National Audit Office criticised the way the director was excluded from initial planning and detailed development.
* Bilston Community College, which ran up debts of pound;3.7 million in 199798, also excluded its head of finance, a qualified accountant, from the senior management team. FEFCinspectors reported: "The college's financial planning and monitoring has been imprudent."
* Isle of Wight College ran into serious financial difficulties in 1998. It was criticised by inspectors for not appointing qualified accountants at a senior level (see story overleaf).
According to the FEFC, 18 per cent of colleges were financially weak in 1996-97. A further 33 per cent were considered vulnerable, while 49 per cent were in "reasonably robust" financial health. The proportion that were financially weak was down 4 percentage points from the previous year - partly due to mergers and efforts to improve solvency.
Some colleges have nevertheless learnt from experience. After initially trying to struggle on without senior finance professionals when they left council control in 1993, they have since made finance staff integral parts of their management structures.
Touraj Darbandi recalls how governors' "eyebrows were raised" when he was appointed director of finance at Rother Valley College in Sheffield in 1994. Some did not understand why finance could not be covered by an assistant or vice-principal; others thought the college needed stronger financial control.
"It's important directors of finance attend all governors meetings where finance is being discussed," stresses Mr Darbandi, vice-chairman of the College Finance Directors' Group.
Richard Allanach, an assistant director at theFEFC, says the proportion of finance directors reporting directly to a college principal has "shot up" since incorporation. "It's quite rare not to find a qualified accountant in a college. It is less rare to find a finance manager who does not report directly to the principal, but they're only a small minority," he says.
This distinction concerns the College Finance Directors' Group. Peter Lennard, its chairman and director of finance at Soundwell College, Bristol, believes the law should require colleges to appoint senior finance professionals rather than leaving it to principals or governors.
The idea behind making the principal a college's accounting officer, he says, was to ensure he or she did not abrogate responsibility - not to suggest managers do not require the highest quality financial advice. "A finance manager may not be on the senior management team, and that is where some colleges have got into trouble," he adds.
Bernard Smith, general secretary of the Association of Principals of Colleges, believes principals recognise they must appoint competent finance professionals to advise on budgetary matters. "Whatever you call the person, the important thing is they are not just a book-keeper but someone who gives some financial direction and provides a strategic view on where the college is going," he explains.
But Mr Lennard thinks the appointment of a finance professional should be properly regulated. "We're concerned there is nothing formal which says colleges should have a qualified finance person, and that they should be part of the senior management team."