TWO OF the 13 colleges named in last week's report by Holyrood's audit committee as causing funding chiefs concern were commended by the National Audit Office last year for their efforts in managing costs, it has emerged.
Perth and James Watt Colleges were singled out for special visits by the auditors to "inform development of characteristics of good practice", effectively setting the standards against which other colleges could be benchmarked.
"The audit committee report is quite bizarre and has left us bewildered," Mike Webster, principal of Perth College, commented. "We cannot simultaneously be a college causing concern and a model of good practice."
Perth is on the list of colleges whose accumulated deficit of more than pound;2.2 million represented 69 per cent of the total for the sector in 1998-99.
Parliament's spending watchdog was criticised for relying on out-of-date figures from the Scottish Further Education Funding Council, without contacting colleges themselves. Perth is actually shown as having an accumulated surplus of pound;665,000, although this is forecast to grow to a deficit of more than pound;1 million by 2002.
But Mr Webster said the college would almost certainly head that off because of a pound;1 million programme of spending reductions "which we put in hand before the funding council had ever heard of us. It was not a case of the funding council identifying us: we identified ourselves." The college had been given no help with its restructuring costs.
Terry Davies, principal of James Watt, said the college had suffered because of underfunding over four to five years, when it was going through a period of expansion, but was not fully rewarded for being able to attract more students. This was a result of the "safety net" under which the Government diverted funds to colleges at risk oflosing heavily in distribution of grant-in-aid.
"With the disappearance of the safety net and the increase in the overall quantum sum for the sector, it's a totally different ball game for us now," Mr Davies said. The college is forecasting a pound;204,000 operating surplus for the current year; its accumulated deficit, which peaked at pound;2.7 million in 1997-98, is set to fall to pound;1.2 million by 2002.
In another ironic twist, the funding council paid a "financial appraisal and monitoring" visit to both Perth and James Watt last term and appeared satisfied with what it found. "They gave us a clean bill of financial health and also gave us permission to borrow pound;2.7 million if we wanted to," Mr Webster said. "That's how bad they thought we were."
Aberdeen, whose accumulated deficit is forecast to rise from pound;3.3 million to pound;3.6 million this year, dismissed the figures as "not real deficits in the practical sense". It added in a statement: "They do not have to be covered from the college's annual income and do not involve the college spending more than it receives in income."
Aberdeen emerged from a benchmarking study last year as having the lowest unit costs of 350 FE colleges in the UK.
Rae Angus, Aberdeen's principal, said the deficits had grown because of a technical change by the Government in 1994, which required lifetime costs of pensions for staff who retired early to be included in budgets in a single year rather than the extra annual costs. "It's as if you took out a mortgage then, after the event, were required by your building society to cover it from a single year's income, but continue paying only your usual monthly payment.
"Moreover, this type of deficit is largely self-cancelling because, unfortunately, teachers and their spouses do die, and their pensions die with them."