Rural colleges with a lot of older students are more likely to have money problems.
NEARLY 60 colleges in England, 13 per cent of the total, are in poor financial health, Sir John Bourn, the Comptroller and Auditor General, reported to Parliament yesterday.
Although the situation is improving - in 1997-98 more than a fifth of all colleges were financially weak - Sir John said the number was still too high.
The median length of time for a college to have money problems is 2.6 years.
The National Audit Office carried out a representative survey of 138 colleges in both good and poor financial health to identify differences in their financial management, costing policies and use of benchmarking. They visited six pairs of colleges, similar apart from the state of their finances, to identify differences in management.
They also visited three colleges that had overcome their problems to identify the key factors in their improvement.
They found that some factors had no effect on a college's financial situation.
These included the size of the college; whether it was in Greater London; and whether it had a high proportion of students from deprived areas.
But factors that were important included the type of college, the type of students, and the size of the college's home town.
Agricultural and horticultural colleges were much more likely to be in poor financial health - they had higher fixed costs, more students dropped out, and their courses were more costly to run.
Sixth-form colleges were more likely to be well-off. They had higher rates of funding and staying on, a more limited range of courses and fewer expensive ones. They were less likly to have inherited a deficit on incorporation.
Colleges with more older students are significantly more likely to be in poor financial health because mature students have a tendency to drop out in greater numbers.
Colleges in large towns - with populations of between 50,000 and 200,000 - were generally healthier than those in cities or small towns. One college, which inherited several problems after incorporation, such as a large deficit and 14 buildings in poor condition had taken six years to turn itself round.
There was a very strong statistical correlation between the financial health of a college and the inspection grades received for governance and management.
The NAO survey found that about 80 per cent of colleges had undertaken benchmarking, to compare their costs with others. Colleges in good health were more likely to have undertaken this exercise.
When one college developed financial problems it asked the funding council for the names of colleges with similar characteristics so that it could monitor its performance to assist its recovery.
David Melville, council chief executive, welcomed the report. "We would like colleges to make more use of benchmarking comparisons to identify the means and scope for financial improvement. We will be actively promoting groups of colleges as 'benchmarking families' in the future.
"Through this initiative we will continue to put colleges into contact with others with a similar profile... however, the success of this initiative depends on reliable and prompt data from colleges."
Managing Finances in English Further Education Colleges. Available from the Stationery Office. 0845 702 3474.