That was the positive if rather uncontroversial conclusion of a National Audit Office report whose findings were published as well-documented problems emerged at Derby College, Wilmorton, and St Philip’s Sixth Form College in Birmingham.

Many observers saw the National Audit Office’s central recommendation that all FE colleges should establish a register of governors’ interests as an indication that all is not well in FE. Similar recommendations have been made by the Association for Colleges and the Colleges’ Employers’ Forum.

But while the sector must be seen to be on its best behaviour following the inquiries at Wilmorton and Birmingham, the two colleges are almost certainly the exception rather than the rule.

The NAO found that most colleges were initially cautious following incorporation and controlled spending. Most had secure systems of financial controls, although a few experienced significant problems. The Further Education Funding Council’s audit service could rely upon the work of most colleges’ internal auditors, it said.

This generally healthy picture is also reflected in reports made by the FEFC inspectorate. Two-thirds of colleges inspected during the first 12 months following incorporation received either grade 1 or 2 for governance and management. Just 5 per cent received grade 4 and none was allotted grade 5, the bottom grade.

Yet there is no cause for complacency. Last month the FEFC published a circular on how the council should conduct its business, including draft codes of corporate responsibility and individual conduct for members. It is set to be followed soon by separate statements from the AfC and CEF covering the actions of governors and college managers.

John Brennan, the AfC’s director of policy development, says the sector felt it had to be both transparent and accountable, but that did not mean there were widespread problems. “There are a few isolated examples which have been well publicised but they are not typical,” he says. “A general debate has been going on about public service and we ought to adhere to standards that are seen to be publicly acceptable.”

In spite of events at Derby College, where governors failed to declare an interest in firms contracted to supply goods, the National Audit Office failed to identify significant conflicts of interests at other institutions. Nevertheless, the NAO proposed that governors should declare all directorships, significant shareholdings and memberships of professional bodies.

A draft report by the AfC’s ethics committee, which is likely to form the basis of a future policy statement, says governors may have interests in the working of the college which arise out of their personal life or membership of other groups. Registers of governors’ interests should be available for inspection by “interested parties”, it says. Mr Brennan confirms this will include members of the public - “they should know that governors are not pursuing a course of action because they are directors of a company or professional interest is involved.”

CEF chief executive Roger Ward says it is “absolutely essential” that registers of governors’ interests are available to the public.

More than half of CEF members had indicated they would adopt the forum’s proposed model code which states that a register should be maintained by the clerk to the governing body.

The National Audit Office stressed that governors are responsible for the oversight of their college’s activities while the principal is responsible for executive management and day-to-day decisions.

Governors at St Philip’s College had taken over responsibility for many executive decisions. The NAO report also identified one college where the distinction between oversight and executive management was blurred.

Mr Ward says there is no evidence to suggest the majority of governing bodies do not understand the different but complementary roles assigned to corporation members and principal, as the college’s chief executive. Nevertheless, the distinction is stressed in the CEF’s model code which also points out governors are not appointed as delegates of any outside body and cannot be bound by mandates.

“Just as independent corporation members cannot represent any particular professional interest or organisation, the same applies in instances where corporations allow staff representatives,” says Mr Ward.

“The tendency in the past has been for staff representatives to be trade union representatives and speak on behalf of their union’s sectional interest. ”

The NAO report was based on 153 inspections by either auditors or FEFC inspectors.

Detailed examinations took place at 15 colleges, eight of which did not provide governors with adequate cash flow and balance sheet information. The NAO concluded that colleges in general could improve the quality of financial information provided for their governors.

Where colleges had experienced difficulty in establishing an adequate system of financial control, it was mainly due to a lack of accounting information or poor control over orders and payments.

Some colleges also failed to identify student withdrawals from courses, which had a knock-on effect on accounting systems, added the report. Most colleges had appropriate committee structures although in three cases auditors could not trace key decisions which should have been taken by the governing body.

Ian Macwhinnie, president of the Association for College Management, says some colleges had set up new financial information systems to cope with incorporation. “It’s a question of getting the maximum out of them. It takes time for people to take full advantage.”

There is no indication, says Mr Macwhinnie, that any college managers are deliberately concealing information from their governors. “Managers and governors must be clear what information they want and then make sure they have the capacity to produce it.”

Not all colleges have found it easy to attract governors with suitable experience. Twelve of the 15 colleges visited by the NAO had no vacancies but the other three had a total of eight vacancies.

Margaret Riddell of the Institute of School and College Governors says new governors normally took about a year to become familiar with college affairs.

“Once people have been encouraged and fostered they make superb governors, ” she says. And they are more likely to gain confidence when the principal and other officers share information with them.

Edited by Ian Nash