Forecasting that was “over-optimistic” and under-scrutinised led to two colleges falling into poor financial health, the further education commissioner has found.
The FE commissioner’s team visited North Warwickshire and South Leicestershire College and Macclesfield College in November, and the reports and recommendations from the visits have today been published.
Both reports point out that the colleges were overly optimistic in their forecasts, which led them vulnerable when things did not work out as planned.
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Financial health slipped
North Warwickshire and Hinckley College (NWHC) and South Leicestershire College (SLC) were both in FE commissioner intervention prior to their merger, owing to poor financial health. The newly merged North Warwickshire and South Leicestershire College (NWSLC) was immediately issued a consolidated financial notice of concern.
Although in 2016-17, the college’s finances improved to “satisfactory”, in June 2018, the college indicated that’s its financial position had declined once again because of under-delivery on apprenticeships, and it received less funding from the adult education budget than it had hoped. Subsequently the Education and Skills Funding Agency (ESFA) found the college’s finances were once again “inadequate”.
The FE commissioner’s report praised the college for the “quality of the governing body and, in particular, the chair and the vice chairs”, and the growth in age 16 to 18 recruitment despite declining demographics.
However, the commissioner’s office found that financial forecasting was “over-optimistic”, staff costs were high and the executive team needed more experience in “quality improvement”.
The report adds: “The college should be able to avoid insolvency for the time being, but there needs to be an improvement in the way that the costed curriculum plan is monitored in-year and adjustments made accordingly.”
The FE commissioner’s recommendations include the college sub-contracting less and, instead, offering more direct provision, land sales and agreeing an overdraft with bankers to provide a “contingency fund”.
‘Closer monitoring’
Following early intervention by the FE commissioner, Macclesfield College was placed into “formal intervention” in December 2018, shortly after the ESFA found the college’s finances to be “inadequate” - which the college appealed.
A proposed merger with LTE Group - of which The Manchester College is a member - was dropped by the board in July 2018. The college ended the 2017-18 financial year “with a significantly worse outcome than predicted”, the report said. The commissioner’s report found that, owing to its small turnover, “it is a continuous challenge to overcome the issues of critical mass”, which leaves the college finances sensitive to any adverse financial circumstances.
The report praised the college for its good Ofsted rating and its “improving and strong” quality achievement rates in 2017-18, and strong leadership in terms of the quality agenda.
The FE commissioner said his main concern is that ambitious income growth targets that were, ultimately, not delivered were the major cause of the poor financial performance in 2017-18. The commissioner recommends closer monitoring of in-year actual financial performance and recruiting additional board members with financial experience.
