The Education and Skills Funding Agency (ESFA) has unveiled plans to spot colleges' financial problems more quickly.

The agency is introducing a new way for college to submit their data which it says will help it and college governors spot signs of declining financial health, and ensure preventative action can be taken more swiftly. 

The new approach has been drawn up in a bid to prevent college financial crises, after Hadlow College and West Kent and Ashford College were placed into education administration this year. 

Background: DfE to review why Hadlow College problems 'went on too long'

News: West Kent and Ashford College enters administration

FE commissioner: 'High risk' of college insolvency, warns FE commissioner

The news comes just weeks after the Department for Education last month confirmed plans to review ESFA and FE commissioner processes for monitoring college finances

Former skills minister Anne Milton told Tes about the review in May, after stating that problems at Hadlow "went on too long without us knowing about it".

At the time she said: “We will be doing an external review to look at the systems within the DfE so that problems with financial management are identified at the earliest possible stage. [Problems at Hadlow] went on too long without us knowing about it. You can’t always mitigate against every risk that’s out there. But it’s a good time to have an external look at those procedures that we have.”

The National Audit Office too is planning on carrying out a study on the management of colleges’ financial sustainability, as Tes reported in August.

The new model 

From January 2020, colleges will have to submit their financial returns in a single annual return – currently they submit twice a year. However, colleges that are in early intervention or formal intervention, or otherwise in receipt of ESFA loans, will need to submit returns on a more frequent basis.

Colleges will still need to submit their finance record in December, before the new model comes into force in the new year.

Julian Gravatt, deputy chief executive of the Association of Colleges, which worked on the process along with the Sixth Form Colleges Association, said that the new model was a major upgrade. 

“Colleges work with a robust set of financial rules developed by ESFA and its predecessors over the last 25 years," he said. "We’re pleased at the Association of Colleges that the agency is working closely with college finance directors to put it in place.”

Eileen Milner, ESFA chief executive said: “We are committed to ensuring that we balance the risks of protecting public funds and preventing colleges going into financial decline, with a commitment to ask the sector for things which are reasonable.

“We are recruiting a qualified team to implement the model, which our process of testing with colleagues in the sector suggests will save colleges a significant amount of time and resources so they can focus their efforts on delivering high quality education.”

Collaboration with colleges

The new model has been created in collaboration with colleges – nearly 50 institutions engaged with user research sessions and contributed towards the design. And a user group of financial directors were involved in testing and developing the model.

The model should give colleges greater flexibility to cope with variation in how they manage their finances, say the ESFA.

It will replace the biannual returns of finance record in December, and the financial plan in July, as well as the Cash Flow Against Debt Servicing (CFADS) and the cash flow template.