The independent review of how the the government monitors colleges’ finances and financial management has been published. 

The Independent review of college financial oversight, published this morning but dated October 2019, says the nature of the current regime, the lack of a sector-wide strategy and the capacity and resources of the Education and Skills Funding Agency “have resulted in a relationship between government and the sector which is largely focused on financial failure” and which “inhibits colleges being transparent with government”.

The review adds that the relationship between government and colleges is “largely contractual, focused on the funding agreements and therefore government does not have sufficient line of sight on the wider issues colleges face and early warning signs of difficulty”. “As a consequence, the sector lacks confidence in seeking support and advice at an early stage.”

Background: DfE to review how it monitors colleges’ finances

More: Hadlow College placed into education administration

FE commissioner: 30 to 40 colleges 'at risk'

It highlights the factors contributing to financial failure in the college sector, as well as the complexities of the system, with the ESFA, FE commissioner and Ofsted having a role to play. It recommends changes to that relationship and the way the government approaches FE.

The review was announced in August 2019, instigated by former skills minister Anne Milton, after Hadlow College was placed into education administration under the new FE insolvency regime. 

Shadow apprenticeships and lifelong learning minister Toby Perkins said: “Dame Ney should be thanked for an excellent report which demands Government action to address a widespread failure that is allowing our Further Education sector to drift towards bankruptcy.

"The report exposes in detail the appalling consequences of a decade of austerity, the failure of the Government’s FE reforms and the lack of ministerial awareness of the financial crisis engulfing our crucial FE Sector.

"The failure in oversight has been exacerbated by the tory cuts to the civil service and reforms that have weakened the oversight that government provides. Dame Ney is correct that the current mechanisms and reforms are inadequate to address this failing and for all the government’s rhetoric about the importance of the sector the truth is that colleges are collapsing and young people are being let down by these failings. Labour hopes that the secretary of state will be making a statement to parliament imminently to confirm that he will address the failings identified and confirm if he will adopt the recommendations in full.”

Association of Colleges deputy chief executive Julian Gravatt said that the government should take the recommendations in the review seriously, but that the AoC did not agree that Ofsted should assess college financial health. 

He said: "It’s helpful that the DfE has finally published Dame Mary Ney’s review on the financial oversight of colleges. She concluded her work in autumn 2019 at a time when many colleges were on an improving trajectory, but she describes a system which is complex, backwards-looking and not really focused on the key tasks. The Covid-19 crisis has stopped the financial improvement in its tracks, caused deficits in 2019-20 and opened up large financial problems for colleges in 2020-1.

"Government and colleges should take her recommendations seriously and work out which of them still make sense nine months on. We do not agree with the suggestion that Ofsted should join the long line of regulators assessing college financial health but we do think that the existing arrangements require improvement and will be working with DfE and colleges over the summer to make the best possible opportunity of the white paper."

James Kewin, the deputy chief executive of the Sixth Form Colleges Association, said that there was "certainly a need to reform financial oversight" but that there needed to be questions about levels of funding first. 

He said: “Dame Mary’s report makes some welcome recommendations. For example, three-year funding settlements would provide colleges with some much-needed certainty. A more joined-up approach to intervention is also something we would support, and colleges will welcome the recommendations that both they and the government can take forward to strengthen governance.

"However, the scope of the review did not allow Dame Mary to focus on what actually causes financial instability in the first place – not least the decade of underinvestment in post-16 education. Reconfiguring the departments and agencies involved in intervention or refining the financial information provided by colleges will, in isolation, have a limited impact. There is certainly a need to reform financial oversight, but there is a more pressing need to ask if colleges are receiving the funding required to provide students with a high-quality education." 

The review's recommendations in full 

Recommendation one

For the sector to succeed, institutions to thrive, and learners to achieve excellent outcomes it is recommended that attention needs to shift to the ingredients outlined above. 

Recommendation two

It is recommended that government sets out a strategic vision for the further education college sector and creates effective mechanisms, and potentially a duty, for “capacity and curriculum” planning at a local geographical level and delivery that includes all post-16 provision. 

Recommendation three

It is recommended that there is greater clarity and higher expectations of good governance practice for those responsible for the stewardship of public funds and that government achieves this through a combination of: 

• Improving the line of sight via a new relationship with colleges which would enable monitoring of governance arrangements
• Reviewing the governance guide and raising the expectations of standards of governance required particularly in relation to transparency and whistleblowing
• Ensuring all college websites provide information on whistleblowing outside of the organisation to the ESFA.
• Setting requirements for the governance professional to have sufficient status and credibility to provide an independent challenge of standards of governance and conduct.
• Committing to supporting training and development opportunities and learning networks for chairs, board members, audit committee members, senior leaders and governance professionals.

Recommendation four 

The review endorses the ESFA proposals to shift to use of forward financial planning and cash flow data and away from historic analysis. There should be further consideration and consultation with colleges on ways to make this more effective including:

• whether data that is produced routinely should be submitted to the ESFA more frequently;
• whether monthly management accounts should be shared with the ESFA; and
• how the new analysis can be incorporated into the financial dashboard and health score.

It is recommended that the feedback dashboard to colleges on the ESFA analysis is more timely and provides a more tailored narrative for each college individually to assist governing bodies in focusing on areas of concern and in providing challenge.

As part of developing a preventative approach, it is recommended that the ESFA and FEC should adopt a more flexible approach to moving colleges to an intervention categorisation and to the exit criteria. This should take account of local context and levels of confidence in plans and mitigating actions colleges already have in place

The review recommends that the potential for three year funding settlements are explored and the approach to funding is simplified and streamlined. This should include incentivising “capacity and curriculum planning” at a local geographical level. As the government develops new and existing programmes, more scrutiny should be provided on how and when colleges are paid so that funding rules can be simplified and aligned which will then support better financial stability and cash flow forecasting.

It is recommended that the guidance on the role of audit committees is strengthened to ensure they play a robust role in good stewardship and risk management and articulating risk appetite. At the next review of the post-16 audit code of practice, it is recommended that consideration be given to the effectiveness of the framework for the regulatory opinion. It is recommended there is a requirement for the External Auditor to present their findings to the Chair and Board members either at a Board meeting or by invitation to join the Audit Committee meeting receiving the Auditor’s report. 

Recommendation five

It is recommended that DfE, the FE Commissioner and the ESFA review the Oversight Guidance to allow greater flexibility to match actions to individual circumstances, to avoid linear progression through the various types of investigations and reviews and to shorten time periods in intervention.

The ESFA should develop the case manager role for colleges in intervention to provide more proactive support and practical advice to college leaders in formulation and delivery of recovery plans, signposting good practice, facilitating coaching and mentoring. This will require a review of the skills and experience needed by staff in this case management team to ensure it has the capacity and credibility to fulfil this role, and to interact effectively at board and senior executive level.

The review recommends that those involved in financial oversight contribute to the Ofsted judgement on leadership to provide a holistic view and avoid disconnect between the judgements of the two bodies.

Without a change in the law, the use of the Secretary of State’s powers to appoint to a college board should be proactively considered at an early stage to support the delivery of an improvement programme. 

Recommendation six

It is recommended that the ESFA and FE Commissioner develop a new relationship with colleges. This new relationship would provide a structural realignment between those fulfilling the liaison arrangements, prevention and support, and those providing intervention so that colleges have confidence to come forward for help at an early stage.

• This would enable a stronger relationship and line of sight with all colleges. This could incorporate annual conversations, looking holistically at the college as a critical friend but also allowing the college to showcase their achievements and raise their concerns.
• This would give the ESFA the ability to deploy a range of advice, practical support and preventative measures and to promote good practice. The National Leaders of Further Education and Governance should be made more widely available to colleges not in intervention and colleges should feel able to approach them without fear of opening the door to an intervention regime.
• This would require ESFA staff to become active participants in nurturing college development. Teams would need appropriate skills and experience to provide support tailored to the circumstances of each college. 

To support the new relationship, the Department should continue to invest in providing training, development and networking opportunities to promote good practice in the sector. The Department should consider a further round of the Strategic College Improvement Fund.