Friday, July 30, 2010

ROOFless after 35 years

It was disappointing to get the final issue of ROOF this month. For 35 years ROOF has been campaigning and covering housing policy.

The magazine has provided the serious analysis so often missing from the mainstream media.

The magazine will be particularly missed at a time when there are so many worrying developments - not least the cuts in Housing Benefit proposed in the Budget.

The only good news is that everyone can now access the magazine's online archive.

Friday, July 16, 2010

Qualified accountants in academies – an optional extra?

Today the magazine Education Executive reports on Michael Gove’s reassurances to prospective academies that they do not have to have a qualified accountant on their staff:

“The Academies Finance Handbook currently recommends that finance directors of academies are qualified accountants because of the additional demands compared with maintained schools, in terms of preparation of accounts," Gove wrote. "However, there is no actual rule that there must be."

Gove said it was "perfectly possible" for the bursar of the previous school, "if suitable in other ways", to become the academy finance director. "An effective member of the senior management team is much more important than technical knowledge of charity and company accounts," he said. Gove also pointed out that such technical expertise could be bought in if necessary.

I would not necessarily disagree with that. (If I did, I would have to declare an interest: I am a Chartered Accountant who works with academies.) However, I would add that what can be most dangerous are the unknown unknowns – you do not always know when you need to call in the “technical experts”.

An understanding of company law and charity accounting is essential – bursars will need that if they are to navigate risk and avoid constantly calling upon accountancy firms.

Where schools become academies, they are entering a brave new world – one of threats as well as opportunities.

Thursday, July 15, 2010

What academies need to know about NHS accounting and foundation trusts

Monday’s NHS White Paper is likely to lead to NHS Foundation Trusts (FTs) being moved off the public sector balance sheet. I wonder if this may herald changes down the line in how academy schools (and free schools from 2011) are accounted for.

Academies are similar to FTs – they are independent, not-for-profit (or more precisely, not-for-dividend) entities delivering public services. Historically academies and FTs have found themselves accounted for as part of the public sector.

Google can help with most things but I have never found the Office for National Statistics’ justification for putting academies on the public sector balance sheet. I presume it is a reflection of Whitehall’s control over academies – and maybe the fact that they were originally proposed as “independent state schools”. The accounting treatment is quite different from that applied to Further Education Colleges and Sixth Form Colleges.

Does any of this matter? It’s not accounting anorakism. Sitting on the public sector balance sheet means that academies are consolidated into Whole of Government Accounts – and that requires additional information to be collected and returned by academies. Being an integral part of the public sector also reflects a mindset where the emphasis is on being state schools rather than independent schools.

If academies do follow FTs off the public sector balance sheet, maybe they will be allowed to borrow in the same manner as colleges have to improve their buildings. That may be very useful given the squeeze on capital funding in the public sector and the demise of Building Schools for the Future.

Saturday, July 10, 2010

Size can be bad for your (college financial) health?

The KPMG report on Delivering Value for Money through Infrastructural Change found “evidence that larger colleges may be more efficient and have the advantage of economies of scale”. The graphs certainly show administrative costs fall with overall costs. This finding was a key underlying hypothesis in the report. More perplexingly the report also found that when comparing the percentage of General FE (GFE) colleges’ surpluses against their total income: “It shows a slight negative correlation between total income and surplus as a proportion of this. This is an emerging finding which we will be exploring further.”

The report does not really explain this peculiar finding that larger GFE colleges have worse financial performance despite lower admin costs. The demise of the LSC and the squeeze on consultancy fees may have put the kibosh on a further exploration.

Was the analysis of the 2007/8 college accounts a historical anomaly? Maybe not. I cranked the numbers for GFE colleges using the 2008/9 accounts. (As I suspect that Greater London with its high costs and extra funding may distort the picture, I excluded London colleges. I also omitted Newcastle College which is so much larger than the rest of the sector.) What I found was a slight deterioration in operating surplus as a percentage of income as income increased.

How can this be that larger GFE colleges have much lower admin costs and slightly lower surpluses? Maybe these colleges are shifting resources from admin to the front line. There is some evidence for this as success rates and inspection results suggest larger colleges perform better non-financially. (Of course, larger colleges are better able to prepare for inspection which may not always mean that the outcomes are so much better.)

Another explanation might be that larger colleges suffer other diseconomies of scale which eat up much of the benefit of lower admin costs.

I do also have a nagging doubt about the data. The KPMG report shows a huge dispersion in admin costs at almost level of overall costs (their proxy for college size). Have we measurement problem? The KPMG report writers sensibly included plenty of caveats in their report – not least on the unvalidated nature of the data that they were given to analyse. In my experience of looking at benchmark data in colleges and in other sectors such as housing, accountants have difficulty in categorising costs even when there is clear guidance.

Do problems in dividing costs between admin and other categories explain why we have these much lower admin costs and slightly lower surpluses? I wonder if these problems do explain some of the peculiar findings – maybe larger colleges, as a consequence of size, have difficulty in identifying the admin costs in the remote reaches of their empires and in distinguishing admin from other support in curriculum areas.

Any other explanations?

Thursday, July 08, 2010

KPMG on the college sector, financial health and “infrastructural change”

I am currently reading KPMG's report for the Learning and Skills Council, Delivering Value for Money through Infrastructural Change. The report was published recently by the LSC's successor, the Skills Funding Agency. It is more interesting than it sounds - at least to those working in the college sector. It reviews the FE sector, current delivery models and potential institutional change.

(I will forgive the report's use of the American term "organizations" and the misspelt reference to the "Robins Report" [sic] on Higher Education in the 1960s.)

While a wake-up call to colleges should not be necessary the Executive Summary warns:

The financial health of the FE sector is in general deteriorating rapidly, and requires urgent action.

The report provocatively notes:

Some Governing Body members may tolerate a more relaxed view of deficit and insolvency than in their day job in the private sector.

The report also believed that the regulatory framework was such that:

... there appears to be implicit in these statements [by the LSC about intervention], and the actions that have followed, the view that some degree of failure is to be tolerated and there are no immediately dire consequences of delivering a deficit budget; instead, a protracted period of dialogue with the LSC is envisaged. In our experience, the consequence of the time this process takes for some LSC’s and Principals and Governing bodies is that one or both may be complacent for too long, or strive to elongate the dialogue, before robust remedial action - by which time it is often too late to salvage the college. The option of closure for a failing college is not seriously contemplated by colleges as a consequence because it has happened so rarely.

The report goes on to suggest that the current regulatory arrangements also hinder new ways of working and structuring institutions in the "FE system".

Thursday, July 01, 2010

Tenant Services Authority – stay of execution?

Today’s Financial Times reports that the Coalition is having second thoughts about abolishing the Tenant Services Authority.

The report indicates that practical problems are causing anxiety for the Treasury. There are worries about crystallising a £80m pension shortfall. There is also a risk that £50bn of housing association borrowing could be placed on the government balance sheet if the arms length regulator disappears.

The Coalition had already said that it recognised that independent economic regulation of social housing is essential for housing associations continuing to be considered low risk (and worthy of cheaper borrowing). Maybe the TSA will be kept as such a regulator.