Sunday, May 29, 2011

School for scandal: colleges, franchising and efficiencies

For some time I have had a sense of deja vu. All the talk of swingeing funding cuts and reducing "unit costs" in the college sector took me back to the 1990s.

A Google search found me a chilling article from the Times Higher Education supplement a decade and a half ago: it reported 20% “total efficiency gains” made by the college sector in the three years to 2005/6. A significant part of that was from growth.

I am not the only one who thinks we are going back to a future very like the 1990s. This week the Education Guardian published an excellent article by the college funding expert Nick Linford. It warned of how colleges may feel compelled to blunder into risky sub-contracting arrangements - just as many did in 1990s through growth in "franchising" provision to businesses and community groups offered lucrative margins.

Nick Linford's blog helpfully offers news clippings on some of the major cases of franchising and sub-contracting that went badly wrong.

So should colleges steer clear of franchising and sub-contracting? Arguably no - it will depend on their circumstances. However, they always need to have good risk management including due diligence on prospective partners, on-going monitoring and robust quality assurance.

Friday, May 20, 2011

Fraud Friday: some scams in the news

Third Sector reported yesterday that the Charity Commission had found that the Director and chair of an education charity not only stole £245,000 from two charities but also made fraudulent payments for training and other activities.

When trustees abuse their position it can be difficult for other employees to know and stand in their way. However, it is disturbing that the charity failed to submit audited accounts for two financial years. Trustees really should pay attention. Too often trustees place undue reliance on their more financially literate colleagues - maybe this happened here.

The headline on this week's Inside Housing is: Landlords targeted by electronic con. In fact the scam does not seem that technological: housing associations seem to have fallen for fake letters requesting changes to supplier details.

Last month the Young People's Learning Agency issued a fraud alert to colleges and academies which warned:

All Academies and sixth form colleges are asked to be vigilant when dealing with notifications of changes of bank account from their suppliers, and if necessary to review their procedures for dealing with changes. The YPLA has been notified of an alleged attempted fraud in which an apparently genuine change of bank details for a supplier (a building contractor) was notified and acted upon. The notification was subsequently been discovered to be false once the genuine supplier raised a query over a missing payment.

The police are currently investigating this incident – the YPLA has been informed that similar attempts have been made elsewhere in the country

While most people are wary of emails and phone calls - particularly the most amateur of 419 scams such as those highlighted on the 419eater website - too often people accept a piece of paper if it is signed and looks official.

Colleges, financial health and institutional landscape: size sometimes matters

Last year I analysed the 2008/9 accounts of general FE colleges (GFEs) to see if they showed that big was beautiful: the results showed that larger GFEs might have economies of scale from lower admin costs but they were not financially healthier. With the Skills Funding Agency’s (SFA) release of the 2009/10 college accounts I thought it was time to see if anything had changed.

The SFA’s college accounts spreadsheet allows anyone with a spare 30 minutes to correlate college size (as measured by the income measure used by the SFA for analysing finances) and financial health (as gauged imperfectly but simply by college adjusted surpluses as a proportion of income).

When analysing GFEs I excluded the two super-colleges in Leeds and the North East which are so much larger than the rest of the sector. Again I found that there was still no correlation between college size and financial health. (Last year I found was a slight deterioration in operating surplus as a percentage of income as income increased although I excluded all London GFEs.)

The results for Sixth Form Colleges were more interesting. They showed that there was some correlation between larger size and better financial health. The lower admin costs college size increases did feed through to larger surpluses which can be saved for a rainy day and/or re-invested into better building and equipment.

The lessons for Sixth Form Colleges and policy-makers? Mergers and collaboration have more to offer them than GFEs in terms of better financial performance. While I suspect that Sixth Form Colleges do not the thirst for expansion (even empire) that some GFEs demonstrate, there may be ways of developing alliances and federations without full-blown merger. They will have to consider options as the landscape changes around them – particularly feeder schools forming federations and joining academy chains.

Note: the charts show adjusted surpluses as a proportion of income (%) against college income (£k)

Wednesday, May 18, 2011

Education for-profits or not? It depends

We live in interesting times. The talk of Maoist revolution in public services seems to have tailed off. However, in education there is a huge wave of change coming the way of education even if the NHS is centre stage at the moment.

A critical issue in education at the moment is whether for-profits will become significant players. In the medium term, the answer may depend on which sector you are talking about.

In universities, the minister responsible is keen on “alternative providers”. They have already arrived. As I have noted on this blog before, the professional training company BPP is getting University College status. Recently it was announced that BPP had teamed up with Swindon’s New College to offer a no-frills law degree for £3000 per year.

This week an article in the Times Higher Education by a consultant from The Parthenon Group global strategy consultancy suggested:

By charging £27,000 for three years, England and Wales have just become Treasure Island to for-profit companies that know from experience that they can teach degrees for much less.

The article goes on to suggest that the new entrants will shake up the incumbents:

Universities must begin to provide the platform for more sophisticated strategies, including: greater pricing differentiation; international growth; regionalisation; improved employer partnerships; greater student employability; and targeting particular student segments - for example, adult learners.

For-profits may be welcomed by the government in higher education but the red carpet is not yet rolled out in primary and secondary education.

The government’s free school policy is turning out to be less revolutionary than hoped or feared. Last Friday’s New Statesman points to “the Coalition’s free school dilemma”. The introduction of new suppliers in the schools market need buildings when there are constraints on capital spending. Jonn Elledge of EducationInvestor magazine concludes:

The government wants three things: to create enough new schools to shake up state education; to keep the profiteers out; and to keep the cost to the taxpayer down. But it can't win on all three fronts. One of them is going to have to give. And right now, it looks like the revolution will be the one to get tossed aside.

Not so long ago it seemed like the ban on for-profit free schools might be lifted. There were voices from policy wonks calling for a change – people like Julian Astle of the Lib Dem think tank CentreForum. Now it seems that the government – or at least the Lib Dem wing of the Coalition - may be more cautious in reforming public services – let alone allowing for-profit schools.

Maybe things will change for schools as well as universities. The Coalition has – potentially – another four years when a week is a long time in politics.