Civil and criminal liabilities for college governors - the small print of the proposed insolvency regime

As summer term drew to a close, the government issued a consultation on an insolvency regime for colleges. Much of the paper is usefully about clarifying what happens when colleges become insolvent. But it also includes a far-reaching proposal to extend the fraudulent and wrongful trading provisions of the Insolvency Act 1986 to college governors. The introduction of these civil and criminal sanctions may have unhelpful implications.

In setting out the context, the consultation paper notes that, as charity trustees, governors have a duty to act with reasonable care and skill. They must act responsibly, reasonably and honestly; they should put appropriate procedures and safeguards in place. The paper also notes that trustees can be held personally liable to their charity for any financial loss they cause or help to cause by their wrongful action although charity law protects trustees who have acted honestly and reasonably from personal liability.

The paper does not make a strong case for the extension of governor liability. Indeed, it concedes: “Indeed, in the event that [governors] were to breach wrongful and fraudulent trading provisions it is likely that they would, through the same conduct, also already be in breach of their duties as charitable trustees.”

The liabilities put in place by the Insolvency Act 1986 were intended to deter and punish “rogue directors” who enriched themselves through running failed or fraudulent companies. There does not appear to be evidence of rogue or “fly-by-night” governors in the college sector. The financial problems in the sector arise from an extended period of funding reductions and changes.

The unstated rationale of the proposed extension of governor liability is to provide a bigger stick in the Area Review process.

The law firm Eversheds note in a briefing: “In our view, the introduction of the wrongful trading provisions in the context of colleges does heighten the risk for Governors as it makes it explicit that the duty to act in the interests of the creditors is a higher priority than the delivery of the charitable purpose.”

The extension of governor liability may have serious effects on college governance. Existing and potential governors may be discouraged from taking on the already heavy responsibilities of the voluntary position of governor. It’s a hard sell: “you can give up your time, you don’t get paid and you could lose your house!”

It would be a particularly perverse outcome of the proposals if accountants, lawyers and other professionals were increasingly wary of joining college governing bodies.

Job losses in colleges – things did not get much worse last year

The college sector has had a bad few weeks. As a consequence of the funding squeeze, especially the painful reductions in adult skills budgets for 2014/15, there have been redundancy programmes announced at FE colleges across the country: Brighton, Kingston, St Helens, Stratford-upon-Avon.

There was some slightly brighter news tucked away in the Skills Funding Agency release of 2012/13 financial accounts for the college sector. Tucked away in the numbers, the number of teaching staff full-time equivalents in colleges fell by only 1% last year compared with 5% in 2010/11 and 6% in 2011/12.

This is not a good news story. There are still over 100 FE colleges in deficit and the number of sixth form colleges with losses doubled. We are only half way through the Coalition’s austerity programme and things won’t be much easier with a different government. The 2013/14 figures might well see an acceleration in job cuts.

The FE Commissioner reflects on college governance

After his first six interventions, the Further Education Commissioner has written to colleges with some reflections. The whole letter is worth a read but below are some extracts with particular relevance to college governance. Governors and clerks should dwell on his thoughts:

• College governors must take greater ownership of their college, driving the strategic direction forward and challenging the Principal and senior leadership team on the quality of teaching and learning and the institution’s financial position. 
• College governors must satisfy themselves that they have a complete picture of how the college is operating by triangulating the information they receive with other sources of information, for example the new Data Dashboard being produced by Ofsted and which is due to be published in the Spring. 
• It is essential to undertake effective succession planning of the governing body; bringing in new and diverse skills and fresh thinking regularly.  I especially see the case for more business people on boards.
• Clerks are vital to the success of colleges.  Clerks ensure that good governance practice is followed and that the Principal/senior leadership team are not exceeding their authority.  Clerks should be independent, supported and have the skills and experiences necessary to fulfil their role.  
• If you’re not already doing so, it is very important that you conduct an annual professional appraisal of your Principal, which examines and reports on their performance to date and sets clear SMART targets for the year to come. 
• College governors should have regular and purposeful training and development. …  They often are working in something of a vacuum with little or no contact with Board members from other colleges and hence are unable to benchmark their performance against their peers. 
• There is some evidence that college governors can be reluctant to take the difficult decisions when there is evidence of poor performance.

Now that I am resuming blogging, I will be writing on some of these governance themes as well as some not mentioned.

Lies, damned lies and incomplete statistics: teaching staff numbers in Further Education

These are difficult times for all those working in post-16 education. Across the United Kingdom there have been funding cuts – and there will be more before and after the 2015 election. This week the usually excellent Guardian Datablog added to the anxiety. It ran an article warning “The number of staff in further education dropped by 35% last year”.

Is that really so? I doubt it. Where did the numbers come from? It is not clear. What went wrong? My guess is that the article relied in part on data from the Staff Individualised Record. The SIR is soon to cease. The SIR 2011/12 suffered disinterest with a 22% non-response rate.

So what has happened to staffing? For English FE we have the college finance records which include staffing numbers.

We have seen a contraction in teaching Full Time Equivalent numbers since 2009/10. In English colleges teaching FTEs peaked at 80,674. Numbers fell 6% to 75,999 in 2010/11 and then 4% to 72,755. Painful job losses but not the one year apocalyptic drop shown by the Guardian.

Paying the college governors - the debate in the Guardian and elsewhere

This week Guardian Further Education carries a debate about whether college governors should be paid or not. The three contributions clearly set out some of the issues at the heart of the issue.

The article reminds me of the debate in the social housing sector a decade ago.

In 2003 the Housing Corporation allowed housing associations to pay board members who had previously been volunteers – like college governors are now. As a board member in the Midlands and opposed to board remuneration. I am now less sceptical.

Across the housing association sector, board remuneration was tied to governance improvement plans which saw good practices being introduced including board member appraisal and term limits on appointments. (Essential good practices not seen on too many college governing bodies.) Moreover, remuneration often ended board recruitment problems and promoted a professionalisation of governance.

So should college governors be paid? Maybe – it depends on the balance of costs and benefits being thoroughly and objectively analysed. Scarce resources spent on governors won’t be available for teaching and learning. On the other hand, if paying governors is used to improve governance we should end up with a better governed and stronger FE sector. The arguments for paying governors are likely to be particularly strong for the larger colleges.

In the Guardian FE piece, all three contributions came from the sixth form college sector rather than the general FE sector. The largest of the three sixth form colleges has an income of £14 million. Could board remuneration be justified for colleges of that size? I doubt it.

In 2011/12 (the latest year for which we have published figures) 17 colleges had income over £50 million. For such large and complex organisations, board remuneration may be appropriate and, perhaps, essential. A debate over board remuneration has a particular relevance for this sub-sector of further education – rather than for sixth form colleges.

Hope for sixth form colleges on VAT? Or just a little more honesty?

Today’s Guardian online and tomorrow’s paper carries an article about sixth form colleges: overachieving but underfunded by Harry White. The piece highlighted the funding inequities suffered by SFCs.

The article included a quote from a Department for Education spokesperson:

Colleges are treated differently to schools when it comes to VAT because of their legal status. We are looking into whether funding arrangements should be reviewed to take this into account.

Basically that recognises that SFC bear VAT on their purchases whereas schools do not.

This contrasts with the Treasury minister David Gauke in Parliament in May this year:

There are no plans to allow sixth form colleges to waive VAT on purchases. They ar required to pay VAT on their purchases, in common with everyone else. The basic funding principle for sixth form colleges is that these VAT costs are taken into account as part of the up-front funding allocation.

I am not expecting any U-turn but there is now a more honest appraisal of the situation coming out of the Department for Education.

Colleges face yo-yoing bottom lines with proposed accounting rules

There might be a few green shoots of recovery for UK plc but public services are set for austerity up to at least 2018. The college sector has felt the pressure of being outside the funding ring-fence protecting pre-16 education. In the middle of this decade, many colleges will take another set of blows with National Insurance increasing and Formula Protection funding ending in 2016. Like buses coming in threes, the college sector has another prospective blow – a new accounting Statement of Recommended Practice (SORP) for Further and Higher Education which radically (and adversely) changes the way that capital grants are treated.

The draft SORP has not yet been issued but we know what it will propose for college accounts from 2015/16 onwards. The SORP consultation website already outlines the changes on capital grants:

The revenue recognition rules will result in most capital grants being credited to the Income Statement, rather than to deferred capital grants on the balance sheet. Deferred capital grants recorded on balance sheets, and their subsequent release to the I&E Account, will no longer occur.

This change will result in more volatile surpluses and deficits.

Future Income Statements will no longer benefit from the credit arising from the release of deferred capital grants (currently c£xm per year), which will reduce on-going reported surpluses.

Whereas now capital grants are released as income gradually over the life of the buildings or other assets which they funded to offset the depreciation cost of the assets, under the SORP the capital grant is recognised as income in one go with the depreciation hitting the bottom line year after year until the asset is fully depreciated. The resulting volatility will be seen in ridiculously large surpluses coming along when a college gets a capital grant but then many years of surpluses being much lower (or deficits much higher) than otherwise.

Sometimes the size and/or frequency of those deficits will mean that colleges breach the financial performance requirements of the covenants on their loan agreements. Since the credit crunch it can be very costly to upset bankers – a covenant breach means that a loan is (theoretically) repayable immediately and, in practical terms, the interest rate can be cranked up.

What will this mean in practical terms? How volatile will the proposed SORP requirements make bottom lines? It’s hard to say exactly without a crystal ball. However, we can look at the most recently available college accounts for some idea of what this means.

In 2011/12 the operating surplus for the whole of the college sector was £141 million – the value of the capital grant releases was £143 million. So these capital grant releases are significant for the further education and sixth form colleges taken as a whole. But what about individual colleges?

In total there were 74 colleges with operating surpluses had capital grant releases larger than these surpluses. In most of these cases the SORP treatment would have led to an operating surplus. A similar number of colleges already in deficit would have had a much operating deficits.

One London college had an operating deficit of £193k in 2011/12 but the value of its capital grant releases was £2.6 million. Another college in the south east had a surplus of £53k in 2011/12 after benefiting from capital grant releases of £2.3 million.

Colleges will have different loan covenants to comply with. But the SORP changes are a nasty shock to even colleges with relatively permissive covenants dating from before the credit crunch.

This amounts to a ticking bomb under the college sector unless the drafters of the SORP can be persuaded to change their minds by the consultation period ending in October.

 

College accounts: how colleges are surviving in hard times

Before Easter the Skills Funding Agency published the college accounts spreadsheet for 2010/11. In recent years the spreadsheet has generated more interest than a quick look to check out the Principals’ salaries. The spreadsheet offers some insight – albeit a little dated - into how colleges are coming with the age of austerity.

Sadly the college accounts spreadsheet currently omits almost all sixth form colleges. The Young People’s Learning Agency never got round to validating the figures before it was abolished into the Education Funding Agency at the Department for Education. Once the figures have been validated by the EFA, a revised spreadsheet with include these sixth forms.

For further education and tertiary colleges the accounts show the sector is stable but still in difficulty. There are 68 further education and tertiary colleges making operating losses but this figure is an improvement on 2009/10.Of course, some of the deficits will have disappeared through merger. Nevertheless, the funding cuts have been absorbed without a dramatic deterioration in financial health.

It is clear from the accounts that colleges are responding to funding reductions by saving costs at both the chalk face and in the back office. The pay bill for further education and tertiary colleges was about £200 million lower in 2010/11 than the previous year.

For the sub-sector of general FE colleges the operating surplus in relation to income fell only slightly from 1.7% to 1.6%. This was achieved as pay was cut faster than income fell. The critical pay:income ratio being reduced from 65.3% to 64.5%. For the small sub-sector of tertiary colleges the operating surplus fell more significantly from 2.6% to 2% as the pay:income ratio actually crept up 65.6% to 66.8%. As there are many more general FE colleges than tertiary colleges, the overall effect was one of staff numbers and pay levels taking the strain for the sake of colleges’ survival.

No Free Lunch? Disadvantaged young people in Sixth Form Colleges

I do not normally plug causes on this blog, but I will make an exception for the Association
of Colleges' No Free Lunch? campaign. The AoC is pointing out that sixth formers from disadvantaged backgrounds in FE or Sixth Form Colleges do not receive free meals at lunchtime whereas otherwise identical young people in school sixth forms do.

While this is the age of austerity, the Coalition does stress fairnesss in general and specifically for 16-18 education funding a "level playing field". So I hope the government is listening. To give it a prod, please sign the e-petition here.

Almost time to party – the ONS deciding on how to classify colleges

Today’s announcement that the Office of National Statistics is re-classifying FE and sixth form colleges out of the public sector is good news.

The change in the ONS position reflects changes ushered in by the Education Act removing various regulatory powers from Whitehall, the Skills Funding Agency (strictly speaking part of the department for Business, Innovation and Skills) and the Young People’s Learning Agency. The ONS ruling does not grant independence to colleges – it merely recognises the new freedoms granted to college corporations. (Those freedoms may have downside when a college stumbles or banks “re-price” the risk associated with lending to colleges.)

The bunting should be strung up as the ONS was threatening a tangle of new red tape. However, before the flags come out we should note that the financial memorandum will have to change. Tucked away at the foot of the BIS press release was a note:

This reclassification is provisional upon ensuring that there are no other public sector controls in other documentation, such as the funding agreements, and keeping under review the use of remaining government powers within legislation.

Nevertheless, the SFA is promising a new financial memorandum “very soon”. Presumably – and hopefully – the YPLA is also treating the issue with urgency. Before 1 April these will be handed down – probably well before then as a consultation draft. The timescales are somewhat tight.

There might be some other footnotes in the full ONS judgement when it is published. (The latest ONS press releases include bed blockers and breast enlargement but nothing appears to be there on the status of colleges.)

Whilst not wanting to be a party pooper, it is also worth remembering that the National Audit Office will have to consider a similar issue – whether the accounts of all the English FE colleges should be consolidated into the accounts of the SFA. The ONS announcement makes it easier for the auditors to say that consolidation (and all the returns which would be required of colleges to make it possible) is not necessary. The NAO will be applying financial reporting standards but the same kinds of issues of control are in play. So before long we should be able to toast the auditors as well as the statisticians.

Academies, finance directors and accountancy qualifications: lessons from FE?

If you want to start a lively discussion amongst academy Finance Directors at a Christmas party or anywhere else, you could ask them whether academy FDs should be professionally qualified accountants. This subject might be seen as too contentious by some – placed in same category as religion and politics.

Many of the academies in Labour’s programme did not initially have accountants appointed as Finance Directors although these schools often had involved and supportive sponsors who could provide financial expertise. By 2010 the National Audit Office was finding that almost two-thirds of these academies had Finance Directors who were accountants. Under the Coalition’s policy of encouraging schools to convert things may be different - many of those acting as Finance Director will not be accountants but will be experienced and qualified School Business Managers.

There are people who think that accountants should be leading on financial management in academies.

The Academies Financial Handbook (pdf) stated in 2006:

The DfES strongly recommends that the person appointed as Finance Director, or equivalent, should be a qualified CCAB accountant, or equivalent, with some experience in a senior position; charity experience would be valuable. An acceptable alternative, subject to the governing body themselves having significant financial experience and ability, would be a member of the Association of Accounting Technicians who has significant relevant experience in either a charity or educational institution.

When the successor to the Handbook arrives is unlikely to send out a different message - unless there is ministerial pressure.

The public sector accountants’ professional institute, CIPFA, published in 2009 a Statement on the Role of The Chief Financial Officer in Public Services. One of its five Principles is that:

The chief financial officer in a public service organisation must be professionally qualified and suitably experienced.

The cynics might suggest: professional bodies for accountants would say that, wouldn’t they? Nevertheless, academies - along with other independent providers of education such as colleges and universities – are entering a world where austerity casts aside the assumption of funding that grows faster than or even in line with inflation. General FE colleges and sixth form colleges gained their independence in the early 1990s – a similarly bracing climate – and they soon opted for professionally qualified Finance Directors.

I would not personally say that all academy Finance Directors must be accountants. However, each academy must ensure that it has robust financial management in place – which may involve support from, say, Responsible Officer governors or consultants if the Finance Director is not a trained and qualified accountant. Governors and Headteachers must always be mindful that if things do go wrong they will be asked whether they critically assessed the arrangements which they put in place.

Public sector pay restraint – a stealth funding cut for colleges?

There was not much in today's Autumn Statement specifically for colleges. The new shared services VAT exemption may interest some although they may be put off by the tight conditions of HMRC and the inherent wariness of colleagues. One area of both uncertainty and relevance to colleges is "public sector pay restraint".

The Policy Costings issued with the Statement note:

Public sector pay awards will average one per cent for each of the two years following the end of the pay freeze. Departmental budgets will be adjusted in line with the policy, with the exception of health and schools, where savings will be recycled. The principal impact of the measure will therefore be to reduce public expenditure, through reduced departmental resource spending.

Does that mean that DFE and BIS expenditure for colleges will be "adjusted" down in line with pay restraint?

A problem shared? Shared services, fear, loathing and VAT

There has been some debate on the FEWeek newspaper website about colleges and shared services. An Agitator op-ed suggested that shared services collaboration might end up with college principals in jail. The comments below the article seemed to highlight the doubts and even suspicions associated with the shared services agenda. No comments backed my suggestion that colleges could collaborate with colleges who are not competitors or even with other types of organisation.

Does any of this matter? Maybe.

In the summer the government’s Open Public Services White Paper explicitly encouraged shared services. Austerity will inevitably make cost cutting imperative.

One barrier to shared services has been tax. Colleges buying in services from outside suffer the irrecoverable VAT which in-house operations don’t incur. With VAT at 20%, the efficiencies from shared services (and, of course, other types of outsourcing) have to be significant to be worth the effort.

After three decades the UK government is getting round to implementing a European Union directive with a bearing on VAT on shared services. Last Friday a HMRC consultation closed on how certain types of shared service arrangements by charitable organisations might escape VAT.

The charities sector publication Third Sector has highlighted the debate on the significance or otherwise of the HMRC proposals. The National Council for Voluntary Organisations, the Charity Finance Directors’ Group, Universities UK and the National Housing Federation have declared that the proposed exemption is too restrictive:

In its proposed form, the exemption is likely to be of little use to the charity sector, particularly for smaller organisations who in many cases could benefit the most from cost sharing.

The Chartered Institute of Taxation have given the HMRC a hard time on the proposals too.

There is rumoured to be a divergence between a hardline HMRC worried about loopholes and a Treasury keen to see efficiencies in public services. Who will win? Who knows? But it will be a test case for the government with its commitment to a Big Society and its rhetoric about reform.

If the VAT issue is resolved, it will be up to colleges, universities and charities to think creatively and positively.

FEWeek, college recruitment and the number of 16 year olds: is demography the answer?

This week the college sector’s newspaper FEWeek carries an article about how demographics are affecting colleges and other 16-18 providers:

Figures compiled by the Office for National Statistics in a UK National Population Projection show the number of 16 to 18-year-olds could fall by more than 90,000 from 2011 to 2015 – from 2,279,948 to 2,186,192.

Experts believe this could have an impact on recruitment figures for further education (FE) and sixth form colleges.

The article shows how future demography will affect colleges each year up to 2015. However, the immediate issue is how this is affecting colleges now.

The Office of National Statistics released data for England in 2009 show that there has been a decline in the numbers of 16-18 year olds (xls file). This year’s numbers of 16 year olds are 2.1% lower than last year. This figure is less than that found by FE Week’s survey of college enrolments suggesting that other factors have been at work.

This is not a new development as shown by the graph above showing the number of 16 year olds declining in recent years. In 2009 there was a 3.3% decline and last year a 1.5% fall. However, over the last decade there has been a rise in participation offsetting this.

FEWeek is right to point to demography. But the enrolment challenge must be seen in the broader context including EMA and other factors.

The SFA’s qualified accounts, colleges and red tape

Over the summer the annual accounts of the Skills Funding Agency (SFA) were published. If anyone was interested in them, they would have read that these accounts were qualified by the SFA's auditors - the National Audit Office. While generally in life qualifications are something to be sought, qualified accounts are a bad (and unusual) thing.

The NAO judged in its qualified audit opinion: “the financial statements do not give a true and fair view of the state of affairs of the Skills Funding Agency and its subsidiaries as at 31 March 2011”

The auditors believed that financial reporting standards required that the SFA should have “consolidated” the accounts of further education colleges as "subsidiaries" into the agency’s own accounts because the SFA has control over colleges. (That control is in the form of the borrowing consents which otherwise independent corporation have to seek.)

The SFA declined to do this given the practical challenges of incorporating the accounts of every FE college for the year to 31 March 2011 – a task further complicated by colleges accounting to the 31 July each year on the basis of a different set of reporting standards.

Does any of this matter? Not too much in itself – but it does highlight a wider issue and a potential threat.

In his report on Internal Control, Geoff Russell, as SFA’s chief executive’s noted how the accounting treatment of colleges poses an “unexpected risk” threatening “to contradict the Government’s simplification and cost reduction policy”. This arises both from international financial reporting standards and from last October’s designation of colleges as public sector bodies by the Office for National Statistics (ONS).

While Geoff Russell does not spell it out, what that means in practice is that in the future FE colleges might be asked to provide the information necessary for the SFA to consolidate all those figures into its own accounts. This would mean a Spring return in addition to the Finance Record and the Financial Plan returns. Inevitably there is a compliance cost for colleges as well as a resource required at the SFA where presumably a shrinking staff could be doing something more useful than chasing accounts and crunching numbers. In terms of cost-benefit analysis, there is no benefit to colleges from such a return to balance the cost.

Similar issues are posed for Sixth Form Colleges although the ONS classification treated them as local government bodies as, until the Education Bill becomes law, councils grant borrowing consent. That difference meant that the Young People’s Learning Agency avoided the embarrassment of qualified accounts.

The DfE and BIS are promising to deal with these issues but the promised “freedoms” may not be enough to remove threat of some more new red tape.

TES reports FE colleges in the black in 2009/10 - so what?

The Times Education Supplement on Friday published an interesting analysis on the state of the college sector's finances. The headline was somewhat eye-catching: FE colleges in the black.

The numbers crunched for the article showed:

On average, colleges reported an operating surplus of about £300,000 last year, after two years of deficits. This came despite the lowest rate of income growth for five years.

Of course averages can disguise as much as they reveal. (In particular, mean averages are a crude measure which can be distorted by extreme outliers. The article did not indicate if the analysis used the more useful average of the median - the value in the middle of the distribution.)

Certainly in 2009/10 there were over 70 colleges with operating deficits. That is a lot of red ink - even if the college sector as a whole is in the black.

Comparing like-with-like is helpful although tricky when there is a lot of churn with mergers and takeovers in the college sector. When I compared the performance of individual colleges excluding those that had been dissolved or merged, indeed the figures suggest that three-quarters had larger operating surpluses (or smaller deficits) in 2009/10.

The article asks the question: So are institutions in better shape than their funding body feared?

While 2009/10 was a better year than the previous year, we have to remember that we are talking about financial years starting on 1 August 2009 - over 22 months ago - and ending before the cuts heralded by George Osborne's Spending Review. While Labour had introduced their own cuts in funding rates, the Conservatives are taking the axe to whole programmes such as Train to Gain. The squeeze will be felt in the next four years - not in 2009/10.

So perhaps "doom-laden predictions about the state of college finances" cannot be discounted in 2011 on the grounds that the college sector on average had a less bad time in 2009/10.

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.

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)

Two cheers for the SFA: college accounts and benchmarking

The Skills Funding Agency has recently published its spreadsheet summarising the 2009/10 accounts of 351 colleges. One of my concerns about the end of the Learning and Skills Council in 2010 (alongside the inevitable confusion and complexity involved) was that the publication of the college accounts spreadsheet would end. The survival of the spreadsheet is to be welcomed.

The college accounts spreadsheet allows colleges and their advisors to compare their performance. However, care needs to be taken. While the SFA says that the finance records submitted by the colleges have been “subject to basic credibility and reasonableness checks”, there are evident anomalies. There is the college paying £1800 a day for internal audit and another seven colleges paying a nil day rate. There is also the college which capitalises all expenditure over £5. The SFA would deserve three cheers if they looked at the extreme values and queried them before publishing them.

After a few reasonableness checks I will be publishing some analysis of the college accounts here over the next few weeks to make up for the scarcity of my blog posts recently.

Hindmarch’s hints on college turnaround

Today's Guardian has an interview with the Colin Hindmarch - the principal credited with Harlow College's turnaround. The article includes advice on organisational recovery:

For turning around a college

• Keep students at the heart of everything you do

• Create a clear strategy for teaching and learning that is understood by everyone

• Be bold and brave and don't be afraid to take risks

• Create a culture where everyone accepts responsibility for students' successes and failures

• Always be truthful about what is going on at the college. Never deceive anyone else or yourself