Risk management and reputations: capsized cruise ships and mice in salads

Today, as stock markets opened, the share price of Carnival fell by 20%. I wondered if the directors and managers of the owners of Costa Concordia had listened to the Freakonomics podcast about A Mouse in the Salad.

The podcast recalls as case of a mouse being found in a salad at an up-market chains. It uses the case study to describe how companies deal with unfortunate incidents which pose a threat to their reputations.

The issue of reputational risk is not just a matter for shareholders and directors in the commercial world where brands are worth billions. Reputational risk can blow public and third sector organisations off-course too. Last year we saw the Metropolitan Police shaken at the very top by allegations.

Being prepared is always a good start when it comes to risk management. Too many organisations think that a periodic update of a risk register is enough. Contingency plans for specific situations as well as generic bad stuff should be in place. While media training may not be necessary for smaller organisations, leaders of all organisations need some support and guidelines in place for when necessary, especially if they might be unfamiliar with media glare. Having a link with PR agency for emergencies might come in handy as well as building up strong relationships with the media and other stakeholders in good times.

Listening to the Freakonomics podcast (or reading the transcript) highlights the importance of communication, transparency and ownership when things go wrong. The sooner that Carnival learn that, the quicker that their business will right itself.

Academies - converters in need of a hand?

Today’s Financial Times carries any article reporting that eight academies have had to be bailed out by the Department for Education in the last 18 months alone.

The article is not clear whether the eight academies were “converters” or longer established academies. What is likely is that many more of the 1500 plus academies will suffer financial problems in the next few years. Primaries without critical mass will be especially vulnerable unless they team up with larger secondaries or with the emerging schools chains.

While I personally believe in greater schools autonomy and choice, there needs to be a framework of greater support for academies. The Young People’s Learning Agency (and the soon to-be-Education Funding Agency under the wing of the DfE) is not set up provide the kind of support that the DfE’s old Academies Finance Unit aspired to provide. There are consultancies, accountancy firms and other service providers able and willing to help – normally for a fee. There is also self-help: academy finance directors and managers can get support at the academy finance directors' google group from their peers (many of whom have been in academyland for several years). Guidance can also be found in CIPFA’s new Effective Governance and Financial Management in Academies although a handbook can only take you so far however comprehensive and useful. CIPFA is also now offering a Certificate in Financial Reporting for Academies.

If local school commissioners were appointed – as suggested by the new head of OFSTED and Chris Cook of the FT – this “middle tier” between Whitehall and academies might offer some support. However, I suspect any such institutions be more a regulatory watchdog than a helping hand.

This all sounds very negative. Sorry. One thing that academies can do is seek out professional (legal, financial etc) with experience of coping with independence in a public or third sector setting. Last year I wrote to a local converter academy offering pro bona support – I did not even get an acknowledgement back.

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?

My speed dating experience - novel approaches to board recruitment

This week I had my first experience of speed dating. I had seen that a social business in the Marches was looking for board members and I expressed an interest. So on Tuesday I was invited to, in effect, a speed dating session.

The organisation put a dozen potential board members supplied with light refreshments in a room with current board managers and key staff. Every five or so minutes a timer instructed those present to talk to someone else. Perhaps only an organisation working in the cultural arena could think of something so novel and creative.

Too many organisations still recruit board members from networks of friends, acquaintances and sometimes "the great and the good". This leads to board re-creating themselves in their own (often stale, male and pale) image rather than experiencing genuine renewal. Where organisations do adopt a more rigorous approach, this can become somewhat formal and even bureaucratic with panel interviews and application forms which can demand a lot from applicants and organisations but may not be useful in creating effective boards.

I would encourage organisations to consider the speed dating approach. Firstly it is a quick way to get to assess applicants when such exercises can otherwise absorb a lot of time and energy for all concerned - especially for smaller organisations. Moreover, allows the existing board members to be involved in recruitment and assess the chemistry between them and applicants.

It is worth adding some caveats. Speed dating may be better at assessing social and networking skills (hopefully more than small talk ability!) but less useful in divining other requirements such as strategic insight. Requirements such as ability and willingness to prepare and attend meetings have to be checked out via the speed dating or another mechanism. There is still a need to have a clear person specification which the applicants can reflect upon and the organisation can rigorously assess candidates on.

My speed dating experience certainly made me think – not least about board recruitment. Now I will await feedback from the organisation.

2012 free schools and UTCs to be announced this week

This week we will learn which free schools are likely to open and where in September 2012. There are rumoured to be 55 in the pipeline. Some of the free schools may be formed under the powers to create 16-18 academies contained in the Education Bill expected to received Royal Assent this autumn. This will intensify the growing competition for 16-18s.

It will also be interesting to see how many are new schools as opposed to transfers from the independent fee-paying sector.

The media may well highlight some of the moves within English football to promote free schools. Last week Everton FC’s charity announced that it had been successful in reaching the financial stage of the free school application process. Further down the line, it seems that a new sixth form college may be part of Manchester City’s ambitious plans for the future. There was talk of the Premier League and free schools as far back as August 2010 but there is now clear progress.

There will also be the announcements of the 2012 University Technical Colleges. This weekend there was some media coverage of the Silverstone UTC set up in partnership with Tresham College and the motorsport industry. UTC are technical schools intended to provide a rigorous vocational curriculum with close links to business. They are a hardly noticed policy innovation.

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.

Inbetweeners, EMA and sixth form providers: what comes after the long rise in participation?

When I went to the cinema last week I wondered if all four of the Inbetweeners would have stayed on in the sixth form if they had been 16 a decade ago. Over the summer the release of NEET numbers got media attention but not the data showing the huge expansion of 16-18 education since 2000.

How much of the rise in participation was due to Educational Maintenance Allowances? It definitely played a role. The Institute for Fiscal Studies found that EMA was an “efficient maintenance allowance” increasing the proportion of eligible 16 year olds staying in education from 65% to 69% and boosting the participation of eligible 17 year olds even more.

One of the first acts of the Coalition was to wind down EMA as part of its £6 billion of ”efficiency savings”. This year 16 year olds will no longer be eligible for EMA if they stay in education. How will this affect participation rates?

There is anecdotal evidence that there may be an impact this autumn – for example, chatter on the TESConnect website. There has certainly been some pretty crude hard-sell in the run-up to enrolment trying to attract 16 year olds – colleges offering free laptops, even a school sixth form promising free driving lessons.

What this means for the enrolment of 16 year olds, the raising of the participation age to 18 and the funding of providers of 16-18 education will, no doubt, become clearer over the next few months.

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.

Judging them by their results: MPs, sixth forms and value for money

Today the House of Common's Public Accounts Committee (PAC) published its report on Getting value for money from the education of 16– to 18– year–olds.

While few people are excited by a select committee report, I was a little dissappointed by the PAC report. There was plenty of common sense in the report including the observation that larger sixth forms benefit from scale economies and a promise to scrutinise the impact of the abolition of Educational Maintenance Allowances on staying-on rates. That is all reasonable and useful. Nevertheless the PAC report was a let down.

Back in March, the National Audit Office (NAO) published its own research on sixth forms and value for money - indeed, it sailed under the very same title. Many of the findings and recommendations of the NAO fed into the PAC report. However, a key finding of the NAO was that sixth form colleges deliver impressive value for money:

Sixth-form colleges, which perform best on most measures of learner achievement, are paid at a lower funding rate than school sixth forms. While the Department has taken some steps to reduce differences in the funding of different types of provider, colleges receive £280 per learner less than schools.

Sadly this message was somewhat diluted in the PAC report which noted:

School sixth forms currently receive £280 per student more than colleges.

Why was this lost in translation? I have no idea. Maybe it is because colleges lack political friends and public profile. (How many party manifestos have spouted off about schools and universities but forgotten that colleges even existed?)

To add insult to injury, the normally excellent Education Guardian had an article headlined: "Money being wasted on badly-managed colleges, say MPs". No! The PAC may have failed to applaud sixth form colleges but it did not question college management. In fact, it observed: "further education colleges have become more adept at making tough choices to improve value for money".

The Guardian article was better than its headline. It noted that PAC was concerned about the comparability of data for assessing value for money. (The NAO report pointed to the weaknesses in the quality of data coming out of school sixth forms although this was not evident in the PAC report.)

As results are published for the nation's sixth forms, there is no way that the PAC (or the sub-editors at the Education Guardian) deserve an A*.

Only 12% of police are on the beat – true or false?

Inevitably police cuts have become a political football after a week that looked like an apocalyptic version of Supermarket Sweep - what the French newspapers have called "the shopping riots".

Yesterday David Cameron told the House of Commons that 20% police budget cuts would not necessarily lead to reductions in police on the beat. This claim was scrutinised by Cathy Newman on the Channel Four Factcheck, who concluded it involved a “rhetorical sleight of hand".

David Cameron also noted:

Today, as we speak, only 12% of police officers are on the beat at any one time.

It’s a shocking statistic. I verified this figure in a report, Demanding Times (pdf available), by HM Inspector of Constabulary. However, it’s a little misleading and maybe a tad mischievous.

Demanding Times explains exactly what is involved in the 12% figure for police “available” and “visible”:

The majority of officers and PCSOs in visible roles who are not available will be off shift. Some will be appearing in court (to give evidence or act as court liaison officers), others will be on holiday and a few will be off sick.

… 19% of police officers and PCSOs are in the middle and back offices combined. It is to be expected that there will be some police officers in these categories, as they include roles such as managing and processing intelligence, criminal justice, specialist investigative support functions and crime management. They will also be working in roles that benefit from operational insight, such as business transformation projects. Equally, the back office category includes training roles: and forces rely on the brightest and the best from the front line being able to pass on their skills and knowledge. Nevertheless, authorities and forces, taking account of their local circumstances, would benefit from assuring themselves of the need for police officer skills in these two categories.

No one would deprive police of their annual leave, sick leave or being off-shift – particularly after the last few days. Likewise intelligence, investigation, etc are valuable. Of course, there is no doubt scope for reducing red tape – just as there is in most public services. The fact that there is variation in rates of “available and visible” across the country points to scope to spread best practice e.g. in shift management.

There is a strong case for police reform and an urgent need for greater efficiency – the police force is arguably the least modernised territory of the public sector. However, misleading and mischievous use of eye-catching statistics is unhelpful.

Unions and accounting for redundancies – lifting the fog?

The Coalition’s budget deficit programme is causing redundancies to ripple through the public sector as well as quite a bit of the third sector exemplifying the Big Society. The OBR expects 330,000 public sector jobs to go by 2015.

In times such as these it is vital that unions provide workplace representatives as well as rank-and-file union members with the tools to understand what is going on. In the college sector UNISON have published a Guide for UNISON reps dealing with cuts.

The Guide helpfully sets out how the Coalition’s policies are affecting funding for colleges. It is less clear when it comes to explaining college accounts and measures of financial health used by the Skills Funding Agency. In fact it seems to not appreciate how making operating losses inevitably worsens a college’s financial health.

UNISON is right in understanding that further education funders have in the past paid funding allocations in advance to struggling colleges. But can the Skills Funding Agency do that when the whole sector is ravaged by funding cuts? Perhaps not.

On the website of the Universities and Colleges Union website there is useful Insiders Guide to HE sector finances including university accounts (pdf available). It was commissioned by Joint Negotiating Committee for Higher Education Staff to assist both employers and employees in negotiations. The college sector could do with something similar in these troubled times.

The Coalition gives birth to the Open Public Services White Paper

After a long and difficult gestation, at last the Open Public Services White Paper arrived today.

Its timing could not have been less auspicious. The gaze of the media was upon the House of Commons where the Secretary of State for Culture was being flayed by the leader of the Opposition who wanted to know why the Prime Minister was not there to answer questions on Hackgate – rather than at Canary Wharf launching the plan for Open Public Services to a friendlier audience assembled by the centre-right Reform think tank.

The coincidence of the Open Public Services White Paper with the news of the break-up of the Southern Cross care home chain was unfortunate.

The White Paper set out five principles of Open Public Serices:

Choice – Wherever possible we will increase choice.

Decentralisation – Power should be decentralised to the lowest appropriate level.

Diversity – Public services should be open to a range of providers.

Fairness – We will ensure fair access to public services.

Accountability – Public services should be accountable to users and taxpayers.

It is worth considering the parentage of the new White Paper on Open Public Service. In Public Services published by the Prime Minister’s Strategy Unit, the language was of:

- With horizontal pressure from competition and contestability

- And bottom up incentives of choice and voice

- Supported by improvements in capability and capacity

…to create a “Self improving System”

That was in January 2007 in the last months of Tony Blair’s government.

In some quarters today was seen as a (another) re-launch of the Big Society. The White Paper certainly. Interestingly the only use of the term was in relation to the Big Society Bank. While the White Paper place emphasis on the role of new entrants as providers – including charities and mutuals – the New Philosophy Capital think tank was blogging quite sceptically this afternoon. The chill wings of austerity are blowing through the third sector.

How significant is the White Paper? Time will tell. The Coalition is promising more meat on the bones in coming months.

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.

Fraud Friday: some scams in the news

Maybe it’s a sign of the times or the phase in the business cycle, but fraud seems to everywhere. Its not just the freshly sentenced former minister Elliot Morley who dishonestly claimed more than £30,000 in parliamentary expenses in what the judge deemed was not a very sophisticated fraud.

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)

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.

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.