Academies and audit committees: where to start with terms of reference

The Academies Financial Handbook issued last week by the Department for Education nudges Academy Trusts (ATs) towards audit committees but allows other committees to incorporate the role of an audit committee into their remits.

The Handbook states:

All ATs must establish either an audit committee or a committee which fulfils the functions of an audit committee (ie it could be an addition to the terms of reference to an existing committee, other than the finance committee, and have an overlapping or fully integrated membership).

The apparent block on combined finance and audit committees may pose a challenge to some ATs. It will not be a surprise who are familiar with audit codes of practice in the college sector.

The audit code of practice introduced for colleges in 2004 (pdf) offers a useful template for setting out the role of an audit committee. Below I have modified its terms of reference to suit an AT:

The Audit Committee will consider matters relating to internal control and auditors. In particular the Committee is to:

• advise the governing body on the adequacy and effectiveness of the Academy Trust’s systems of internal control and its arrangements for risk management, control and governance processes, and securing economy, efficiency and effectiveness (value for money) ;
• review the statement on internal control and make appropriate recommendations to the governing body;
• advise the governing body on the appointment, reappointment, dismissal and remuneration of auditors (both external auditors and internal audit);
• monitor the effectiveness of auditors, including the use of auditor performance indicators;
• ensure effective coordination between auditors;
• ensure that additional services undertaken by the auditors is compatible with the audit independence and objectivity;
• agree the work programme of internal audit including the checking of financial controls, systems, transactions and risks;
• consider the reports of the auditors and, when appropriate, advise the governing body of material controls issues;
• monitor the implementation of agreed audit recommendations;
• ensure that all allegations of fraud and irregularity are appropriately investigated and controls weaknesses addressed;
• recommend the annual financial statements to the governing body for approval
• review the committee’s membership and effectiveness on a annual basis to ensure that it has appropriate skills and relevant experience.

This wording assumes that the Academy Trust refers to its assurance function as internal audit rather than a Responsible Officer. The wording can be tweaked on this and other Academy Trust specifics. Otherwise it can be adopted for a standalone committee or inserted into the terms of reference for another committee.

Internal control and audit committees - the new Academies Financial Handbook

In the past there was a degree of ambiguity about whether academies had to have an audit committee. The 2006 Academies Financial Handbook itself did not require one but it included, as an appendix, a document which did. The 2012 Academies Financial Handbook (AFH) clarifies the situation.

The AFH states the role of the audit committee:

The committee must review the risks to internal financial control at the [academy trust] and must agree a programme of work that will address these risks, inform the statement of internal control and, so far as is possible, provide assurance to the external auditors.

 
The AFH clearly requires that academy trusts (which, of course, includes free schools) must establish “either an audit committee or a committee which fulfils the functions of an audit committee”. Some trusts by virtue of size or nature are expected to have a separately constituted audit committee (i.e. one which does not also function as a finance committee).

Every [academy trust] must have in place a process for independent checking of financial controls, systems, transactions and risks.

Ideally this process should be driven by an audit committee appointed by Governors, but EFA recognises that this may not be a practical position for every [academy trust], especially the smaller ones or ones where there is a limited pool of potential governors to provide the necessary direction. So, EFA has provided for a system which allows some flexibility as to how any particular [academy trust] discharges these requirements.

 All [academy trusts] must establish either an audit committee or a committee which fulfils the functions of an audit committee (i.e. it could be an addition to the terms of reference to an existing committee and have an overlapping or fully integrated membership). The decision will be for Governors and should reflect the size and complexity of the organisation.

EFA's expectations are that that:

All [academy trusts] that are a multi-academy federation must have a dedicated audit committee;

All [academy trusts] with an income of over £10m or capitalised asset value of over £30m should consider having a dedicated audit committee;

All other [academy trusts] may have a dedicated audit committee.

The new Academies Financial Handbook (AFH) moves beyond internal financial controls and risks to internal control more broadly. This makes sense: while financial viability is vital so are other objectives –

The AFH states:

The [academy trust] should have in place sound internal control and risk management processes.

While the AFH talks of internal control and risk, strangely the AFH section on internal control is narrowly focused on matters such as producing annual accounts, preparing contingency plans, obtaining insurance etc.

These things all matter. But tinternal financial control falls short of the concept of internal control developed by the Turnbull Committee for listed companies and adopted by the Treasury for the public sector over a decade ago. "Turnbull" required:

An internal control system encompasses the policies, processes, tasks, behaviours and other aspects of a company that, taken together:

facilitate its effective and efficient operation by enabling it to respond appropriately to significant business, operational, financial, compliance and other risks to achieving the company's objectives. This includes the safeguarding of assets from inappropriate use or from loss and fraud, and ensuring that liabilities are identified and managed;

help ensure the quality of internal and external reporting. This requires the maintenance of proper records and processes that generate a flow of timely, relevant and reliable information from within and outside the organisation;

help ensure compliance with applicable laws and regulations, and also with internal policies with respect to the conduct of business.

If you plug in academy in place of company, that is highly relevant to good governance and management. It is also far more wide-ranging than contingency plans and insurance policies. It is about staff and pupil safety, academic performance, inspection grades, legal compliance, equality and diversity, and many other objectives.

So what should academies be doing if they should be thinking about controls and risks beyond the financial?

Academies need to ensure that audit committee review not only the risks to internal financial control but also the risks to delivery of all critical objectives. In performing that review, they should be directing the Responsible Officer or the internal auditor (or whatever the assurance function is called) to evaluate controls and test controls in those critical areas. At new academies with immature financial processes, much of the work will be around payroll and purchasing. As academies get better established, non-financial systems will get more attention and financial ones less.

The path from local authority control to independence has been trod before. In the 1990s over 400 further education colleges went that way. Many survived. Some lived on within merged institutions. A few merged or closed after failure – sometimes in scandal. For those of us working with colleges then and now, there were lots of interesting case studies and good practice and not-so-good practice.

Audit committees and internal audit contributing (or not) to internal control were part of the reason why colleges succeeded (or not).

"Turnbull" was an issue for colleges then. Now it should be a challenge for academies. Taking the AFH and going further – rigorous review of both financial and non-financial risks with audit committees pushing that agenda.

Academies, Responsible Officers and risks: getting the basics right

Tomorrow is the last working day of August. So the long-promised revised Academies Financial Handbook must be quite imminent as it is due this month for the new financial year. When it does arrive on the DfE website, academies and free schools will need to do some thinking about their assurance arrangements.

In the past academies were given somewhat ambiguous and vague advice on who could be appointed as the Responsible Officer (RO) to give assurance to Governing Bodies on internal financial control. That led to a range of approaches – good practice and not-so-good. Given the rhetoric around freedom as well as common sense, the new Handbook will doubtless formalise that flexibility.

In terms of what ROs did, there was more direction if not prescription. The RO was given a list of Suggested System Control Checks to be done on a quarterly basis (in practice for many academies, termly basis). These will, I suspect, go out the window. What will be in their place?

If the RO is to evolve into something resembling internal audit, the RO’s work will be driven by the risk register. That makes sense - the assurance function for control and risk should be informed by the risk register.

But maybe there is a hitch? Many academies – not only new ones – have in place risk registers that look remarkably like the one in the 2006 Academies Financial Handbook. Using a template is a useful aid but organisations have to think about their own specific risks – not simply the generic ones. They need to rigorously review and objectively assess risks. How many do that?

ROs need to start their work with some attention to risk registers. If ROs have knowledge, understanding and experience when it comes to risk management – as well as common sense – they will add real value as well as ensure that their own testing driven by the risk register addresses real risks.

If academies and their ROs can get their risk registers in shape, they can then progress onto assurance mapping. But that will have to be another blog post.

 

Audits and risks: the new Funding Agreement for sixth form colleges

The Education Funding Agency’s new Funding Agreement for sixth form colleges is a strange beast. It is clearly a slimmed down version of the 2006 Learning and Skills Council’s variant. But in slopping parts off, there seem to be some strange and perhaps unintended consequences.
In the 2006 Financial Memorandum colleges were instructed:

The College must ensure that it has an effective policy of risk management (including appropriate insurance arrangements). The College’s risk management arrangements should consider the key principles given in LSC guidance.

In a far more uncertain and hazardous environment, the 2012 Agreement does not utter a word to sixth form colleges on risk management. As established and largely mature organisations, I would hope they will carry on managing risks and enhance their arrangements.

While the words on risk management are omitted from the 2012 Agreement, oddly the wording on internal remains unchanged. So where the 2006 Memorandum states:

The governing body shall appoint an audit committee and arrange to provide for internal and financial statements audit, including regularity audit, in accordance with the LSC’s Audit Code of Practice and any other directions drawn up and published by the LSC in consultation with colleges. Any mandatory requirements under the LSC Audit Code of Practice shall be a condition of funding under this financial memorandum.

The 2012 Agreement states:

The Governing Body shall appoint an audit committee and arrange to provide for internal and financial statements audit, including regularity audit, in accordance with the Joint Audit Code of Practice and any other directions drawn up and published by the EFA in consultation with SFC. Any mandatory requirements under the Joint Audit Code of Practice shall be a condition of funding under this Funding Agreement.

Some mistake surely?

Only today, the Education Funding Agency reminded sixth form colleges that they did not have to make provisions for internal audit from August 2012. (Of course, any sensible college will await the Agency’s guidance before making use of this new flexibility.)

The Public Accounts Committee report on the oversight of schools – and changes in the regulation of academies

It has been good to see that Friday’s report on oversight and accountability for the schools sector by the House of Common’s Public Accounts Committee got some media coverage even if it was a little under-analysed.

For those who did not see the reports on the BBC or elsewhere, these were the main findings:

1.  The Department for Education's draft Accountability System Statement (the Statement) describes arrangements for providing assurance on regularity and propriety, but does not provide us with assurances that the systems being established will achieve value for money across the sector.

2.  Much of the Department's assurance on regularity, propriety and value for money comes through oversight by other bodies which are subject to major resource pressures.

3.  The Department is relying on the availability of transparent, comparable information to drive value for money across the schools sector. However, incomplete and inconsistent data currently make it difficult to compare all schools on their academic performance, funding received, and use of resources.

4.  Governing bodies are central to effective oversight of all schools, but the quality of governance varies. We are concerned that weak governance in some schools is leading to inadequate scrutiny of, and challenge to, school leadership.

5.  We are concerned about the Department's ability to pick up warning signs of improper spending or poor value for money for the taxpayer. It is not clear whether existing monitoring and accountability mechanisms do enough to flag up concerns that should be investigated.

6.  The Department has only a limited understanding of why some local authority maintained schools are persistently in deficit or surplus.

It is inevitable after the Priory report that the regulation of academies will draw attention – as seen in BBC coverage.

By 2015 almost all secondaries and many primaries will be academies. Will the DFE have the resources to regulate this sector?

The report noted:

the YPLA [sic] will have to oversee growing numbers of academies in the coming years, and we have early warning signs which raise concerns about whether it has enough capacity and skilled staff to do so effectively.

The DfE is staffing up with accountants. It will need to.

Unless the DfE via the YPLA’s successor, the Education Funding Agency, is able to detect weaknesses in academy chains and individual academies before they fail, there could be a lot of parents and children left in a bad place. This could be a ticking time-bomb under Michael Gove.

On the “major issue” of recruiting and training of governors with relevant financial expertise, the report notes:

The Department and the YPLA consider the main incentive for schools and academies to improve governors' skills to be through their aspiration to score well in the Schools Financial Value Standard and Financial Management and Governance Evaluation assessments.

It is ironic that there is now talk that the requirement of a FMGE self-assessment will be dropped for all academies apart from new ones. (The EFA is proposing that the parallel  Financial Management and Control Evaluation is abolished for sixth form colleges.)

While schools may have suffered in the past from excessive control, the baby of effective regulation should not be thrown out with the bath water of red tape.

The end is nigh: the internal audit requirement for Sixth Form Colleges

So we finally know what we kind of knew before: the government (via the Education Funding Agency) wants to relieve Sixth Form Colleges (SFCs) of the mandatory requirement to have an internal audit service. This is not a surprise as the SFC sector was on a promise from Lord Hill. A consultation period end in June and then in August it will be up to governors on SFC corporations whether they need internal auditors

As the typical SFC has an annual income of around £10m, the end of the internal audit requirement does make some sense.

Over four years ago, I blogged here:

The re-arrangement of [the LSC into] agencies might, on a brighter note, lead to a re-think of audit for colleges. (But I doubt it.) I would query whether the smallest colleges – particularly the smaller sixth form colleges – need their own internal audit service. These colleges often have a total income of a few million and limited non-core activities. They are quite different from Newcastle College with its £150 million income.

The smaller colleges are little different from the schools that they compete with for staff and students. They are arguably less exposed to risk than small housing associations who are not obliged to have their own internal audit.

While the internal audit requirement is going, the Education Funding Agency nudges SFCs as it:

recognises that in many areas of both the public and private sectors it is accepted good practice to have Internal Audit.

Audit committees at SFC will need some help in determining how to respond post-requirement. What does that nudge mean for them? I am sure that auditors and others will have their own views on what their potential and actual clients should do. More independent support and advice would be welcome too.

While I generally welcome “freedoms and flexibilities” I have some concerns over the end of the Financial Management and Control Evaluation (FMCE) self-assessment. For most SFCs the FMCE was completed in summary form annually and in full triennially. Something less “tick box” was definitely needed. The Education Funding Agency proposes:

Instead, the EFA will take formal assurance from the Corporate Governance Statement included within SFCs’ annual financial statements. Whether or not SFC’s continue to use the return as an aide memoire for their own management purposes is a matter for individual colleges to decide.

How often do SFCs or other organisations depart materially from boiler-plate wording in the Corporate Governance Statements? Not often enough. Maybe  audit committees will now spend more time drafting and considering these Statements.  But I am a little doubtful.

I hope that the Sixth Form Colleges Forum will provide support in this and other areas as SFC respond to this brave new world.

The Priory – the report and the risks for academies

There has been plenty of press coverage of the Department for Education report about the Priory academy federation in Lincoln. The internal audit report is available on the DfE website.

On Twitter (where you can follow my Twitterstream), there is a Twittersplurge analysis of the Priory by the Education Editor of The Times, Greg Hurst:

Risks exposed by Priory Academy scandal: 1. Academy chain HQs handle much larger sums of money than a maintained school ...

2. Entrepreneurial activity by academies/chains widen scope for abuse eg buying grade II Georgian manor house / activity centre in France ..

3. Many academy chains built / led by dominant charismatic figure who other staff / governors may find harder to challenge

4. Academy chains with business links / sponsors have greater scope for conflicts of interest with suppliers, a risk that grows with scale

5. Many academy chains generate commercial / private revenue steams from leaders ' speaking, training, conferences, consulting

6. Business people who join chains in corporate / governance roles may not be as used to dealing with public rather than private money

Something for boards and managers to think about (especially audit committees - where academies have them).

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.

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.