Memorandum submitted by the Further Education
MANAGING FINANCES AT ENGLISH FURTHER EDUCATION
COLLEGES PRE-SUBMISSION DOCUMENT (PAC 1999-2000/281)
1. This pre-submission updates the Committee
of Public Accounts (PAC) on the follow-up action taken by the
Further Education Funding Council (the Council) following the
37th report of the PAC, Investigation of Alleged Irregularities
at Halton College.
2. The principal and vice-principal resigned
in April 1999. The majority of the governors resigned in July
1990. The Secretary of State then appointed additional governors
to form a quorum in October/November 1999. The governors quickly
established themselves, appointed additional governors and, most
importantly, appointed a principal from another college who had
successful experience of bringing about college recovery as the
new principal for the college. He took up his post in January
2000. The college was inspected in October 1999. The college was
awarded a grade 5 for governance and grade 4s for management and
quality assurance. The Council has provided the college with a
substantial contribution from the standards fund to support its
response to the inspection report. The college will be re-inspected
later this year.
3. In particular after the appointment of
the new principal, the college has moved quickly to ensure that
it fully complies with all Council requirements. New internal
(Robson Rhodes) and external (KPMG) auditors have been appointed,
franchising and partnership arrangements have been reviewed, the
management information system has been reformed and an independent
and experienced clerk to the governing body has been appointed.
A new management team is in place. The college has accelerated
its strategy to build up its local direct provision and to withdraw
from distant franchised and partnership provision. The college
is working collaboratively with Widnes Sixth Form College and
the Halton unitary local education authority to implement proposals
for the reorganisation of post-16 secondary education in Runcorn.
4. The Council has supported the college
both through its recurrent and capital funding arrangements. The
college's new external auditors are expected to confirm shortly
that the provisional figures for the return of funds to the Council
are broadly as reported in the NAO report. The Council will then
review and finalise the draft recovery plan that included the
phased return of funds with the college that was first put in
place in June 1999.
5. My follow-up report to the PAC in January
2000 setting out the findings of the Council's investigations
into three colleges with similar statistical profiles to Halton
included, at Annex B, a position statement on progress in actioning
the recommendations. I reported that a substantive progress according
to timetable had been achieved on all issues.
6. Annex A to this report sets out progress
to date. The Annex shows that the action to implement the recommendations
is substantially complete.
7. In December 1999, I reported to the PAC
on follow-up checks regarding 11 other colleges where statistical
analysis showed that they may have been reclassified franchised
provision to direct and gained a financial advantage as a result,
in the same way as Halton College did. One of these colleges was
Bilston, which is covered later in this report. Three colleges
were the subject of detailed individual reviews and a separate
report for which an update is provided in the following paragraphs.
In relation to the remaining seven colleges I was pleased to confirm
that none had made an inappropriate classification of franchised
provision in the way that Halton had done.
8. In June 1999, I provided the PAC with
a report on six colleges the Council had identified as exhibiting
similar growth characteristics to Halton College. Three of these
colleges (Bilston, Handsworth
and Stafford) were subject to special reviews at that time. In
January 2000, I reported to the PAC on the progress on the joint
Council/college investigations undertaken at the three other colleges
Mid-Kent and Barnsley). The report also included an annex setting
on the progress on the three reviews that had already been underway
in June 1999. In July 2000, I provided the National Audit Office
(NAO) with an update on the three reviews; other than for Bilston
which was the subject of special liaison arrangements with the
NAO. Updates were provided for Stafford, Barnsley and Mid-Kent
Colleges. The following paragraphs summarise the outcomes of the
reviews. Bilston is included in a separate section of the report.
9. The Stafford review consisted of a full
inspection (November 1999), which included a full review of its
franchising work, and a review of funding claims through the colleges's
external auditors, KPMG. The inspection included grade 4s for
the management and governance. The inspection was particularly
critical of the weak management of information at the college.
The Council has provided the college with a substantial contribution
from the standards fund to support its response to the inspection.
10. The governance and management at the
college was re-inspected in October. The grades have not yet formally
been confirmed to the college. The Council is continuting to work
to support the college in the implementation of its inspection
action plan and to monitor progress through the regional review.
11. Handsworth College had been subject
to a separate inspection of its franchised provision with reports
published in May 1995 and September 1996. In the light of the
college's reponse to the inspection, the reports from the college's
auditors, KPMG for 1996-97 and 1997-98, and statistical analysis
by the Council, I reported in January 2000 that I was satisfied
that Handsworth College had addressed its weaknesses in its franchised
provision at an early stage and that the provision was made in
accordance with Council guidance.
12. Following the merger to form City College
Birmingham in July 1998, the college management, under the leadership
of the former principal of Handsworth has maintained a rigorous
approach to issues that have arisen from the college's strategies
to refocus its provision within Birmingham and to improve quality,
in particular to improve the college's widening participation
provision delivered through community partnerships. The college
has maintained a close liaison with the Council throughout and
has revised its funding agreements for 1998-99 and 1999-2000.
13. In my January report I concluded that
the funding claims for Clarendon College had been compiled in
accordance with prevailing guidance. The college had acted only
after receiving authoritative advice from their legal advisers
and external auditors and kept the Council fully informed of developments.
I concluded that had all the colleges observed both the spirit
and the letter of FEFC guidance in the way in which Clarendon
College had done, the issues which had caused such concern to
the PAC would not have arisen.
14. The rigorous Clarendon approach has
not been applied to the colleges with which it has merged. In
particular, ineligible franchising provision has been declared
at Arnold and Carlton in 1998-99 and 1999-2000, which will result
in a return of funds to the Council. The Council has now commissioned
an area review of Greater Nottingham.
15. From 1996-97 until 1999-2000, Mid-Kent
College was the largest provider of distance learning in the further
education sector through their provision of book-keeping courses
on an open and distance learning basis. The college has withdrawn
from the provision from 2000-01. In my January report, I stated
that I was satisfied that the reviews of funding claims and reclassification
were substantially complete. There were however a number of follow-up
actions in relation to developing the Council policy towards open
and distance learning. In addition, the Council and the college
agreed that the eligibility of the entry phase of the Mid-Kent
provision for funding would be reviewed in the light of a special
report on the quality of the provision for the Council and the
college to be undertaken by the inspectorate as part of the national
survey on open and distance learning during 2000.
16. The Council established a new interim
tariff from 1999-2000 to limit the risk of overclaiming for open
and distance learning programmes. An inspectorate national survey
has been completed. It will fall to the Learning and Skills Council
and the University for Industry to consider the implications for
future funding by the Learning and Skills Council.
Review of the eligibility for funding of the entry
phase of the provision at Mid-Kent College
17. The inspectorate's report on the quality
of distance learning provision in bookkeeping at Mid-Kent College
was sent to the college and to the chief executive on 11 August
2000. The overall conclusion was that the provision was less than
satisfactory with weaknesses clearly outweighing strengths (grade
4). The college has notified the Council that it has stopped recruitment
to the courses with effect from July 2000. The implications of
the report's findings for the eligibility of the entry unit have
been considered and the Council has decided that the activities
do not meet the minimum requirements set out in the Council guidance.
The Council and the college will then agree the appropriate deductions
from the college's funding claims 1996-97 to 1999-2000.
18. In my January report I stated that the
review of funding claims and reclassification was not complete.
Progress had been slow, partly due to the inspection which took
place in November 1999 and partly because the work of the college's
external auditors (Pannell Kerr Forster) had been insufficient
to provide the Council with assurances on the final funding claims
and ISR for 1996-97 and 1997-98. The work was to be re-audited
and I could not reach a conclusion until that work was completed.
19. I regret that although some progress
has been made, in particular on the review of funding claims,
the Barnsley review is not yet complete. A contributory factor
has been the serious illness of the principal during 2000. The
re-audits of funding have been completed to the Council's satisfaction.
The audit reports have been qualified. The Council and the college
are currently clarifying the extent to which the college's funding
claims might be reduced and the implications this might have for
20. I reported in January that the college
had acknowledge it had mistakenly overclaimed £95,000 for
work-based provision at load bands 5 and 6. The audit evidence
has confirmed that the college did not make claims for work-based
provision in load bands 5 and 6 in 1997-98.
21. I reported in January that the college
did not reclassify provision simply by describing it incorrectly
as direct provision as Halton College did. The Council and the
college are currently considering the report of the auditors on
this issue as part of the clarificaion of funding claims referred
to in paragraph 19.
Internal audit review
22. The January report referred to an internal
audit report to be commissioned by the college on value for money
and compliance with financial regulations in relation to the placing
of contracts with the company responsible for the provision of
quality assurance and student tracking for its franchised provision.
The commissioning work has been disappointingly slow. The work
is now expected to be completed in (to be confirmed).
23. Following a highly critical report from
the Council`s own inspectorate in January 1999 and an enquiry
of March 1999 into the college's future commissioned by the Council
and undertaken by Terry Melia CBE, Chair of the Further Education
Development Agency, Bilston Community College was dissolved by
the Secretary of State for Education and Employment on 1 October
1999 (statutory instrument 1999 No 2544). The Dissolution Order
provided for the transfer of the former college's property and
assets to Wulfrun College, to be known as Wolverhampton College,
and its liabilities, including outstanding debts to its bank,
pre-incorporation local authority and Customs and Excise to the
24. At this stage it is not possible to
report on the various matters arising from the dissolution of
the college because of the extensive investigations that are still
ongoing. The current phase of investigation involves joint work
between the Council, the audit companies HLB Kidsons and Bentley
Jennison, the Department for Education and Employment's Special
Investigations Unit, the Charity Commissioners, the Department
for International Development and the Qualifications and Curriculum
Authority. Some aspects of the issue are being considered by the
West Midlands Police. The NAO are being kept fully informed.
25. The affairs of the college are characterised
by significant complexity but it is expected that the current
phase of the investigation will be completed by early 2001. At
that time the Council will consider the appropriateness of civil
proceedings against the internal and external auditors and the
most appropriate form for reporting the findings on Bilston College.
Further Education Funding Council
1 Handsworth College merged with East Birmingham College
to form City College, Birmingham on 1 August 1998. Back
Clarendon College became New College, Nottingham in August 1998
upon merger with Basford Hall College. New College, Nottingham
subsequently merged with High Pavement Sixth Form College in April
1999 and Arnold and Carlton College in September 1999. Back